CONSTRUCTION

FINANCIALS

COMPANY NEWS

PRODUCT NEWS

Many projects, mergers and acquisitions are detailed in monthly updates in the Market Report’s Chapters under Industry Analysis. Click on the links below to view current updates for each industry.

McGraw-Hill Construction recently released its 2012 Dodge Construction Outlook Midyear Update projections. The Outlook Midyear Update predicts that total construction starts for the U.S. will increase 2% this year to $445 billion, up from the $434 billion reported for 2011.

"The construction industry has yet to move from a hesitant up-and-down pattern to more sustained expansion," stated Robert A. Murray, Vice President of Economic Affairs for McGraw-Hill Construction. "After plunging 23% in 2009, new construction starts edged up only 1% in 2010 and were unchanged in 2011, so the modest 2% increase predicted for 2012 is really more of the same. The backdrop for the construction industry remains the fragile U.S. economy, which continues to see slow employment growth, diminished funding from federal and state governments, and the uncertainty related to the U.S. fiscal stalemate and the European debt crisis. On the plus side, energy costs are now receding, interest rates are very low, and lending standards are beginning to ease for commercial real estate development." Given these divergent factors, the construction market this year continues to see a mix of pluses and minuses by major sector, as follows:

•Single family housing in 2012 will advance 21% in dollars, corresponding to a 19% increase in the number of units to 490,000 (McGraw-Hill Construction Dodge basis). While still at a very low amount, single family housing for the past year has been able to register small yet steady gains.

•Multifamily housing in 2012 will climb 19% in dollars and 18% in units, given rising occupancies and rents, which reflect elevated demand from potential homebuyers still reluctant or unable to move ahead with purchasing a single family home.

•Commercial building in 2012 will grow 10%, following the 12% gain in 2011. Warehouses and hotels will see the largest percentage increases, joined this year by a moderate gain for stores while office construction sees more privately financed projects but less government office buildings.

•The institutional building market in 2012 will fall an additional 10%, after sliding 11% in 2011. The tough fiscal environment for states and localities continues to dampen school construction, and the uncertain economic environment is restraining healthcare facilities.

•The manufacturing building category in 2012 will retreat 20%, following the 75% jump in 2011 which featured the start of several unusually large projects.

•Public works construction in 2012 will slide a further 6%, after last year's 14% decline. This reflects government spending cuts and the absence of a multiyear federal transportation bill.

•Electric utility construction in 2012 will essentially hold steady with its exceptionally strong 2011 amount, helped by this year's start of two large nuclear power projects.

Spending on construction projects grew in May to its highest level in nearly two-and-half years, pushed by increased home building and other private-sector spending.

Construction spending increased by 0.9% in May to a seasonally adjusted annual rate of $830.01 billion, the Commerce Department said recently. It was the highest level since December 2009.

Outlays on building in April rose 0.6% to $822.50 billion, according to revised data, versus an initially reported 0.3% monthly increase.

For May, private-sector spending on construction increased 1.6% to $560.43 billion, the best reading since October 2009.

Private residential construction surged by 3.0% from the prior month to $261.33 billion, its highest level since January 2009.

Builders appear confident the renewed demand will persist. In May, the number of new housing permits grew to their highest seasonally-adjusted level since September 2008, according to a separate Commerce report last month.

Private nonresidential construction--including spending on commercial buildings, manufacturing and transportation---grew 0.4% to $299.10 billion in May.

Gains among private builders helped offset cuts by municipalities.

State and local governments, under pressure to reduce spending amid weak tax receipts, cut building outlays by 1.0% in May to $242.57 billion, the lowest level since November 2006.

Total public construction fell 0.4% as federal government spending rose 5.6% for the month to $27.01 billion.

Nationwide housing production rose by 6.9 percent to a seasonally adjusted annual rate of 760,000 units in June, according to newly released figures from HUD and the U.S. Census Bureau. The National Association of Home Builders (NAHB) reports this is the fastest pace of new-home construction since October of 2008.

According to the release, single-family housing starts rose for a fourth consecutive month to a seasonally adjusted annual rate of 539,000 units in June, their fastest pace since April of 2010. Meanwhile, multifamily starts rose 12.8 percent to 221,000 units, in keeping with the solid pace of demand for rental units.

Regionally, combined single- and multi-family housing starts rose 22.2 percent in the Northeast and 36.9 percent in the West, but fell back 7.3 percent in the Midwest and 4.2 percent in the South in June. However, the declines were entirely due to monthly volatility on the multifamily side, as single-family starts posted gains across every region in June.

Issuance of new building permits, which can be an indicator of future building activity, fell 3.7 percent to a seasonally adjusted annual rate of 755,000 units in June following a large increase in the previous month, reports the NAHB. While single-family permitting posted a marginal, 0.6 percent gain to 493,000 units, multifamily permitting fell back 10.9 percent to 262,000 units from an above-trend pace in the previous month.

On a regional basis, permit issuance rose 2.9 percent in the West and held unchanged in the Northeast, but retreated 0.8 percent in the Midwest and 8 percent in the South in June.

Donaldson Company, Inc. (NYSE: DCI) announced its financial results for its fiscal 2012 third quarter. Summarized financial results are as follows (dollars in millions, except per share data):

"The continued strength in many of our mid-cycle businesses and the beginning of the recovery of our late-cycle Gas Turbine Systems products, combined with ongoing solid execution across our Company, helped us set new quarterly records in sales, operating margin, and EPS," said Bill Cook, Chairman, President and CEO. "Led by a 15 percent increase in Gas Turbine Products, sales growth was strong across all three of the product groups within our Industrial Products segment, with overall sales up 11 percent. Sales in our Engine Products segment grew 8 percent as new equipment build rates at our Off-Road and On-Road OEM Customers remained healthy."

"We achieved a record operating margin of 15.2 percent due to the combination of operating leverage in our plants and distribution centers, our focus on effective execution in support of our Customers and the benefits of the many Continuous Improvement initiatives across our Company."

"We are forecasting continued growth through our fourth quarter with full year sales expected to be up approximately 9 percent over last year. Forecasted business conditions in our end markets remain consistent with last quarter's outlook through the end of our fiscal year: strong in the Americas, stable in Europe, and slowly improving in China.

Gross margin was 35.3 percent for the quarter and 35.1 percent year-to-date, compared to prior year margins of 35.2 percent for the quarter and year-to-date.

Operating expenses for the quarter were $129.8 million, up 3.2 percent from $125.8 million last year primarily due to the increased sales volume. As a percent of sales, operating expenses were 20.1 percent in the third quarter compared to last year's 21.2 percent. Operating expenses year-to-date were $380.4 million, or 20.7 percent of sales, compared to $361.5 million, or 21.7 percent of sales, last year.

FY12 Outlook

We expect to achieve full year sales, operating margin, and EPS records.

We forecast our FY12 sales to be approximately $2.5 billion, or up about 9 percent from the prior year. Our current forecast is based on the Euro at US$1.28 and 80 Yen to the US$. With the recent depreciation of the Euro against the US$, we do see foreign currency translation to be a headwind for the balance of our fiscal year.

Our full year operating margin is forecast to be 14.2 to 14.8 percent.

Engine Products: We expect full year sales to increase 8 to 10 percent, including the impact of foreign currency translation.

Industrial Products: We forecast full year sales to increase 8 to 10 percent, including the impact of foreign currency translation.

Our Industrial Filtration Solutions' sales are projected to increase 7 to 10 percent and assume a continuing improvement in general manufacturing activity in the U.S., slowly improving conditions in Asia, and forecasted strong fourth quarter project shipments in Europe.

We anticipate our Gas Turbine Products' sales to be up 17 to 20 percent due to the recent improvement in the large turbine power generation market and ongoing strength in the oil and gas market segment. We have a very strong schedule for fourth quarter project shipments to our Customers.

Special Applications Products' sales are forecast to be level with the prior year as growth in our membrane and venting product sales should offset the reduction in our disk drive filter sales related to the Thai floods last fall.

Lydall, Inc. (NYSE: LDL) financial results for the first quarter ended March 31, 2012

Highlights:

• Sales of $96.8 million compared to $101.7 million in Q1 2011

• Gross margin of 19.9%, an improvement of 220 basis points from Q1 2011

• Operating income of $5.4 million, up 19.0% from Q1 2011

• Income from continuing operations of $3.9 million, 48.6% higher than Q1 2011

• Company Board of Directors approved the repurchase of up to one million shares on the open market from time to time (approximately 5.9% of outstanding shares)

In Q1 2012, the Company revised its Thermal/Acoustical reportable segment into two reportable segments (Thermal/Acoustical Metals and Thermal/Acoustical Fibers) in order to better align them with management’s strategic approach and operational decision-making. The decrease in net sales in the first quarter of 2012 compared to the same period in the prior year was primarily attributed to $7.4 million lower sales in the Performance Materials segment, partially offset by increased sales in the Thermal/Acoustical Metals and Thermal/Acoustical Fibers segments and Other Products and Services (OPS).

Performance Materials was negatively impacted in Q1 2012 by weaknesses in the European and Asian industrial air filtration markets as compared to Q1 2011, when the segment reported record sales, as well as lower demand for industrial thermal insulation products and life sciences filtration products in North America as a result of customers adjusting inventory levels during the first quarter of 2012.

The increase in gross profit and gross margin in Q1 2012 compared to Q1 2011 was attributed to the Thermal/Acoustical Fibers segment, which benefited from improved manufacturing processes and a lower cost structure, and the Thermal/Acoustical Metals segment, which saw increased sales and better absorption of fixed costs as well as lower raw material costs. These gains were partially offset by reduced gross profit and gross margin in the Performance Materials segment. The Performance Materials segment results were affected by the lower sales volumes and related absorption as well as unfavorable mix among product sales.

The increase in operating income in Q1 2012 compared to Q1 2011 was driven by the increase in gross profit described above as well as an improvement in Life Sciences Vital Fluids (included in OPS) operating income, partially offset by a $0.4 million increase in selling, product development and administrative expenses resulting primarily from an increase in corporate office professional services expenses.

American Air Filter Co., Inc. (AAF International), a manufacturer of air filtration products, recently announced it will expand its Fayetteville manufacturing facility. The company plans to add 58 new jobs and invest $516,000 in the facility. The company currently employs 112 people at its Fayetteville facility, and the expansion will increase that workforce to 170. AAF's Fayetteville facility manufactures panel and pleated air filters for a wide variety of end users. In other news, AAF is planning to close its 340 000 sq ft Hutchins plant in Texas by the end of September 2012.

Cabot Corporation (NYSE: CBT) entered into an agreement to purchase Norit N.V., the global leader in activated carbon from affiliates of Doughty Hanson & Co. Managers Limited and Euroland Investments B.V. for $1.1 billion. The acquisition strengthens Cabot’s specialty chemicals portfolio with a non-cyclical, high growth and high margin business.

"Norit’s leading market position, unique technology and strong financial performance is an excellent fit with Cabot’s portfolio. This acquisition supports the ongoing transformation of our portfolio to a higher margin, less cyclical, specialty chemicals focused company," said Cabot President and Chief Executive Officer, Patrick Prevost . "The acquisition of Norit is a natural extension of our core R&D and applications development competencies. Norit is the leader in purification and we are looking forward to the Norit team joining Cabot."

Activated carbons are performance materials used in multiple high-end applications including environmental protection, air and water purification, food and beverages, pharmaceuticals and catalysts. Norit operates 10 manufacturing facilities throughout the Americas and Europe. It employs 760 people and provides the widest and most differentiated range of activated carbon products of any producer. Norit generated sales of $360 million and adjusted EBITDA of $92 million for the trailing twelve months ended December 31, 2011. The business has grown 12 percent annually since 2007 and will become an important component of Cabot’s growth strategy. Norit’s current chief executive officer, Ronald Thompson, will continue to lead the business.

"Norit’s differentiated products for high-end applications drive substantially higher margins relative to competition. Norit’s fundamental business performance generates EBITDA margins in excess of 25 percent and we expect annual revenue growth in the range of 10 percent to 12 percent," said Cabot Chief Financial Officer, Eduardo Cordeiro. "We remain confident in our adjusted EPS target of $4.50 in 2014 from our base business, and the Norit acquisition will be incremental to that target."

Cabot expects the acquisition to be financed with a combination of approximately $200 million of cash and $300 million of borrowings under its existing revolver. In addition, the company plans to issue approximately $600 million of long-term debt prior to closing. The transaction is expected to close within calendar year 2012 and is conditional upon Dutch works council consultation and advice and approval of the competition authorities in the U.S. and Germany.

J.P. Morgan is Cabot’s financial advisor for the transaction. Wachtell, Lipton, Rosen & Katz is Cabot’s legal advisor for the transaction, with De Brauw Blackstone Westbroek and Slaughter & May serving as Dutch and English counsel, respectively.

Parker Hannifin Corporation, the global leader in motion and control technologies, recently announced that it has acquired the filtration business of John Fowler (India) Private Limited based in Bangalore, India. The John Fowler filtration business manufactures air, fuel and hydraulic filters for use in transportation and industrial applications. Terms of the transaction were not disclosed.

The acquired business has annual sales of approximately $4 million and employs 50 people. The division will be integrated into Parker's Filtration Group and the sales will be reported as part of the International Industrial Segment.

"The acquisition of the John Fowler filtration business allows us to expand our base business and end market exposure in a strategically important growth market in India," said Peter Popoff, President of Parker's Filtration Group. "This acquisition also adds local manufacturing, product breadth, an experienced team, and strong distribution and OEM customer relationships."

Noveko International Inc. (TSX:EKO) said recently that it will give up its 70 percent interest in Noveko Algerie in exchange for the return of $1.4 million it advanced to the North African company.

The Montreal company said it will focus its attention on air filtration, which it considers a promising market. The refunded money will be used to reduce debt.

"Our decision to relinquish our interest in Noveko Algérie is consistent with our strategy to refocus our activities in the air filtration segment," CEO and board chairman Andre Leroux said in a news release.

"By sticking with our strategy, we are also improving our financial situation and reducing our debt," he said.

Noveko makes antimicrobial air filters, surgical masks, respirators, hand sanitizers and medical equipment, including portable real-time ultrasound scanners for use in human and veterinary medicine.

Johns Manville has consolidated brands within its Nonwovens business segment to a new single brand name: Evalith. The name comes from the Latin word "evalidus," which means "very strong." The company chose Evalith to represent the strength of its products with respect to quality, product characteristics and their versatile application fields—from glass fiber reinforced roofing membranes to air filtration.

Johns Manville, a Berkshire Hathaway company, is a leading manufacturer and marketer of premium-quality building and specialty products. In business since 1858, the Denver, CO-based company has annual sales of approximately $2.5 billion and holds leadership positions in all of the key markets that it serves, including construction, filtration, energy and geotextiles. Johns Manville employs approximately 6,600 people and operates 40 manufacturing facilities in North America, Europe and China. Additional information can be found at www.jmeurope.com and www.jm.com.

Adhesives for the Filter Industry, a new brochure from Henkel Corporation, reviews the company's comprehensive line of products for filter assembly. The 26-page brochure provides technical information on more than 100 products for use on liquid, industrial, high- efficiency, HVAC and water filters.

Manufacturers face many decisions when selecting the most appropriate adhesive for a particular filter bonding application and must analyze variables like substrate suitability, bond strength, viscosity, open time, flexibility and temperature resistance. The new filter brochure discusses the five main categories of filters and presents selector charts for each type. Each chart groups adhesive products by application (for example: frame assembly, membrane bonding, pleating, end-cap molding, wire mesh/scrim attachment, gasketing and more), and provides a range of critical performance data on the appropriate adhesive technologies for that application.

To download a copy of Adhesives for the Filter Industry, go to: www.henkelna.com/filters