8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 5, 2006

DONALDSON COMPANY, INC.
(Exact name of registrant as specified in its charter)

Delaware	1-7891	41-0222640
(State or other jurisdiction of incorporation)	(Commission file number)	(I.R.S. Employer Identification No.)
	1400 West 94th Street Minneapolis, MN 55431
	(Address of principal executive offices)
	(952) 887-3131
	Registrant’s telephone number, including area code
	Not Applicable
	(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

        On September 5, 2006, Donaldson Company, Inc. issued a press release announcing its results of operation for the quarter and fiscal year ended July 31, 2006. A copy of the press release is furnished herewith as Exhibit 99.1.

        The information in the Form 8-K and the Exhibit attached hereto shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(c)    Exhibits.

99.1 Press Release dated September 5, 2006 announcing results of operation for the quarter and fiscal year ended July 31, 2006 of Donaldson Company, Inc.

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release dated September 5, 2006 announcing results of operation for the quarter and fiscal year ended July 31, 2006 of Donaldson Company, Inc.

SIGNATURE

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

Date: September 6, 2006

DONALDSON COMPANY, INC.
By:	/s/ Thomas R. VerHage
	Name: Thomas R. VerHage
	Title: Vice President and
	Chief Financial Officer

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE:	FOR FURTHER INFORMATION:
Tuesday, September 5, 2006	Rich Sheffer (952) 887-3753

DONALDSON REPORTS 17^TH CONSECUTIVE RECORD YEAR

11 percent sales growth and strong operating margin drive record 4^th quarter

        MINNEAPOLIS (Sept. 5, 2006) — Donaldson Company, Inc. (NYSE: DCI) announced fourth quarter diluted earnings per share (“EPS”) of $.43 versus $.29 last year. Net income was $36.2 million compared to $25.1 million last year. Sales were $468.2 million, up 10.7 percent from $422.7 million in fiscal 2005. EPS, net income and sales were all fourth quarter records.

        For the year, EPS, net income and sales were also records. EPS was $1.55, up from $1.27 last year. Net income was $132.3 million versus $110.6 million last year, a 19.7 percent increase. Sales of $1.694 billion were up from $1.596 billion in the prior year.

        “We are very pleased to announce another record year, and are especially pleased that we finished the year with solid sales growth and strong margin performance,” said Bill Cook, Chairman, President and CEO. “We have focused on numerous initiatives in our plants and customer service groups to improve both our support to our customers and our operating results.”

        Key factors contributing to the quarter included:

• Strong Engine Products results.

o Sales were strong in Europe, with double-digit sales increases in our off-road, truck and aftermarket businesses.

o NAFTA off-road equipment markets remained healthy and heavy truck build rates remained at high levels. Equipment utilization rates are strong, spurring demand for our replacement filters.

• Improving conditions for gas turbine systems.   Global gas turbine sales were up 35 percent in the fourth quarter as the expected strong quarter materialized.

• Increased profitability for Industrial Products.   Improvement initiatives, higher sales volumes and a focus on selling more replacement filters helped boost the profitability in our Industrial Products segment.

        “We are entering fiscal 2007 with solid sales and operating expectations,” said Cook. “Our incoming orders remain strong, and our operations are running very well. We see enough good things in our businesses to be confident of delivering another record year in 2007, with EPS expected to be in the range of $1.72 to $1.82 per share.”

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Donaldson Company, Inc.
September 5, 2006
Page 2

Income Statement Discussion

        Translated at constant exchange rates, sales increased $41.7 million, or 9.9 percent, during the quarter and $123.9 million, or 7.8 percent, for the year. The impact of foreign currency translation increased the reported sales growth to $45.4 million, or 10.7 percent, in the fourth quarter and reduced the reported sales growth to $98.6 million, or 6.2 percent, for the year. The impact of foreign currency translation increased reported net earnings by $0.2 million in the fourth quarter and decreased reported net earnings by $0.8 million for the year.

        Gross margin of 33.4 percent and 32.9 percent for the fourth quarter and the full-year compares to prior year margins of 31.8 percent and 31.7 percent, respectively. This year’s fourth quarter benefited from our cost reduction efforts and improved production efficiencies along with selective price increases.

        Fourth quarter operating expenses were 20.9 percent of sales, down from 22.3 percent in the prior year. For the year, operating expenses were 21.5 percent of sales, down from 21.9 percent last year. The current year includes $2.8 million of stock option expense that was not included last year. The fourth quarter operating expenses in the prior year included $6.4 million of previously disclosed litigation expenses.

        Fourth quarter interest expense was $2.6 million, down from $2.7 million last year. For the year, interest expense was $9.9 million, up from $9.4 million last year. Other income was $0.1 million in the quarter, down from $1.4 million last year. For the year, other income was $6.3 million, down from $7.7 million last year.

        The effective tax rate of 35.2 percent for the fourth quarter and 30.1 percent for the year compares to prior year rates of 35.7 percent and 28.6 percent, respectively. Both the current and prior year’s fourth quarter and full-year tax rates include the impacts of the tax charges taken for the dividend reinvestment plan pursuant to the American Jobs Creation Act of 2004 of $3.6 million and $4.0 million, respectively. We expect our effective tax rate to be approximately 29 percent in fiscal 2007.

        As part of our ongoing share repurchase program, we repurchased 1,434,800 shares during the fourth quarter for $45.8 million. For the year, we repurchased 3,783,000 shares, or 4.6 percent of outstanding shares, for $118.9 million. At year end, we had 80.5 million shares outstanding.

Engine and Industrial Products Segments

        See the chart on page 7 for segment detail.

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Donaldson Company, Inc.
September 5, 2006
Page 3

Outlook

        Engine Products:   We expect mid-single digit sales growth in fiscal 2007.

• NAFTA heavy-duty truck build rates should remain at their current high levels through calendar 2006 as our truck manufacturer customers are near capacity. Build rates are then expected to decrease in calendar 2007 with the implementation of the new diesel emission standards.

• Strong worldwide conditions are expected to continue in the production of new construction and mining equipment by our customers.

• Our engine aftermarket sales are expected to grow with continued strong equipment utilization, ongoing growth by our OEM customers of their replacement parts business, and the increasing amount of equipment in the field with our PowerCore™ filtration systems.

        Industrial Products:   We expect low double-digit sales growth in fiscal 2007.

• Industrial filtration sales are expected to grow with healthy global industrial conditions.

• We expect full-year gas turbine sales to continue rebounding with sales increasing approximately 20 percent.

• Market conditions for special applications products are expected to remain strong.

About Donaldson Company, Inc.

        Donaldson is a leading worldwide provider of filtration systems and replacement parts. We are a technology-driven company committed to satisfying our customers needs for filtration solutions through innovative research and development. We serve customers in the diesel engine and industrial markets including in-plant air cleaning, compressed air and gas purification, power generation, disk drive filtration, off-road equipment and on-road trucks. Our 11,000 employees contribute to the company’s success at over 30 manufacturing locations around the world. Donaldson is a member of the S&P MidCap 400 Index and Donaldson shares are traded on the NYSE under the symbol DCI. Additional company information is available at www.donaldson.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

        The company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”) and is making this cautionary statement in connection with such safe harbor legislation. This announcement contains forward-looking statements, including forecasts, plans and projections relating to our business and financial performance, which involve uncertainties that could materially impact results.

        The company wishes to caution investors that any forward-looking statements are subject to uncertainties and other risk factors that could cause actual results to differ materially from such statements, including but not limited to risks associated with: currency fluctuations, commodity prices, world economic factors, political factors, the company’s international operations, highly competitive markets, governmental laws and regulations, and other factors included in our Annual and Quarterly Reports filed with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements.

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Donaldson Company, Inc.
September 5, 2006
Page 4

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

	Three Months Ended July 31						Year Ended July 31
	2006			2005			2006			2005
Net sales	$	468,158		$	422,739		$	1,694,327		$	1,595,733
Cost of sales		311,966			288,157			1,137,747			1,090,158
Gross margin		156,192			134,582			556,580			505,575
Operating expenses		97,819			94,248			363,792			349,085
Operating income		58,373			40,334			192,788			156,490
Other income, net		(102	)		(1,376	)		(6,254	)		(7,657	)
Interest expense		2,640			2,680			9,875			9,414
Earnings before income taxes		55,835			39,030			189,167			154,733
Income taxes		19,647			13,919			56,860			44,179
Net earnings	$	36,188		$	25,111		$	132,307		$	110,554
Weighted average shares
Outstanding		82,002,574			84,565,352			82,992,475			84,990,739
Diluted shares outstanding		84,077,489			86,626,761			85,139,250			86,883,408
Net earnings per share	$	.44		$	.30		$	1.59		$	1.30
Net earnings per share
assuming dilution	$	.43		$	.29		$	1.55		$	1.27
Dividends paid per share	$	.080		$	.060		$	.320		$	.235

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Donaldson Company, Inc.
September 5, 2006
Page 5

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

	July 31 2006		July 31 2005
ASSETS
Cash and cash equivalents	$	45,467	$	134,066
Accounts receivable – net		312,214		294,016
Inventories – net		153,165		151,599
Prepaid expenses and other current assets		50,559		39,141
Total current assets		561,405		618,822
Other assets and deferred taxes		245,298		217,458
Property, plant and equipment – net		317,364		275,493
Total assets	$	1,124,067	$	1,111,773
LIABILITIES AND SHAREHOLDERS’ EQUITY
Trade accounts payable	$	163,783	$	134,063
Other accrued liabilities		112,606		98,083
Notes payable		73,368		102,004
Income taxes payable		3,571		12,280
Current maturity long-term debt		6,541		7,772
Total current liabilities		359,869		354,202
Long-term debt		100,495		103,302
Other long-term liabilities		116,901		129,653
Total liabilities		577,265		587,157
Equity		546,802		524,616
Total liabilities and equity	$	1,124,067	$	1,111,773

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Donaldson Company, Inc.
September 5, 2006
Page 6

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

	Year Ended July 31
	2006			2005
OPERATING ACTIVITIES
Net earnings	$	132,307		$	110,554
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization		44,700			44,284
Changes in operating assets and liabilities		9,295			(18,050	)
Payment of litigation judgment		(14,170	)		—
Tax benefit of equity plans		(10,943	)		—
Stock option expense		2,832			—
Other, net		(7,347	)		5,800
Net cash provided by operating activities		156,674			142,588
INVESTING ACTIVITIES
Net expenditures on property and equipment		(77,584	)		(50,198	)
Acquisitions and investments in unconsolidated
affiliates, net of cash acquired		(4,560	)		(13,362	)
Net cash used in investing activities		(82,144	)		(63,560	)
FINANCING ACTIVITIES
Purchase of treasury stock		(118,909	)		(116,268	)
Net change in debt		(34,863	)		87,973
Dividends paid		(26,443	)		(19,757	)
Tax benefit of equity plans		10,943			—
Exercise of stock options		4,774			2,703
Net cash used in financing activities		(164,498	)		(45,349	)
Effect of exchange rate changes on cash		1,369			883
Increase (decrease) in cash and cash equivalents		(88,599	)		34,562
Cash and cash equivalents – beginning of year		134,066			99,504
Cash and cash equivalents – end of year	$	45,467		$	134,066

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Donaldson Company, Inc.
September 5, 2006
Page 7

SEGMENT DETAIL
(Thousands of dollars)
(Unaudited)

	Engine Products		Industrial Products		Corporate & Unallocated			Total Company
3 Months Ended July 31, 2006:
Net sales	$	268,098	$	200,060	$	—		$	468,158
Earnings before income taxes		39,006		22,544		(5,715	)		55,835
3 Months Ended July 31, 2005:
Net sales	$	243,611	$	179,128	$	—		$	422,739
Earnings before income taxes		29,528		15,715		(6,213	)		39,030
Year Ended July 31, 2006:
Net sales	$	991,554	$	702,773	$	—		$	1,694,327
Earnings before income taxes		135,994		65,550		(12,377	)		189,167
Year Ended July 31, 2005:
Net sales	$	923,840	$	671,893	$	—		$	1,595,733
Earnings before income taxes		125,454		53,709		(24,430	)		154,733

NET SALES BY PRODUCT
(Thousands of dollars)
(Unaudited)

	Three Months Ended July 31				Year Ended July 31
	2006		2005		2006		2005
Engine Products segment:
Off-road products	$	82,336	$	74,381	$	308,175	$	286,230
Transportation products		48,349		45,201		184,303		175,048
Aftermarket products		137,413		124,029		499,076		462,562
Total Engine Products Segment	$	268,098	$	243,611	$	991,554	$	923,840
Industrial Products segment:
Industrial filtration solutions products	$	121,349	$	113,469	$	440,230	$	424,727
Gas turbine products		42,247		31,249		121,194		112,872
Special applications products		36,464		34,410		141,349		134,294
Total Industrial Products Segment	$	200,060	$	179,128	$	702,773	$	671,893
Total Company	$	468,158	$	422,739	$	1,694,327	$	1,595,733

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Donaldson Company, Inc.
September 5, 2006
Page 8

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Thousands of dollars)
(Unaudited)

	Three Months Ended July 31						Year Ended July 31
	2006			2005			2006			2005
Free cash flow	$	25,870		$	30,899		$	79,090		$	92,390
Net capital expenditures		28,780			15,763			77,584			50,198
Net cash provided by
operating activities	$	54,650		$	46,662		$	156,674		$	142,588
EBITDA	$	69,041		$	51,647		$	242,002		$	205,765
Income taxes		(19,647	)		(13,919	)		(56,860	)		(44,179	)
Interest expense, net		(2,306	)		(1,827	)		(8,135	)		(6,748	)
Depreciation and
Amortization		(10,900	)		(10,790	)		(44,700	)		(44,284	)
Net earnings		36,188		$	25,111		$	132,307		$	110,554
Net sales, excluding
foreign currency translation	$	464,413		$	419,373		$	1,719,665		$	1,561,626
Foreign currency translation		3,745			3,366			(25,338	)		34,107
Net sales	$	468,158		$	422,739		$	1,694,327		$	1,595,733
Net earnings, excluding
foreign currency translation	$	35,969		$	24,945		$	133,155		$	108,516
Foreign currency translation		219			166			(848	)		2,038
Net earnings	$	36,188		$	25,111		$	132,307		$	110,554

Although free cash flow, EBITDA, net sales excluding foreign currency translation and net earnings excluding foreign currency translation are not measures of financial performance under GAAP, the company believes they are useful in understanding its financial results. Free cash flow is a commonly used measure of a company’s ability to generate cash in excess of its operating needs. EBITDA is a commonly used measure of operating earnings less non-cash expenses. Both net sales and net earnings excluding foreign currency translation provide a comparable measure for understanding the operating results of the company’s foreign entities excluding the impact of foreign exchange. A shortcoming of these financial measures is that they do not reflect the company’s actual results under GAAP. Management does not intend these items to be considered in isolation or as a substitute for the related GAAP measures.

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