Donaldson Reports 19th Consecutive Record Year

Fourth quarter EPS up 13 percent
MINNEAPOLIS--(Business Wire)--
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 19th
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 20th 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.

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(TM) 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.

-- 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 20th 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 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 Twelve Months Ended
July 31 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
*T

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

July 31 July 31
2008 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 Industrial Corporate & Total
Products Products Unallocated 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
*T

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

Three Months Ended Twelve Months Ended
July 31 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 Twelve Months Ended
July 31 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
=========== =========== =========== ===========
*T

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.

Donaldson Company, Inc.
Rich Sheffer, 952-887-3753

Copyright Business Wire 2008