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 2, 2008

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) (Zip Code)
	(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 2, 2008, Donaldson Company, Inc. issued a press release announcing its results of operation for the quarter and fiscal year ended July 31, 2008. 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 2, 2008 announcing results of operation for the quarter and fiscal year ended July 31, 2008 of Donaldson Company, Inc.

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release dated September 2, 2008 announcing results of operation for the quarter and fiscal year ended July 31, 2008 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 2, 2008

DONALDSON COMPANY, INC.
By:	/s/ Norman C. Linnell
	Name:   Norman C. Linnell
	Title:     Vice President, General Counsel and
	Secretary

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE:	FOR FURTHER INFORMATION:
Tuesday, September 2, 2008	Rich Sheffer (952) 887-3753

DONALDSON REPORTS 19^th CONSECUTIVE RECORD YEAR

Fourth quarter EPS up 13 percent

MINNEAPOLIS (September 2, 2008) — Donaldson Company, Inc. (NYSE: DCI) announced fourth quarter diluted earnings per share (“EPS”) of $0.60, a 13 percent increase from $0.53 in the prior year. Net income was $48.6 million, up 12 percent from $43.3 million last year. Sales were $607.4 million, a 16 percent increase from $524.7 million in the fourth quarter of 2007.

For the year, EPS was $2.12, an increase of 16 percent from $1.83 last year. Net income increased 14 percent to $172.0 million versus $150.7 million last year. Sales were $2.2 billion, up 16 percent from $1.9 billion in fiscal 2007.

“We are very pleased to announce that we have achieved our 19^th consecutive year of record earnings,” said Bill Cook, Chairman, President and CEO. “We also set a new sales record in the fourth quarter, exceeding $600 million for the first time, and a new sales record for the year as we delivered our first $2 billion sales year. Our sales strength was broad-based again this quarter as Engine Products were up 13 percent and Industrial Products were up 20 percent. Geographically, sales grew 24 percent in Europe and 17 percent in Asia, driven by the combination of organic sales volume growth and the benefits of the stronger foreign currencies, and sales grew 9 percent in NAFTA.”

“Our sales trends remain positive as we enter fiscal 2009. We expect to continue making progress on our operating improvement initiatives while continuing to invest in our business for future growth. Although we expect raw material costs to continue to increase, we will work to offset the impact through internal cost reduction efforts, raw material price indexing in some markets, and price increases in other markets. While we are cautious about global economic conditions, we believe that the combination of our business model and extensive diversification of our products, end markets, and geographies will lead to our 20^th consecutive year of record earnings.”

Financial Statement Discussion

The impact of foreign currency translation increased reported sales by $37.9 million, or 7.2 percent, in the quarter and $122.5 million, or 6.4 percent, for the year. The impact of foreign currency translation increased reported net earnings by $3.3 million in the quarter and $12.9 million for the year.

The fourth quarter and full year results of the prior year included an extra week of sales and earnings in the U.S., which increased prior year sales by $16 million, net income by $0.7 million, and EPS by $0.01.

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September 2, 2008

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Our gross margin was 33.2 percent for the quarter and 32.5 percent for the year, compared to prior year margins of 32.4 percent and 31.5 percent, respectively. The primary drivers for the improved margin include higher production volumes, cost controls, productivity improvements, and some recovery of previously incurred product development costs, all of which were partially offset by higher commodity costs. We use the Last-In, First-Out (LIFO) accounting method for our U.S. inventories, which charges the increasing commodity costs to income immediately, and this resulted in a charge to pretax income of $5.0 million in the fourth quarter.

Operating expenses for the quarter were 22.0 percent of sales, up from 20.1 percent last year. For the year, operating expenses were 21.5 percent of sales, up from 20.5 percent last year. The increases were driven by business mix, higher research and development costs to support our product development initiatives, and higher information technology spending to improve our global Customer support capabilities.

The effective tax rates of 26.6 percent for the quarter and 27.2 percent for the year compare to 30.9 percent and 26.4 percent for the same periods last year. The current quarter benefited from a favorable geographic mix and a dividend from a foreign subsidiary.

As part of our ongoing share repurchase program, we repurchased 542,072 shares during the quarter for $22.9 million. For the year, we repurchased 2,245,790 shares for $92.2 million.

Fiscal 2009 Outlook

Engine Products: We expect 10 to 12 percent full year sales growth.

• We expect our NAFTA Transportation Products’ sales to begin growing in the second half of fiscal 2009 in advance of the next diesel emission regulations. Build rates are expected to continue to grow modestly in Europe and Japan.

• We expect the NAFTA and Western European residential construction markets to remain weak. However, high commodity prices and global infrastructure projects are expected to keep global demand strong for our mining, heavy construction, and agriculture equipment end markets.

• Our Aftermarket sales are expected to continue growing due to our ongoing expansion into new geographies and good equipment utilization internationally. We also expect to continue benefiting from the increasing amount of equipment in the field with our PowerCore™ technology as well as our other new proprietary filtration systems.

Industrial Products: We expect 8 to 10 percent full year sales growth.

• Our Industrial Filtration Solutions’ sales are projected to grow 8 to 12 percent due to continued global manufacturing investment conditions and growing demand for our new products.

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September 2, 2008

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• We expect our Gas Turbine Products’ sales to increase 5 to 10 percent for fiscal 2009. Continued strength is expected from both the international power generation and the oil and gas markets.

• Special Applications Products’ sales are expected to grow 5 to 10 percent driven by growth in our membrane products sales.

Other:

• In our guidance, we assume exchange rates will remain at current levels.

• Full year company sales are expected to be up 9 to 11 percent.

• We expect our operating margin will be a minimum of 11 percent for the full year.

• Our full year tax rate is expected to be between 29 and 32 percent.

• We expect our EPS to be between $2.30 and $2.40 per share, which would be our 20^th consecutive EPS and earnings records.

About Donaldson Company

Donaldson is a leading worldwide provider of air and liquid filtration systems and replacement parts that improve people’s lives, enhance our Customers’ equipment performance, and protect our environment. We are a technology-driven company committed to satisfying our Customers’ needs for filtration solutions through our innovative research and development, superior technology, and global presence. Our 13,000 employees contribute to our success by supporting our Customers at our more than 100 sales, manufacturing, and distribution locations around the world.

Donaldson is a member of the S&P MidCap 400 and Russell 1000 indices, and our shares trade on the NYSE under the symbol DCI. Additional information is available at www.donaldson.com.

SAFE HARBOR STATEMENT UNDER THE SECURITIES 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

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September 2, 2008

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competitive markets, governmental laws and regulations, the implementation of our new information systems, and other factors included in our Annual and Quarterly Reports. We undertake no obligation to publicly update or revise any forward-looking statements.

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CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS

DONALDSON COMPANY, INC. AND SUBSIDIARIES

(Thousands of dollars, except share and per share amounts)

(Unaudited)

	Three Months Ended July 31						Twelve Months Ended July 31
	2008			2007			2008			2007
Net sales	$	607,422		$	524,681		$	2,232,521		$	1,918,828
Cost of sales		405,875			354,721			1,506,659			1,313,964
Gross margin		201,547			169,960			725,862			604,864
Operating expenses		133,671			105,601			480,050			393,764
Operating income		67,876			64,359			245,812			211,100
Other income, net		(2,312	)		(2,524	)		(6,901	)		(8,320	)
Interest expense		3,995			4,261			16,550			14,559
Earnings before income taxes		66,193			62,622			236,163			204,861
Income taxes		17,620			19,332			64,210			54,144
Net earnings	$	48,573		$	43,290		$	171,953		$	150,717
Weighted average shares outstanding		78,609,599			79,847,357			79,207,604			80,454,861
Diluted shares outstanding		80,604,979			81,762,310			81,211,343			82,435,756
Net earnings per share	$	.62		$	.54		$	2.17		$	1.87
Net earnings per share assuming dilution	$	.60		$	.53		$	2.12		$	1.83
Dividends paid per share	$	.11		$	.09		$	.42		$	.36

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DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands of dollars)

(Unaudited)

	July 31 2008		July 31 2007
ASSETS
Cash and cash equivalents	$	83,357	$	55,237
Accounts receivable – net		413,863		357,341
Inventories – net		264,129		201,221
Prepaids and other current assets		92,408		59,845
Total current assets		853,757		673,644
Other assets		279,706		280,940
Property, plant and equipment – net		415,159		364,433
Total assets	$	1,548,622	$	1,319,017
LIABILITIES AND SHAREHOLDERS’ EQUITY
Trade accounts payable	$	200,967	$	173,862
Employee compensation and other liabilities		170,667		128,301
Notes payable		139,404		123,114
Current maturity long-term debt		5,669		33,667
Total current liabilities		516,707		458,944
Long-term debt		176,475		129,004
Other long-term liabilities		115,405		106,371
Total liabilities		808,587		694,319
Equity		740,035		624,698
Total liabilities and equity	$	1,548,622	$	1,319,017

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DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)

	Twelve Months Ended July 31
	2008			2007
OPERATING ACTIVITIES
Net earnings	$	171,953		$	150,717
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		56,732			49,566
Changes in operating assets and liabilities		(49,994	)		(62,230	)
Tax benefit of equity plans		(9,178	)		(5,898	)
Stock compensation plan expense		9,312			6,608
Other, net		(5,291	)		(21,718	)
Net cash provided by operating activities		173,534			117,045
INVESTING ACTIVITIES
Net expenditures on property and equipment		(70,822	)		(76,583	)
Acquisitions, investments and divestitures, net		(2,377	)		(40,615	)
Net cash used in investing activities		(73,199	)		(117,198	)
FINANCING ACTIVITIES
Purchase of treasury stock		(92,202	)		(76,898	)
Net change in debt		29,701			100,300
Dividends paid		(33,003	)		(28,806	)
Tax benefit of equity plans		9,178			5,898
Other, net		9,308			7,346
Net cash provided by/(used in) financing activities		(77,018	)		7,840
Effect of exchange rate changes on cash		4,803			2,083
Increase in cash and cash equivalents		28,120			9,770
Cash and cash equivalents – beginning of year		55,237			45,467
Cash and cash equivalents – end of period	$	83,357		$	55,237

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SEGMENT DETAIL

(Thousands of dollars)

(Unaudited)

	Engine Products		Industrial Products		Corporate & Unallocated		Total Company
3 Months Ended July 31, 2008:
Net sales	$	326,683	$	280,739	—		$	607,422
Earnings before income taxes		43,652		31,991	(9,450	)		66,193
3 Months Ended July 31, 2007:
Net sales	$	290,338	$	234,343	—		$	524,681
Earnings before income taxes		38,637		29,186	(5,201	)		62,622
12 Months Ended July 31, 2008:
Net sales	$	1,229,171	$	1,003,350	—		$	2,232,521
Earnings before income taxes		158,931		102,420	(25,188	)		236,163
12 Months Ended July 31, 2007:
Net sales	$	1,084,262	$	834,566	—		$	1,918,828
Earnings before income taxes		140,762		80,321	(16,222	)		204,861

NET SALES BY PRODUCT

(Thousands of dollars)

(Unaudited)

	Three Months Ended July 31				Twelve Months Ended July 31
	2008		2007		2008		2007
Engine Products segment:
Off-road Products	$	116,283	$	98,952	$	448,681	$	352,065
Transportation Products		31,203		34,054		123,146		166,370
Aftermarket Products		179,197		157,332		657,344		565,827
Total Engine Products segment	$	326,683	$	290,338	$	1,229,171	$	1,084,262
Industrial Products segment:
Industrial Filtration Solutions Products	$	170,222	$	143,694	$	600,526	$	515,022
Gas Turbine Products		64,092		47,312		213,138		158,025
Special Applications Products		46,425		43,337		189,686		161,519
Total Industrial Products segment	$	280,739	$	234,343	$	1,003,350	$	834,566
Total Company	$	607,422	$	524,681	$	2,232,521	$	1,918,828

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Thousands of dollars)

(Unaudited)

	Three Months Ended July 31						Twelve Months Ended July 31
	2008			2007			2008			2007
Free cash flow	$	51,008		$	46,567		$	102,712		$	40,462
Net capital expenditures		18,713			23,650			70,822			76,583
Net cash provided by operating activities	$	69,721		$	70,217		$	173,534		$	117,045
EBITDA	$	84,412		$	80,743		$	307,968		$	267,894
Income taxes		(17,620	)		(19,332	)		(64,210	)		(54,144	)
Interest expense (net)		(3,337	)		(4,053	)		(15,073	)		(13,467	)
Depreciation and amortization		(14,882	)		(14,068	)		(56,732	)		(49,566	)
Net earnings	$	48,573		$	43,290		$	171,953		$	150,717
Net sales, excluding foreign currency translation	$	569,524		$	511,244		$	2,109,975		$	1,871,636
Foreign currency translation		37,898			13,437			122,546			47,192
Net sales	$	607,422		$	524,681		$	2,232,521		$	1,918,828
Net earnings, excluding foreign currency translation	$	45,286		$	42,112		$	159,047		$	145,644
Foreign currency translation		3,287			1,178			12,906			5,073
Net earnings	$	48,573		$	43,290		$	171,953		$	150,717

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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