UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. - PDF document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _____________________________________________________________ FORM 10-Q _____________________________________________________________ (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE x QUARTERLY PERIOD ENDED OCTOBER 31, 2016 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE o TRANSITION PERIOD FROM _________________ TO _________________. Commission File Number 1-7891 DONALDSON COMPANY, INC. (Exact name of registrant as specified in its charter) Delaware 41-0222640 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1400 West 94th Street Minneapolis, Minnesota 55431 (Address of principal executive offices, including zip code) Registrant’s telephone number, including area code: (952) 887-3131 Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $5 Par Value - 132,056,617 shares as of November 30, 2016 .

PART I. FINANCIAL INFORMATION Item 1. Financial Statements DONALDSON COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In millions, except per share amounts) (Unaudited) Three Months Ended October 31, 2016 2015 Net sales $ 553.0 $ 538.0 Cost of sales 358.8 359.9 Gross profit 194.2 178.1 Operating expenses 117.8 122.6 Operating income 76.4 55.5 Other income, net (8.1) (2.9) Interest expense 4.8 5.0 Earnings before income taxes 79.7 53.4 Income taxes 21.7 14.9 Net earnings $ 58.0 $ 38.5 Weighted average shares - basic 133.4 133.9 Weighted average shares - diluted 134.6 134.9 Net earnings per share - basic $ 0.43 $ 0.29 Net earnings per share - diluted $ 0.43 $ 0.29 Dividends paid per share $ 0.175 $ 0.170 See Notes to Condensed Consolidated Financial Statements. 2

DONALDSON COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) (Unaudited) Three Months Ended October 31, 2016 2015 Net earnings $ 58.0 $ 38.5 Foreign currency translation loss (12.4) (10.6) Net gain (loss) on hedging derivatives, net of deferred taxes of $(0.5) and $0.3, respectively 1.0 (0.6) Pension and postretirement liability adjustment, net of deferred taxes of $(1.0) and $1.2, respectively 2.4 (1.0) $ 49.0 $ 26.3 Total comprehensive income See Notes to Condensed Consolidated Financial Statements. 3

DONALDSON COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In millions, except share amounts) (Unaudited) October 31, July 31, 2016 2016 Assets Current assets Cash and cash equivalents $ 262.2 $ 243.2 Accounts receivable, less allowance of $9.5 and $8.6 415.0 452.4 Inventories, net 249.2 234.1 Prepaids and other current assets 66.6 80.0 Total current assets 993.0 1,009.7 Property, plant, and equipment, at cost 1,156.5 1,150.6 Less accumulated depreciation (690.4) (680.8) Property, plant, and equipment, net 466.1 469.8 Goodwill 228.7 229.3 Intangible assets, net 41.8 38.5 Deferred income taxes 33.6 7.8 Other long-term assets 30.9 31.9 $ 1,794.1 $ 1,787.0 Total assets Liabilities and shareholders' equity Current liabilities Short-term borrowings $ 169.1 $ 165.5 Current maturities of long-term debt 75.9 51.2 Trade accounts payable 160.7 143.3 Other current liabilities 157.7 183.8 Total current liabilities 563.4 543.8 Long-term debt 324.7 350.2 Deferred income taxes 3.2 3.1 Other long-term liabilities 118.1 118.5 Total liabilities 1,009.4 1,015.6 Commitments and contingencies (Note 14) Shareholders' equity Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued — — Common stock, $5.00 par value, 240,000,000 shares authorized, 151,643,194 shares issued 758.2 758.2 Retained earnings 961.0 905.1 Non-controlling interest 4.1 4.0 Stock compensation plans 16.5 16.7 Accumulated other comprehensive loss (214.6) (205.6) Treasury stock, 19,670,723 and 18,750,503 shares, at cost (740.5) (707.0) Total shareholders' equity 784.7 771.4 $ 1,794.1 $ 1,787.0 Total liabilities and shareholders' equity See Notes to Condensed Consolidated Financial Statements. 4

DONALDSON COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited) Three Months Ended October 31, 2016 2015 Operating Activities Net earnings $ 58.0 $ 38.5 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 18.9 18.6 Changes in operating assets and liabilities, excluding effect of acquisition 30.7 (6.5) Tax benefit of equity plans (1.0) (0.2) Stock compensation plan expense 1.5 1.5 Deferred taxes (0.8) (0.9) Other, net (7.6) 6.9 Net cash provided by operating activities 99.7 57.9 Investing Activities Net expenditures on property, plant, and equipment (12.4) (21.5) Proceeds from sale of short-term investments — 18.0 Acquisitions, net of cash acquired (10.9) (12.9) Net cash used in investing activities (23.3) (16.4) Financing Activities Purchase of treasury stock (41.4) (68.0) Repayments of long-term debt (0.3) (0.3) Change in short-term borrowings 4.4 57.4 Dividends paid (23.2) (22.7) Tax benefit of equity plans 1.0 0.2 Exercise of stock options 4.3 1.1 Net cash used in financing activities (55.2) (32.3) Effect of exchange rate changes on cash (2.2) (1.2) Increase in cash and cash equivalents 19.0 8.0 Cash and cash equivalents, beginning of year 243.2 189.9 Cash and cash equivalents, end of period $ 262.2 $ 197.9 See Notes to Condensed Consolidated Financial Statements. 5