Donaldson (DCI) 8-K Results of Operations and Financial Condition

Exhibit 99.1

FOR IMMEDIATE RELEASE:	FOR FURTHER INFORMATION:
Tuesday, November 29, 2005	Rich Sheffer   (952) 887-3753

DONALDSON REPORTS RECORD FIRST QUARTER RESULTS;
OPERATING MARGIN INCREASES TO 10.8 PERCENT;
EPS UP 19 PERCENT

        MINNEAPOLIS (Nov. 29, 2005) — Donaldson Company, Inc. (NYSE: DCI) announced record first quarter diluted earnings per share (“EPS”) of $.37, up from $.31 last year. Net income increased 18 percent to a record $32.2 million compared to $27.4 million last year. Sales were a record $403.4 million, up 8 percent from $372.9 million in fiscal 2005.

        “We are off to a very good start in fiscal 2006, posting all-time highs for EPS, net earnings and EBITDA,” said Bill Cook, Chairman, President and CEO. “Demand remains at high levels in most of our end markets. Our focus on cost reduction efforts helped offset higher raw material costs and resulted in an operating margin of 10.8 percent in the first quarter — the highest it’s been in two years. We believe that our operating margin will remain strong, and, coupled with our solid sales outlook, we remain confident of delivering another year of record earnings.”

Income Statement Discussion

        Foreign currencies had a minimal impact on first quarter results. Adjusted for foreign currency translation, sales increased 8.2 percent. The impact of foreign currency translation increased net earnings by $0.2 million.

        Gross margin was 32.6 percent versus 31.2 percent last year. Higher costs for petroleum-based raw materials and freight were offset by cost reduction efforts with our customers and selective price increases in some markets. First quarter operating expenses were 21.8 percent of sales, comparable to 21.5 percent in the prior year.

        First quarter interest expense was $2.4 million, up from $2.0 million last year due to higher short-term interest rates. Other income was $2.9 million in the quarter versus $3.4 million last year.

        The effective tax rate of 26.7 percent for the first quarter compares to 27.0 percent last year. During the quarter we filed an amended tax return related to a prior year, which resulted in additional R&D tax credits, thus lowering the tax rate for the quarter. We expect our effective tax rate to be approximately 28 percent for the balance of the year.

        Consistent with our longstanding share repurchase strategy, we repurchased 1,602,300 shares in the quarter, or 1.9 percent of our outstanding shares, for $48.1 million.

Backlog

        Total order backlog is $432 million, up 6 percent relative to last year.

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Donaldson Company, Inc.
November 29, 2005
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Engine Products Segment

        Engine Products sales were a record $238.4 million in the quarter, an increase of 10 percent from last year.

        Truck product sales totaled $46.2 million, up 5 percent from last year. NAFTA truck product sales increased 12 percent due to growing new truck build rates. European truck product sales increased 3 percent and Asian sales decreased 21 percent on lower diesel emission product sales in Japan.

        Worldwide sales of off-road products were $70.2 million, up 11 percent from last year. NAFTA sales increased 8 percent on continued strength in new construction and mining equipment demand. European off-road product sales increased 11 percent while Asian sales increased 24 percent.

        Engine aftermarket or replacement part sales were $122.0 million, an increase of 11 percent from last year. NAFTA aftermarket sales increased 11 percent as equipment utilization rates remained strong and our sales of diesel emission retrofit equipment continued ramping up. European sales increased 8 percent and Asian sales were up 17 percent.

Industrial Products Segment

        Industrial Products sales in the quarter were a record $165.0 million, an increase of 6 percent from last year.

        Industrial Filtration Solutions (“IFS”) sales were a record $105.9 million, an increase of 6 percent from last year, driven primarily by strong industrial dust collection sales in NAFTA.

        Gas turbine product sales were $24.4 million, up 2 percent from last year. NAFTA sales decreased slightly by 1 percent while international sales were up 4 percent.

        Sales of special application products were a record $34.7 million, an increase of 9 percent from last year, supported by continued strong disk drive filter sales.

Outlook

Engine Products:We expect sales growth to be approximately 10 percent in fiscal 2006.

• NAFTA heavy-duty new truck build rates should remain at their current high levels as truck manufacturers are near capacity.
• Off-road sales are expected to remain strong worldwide with robust conditions continuing in the production of new construction and mining equipment.
• 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™ filtration systems.

Industrial Products:We expect high single-digit sales growth in fiscal 2006.

• IFS sales growth is expected to moderate following two consecutive years of strong growth. Our NAFTA market is healthy and our European market remains stable.

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Donaldson Company, Inc.
November 29, 2005
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• Globally, we expect full-year gas turbine sales to improve modestly. 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 began expensing stock options in our first quarter of fiscal 2006 and expect the full year EPS impact to be $.02 to $.03 per share, with 70 percent of the full-year impact expected in the second quarter due to the timing of our annual option grants. For the year, we expect EPS to be in the range of $1.47 to $1.57 per share.

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 atwww.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.

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Donaldson Company, Inc.
November 29, 2005
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DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
(Thousands of dollars, except share and per share amounts)
(Unaudited)

	Three Months Ended October 31
	2005			2004
Net sales	$	403,396		$	372,906
Cost of sales		271,864			256,667
Gross margin		131,532			116,239
Operating expenses		88,138			80,108
Operating income		43,394			36,131
Other income, net		(2,929	)		(3,419	)
Interest expense		2,425			2,024
Earnings before income taxes		43,898			37,526
Income taxes		11,700			10,132
Net earnings	$	32,198		$	27,394
Weighted average shares outstanding		84,024,553			85,721,197
Diluted shares outstanding		86,122,289			88,038,004
Net earnings per share	$	.38		$	.32
Net earnings per share assuming dilution	$	.37		$	.31
Dividends paid per share	$	.080		$	.055

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Donaldson Company, Inc.
November 29, 2005
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DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)

	October 31 2005		July 31 2005
ASSETS
Cash and cash equivalents	$	93,331	$	134,066
Accounts receivable – net		271,367		294,016
Inventories – net		148,349		151,599
Prepaid expenses and other current assets		44,614		39,141
Total current assets		557,661		618,822
Other assets and deferred taxes		217,838		217,458
Property, plant and equipment – net		277,483		275,493
Total assets	$	1,052,982	$	1,111,773
LIABILITIES AND SHAREHOLDERS’ EQUITY
Trade accounts payable	$	128,969	$	134,063
Employee compensation and other liabilities		98,780		98,083
Notes payable		86,528		102,004
Income taxes payable		12,604		12,280
Current maturity long-term debt		12,538		7,772
Total current liabilities		339,419		354,202
Long-term debt		97,710		103,302
Other long-term liabilities		113,731		129,653
Total liabilities		550,860		587,157
Equity		502,122		524,616
Total liabilities and equity	$	1,052,982	$	1,111,773

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Donaldson Company, Inc.
November 29, 2005
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DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)

	Three Months Ended October 31
	2005			2004
OPERATING ACTIVITIES
Net earnings	$	32,198		$	27,394
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		11,442			11,041
Changes in operating assets and liabilities		1,796			2,951
Payment of litigation judgment		(14,170	)		—
Other, net		(513	)		(87	)
Net cash provided by operating activities		30,753			41,299
INVESTING ACTIVITIES
Net expenditures on property and equipment		(13,343	)		(7,050	)
Net cash used in investing activities		(13,343	)		(7,050	)
FINANCING ACTIVITIES
Purchase of treasury stock		(48,126	)		(86,542	)
Net change in debt		(15,630	)		72,528
Dividends paid		(6,706	)		(4,746	)
Tax benefit of equity plans		11,549			—
Other, net		592			145
Net cash used in financing activities		(58,321	)		(18,615	)
Effect of exchange rate changes on cash		176			3,603
Increase/(decrease) in cash and cash equivalents		(40,735	)		19,237
Cash and cash equivalents - beginning of year		134,066			99,504
Cash and cash equivalents - end of year	$	93,331		$	118,741

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Donaldson Company, Inc.
November 29, 2005
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SEGMENT DETAIL
(Thousands of dollars)
(Unaudited)

	Engine Products		Industrial Products		Corporate & Unallocated			Total Company
3 Months Ended October 31, 2005:
Net sales	$	238,424	$	164,972		—		$	403,396
Earnings before income taxes		31,174		15,084		(2,360	)		43,898
3 Months Ended October 31, 2004:
Net sales	$	217,585	$	155,321		—		$	372,906
Earnings before income taxes		30,873		12,694		(6,041	)		37,526

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

	Three Months Ended October 31
	2005		2004
Engine Products segment:
Off-road products	$	70,166	$	63,272
Transportation products		46,210		43,906
Aftermarket products		122,048		110,407
Total Engine Products Segment	$	238,424	$	217,585
Industrial Products segment:
Industrial filtration solutions products	$	105,888	$	99,630
Gas turbine products		24,363		23,876
Special applications products		34,721		31,815
Total Industrial Products segment	$	164,972	$	155,321
Total Company	$	403,396	$	372,906

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Donaldson Company, Inc.
November 29, 2005
Page 8

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

	Three Months Ended October 31
	2005			2004
Free cash flow	$	17,410		$	34,249
Net capital expenditures		13,343			7,050
Net cash provided by operating activities	$	30,753		$	41,299
EBITDA	$	57,083		$	50,172
Income taxes		(11,700	)		(10,132	)
Interest expense (net)		(1,743	)		(1,605	)
Depreciation and amortization		(11,442	)		(11,041	)
Net earnings	$	32,198		$	27,394
Net sales, excluding foreign currency translation	$	403,479		$	362,349
Foreign currency translation		(83	)		10,557
Net sales	$	403,396		$	372,906
Net earnings, excluding foreign currency translation	$	32,005		$	26,305
Foreign currency translation		193			1,089
Net earnings	$	32,198		$	27,394

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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