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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[x]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDING October 31, 2003 OR

[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE 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 Number)

1400 West 94th Street
Minneapolis, Minnesota 55431
(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number, including area code (952) 887-3131

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, and (2) has been subject to such filing requirements for the past 90 days.

Yes __X__ No _____

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 1 2b-2 of the Exchange Act).

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 - 43,370,185 shares as of October 31, 2003

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands of dollars, except share amounts)
(Unaudited)

Three Months Ended October 31
2003 2002
Net sales     $ 328,220   $ 301,054  
Cost of sales    221,643    206,173  
Gross margin    106,577    94,881  
Operating expenses    70,884    63,180  
Operating income    35,693    31,701  
Other income, net    (387 )  (1,581 )
Interest expense    1,072    1,998  
Earnings before income taxes    35,008    31,284  
Income taxes    9,452    8,447  
Net earnings   $ 25,556   $ 22,837  
Weighted average shares  
 outstanding    43,377,077    43,823,839  
Diluted shares outstanding    45,303,350    45,324,846  
Basic earnings per share   $ .59   $ .52  
Diluted earnings per share   $ .56   $ .50  
Dividends paid per share   $ .095   $ .085  

See Notes to Condensed Consolidated Financial Statements.

2

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

October 31,
2003 		  July 31,
2003
ASSETS            
CURRENT ASSETS  
     Cash and cash equivalents   $ 78,998   $ 67,070  
     Accounts receivable    240,798    226,815  
     Inventories  
          Materials    49,258    45,088  
          Work in process    13,518    12,374  
          Finished products    62,739    57,428  
               Total inventories    125,515    114,890  
     Prepaid and other current assets    35,969    45,930  
               TOTAL CURRENT ASSETS    481,280    454,705  

Property, plant and equipment, at cost		    602,065    580,371  
Less accumulated depreciation    (340,014 )  (324,935 )
     Property, plant and equipment, net    262,051    255,436  
Goodwill    96,111    92,143  
Intangible assets    19,506    17,188  
Other assets    63,870    62,525  
               TOTAL ASSETS   $ 922,818   $ 881,997  

LIABILITIES AND SHAREHOLDERS’ EQUITY 		  
CURRENT LIABILITIES  
     Short-term debt   $ 26,779   $ 14,152  
     Current maturities of long-term debt    627    646  
     Trade accounts payable    108,704    122,759  
     Accrued employee compensation and related taxes    34,673    33,013  
     Warranty and accrued liabilities    29,957    23,597  
     Other current liabilities    22,556    19,909  
               TOTAL CURRENT LIABILITIES    223,296    214,076  

Long-term debt		    107,811    105,156  
Deferred income taxes    21,256    21,316  
Other long-term liabilities    95,147    94,056  
               TOTAL LIABILITIES    447,510    434,604  

SHAREHOLDERS’ EQUITY 		  
Preferred stock, $1 par value,  
  1,000,000 shares authorized, no shares issued    —    —  
Common stock, $5 par value, 80,000,000 shares authorized,  
  49,655,954 issued    248,280    248,280  
Retained earnings    371,306    351,769  
Accumulated other comprehensive income (loss)    4,091    (6,888 )
Treasury stock, at cost – 6,198,020 and 5,741,417 shares at  
  April 30, 2003 and July 31, 2002, respectively    (148,369 )  (145,768 )
               TOTAL SHAREHOLDERS’ EQUITY    475,308    447,393  
               TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 922,818   $ 881,997  

See Notes to Condensed Consolidated Financial Statements.

3

DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)

Three Months Ended
October 31
2003  2002
OPERATING ACTIVITIES            
         Net earnings   $ 25,556   $ 22,837  
         Adjustments to reconcile net earnings to  
                net cash provided by operating activities:  
                     Depreciation and amortization    10,974    7,672  
                     Changes in operating assets and liabilities    (17,490 )  17,813  
                     Other    3,411    (157 )
                         Net cash provided by operating activities    22,451    48,165  
INVESTING ACTIVITIES  
         Net expenditures on property and equipment    (13,516 )  (9,537 )
         Acquisitions and investments in unconsolidated  
                affiliates, net of cash acquired    (4,397 )  (1,259 )
                         Net cash used in investing activities    (17,913 )  (10,796 )
FINANCING ACTIVITIES  
         Purchase of treasury stock    (5,697 )  (13,144 )
         Proceeds from long-term debt    —    749  
         Repayments of long-term debt    (104 )  (133 )
         Change in short-term borrowings    12,395    (16,206 )
         Dividends paid    (4,128 )  (3,733 )
         Exercise of Stock Options    1,622    302  
                       Net cash used in financing activities    4,088    (32,165 )
Effect of exchange rate changes on cash    3,302    5,827  
Increase in cash and cash equivalents    11,928    12,466  
Cash and cash equivalents – beginning of year    67,070    45,586  
Cash and cash equivalents – end of period   $ 78,998   $ 58,052  

See Notes to Condensed Consolidated Financial Statements.

4

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Donaldson Company, Inc. (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the three-month period ended October 31, 2003 are not necessarily indicative of the results that may be expected for future periods. For further information, refer to the consolidated financial statements and footnotes thereto included in Donaldson Company, Inc. and Subsidiaries' Annual Report on Form 10-K for the year ended July 31, 2003. Certain amounts in prior periods have been reclassified to conform to the current presentation. The reclassifications had no impact on the net earnings as previously reported.

Note B – Accounting for Stock-Based Compensation

The Company has elected to continue to account for stock-based compensation using the intrinsic value method. Accordingly, no compensation expense has been recorded for the stock option plan as all options have exercise prices equal to the fair value of the stock on the date of grant. Had the Company used the fair value-based method of accounting to measure compensation expense for its stock option plan and charged compensation cost against income over the vesting periods, net income and the related basic and diluted per common share amounts would have been reduced to the following pro forma amounts (in thousands, except per share amounts):

Three Months Ended
October 31
2003  2002
Net earnings, as reported     $ 25,556   $ 22,837  
Less total stock-based employee  
   compensation expense under the  
   fair value-based method, net of tax    (1,236 )  (488 )
Pro forma net earnings   $ 24,320   $ 22,349  
Basic net earnings per share  
       As reported   $ 0.59   $ 0.52  
       Pro forma   $ 0.56   $ 0.51  
Diluted net earnings per share  
         As reported   $ 0.56   $ 0.50  
         Pro forma   $ 0.54   $ 0.50  

Note C – Net Earnings Per Share

The Company's basic net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares. The Company's diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and dilutive shares relating to stock options and unvested restricted stock.

5

The following table presents information necessary to calculate basic and diluted net earnings per common share (in thousands, except per share amounts):

Three Months Ended
October 31
2003  2002
Weighted average shares outstanding – basic      43,377    43,824  
   Diluted share equivalents    1,926    1,501  
Weighted average shares outstanding – diluted    45,303    45,325  
Net earnings for basic and diluted  
  earnings per share computation   $ 25,556   $ 22,837  
Net earnings per share – basic   $ .59   $ .52  
Net earnings per share – diluted   $ .56   $ .50  

Note D – Comprehensive Income

The Company reports accumulated other comprehensive income as a separate item in the shareholders' equity section of the balance sheet. Other comprehensive income consists of foreign currency translation adjustments and net gains or losses on cash flow hedging derivatives.

Total comprehensive income and its components are as follows (in thousands):

Three Months Ended
October 31
2003  2002
Net earnings     $ 25,556   $ 22,837  
Foreign currency translation adjustment    10,820    467  
Net gain (loss) on cash flow hedging derivatives    159    (82 )
Total other comprehensive income   $ 36,535   $ 23,222  

Total accumulated other comprehensive gain (loss) and its components at October 31, 2003 and July 31, 2003 are as follows (in thousands):

October 31,
2003		  July 31,
2003
Foreign currency translation adjustment     $ 22,755   $ 11,935  
Net loss on cash flow hedging derivatives    (114 )  (273 )
Additional minimum pension liability    (18,550 )  (18,550 )
Total accumulated other comprehensive gain (loss)   $ 4,091   $ (6,888 )

6

Note E – Segment Reporting

The Company has two reportable segments, Engine Products and Industrial Products, that have been identified based on the internal organization structure, management of operations and performance evaluation. Segment detail is summarized as follows (in thousands):

Engine   
Products   		 Industrial   
Products   		 Corporate &         
Unallocated         		 Total   
Company   
Three Months Ended                    
October 31, 2003:  
   Net sales   $ 191,355   $ 136,865    —   $ 328,220  
   Earnings before income taxes   $ 28,293   $ 9,999   $ (3,284 ) $ 35,008  

Three Months Ended		                    
October 31, 2002:  
   Net sales   $ 166,958   $ 134,096    —   $ 301,054  
   Earnings before income taxes   $ 24,120   $ 10,281   $ (3,117 ) $ 31,284  

Note F – Interest Rate Swaps

The Company is exposed to changes in the fair value of its fixed-rate debt resulting from interest rate fluctuations. To hedge this exposure, the Company entered into two fixed to variable interest rate swaps on June 6, 2001 and on March 18, 2003. These interest rate swaps are accounted for as fair value hedges and are recorded net of the underlying outstanding debt. Changes in the payment of interest resulting from the interest rate swaps are recorded as an offset to interest expense. As of October 31, 2003, the interest rate swaps had a fair value of $2.1 million, which is recorded net of underlying debt in the liabilities section of the balance sheet.

Note G – Goodwill and Other Intangible Assets

The Company's most recent annual impairment test for goodwill and other intangible