Donaldson Company Annual Report 2006

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FY2006 Annual Report · Donaldson Company

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spotlights on Growth

Annual Report 2006

17 Consecutive Record Years

2 0 0 6 A N N U A L R E P O R T

the Company
Donaldson Company, Inc. is a leading

worldwide designer and manufacturer
of filtration systems and replacement

parts. We strive to be both the technol-

ogy leader in every market we serve

and to provide the best overall value to

our Customers. Our products include

air and liquid filters and exhaust and

emission control products for mobile

equipment; aircraft cabin air and defense

equipment filters; in-plant air cleaning

systems; compressed air and gas puri-

fication systems; air intake systems for

industrial gas turbines; and specialized

filters for such diverse applications as

computer disk drives, semiconductor

processing and fuel cell contamination

control. We serve our Customers

through our extensive network of sales

offices, distribution centers and manu-

facturing facilities now located in 35

countries around the world.

Our financial objective is to create

shareholder value through superior

share price appreciation and consistent

dividend payouts. We will continue to

grow by aggressively pursuing new

opportunities with our Customers in our

existing and related markets. We will

utilize our diversified portfolio of related

filtration businesses around the world

to deliver consistent earnings growth.

Industrial Air Filtration

Disk Drive Filters

Industrial Products Segment
2006 Sales $702 Million

InDuStRIAl FIltRAtIon SolutIonS

SPeCIAl APPlICAtIonS

We provide a wide range of high efficiency
media, filters and filtration systems for various
high technology applications.

Products for the disk drive market include
particulate filters, desiccant filters and chemical
adsorbing filters. Customers include the major
disk drive and microelectronics manufacturers.

Our products for high technology applications
include air filter systems for semiconductor
processing facilities, contamination control for
process-critical applications.

We sell our Tetratex ® expanded PtFe
membrane for applications including dust
collection, environment and pollution control,
fluid separation, water-resistant venting, and
performance fabrics, such as medical, military
and emergency service garments.

Our Industrial Filtration Solutions group (IFS)
provides a broad range of filtration products
under the Donaldson brand and six product
brands—Torit™, Ultrafilter™, Torit/DCE™,
AirCel™, LHA™ and Triboguard™—as well
as a full line of replacement filters and parts.

IFS products are used in a variety of industries,
including pharmaceutical, bulk food handling,
metalworking, mining, cement, plastics, glass
and wood.

Air Filtration Systems and replacement filters
capture dust, mist or fumes in demanding
manufacturing and processing environments.
Replacement filters and bags are stocked and
distributed quickly through our strategically
located Distribution Centers.

Compressed Air and Gas Purification
solutions include air intake and oil filters, air/oil
separators for compressor room equipment,
and air dryers and point-of-use compressed air
filters to deliver clean, dry compressed air and
gas throughout manufacturing facilities.

Our Industrial liquid Filtration products
include hydraulic filters to help protect engines,
motors and moving parts in manufacturing
processes. Our process filters purify industrial
liquids used in beverages, dairy products, paint
and other consumer products.

We sell to our Customers directly, as well as
through an extensive network of distributors,
dealers, resellers, installers and engineering
firms. We also have built strong OEM relation-
ships to encourage the incorporation of IFS
products into our Customers’ equipment.

Disk drive filters are sold to OEM manufacturers
by a direct sales force. Other high technology
application products are sold to OEMs and
directly to end users. Tetratex® membranes are
sold directly to various footwear, garment and
filter manufacturers.

$440 million

$141 million

S
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D
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P

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o

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t
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S
6
0
0
2

D O N A L D S O N C O M P A N Y , I N C .

Gas Turbine Systems

Aftermarket

Original Equipment

Engine Products Segment
2006 Sales $992 Million

GaS Turbine SySTeMS

OriGinal equiPMenT

afTerMarkeT

We provide complete air intake systems for gas
turbines and industrial compressors. Products
include self-cleaning filter units, static air filter
units, inlet ducting and silencing, evaporative
coolers, chiller coils, inlet heating and anti-icing
systems. We also offer a full line of replacement
filters and parts, along with field service.

Modern gas turbines require inlet air filtration and
noise attenuation systems. These turbines provide
base electricity, peaking capacity and remote
power generation for special applications,
such as pipelines and off-shore drilling
platforms. Customers include most major
turbine manufacturers.

S
T
C
u
D
O
r
P

S
n
O

i
T
a
C
i
l
P
P
a

Our Engine Systems & Parts group provides a
wide range of quality filtration solutions and
replacement parts under the Donaldson and
Le Bozec brand names, as well as the technology
brands of Donaldson Endurance™, PowerCore™,
Spiracle™ and Synteq™.

Our global distribution network delivers a broad
line of filtration and exhaust replacement prod-
ucts quickly and accurately to meet the needs
of our Customers around the world. Our filters
utilize the latest in filtration technology, such
as Ultra-Web®, PowerCore™ and Synteq™.

We sell replacement parts to fit our first-fit
systems and also through an all-makes program.
Our replacement parts are sold through our
OEM’s parts and service organizations, indepen-
dent distributors and private label marketers.
We market our replacement filters and parts
under both the Donaldson brand and our
OEMs’ brands.

Products are sold to agricultural, construction,
mining, aerospace and defense equipment
manufacturers.

We pride ourselves on being the world’s leading
first fit supplier of air filtration, exhaust
and hydraulic systems for off-road equip-
ment, requiring heavy-duty protection. Our prod-
ucts are also used in the roughest aircraft and
military applications—effectively filtering air,
lube, oil, fuel, transmission and hydraulic fluids,
as well as reducing exhaust noise and emissions.

Leading truck and bus manufacturers around
the globe rely on us for quality engine protection
products. Our filtration products are sold to
manufacturers of light-, medium- and heavy-
duty trucks. They Demand Donaldson® for
our superior design features which optimize
performance and efficiency while reducing
maintenance costs.

We sell our gas turbine products primarily to
turbine manufacturers. Our replacement parts
and filters are sold both to our OEMs and directly
to end-users, such as power generation companies,
oil and gas producers and others.

$121 million

S
e
l
a
S
6
0
0
2

$493 million

$499 million

2 0 0 6 A N N U A L R E P O R T

dear Shareholders,

At Donaldson, we believe that any long-term corporate strategy should
revolve around an integrated purpose to build:
• a strong and enduring business that generates solid returns for

our Shareholders,

• high value products and services for our Customers, and
• opportunity and challenge for our Employees.
More than 0 years ago, we embarked on a long-term strategy to diversify our filter businesses—by geography,
by industry and by Customer segment. We adopted this strategy with the goal of delivering value to our
Shareholders by improving the consistency and quality of our financial results.

A commitment like that is easy to articulate but difficult to execute. Yet, with our strong and dedicated workforce,
we have been very successful in that endeavor. Our results this year added to that success—in short, we had
a great year! We delivered:
• a new sales record and our 7th consecutive earnings record,
• a full-year operating margin of .4%, ahead of our % target, and
• a return on shareholders’ equity of 4.7%.

At the same time, we continued to invest around the world for our future growth and to support our commit-
ment to stay close to our Customers. Last year, we invested more than $77 million in new facilities. This
included the construction of two new production plants in China—one for engine air filters and the other
for industrial filtration equipment. We also built another new plant in the Czech Republic to produce dust
collectors for the European market.

In addition, we began work on a number of projects to improve our parts distribution network:
• a new distribution center in Johannesburg, South Africa,
• a 50 percent expansion of our main U.S. distribution center in Rensselaer, Indiana,
• a new distribution center in Aguascalientes, Mexico to support our sales growth in Latin America, and
• a new distribution center in Brugge, Belgium to more cost-effectively serve our growing European

Long-Term
Performance
(Cumulative Total Return)
(???????)

Customer base.

These projects will be completed in the next few months and will further expand our support capabilities to
our Customers.

$250

$200

$150

listening to Our Customers
Across our organization, we have reemphasized the need to listen—really listen—to our Customers,
understand their needs, and apply our technology, applications expertise, and manufacturing skills to deliver
cost-effective solutions. This has always been the case at Donaldson, but this past year, across the Company,
we have rededicated ourselves to this process: listening, understanding, and responding with effective solu-
tions to our Customers’ needs. Our collective efforts have paid off. How do we know that? Our Customers—
both Engine and Industrial—have told us so, and more broadly, our financial results confirm that.

$100

$50

By business unit, we were firing on all cylinders in the second half of 006, giving us solid momentum as we
enter 007.

’04 ’05

7/01

7/02

’06

’03

Donaldson Company, Inc.
S & P 500

In Europe, our Engine Products segment was strong across the board, resulting in double-digit sales growth
in the truck, off-road and aftermarket businesses. Local market conditions improved throughout the year, and
we also increased our market share with some of our new innovative technologies such as our PowerCore™
Filtration Technology.

250

200

150

100

5 Year Cumulative
Total Return*

$250

$200

$150

$100

$50

’01

’02

’03

’04 ’05

’06

Donaldson Company, Inc.
S & P 500

* $100 invested on 7/31/01 in stock
or index-including reinvestment
of dividends.

D O N A L D S O N C O M P A N Y , I N C .

In North America, our Engine Products segment was also strong. Conditions for our Customers in the con-
struction and mining segments remained robust. New heavy truck build rates at our truck OEMs continued
at record levels, and equipment utilization rates for existing fleets of construction, truck and agricultural
equipment remained high.

In our Industrial Products segment, our Gas Turbine Systems business enjoyed its first full-year sales growth
since 00, the last year of the North American power generation boom. This business has clearly turned the
corner. We also saw a dramatic improvement in the profitability of our Industrial Filtration Solutions, or IFS,
business which includes our dust collection and compressed air filtration products. Many factors contributed
to our strong results including numerous internal improvement initiatives, higher sales volume and a higher
mix of replacement filters. And finally, our Disk Drive filter business had another very strong year. We currently
manufacture over one million Disk Drive filters a day in our production facilities in China and Thailand.

Strengthening Our balance Sheet
We have accomplished all of this while maintaining our overall financial health. Thanks to excellent financial
management at all levels of our organization, we were able to:
• invest $77 million in new plants and distribution facilities,
• repatriate $60 million of foreign cash that will be invested in accordance with the provisions of the

2.0

1.5

American Jobs Creation Act,

• reduce debt and interest expense—in spite of higher overall interest rates,
• repurchase $9 million of our stock—consistent with our share repurchase philosophy,
• make our largest investment ever in new product development, and
• build the financial foundation that allows another $60 to $70 million for capital projects in 007.

1.0

0.5

a Strong Outlook for fiscal 2007
Our outlook for 007 is good—and here again, our long-term strategy is the key. We have created a well-
diversified global portfolio of filtration businesses. Although we foresee a cyclical downturn in our North
American new truck business during the second half of our new fiscal year, this should be more than offset by
the strength in our other Engine businesses globally, as well as solid sales growth across our Industrial group.

0.0

Moreover, we remain focused on improving the core profitability of our business. We made significant progress
in 006, with operating margins exceeding percent in both the third and fourth quarters. We will continue
our work on cost reductions and internal efficiency improvements.

The bottom line is that we expect the strength of our diversified portfolio of filtration businesses and our
continued focus on improvements within our businesses to deliver another year of record sales and earnings
in 007.

2.0

1.5

None of this would be possible without the business we enjoy with our Customers. To our Customers I say,
“Thank you for the opportunity to serve you.”

1.0

The dedication and hard work of my fellow ,500 Employees makes our strategy successful and provides
value to our Customers. Thank you for your efforts.

Finally, to our Shareholders, our sincere thanks for your continued trust and support.

0.5

Sincerely,

0.0

BILL COOk
Chairman, President and CEO

Earnings Per Share
(diluted)

$2.00

$1.50

$1.00

$0.50

$2.0

$1.5

$1.0

$0.5

’01

’02

’03

’04 ’05

’06

Net Sales
(dollars in millions)

’01

’02

’03

’04 ’05

’06

2 0 0 6 A N N U A L R E P O R T

new Plants

ManufaCTurinG TO MeeT DeManD

We spent a record $77 million in capital expenditures in 006, including two more

production plants in China—one for engine filters, one for industrial filtration

equipment—and another plant in the Czech Republic to produce industrial filtration

equipment for the European market. These new plants added 50,000 square feet

of capacity to serve our industrial and engine filtration Customers.

Our new production capacity also provides the foundation to serve these new emerg-

ing and growing markets. In China, our new industrial filtration plant significantly

expands our existing capacity and capabilities for both China and the surrounding

region. Our new engine air filter plant allows us to serve our multinational Customers

in China and our existing Asian Customer base. In the Czech Republic, our new

industrial filtration plant helps us to better serve our established Customer base

in Western Europe as well as establish an important presence in Central Europe,

a region undergoing massive industrialization.

Donaldson
increased
manufacturing
capacity by

350,000

square feet,
or more than

32,500

square meters.

kadan, Czech Republic

Wuxi, China

D O N A L D S O N C O M P A N Y , I N C .

new Distribution

aDDreSSinG CuSTOMer neeDS

New and expanded distribution facilities will further enhance our ability to fill the

growing demand for replacement filters throughout the world.

Not long ago we were primarily a “first fit” filtration provider, manufacturing filtra-

tion systems installed on new equipment and capturing only a small portion of the

replacement filter sales for those systems. In 006, our sales of engine and industrial

replacement filters accounted for more than 44 percent of our $.7 billion in 006

revenues, approaching our long-term goal of 50 percent.

The key to growth in our replacement filter business is the ability to deliver high

quality filters to our Customers where and when our Customers need them. In

006, we began work on new distribution centers in South Africa and Mexico, a

50 percent expansion of our U.S. distribution center in Rensselaer, Indiana and

a new European distribution center in Brugge, Belgium. These facilities will be

operational in early 007.

Replacement Air Filters

Donaldson
increased
distribution
capacity by

450,000

square feet,
or more than

41,800

square meters.

Growth of
Replacement Filter Sales
2006

Replacement

44%

56%

First-Fit

1983

Replacement

22%

78%

First-Fit

New distribution center—Johannesburg, South Africa

2 0 0 6 A N N U A L R E P O R T

new Platforms

The PowerCore
Success Story

year-Over-year
inCreaSe:

45%

new PlaTfOrM
win raTe:

90%

uniTS SOlD:

2.7

MilliOn

inDuSTry-leaDinG filTraTiOn TeChnOlOGy

Our PowerCore™ filtration technology—the recipient of the 006 Frost & Sullivan

Automotive Air Filters Aftermarket Product Innovation of the Year Award—is

poised to become the industry standard for air filtration over the next few years.

Introduced in 000, PowerCore air filtration systems have been approved on 60

of our Customers’ new equipment platforms. In addition, we had proposals at our

Customers for an additional 67 platforms.

PowerCore employs a proprietary combination of high-density filtration construction

and nano-fiber technology which together results in improved particle collection

efficiency and higher air flow—all in a package half the size of

competing technologies. These advantages make PowerCore sys-

tems ideally suited to meet size, weight and efficiency demands

of our Customers’ new equipment designs. And, PowerCore’s

proprietary media and design means we will capture most of

the replacement filter sales for equipment installed with our

PowerCore air filtration systems.

Ford® Super Duty Power Stroke® Diesel Pickup

PowerCore Replacement Filters

Corvette Z06

D O N A L D S O N C O M P A N Y , I N C .

new frontiers

Ultra-Web™ Nano-fiber Structure

Replacement Air Filters with Ultra-Web™

Ultra-Web™ Synthetic ECM

Tetratex® Expanded PTFE
Membrane—magnified ,000X

Our Ultra-Web™ nano-fiber media is a technology that remains unequaled in useful-

ness, functionality—and potential. This technology application extends all the way

from large and demanding industrial applications to high-tech biochemical frontiers.

Our award-winning Downflo® Oval technology is a great filtration solution for those

large and demanding industrial applications. By employing Ultra-Web filtration media,

our Downflo Oval collector provides a 5 percent increase in airflow capacity;

improved airflow path and a 9 percent increase in pulse cleaning pressure, giving

our Customers improved filtration efficiency without increasing the size of the

collector. This fall, we will be extending our technology into another frontier—

Ultra-Web media on a spunbond substrate—ideal for applications requiring the

removal of more abrasive particulate or chemicals.

Another good example of our application of Ultra-Web media in a completely new

and non-filtration field is our partnership with Minneapolis-based SurModics, Inc.

We jointly developed a new variation of our Ultra-Web surface—Ultra-Web Synthetic

ECM—a material that produces consistent, reproducible, and biologically meaning-

ful results for cell research and cell-related applications. Our synthetic ECM tech-

nology provides a -D tissue culture surface that closely mimics the body’s own

microenvironment. Researchers are using it for the growth and development of cell

Donaldson Torit® Downflo® Oval Collector

cultures in the search for new disease therapies.

2 0 0 6 A N N U A L R E P O R T

Eleven-Year Comparison of results
July , 006

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

Operating results

Net sales

Gross margin percentage

Operating income percentage

Effective income tax rate

Net earnings

Return on sales

Return on average shareholders’ equity

Return on investment

financial Position

Total assets

Current debt

Long-term debt

Total debt

$ 1,694.3

$ ,595.7

$ ,45.0

$ ,.

$ ,6.0

$ ,7.0

$,09.

32.9%

11.4%

30.1%

.7%

9.%

.6%

0.0%

5.0%

0.%

7.0%

.0%

7.0%

0.%

9.9%

.0%

0.0%

9.7%

0.0%

$ 132.3

$ 0.6

$ 06.

95.

6.9

75.5

70.

7.8%

24.7%

20.8%

6.9%

0.6%

7.7%

7.5%

7.%

.0%

7.7%

4.%

9.%

6.6%

5.%

9.%

6.4%

5.9%

9.4%

$ 1,124.1

$ ,.

$ ,00.6

$ .0

$ 50.

$ 706.

$ 677.5

79.9

$ 09.

$ 100.5

$ 0.

54.

70.9

60.9

$ 05.

$ 04.6

59.4

99.

9.6

$ 180.4

$ .

$ 4.9

$ 0.0

$ 65.4

$ 5.7

$ 7.0

Shareholders’ equity

$ 546.8

$ 54.6

$ 549.

$ 447.4

$ .6

$ 9.

$ 0.

Long-term capitalization ratio

15.5%

6.5%

.4%

9.0%

.5%

.7%

4.9%

Property, plant and equipment, net

$ 317.4

$ 75.5

$ 6.5

$ 55.4

$ 40.9

$ 07.7

$ 04.5

$ 944.

9.%

9.4%

0.0%

$ 6.4

6.6%

4.%

9.0%

$ 54.

$ 0.7

$ 6.7

$ 07.4

$ 6.

4.%

$ .

$ 940.4

.0%

9.%

4.0%

$ 57.

6.%

0.5%

$ 5.0

$ 45.9

$ 5.6

$ 97.4

$ 55.7

6.%

$ 7.9

$ .

0.0%

9.9%

6.0%

$ 50.6

6.%

.4%

0.%

$ 467.5

$ 4.7

$ 4.

$ 46.9

$ 4.9

.7%

$ 75.6

9.4%

0.0%

.9%

$ 4.4

5.7%

9.%

.5%

$ 40.9

$ .

$ 0.0

$ .

$ .9

4.%

$ 54.6

$ 4.9

Net expenditures on property, plant

and equipment

Depreciation and amortization

Shareholder information

(adjusted for splits)

Net earnings per share—assuming

77.6

44.7

50.

44.

4.0

4.6

7.6

40.5

6.4

$ 9.5

$ 7.7

$ 54.7

$ 5.

$ 47.

$ .5

$ 9.

$ .7

dilution

1.55

.05

0.95

0.76

Dividends paid per share

$ 0.320

$ 0.5

$ 0.05

$ 0.75

$ 0.55

$ 0.4

$ 0.5

Shareholders’ equity per share

Shares outstanding (millions)

6.80

80.5

5.6

6.7

4.6

.59

$ 0.66

$ 0.5

$ .4

9.4

$ 0.57

$ 0.095

$ .64

96.

$ 0.50

$ 0.05

$ .47

9.9

$ 0.4

$ 0.075

$ .6

Common stock price range, per share

High

Low

$ 36.00

$ 4.45

$ 0.75

$ 4.59

$ .50

$ 6.5

$ .56

$ 28.60

$ 5.

$ .55

$ 4.96

$ .47

9.4

9.5

$ .97

$ 6.75

$ .5

$ 9.

$ 0.9

$ 6.4

$ 7.

$ 5.97

Safe harbor Statement
The Company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 995 (the “Act”) and is making this cautionary statement in connection with
such safe harbor legislation. Some of the information provided in this annual report constitutes forward-looking statements which reflect the Company’s current views with respect to future events
and financial performance, but involve uncertainties that could significantly impact results. All forecasts and projections are “forward-looking” statements and are based on management’s current
expectations of the Company’s near-term results. There can be no assurance that actual results will not differ materially from its expectations. For a more detailed explanation of the safe harbor
statement and the risks, see the Company’s Form 0-k filed with the SEC.

2 0 0 6 A N N U A L R E P O R T

shareholder Information

JaCk W. euGster, 61
Retired Chairman, President and
Chief Executive Officer
The Musicland Group, Inc., Minneapolis
(Consumer Products)
Independent Director since 1993 (1) (2*)

John F. GrundhoFer, 67
Retired Chairman and Chief Executive Officer
U.S. Bancorp, Minneapolis (Financial Services)
Independent director since 1997 (1) (3*)

miChael J. hoFFman, 51
Chairman, President and Chief Executive Officer
The Toro Company, Minneapolis (Manufacturing)
Independent director since 2005 (2)

paul daVid miller, 64
Retired Chairman and Chief Executive Officer
Alliant Techsystems, Inc. Minneapolis
(Defense and Aerospace)
Independent director since 2001 (2) (3)

JeFFrey noddle, 60
Chairman, President and Chief Executive Officer
SUPERVALU INC., Minneapolis
(Food Retailer and Distributor)
Independent director since 2000 (1*) (2)

Willard d. oberton, 47
Chief Executive Officer and President
Fastenal Company, Winona, MN
(Industrial Supplies)
Independent director since 2006 (3)

John p. WiehoFF, 45
Chief Executive Officer and President
C. H. Robinson Worldwide, Inc., Minneapolis
(Transportation & Logistics)
Independent director since 2003 (2) (3)

(1) human resources Committee
(2) audit Committee
(3) Corporate Governance Committee
(*) Committee Chairperson

Shareholder Information

Corporate Officers

William m. Cook, 53
Chairman, President and Chief Executive Officer
26 years service

Charles J. mCmurray, 52
Senior Vice President, Industrial Products,
Technology, and South Africa
26 years service

loWell F. sChWab, 58
Senior Vice President, Engine Systems and Parts
27 years service

Geert henk touW, 60
Senior Vice President, Asia Pacific
20 years service

sandra n. Joppa, 41
Vice President, Human Resources,
Communications, and Facilities
1 year service

norman C. linnell, 47
Vice President, General Counsel and Secretary
11 years service

William i. Vann, 61
Vice President, NAFTA Operations and Mexico
39 years service

thomas r. VerhaGe, 53
Vice President and Chief Financial Officer
3 years service

Board of Directors

F. Guillaume bastiaens, 63
Vice Chairman
Cargill, Inc., Minneapolis (Agribusiness)
Independent director since 1995 (1) (3)

William m. Cook, 53
Chairman of the Board, President and
Chief Executive Officer
Donaldson Company, Inc.
Director since 2004

Janet m. dolan, 56
Retired President and Chief Executive Officer
Tennant Company, Minneapolis (Manufacturing)
Independent director since 1996 (2) (3)

NYSE Listing
the common shares of donaldson Company,
inc. are traded on the new york stock exchange,
under the symbol dCi.

Shareholder Information
For any concerns relating to your current or
prospective shareholdings, please contact
shareowner services at (800) 468-9716 or
(651) 450-4064.

Dividend Reinvestment Plan
as of september 21, 2006, 1,155 of donaldson
Company’s approximately 1,903 shareholders
of record were participating in the dividend
reinvestment plan. under the plan, shareholders
can invest donaldson Company dividends in
additional shares of Company stock. they may
also make periodic voluntary cash investments
for the purchase of Company stock.

both alternatives are provided without service
charges or brokerage commissions. share-
holders may obtain a brochure giving further
details by writing Wells Fargo bank minnesota,
n.a., shareowner services, p.o. box 64854,
st. paul, mn 55164-0854.

Annual Meeting
the annual meeting of shareholders will be held
at 1 p.m. Ct on Friday, november 17, 2006, at
donaldson Company, inc., 1400 West 94th
street, bloomington, minnesota. shareholders
are welcome to attend.

Investor Relations
you can access investor relations information,
including our seC filings, on our website at
www.donaldson.com. For investor inquiries,
contact rich sheffer, director of investor
relations at (952) 887-3753 or
rsheffer@mail.donaldson.com.

Auditors
pricewaterhouseCoopers llp
minneapolis, minnesota

Public and Investor Relations Counsel
the Carideo Group, inc.
minneapolis, minnesota

Transfer Agent and Registrar
Wells Fargo bank minnesota, n.a.
south st. paul, minnesota

Diversity
donaldson is focused on creating a globally
inclusive culture. our goal is to create an
atmosphere of mutual respect where individual
differences are valued and all employees can
contribute to their full potential.

D O N A L D S O N C O M P A N Y , I N C .

Board of Directors

Front Row (l-r)—Hoffman, Dolan, Bastiaens, Noddle; Middle Row (l-r)—Miller, Grundhofer; Back Row (l-r)—Wiehoff, Oberton, Eugster, Cook.

Corporate officers

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Front Row (l-r)—McMurray, VerHage, Joppa, Schwab; Middle Row (l-r)—Cook, Vann, Linnell; Back Row—Touw.

Industrial Products Segment

2006 Sales $702 Million

InDuStRIAl FIltRAtIon SolutIonS

SPeCIAl APPlICAtIonS

Our Industrial Filtration Solutions group (IFS)

We provide a wide range of high efficiency

provides a broad range of filtration products

media, filters and filtration systems for various

under the Donaldson brand and six product

high technology applications.

brands—Torit™, Ultrafilter™, Torit/DCE™,

AirCel™, LHA™ and Triboguard™—as well

as a full line of replacement filters and parts.

IFS products are used in a variety of industries,

Products for the disk drive market include

including pharmaceutical, bulk food handling,

particulate filters, desiccant filters and chemical

metalworking, mining, cement, plastics, glass

adsorbing filters. Customers include the major

and wood.

disk drive and microelectronics manufacturers.

Air Filtration Systems and replacement filters

Our products for high technology applications

capture dust, mist or fumes in demanding

include air filter systems for semiconductor

manufacturing and processing environments.

processing facilities, contamination control for

Replacement filters and bags are stocked and

process-critical applications.

distributed quickly through our strategically

located Distribution Centers.

We sell our Tetratex ® expanded PtFe

membrane for applications including dust

Compressed Air and Gas Purification

collection, environment and pollution control,

solutions include air intake and oil filters, air/oil

fluid separation, water-resistant venting, and

separators for compressor room equipment,

performance fabrics, such as medical, military

and air dryers and point-of-use compressed air

and emergency service garments.

filters to deliver clean, dry compressed air and

gas throughout manufacturing facilities.

Our Industrial liquid Filtration products

include hydraulic filters to help protect engines,

motors and moving parts in manufacturing

processes. Our process filters purify industrial

liquids used in beverages, dairy products, paint

and other consumer products.

We sell to our Customers directly, as well as

Disk drive filters are sold to OEM manufacturers

through an extensive network of distributors,

by a direct sales force. Other high technology

dealers, resellers, installers and engineering

application products are sold to OEMs and

firms. We also have built strong OEM relation-

directly to end users. Tetratex® membranes are

ships to encourage the incorporation of IFS

sold directly to various footwear, garment and

products into our Customers’ equipment.

filter manufacturers.

$440 million

$141 million

Donaldson: our mission

We provide the best filtration solutions and value to our Customers through our portfolio of global filter
businesses. We manage our business to deliver consistent long-term earnings growth and superior
returns for our Shareholders. By serving the best interests of both our Customers and Shareholders we
create security and opportunities for our Employees.

Wir bieten unseren Kunden ein vollständiges Produktportfolio an innovativen Filtrationslösungen.
Unseren Anspruch können Sie an unserem wirtschaftlichen Erfolg messen. Kontinuierliche
Gewinnsteigerungen und eine konstante, positive Geschäftsentwicklung geben beste Aussichten
für die Zukunft unserer Aktionäre. Unser besonderes Interesse gilt unseren Kunden und Aktionären
und wir schaffen somit gleichzeitig Sicherheit und Visionen bei unseren Mitarbeitern.

Ofrecemos las mejores soluciones en filtración y valor a nuestros clientes a través de nuestro portafolio
de negocios en filtración global. Manejamos nuestro negocio para entregar crecimiento constante de
ganacias a largo plazo y retornos de inversión superiores para nuestros Accionistas. Sirviendo a los
mejores intereses tanto de nuestros clientes y accionistas, creamos seguridad y oportunidades para
nuestros empleados.

Široké portfolio globální nabídky nám umožˇnuje poskytnout zákazník ˚um to nejlepší a nejkvalitnˇeší ˇrešení
v oblasti filtrace. Naše obchodní ˘cinnost je ˇrízena tak, aby vykazovala trvale dlouhodobý r ˚ust výnos˚u a
pˇrinášela výrazný zisk našim akcionáˇr ˚um. Kvalitní službou zákazník ˚um a akcionáˇr ˚um zajišt’ujeme pevné
zázemí a perspektivu našim zamˇestnanc ˚um.

Donaldson Company, Inc.

Mail Station 104

PO Box 1299

Minneapolis, MN 55440-1299

952 887 3131