Donaldson Company Reports Record Second Quarter Results

Strong Operating Margin of 10.2 Percent Year-to-Date; Reaffirming Full-Year

EPS Guidance of $1.47 to $1.57 per share



Feb 28, 2006, 00:00 ET from Donaldson Company, Inc.

    MINNEAPOLIS, Feb. 28 /PRNewswire-FirstCall/ -- Donaldson Company, Inc.
 (NYSE:   DCI) today announced record second quarter diluted earnings per share
 ("EPS") of $.32, up from $.31 last year.  Net income was a record $26.9
 million, versus $26.7 million last year.  Sales were a record $392.9 million,
 up from $388.4 million in fiscal 2005.
     For the six-month period, EPS was another record at $.69, up from $.62
 last year.  Net income increased 9 percent to $59.1 million compared to $54.1
 million last year.  Sales were a record $796.3 million, up 5 percent from
 $761.3 million in fiscal 2005.
     "Our operating margin improved to 10.2 percent year-to-date from 9.6
 percent last year, despite absorbing $2.2 million, or $.02 per share, of stock
 option expenses into operating profits this year," said Bill Cook, Chairman,
 President and CEO.  "Donaldson is running very well, with our continued focus
 on cost reduction efforts offsetting higher commodity prices and driving the
 improvement in our profit margins.  We reduced our full year sales outlook
 mainly due to currency translation since the dollar is currently weaker
 against the Euro and Yen than it was in the second half of last year.
 However, we expect continued positive year-over-year sales growth and for
 operating margins to continue at these improved levels, giving us confidence
 in delivering our 17th consecutive year of record earnings."
 
     Income Statement Discussion
     Translated at constant exchange rates, sales increased $20.5 million, or
 5.3 percent, during the quarter and $51.1 million, or 6.7 percent, year-to-
 date.  Weakening foreign currencies reduced the growth in sales to $4.5
 million, or 1.2 percent, in the second quarter and $35.0 million, or 4.6
 percent, year-to-date.  The impact of foreign currency translation decreased
 net earnings by $0.6 million in the second quarter and $0.5 million year-to-
 date.
     Gross margin of 31.8 percent and 32.2 percent for the second quarter and
 year-to-date, respectively, compares favorably to prior year margins of 31.1
 percent and 31.2 percent, respectively.  We continue to see higher costs for
 petroleum-based raw materials and freight being offset primarily by our cost
 reduction efforts. Second quarter operating expenses were 22.1 percent of
 sales, up from 21.6 percent in the prior year.  Excluding $2.2 million of
 expense in the quarter from stock option grants, operating expenses as a
 percentage of sales were down from the prior year.  Year-to-date operating
 expenses were 22.0 percent of sales, up from 21.6 percent last year.
     Second quarter interest expense was $2.5 million, up from $2.2 million
 last year due to higher short-term interest rates.  Year-to-date interest
 expense was $4.9 million, up from $4.3 million last year.  Other income was
 $2.3 million in the quarter, up from $1.9 million last year.  Year-to-date
 other income was $5.2 million, down from $5.3 million last year.
     The effective tax rate of 28.4 percent for the second quarter and 27.5
 percent for the year compares to 27.0 percent for both periods in the prior
 year.  We continue to expect our effective tax rate to be approximately 28
 percent for the balance of the year.
     We did not repurchase any shares during the second quarter.  Year-to-date,
 we repurchased 1,602,300 shares, or 1.9 percent of outstanding shares, for
 $48.1 million.
 
     Backlog
     Total order backlog is $459 million, up 10 percent relative to last year
 and up 6 percent compared to the first quarter.
 
     Engine Products Segment
     Engine Products sales were $226.6 million in the quarter, an increase of 3
 percent from last year.  Year-to-date Engine Products sales were $465.0
 million, an increase of 6 percent from last year.
     Truck product sales in the quarter totaled $42.5 million, up 5 percent
 from last year.  NAFTA truck product sales increased 2 percent.  European
 truck product sales increased 10 percent and Asian sales increased 17 percent
 due to improved new truck build rates.  Year-to-date worldwide sales totaled
 $88.7 million, an increase of 5 percent from last year.
     Worldwide sales of off-road products in the quarter were $71.7 million, up
 4 percent from last year.  NAFTA sales increased 6 percent on continued
 strength in new construction and mining equipment demand.  European off-road
 sales remained consistent with prior year while Asian sales increased 2
 percent.  Year-to-date worldwide sales totaled $141.8 million, up 7 percent
 from last year.
     Engine aftermarket or replacement part sales in the quarter were $112.4
 million, an increase of 2 percent from last year.  NAFTA aftermarket sales
 increased 7 percent as equipment utilization rates and sales of diesel
 emission retrofit equipment remained strong.  European sales decreased 4
 percent and Asian sales were up 2 percent.  Year-to-date worldwide sales
 totaled $234.4 million, up 7 percent from last year.
 
     Industrial Products Segment
     Industrial Products sales in the quarter were $166.3 million, a decrease
 of 2 percent from last year.  Year-to-date Industrial Products sales were
 $331.3 million, an increase of 2 percent from last year.
     Industrial Filtration Solutions ("IFS") sales in the quarter were $103.8
 million, a decrease of 2 percent from last year.  IFS NAFTA sales increased 7
 percent while European and Asian sales decreased 10 and 3 percent,
 respectively.  Year-to-date worldwide IFS sales totaled $209.6 million, up 2
 percent from last year.
     Gas turbine product sales in the quarter were $28.4 million, down 5
 percent from last year.  Year-to-date worldwide sales totaled $52.8 million,
 down 2 percent from last year.
     Sales of special application products in the quarter were a record $34.2
 million, an increase of 2 percent from last year.  Year-to-date worldwide
 special application sales were a record $68.9 million, up 6 percent from last
 year.
 
     Outlook
     Engine Products:  We expect mid- to high-single digit sales growth in the
 second half of fiscal 2006.
 
      -- NAFTA heavy-duty new truck build rates should remain at their current
         high levels as our truck manufacturer OEMs are near capacity.
      -- Strong worldwide conditions are expected to continue in the production
         of new construction and mining equipment by our customers.
      -- Both our NAFTA and international aftermarket sales are expected to
         continue growing with continued strong equipment utilization,
         continued growth by our OEM customers of their replacement parts
         business, and the growing amount of equipment with our PowerCore(TM)
         filtration systems.
 
     Industrial Products:  We expect mid-single digit sales growth in the
 second half of fiscal 2006.
 
      -- IFS sales growth is expected to moderate following two consecutive
         years of strong growth.  Our NAFTA market is healthy.  Based on
         current business conditions and our backlog position, we expect IFS
         sales in Europe and Asia to be significantly stronger in the second
         half of fiscal 2006.
      -- Globally, we expect mid-single digit sales growth for gas turbine for
         the full year.  Strength is seen in both the international and the oil
         and gas markets.
      -- Market conditions for special applications products are expected to
         remain strong.
 
     Other:  We expect foreign currency translation to negatively impact
 international sales growth during the second half of fiscal 2006.  We expect
 the full year EPS impact from expensing stock options to be $.02 to $.03 per
 share, with over 80 percent of the impact already reflected in the year-to-
 date results.  For the year, we expect EPS to be in the range of $1.47 to
 $1.57 per share, compared to $1.27 per share in fiscal 2005.
 
     About Donaldson Company, Inc.
     Donaldson is a leading worldwide provider of filtration systems and
 replacement parts.  Donaldson is a technology-driven company committed to
 satisfying customer needs for filtration solutions through innovative research
 and development.  Donaldson serves 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
 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
 http://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 earnings release, the Annual Report to Shareholders, any Form 10-K, 10-Q
 or Form 8-K of the company or any other written or oral statements made by or
 on behalf of the company may include forward-looking statements, forecasts and
 projections which reflect the company's current views with respect to future
 events and financial performance but involve uncertainties that could
 significantly impact results.  The words "believe," "expect," "anticipate,"
 "intends," "estimate," "forecast," "outlook," "plan," "promises," "project,"
 "should," "will be" and similar expressions are intended to identify "forward-
 looking statements" within the meaning of the Act.
     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, changes in product demand, and
 governmental laws and regulations.  For a more detailed explanation, see the
 Company's 2005 Form 10-K filed with the Securities and Exchange Commission.
 The company wishes to caution investors that new factors emerge from time to
 time, and it is not possible for management to predict all such factors, nor
 can it assess the impact of each such factor on the business or the extent to
 which any factor, or a combination of factors, may cause actual results to
 differ materially from those contained in any forward-looking statements.
 Investors are further cautioned not to place undue reliance on such forward-
 looking statements as they speak only to the company's views as of the date
 the statement is made.  The company undertakes no obligation to publicly
 update or revise any forward-looking statements.
 
 
 
                 CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
                    DONALDSON COMPANY, INC. AND SUBSIDIARIES
           (Thousands of dollars, except share and per share amounts)
                                  (Unaudited)
 
                             Three Months Ended         Six Months Ended
                                 January 31                January 31
                             2006         2005         2006         2005
 
     Net sales             $392,915     $388,424     $796,311     $761,330
 
     Cost of sales          268,133      267,470      539,997      524,137
 
     Gross margin           124,782      120,954      256,314      237,193
 
     Operating expenses      86,978       83,983      175,116      164,091
 
     Operating income        37,804       36,971       81,198       73,102
 
     Other income, net       (2,301)      (1,866)      (5,230)      (5,285)
 
     Interest expense         2,508        2,240        4,933        4,264
 
 
     Earnings before income
      taxes                  37,597       36,597       81,495       74,123
 
     Income taxes            10,688        9,881       22,388       20,013
 
     Net earnings           $26,909      $26,716      $59,107      $54,110
 
     Weighted average
      shares outstanding 82,992,797   84,907,607   83,506,118   85,314,400
 
     Diluted shares
      outstanding        85,101,072   87,269,110   85,641,920   87,613,582
 
     Net earnings per
      share                    $.32         $.31         $.71         $.63
 
     Net earnings per share
     assuming dilution         $.32         $.31         $.69         $.62
 
     Dividends paid per share $.080        $.060        $.160        $.115
 
 
                    DONALDSON COMPANY, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Thousands of dollars)
                                  (Unaudited)
 
                                                     January 31      July 31
                                                        2006           2005
     ASSETS
 
       Cash and cash equivalents                      $76,362       $134,066
       Accounts receivable - net                      279,675        294,016
       Inventories - net                              146,817        151,599
       Prepaid expenses and other current assets       45,252         39,141
 
         Total current assets                         548,106        618,822
 
 
     Other assets and deferred taxes                  218,977        217,458
     Property, plant and equipment - net              285,884        275,493
 
 
         Total assets                              $1,052,967     $1,111,773
 
 
      LIABILITIES AND SHAREHOLDERS' EQUITY
 
     Trade accounts payable                          $119,193       $134,063
     Employee compensation and other liabilities      104,255         98,083
     Notes payable                                     73,285        102,004
     Income taxes payable                               6,575         12,280
     Current maturity long-term debt                   12,498          7,772
 
         Total current liabilities                    315,806        354,202
 
     Long-term debt                                    97,401        103,302
     Other long-term liabilities                      114,619        129,653
 
         Total liabilities                            527,826        587,157
 
     Equity                                           525,141        524,616
 
         Total liabilities and equity              $1,052,967     $1,111,773
 
 
 
                    DONALDSON COMPANY, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Thousands of dollars)
                                  (Unaudited)
 
                                                       Six Months Ended
                                                           January 31
                                                       2006           2005
     OPERATING ACTIVITIES
 
     Net earnings                                     $59,107        $54,110
     Adjustments to reconcile net earnings to
      net cash provided by operating activities:
       Depreciation and amortization                   22,661         22,009
       Changes in operating assets and liabilities    (11,673)       (20,232)
       Payment of litigation judgment                 (14,170)            --
       Tax benefit of equity plans                    (11,965)            --
       Stock option expense                             2,424             --
       Other, net                                       5,157          9,289
         Net cash provided by operating activities     51,541         65,176
 
     INVESTING ACTIVITIES
 
       Net expenditures on property and equipment     (28,611)       (22,521)
       Acquisitions and investments in unconsolidated
        affiliates, net of cash acquired               (4,436)        (6,075)
           Net cash used in investing activities      (33,047)       (28,596)
 
     FINANCING ACTIVITIES
 
       Purchase of treasury stock                     (48,126)       (86,542)
       Net change in debt                             (29,045)        81,213
       Dividends paid                                 (13,293)        (9,757)
       Tax benefit of equity plans                     11,965             --
       Other, net                                       2,207          1,317
         Net cash used in financing activities        (76,292)       (13,769)
 
 
     Effect of exchange rate changes on cash               94          6,962
 
     Increase (decrease) in cash and cash equivalents (57,704)        29,773
 
     Cash and cash equivalents - beginning of year    134,066         99,504
 
     Cash and cash equivalents - end of period        $76,362       $129,277
 
 
                                 SEGMENT DETAIL
                             (Thousands of dollars)
                                  (Unaudited)
 
                            Engine     Industrial    Corporate &    Total
                           Products     Products     Unallocated   Company
     3 Months Ended
      January 31, 2006:
     Net sales             $226,584     $166,331          ---     $392,915
     Earnings before
      income taxes           25,030       13,067         (500)      37,597
 
     3 Months Ended
      January 31, 2005:
     Net sales             $219,432     $168,992          ---     $388,424
     Earnings before
      income taxes           27,384       10,908       (1,695)      36,597
 
 
     6 Months Ended
      January 31, 2006:
     Net sales             $465,008     $331,303          ---     $796,311
     Earnings before
      income taxes           56,204       28,151       (2,860)      81,495
 
     6 Months Ended
      January 31, 2005:
     Net sales             $437,017     $324,313          ---     $761,330
     Earnings before
      income taxes           58,257       23,602       (7,736)      74,123
 
 
                              NET SALES BY PRODUCT
                             (Thousands of dollars)
                                  (Unaudited)
 
                               Three Months Ended        Six Months Ended
                                  January 31                January 31
                              2006         2005         2006         2005
     Engine Products
      segment:
     Off-road products      $71,660      $69,261     $141,826     $132,533
     Transportation
      products               42,528       40,369       88,738       84,275
     Aftermarket products   112,396      109,802      234,444      220,209
       Total Engine
        Products Segment   $226,584     $219,432     $465,008     $437,017
 
     Industrial Products
      segment:
     Industrial filtration
      solutions products   $103,755     $105,804     $209,643     $205,434
     Gas turbine products    28,416       29,752       52,779       53,628
     Special applications
      products               34,160       33,436       68,881       65,251
       Total Industrial
        Products segment   $166,331     $168,992     $331,303     $324,313
 
     Total Company         $392,915     $388,424     $796,311     $761,330
 
 
 
                 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
                             (Thousands of dollars)
                                  (Unaudited)
 
                             Three Months Ended         Six Months Ended
                                  January 31               January 31
                              2006         2005         2006         2005
 
     Free cash flow          $5,520       $8,406      $22,930      $42,655
     Net capital
      expenditures           15,268       15,471       28,611       22,521
     Net cash provided by
      operating activities  $20,788      $23,877      $51,541      $65,176
 
     EBITDA                 $50,957      $48,970     $108,040      $99,142
     Income taxes           (10,688)      (9,881)     (22,388)     (20,013)
     Interest expense (net)  (2,141)      (1,405)      (3,884)      (3,010)
     Depreciation and
      amortization          (11,219)     (10,968)     (22,661)     (22,009)
 
         Net earnings       $26,909      $26,716      $59,107      $54,110
 
     Net sales, excluding
      foreign currency
      translation          $408,947     $377,130     $812,426     $739,479
     Foreign currency
      translation           (16,032)      11,294      (16,115)      21,851
 
         Net sales         $392,915     $388,424     $796,311     $761,330
 
     Net earnings,
      excluding foreign
      currency translation  $27,554      $26,442      $59,559      $52,747
     Foreign currency
      translation              (645)         274         (452)       1,363
 
         Net earnings       $26,909      $26,716      $59,107      $54,110
 
 
     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.
 
 

SOURCE Donaldson Company, Inc.
    MINNEAPOLIS, Feb. 28 /PRNewswire-FirstCall/ -- Donaldson Company, Inc.
 (NYSE:   DCI) today announced record second quarter diluted earnings per share
 ("EPS") of $.32, up from $.31 last year.  Net income was a record $26.9
 million, versus $26.7 million last year.  Sales were a record $392.9 million,
 up from $388.4 million in fiscal 2005.
     For the six-month period, EPS was another record at $.69, up from $.62
 last year.  Net income increased 9 percent to $59.1 million compared to $54.1
 million last year.  Sales were a record $796.3 million, up 5 percent from
 $761.3 million in fiscal 2005.
     "Our operating margin improved to 10.2 percent year-to-date from 9.6
 percent last year, despite absorbing $2.2 million, or $.02 per share, of stock
 option expenses into operating profits this year," said Bill Cook, Chairman,
 President and CEO.  "Donaldson is running very well, with our continued focus
 on cost reduction efforts offsetting higher commodity prices and driving the
 improvement in our profit margins.  We reduced our full year sales outlook
 mainly due to currency translation since the dollar is currently weaker
 against the Euro and Yen than it was in the second half of last year.
 However, we expect continued positive year-over-year sales growth and for
 operating margins to continue at these improved levels, giving us confidence
 in delivering our 17th consecutive year of record earnings."
 
     Income Statement Discussion
     Translated at constant exchange rates, sales increased $20.5 million, or
 5.3 percent, during the quarter and $51.1 million, or 6.7 percent, year-to-
 date.  Weakening foreign currencies reduced the growth in sales to $4.5
 million, or 1.2 percent, in the second quarter and $35.0 million, or 4.6
 percent, year-to-date.  The impact of foreign currency translation decreased
 net earnings by $0.6 million in the second quarter and $0.5 million year-to-
 date.
     Gross margin of 31.8 percent and 32.2 percent for the second quarter and
 year-to-date, respectively, compares favorably to prior year margins of 31.1
 percent and 31.2 percent, respectively.  We continue to see higher costs for
 petroleum-based raw materials and freight being offset primarily by our cost
 reduction efforts. Second quarter operating expenses were 22.1 percent of
 sales, up from 21.6 percent in the prior year.  Excluding $2.2 million of
 expense in the quarter from stock option grants, operating expenses as a
 percentage of sales were down from the prior year.  Year-to-date operating
 expenses were 22.0 percent of sales, up from 21.6 percent last year.
     Second quarter interest expense was $2.5 million, up from $2.2 million
 last year due to higher short-term interest rates.  Year-to-date interest
 expense was $4.9 million, up from $4.3 million last year.  Other income was
 $2.3 million in the quarter, up from $1.9 million last year.  Year-to-date
 other income was $5.2 million, down from $5.3 million last year.
     The effective tax rate of 28.4 percent for the second quarter and 27.5
 percent for the year compares to 27.0 percent for both periods in the prior
 year.  We continue to expect our effective tax rate to be approximately 28
 percent for the balance of the year.
     We did not repurchase any shares during the second quarter.  Year-to-date,
 we repurchased 1,602,300 shares, or 1.9 percent of outstanding shares, for
 $48.1 million.
 
     Backlog
     Total order backlog is $459 million, up 10 percent relative to last year
 and up 6 percent compared to the first quarter.
 
     Engine Products Segment
     Engine Products sales were $226.6 million in the quarter, an increase of 3
 percent from last year.  Year-to-date Engine Products sales were $465.0
 million, an increase of 6 percent from last year.
     Truck product sales in the quarter totaled $42.5 million, up 5 percent
 from last year.  NAFTA truck product sales increased 2 percent.  European
 truck product sales increased 10 percent and Asian sales increased 17 percent
 due to improved new truck build rates.  Year-to-date worldwide sales totaled
 $88.7 million, an increase of 5 percent from last year.
     Worldwide sales of off-road products in the quarter were $71.7 million, up
 4 percent from last year.  NAFTA sales increased 6 percent on continued
 strength in new construction and mining equipment demand.  European off-road
 sales remained consistent with prior year while Asian sales increased 2
 percent.  Year-to-date worldwide sales totaled $141.8 million, up 7 percent
 from last year.
     Engine aftermarket or replacement part sales in the quarter were $112.4
 million, an increase of 2 percent from last year.  NAFTA aftermarket sales
 increased 7 percent as equipment utilization rates and sales of diesel
 emission retrofit equipment remained strong.  European sales decreased 4
 percent and Asian sales were up 2 percent.  Year-to-date worldwide sales
 totaled $234.4 million, up 7 percent from last year.
 
     Industrial Products Segment
     Industrial Products sales in the quarter were $166.3 million, a decrease
 of 2 percent from last year.  Year-to-date Industrial Products sales were
 $331.3 million, an increase of 2 percent from last year.
     Industrial Filtration Solutions ("IFS") sales in the quarter were $103.8
 million, a decrease of 2 percent from last year.  IFS NAFTA sales increased 7
 percent while European and Asian sales decreased 10 and 3 percent,
 respectively.  Year-to-date worldwide IFS sales totaled $209.6 million, up 2
 percent from last year.
     Gas turbine product sales in the quarter were $28.4 million, down 5
 percent from last year.  Year-to-date worldwide sales totaled $52.8 million,
 down 2 percent from last year.
     Sales of special application products in the quarter were a record $34.2
 million, an increase of 2 percent from last year.  Year-to-date worldwide
 special application sales were a record $68.9 million, up 6 percent from last
 year.
 
     Outlook
     Engine Products:  We expect mid- to high-single digit sales growth in the
 second half of fiscal 2006.
 
      -- NAFTA heavy-duty new truck build rates should remain at their current
         high levels as our truck manufacturer OEMs are near capacity.
      -- Strong worldwide conditions are expected to continue in the production
         of new construction and mining equipment by our customers.
      -- Both our NAFTA and international aftermarket sales are expected to
         continue growing with continued strong equipment utilization,
         continued growth by our OEM customers of their replacement parts
         business, and the growing amount of equipment with our PowerCore(TM)
         filtration systems.
 
     Industrial Products:  We expect mid-single digit sales growth in the
 second half of fiscal 2006.
 
      -- IFS sales growth is expected to moderate following two consecutive
         years of strong growth.  Our NAFTA market is healthy.  Based on
         current business conditions and our backlog position, we expect IFS
         sales in Europe and Asia to be significantly stronger in the second
         half of fiscal 2006.
      -- Globally, we expect mid-single digit sales growth for gas turbine for
         the full year.  Strength is seen in both the international and the oil
         and gas markets.
      -- Market conditions for special applications products are expected to
         remain strong.
 
     Other:  We expect foreign currency translation to negatively impact
 international sales growth during the second half of fiscal 2006.  We expect
 the full year EPS impact from expensing stock options to be $.02 to $.03 per
 share, with over 80 percent of the impact already reflected in the year-to-
 date results.  For the year, we expect EPS to be in the range of $1.47 to
 $1.57 per share, compared to $1.27 per share in fiscal 2005.
 
     About Donaldson Company, Inc.
     Donaldson is a leading worldwide provider of filtration systems and
 replacement parts.  Donaldson is a technology-driven company committed to
 satisfying customer needs for filtration solutions through innovative research
 and development.  Donaldson serves 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
 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
 http://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 earnings release, the Annual Report to Shareholders, any Form 10-K, 10-Q
 or Form 8-K of the company or any other written or oral statements made by or
 on behalf of the company may include forward-looking statements, forecasts and
 projections which reflect the company's current views with respect to future
 events and financial performance but involve uncertainties that could
 significantly impact results.  The words "believe," "expect," "anticipate,"
 "intends," "estimate," "forecast," "outlook," "plan," "promises," "project,"
 "should," "will be" and similar expressions are intended to identify "forward-
 looking statements" within the meaning of the Act.
     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, changes in product demand, and
 governmental laws and regulations.  For a more detailed explanation, see the
 Company's 2005 Form 10-K filed with the Securities and Exchange Commission.
 The company wishes to caution investors that new factors emerge from time to
 time, and it is not possible for management to predict all such factors, nor
 can it assess the impact of each such factor on the business or the extent to
 which any factor, or a combination of factors, may cause actual results to
 differ materially from those contained in any forward-looking statements.
 Investors are further cautioned not to place undue reliance on such forward-
 looking statements as they speak only to the company's views as of the date
 the statement is made.  The company undertakes no obligation to publicly
 update or revise any forward-looking statements.
 
 
 
                 CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
                    DONALDSON COMPANY, INC. AND SUBSIDIARIES
           (Thousands of dollars, except share and per share amounts)
                                  (Unaudited)
 
                             Three Months Ended         Six Months Ended
                                 January 31                January 31
                             2006         2005         2006         2005
 
     Net sales             $392,915     $388,424     $796,311     $761,330
 
     Cost of sales          268,133      267,470      539,997      524,137
 
     Gross margin           124,782      120,954      256,314      237,193
 
     Operating expenses      86,978       83,983      175,116      164,091
 
     Operating income        37,804       36,971       81,198       73,102
 
     Other income, net       (2,301)      (1,866)      (5,230)      (5,285)
 
     Interest expense         2,508        2,240        4,933        4,264
 
 
     Earnings before income
      taxes                  37,597       36,597       81,495       74,123
 
     Income taxes            10,688        9,881       22,388       20,013
 
     Net earnings           $26,909      $26,716      $59,107      $54,110
 
     Weighted average
      shares outstanding 82,992,797   84,907,607   83,506,118   85,314,400
 
     Diluted shares
      outstanding        85,101,072   87,269,110   85,641,920   87,613,582
 
     Net earnings per
      share                    $.32         $.31         $.71         $.63
 
     Net earnings per share
     assuming dilution         $.32         $.31         $.69         $.62
 
     Dividends paid per share $.080        $.060        $.160        $.115
 
 
                    DONALDSON COMPANY, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Thousands of dollars)
                                  (Unaudited)
 
                                                     January 31      July 31
                                                        2006           2005
     ASSETS
 
       Cash and cash equivalents                      $76,362       $134,066
       Accounts receivable - net                      279,675        294,016
       Inventories - net                              146,817        151,599
       Prepaid expenses and other current assets       45,252         39,141
 
         Total current assets                         548,106        618,822
 
 
     Other assets and deferred taxes                  218,977        217,458
     Property, plant and equipment - net              285,884        275,493
 
 
         Total assets                              $1,052,967     $1,111,773
 
 
      LIABILITIES AND SHAREHOLDERS' EQUITY
 
     Trade accounts payable                          $119,193       $134,063
     Employee compensation and other liabilities      104,255         98,083
     Notes payable                                     73,285        102,004
     Income taxes payable                               6,575         12,280
     Current maturity long-term debt                   12,498          7,772
 
         Total current liabilities                    315,806        354,202
 
     Long-term debt                                    97,401        103,302
     Other long-term liabilities                      114,619        129,653
 
         Total liabilities                            527,826        587,157
 
     Equity                                           525,141        524,616
 
         Total liabilities and equity              $1,052,967     $1,111,773
 
 
 
                    DONALDSON COMPANY, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Thousands of dollars)
                                  (Unaudited)
 
                                                       Six Months Ended
                                                           January 31
                                                       2006           2005
     OPERATING ACTIVITIES
 
     Net earnings                                     $59,107        $54,110
     Adjustments to reconcile net earnings to
      net cash provided by operating activities:
       Depreciation and amortization                   22,661         22,009
       Changes in operating assets and liabilities    (11,673)       (20,232)
       Payment of litigation judgment                 (14,170)            --
       Tax benefit of equity plans                    (11,965)            --
       Stock option expense                             2,424             --
       Other, net                                       5,157          9,289
         Net cash provided by operating activities     51,541         65,176
 
     INVESTING ACTIVITIES
 
       Net expenditures on property and equipment     (28,611)       (22,521)
       Acquisitions and investments in unconsolidated
        affiliates, net of cash acquired               (4,436)        (6,075)
           Net cash used in investing activities      (33,047)       (28,596)
 
     FINANCING ACTIVITIES
 
       Purchase of treasury stock                     (48,126)       (86,542)
       Net change in debt                             (29,045)        81,213
       Dividends paid                                 (13,293)        (9,757)
       Tax benefit of equity plans                     11,965             --
       Other, net                                       2,207          1,317
         Net cash used in financing activities        (76,292)       (13,769)
 
 
     Effect of exchange rate changes on cash               94          6,962
 
     Increase (decrease) in cash and cash equivalents (57,704)        29,773
 
     Cash and cash equivalents - beginning of year    134,066         99,504
 
     Cash and cash equivalents - end of period        $76,362       $129,277
 
 
                                 SEGMENT DETAIL
                             (Thousands of dollars)
                                  (Unaudited)
 
                            Engine     Industrial    Corporate &    Total
                           Products     Products     Unallocated   Company
     3 Months Ended
      January 31, 2006:
     Net sales             $226,584     $166,331          ---     $392,915
     Earnings before
      income taxes           25,030       13,067         (500)      37,597
 
     3 Months Ended
      January 31, 2005:
     Net sales             $219,432     $168,992          ---     $388,424
     Earnings before
      income taxes           27,384       10,908       (1,695)      36,597
 
 
     6 Months Ended
      January 31, 2006:
     Net sales             $465,008     $331,303          ---     $796,311
     Earnings before
      income taxes           56,204       28,151       (2,860)      81,495
 
     6 Months Ended
      January 31, 2005:
     Net sales             $437,017     $324,313          ---     $761,330
     Earnings before
      income taxes           58,257       23,602       (7,736)      74,123
 
 
                              NET SALES BY PRODUCT
                             (Thousands of dollars)
                                  (Unaudited)
 
                               Three Months Ended        Six Months Ended
                                  January 31                January 31
                              2006         2005         2006         2005
     Engine Products
      segment:
     Off-road products      $71,660      $69,261     $141,826     $132,533
     Transportation
      products               42,528       40,369       88,738       84,275
     Aftermarket products   112,396      109,802      234,444      220,209
       Total Engine
        Products Segment   $226,584     $219,432     $465,008     $437,017
 
     Industrial Products
      segment:
     Industrial filtration
      solutions products   $103,755     $105,804     $209,643     $205,434
     Gas turbine products    28,416       29,752       52,779       53,628
     Special applications
      products               34,160       33,436       68,881       65,251
       Total Industrial
        Products segment   $166,331     $168,992     $331,303     $324,313
 
     Total Company         $392,915     $388,424     $796,311     $761,330
 
 
 
                 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
                             (Thousands of dollars)
                                  (Unaudited)
 
                             Three Months Ended         Six Months Ended
                                  January 31               January 31
                              2006         2005         2006         2005
 
     Free cash flow          $5,520       $8,406      $22,930      $42,655
     Net capital
      expenditures           15,268       15,471       28,611       22,521
     Net cash provided by
      operating activities  $20,788      $23,877      $51,541      $65,176
 
     EBITDA                 $50,957      $48,970     $108,040      $99,142
     Income taxes           (10,688)      (9,881)     (22,388)     (20,013)
     Interest expense (net)  (2,141)      (1,405)      (3,884)      (3,010)
     Depreciation and
      amortization          (11,219)     (10,968)     (22,661)     (22,009)
 
         Net earnings       $26,909      $26,716      $59,107      $54,110
 
     Net sales, excluding
      foreign currency
      translation          $408,947     $377,130     $812,426     $739,479
     Foreign currency
      translation           (16,032)      11,294      (16,115)      21,851
 
         Net sales         $392,915     $388,424     $796,311     $761,330
 
     Net earnings,
      excluding foreign
      currency translation  $27,554      $26,442      $59,559      $52,747
     Foreign currency
      translation              (645)         274         (452)       1,363
 
         Net earnings       $26,909      $26,716      $59,107      $54,110
 
 
     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.
 
 SOURCE  Donaldson Company, Inc.