Donaldson Company

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

⌧ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange

Act of 1934 for the fiscal year ended July 31, 2009 or

(cid:3)

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
(State or other jurisdiction of
incorporation or organization)

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

41-0222640
(I.R.S. Employer
Identification No.)

55431
(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Common Stock, $5 Par Value
Preferred Stock Purchase Rights

Name of each exchange
on which registered

New York Stock Exchange
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate  by  check  mark  if  the  registrant  is  a  well-known  seasoned  issuer,  as  defined  in  Rule  405  of  the  Securities

Act. Yes  ⌧ No (cid:3)

Indicate  by  check  mark  if  the  registrant  is  not  required  to  file  reports  pursuant  to  Section  13  or  Section  15(d)  of  the

Act.   Yes  (cid:3) No  ⌧

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. Yes  ⌧ No (cid:3)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 short period that the registrant was required to submit and post such files) Yes  (cid:3) No (cid:3)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:3)

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 ⌧
Non-accelerated filer (cid:3) (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes  (cid:3) No  ⌧
As of January 31, 2009, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate
market value of voting and non-voting common stock held by non-affiliates of the registrant was $2,375,100,091 (based on the
closing price of $31.12 as reported on the New York Stock Exchange as of that date).

Accelerated filer (cid:3)
Smaller reporting company (cid:3)

As of August 31, 2009, there were approximately 77,279,071 shares of the registrant’s common stock outstanding.

Portions of the registrant’s Proxy Statement for its 2009 annual meeting of stockholders (the “2009 Proxy Statement”) are

incorporated by reference in Part III, as specifically set forth in Part III.

Documents Incorporated by Reference

DONALDSON COMPANY, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I

Item 1.

Item 1A. 
Item 1B.
Item 2.
Item 3.
Item 4.

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Seasonality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Raw Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Patents and Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Major Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Geographic Areas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters

Item 6.
Item 7.

Item 7A.
Item 8.
Item 9.

Item 9A.
Item 9B.

Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

Item 15.

and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Management’s Discussion and Analysis of Financial Condition

and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . 
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

PART III

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . 
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Security Ownership of Certain Beneficial Owners and Management and

Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Certain Relationships and Related Transactions, and Director Independence . . . . . 
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

PART IV

Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Schedule II – Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Consent of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . 
Certifications of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

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Item 1. Business

General

PART I

Donaldson Company, Inc. (“Donaldson” or the “Company”) was founded in 1915 and organized in its

present corporate form under the laws of the State of Delaware in 1936.

The Company is a worldwide manufacturer of filtration systems and replacement parts. The Company’s
product mix includes air and liquid filtration systems and exhaust and emission control products. Products
are manufactured at 40 plants around the world and through three joint ventures. The Company has two
reporting segments: Engine Products and Industrial Products. Products in the Engine Products segment
consist of air filtration systems, exhaust and emissions systems, liquid filtration systems and replacement
parts.  The  Engine  Products  segment  sells  to  original  equipment  manufacturers  (“OEMs”)  in  the
construction, mining, agriculture, aerospace, defense, and truck markets and to independent distributors,
OEM dealer networks, private label accounts and large equipment fleets. Products in the Industrial Products
segment consist of dust, fume and mist collectors, compressed air purification systems, liquid filtration
systems, air filter systems for gas turbines, and specialized air filtration systems for diverse applications
including computer hard disk drives. The Industrial Products segment sells to various industrial end-users,
OEMs of gas-fired turbines and OEMs and end-users requiring clean air. 

The table below shows the percentage of total net sales contributed by the principal classes of similar

products for each of the last three fiscal years:

Engine Products segment

Off-Road Equipment Products

(including Aerospace and Defense products)

On-Road Products 
Aftermarket Products

(including replacement part sales to the 
Company’s OEM’s)

Industrial Products segment

Industrial Filtration Solutions Products
Gas Turbine Systems Products
Special Applications Products

Year Ended July 31
______________________________
2007
2008
2009
_____
____
____

20%
4%

20%
6%

18%
9%

30%

29%

30%

27%
11%
8%

27%
10%
8%

27%
8%
8%

Financial  information  about  segment  operations  appears  in  Note  J  in  the  Notes  to  Consolidated

Financial Statements on page 51.

The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K, and amendments to those reports, available free of charge through its website, at
www.donaldson.com, as soon as reasonably practicable after it electronically files such material with (or
furnishes such material to) the Securities and Exchange Commission. Also available on the Company’s
website are corporate governance documents, including the Company’s code of business conduct and ethics,
corporate governance guidelines, Audit Committee charter, Human Resources Committee charter, and
Corporate Governance Committee charter. These documents are available in print, free of charge to any
shareholder who requests them. The information contained on the Company’s website is not incorporated
by  reference  into  this Annual  Report  on  Form  10-K  and  should  not  be  considered  to  be  part  of  this
Form 10-K.

1

Seasonality

In general, the Company’s Engine and Industrial Products segments are not considered to be seasonal.
However, a number of the Company’s end markets are dependent on the construction, agricultural and
power generation industries, which are generally stronger in the second half of the Company’s fiscal year.

Competition

Principal methods of competition in both the Engine and Industrial Products segments are technology,
price, geographic coverage, service and product performance. The Company competes in a number of highly
competitive filtration markets in both segments. The Company believes it is a market leader with many of
its product lines. The Company believes within the Engine Products segment it is a market leader in its Off-
Road Equipment and On-Road Products lines for OEMs and is a significant participant in the aftermarket
for replacement filters. The Engine Products segment’s principal competitors include several large global
competitors  and  regional  competitors,  especially  in  the  Engine  Aftermarket  Products  business.  The
Industrial Products segment’s principal competitors vary from country to country and include several large
regional and global competitors and a significant number of smaller competitors who compete in a specific
geographical region or in a limited number of product applications.

Raw Materials

The principal raw materials that the Company uses are steel, filter media and plastics. The Company
purchases a variety of types of steel. Commodity prices were high during the first half of the year, but
decreased during the second half such that the full year was comparable with Fiscal 2008.  The Company
experienced no significant supply problems in the purchase of its raw materials. The Company typically has
multiple sources of supply for the raw materials essential to its business. The Company is not required to
carry significant amounts of raw material inventory to secure supplier allotments. However, the Company
does stock finished goods inventory at its regional distribution centers in order to meet anticipated Customer
demand.

Patents and Trademarks

The Company owns various patents and trademarks, which it considers in the aggregate to constitute
a valuable asset, including patents and trademarks for products sold under the Ultra-Web®, PowerCore®,
and Donaldson® trademarks. However, it does not regard the validity of any one patent or trademark as
being of material importance.

Major Customers

There were no Customers that accounted for over 10 percent of net sales in Fiscal 2009.  Sales to
Caterpillar Inc. and its subsidiaries (“Caterpillar”) accounted for 10 percent of net sales in Fiscal 2008 and
Fiscal 2007. Caterpillar has been a customer of the Company for many years and purchases many models
and types of products for a variety of applications. Sales to the U.S. Government do not constitute a material
portion of the Company’s business. There were no Customers over 10 percent of gross accounts receivable
in Fiscal 2009 or 2008.

Backlog

At August 31, 2009, the backlog of orders expected to be delivered within 90 days was $259,181,000. All
of this backlog is expected to be shipped during Fiscal 2010. The 90-day backlog at August 31, 2008, was
$415,078,000. Backlog is one of many indicators of business conditions in the Company’s markets. However,
it  is  not  always  indicative  of  future  results  for  a  number  of  reasons,  including  short  lead  times  in  the
Company’s replacement parts business and the timing of orders in many of the Company’s Engine OEM
and Industrial markets.

2

Research and Development

During Fiscal 2009, the Company spent $40,643,000 on research and development activities. Research
and development expenses include basic scientific research and the application of scientific advances to the
development of new and improved products and their uses. The Company spent $43,757,000 in Fiscal 2008
and $36,458,000 in Fiscal 2007 on research and development activities. Substantially all commercial research
and development is performed in-house.

Environmental Matters

The Company does not anticipate any material effect on its capital expenditures, earnings or competitive
position during Fiscal 2010 due to compliance with government regulations regulating the discharge of
materials into the environment or otherwise relating to the protection of the environment.

Employees

The Company employed over 10,600 persons in worldwide operations as of August 31, 2009.

Geographic Areas

Financial information about geographic areas appears in Note J of the Notes to Consolidated Financial

Statements on page 51.

Item 1A. Risk Factors

There are inherent risks and uncertainties associated with our global operations that involve the design,
manufacturing and sale of products for highly demanding Customer applications throughout the world.
These risks and uncertainties associated with our business could adversely affect our operating performance
and financial condition. The following discussion, along with discussions elsewhere in this report, outlines
the risks and uncertainties that we believe are the most material to our business.  In light of the current
global economic slowdown, we want to further highlight the risks and uncertainties associated with:  world
economic factors; the reduction in sales volume and orders due to decreased global demand and Customers
aggressively working to reduce their levels of inventory; increased governmental laws and regulations,
including  the  unprecedented  financial  actions  being  undertaken  by  governments  around  the  world;
a significant tightening of credit availability; and potential global health outbreaks.  We undertake no
obligation to publicly update or revise any forward-looking statements.

Operating internationally carries risks which could negatively affect our financial performance.

We have sales and manufacturing operations throughout the world, with the heaviest concentrations in
North America, Europe and Asia. Our stability, growth and profitability are subject to a number of risks of
doing business internationally that could harm our business, including:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

political and military events, 

legal and regulatory requirements, including import, export and defense regulations, 

tariffs and trade barriers, 

potential difficulties in staffing and managing local operations, 

credit risk of local Customers and distributors, 

difficulties in protecting intellectual property,   

local economic, political and social conditions, specifically in China and Thailand where we have
significant investments, and

potential global health outbreaks.

3

Maintaining a competitive advantage requires continuing investment with uncertain returns. 

We operate in highly competitive markets and have numerous competitors who may already be well
established in those markets. We expect our competitors to continue improving the design and performance
of their products and to introduce new products that could be competitive in both price and performance.
We believe that we have certain technological advantages over our competitors, but maintaining these
advantages  requires  us  to  continually  invest  in  research  and  development,  sales  and  marketing  and
Customer  service  and  support. There  is  no  guarantee  that  we  will  be  successful  in  maintaining  these
advantages.  We make investments in new technologies that address increased performance and regulatory
requirements around the globe.  There is no guarantee that we will be successful in completing development
or achieving sales of these products or that the margins on such products will be acceptable. Our financial
performance may be negatively impacted if a competitor’s successful product innovation reaches the market
before ours or gains broader market acceptance.

Several  of  our  major  OEM  Customers  also  manufacture  filtration  systems. Although  these  OEM
Customers rely on us and other suppliers for some of their filtration systems, they sometimes choose to
manufacture additional filtration systems for their own use. There is also a risk that a Customer could acquire
one or more of our competitors.

We may be adversely impacted by changes in technology that could reduce or eliminate the demand for

our products. These risks include: 

(cid:129)

(cid:129)

breakthroughs in technology which provide a viable alternative to diesel engines, and

reduced demand for disk drive products if flash memory or a similar technology which would
eliminate the need for our filtration solutions.

We participate in highly competitive markets with pricing pressure. If we are not able to compete
effectively our margins and results of operations could be adversely affected.

The businesses and product lines in which we participate are very competitive and we risk losing
business based on a wide range of factors, including technology, price, delivery, product performance and
Customer service. Large Customers continue to seek productivity gains and lower prices from their suppliers.
We may lose business or negatively impact our margins if we are unable to deliver the best value to
our Customers.

Demand for our products relies on economic and industrial conditions worldwide.

Demand for our products tends to respond to varying levels of construction, agricultural, mining and

industrial activity in the United States and in other industrialized nations.

Sales to Caterpillar accounted for slightly less than 10 percent of our net sales in Fiscal 2009 and
10 percent of our net sales in Fiscal 2008. An adverse change in Caterpillar’s financial performance or a
material reduction in our sales to Caterpillar could negatively impact our operating results.

Changes in our product mix impacts our financial performance. 

We  sell  products  that  have  varying  profit  margins.  Our  financial  performance  can  be  impacted

depending on the mix of products we sell during a given period.

Unavailable or higher cost materials could result in our Customers being dissatisfied.

We obtain raw material, including steel, filter media and plastics, and other components from third-
party suppliers and tend to carry limited raw material inventories. An unanticipated delay in delivery by our
suppliers could result in the inability to deliver on-time and meet the expectations of our Customers. This
could negatively affect our financial performance.  An increase in commodity prices during a recession or
an otherwise challenging business and economic environment could result in lower operating margins.

4

Difficulties with the Company’s information technology systems could adversely affect the Company’s
results.

The Company has many information technology systems that are important to the operation of its
businesses.  The Company could encounter difficulties in developing new systems or maintaining and
upgrading existing systems.  Such difficulties could lead to significant expenses due to disruption in business
operations and could adversely affect the Company’s results.

Unfavorable fluctuations in foreign currency exchange rates could negatively impact our results and
financial position.  

We have operations in many countries. Each of our subsidiaries reports its results of operations and
financial position in its relevant foreign currency, which is then translated into U.S. dollars. This translated
financial  information  is  included  in  our  consolidated  financial  statements.  The  strengthening  of  the
U.S. dollar in comparison to the foreign currencies of our subsidiaries could have a negative impact on our
results and financial position.

Acquisitions may have an impact on our results.

We have made and continue to pursue acquisitions. We cannot guarantee that these acquisitions will
have a positive impact on our results. These acquisitions could negatively impact our profitability due to
operating and integration inefficiencies, the incurrence of debt, contingent liabilities and amortization
expenses related to intangible assets. There are also a number of other risks involved in acquisitions. We
could  lose  key  existing  Customers,  have  difficulties  in  assimilating  the  acquired  operations,  assume
unanticipated legal liabilities or lose key employees.

Compliance with environmental laws and regulations can be costly.

We are subject to many environmental laws and regulations in the jurisdictions in which we operate. We
routinely incur costs in order to comply with these laws and regulations. We may be adversely impacted by
new or changing laws and regulations that affect both our operations and our ability to develop and sell
products that meet our Customers’ requirements.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company’s principal office and research facilities are located in Bloomington, Minnesota, a suburb
of Minneapolis, Minnesota. The principal European administrative and engineering offices are located in
Leuven, Belgium. The Company also has extensive operations in the Asia-Pacific region.

5

The  Company’s  principal  plant  activities  are  carried  out  in  the  United  States  and  internationally.
Following is a summary of the principal plants and other materially important physical properties owned
or leased by the Company. 

Americas
Auburn, Alabama (E)
Riverbank, California (I)*
Valencia, California (E)*
Dixon, Illinois
Frankfort, Indiana
Cresco, Iowa
Grinnell, Iowa (E)
Nicholasville, Kentucky
Bloomington, Minnesota
Chillicothe, Missouri (E)
St. Charles, Missouri* (E)
Philadelphia, Pennsylvania (I)
Greeneville, Tennessee
Baldwin, Wisconsin
Stevens Point, Wisconsin
Sao Paulo, Brazil (E)*
Athens, Canada (I)
Aguascalientes, Mexico
Monterrey, Mexico

Joint Venture Facilities
Most, Czech Republic (E)
Champaign, Illinois (E)
Jakarta, Indonesia
Dammam, Saudi Arabia (I)

Distribution Centers
Brugge, Belgium
Rensselaer, Indiana
Aguascalientes, Mexico
Johannesburg, South Africa

Europe/Middle East/Africa
Kadan, Czech Republic (I)
Klasterec, Czech Republic
Domjean, France (E)
Paris, France (E)
Dulmen, Germany (E)
Flensburg, Germany (I)
Haan, Germany (I)
Ostiglia, Italy
Barcelona, Spain (I)
Hull, United Kingdom
Leicester, United Kingdom (I)
Cape Town, South Africa
Johannesburg, South Africa*

Australia
Wyong, Australia

Asia
Hong Kong, China*
Wuxi, China
New Delhi, India
Gunma, Japan
Rayong, Thailand (I)

Third-Party Logistics Providers
Alsip, Illinois
Plainfield, Indiana (I)
New Hampton, Iowa
Waterloo, Iowa (E)
Greeneville, Tennessee (I)
Singapore

The Company’s properties are utilized for both the Engine and Industrial Products segments except as
indicated with an (E) for Engine or (I) for Industrial. The Company leases certain of its facilities, primarily
under long-term leases. The facilities denoted with an asterisk (*) are leased facilities. In Wuxi, China, a
portion of the operations are conducted in leased facilities. The Company uses third-party logistics providers
for some of its product distribution and neither leases nor owns the facilities.  The Company considers its
properties to be suitable for their present purposes, well-maintained and in good operating condition.

Item 3. Legal Proceedings

In accordance with SFAS No. 5, “Accounting for Contingencies,” (SFAS No. 5), the Company records
provisions with respect to identified claims or lawsuits when it is probable that a liability has been incurred
and the amount of the loss can be reasonably estimated.  Claims and lawsuits are reviewed quarterly and
provisions are taken or adjusted to reflect the status of a particular matter.  The Company believes the
recorded reserves in its consolidated financial statements are adequate in light of the probable and estimable
outcomes.   Any  recorded  liabilities  were  not  material  to  the  Company’s  financial  position,  results  of
operation and liquidity and the Company does not believe that any of the currently identified claims or
litigation will materially affect its financial position, results of operation and liquidity.

6

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders of the Company during the quarter ended

July 31, 2009.

Executive Officers of the Registrant

Current information regarding executive officers is presented below. All terms of office are for one
year. There are no arrangements or understandings between individual officers and any other person
pursuant to which the officer was selected as an executive officer.

Name
_____
Tod E. Carpenter
William M. Cook
Sandra N. Joppa
Norman C. Linnell
Charles J. McMurray
Mary Lynne Perushek
Lowell F. Schwab
David W. Timm
Thomas R. VerHage
Jay L. Ward
Debra L. Wilfong

Age
____
50
56
44
50
55
51
61
56
56
45
54

Positions and Offices Held
______________________________________________________
Vice President, Europe and Middle East
Chairman, President and Chief Executive Officer
Vice President, Human Resources
Vice President, General Counsel and Secretary
Senior Vice President, Industrial Products
Vice President and Chief Information Officer
Senior Vice President, Global Operations
Vice President, Asia-Pacific
Vice President and Chief Financial Officer
Senior Vice President, Engine Products
Vice President and Chief Technology Officer

First Year Elected or
Appointed as an
Executive Officer
_________________
2008
1994
2005
1996
2003
2006
1994
2007
2004
2006
2007

Mr. Carpenter joined the Company in 1996 and has held various positions, including Gas Turbine
Systems General Manager from 2002 to 2004; General Manager, Industrial Filtration Systems (IFS) Sales
from 2004 to 2006; General Manager, IFS Americas in 2006; and Vice President, Global IFS from 2006 to
2008.  Mr. Carpenter was appointed Vice President, Europe and Middle East in August 2008.

Mr. Cook joined the Company in 1980 and has held various positions, including CFO and Senior Vice
President, International from 2001 to 2004 and President and CEO from 2004 to 2005. Mr. Cook was
appointed Chairman, President and CEO in July 2005. 

Ms. Joppa was appointed Vice President, Human Resources and Communications in November 2005.
Prior to that time Ms. Joppa held various positions at General Mills, a consumer food products company,
from  1989  to  2005,  including  service  as  Director  of  Human  Resources  for  several  different  operating
divisions from 1999 to 2005. 

Mr. Linnell joined the Company in 1996 as General Counsel and Secretary and was appointed Vice

President, General Counsel and Secretary in 2000. 

Mr. McMurray joined the Company in 1980 and has held various positions, including Director, Global
Information Technology from 2001 to 2003; Vice President, Human Resources from 2004 to 2005; and Vice
President, Information Technology, Europe, South Africa and Mexico from 2005 to 2006. Mr. McMurray
became Senior Vice President, Industrial Products, in September 2006.

Ms. Perushek was appointed Vice President and Chief Information Officer in November 2006. Prior to
that time, Ms. Perushek was Vice President of Global Information Technology at H.B. Fuller Company, a
worldwide manufacturer of adhesive products, from 2005 to 2006 and Chief Information Officer for Young
America Corporation, a marketing company, from 1999 to 2004. 

Mr. Schwab joined the Company in 1977 and has held various positions, including Senior Vice President,
Operations from 1994 to 2004 and Senior Vice President, Engine Products from 2004 to 2008.  Mr. Schwab
was appointed Senior Vice President, Global Operations, in August 2008.

Mr. Timm joined the Company in 1983 and has held various positions, including General Manager, Disk
Drive from 1995 to 2005 and General Manager, Gas Turbine Systems Products from 2005 to 2006.  Mr. Timm
was appointed Vice President, Asia-Pacific in December 2006. 

7

Mr. VerHage was appointed Vice President and Chief Financial Officer in March 2004. Prior to that time,
Mr. VerHage was a partner for Deloitte & Touche, LLP, an international accounting firm, from 2002 to 2004. 

Mr. Ward joined the Company in 1998 and has held various positions, including Director, Operations
from 2001 to 2003; Director, Product and Business Development, IFS Group from 2003 to 2004; Managing
Director, Europe from 2004 to 2006; and Vice President, Europe and Middle East from 2006 to 2008.
Mr. Ward was appointed Senior Vice President, Engine Products in August 2008.

Ms. Wilfong was appointed Vice President and Chief Technology Officer in May 2007. Prior to that
time,  Ms.  Wilfong  held  various  director  positions  in  research  and  development  at  3M  Company,  an
international consumer products company, from 2000 to 2007, most recently as Director, Research and
Development for the 3M Automotive Division from 2006 to 2007. 

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

The common shares of the Company are traded on the New York Stock Exchange under the symbol
DCI. The amount and frequency of all cash dividends declared on the Company’s common stock for Fiscal
2009 and 2008 appear in Note N of the Notes to Consolidated Financial Statements on page 55. As of
September 23, 2009, there were 2,109 shareholders of record of common stock.

The low and high sales prices for the Company’s common stock for each full quarterly period during

Fiscal 2009 and 2008 were as follows:

Fiscal 2008
Fiscal 2009

First Quarter
________________
$34.40 — 44.59
$28.04 — 49.00

Second Quarter
________________
$35.14 — 48.40
$23.40 — 36.29

Third Quarter
________________
$38.83 — 44.29
$21.82 — 34.37

Fourth Quarter
________________
$40.95 — 52.33
$31.00 — 38.93

The following table sets forth information in connection with purchases made by, or on behalf of, the
Company or any affiliated purchaser of the Company, of shares of the Company’s common stock during the
quarterly period ended July 31, 2009.

Period
______
May 1-May 31, 2009 . . . . 
June 1-June 30, 2009. . . . 
July 1-July 31, 2009. . . . . 
Total. . . . . . . . . . . . . . . . . 

Total Number of
Shares Purchased (1)
__________________

Average Price
Paid per Share
_____________

—
18,972
—
18,972

—
$36.12
—
$36.12

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
________________
—
—
—
—

Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
________________
930,210
930,210
930,210
930,210

(1) On March 31, 2006, the Company announced that the Board of Directors authorized the repurchase of up to
8.0 million shares of common stock.  This repurchase authorization, which is effective until terminated by the
Board of Directors, replaced the existing authority that was authorized on January 17, 2003.  There were no
repurchases of common stock made outside of the Company’s current repurchase authorization during the
quarter ended July 31, 2009.  However, the “Total Number of Shares Purchased” column of the table above
includes 18,972 previously owned shares tendered by option holders in payment of the exercise price of options.
While not considered repurchases of shares, the Company does at times withhold shares that would otherwise
be issued under equity-based awards to cover the withholding taxes due as a result of exercising stock options or
payment of equity-based awards.

8

The graph below compares the cumulative total stockholder return on the Company’s Common Stock
for the last five fiscal years with the cumulative total return of the Standard & Poor’s 500 Stock Index and
the  Standard  &  Poor’s  Index  of  Industrial  Machinery  Companies.  The  graph  and  table  assume  the
investment of $100 in each of the Company’s Common Stock and the specified indexes at the beginning of
the applicable period, and assume the reinvestment of all dividends.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Donaldson Company, Inc., The S&P 500 Index
And The S&P Industrial Machinery Index

Donaldson Company, Inc.  . . . . . .
S&P 500  . . . . . . . . . . . . . . . . . . . . .
S&P Industrial Machinery . . . . . .

Item 6. Selected Financial Data

__________________________________________________________________________
2004
2009
________
_________
$100.00 
$150.18 
100.00
99.33
100.00
102.93

Year ended July 31,
2006
2007
_________
_________
$125.67
$140.46
120.19
139.58
113.48
146.65

2005
_________
$123.27
114.05
108.37

2008
_________
$175.88 
124.10
133.98

The following table sets fourth selected financial data for each of the fiscal years in the five-year

period ended July 31, 2009 (in millions, except per share data):

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . 
Income from continuing operations . . 
Diluted earnings per share . . . . . . . . . . 
Total assets . . . . . . . . . . . . . . . . . . . . . . . 
Long-term obligations . . . . . . . . . . . . . . 
Cash dividends declared per share . . . 
Cash dividends paid per share . . . . . . . 

Year ended July 31,
__________________________________________________________________
2005
2007
2009
_________
_________
_________
$1,595.7
$1,918.8
$1,868.6
110.6
150.7
131.9
1.27 
1.67 
1.83 
1,111.8
1,319.0
1,334.0
103.3
129.0
253.7
0.180
0.370
0.460
0.235
0.360
0.455

2006
_________
$1,694.3
132.3
1.55 
1,124.1
100.5
0.410
0.320

2008
_________
$2,232.5
172.0
2.12 
1,548.6
176.5
0.430
0.420

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Results of Operation

The following discussion of the Company’s financial condition and results of operations should be read
in  conjunction  with  the  Consolidated  Financial  Statements  and  Notes  thereto  and  other  financial
information included elsewhere in this report.

9

Overview

The Company manufactures and distributes filtration systems and replacement parts. The Company’s
core strengths are leading filtration technology, strong Customer relationships and global presence. The
Company operates through two reporting segments, Engine Products and Industrial Products, and has a
product mix including air and liquid filters and exhaust and emission control products. As a worldwide
business, the Company’s results of operations are affected by conditions in the global economic environment.
Under  normal  economic  conditions,  the  Company’s  diversity  between  its  original  equipment  and
replacement parts Customers, its diesel engine and industrial end markets, and its North American and
international end markets has helped to limit the impact of weakness in any one product line, market or
geography on the consolidated results of the Company. However, the global recession had a dramatic
negative impact on the Company’s results in Fiscal 2009 as nearly every product group and geographic area
was impacted.

The Company reported sales in Fiscal 2009 of $1,868.6 million, down 16.3 percent from $2,233.5 million
in the prior year. The Company’s results were negatively impacted by foreign currency translation. The
impact of foreign currency translation decreased sales by $76.8 million. Excluding the current year impact
of foreign currency translation, worldwide sales decreased 12.9 percent during the year.

Although net sales excluding foreign currency translation is not a measure of financial performance
under  GAAP,  the  Company  believes  it  is  useful  in  understanding  its  financial  results  and  provides  a
comparable measure for understanding the operating results of the Company between different fiscal
periods excluding the impact of foreign currency translation. The following is a reconciliation to the most
comparable GAAP financial measure of this non-GAAP financial measure (in millions):

Net sales, excluding foreign currency translation . . . . . . . . . . . . . 
Foreign currency translation impact . . . . . . . . . . . . . . . . . . . . . . . . 
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

July 31, 2009
_________
$1,945.4
(76.8)
_______
$1,868.6
_______
_______

July 31, 2008
_________
$2,110.0
122.5
_______
$2,232.5
_______
_______

Although not as large as the impact on net sales, the Company’s net earnings were also negatively
impacted  by  foreign  currency  translation. The  impact  of  foreign  currency  translation  during  the  year
decreased net earnings by $3.8 million. Excluding the current year impact of foreign currency translation,
net earnings decreased 21.1 percent.

Although net earnings excluding foreign currency translation is not a measure of financial performance
under  GAAP,  the  Company  believes  it  is  useful  in  understanding  its  financial  results  and  provides  a
comparable measure for understanding the operating results of the Company between different fiscal
periods excluding the impact of foreign currency translation. The following is a reconciliation to the most
comparable GAAP financial measure of this non-GAAP financial measure (in millions):

Net earnings, excluding foreign currency translation . . . . . . . . . . 
Foreign currency translation impact, net of tax . . . . . . . . . . . . . . . 

Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

July 31, 2009
_________
$135.7
(3.8)

_____
$131.9
_____
_____

July 31, 2008
_________
$159.1
12.9
_____
$172.0
_____
_____

The Company reported diluted earnings per share of $1.67, a 21.2 percent decrease from $2.12 in the

prior year.

Included  in  the  results  are  pre-tax  restructuring  charges  of  $17.8  million  resulting  primarily  from
workforce reductions of 2,800 since the beginning of the year. Gross margin and operating expenses include
$10.1  million  and  $7.7  million  of  restructuring  expenses,  respectively.  The  Company  also  realized
$43.0 million in cost savings from restructuring actions completed throughout the year.

The effective tax rate for Fiscal 2009 was 18.3 percent compared to 27.2 percent in Fiscal 2008.  This
decrease is attributable to a number of discrete tax items, partially offset by increased expense from the
repatriation of foreign earnings.  Absent these items, the underlying tax rate for the Fiscal 2009 has decreased

10

from Fiscal 2008 by 1.2 points to 30.4 percent.  The reinstatement of the U.S. Research and Experimentation
credit, changes in current year unrecognized tax benefits, reduced statutory tax rates and the mix of earnings
between foreign jurisdictions all contributed to the reduction in the underlying rate.

The Company continued to improve an already strong liquidity position which allowed for continued
investment in business and debt reduction while increasing cash reserves and maintaining its dividend.
While Fiscal 2009 was significantly impacted by the global recession, there are signs that some of the
Company’s end markets have begun to stabilize.  While the Company’s future visibility remains limited and
it’s too early to call a recovery, the Company believes that the worst of the global economic downturn is
behind it in many of its early and mid-cycle end markets, including the heavy truck, construction,  special
applications and replacement parts markets.  This view is factored into the Fiscal 2010 outlook discussed
below.  

Following  is  financial  information  for  the  Company’s  Engine  and  Industrial  Products  segments.
Corporate and Unallocated includes corporate expenses determined to be non-allocable to the segments
and interest income and expense. See further discussion of segment information in Note J of the Company’s
Notes to Consolidated Financial Statements.

Engine
Products
____________

Industrial
Products
____________

Corporate &
Unallocated
___________

Total
Company
________

(thousands of dollars)

2009
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . .  $1,001,961
83,797
Earnings before income taxes . . . . . . . . . . 

2008
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . .  $1,229,171
158,931
Earnings before income taxes . . . . . . . . . . 

2007
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . .  $1,084,262
140,762
Earnings before income taxes . . . . . . . . . . 

$ 866,668
89,526

$
(11,898)

— $1,868,629
161,425

$1,003,350
102,420

$
(25,188)

— $2,232,521
236,163

$ 834,566
80,321

$
(16,222)

— $1,918,828
204,861

During Fiscal 2009, the Company’s Engine Products segment net sales decreased as a percent of total
net sales to 53.6 percent compared to 55.1 percent in the prior year. For the Company’s Industrial Products
segment, net sales as a percent of total net sales increased to 46.4 percent from 44.9 percent in the prior year. 

Factors within the Company’s reporting segments that contributed to the Company’s results for Fiscal
2009 included a significant impact from the Company’s distributors and OEM customers aggressively
working down their inventory levels.  In the Engine Products segment, the Company experienced weak
business conditions in most end markets and regions.  Spending in the construction and mining end-markets
in the United States, Europe and Asia was down, resulting in a decrease in off-road equipment related sales.
This decrease was partially offset by an increase in Aerospace and Defense sales and the benefit of the
acquisition of Western Filter Corporation in October 2008.  On-road Products sales decreased in the United
States, Europe and Asia due to a drop in demand for new trucks, which lowered new truck build rates.
Aftermarket sales also decreased due to decreases in equipment utilization in most off-road end markets
and decreased freight activity which impacted on-road markets, partially offset by increases in retrofit
emissions sales in the United States.  In the Industrial Products segment, demand was also weak in all
markets across all regions.  Demand for Industrial Filtration Solutions Products was down as a result of the
decline in general industrial activity.  Also contributing to the decrease in Industrial Filtration Solutions
Products sales was the sale of the air dryer business in Maryville, Tennessee, in October 2008, partially offset
by the benefit from the acquisition of LMC West, Inc. in February of 2008.  Worldwide sales in Gas Turbine
Products weakened late in the year and full year sales were slightly lower as compared to the prior year.  Gas
Turbine Products sales are typically large systems and, as a result, the Company’s shipments and revenues
fluctuate from quarter to quarter.  Sales of Special Applications Products were weak due to decreased
demand for semiconductor fabrications and industrial uses for PTFE membranes and a sudden contraction
of the disk drive market that resulted in decreased demand for the Company’s hard disk drive filters.

11

Following are net sales by product within both the Engine and Industrial Products segments:

Engine Products segment:

Off-Road Products* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
On-Road Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Aftermarket Products** . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total Engine Products segment . . . . . . . . . . . . . . . . . . 

Industrial Products segment:

Industrial Filtration Solutions Products. . . . . . . . . . . . . . 
Gas Turbine Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Special Applications Products. . . . . . . . . . . . . . . . . . . . . . 
Total Industrial Products segment . . . . . . . . . . . . . . . . 
Total Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

*Includes Aerospace and Defense products.
**Includes replacement part sales to the Company’s OEM Customers.

Outlook

2009
_________

2008
_________
(thousands of dollars)

2007
_________

$ 362,785
71,958
567,218
_________
1,001,961
_________

503,611
206,760
156,297
_________
866,668
_________
$1,868,629
_________
_________

$ 448,681
123,146
657,344
_________
1,229,171
_________

$ 352,065
166,370
565,827
_________
1,084,262
_________

600,526
213,138
189,686
_________
1,003,350
_________
$2,232,521
_________
_________

515,022
158,025
161,519
_________
834,566
_________
$1,918,828
_________
_________

While it appears that conditions may have stabilized at many of the Company’s Customers and in many
of its end markets, the Company continues to have limited visibility into the future.  Consequently, the
Company remains cautious in the near-term about forecasting a return to growth.

(cid:129) The  Company  is  planning  its  total  Fiscal  2010  sales  to  be  between  $1.65  and  $1.75  billion,  or
approximately the pace of the past two quarters.  For the full year Fiscal 2010 versus Fiscal 2009,
sales are projected to be down 6 to 12 percent.  Foreign currency translation is expected to provide
a small benefit based on the Company’s planned rates for the Euro of US$1.39 and 98 Yen to the
US Dollar for Fiscal 2010.

(cid:129) The Company did not complete all of its planned restructuring actions by the end of the fourth
quarter of Fiscal 2009 and anticipates there could be additional restructuring charges of up to
$17 million in Fiscal 2010.  Including these costs, the full year Fiscal 2010 operating margin is still
expected to be between 9.5 to 10.5 percent.  

(cid:129) The Company expects its full year Fiscal 2010 tax rate to be between 30 and 32 percent.  The

Company does not anticipate significant discrete tax benefits as occurred in Fiscal 2009.

(cid:129) The Company expects that cash generated by operating activities will exceed $150 million in Fiscal
2010.  Capital spending in Fiscal 2010 is planned at $30.0 million to $40.0 million.  The Company will
continue to use its cash flow for dividends, potential acquisitions, capital projects and maintenance
of its strong liquidity position.  

Engine Products – The Company expects full year sales to decrease 3 to 8 percent, inclusive of the impact
of foreign currency translation.

(cid:129)

In its On-Road Products businesses, the Company believes that global build rates for heavy- and
medium-duty trucks are stabilizing at the current levels. 

(cid:129) The Company is forecasting slightly lower sales for its Aerospace and Defense Products as the level

of Customer demand for defense products is decreasing.

(cid:129) The Company expects activity in the global construction and mining end markets to remain at their
current levels during the first half of Fiscal 2010, and anticipates Customer demand in the farm
equipment market outside of North America to continue its current decline.  

(cid:129) The Company’s Aftermarket sales are expected to improve slightly from their current levels as
utilization rates for both heavy trucks and off-road equipment are stabilizing.  The Company expects

12

to benefit from the increasing amount of equipment in the field with PowerCore® technology as
well as its other proprietary filtration systems.

Industrial Products – The Company forecasts full year Fiscal 2010 sales to decrease 11 to 16 percent, inclusive
of the impact of foreign currency translation.

(cid:129)

Industrial Filtration Solutions sales are projected to decrease 10 to 15 percent for the year due to
difficult  comparable  sales  in  the  first  half  of  Fiscal  2010.    The  Company  expects  general
manufacturing activity to remain near its current level.

(cid:129) The Company expects full year sales of its Gas Turbine Products to decrease 21 to 26 percent due

the slowdown in demand for large power generation projects.

(cid:129)

Special Applications Products’ sales are projected to be flat to down 5 percent, as conditions appear
to have stabilized in the hard disk drive market but may continue to weaken in the short-term in
the Company’s membrane products’ industrial end-markets.

Fiscal 2009 Compared to Fiscal 2008

Engine Products Segment The Engine Products segment sells to OEMs in the construction, mining,
agriculture, aerospace, defense, and truck markets and to independent distributors, OEM dealer networks,
private label accounts and large equipment fleets. Products include air filtration systems, exhaust and
emissions systems, liquid filtration systems and replacement filters.

Sales  for  the  Engine  Products  segment  were  $1,002.0  million,  a  decrease  of  18.5  percent  from
$1,229.2 million in the prior year.  International Engine Products sales decreased 24.3 percent and sales in
the United States decreased 12.4 percent from the prior year.  The impact of foreign currency decreased sales
by $38.9 million, or 3.2 percent.  Earnings before income taxes as a percentage of Engine Products segment
sales of 8.4 percent decreased from 12.9 percent in the prior year.  The Engine Products segment has been
negatively impacted by lower absorption of fixed manufacturing costs due to the drop in sales volumes and
increased costs related to restructuring, offset by cost savings as a result of workforce reductions already
completed, improved distribution efficiencies as compared to the prior year and the impact of cost control
measures including reductions in incentive compensation.

Worldwide  sales  of  Off-Road  Products  were  $362.8  million,  a  decrease  of  19.1  percent  from
$448.7 million in the prior year. Sales in the United States decreased 7.2 percent.  Global mining activity
started declining due to decreased commodity prices in the second quarter of Fiscal 2009, and remained
weak throughout the remainder of the year.  Spending in U.S. residential and non-residential construction
markets was down more than 27 percent and 5 percent, respectively, over prior year, resulting in a decrease
in the sales of the Company’s products into those markets.  Domestic Aerospace and Defense sales benefited
from the recent acquisition of Western Filter Corporation, which resulted in $15.4 million of incremental
sales over the prior year, and continued strong demand for filters for military equipment.  Internationally,
sales of Off-Road Products were down 31.3 percent from the prior year, with sales decreasing in both
Europe  and Asia  by  32.5  percent  and  29.5  percent,  respectively.    Sales  in  the  European  construction
equipment end market decreased due to a decline in construction activity related to the economic downturn.
Sales to the European agricultural end market also decreased.  In Asia, sales have declined significantly in
Japan in the construction end markets.

Worldwide sales of On-Road Products were $72.0 million, a decrease of 41.6 percent from $123.1 million
in the prior year. On-Road Products sales in the United States decreased 43.2 percent from the prior year,
primarily as a result of a 29 percent decrease in Class 8 truck build rates, 40 percent decrease in medium duty
truck build rates by the Company’s Customers and a reduction in high value product mix over the prior year.
International On-Road Products sales decreased 39.6 percent from the prior year, driven by decreased sales
in Europe and Asia of 51.0 percent and 32.5 percent, respectively, reflecting the current economic downturn
for freight activity and new truck build rates.

Worldwide  Engine  Aftermarket  Products  sales  of  $567.2  million  decreased  13.7  percent  from
$657.3 million in the prior year. Sales in the United States decreased 9.5 percent over the prior year, driven

13

by inventory adjustments at the Company’s Customers and decreases in utilization rates in the mining,
construction  and  transportation  industries,  partially  offset  by  increases  in  retrofit  emission  sales  of
$5.2 million.  International sales decreased 17.4 percent from the prior year, primarily driven by sales
decreases in Europe and Asia of 26.1 percent and 8.0 percent, respectively, due to weak economic conditions.

Industrial Products Segment The Industrial Products segment sells to various industrial end-users,
OEMs of gas-fired turbines, and OEMs and end-users requiring highly purified air. Products include dust,
fume and mist collectors, compressed air purification systems, liquid filters and parts, air filter systems, PTFE
membrane and laminates, and specialized air filtration systems for applications including computer hard
disk drives.

Sales  for  the  Industrial  Products  segment  were  $866.7  million,  a  decrease  of  13.6  percent  from
$1,003.4 million in the prior year.  International Industrial Products sales decreased 14.2 percent and sales
in the United States decreased 12.3 percent from the prior year.  The impact of foreign currency decreased
sales by $37.9 million, or 3.8 percent.  Despite the 13.6 percent decrease in sales, earnings before income
taxes as a percentage of Industrial Products segment sales of 10.3 percent increased from 10.2 percent in the
prior year.  The improvement in earnings as a percent of sales over the prior year was driven by better
execution on large project shipments, cost savings from restructuring actions and the impact of cost control
measures including reductions in incentive compensation expense.  These were slightly offset by lower
absorption of fixed costs and restructuring costs.

Worldwide sales of Industrial Filtration Solutions Products of $503.6 million decreased 16.1 percent
from $600.5 million in the prior year. Sales in the United States and Europe decreased 18.3 percent and
21.0 percent, respectively.  Sales in Asia remained relatively flat as compared to the prior year.  The decline
in Europe was due to reduced demand for industrial dust collectors and compressed air purification systems
which fell with the downturn in general manufacturing activity during the year.  Domestic sales decreased
from the prior year as a result of this same decline in general industrial activity.  The results in the year were
also influenced by the sale of the air dryer business in Maryville, Tennessee, on October 31, 2008 and the
acquisition of LMC West, Inc. (LMC West) in February of Fiscal 2008.  The sale of the air dryer business in
Maryville, Tennessee, decreased sales $7.6 million over last year. The acquisition of LMC West contributed
to $7.0 million of sales during the twelve months of Fiscal 2009 and $4.7 million during the latter six months
of Fiscal 2008.

Worldwide  sales  of  Gas  Turbine  Products  were  $206.8  million,  a  decrease  of  3.0  percent  from
$213.1 million in the prior year. Gas Turbine Products sales are typically large systems and, as a result, the
Company’s shipments and revenues fluctuate from quarter to quarter.  Incoming orders declined 58 percent
in Fiscal 2009 versus Fiscal 2008, a reflection of the reduced demand for power generation projects globally.
This trend is expected to continue in Fiscal 2010.

Worldwide sales of Special Applications Products were $156.3 million, a 17.6 percent decrease from
$189.7  million  in  the  prior  year.  Domestic  Special Application  Products  sales  decreased  10.0  percent.
International sales of Special Application Products decreased 18.7 percent over the prior year.  The primary
decreases internationally were in Europe and Asia, which decreased 25.5 and 17.3 percent, respectively, due
to a significant reduction in demand for hard disk drive filters, semiconductor filtration systems and PTFE
membrane filtration products.  The reduction in demand is primarily a result of a worldwide contraction in
the end markets for computers, data storage devices and other electronic products that began in the second
quarter of Fiscal 2009.  

Consolidated Results The Company reported net earnings for Fiscal 2009 of $131.9 million compared
to $172.0 million in Fiscal 2008, a decrease of 23.3 percent. Diluted net earnings per share was  $1.67, down
21.2 percent from $2.12 in the prior year. The Company’s operating income of $170.0 million decreased
from prior year operating income of $245.8 million by 30.9 percent. 

14

The table below shows the percentage of total operating income contributed by each segment for each
of the last three fiscal years. Corporate and Unallocated includes corporate expenses determined to be non-
allocable to the segments and interest income and expense:

Engine Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Industrial Products . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Corporate and Unallocated . . . . . . . . . . . . . . . . . . . . 
Total Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2009
______
44.5%
51.8%
3.7%
______
100%
______

2008
______
61.1%
42.1%
(3.2%)
______
100%
______

2007
______
62.9%
37.8%
(0.7%)
______
100%
______

International  operating  income,  prior  to  corporate  expense  allocations,  totaled  77.9  percent  of
consolidated operating income in Fiscal 2009 as compared to 89.4 percent in Fiscal 2008. Total international
operating income decreased 39.8 percent from the prior year. This decrease is attributable to restructuring
charges internationally exceeding domestic restructuring costs, weaker foreign currencies and overall weak
business conditions abroad.  The table below shows the percentage of total operating income contributed
by each major geographic region for each of the last three fiscal years:

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2009
______
22.1%
23.3%
43.5%
11.1%
______
100%
______

2008
______
10.6%
43.3%
37.9%
8.2%
______
100%
______

2007
______
22.3%
34.8%
38.6%
4.3%
______
100%
______

Gross margin for Fiscal 2009 was 31.6 percent, a decrease from 32.5 percent in the prior year. The
Company had $10.1 million in restructuring costs which reduced gross margin in the year.  In addition, lower
absorption of fixed costs due to the drop in production volumes, net of savings from completed restructuring
related activities, negatively impacted gross margin by approximately $23 million.  Partially offsetting these
factors were the positive impacts of improved product mix, improved distribution efficiencies and better
execution on large project shipments. During Fiscal 2008, the Company began using a new warehouse
management system at its main U.S. distribution center.  The company encountered start-up problems during
the transition to the new systems which, although now resolved, resulted in $7.6 million in unanticipated
charges  in  Fiscal  2008  that  did  not  recur  in  Fiscal  2009.      The  Company  also  incurred  a  charge  of
approximately $5.0 million to pretax income related to the use of the Last-In, First-Out (LIFO) accounting
method for its U.S. inventories, which charges increasing commodity costs to income immediately.  As
commodity costs were relatively flat in Fiscal 2009, the Company did not experience a similar impact from
rising commodity prices.

Operating  expenses  for  Fiscal  2009  were  $419.8  million  or  22.5  percent  of  sales,  as  compared  to
$480.1 million or 21.5 percent in the prior year. Operating expenses as a percent of sales increased due to
sales volume declines and $7.7 million in restructuring cost during the year, offset by $19.4 million in benefits
from restructuring actions taken and $19.5 million of lower incentive compensation expense as compared
to the prior year.  The Company’s expense reduction programs remain in effect.

Interest expense of $17.0 million increased $0.4 million from $16.6 million in the prior year as a result
of higher debt levels. Net other income totaled $8.5 million in Fiscal 2009 up from $6.9 million in the prior
year. Components of other income for Fiscal 2009 were as follows: interest income of $1.6 million, earnings
from non-consolidated joint ventures of $2.3 million, royalty income of $6.1 million, charitable donations
of $0.6 million, foreign exchange losses of $0.4 million and other miscellaneous income and expense items
resulting in expenses of $0.5 million.

The effective tax rate for Fiscal 2009 was 18.3 percent compared to 27.2 percent in Fiscal 2008.  The
decrease in effective rate is primarily due to the settlements of long-standing court cases and examinations
in various jurisdictions for tax years 2003 through 2006, the reassessment of the corresponding unrecognized
tax benefits for the subsequent open years and a favorable resolution of a foreign tax matter.  Partially
offsetting these effects, the Company’s Fiscal 2009 tax rate was unfavorably impacted by an increased
expense from the repatriation of foreign earnings.  Absent these items, the underlying tax rate for the Fiscal

15

2009 has decreased from Fiscal 2008 by 1.2 points to 30.4 percent.  The reinstatement of the U.S. Research
and Experimentation credit, changes in current year unrecognized tax benefits, reduced statutory tax rates
and the mix of earnings between foreign jurisdictions all contributed to the reduction in the underlying
rate.

Total backlog at July 31, 2009, was $528.0 million, down 33.7 percent from the same period in the prior
year. Backlog is one of many indicators of business conditions in the Company’s markets. However, it is not
always indicative of future results for a number of reasons, including short lead times in the Company’s
replacement parts businesses and the timing of receipt of orders in many of the Company’s Engine OEM
and Industrial markets. In the Engine Products segment, total open order backlog decreased 31.8 percent
from the prior year. In the Industrial Products segment, total open order backlog decreased 36.8 percent
from the prior year. Because some of the change in backlog can be attributed to a change in the ordering
patterns of the Company’s Customers and/or the impact of foreign exchange translation rates, it may not
necessarily correspond to future sales.

Fiscal 2008 Compared to Fiscal 2007

Engine Products Segment Sales for the Engine Products segment were $1.229 billion, an increase of
13.4 percent from $1.084 billion in the prior year, reflecting increases in the Off-Road and Aftermarket
Products businesses, partially offset by decreased On-Road Products sales in the NAFTA region.  The impact
of foreign currency increased sales by $60.6 million, or 5.6 percent.  Earnings before income taxes as a
percentage of Engine Products segment sales of 12.9 percent decreased from 13.0 percent in the prior year.
The Engine Products segment as a percent of sales was down slightly from last year due the impact of
distribution inefficiencies and start-up costs related to the implementation of a new warehouse management
system  at  our  Rensselaer,  Indiana  distribution  center,  offset  by  stronger  global  volume  across  most
business units.

Worldwide  sales  of  Off-Road  Products  were  $448.7  million,  an  increase  of  27.4  percent  from
$352.1 million in the prior year. Sales in the United States showed an increase of 27.1 percent, primarily
driven by the impact of the acquisition of Aerospace Filtration Systems, Inc. in March of Fiscal 2007 and
robust sales in the Company’s defense business due to the combination of replacement parts sales growth,
new vehicle programs (including the Mine Resistant Ambush Protected armored vehicles) and retrofit
programs for the Abrams Tank and military helicopters including the Black Hawk. In addition, strong sales
in agriculture, mining and non-residential construction markets more than offset a decrease in residential
construction markets. Internationally, sales of Off-Road Products were up 27.8 percent from the prior year,
with sales increasing in both Europe and Asia by 24.4 percent and 36.3 percent, respectively, reflecting
strength in the heavy construction market and increased demand for mining and agricultural equipment
internationally.

Worldwide  sales  of  On-Road  Products  were  $123.1  million,  a  decrease  of  26.0  percent  from
$166.4 million in the prior year. On-Road Products sales in the United States decreased 43.3 percent from
the  prior  year  as  a  result  of  lower  new  truck  build  rates  at  the  Company’s  Customers  following  the
implementation of the 2007 Environmental Protection Agency diesel emission regulations. International
On-Road Products sales increased 14.9 percent from the prior year. On-Road Products sales in Europe
benefited from stronger build rates resulting in a sales increase of 28.1 percent. 

Worldwide  Engine  Aftermarket  Products  sales  of  $657.3  million  increased  16.2  percent  from
$565.8 million  in  the  prior  year.  Sales  in  the  United  States  increased  4.6  percent  over  the  prior  year.
International sales increased 28.4 percent with sales increasing in Europe, Asia and Mexico by 25.3 percent,
23.5 percent and 77.0 percent, respectively. The large percentage increase in Mexico is partially a result of
transferring some Customer relationships to the Company’s Mexican subsidiary from the United States to
better serve the Customers. Geographic expansion and high equipment utilization rates contributed to the
overall increases.  In addition, sales continue to benefit from the increasing amount of equipment in the
field  with  the  Company’s  PowerCore™  filtration  systems.    Sales  of  PowerCore™  replacement  filters
increased 58.9 percent over the prior year.  

16

Industrial  Products  Segment Sales  for  the  Industrial  Products  segment  were  $1,003.4  million,  an
increase of 20.2 percent from $834.6 million in the prior year, resulting from stronger sales in Industrial
Filtration Solutions Products, Special Application Products and Gas Turbine Systems Products across all
regions.  The impact of foreign currency increased sales by $62.0 million, or 7.4 percent.  Earnings before
income taxes as a percentage of Industrial Products segment sales of 10.2 percent increased from 9.6 percent
in the prior year.  The improvement in earnings as a percent of sales over the prior year was driven by cost
leverage across most business units due to strong global volumes offset slightly lower margins on a few
large projects in both our Gas Turbine and Industrial Air Filtration business units.  

Worldwide sales of Industrial Filtration Solutions Products of $600.5 million increased 16.6 percent
from $515.0 million in the prior year. Sales in the United States, Europe, Asia and South Africa increased
9.9 percent, 22.0 percent, 16.5 percent and 25.0 percent, respectively.  U.S. sales included the impact of the
acquisition of LMC West, Inc. in February of Fiscal 2008. Demand was strong worldwide but specifically in
Europe, where manufacturing investment conditions were favorable throughout the fiscal year.

Worldwide  sales  of  Gas  Turbine  Products  were  $213.1  million,  an  increase  of  34.9  percent  from
$158.0 million in the prior year. Growth globally has been strong in both the power generation and oil and
gas markets. The Gas Turbine Products sales are typically large systems and, as a result, the Company’s
shipments and revenues fluctuate from quarter to quarter.  

Worldwide sales of Special Applications Products were $189.7 million, a 17.4 percent increase from
$161.5  million  in  the  prior  year.  Sales  in  the  United  States,  Europe,  and Asia  increased  8.3  percent,
25.3 percent, and 17.8 percent, respectively, from the prior year as sales of disk drive filters and PTFE
membranes remained strong.

Consolidated Results The Company reported record net earnings for Fiscal 2008 of $172.0 million
compared to $150.7 million in Fiscal 2007, an increase of 14.1 percent. Diluted net earnings per share was
a  record  $2.12,  up  15.8  percent  from  $1.83  in  the  prior  year.  The  Company’s  operating  income  of
$245.8 million increased from prior year operating income of $211.1 million by 16.4 percent. 

The table below shows the percentage of total operating income contributed by each segment for each
of the last three fiscal years. Corporate and Unallocated includes corporate expenses determined to be non-
allocable to the segments and interest income and expense:

Engine Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Industrial Products . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Corporate and Unallocated . . . . . . . . . . . . . . . . . . . . 
Total Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2008
______
61.1%
42.1%
(3.2%)
______
100%
______

2007
______
62.9%
37.8%
(0.7%)
______
100%
______

2006
______
67.7%
33.6%
(1.3%)
______
100%
______

International  operating  income,  prior  to  corporate  expense  allocations,  totaled  89.4  percent  of
consolidated operating income in Fiscal 2008 as compared to 77.7 percent in Fiscal 2007.  Total international
operating income increased 34.0 percent from the prior year. This increase is attributable to stronger foreign
currencies, the favorable impact of new plants globally and overall strong business conditions.  The table
below shows the percentage of total operating income contributed by each major geographic region for
each of the last three fiscal years:

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2008
______
10.6%
43.3%
37.9%
8.2%
______
100%
______

2007
______
22.3%
34.8%
38.6%
4.3%
______
100%
______

2006
______
22.8%
32.7%
37.5%
7.0%
______
100%
______

Gross margin for Fiscal 2008 was 32.5 percent, an increase from 31.5 percent in the prior year. The
primary drivers for the improved gross margin include higher production volumes, a favorable product mix,
cost  controls  and  productivity  improvements.  Partially  offsetting  the  improvements  was  a  charge  of
$5.0 million to pretax income related to the use of the Last-In, First-Out (LIFO) accounting method for its

17

U.S. inventories, which charges increasing commodity costs to income immediately.  Also partially offsetting
the  improvements  in  gross  margin  were  higher  than  expected  distribution  costs  associated  with
implementing  the  investments  made  to  increase  the  Company’s  distribution  capabilities  and  higher
purchased commodity costs.  During the second quarter, the Company began utilizing a new warehouse
management system at its main U.S. distribution center.  The Company encountered start-up problems
during the transition to the new system. There were incremental expenses related to refining the system
which resulted in $7.6 million in unanticipated charges for the year.  Gross margin in Fiscal 2007 was also
negatively impacted by a higher mix of systems sales versus replacement part sales and higher than expected
distribution costs in Europe from the integration of new distribution facilities while Customer demand
ramped up beyond expectations.  Plant rationalization and start-up costs for new facilities were $0.6 million
in  Fiscal  2008,  down  from  $5.3  million  in  the  prior  year.  Operating  expenses  for  Fiscal  2008  were
$480.1 million or 21.5 percent of sales, up from $393.8 million or 20.5 percent in the prior year. This increase
was driven by the impact of foreign exchange as well as investments in research and development to support
essential product development initiatives and the development of next generation technologies and products
across many product lines.  The Company also increased its investment in information technology to improve
Customer support capabilities and enhance its internal system infrastructure capabilities.

Interest expense of $16.6 million increased $2.0 million from $14.6 million in the prior year as a result
of increased borrowing costs associated with the increases in working capital and the Aerospace Filtration
Systems, Inc. acquisition in March of 2007. Net other income totaled $6.9 million in Fiscal 2008 compared
to $8.3 million in the prior year. Components of other income for Fiscal 2008 were as follows: interest income
of $1.5 million, earnings from non-consolidated joint ventures of $1.9 million, royalty income of $7.6 million,
charitable donations of $0.9 million, foreign exchange losses of $3.1 million and other miscellaneous income
and expense items resulting in expenses of $0.1 million.

The effective income tax rate for Fiscal 2008 was 27.2 percent.  The effective income tax rate for Fiscal
2007 was 26.4 percent. The Company’s Fiscal 2008 tax rate benefited from the effect of changes in foreign
statutory  tax  rates  on  outstanding  deferred  tax  positions  and  reduced  state  tax  expense  due  to  lower
U.S. earnings. U.S. earnings were also a significantly lower percentage of total earnings, emphasizing the
fact  that  the  average  tax  rate  continues  to  reflect  the  significant  contribution  from  the  Company’s
international operations, the majority of which have statutory tax rates below those of the U.S.  Offsetting
these favorable effects, the Company’s Fiscal 2008 tax rate was also impacted by a reduced U.S. dividends
received deduction, a reduced benefit from the repatriation of foreign earnings, the expiration of some
foreign tax incentives, and the expiration of the U.S. Research and Experimentation credit. 

Total backlog at July 31, 2008, was $771.2 million, up 25.2 percent from the same period in the prior year.
Backlog is one of many indicators of business conditions in the Company’s markets. However, it is not
always indicative of future results for a number of reasons, including short lead times in the Company’s
replacement parts businesses and the timing of receipt of orders in many of the Company’s Engine OEM
and Industrial markets. In the Engine Products segment, total open order backlog increased 24.9 percent
from the prior year. In the Industrial Products segment, total open order backlog increased 25.6 percent from
the prior year. Because some of the change in backlog can be attributed to a change in the ordering patterns
of the Company’s Customers and/or the impact of foreign exchange translation rates, it may not necessarily
correspond to higher future sales.

Liquidity and Capital Resources

Financial Condition At July 31, 2009, the Company’s capital structure was comprised of $35.1 million
of current debt, $253.7 million of long-term debt and $688.6 million of shareholders’ equity. The Company
had cash and cash equivalents of $143.7 million at July 31, 2009. The ratio of long-term debt to total capital
was 26.9 percent and 19.3 percent at July 31, 2009 and 2008, respectively.

Total debt outstanding decreased $32.8 million during the year to $288.7 million outstanding at July 31,
2009. Short-term borrowings outstanding at the end of the year were $109.8 million lower as compared to
the prior year, and long-term debt increased $77.0 million (including current maturities) from the prior year. 

18

The increase in long-term debt was comprised of a new note agreement. On November 14, 2008, the
Company issued an $80 million senior unsecured note, due on November 14, 2013.  The debt was issued at
face value and bears interest payable semi-annually at a rate of 6.59 percent.  The proceeds from the note
were used to refinance existing debt and for general corporate purposes.

The following table summarizes the Company’s cash obligations as of July 31, 2009, for the years

indicated (thousands of dollars):

Contractual Obligations
_________________
Long-term debt obligations. . . . . . . . . . . . . . . . . 
Capital lease obligations . . . . . . . . . . . . . . . . . . . 
Interest on long-term debt obligations . . . . . . . 
Operating lease obligations. . . . . . . . . . . . . . . . . 
Purchase obligations(1) . . . . . . . . . . . . . . . . . . . . 
Pension and deferred compensation(2). . . . . . . 
Total(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Payments Due by Period
___________________________________________________________
More than
3 – 5
1 - 3
years
5 years
years
________ ________ ________
$97,434 $107,785
$47,678
—
718
20,250
25,344
194
8,924
—
18,500
52,402
10,100
________ ________ ________
$111,264
$131,398 $180,631
________ ________ ________
________ ________ ________

Less than
1 year
________
$4,982
514
13,484
8,422
106,621
6,416
________
$140,439
________
________

Total
________
$257,879
1,291
79,030
21,290
125,599
78,643
________
$563,732
________
________

59
19,952
3,750
478
9,725

(1)

Purchase  obligations  consist  primarily  of  inventory,  tooling,  contract  employment  services  and  capital
expenditures.  The Company’s purchase orders for inventory are based on expected Customer demand, and
quantities and dollar volumes are subject to change.

(2)  Pension and deferred compensation consists of long-term pension liabilities and salary and bonus deferrals elected
by certain executives under the Company’s deferred compensation plan.  Deferred compensation balances earn
interest based on a treasury bond rate as defined by the plan and are payable at the election of the participants.

(3) 

In addition to the above contractual obligations, the Company may be obligated for additional cash outflows of
$16.9 million of potential tax obligations.  The payment and timing of any such payments is affected by the ultimate
resolution of the tax years that are under audit or remain subject to examination by the relevant taxing authorities,
and are therefore not currently capable of estimation by period.

As  a  result  of  its  past  contribution  practices,  the  Company  does  not  have  a  minimum  required
contribution under the Pension Benefit Guarantee Corporation requirements for its U.S. pension plans for
Fiscal 2010. As such, there is no current intention to make a U.S. pension contribution in Fiscal 2010. For its
non-U.S. pension plans, the Company estimates that it will contribute approximately $5 million in Fiscal
2010 based upon the local government prescribed funding requirements. Future estimates of the Company’s
pension plan contributions may change significantly depending on the actual rate of return on plan assets,
discount rates and regulatory requirements.

The Company has a five-year, multi-currency revolving facility with a group of banks under which the
Company may borrow up to $250 million.  This facility matures on April 2, 2013.  The agreement provides
that loans may be made under a selection of currencies and rate formulas including Base Rate Advances
or Off Shore Rate Advances. The interest rate on each advance is based on certain market interest rates and
leverage ratios. Facility fees and other fees on the entire loan commitment are payable over the duration of
this facility. There was $20.0 million outstanding at July 31, 2009, and $70.0 million outstanding at July 31,
2008.  The amount available for further borrowing reflects a reduction for issued standby letters of credit,
as discussed below.  At July 31, 2009 and 2008, $210.0 million and $161.5 million, respectively, was available
for  further  borrowing  under  such  facilities.  The  weighted  average  interest  rate  on  these  short-term
borrowings outstanding at July 31, 2009 and 2008, was 0.56 percent and 2.73 percent, respectively.

The Company also has three uncommitted credit facilities in the United States, which provide unsecured
borrowings for general corporate purposes. At July 31, 2009 and 2008, there was $70.0 million available for
use.  There was $9.6 million and $28.0 million outstanding under these facilities at July 31, 2009 and 2008,
respectively. The weighted average interest rate on these short-term borrowings outstanding at July 31, 2009
and 2008, was 0.53 percent and 2.79 percent, respectively.

The Company also has a €100 million program for issuing treasury notes for raising short, medium and
long-term financing for its European operations. There were no amounts outstanding on this program at

19

July 31, 2009 and 2008.  Additionally, the Company’s European operations have lines of credit with an
available limit of €72.9 million. There were no amounts outstanding on these lines of credit as of July 31, 2009.
As of July 31, 2008, there was €23.5 million, or $36.9 million outstanding. The weighted average interest rate
of these short-term borrowings outstanding at July 31, 2008, was 5.60 percent.

Other international subsidiaries may borrow under various credit facilities. There were no amounts
outstanding under these credit facilities as of July 31, 2009.  As of July 31, 2008, borrowings under these
facilities were $4.5 million. The weighted average interest rate on these international borrowings outstanding
at July 31, 2008, was 2.88 percent.

During the first quarter of Fiscal 2009, the global credit market began to experience a significant
tightening of credit availability and interest rate volatility.  This crisis resulted in reduced funding available
for commercial banks and corporate debt issuers.  As a result, capital market financing became more
expensive and less available.  The Company has assessed the implications of these factors on its current
business and believes that its current financial resources are sufficient to continue financing its operations.
There can be no assurance, however, that the cost or availability of future borrowings will not be impacted
by ongoing capital market disruptions.

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
August 3, 2009, subsequent to year end, for $80 million and $25 million, respectively, for approximately 5 and
8 years, respectively.  These interest rate swaps will be accounted for as fair value hedges.  Changes in the
payment of interest resulting from the interest rate swaps will be recorded as an offset to interest expense.  

Certain note agreements contain debt covenants related to working capital levels and limitations on
indebtedness. As of July 31, 2009, the Company was in compliance with all such covenants.  The Company
currently expects to remain in compliance with these covenants.

Also,  at  July  31,  2009  and  2008,  the  Company  had  outstanding  standby  letters  of  credit  totaling
$20.0 million and $18.5 million, respectively, upon which no amounts had been drawn. The letters of credit
guarantee payment to third parties in the event the Company is in breach of a specified bond financing
agreement and insurance contract terms as detailed in each letter of credit.

Shareholders’ equity decreased $51.4 million in Fiscal 2009 to $688.6 million at July 31, 2009. The
decrease was primarily due to changes to foreign currency translation of $63.4 million, $58.6 million (net of
tax)  of  adjustments  related  to  the  pension  liability,  $32.8  million  of  treasury  stock  repurchases  and
$35.5 million of dividend declarations.  These decreases were partially offset by current year earnings of
$131.9 million.

Cash  Flows During  Fiscal  2009,  $276.9  million  of  cash  was  generated  from  operating  activities,
compared with $173.5 million in Fiscal 2008 and $117.0 million in Fiscal 2007. Operating cash flows in Fiscal
2009 increased by $103.4 million from the prior year.  Operating cash flows were positively impacted by the
decreased level of sales as a result of the worldwide recession and the Company’s cash flow improvement
initiatives.    This  led  to  a  decrease  in  accounts  receivable  and  inventory  levels  of  $146.8  million  and
$115.5 million, respectively, and corresponding increase operating cash flows.  These positive impacts were
partially offset by the negative impacts of decreases in accounts payable and accrued compensation of
$82.3 million  and  $22.9  million,  respectively,  which  reduced  operating  cash  flows.    In  addition  to  cash
generated  from  operating  activities,  the  Company  increased  its  outstanding  net  long-term  debt  by
$72.7 million. Cash flow generated by operations, $3.9 million of proceeds from the sale of the Maryville, TN
air  dryer  business  and  $80.0  million  of  additional  long-term  debt  were  used  primarily  to  support
$45.6 million of net capital expenditures, the acquisition of Western Filter Corporation for $78.5 million,
$32.8 million for stock repurchases, $35.2 million for dividend payments and repayment of $103.7 million
of short-term debt. Cash and cash equivalents increased $60.3 million during Fiscal 2009.

Net  capital  expenditures  for  property,  plant  and  equipment  totaled  $45.6  million  in  Fiscal  2009,
$70.8 million  in  Fiscal  2008  and  $76.6  million  in  Fiscal  2007.  Net  capital  expenditures  is  comprised  of
purchases of property, plant, and equipment of $46.1 million, $72.1 million, and $77.4 million in Fiscal 2009,
2008 and 2007, respectively, partially offset by proceeds from the sale of property, plant, and equipment of

20

$0.5 million, $1.3 million, and $0.8 million in Fiscal 2009, 2008 and 2007, respectively. Fiscal 2009 capital
expenditures primarily related to new plant capacity additions and productivity enhancing investments at
various plants worldwide.

Capital spending in Fiscal 2010 is planned at $30.0 million to $40.0 million.  It is anticipated that Fiscal
2010 capital expenditures will be financed primarily by cash on hand, cash generated from operations and
existing lines of credit.

The Company expects that cash generated by operating activities will exceed $150 million in Fiscal
2010. At July 31, 2009, the Company had cash of $143.7 million, which primarily exists at subsidiaries outside
of the United States.  The Company also had $270.4 million available under existing credit facilities in the
United States, €172.9 million, or $245.3 million, available under existing credit facilities in Europe and
$41.4 million available under various credit facilities and currencies in Asia and the rest of the world. The
Company believes that the combination of existing cash, available credit under existing credit facilities and
the expected cash generated by operating activities will be adequate to meet cash requirements for Fiscal
2010, including debt repayment, issuance of anticipated dividends, possible share repurchase activity and
capital expenditures.

Dividends The Company’s dividend policy is to maintain a payout ratio, which allows dividends to
increase with the long-term growth of earnings per share. The Company’s dividend payout ratio target is
20 percent to 30 percent of the average earnings per share of the last three years. 

Share Repurchase Plan In Fiscal 2009, the Company repurchased 0.8 million shares of common stock
for $32.8 million under the share repurchase plan authorized in March 2006 at an average price of $40.86
per share. The Company repurchased 2.2 million shares for $92.2 million in Fiscal 2008. The Company
repurchased  2.2  million  shares  for  $76.9  million  in  Fiscal  2007. As  of  July  31,  2009,  the  Company  had
remaining authorization to repurchase 0.9 million shares under this plan.

Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements,
with the exception of the guarantee of 50 percent of certain debt of its joint venture, Advanced Filtration
Systems, Inc. as further discussed in Note K of the Company’s Notes to Consolidated Financial Statements.
As of July 31, 2009, the joint venture had $27.7 million of outstanding debt. The Company does not believe
that this guarantee will have a current or future effect on its financial condition, results of operation, liquidity
or capital resources.

New Accounting Standards

In May 2009, the Financial Accounting Standards Board (FASB) issued
FAS  No.  165,  Subsequent  Events  (FAS  165),  which  establishes  general  standards  of  accounting  and
disclosure for events that occur after the balance sheet date but before the financial statements are issued.
This new standard was effective for interim or annual financial periods ending after June 15, 2009, and did
not have an impact on our consolidated financial position or results of operations.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, (FSP No. FAS-107-1 and APB-28-1), which amends FAS 107, Disclosures about Fair
Value of Financial Instruments and Accounting Principles Board (APB) Opinion No. 28,  Interim Financial
Reporting, to require disclosures about fair value of financial instruments for interim periods. This FSP will
be effective for the Company for the quarter ended October 31, 2009, and will expand the Company’s
disclosures regarding the use of fair value in interim periods.

In  December  2008,  the  FASB  issued  FSP  No.  FAS  132(R)-1,  Employers’  Disclosures  about
Postretirement  Benefit  Plan Assets (FSP  No.  FAS  132(R)),  which  provides  guidance  on  an  employer’s
disclosures about plan assets of a defined benefit pension or other postretirement plan.  This FSP is effective
for fiscal years ending after December 15, 2009.  The Company is currently evaluating the impact of adopting
FSP No. FAS 132(R) on our defined benefit pension and other postretirement plan note disclosures.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158).
The portion of the statement that requires recognition of the overfunded or underfunded status of defined
benefit postretirement plans as an asset or liability in the statement of financial position was adopted in

21

Fiscal 2007 with minimal impact.  SFAS 158 also requires measurement of the funded status of a plan as of
the  date  of  the  statement  of  financial  position.  That  provision  required  the  Company  to  change  its
measurement date from April 30 to July 31 in Fiscal 2009.  The adoption of the measurement date provision
resulted  in  an  after-tax  decrease  to  Retained  earnings  of  $0.9  million,  a  decrease  to  Other  assets  of
$0.5 million increase to Other long-term liabilities of $0.8 million and an increase to Deferred income taxes
of $0.5 million.

In  September  2006,  the  FASB  issued  SFAS  No.  157,  Fair  Value  Measurements (SFAS  157).  This
statement defines fair value, establishes a framework for measuring fair value in U.S. generally accepted
accounting principles and expands disclosures about fair value measurements. SFAS 157 applies whenever
another standard requires (or permits) assets or liabilities to be measured at fair value, except for the
measurement  of  share-based  payments.  SFAS  157  does  not  expand  the  use  of  fair  value  to  any  new
circumstances, and was effective for the majority of the Company’s assets and liabilities for its Fiscal 2009
year beginning August 1, 2008. The adoption of this portion of SFAS 157 in Fiscal 2009 did not have a
material impact on the Company’s financial statements. On February 12, 2008, the FASB issued FASB Staff
Position (FSP) FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2).  FSP FAS 157-2
delays by one year the effective date of SFAS 157 for certain non-financial assets and non-financial liabilities.
The Company is currently evaluating the impact the FSP FAS 157-2 will have on the determination of fair
value related to non-financial assets and non-financial liabilities in Fiscal 2010.  The adoption of FSP FAS
157-2 is not expected to have a material impact on the Company’s financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial  Liabilities  (“SFAS  159”).  SFAS  159  permits  entities  to  choose  to  measure  many  financial
instruments and certain other items at fair value that are not currently required to be measured at fair value.
SFAS 159 is effective for fiscal years beginning after November 15, 2007, and was effective for the Company
with its 2009 fiscal year, beginning August 1, 2008.  The adoption of SFAS 159 did not have a material impact
on the Company’s financial statements.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)), which
changes the accounting for business combinations and their effects on the financial statements.  SFAS 141(R)
will be effective for the Company at the beginning of Fiscal 2010.  In February 2009, the FASB issued FASB
Staff Position 141(R)-a, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination
That Arise from Contingencies (FSP FAS 141(R)-a), which will amend certain provisions of SFAS 141(R).
The adoptions of SFAS 141(R) and FSP FAS 141(R)-a are not expected to have a material impact on the
Company’s consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires enhanced disclosures
about an entity’s derivative and hedging activities, including (a) how and why an entity uses derivative
instruments,  (b)  how  derivative  instruments  and  related  hedged  items  are  accounted  for  under  SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, and (c) how derivative instruments
and related hedged items affect an entity’s financial position, financial performance and cash flows.  The
Company adopted the provisions of SFAS 161 effective February 1, 2009.  The adoption of SFAS 161 only
requires additional disclosures about the Company’s derivatives and thus did not affect the Company’s
consolidated financial statements.  

Market Risk

The Company’s market risk includes the potential loss arising from adverse changes in foreign currency
exchange rates and interest rates. The Company manages foreign currency market risk from time to time
through the use of a variety of financial and derivative instruments. The Company does not enter into any
of these instruments for trading purposes to generate revenue. Rather, the Company’s objective in managing
these risks is to reduce fluctuations in earnings and cash flows associated with changes in foreign currency
exchange rates. The Company uses forward exchange contracts and other hedging activities to hedge the
U.S. dollar  value  resulting  from  existing  recognized  foreign  currency  denominated  asset  and  liability
balances and also for anticipated foreign currency transactions. The Company also naturally hedges foreign

22

currency through its production in the countries in which it sells its products. The Company’s market risk
on interest rates is the potential decrease in fair value of long-term debt resulting from a potential increase
in interest rates. See further discussion of these market risks below.

Foreign Currency During Fiscal 2009, the U.S. dollar was strong throughout the year compared to
many of the currencies of the foreign countries in which the Company operates. The overall strength of the
dollar  had  a  negative  impact  on  the  Company’s  international  net  sales  results  because  the  foreign
denominated revenues translated into fewer U.S. dollars.

It is not possible to determine the true impact of foreign currency translation changes. However, the
direct effect on reported net sales and net earnings can be estimated. For the year ended July 31, 2009, the
impact of foreign currency translation resulted in an overall decrease in reported net sales of $76.8 million,
a decrease in operating expenses of $24.5 million and a decrease in reported net earnings of $3.8 million.
Foreign currency translation had a negative impact in most regions around the world. In Europe, the
stronger U.S. dollar relative to the euro and British pound sterling resulted in a decrease of $66.2 million in
reported net sales and an insignificant decrease in reported net earnings. The stronger U.S. dollar relative
to the Australian dollar, Korean won, Mexican peso and South African rand had a negative impact on foreign
currency translation with a decrease in reported net sales of $10.7 million, $6.1 million, $12.3 million and
$8.4 million, respectively, and a decrease in reported net earnings of $0.6 million, $0.6 million, $2.1 million
and $0.4 million, respectively.  Foreign currency losses were partially offset by gains relative to the Japanese
yen  and  Chinese  renminbi  of  $13.8  million  and  $4.4  million,  respectively,  in  reported  net  sales  and
$0.3 million and $0.7 million, respectively, in reported net earnings.

The Company maintains significant assets and operations in Europe, Asia-Pacific, South Africa and
Mexico, resulting in exposure to foreign currency gains and losses. A portion of the Company’s foreign
currency exposure is naturally hedged by incurring liabilities, including bank debt, denominated in the local
currency in which the Company’s foreign subsidiaries are located.

The foreign subsidiaries of the Company generally purchase the majority of their input costs and then

sell to many of their Customers in the same local currency.

The Company may be exposed to cost increases relative to local currencies in the markets to which it
sells. To  mitigate  such  adverse  trends,  the  Company,  from  time  to  time,  enters  into  forward  exchange
contracts and other hedging activities. Additionally, foreign currency positions are partially offsetting and
are netted against one another to reduce exposure.

Some products made in the United States are sold abroad. As a result, sales of such products are affected
by the value of the U.S. dollar relative to other currencies. Any long-term strengthening of the U.S. dollar
could depress these sales. Also, competitive conditions in the Company’s markets may limit its ability to
increase product pricing in the face of adverse currency movements.

Interest The Company’s exposure to market risks for changes in interest rates relates primarily to its
short-term investments, short-term borrowings and interest rate swap agreements as well as the potential
increase in fair value of long-term debt resulting from a potential decrease in interest rates. The Company
has no earnings or cash flow exposure due to market risks on its long-term debt obligations as a result of
the fixed-rate nature of the debt. However, interest rate changes would affect the fair market value of the
debt.  As  of  July  31,  2009,  the  estimated  fair  value  of  long-term  debt  with  fixed  interest  rates  was
$253.1 million compared to its carrying value of $250.1 million. The fair value is estimated by discounting
the projected cash flows using the rate that similar amounts of debt could currently be borrowed. As of July
31, 2009, the Company’s financial liabilities with exposure to changes in interest rates consisted mainly of
$29.6 million of short-term debt outstanding. Assuming a hypothetical increase of one-half percent in short-
term interest rates, with all other variables remaining constant, interest expense would have increased
$0.6 million in Fiscal 2009. 

Pensions The Company is exposed to market return fluctuations on its qualified defined benefit
pension plans.  During Fiscal 2009, the market value of these assets declined in conjunction with the global
economic downturn.  This decline in market value is the principle reason that pension expense is expected
to increase by $1.1 million in Fiscal 2010.  At July 31, 2009, the Company’s annual measurement date for its

23

pension plans, the plans were under funded by $40.7 million since the projected benefit obligation exceeded
the fair value of plan assets. 

Critical Accounting Policies

The Company’s consolidated financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America. The preparation of these financial statements requires
the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and expenses during the periods
presented. Management bases these estimates on historical experience and various other assumptions that
are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the recorded values of certain assets and liabilities. The Company believes its use of
estimates and underlying accounting assumptions adheres to generally accepted accounting principles and
is consistently applied. Valuations based on estimates and underlying accounting assumptions are reviewed
for reasonableness on a consistent basis throughout the Company. Management believes the Company’s
critical accounting policies that require more significant judgments and estimates used in the preparation
of its consolidated financial statements and that are the most important to aid in fully understanding its
financial results are the following:

Revenue recognition and allowance for doubtful accounts Revenue is recognized when both product
ownership  and  the  risk  of  loss  have  transferred  to  the  Customer  and  the  Company  has  no  remaining
obligations. The Company records estimated discounts and rebates as a reduction of sales in the same period
revenue is recognized. Allowances for doubtful accounts are estimated by management based on evaluation
of potential losses related to Customer receivable balances. The allowance for doubtful accounts is the
Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The
Company  determines  the  allowance  based  on  historical  write-off  experience  in  the  industry,  regional
economic data and evaluation of specific Customer accounts for risk of loss. The Company reviews its
allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are
reviewed  individually  for  collectibility. All  other  balances  are  reviewed  on  a  pooled  basis  by  type  of
receivable. Account balances are charged off against the allowance when the Company feels it is probable
the receivable will not be recovered. The Company does not have any off-balance-sheet credit exposure
related to its Customers. The establishment of this reserve requires the use of judgment and assumptions
regarding the potential for losses on receivable balances. Though management considers these balances
adequate and proper, changes in economic conditions in specific markets in which the Company operates
could have an effect on reserve balances required.

Goodwill and other intangible assets Goodwill is assessed for impairment annually, or more frequently
if events or changes in circumstances indicate that the asset might be impaired. The Company performs
impairment  assessments  for  its  reporting  units  and  uses  a  discounted  cash  flow  model  based  on
management’s judgments and assumptions to determine the estimated fair value. An impairment loss
generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the
estimated fair value of the reporting unit. The Company performed an impairment assessment during the
third quarter of Fiscal 2009 to satisfy its annual impairment requirement. The impairment assessment in
the third quarter indicated that the estimated fair value of each reporting unit exceeded its corresponding
carrying amount, including recorded goodwill and, as such, no impairment existed at that time. Other
intangible assets with definite lives continue to be amortized over their estimated useful lives. Definite lived
intangible  assets  are  also  subject  to  impairment  assessments. A  considerable  amount  of  management
judgment  and  assumptions  are  required  in  performing  the  impairment  assessments,  principally  in
determining  the  fair  value  of  each  reporting  unit.  While  the  Company  believes  its  judgments  and
assumptions are reasonable, different assumptions could change the estimated fair values and, therefore,
impairment charges could be required.

Income taxes As part of the process of preparing the Company’s Consolidated Financial Statements,
management  is  required  to  estimate  income  taxes  in  each  of  the  jurisdictions  in  which  the  Company
operates. This process involves estimating actual current tax exposure together with assessing temporary
differences  resulting  from  differing  treatment  of  items  for  tax  and  book  accounting  purposes. These

24

differences  result  in  deferred  tax  assets  and  liabilities,  which  are  included  within  the  Company’s
Consolidated Balance Sheet. These assets and liabilities are evaluated by using estimates of future taxable
income streams and the impact of tax planning strategies. Management assesses the likelihood that deferred
tax assets will be recovered from future taxable income and to the extent management believes that recovery
is not likely, a valuation allowance is established. To the extent that a valuation allowance is established or
increased, an expense within the tax provision is included in the statement of operations. Reserves are also
estimated for uncertain tax positions that are currently unresolved. The Company routinely monitors the
potential impact of such situations and believes that it is properly reserved. Valuations related to tax accruals
and assets can be impacted by changes to tax codes, changes in statutory tax rates and the Company’s future
taxable income levels.

The Company’s accounting for income taxes in Fiscal 2008 was affected by the adoption of FIN No. 48,
Accounting for Uncertainty in Income Taxes, which the Company was required to adopt on August 1, 2007.
This  pronouncement  prescribes  a  recognition  threshold  and  measurement  attribute  for  the  financial
statement recognition and measurement of tax positions taken or expected to be taken in a tax return. As
such, the standard required the Company to reassess all of the Company’s uncertain tax return positions in
accordance with this new accounting principle. As of July 31, 2009, the liability for unrecognized tax benefits
was $16.9 million.

Employee Benefit Plans The Company incurs expenses relating to employee benefits such as non-
contributory defined benefit pension plans and postretirement health care benefits. In accounting for these
employment costs, management must make a variety of assumptions and estimates including mortality rates,
discount rates, overall Company compensation increases, expected return on plan assets and health care
cost trend rates. The Company considers historical data as well as current facts and circumstances and uses
a third-party specialist to assist management in determining these estimates.

To develop the assumption regarding the expected long-term rate of return on assets for its U.S. pension
plans, the Company considered the historical returns and the future expectations for returns for each asset
class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the
8.50 percent long-term rate of return on assets assumption for the Company’s U.S. pension plans. The
expected long-term rate of return on assets assumption for the plans outside the U.S. reflects the investment
allocation and expected total portfolio returns specific to each plan and country. The expected long-term rate
of return on assets shown in the pension benefit disclosure for non-U.S. plans is an asset-based weighted
average of all non-U.S. plans.

Reflecting the relatively long-term nature of the plans’ obligations, approximately 45 percent of the
plans assets are invested in equity securities, 30 percent in alternative investments (funds of hedge funds),
10 percent in real assets (investments into funds containing commodities and real estate), 10 percent in
fixed income and 5 percent in private equity. Within equity securities, the Company targets an allocation of
15 percent international, 15 percent equity long / short, 10 percent small cap, and 5 percent large cap.  

A one percent change in the expected long-term rate of return on plan assets would have changed the
Fiscal 2009 annual pension expense by approximately $3.6 million. The expected long-term rate of return
on assets assumption for the plans outside the U.S. follows the same methodology as described above but
reflects the investment allocation and expected total portfolio returns specific to each plan and country.

The Company’s objective in selecting a discount rate for its pension plans is to select the best estimate
of the rate at which the benefit obligations could be effectively settled on the measurement date taking into
account the nature and duration of the benefit obligations of the plan. In making this best estimate, the
Company looks at rates of return on high-quality fixed-income investments currently available and expected
to be available during the period to maturity of the benefits. This process includes assessing the universe of
bonds  available  on  the  measurement  date  with  a  quality  rating  of Aa  or  better.  Similar  appropriate
benchmarks are used to determine the discount rate for the non-U.S. plans. As of the measurement date of
July 31, 2009, the Company elected to maintain the 6.00 percent discount rate elected as of July 31, 2009, for
the U.S. pension plans. This is consistent with published bond indices.  A 0.25 percent change in the discount
rate would have changed the benefit obligation related to the U.S. plans by approximately $6.5 million at
July 31, 2009, and changed Fiscal 2009 annual pension expense by approximately $0.3 million. 

25

Forward-Looking Statements

The  Company,  through  its  management,  may  make  forward-looking  statements  reflecting  the
Company’s current views with respect to future events and financial performance. These forward-looking
statements, which may be included in reports filed under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), in press releases and in other documents and materials as well as in written or oral
statements made by or on behalf of the Company, are subject to certain risks and uncertainties, including
those discussed in Item 1A of this Form 10-K, which could cause actual results to differ materially from
historical results or those anticipated. The words or phrases “will likely result,” “are expected to,” “will
continue,” “estimate,” “project,” “believe,” “expect,” “anticipate,” “forecast” and similar expressions are
intended to identify forward-looking statements within the meaning of Section 21e of the Exchange Act and
Section 27A of the Securities Act of 1933, as amended, as enacted by the Private Securities Litigation
Reform Act of 1995 (“PSLRA”). In particular the Company desires to take advantage of the protections of
the PSLRA in connection with the forward-looking statements made in this annual report on Form 10-K.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak
only as of the date such statements are made. In addition, the Company wishes to advise readers that the
factors listed in Item 1A of this Form 10-K, as well as other factors, could affect the Company’s performance
and could cause the Company’s actual results for future periods to differ materially from any opinions or
statements expressed. The Company undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or otherwise.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market risk disclosure appears in Management’s Discussion and Analysis on page 22 under “Market

Risk.”

26

Item 8. Financial Statements and Supplementary Data

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial
reporting for the Company. Management conducted an evaluation of the effectiveness of internal control
over financial reporting based on the framework in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation,
management concluded that the Company’s internal control over financial reporting was effective as of
July 31, 2009. The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP,
has audited the effectiveness of the Company’s internal control over financial reporting as of July 31, 2009,
as stated in this report which follows in Item 8 of this Form 10-K.

William M. Cook
Chief Executive Officer
September 25, 2009

Thomas R. VerHage
Chief Financial Officer
September 25, 2009

27

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Donaldson Company, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements
of earnings, shareholders’ equity and cash flows present fairly, in all material respects, the financial position
of Donaldson Company, Inc. and its subsidiaries at July 31, 2009 and July 31, 2008, and the results of their
operations and their cash flows for each of the three years in the period ended July 31, 2009, in conformity
with accounting principles generally accepted in the United States of America.  In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item 15(2) presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated financial
statements.  Also in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of July 31, 2009, based on criteria established in Internal Control - Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for these financial statements and financial statement schedule,
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting.  Our responsibility is to express opinions on these financial statements,
on the financial statement schedule, and on the Company’s internal control over financial reporting based
on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material respects.  Our
audits of the financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.  Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk.  Our audits also included performing
such other procedures as we considered necessary in the circumstances.  We believe that our audits provide
a reasonable basis for our opinions.

As discussed in Note A to the consolidated financial statements, the Company changed the manner in
which it accounts for defined benefit arrangements effective July 31, 2007.  Also, as discussed in Note I to
the  consolidated  financial  statements,  the  Company  changed  the  manner  in  which  it  accounts  for
unrecognized income tax positions effective August 1, 2007.

A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles.  A company’s internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
September 25, 2009

28

Consolidated Statements of Earnings
Donaldson Company, Inc. and Subsidiaries

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Gross margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . 
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . 
Operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Earnings before income taxes. . . . . . . . . . . . . . . . . . . . . 
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Weighted average shares — basic . . . . . . . . . . . . . . . . . . . . . 
Weighted average shares — diluted . . . . . . . . . . . . . . . . . . . 
Net earnings per share — basic . . . . . . . . . . . . . . . . . . . . . . . 
Net earnings per share — diluted . . . . . . . . . . . . . . . . . . . . . 

2007
__________

Year ended July 31,
_______________________________________
2008
2009
__________
__________
(thousands of dollars, except share
and per share amounts)
$ 2,232,521
1,506,659
__________
725,862
436,293
43,757
__________
245,812
16,550
(6,901)
__________
236,163
64,210
__________
$
171,953
__________
__________
79,207,604
81,211,343
2.17
$
2.12
$

$ 1,868,629
1,278,923
__________
589,706
379,108
40,643
__________
169,955
17,018
(8,488)
__________
161,425
29,518
__________
$
131,907
__________
__________
77,879,036
79,172,042
1.69
$
1.67
$

$ 1,918,828
1,313,964
__________
604,864
357,306
36,458
__________
211,100
14,559
(8,320)
__________
204,861
54,144
__________
$
150,717
__________
__________
80,454,861
82,435,756
1.87
$
1.83
$

The accompanying notes are an integral part of these Consolidated Financial Statements.

29

Consolidated Balance Sheets
Donaldson Company, Inc. and Subsidiaries

Assets
Current assets

Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Accounts receivable, less allowance of $7,387 and $7,509. . . . . . . . . . 
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Prepaids and other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Liabilities and shareholders’ equity
Current liabilities

Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Accrued employee compensation and related taxes . . . . . . . . . . . . . . 
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Commitments and contingencies (Note K)
Shareholders’ equity

Preferred stock, $1.00 par value, 1,000,000 shares 

At July 31,
_______________________
_________
_________
2009
2008
(thousands of dollars,
except share amounts)

$ 143,687
280,187
180,238
21,501
51,154
_________
676,767
_________
381,068
169,027
65,386
41,748
_________
$1,333,996
_________
_________

$

29,558
5,496
123,063
54,662
39,624
47,681
_________
300,084
253,674
9,416
82,204
_________
645,378

$

83,357
413,863
264,129
32,061
60,347
_________
853,757
_________
415,159
134,162
46,317
99,227
_________
$1,548,622
_________
_________

$ 139,404
5,669
200,967
66,155
56,296
48,216
_________
516,707
176,475
35,738
79,667
_________
808,587

authorized, none issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

—

—

Common stock, $5.00 par value, 120,000,000 shares authorized,

88,643,194 shares issued in 2009 and 2008 . . . . . . . . . . . . . . . . . . . . . 
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Stock compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . 
Treasury stock-11,295,409 and 11,021,619 shares in 2009 and 

2008, at cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . 

443,216
615,817
19,894
(9,677)

443,216
522,476
27,065
112,883

(380,632)
_________
688,618
_________
$1,333,996
_________
_________

(365,605)
_________
740,035
_________
$1,548,622
_________
_________

The accompanying notes are an integral part of these Consolidated Financial Statements.

30

Consolidated Statements of Cash Flows
Donaldson Company, Inc. and Subsidiaries

Operating Activities
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Adjustments to reconcile net earnings to net cash provided 

by operating activities

Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . 
Equity in earnings of affiliates, net of distributions . . . . . . . . . 
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Tax benefit of equity plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Stock compensation plan expense . . . . . . . . . . . . . . . . . . . . . . . 
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Changes in operating assets and liabilities, net of acquired 

businesses

Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Prepaids and other current assets. . . . . . . . . . . . . . . . . . . . . . . . 
Trade accounts payable and other accrued expenses. . . . . . . . 
Net cash provided by operating activities. . . . . . . . . . . . . . . 

Investing Activities
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . 
Proceeds from sale of property, plant, and equipment . . . . . . . . . 
Acquisitions, investments, and divestitures of affiliates . . . . . . . . 
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . 

Financing Activities
Proceeds from long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Change in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Tax benefit of equity plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net cash provided by (used in) financing activities. . . . . . . 
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . 
Increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . 
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . 
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . 

Year ended July 31,
_______________________________
2008
2007
2009
________
________
________
(thousands of dollars)

$ 131,907

$ 171,953

$ 150,717

58,597
(982)
(4,726)
(2,663)
1,900
(7)

56,732
(1,558)
(1,205)
(9,178)
9,312
(2,528)

49,566
(691)
(4,401)
(5,898)
6,608
(16,626)

116,983
66,145
(11,489)
(78,738)
________
276,927
________

(46,080)
511
(74,318)
________
(119,887)
________

80,471
(7,745)
(103,695)
(32,773)
(35,166)
2,663
4,476
________
(91,769)
________
(4,941)
________
60,330
83,357
________
$ 143,687
________
________

(29,779)
(49,400)
(4,755)
33,940
________
173,534
________

(31,418)
(36,469)
658
4,999
________
117,045
________

(72,152)
1,330
(2,377)
________
(73,199)
________

(77,440)
857
(40,615)
________
(117,198)
________

50,297
(33,074)
12,478
(92,202)
(33,003)
9,178
9,308
________
(77,018)
________
4,803
________
28,120
55,237
________
$ 83,357
________
________

64,903
(9,507)
44,904
(76,898)
(28,806)
5,898
7,346
________
7,840
________
2,083
________
9,770
45,467
________
$ 55,237
________
________

Supplemental Cash Flow Information
Cash paid during the year for:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

$ 41,196
14,861

$ 50,629
14,589

$ 59,179
12,630

The accompanying notes are an integral part of these Consolidated Financial Statements.

31

Consolidated Statements of Changes in Shareholders’ Equity
Donaldson Company, Inc. and Subsidiaries

Common
Stock
_______

Additional
Paid-in
Capital
_______ _______ __________

Retained Compensation Comprehensive
Income (Loss)
Earnings
__________
(thousands of dollars, except per share amounts)

Stock

Plans

Accumulated
Other

Treasury
Stock
_______ ______

Total

Balance July 31, 2006 . . . . . . . . . . . . . . . . . . . . 
Comprehensive income

Net earnings . . . . . . . . . . . . . . . . . . . . . . . . 
Foreign currency translation . . . . . . . . . . . 
Additional minimum pension liability, 

net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . 

Net loss on cash flow hedging 

derivatives. . . . . . . . . . . . . . . . . . . . . . . . . 

Comprehensive income . . . . . . . . . . . . . . . 

Treasury stock acquired . . . . . . . . . . . . . . . . . . 
Stock options exercised . . . . . . . . . . . . . . . . . . 
Deferred stock and other activity . . . . . . . . . . 
Performance awards. . . . . . . . . . . . . . . . . . . . . 
Stock option expense . . . . . . . . . . . . . . . . . . . . 
Tax reduction — employee plans . . . . . . . . . . 
Adjustment to adopt SFAS 158, net of tax . . 
Dividends ($.370 per share). . . . . . . . . . . . . . . 

Balance July 31, 2007 . . . . . . . . . . . . . . . . . . . . 

Comprehensive income

Net earnings . . . . . . . . . . . . . . . . . . . . . . . . 
Foreign currency translation . . . . . . . . . . . 
Additional minimum pension liability, 

net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . 

Net gain on cash flow hedging 

derivatives. . . . . . . . . . . . . . . . . . . . . . . . . 

Comprehensive income . . . . . . . . . . . . . . . 

Treasury stock acquired . . . . . . . . . . . . . . . . . . 
Stock options exercised . . . . . . . . . . . . . . . . . . 
Deferred stock and other activity . . . . . . . . . . 
Performance awards. . . . . . . . . . . . . . . . . . . . . 
Stock option expense . . . . . . . . . . . . . . . . . . . . 
Tax reduction — employee plans . . . . . . . . . . 
Adjustment to adopt FIN 48 . . . . . . . . . . . . . . 
Dividends ($.430 per share). . . . . . . . . . . . . . . 

Balance July 31, 2008 . . . . . . . . . . . . . . . . . . . . 

Comprehensive income

Net earnings . . . . . . . . . . . . . . . . . . . . . . . . 
Foreign currency translation . . . . . . . . . . . 
Pension liability adjustment, net of tax . . 
Net gain on cash flow hedging 

derivatives. . . . . . . . . . . . . . . . . . . . . . . . . 

Comprehensive income . . . . . . . . . . . . . . . 
Treasury stock acquired . . . . . . . . . . . . . . . . . . 
Stock options exercised . . . . . . . . . . . . . . . . . . 
Deferred stock and other activity . . . . . . . . . . 
Performance awards. . . . . . . . . . . . . . . . . . . . . 
Stock option expense . . . . . . . . . . . . . . . . . . . . 
Tax reduction — employee plans . . . . . . . . . . 
Adjustment to adopt FAS 158 measurement 
date provision, net of tax. . . . . . . . . . . . . . . . 
Dividends ($.460 per share). . . . . . . . . . . . . . . 

Balance July 31, 2009 . . . . . . . . . . . . . . . . . . . . 

$443,216

$ — $275,598

$ 20,535

$ 51,194

$(243,741) $546,802

150,717

(7,700)

7,700

(9,499)
(2,273)
(1,163)
3,422

1,513
541
(1,768)

______
443,216
______

_____
—
_____

(29,545)
______
387,257
______

______
20,821
______

171,953

28,615

312

118

(10,231)
______
70,008
______

57,151

(14,671)

395

(7,827)
(2,981)
(675)

11,483

_____
—
_____

(9,810)
2,564
279
4,214

(336)
(33,645)
______
522,476
______

131,907

______
443,216
______

4,223
3,474
(1,453)

______
27,065
______

______
112,883
______

(63,385)
(58,593)

(582)

(2,998)
(529)
(266)

3,793

(6,151)
(88)
(60)
4,143

(4,344)
(2,827)

150,717
28,615

312

(76,898)
19,133
3,276
1,626

118
______
179,762
______
(76,898)
3,447
1,544
(1,305)
3,422
7,700
(10,231)
(29,545)
_______ ______
624,698
_______ ______

(296,604)

171,953
57,151

(14,671)

(92,202)
20,883
1,363
955

395
______
214,828
______
(92,202)
7,469
4,420
(894)
4,214
11,483
(336)
(33,645)
_______ ______
740,035
_______ ______

(365,605)

131,907
(63,385)
(58,593)

(582)
______
9,347
______
(32,773)
2,955
(1,251)
(1,221)
4,143
3,793

(32,773)
12,104
3,710
1,932

______
$443,216
______

(887)
(35,523)
_____
______
$  — $615,817
______
_____

______
$ 19,894
______

______
$ (9,677)
______

(887)
(35,523)
_______ ______
$(380,632) $688,618
_______ ______

The accompanying notes are an integral part of these Consolidated Financial Statements.

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Donaldson Company, Inc. and Subsidiaries

NOTE A
Summary of Significant Accounting Policies

Description of Business Donaldson Company, Inc. (“Donaldson” or the “Company”), is a leading
worldwide provider of filtration systems and replacement parts. The Company’s product mix includes air and
liquid filtration systems and exhaust and emission control products. Products are manufactured at 40 plants
around the world and through three joint ventures. Products are sold to original equipment manufacturers
(“OEM”), distributors and dealers, and directly to end users.

Principles of Consolidation The Consolidated Financial Statements include the accounts of Donaldson
Company, Inc. and all majority-owned subsidiaries. All intercompany accounts and transactions have been
eliminated. The Company’s three joint ventures that are not majority-owned are accounted for under the
equity method. The Company does not have any variable interests in variable interest entities as of July 31,
2009.  The company uses a fiscal period which ends on a calendar basis for international affiliates and on
the Friday nearest to July 31 for U.S. purposes.  Fiscal 2007 results included 53 weeks of U.S. sales and
earnings.

Use of Estimates The preparation of Financial Statements in conformity with accounting principles
generally  accepted  in  the  United  States  of  America  requires  management  to  make  estimates  and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.

Foreign Currency Translation For foreign operations, local currencies are considered the functional
currency. Assets and liabilities are translated to U.S. dollars at year-end exchange rates, and the resulting
gains and losses arising from the translation of net assets located outside the United States are recorded as
a cumulative translation adjustment, a component of Accumulated other comprehensive income (loss) in
the Consolidated Balance Sheets. Elements of the Consolidated Statements of Earnings are translated at
average exchange rates in effect during the year. Realized and unrealized foreign currency transaction gains
and losses are included in Other income, net in the Consolidated Statements of Earnings. Foreign currency
transaction losses of $0.2 million, $3.1 million and $0.2 million are included in other income, net in the
Consolidated Statements of Earnings in Fiscal 2009, 2008, and 2007, respectively.

Cash Equivalents The Company considers all highly liquid temporary investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents are carried at cost that
approximates market value.

Accounts Receivable and Allowance for Doubtful Accounts Trade accounts receivable are recorded at
the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best
estimate of the amount of probable credit losses in its existing accounts receivable. The Company determines
the allowance based on historical write-off experience in the industry, regional economic data and evaluation
of specific Customer accounts for risk of loss. The Company reviews its allowance for doubtful accounts
monthly.  Past  due  balances  over  90  days  and  over  a  specified  amount  are  reviewed  individually  for
collectibility. All other balances are reviewed on a pooled basis by type of receivable. Account balances are
charged  off  against  the  allowance  when  the  Company  feels  it  is  probable  the  receivable  will  not  be
recovered. The Company does not have any off-balance-sheet credit exposure related to its Customers.

Inventories

Inventories are stated at the lower of cost or market. U.S. inventories are valued using the
last-in, first-out (“LIFO”) method, while the international subsidiaries use the first-in, first-out (“FIFO”)
method. Inventories valued at LIFO were approximately 33 and 35 percent of total inventories at July 31,
2009 and 2008, respectively. For inventories valued under the LIFO method, the FIFO cost exceeded the
LIFO carrying values by $34.0 million and $37.7 million at July 31, 2009 and 2008, respectively. Results of

33

operations for all periods presented were not materially affected by the liquidation of LIFO inventory. The
components of inventory are as follows (thousands of dollars):

Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

July 31,
2009
________
$ 71,518
20,022
88,698
________
$ 180,238
________
________

July 31,
2008
________
$ 110,135
23,728
130,266
________
$ 264,129
________
________

Property,  Plant  and  Equipment Property,  plant  and  equipment  are  stated  at  cost.  Additions,
improvements or major renewals are capitalized, while expenditures that do not enhance or extend the
asset’s useful life are charged to operating expense as incurred. Depreciation is computed under the straight-
line  method.  Depreciation  expense  was  $52.9 million  in  Fiscal  2009,  $52.4 million  in Fiscal  2008,  and
$46.6 million in Fiscal 2007. The estimated useful lives of property, plant and equipment are 10 to 40 years
for  buildings,  including  building  improvements,  and  3  to  10  years  for  machinery  and  equipment. The
components of property, plant and equipment are as follows (thousands of dollars):

Land  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Buildings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Construction in progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . 

July 31,
2009
________
$ 21,793
242,049
600,198
18,507
________
(501,479)
________
$ 381,068
________
________

July 31,
2008
________
$ 21,561
235,615
586,937
57,633
________
(486,587)
________
$ 415,159
________
________

Internal-Use Software The Company capitalizes direct costs of materials and services used in the
development and purchase of internal-use software. Amounts capitalized are amortized on a straight-line
basis over a period of five years and are reported as a component of machinery and equipment within
property, plant and equipment.

Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the
fair value of net assets acquired in business combinations under the purchase method of accounting. Other
intangible assets, consisting primarily of patents, trademarks and Customer relationships and lists, are
recorded at cost and are amortized on a straight-line basis over their estimated useful lives of 3 to 20 years.
Goodwill is assessed for impairment annually or if an event occurs or circumstances change that would
indicate  the  carrying  amount  may  be  impaired. The  impairment  assessment  for  goodwill  is  done  at  a
reporting unit level. Reporting units are one level below the business segment level, but can be combined
when reporting units within the same segment have similar economic characteristics. An impairment loss
generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the
estimated fair value of the reporting unit. The Company completed its annual impairment assessment in the
third quarters of Fiscal 2009 and 2008, which indicated no impairment.

Recoverability of Long-Lived Assets The Company reviews its long-lived assets, including identifiable
intangibles, for impairment when events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If impairment indicators are present and the estimated future undiscounted
cash flows are less than the carrying value of the assets, the carrying value is reduced.

Income Taxes The provision for income taxes is computed based on the pretax income included in the
Consolidated Statements of Earnings. Deferred tax assets and liabilities are recognized for the expected
future tax consequences attributed to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets when
it is more likely than not that a tax benefit will not be realized.

34

Comprehensive Income (Loss) Comprehensive income (loss) consists of net income, foreign currency
translation adjustments, net changes in the funded status of pension retirement obligations and net gain or
loss on cash flow hedging derivatives, and is presented in the Consolidated Statements of Changes in
Shareholders’ Equity. The components of the ending balances of accumulated other comprehensive income
(loss) are as follows (thousands of dollars):

Foreign currency translation adjustment . . . . . . . . . . . . . 
Net gain (loss) on cash flow hedging derivatives, net 

of deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Pension liability adjustment, net of deferred taxes. . . . . 
Total accumulated other comprehensive income (loss). 

July 31, 
2009
_______
$ 75,155

July 31, 
2008
________
$138,540

July 31,
2007
_______
$81,389

(394)
(84,438)
_______
$ (9,677)
_______
_______

188
(25,845)
________
$112,883
________
________

(207)
(11,174)
_______
$70,008
_______
_______

Cumulative foreign translation is not adjusted for income taxes. All translation relates to permanent

investments in non-U.S. subsidiaries.

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, restricted stock and stock incentive plans. Certain outstanding
options were excluded from the diluted net earnings per share calculations because their exercise prices
were greater than the average market price of the Company’s common stock during those periods. There
were 1,158,451 options, 245,344 options, and 10,000 options excluded from the diluted net earnings per share
calculation for the fiscal year ended July 31, 2009, 2008, and 2007, respectively. The following table presents
information necessary to calculate basic and diluted earnings per share:

2009
_______

2008
________
(thousands of dollars, 
except per share amounts)

2007
_______

Weighted average shares — basic. . . . . . . . . . . . . . . . . . . 
Dilutive shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Weighted average shares — diluted . . . . . . . . . . . . . . . . . 
Net earnings for basic and diluted earnings

per share computation . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net earnings per share — basic. . . . . . . . . . . . . . . . . . . . . 
Net earnings per share — diluted . . . . . . . . . . . . . . . . . . . 

77,879
1,293
79,172

79,208
2,003
81,211

80,455
1,981
82,436

$131,907
1.69
$
1.67
$

$171,953
2.17
$
2.12
$

$150,717
1.87
$
1.83
$

Treasury Stock Repurchased common stock is stated at cost and is presented as a separate reduction

of shareholders’ equity.

Research and Development Research and development costs are charged against earnings in the year
incurred. Research and development expenses include basic scientific research and the application of
scientific advances to the development of new and improved products and their uses.

Stock-Based Compensation The Company offers stock-based employee compensation plans, which
are more fully described in Note H.  Stock-based employee compensation cost is recognized using the fair-
value based method for all new awards granted after August 1, 2005. Compensation costs for unvested stock
options and awards that were outstanding at August 1, 2005, are recognized over the requisite service period
based on the grant-date fair value of those options and awards as previously calculated under the pro-forma
disclosures. 

Revenue Recognition Revenue is recognized when both product ownership and the risk of loss have
transferred  to  the  Customer, and  the  Company  has  no  remaining  obligations. The  Company  records
estimated discounts and rebates as a reduction of sales in the same period revenue is recognized. Shipping
and handling costs for Fiscal 2009, 2008 and 2007 totaling $50.4 million, $53.0 million and $34.8 million,
respectively, are classified as a component of operating expenses.

35

Product Warranties The Company provides for estimated warranty costs at the time of sale and accrues
for specific items at the time their existence is known and the amounts are determinable. The Company
estimates warranty costs using standard quantitative measures based on historical warranty claim experience
and evaluation of specific Customer warranty issues.

Derivative Instruments and Hedging Activities The Company recognizes all derivatives on the balance
sheet at fair value. Derivatives that are not hedges are adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset
against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or
recognized in shareholders’ equity through other comprehensive income until the hedged item is recognized.
Gains or losses related to the ineffective portion of any hedge are recognized through earnings in the current
period.

Exit or Disposal Activities The Company accounts for costs relating to exit or disposal activities under
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses
recognition, measurement and reporting of costs associated with exit and disposal activities including
restructuring.  See Note L for disclosures related to restructuring.

Guarantees Upon issuance of a guarantee, the Company recognizes a liability for the fair value of an

obligation assumed under a guarantee. See Note K for disclosures related to guarantees.

New Accounting Standards

In May 2009, the Financial Accounting Standards Board (FASB) issued
FAS  No.  165,  Subsequent  Events  (FAS  165),  which  establishes  general  standards  of  accounting  and
disclosure for events that occur after the balance sheet date but before the financial statements are issued.
This new standard was effective for interim or annual financial periods ending after June 15, 2009, and did
not have an impact on our consolidated financial position or results of operations.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments , (FSP No. FAS-107-1 and APB-28-1), which amends FAS 107, Disclosures about
Fair Value of Financial Instruments and Accounting Principles Board (APB) Opinion No. 28, Interim
Financial Reporting, to require disclosures about fair value of financial instruments for interim periods. This
FSP  will  be  effective  for  the  Company  for  the  quarter  ended  October  31,  2009,  and  will  expand  the
Company’s disclosures regarding the use of fair value in interim periods.

In  December  2008,  the  FASB  issued  FSP  No.  FAS  132(R)-1, Employers’  Disclosures  about
Postretirement Benefit Plan Assets (FSP No. FAS 132(R)), which provides guidance on an employer’s
disclosures about plan assets of a defined benefit pension or other postretirement plan.  This FSP is effective
for fiscal years ending after December 15, 2009.  The Company is currently evaluating the impact of adopting
FSP No. FAS 132(R) on our defined benefit pension and other postretirement plan note disclosures.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158).
The portion of the statement that requires recognition of the overfunded or underfunded status of defined
benefit postretirement plans as an asset or liability in the statement of financial position was adopted in
Fiscal 2007 with minimal impact.  SFAS 158 also requires measurement of the funded status of a plan as of
the  date  of  the  statement  of  financial  position.  That  provision  required  the  Company  to  change  its
measurement date from April 30 to July 31 in Fiscal 2009.  The adoption of the measurement date provision
resulted  in  an  after-tax  decrease  to  Retained  earnings  of  $0.9  million,  a  decrease  to  Other  assets  of
$0.5 million increase to Other long-term liabilities of $0.8 million and an increase to Deferred income taxes
of $0.5 million.

In  September  2006,  the  FASB  issued  SFAS  No.  157,  Fair  Value  Measurements  (SFAS  157).  This
statement defines fair value, establishes a framework for measuring fair value in U.S. generally accepted
accounting principles and expands disclosures about fair value measurements. SFAS 157 applies whenever
another standard requires (or permits) assets or liabilities to be measured at fair value, except for the
measurement  of  share-based  payments.  SFAS  157  does  not  expand  the  use  of  fair  value  to  any  new
circumstances, and was effective for the majority of the Company’s assets and liabilities for its Fiscal 2009
year beginning August 1, 2008. The adoption of this portion of SFAS 157 in Fiscal 2009 did not have a

36

material impact on the Company’s financial statements. On February 12, 2008, the FASB issued FASB Staff
Position (FSP) FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2).  FSP FAS 157-2
delays by one year the effective date of SFAS 157 for certain non-financial assets and non-financial liabilities.
The Company is currently evaluating the impact the FSP FAS 157-2 will have on the determination of fair
value  related  to  non-financial  assets  and  non-financial  liabilities  in  Fiscal  2010.   The  adoption  of  FSP
FAS 157-2 is not expected to have a material impact on the Company’s financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial  Liabilities  (“SFAS  159”).  SFAS  159  permits  entities  to  choose  to  measure  many  financial
instruments and certain other items at fair value that are not currently required to be measured at fair value.
SFAS 159 is effective for fiscal years beginning after November 15, 2007, and was effective for the Company
with its 2009 fiscal year, beginning August 1, 2008.  The adoption of SFAS 159 did not have a material impact
on the Company’s financial statements.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)), which
changes the accounting for business combinations and their effects on the financial statements.  SFAS 141(R)
will be effective for the Company at the beginning of Fiscal 2010.  In February 2009, the FASB issued FASB
Staff Position 141(R)-a, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination
That Arise from Contingencies (FSP FAS 141(R)-a), which will amend certain provisions of SFAS 141(R).
The adoptions of SFAS 141(R) and FSP FAS 141(R)-a are not expected to have a material impact on the
Company’s consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires enhanced disclosures
about an entity’s derivative and hedging activities, including (a) how and why an entity uses derivative
instruments,  (b)  how  derivative  instruments  and  related  hedged  items  are  accounted  for  under  SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, and (c) how derivative instruments
and related hedged items affect an entity’s financial position, financial performance and cash flows.  The
Company adopted the provisions of SFAS 161 effective February 1, 2009.  The adoption of SFAS 161 only
requires additional disclosures about the Company’s derivatives and thus did not affect the Company’s
consolidated financial statements.  

NOTE B
Goodwill and Other Intangible Assets

The  Company  has  allocated  goodwill  to  its  Industrial  Products  and  Engine  Products  segments.
Additions to goodwill and other intangible assets in Fiscal 2009 relate to the acquisition of 100 percent of
the stock of Western Filter Corporation on October 15, 2008, for $78.5 million, as part of the Engine Products
segment.  The weighted average life of the intangibles acquired in this acquisition is 17.6 years and consists
primarily of customer related intangibles.   Goodwill associated with this acquisition is tax deductible.
Dispositions of goodwill and other intangible assets in Fiscal 2009 relate to the sale of the air dryer business
in Maryville, Tennessee, on October 31, 2008, for $4.6 million, which resulted in a loss on sale of $0.6 million.
This air dryer business was part of the Industrial Products segment. Additions to goodwill and other
intangible assets in Fiscal 2008 relate to the acquisition of LMC West, Inc. on February 4, 2008, as part of
the Industrial Products segment. Financial results for each of the above acquisitions are included in the
Company’s consolidated results from the date of acquisition. Pro forma financial results are not presented
as the acquisitions are not material, individually or in the aggregate. The Company completed its annual
impairment assessment in the third quarter of Fiscal 2009 and 2008, which indicated no impairment. 

37

Following is a reconciliation of goodwill for the years ended July 31, 2009 and 2008:

Balance as of July 31, 2007. . . . . . . . . . . . . . . . . . . . . . . . . 
Acquisition activity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Foreign exchange translation . . . . . . . . . . . . . . . . . . . . . . 
Balance as of July 31, 2008. . . . . . . . . . . . . . . . . . . . . . . . . 
Acquisition activity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Disposition activity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Foreign exchange translation . . . . . . . . . . . . . . . . . . . . . . 
Balance as of July 31, 2009. . . . . . . . . . . . . . . . . . . . . . . . . 

Engine
Products
_______

$17,912
—
1,214
_______
$19,126
43,646
—
(1,190)
_______
$61,582
_______
_______

Industrial
Products
________
(thousands of dollars)
$106,695
625
7,716
________
$115,036
—
(1,089)
(6,502)
________
$107,445
________
________

Total
Goodwill
________

$124,607
625
8,930
________
$134,162
43,646
(1,089)
(7,692)
________
$169,027
________
________

Intangible assets are comprised of patents, trademarks and Customer relationships and lists. Following

is a reconciliation of intangible assets for the years ended July 31, 2009 and 2008:

Balance as of July 31, 2007. . . . . . . . . . . . . . . . . . . . . . . . . 
Intangibles acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Foreign exchange translation . . . . . . . . . . . . . . . . . . . . . . 
Balance as of July 31, 2008. . . . . . . . . . . . . . . . . . . . . . . . . 
Intangibles acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Intangibles sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Foreign exchange translation . . . . . . . . . . . . . . . . . . . . . . 
Balance as of July 31, 2009. . . . . . . . . . . . . . . . . . . . . . . . . 

Gross
Carrying
Amount
_______

$57,203
1,868
—
3,171
_______
$62,242
26,710
(300)
—
(2,843)
_______
$85,809
_______
_______

Accumulated
Amortization
__________
(thousands of dollars)
$(10,902)
—
(4,330)
(693)
________
$(15,925)
—
114
(5,601)
989
________
$(20,423)
________
________

Net
Intangible
Assets
________

$46,301
1,868
(4,330)
2,478
________
$46,317
26,710
(186)
(5,601)
(1,854)
________
$65,386
________
________

Net intangible assets consist of patents, trademarks and tradenames of $23.9 million and $23.5 million
as of July 31, 2009 and 2008, respectively, and Customer related intangibles of $41.5 million and $22.8 million
as of July 31, 2009 and 2008, respectively. Amortization expense relating to existing intangible assets is
expected to be approximately $6.1 million for the year ending July 31, 2010, $6.0 million for the year ending
July 31, 2011, $5.9 million for the year ending July 31, 2012, $5.7 million for the year ending July 31, 2013 and
$5.3 million for the year ending July 31, 2014.

NOTE C
Credit Facilities

The Company has a five-year, multi-currency revolving facility with a group of banks under which the
Company may borrow up to $250 million.  This facility matures on April 2, 2013.  The agreement provides
that loans may be made under a selection of currencies and rate formulas including Base Rate Advances
or Off Shore Rate Advances. The interest rate on each advance is based on certain market interest rates and
leverage ratios. Facility fees and other fees on the entire loan commitment are payable over the duration of
this facility. There was $20.0 million outstanding at July 31, 2009, and $70.0 million outstanding at July 31,
2008.  The amount available for further borrowing reflects a reduction for issued standby letters of credit,
as discussed below.  At July 31, 2009 and 2008, $210.0 million and $161.5 million, respectively, was available
for  further  borrowing  under  such  facilities.  The  weighted  average  interest  rate  on  these  short-term
borrowings outstanding at July 31, 2009 and 2008, was 0.56 percent and 2.73 percent, respectively.

The Company also has three uncommitted credit facilities in the United States, which provide unsecured
borrowings for general corporate purposes. At July 31, 2009 and 2008, there was $70.0 million available for
use.  There was $9.6 million and $28.0 million outstanding under these facilities at July 31, 2009 and 2008,

38

respectively. The weighted average interest rate on these short-term borrowings outstanding at July 31, 2009
and 2008, was 0.53 percent and 2.79 percent, respectively.

The Company also has a ⇔€100 million program for issuing treasury notes for raising short, medium
and long-term financing for its European operations. There was nothing outstanding on this program at
July 31, 2009 and 2008.  Additionally, the Company’s European operations have lines of credit with an
available limit of €72.9 million. There was nothing outstanding on these lines of credit as of July 31, 2009.
As of July 31, 2008, there was €23.5 million, or $36.9 million outstanding. The weighted average interest rate
of these short-term borrowings outstanding at July 31, 2008, was 5.60 percent.

Other  international  subsidiaries  may  borrow  under  various  credit  facilities.  There  was  nothing
outstanding under these credit facilities as of July 31, 2009.  As of July 31, 2008, borrowings under these
facilities were $4.5 million. The weighted average interest rate on these international borrowings outstanding
at July 31, 2008, was 2.88 percent.

As discussed further in Note K, at July 31, 2009 and 2008, the Company had outstanding standby letters
of credit totaling $20.0 million and $18.5 million, respectively, upon which no amounts had been drawn. The
letters of credit guarantee payment to third parties in the event the Company is in breach of specified bond
financing agreement and insurance contract terms as detailed in each letter of credit.

NOTE D
Long-Term Debt

Long-term debt consists of the following:

6.39% Unsecured senior notes due August 15, 2010, interest payable

semi-annually, principal payments of $5.0 million, to be paid
annually commencing August 16, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

4.85% Unsecured senior notes, interest payable semi-annually,

2009
2008
________
________
(thousands of dollars)

9,981

14,942

principal payment of $30.0 million due December 17, 2011. . . . . . . . . . . . 

30,000

30,000

6.59% Unsecured senior notes, interest payable semi-annually, 

principal payment of $80.0 million due November 14, 2013 . . . . . . . . . . . 

80,000

—

5.48% Unsecured senior notes, interest payable semi-annually, 

principal payment of $50.0 million due June 1, 2017 . . . . . . . . . . . . . . . . . . 

50,000

50,000

5.48% Unsecured senior notes, interest payable semi-annually, 

principal payment of $25.0 million due September 28, 2017 . . . . . . . . . . . 

25,000

25,000

5.48% Unsecured senior notes, interest payable semi-annually, 

principal payment of $25.0 million due November 30, 2017 . . . . . . . . . . . 

25,000

25,000

1.418% Guaranteed senior notes, interest payable semi-annually,

principal payment of ¥1.2 billion due January 31, 2012. . . . . . . . . . . . . . . . 

12,679

11,123

2.019% Guaranteed senior note, interest payable semi-annually, 

principal payment of ¥1.65 billion due May 18, 2014 . . . . . . . . . . . . . . . . . 

17,434

15,295

Variable Rate Commercial Property Loan, to a maximum of 

R37 million, interest rate of 13.75 % as of July 31, 2008, repaid in 2009. . 

—-

1,882

Variable Rate Industrial Development Revenue Bonds (“Low
Floaters”) interest payable monthly, principal  payment of
$7.755 million due September 1, 2024, and an interest rate of 
0.67% as of July 31, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Capitalized lease obligations and other, with various maturity dates 

and Interest rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

7,755

7,755

1,321
________
259,170
5,496
________
$253,674
________
________

1,147
________
182,144
5,669
________
$176,475 
________
________

39

Annual maturities of long-term debt are $5.5 million in 2010, $5.4 million in 2011, $43.0 million in 2012,
$97.5 million in 2014 and $107.8 million thereafter. There are no maturities in 2013.  As of July 31, 2009, the
estimated fair value of long-term debt with fixed interest rates was $253.1 million compared to its carrying
value of $250.1 million.

On November 14, 2008, the Company issued an $80 million senior unsecured note.  The note is due on
November 14, 2013.  The debt was issued at face value and bears interest payable semi-annually at a rate of
6.59  percent.    The  proceeds  from  the  note  were  used  to  refinance  existing  debt  and  for  general
corporate purposes.

On June 1, 2007, the Company issued $100 million of senior unsecured notes.  The first $50 million was
funded on June 1, 2007, and the remaining two $25 million tranches were funded on September 28, 2007, and
November 30, 2007.  The three tranches are due on June 1, 2017, September 28, 2017, and November 30, 2017,
respectively.   The  debt  was  issued  at  face  value  and  bears  interest  payable  semi-annually  at  a  rate  of
5.48 percent.    The  proceeds  from  the  notes  were  used  to  refinance  existing  debt  and  for  general
corporate purposes.

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
August 3, 2009, subsequent to year end, for $80 million and $25 million, respectively, for approximately 5 and
8 years, respectively.  These interest rate swaps will be accounted for as fair value hedges.  Changes in the
payment of interest resulting from the interest rate swaps will be recorded as an offset to interest expense.  

Certain note agreements contain debt covenants related to working capital levels and limitations on
indebtedness. As of July 31, 2009, the Company was in compliance with all such covenants.  The Company
currently expects to remain in compliance with these covenants.

NOTE E
Derivatives and Other Financial Instruments

Derivatives The Company uses derivative instruments, primarily forward exchange contracts and
interest rate swaps, to manage its exposure to fluctuations in foreign exchange rates and interest rates. It is
the Company’s policy to enter into derivative transactions only to the extent true exposures exist; the
Company does not enter into derivative transactions for speculative or trading purposes. The Company
enters into derivative transactions only with highly rated counterparties. These transactions may expose the
Company to credit risk to the extent that the instruments have a positive fair value, but the Company has
not experienced any material losses, nor does the Company anticipate any material losses.

The  Company  enters  into  forward  exchange  contracts  of  generally  less  than  one  year  to  hedge
forecasted transactions amongst its subsidiaries, and to reduce potential exposure related to fluctuations in
foreign  exchange  rates  for  existing  recognized  assets  and  liabilities.    It  also  utilizes  forward  exchange
contracts for anticipated intercompany and third-party transactions such as purchases, sales and dividend
payments denominated in local currencies. Forward exchange contracts are designated as cash flow hedges
as they are designed to hedge the variability of cash flows associated with the underlying existing recognized
or anticipated transactions.  Changes in the value of derivatives designated as cash flow hedges are recorded
in other comprehensive income in shareholders’ equity until earnings are affected by the variability of the
underlying cash flows. At that time, the applicable amount of gain or loss from the derivative instrument that
is deferred in shareholders’ equity is reclassified to earnings.  Effectiveness is measured using spot rates to
value both the hedge contract and the hedged item. The excluded forward points, as well as any ineffective
portions of hedges, are recorded in earnings through the same line as the underlying transaction.  During
Fiscal 2009, $0.4 million of losses were recorded due to the exclusion of forward points from the assessment
of hedge effectiveness.

These  unrealized  losses  and  gains  are  reclassified,  as  appropriate,  as  earnings  are  affected  by  the
variability of the underlying cash flows during the term of the hedges. The Company expects to record
$0.6 million of net deferred losses from these forward exchange contracts during the next twelve months. 

40

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
August 3, 2009, subsequent to year end, for $80 million and $25 million, respectively, for approximately 5 and
8 years, respectively.  These interest rate swaps will be accounted for as fair value hedges.  Changes in the
payment of interest resulting from the interest rate swaps will be recorded as an offset to interest expense.  

The Company entered into and settled an interest rate lock in October 2008.  The interest rate lock
settlement resulted in a $0.5 million in gain, net of deferred taxes of $0.2 million, which will be amortized
into income over the life of the related debt.

The following summarizes the Company’s fair value of outstanding derivatives at July 31, 2009, and

2008, on the Consolidated Balance Sheets (thousands of dollars):

July 31,
2009
_______

July 31,
2008
_______

Asset derivatives recorded under the caption Prepaids and other 

current assets

Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

$

493

$

952

Liability derivatives recorded under the caption Other current 

liabilities

Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

$ 2,366

$ 1,252

The impact on Other comprehensive income (OCI) and earnings from foreign exchange contracts that
qualified as cash flow hedges for the twelve months ended July 31, 2009 and 2008, was as follows (thousands
of dollars):

Net carrying amount at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Cash flow hedges deferred in OCI  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Cash flow hedges reclassified to income (effective portion) . . . . . . . . . . . . 
Change in deferred taxes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net carrying amount at July 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

July 31,
2009
_______
188
$
(1,826)
580
408
_______
$
(650)
_______
_______

July 31,
2008
_______
(206)
$
2,628
(2,211)
(23)
_______
$
188
_______
_______

The Company’s derivative financial instruments present certain market and counterparty risks; however,
concentration  of  counterparty  risk  is  mitigated  as  the  Company  deals  with  a  variety  of  major  banks
worldwide.  In addition, only conventional derivative financial instruments are utilized.  The Company would
not be materially impacted if any of the counterparties to the derivative financial instruments outstanding
at July 31, 2009, failed to perform according to the terms of its agreement.  At this time, the Company does
not  require  collateral  or  any  other  form  of  securitization  to  be  furnished  by  the  counterparties  to  its
derivative instruments.

Fair Value of Financial Instruments At July 31, 2009 and 2008, the Company’s financial instruments
included cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings, long-
term  debt  and  derivative  contracts. The  fair  values  of  cash  and  cash  equivalents,  accounts  receivable,
accounts payable and short-term borrowings approximated carrying values because of the short-term nature
of these instruments. Derivative contracts are reported at their fair values based on third-party quotes. As
of July 31, 2009, the estimated fair value of long-term debt with fixed interest rates was $253.1 million
compared to its carrying value of $250.1 million. The fair value is estimated by discounting the projected cash
flows using the rate that similar amounts of debt could currently be borrowed.

Credit Risk The Company is exposed to credit loss in the event of nonperformance by counterparties
in interest rate swaps and foreign exchange forward contracts. Collateral is generally not required of the
counterparties or of the Company. In the unlikely event a counterparty fails to meet the contractual terms
of an interest rate swap or foreign exchange forward contract, the Company’s risk is limited to the fair value
of the instrument. There were no interest rate swaps outstanding at July 31, 2009 or 2008.  The Company
actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by

41

selecting major international banks and financial institutions as counterparties. The Company has not had
any historical instances of non-performance by any counterparties, nor does it anticipate any future instances
of non-performance.

NOTE F
Employee Benefit Plans

Pension Plans The Company and certain of its subsidiaries have defined benefit pension plans for
many of its hourly and salaried employees. The U.S. plans include plans that provide defined benefits as
well as a plan for salaried workers that provides defined benefits pursuant to a cash balance feature whereby
a participant accumulates a benefit comprised of a percentage of current salary that varies with years of
service, interest credits and transition credits. The international plans generally provide pension benefits
based  on  years  of  service  and  compensation  level. During  Fiscal  2009,  the  Company  changed  its
measurement date to July 31, in accordance with the measurement date provisions of FAS 158, as discussed
below.  During Fiscal 2008, the Company used an April 30 measurement date for its pension plans.

Net periodic pension costs for the Company’s pension plans include the following components:

Net periodic cost:

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Expected return on assets . . . . . . . . . . . . . . . . . . . . . . . . 
Transition amount amortization . . . . . . . . . . . . . . . . . . . 
Prior service cost amortization . . . . . . . . . . . . . . . . . . . . 
Actuarial (gain)/loss amortization . . . . . . . . . . . . . . . . . 
Curtailment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Settlement gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . 

2009
_______

2008
_______

2007
_______

(thousands of dollars)

$ 15,385
18,481
(29,143)
193
438
1,088
910
—
_______
$ 7,352
_______
_______

$ 15,996
17,702
(28,275)
164
380
(58)
—
(35)
_______
$ 5,874
_______
_______

$ 15,067
17,014
(24,955)
523
314
1,408
408
(2,357)
_______
$ 7,422
_______
_______

Negotiations with one of our unions resulted in a freeze in pension benefits at one of our U.S. plants.
In exchange for the freezing of the plan, participants will be eligible for a company match in a defined
contribution plan.  The freeze in the plan resulted in a curtailment loss of $0.9 million during Fiscal 2009.

In anticipation of Japanese defined benefit plan law changes, the Company terminated the defined
benefit plan offered to its employees in Japan on December 31, 2006, which resulted in a net settlement
gain of $1.9 million in Fiscal 2007. This plan was replaced with a defined contribution plan as of January 1,
2007. The Company incurred the cost of initial contributions to the defined contribution plan as well as
other costs of converting participants to the new defined contribution plan resulting in a net pretax gain for
the net settlement and transition to the defined contribution plan of approximately $0.6 million during
Fiscal 2007. 

Effective July 31, 2007, the Company adopted SFAS No. 158, Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R).
This  statement  requires  recognition  of  the  overfunded  or  underfunded  status  of  defined  benefit
postretirement plans as an asset or liability in the statement of financial position.  This statement also
requires that changes in the funded status are recognized in accumulated other comprehensive income in
the year in which the adoption occurs and in other comprehensive income in the following years.  SFAS 158’s
provisions regarding the change in the measurement date of postretirement benefits plans required the
Company to change its measurement date from April 30 to July 31 during Fiscal 2009.  The adoption of the
measurement date provisions resulted in an after-tax decrease to Retained earnings of $0.9 million, a
decrease to Other assets of $0.5 million increase to Other long-term liabilities of $0.8 million and an increase
to Deferred income taxes of $0.5 million.

42

The obligations and funded status of the Company’s pension plans as of 2009 and 2008, is as follows:

Change in benefit obligation:

Benefit obligation, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Currency exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Benefit obligation, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Change in plan assets:

Fair value of plan assets, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . 
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Company contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Currency exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Fair value of plan assets, end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2009
________
(thousands of dollars)

2008
________

$ 330,258
18,730
22,868
1,476
—
(1,077)
(13,338)
—
(20,763)
________
$ 338,154
________
________

$ 378,695
(62,057)
13,356
1,476
(13,228)
—
(20,763)
________
$ 297,479
________
________

$ 312,514
15,996
17,702
1,381
1,221
(2,410)
3,610
(272)
(19,484)
________
$ 330,258
________
________

$ 377,461
5,389
11,316
1,381
2,904
(272)
(19,484)
________
$ 378,695
________
________

Funded status:

Over (under) funded status at July 31, 2009 and April 30, 2008  . . . . . . . 
Fourth quarter contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Over (under) funded status after fourth quarter contributions . . . . . . . 

$ (40,675)
—
________
$ (40,675)
________
________

$ 48,437
808
________
$ 49,245
________
________

The  net  under  funded  status  of  $40.7  million  at  July  31,  2009,  is  recognized  in  the  accompanying
Consolidated Balance Sheet as $4.3 million within Other assets for the Company’s over funded plans and
$45.0  million  within  Other  long-term  liabilities  for  the  Company’s  under  funded  plans.    Included  in
Accumulated other comprehensive income at July 31, 2009, are the following amounts that have not yet been
recognized in net periodic pension expense:  unrecognized actuarial losses of $123.0 million, unrecognized
prior service cost of $4.2 million and unrecognized transition obligations of $3.4 million. The actuarial loss,
prior service cost and unrecognized transition obligation are included in Accumulated other comprehensive
income, net of tax.  The amounts expected to be recognized in net periodic pension expense during Fiscal
2010 are $1.4 million, $0.3 million and $0.2 million, respectively.  The accumulated benefit obligation for all
defined benefit pension plans was $296.7 million and $282.7 million at July 31, 2009, and April 30, 2008,
respectively.

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension
plans with accumulated benefit obligations in excess of plan assets were $246.7 million, $234.3 million and
$213.3 million, respectively, as of July 31, 2009, and $16.4 million, $13.8 million and $0.0 million, respectively,
as of April 30, 2008.

For the years ended July 31, 2009 and 2008, the U.S. pension plans represented approximately 72 percent
and  75  percent,  respectively,  of  the  Company’s  total  plan  assets,  and  approximately  72  percent  and
70 percent, respectively, of the Company’s total projected benefit obligation. 

43

The  weighted-average  discount  rates  and  rates  of  increase  in  future  compensation  levels  used  in

determining the actuarial present value of the projected benefit obligation are as follows:

Weighted average actuarial assumptions
____________________________
All U.S. plans:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Non-U.S. plans:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2009
______

2008
______

6.00%
5.00%

5.90%
3.87%

6.00%
5.00%

6.30%
4.48%

The weighted-average discount rates, expected returns on plan assets and rates of increase in future

compensation levels used to determine the net periodic benefit cost are as follows:

Weighted average actuarial assumptions
____________________________
All U.S. plans:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . 
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . 

Non-U.S. plans:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . 
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . 

2009
______

2008
______

2007
______

6.00%
8.50%
5.00%

6.30%
7.14%
4.48%

6.00%
8.50%
5.00%

5.23%
7.49%
4.01%

6.25%
8.50%
5.00%

4.64%
6.60%
3.62%

Expected Long-Term Rate of Return To develop the expected long-term rate of return on assets
assumption, the Company considered the historical returns and the future expectations for returns for each
asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the
8.50 percent long-term rate of return on assets assumption for the Company’s U.S. pension plans. The
expected long-term rate of return on assets assumption for the plans outside the U.S. reflects the investment
allocation and expected total portfolio returns specific to each plan and country. The expected long-term rate
of return on assets shown in the pension benefit disclosure for non-U.S. plans is an asset-based weighted
average of all non-U.S. plans.

Discount Rate The Company’s objective in selecting a discount rate is to select the best estimate of
the rate at which the benefit obligations could be effectively settled on the measurement date, taking into
account the nature and duration of the benefit obligations of the plan. In making this best estimate, the
Company looks at rates of return on high-quality fixed-income investments currently available, and expected
to be available, during the period to maturity of the benefits. This process includes looking at the universe
of bonds available on the measurement date with a quality rating of Aa or better. Similar appropriate
benchmarks are used to determine the discount rate for the non-U.S. plans. The discount rate for non-
U.S. plans disclosed in the assumptions used to determine net periodic benefit cost and to determine benefit
obligations is based upon a weighted average, using year-end projected benefit obligations, of all non-
U.S. plans.

Plan Assets The Company’s pension plan weighted-average asset allocations by asset category are as

follows:

Asset Category
All U.S. plans:

Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Alternative investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Real assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total U.S. plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Non U.S. plans:

Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Debt securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total Non U.S. plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Plan Assets at
_______________
2008
2009
____
____

41%
42%
12%
5%
___
100%
___
___

44%
56%
___
100%
___
___

44%
36%
12%
8%
___
100%
___
___

64%
36%
___
100%
___
___

44

Investment Policies and Strategies. For the Company’s U.S. plans, the Company uses a total return
investment approach to achieve a long-term return on plan assets, with a prudent level of risk for the purpose
of meeting its retirement income commitments to employees. The plan’s investments are diversified to assist
in managing risk. The Company’s asset allocation guidelines target an allocation of 45 percent equity
securities, 30 percent alternative investments (funds of hedge funds), 10 percent real assets (investments
into funds containing commodities and real estate), 10 percent fixed income and 5 percent private equity.
Within equity securities, the Company will target an allocation of 15 percent international, 15 percent equity
long / short, 10 percent small cap, and 5 percent large cap.  These target allocation guidelines are determined
in consultation with the Company’s investment consultant, and through the use of modeling the risk/return
trade-offs  among  asset  classes  utilizing  assumptions  about  expected  annual  return,  expected
volatility/standard deviation of returns and expected correlations with other asset classes. Investment policy
and performance is measured and monitored on an ongoing basis by the Company’s investment committee
through its use of an investment consultant and through quarterly investment portfolio reviews.

For  the  Company’s  non-U.S.  plans,  the  general  investment  objectives  are  to  maintain  a  suitably
diversified portfolio of secure assets of appropriate liquidity which will generate income and capital growth
to meet, together with any new contributions from members and the Company, the cost of current and
future benefits.

Estimated Contributions and Future Payments As a result of its past funding practices, the Company
does  not  have  a  minimum  required  contribution  under  the  Pension  Benefit  Guarantee  Corporation
requirements for its U.S. pension plans for Fiscal 2010. As a result, there is no current intention to make a
U.S. pension contribution in Fiscal 2010. For its non-U.S. pension plans, the Company estimates that it will
contribute  approximately  $5 million  in  Fiscal 2010, based  upon  the  local  government  prescribed
funding requirements.

Estimated future benefit payments for the Company’s U.S. and non-U.S. plans are as follows (thousands

of dollars):

Fiscal year 2010 . . . . . . . . . . . . . . . . . . . . . . 
Fiscal year 2011 . . . . . . . . . . . . . . . . . . . . . . 
Fiscal year 2012 . . . . . . . . . . . . . . . . . . . . . . 
Fiscal year 2013 . . . . . . . . . . . . . . . . . . . . . . 
Fiscal year 2014 . . . . . . . . . . . . . . . . . . . . . . 
Fiscal years 2015-2019 . . . . . . . . . . . . . . . . 

$ 18,528
$ 18,624
$ 22,469
$ 20,829
$ 23,313
$125,346

Postemployment and Postretirement Benefit Plans The Company provides certain postemployment
and postretirement health care benefits for certain U.S. employees for a limited time after termination of
employment. The Company has recorded a liability for its postretirement benefit plan in the amount of
$1.7 million and $3.1 million as of July 31, 2009 and July 31, 2008, respectively.  The annual cost resulting from
these benefits is not material.  Union negotiations have resulted in one U.S. plant freezing the plan.  This
change resulted in a curtailment gain of $1.4 million.  For measurement purposes, an 8 percent annual rate
of increase in the per capita cost of covered health care benefits was assumed for Fiscal 2009. The Company
has assumed that the long-term rate of increase will decrease gradually to an ultimate annual rate of
5 percent. A one-percentage point increase in the health care cost trend rate would increase the Fiscal 2009
and 2008 liability by $0.1 million and $0.5 million, respectively.

Retirement  Savings  and  Employee  Stock  Ownership  Plan The  Company  provides  a  contributory
employee savings plan to U.S. employees that permits participants to make contributions by salary reduction
pursuant to section 401(k) of the Internal Revenue Code. Through April 13, 2009, employee contributions
of up to 25 percent of compensation are matched at a rate equaling 100 percent of the first 3 percent
contributed and 50 percent of the next 2 percent contributed. The Company’s contributions under this plan
are  based  on  the  level  of  employee  contributions  as  well  as  a  discretionary  contribution  based  on
performance of the Company. The Plan was amended effective April 13, 2009, to reduce Company fixed
matching contributions to the Plan for salaried employees.  After April 13, 2009, fixed matching contributions
for salaried employees were calculated at 50 percent of up to 3 percent of compensation deferred by the
participant and deposited into the Plan, and 25 percent of the next 2 percent of compensation deferred by

45

the participant and deposited to the Plan.  In addition,  the Company fixed matching contribution was
eliminated for Company Executive Officers and Vice Presidents.  Total contribution expense for these plans
was $5.1 million, $8.3 million and $8.1 million for the years ended July 31, 2009, 2008 and 2007, respectively.
This plan also includes shares from an Employee Stock Ownership Plan (“ESOP”). As of July 31, 2009, all
shares of the ESOP have been allocated to participants. Total ESOP shares are considered to be shares
outstanding for earnings per share calculations.

Deferred  Compensation  and  Other  Benefit  Plans The  Company  provides  various  deferred
compensation and other benefit plans to certain executives. The deferred compensation plan allows these
employees  to  defer  the  receipt  of  all  of  their  bonus  and  other  stock  related  compensation  and  up  to
75 percent of their salary to future periods. Other benefit plans are provided to supplement the benefits for
a select group of highly compensated individuals which are reduced because of compensation limitations
set by the Internal Revenue Code. The Company has recorded a liability in the amount of $10.0 million and
$10.6 million as of the year ended July 31, 2009 and July 31, 2008, respectively, related primarily to its
deferred compensation plans.

NOTE G
Shareholders’ Equity

Stock Rights On January 27, 2006, the Board of Directors of the Company approved the extension of
the benefits afforded by the Company’s existing rights plan by adopting a new shareholder rights plan.
Pursuant to the Rights Agreement, dated as of January 27, 2006, by and between the Company and Wells
Fargo Bank, N.A., as Rights Agent, one right was issued on March 3, 2006, for each outstanding share of
common stock of the Company upon the expiration of the Company’s existing rights. Each of the new rights
entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A
Junior Participating Preferred Stock, without par value, at a price of $143.00 per one one-thousandth of a
share. The rights, however, will not become exercisable unless and until, among other things, any person
acquires  15  percent  or  more  of  the  outstanding  common  stock  of  the  Company.  If  a  person  acquires
15 percent or more of the outstanding common stock of the Company (subject to certain conditions and
exceptions more fully described in the Rights Agreement), each right will entitle the holder (other than the
person who acquired 15 percent or more of the outstanding common stock) to purchase common stock of
the Company having a market value equal to twice the exercise price of a right. The rights are redeemable
under certain circumstances at $.001 per right and will expire, unless earlier redeemed, on March 2, 2016.

Stock Compensation Plans The Stock Compensation Plans in the Consolidated Statements of Changes
in  Shareholders’  Equity  consist  of  the  balance  of  amounts  payable  to  eligible  participants  for  stock
compensation that was deferred to a Rabbi Trust pursuant to the provisions of the 2001 Master Stock
Incentive Plan, as well as performance awards payable in common stock discussed further in Note H.

Treasury Stock The Company believes that the share repurchase program is a way of providing return
to its shareholders. The Board of Directors authorized the repurchase, at the Company’s discretion, of
8.0 million shares of common stock under the stock repurchase plan dated March 31, 2006. As of July 31,
2009, the Company had remaining authorization to repurchase 0.9 million shares under this plan. Following
is a summary of treasury stock share activity for Fiscal 2009 and 2008:

2008
_________ _________
9,500,372
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11,021,619
2,245,790
802,000
Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
(647,225)
(355,491)
Net issuance upon exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . 
(67,822)
(99,612)
Issuance under compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
—
(60,122)
Discretionary stock paid into 401(k) plan . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
(9,496)
(12,985)
_________ _________
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11,295,409 11,021,619
_________ _________
_________ _________

2009

46

NOTE H
Stock Option Plans

Employee Incentive Plans

In November 2001, shareholders approved the 2001 Master Stock Incentive
Plan (the “Plan”) that replaced the 1991 Plan that expired on December 31, 2001, and provided for similar
awards. The Plan extends through December 2011 and allows for the granting of nonqualified stock options,
incentive stock options, restricted stock, stock appreciation rights (“SAR”), dividend equivalents, dollar-
denominated awards and other stock-based awards. Options under the Plan are granted to key employees
at market price at the date of grant. Options are exercisable for up to 10 years from the date of grant. The
Plan  also  allows  for  the  granting  of  performance  awards  to  a  limited  number  of  key  executives.  As
administered by the Human Resources Committee of the Company’s Board of Directors, these performance
awards are payable in common stock and are based on a formula which measures performance of the
Company over a three-year period. The Company recorded a net reversal of performance award expense
in  Fiscal  2009  of  $3.1  million.    The  net  benefit  is  due  to  the  reversal  of  $3.6  million  of  Long-Term
Compensation Plan expense recognized in prior periods.  This reversal reflects an adjustment in the expected
payouts for the three-year cycles ending July 31, 2009, and July 31, 2010, to zero based upon actual and
forecasted results.  Performance award expense under these plans totaled $4.2 million and $2.7 million in
Fiscal 2008 and 2007, respectively.

Stock options issued from Fiscal 1999 to Fiscal 2009 become exercisable for non-executives in equal
increments over three years.  Stock options issued from Fiscal 1999 to Fiscal 2009 became exercisable for
most executives immediately upon the date of grant.  Certain other stock options issued to executives during
Fiscal 2004, 2006 and 2007 become exercisable in equal increments over three years. For Fiscal 2009, the
Company recorded pretax compensation expense associated with stock options of $4.1 million and recorded
$1.5 million of related tax benefit.

Stock-based employee compensation cost is recognized using the fair-value based method for all new
awards granted after August 1, 2005. Compensation costs for unvested stock options and awards that were
outstanding at August 1, 2005, are recognized over the requisite service period based on the grant-date fair
value of those options and awards as previously calculated under the pro-forma disclosures. The Company
determined the fair value of these awards using the Black-Scholes option pricing model with the following
weighted average assumptions:

Risk-free interest rate. . . . . . . . . . . . . . . . . . . . . . . . 
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . 
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . 
Expected life

Director original grants without reloads . . . . . . . 
Non-officer original grants . . . . . . . . . . . . . . . . . . 
Officer original grants with reloads . . . . . . . . . . . 
Reload grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Officer original grants without reloads . . . . . . . . 
Officer original grants with reloads and 

vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2009
___________
1.4 – 4.0%

2008
___________
2.1 - 4.2%

2007
___________
4.4 - 4.9%
21.6 – 25.5% 15.2 – 22.4% 18.3 - 23.6%
1.0%

1.0%

1.0%

8 years
7 years
4 years
<5 years
7 years

8 years
7 years
3 years
<3 years
7 years

7 years
6 years
3 years
<1 year
6 years

—

—

5 years

Reload grants are grants made to officers or directors who exercised a reloadable option during the
fiscal year and made payment of the purchase price using shares of previously owned Company stock. The
reload grant is for the number of shares equal to the shares used in payment of the purchase price and/or
withheld for minimum tax withholding.

Black-Scholes is a widely accepted stock option pricing model; however, the ultimate value of stock
options granted will be determined by the actual lives of options granted and the actual future price levels
of the Company’s common stock. The weighted average fair value for options granted during Fiscal 2009,
2008 and 2007 is $8.56, $10.60 and $7.89 per share, respectively, using the Black-Scholes pricing model.

47

The following table summarizes stock option activity:

Outstanding at July 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Outstanding at July 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Options
Outstanding
_________
5,181,778
366,588
(505,363)
(44,878)
________
4,998,125
________
________

Weighted
Average
Exercise Price
__________
$25.62
34.23
17.64
39.04
26.94

The total intrinsic value of options exercised during Fiscal 2009, 2008 and 2007 was $9.1 million, $26.2

million, and $20.6 million, respectively.

Shares reserved at July 31, 2009 for outstanding options and future grants were 11,521,192. Shares
reserved consist of shares available for grant plus all outstanding options. An amount is added to shares
reserved each year based on shares outstanding adjusted for certain items as detailed in the Plan. The
aggregate number of shares of common stock that may be issued under all awards under the Plan in any
calendar year may not exceed 1.5 percent of the sum of the Company’s outstanding shares of common
stock, the outstanding share equivalents, as determined by the Company in the calculation of earnings per
share on a fully diluted basis, and shares held in treasury of the Company as reported for the Company’s
most recent fiscal year that ends during such calendar year.

The following table summarizes information concerning outstanding and exercisable options as of July

31, 2009:

Range of Exercise Prices
__________________
$5 to $15 . . . . . . . . . . . . . . . . . . . . . . . . . 
$15 to $25 . . . . . . . . . . . . . . . . . . . . . . . . 
$25 and $35 . . . . . . . . . . . . . . . . . . . . . . . 
$35 and above. . . . . . . . . . . . . . . . . . . . . 

Weighted
Average
Remaining
Contractual
Life (Years)
________
1.03
2.84
5.52
7.94
4.61

Weighted
Average
Exercise
Price
______
$12.41
18.02
31.57
40.47
26.94

Weighted
Average
Exercise
Price
______
$12.41
18.02
31.48
40.61
26.30

Number
Exercisable
________
603,792
1,281,872
2,338,294
481,390
________
4,705,348
________
________

Number
Outstanding
_________
603,792
1,281,872
2,463,644
648,817
________
4,998,125
________
________

At July 31, 2009, the aggregate intrinsic value of shares outstanding and exercisable was $57.5 million

and $56.9 million, respectively.

The following table summarizes the status of options which contain vesting provisions:

Non-vested at July 31, 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Non-vested at July 31, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Weighted 
Average Grant
Date Fair
Value
_________
$10.43
8.83
10.16
10.14
10.21

Options
________
439,684
79,575
(207,390)
(19,092)
_______
292,777
_______
_______

The total fair value of shares vested during Fiscal 2009, 2008 and 2007 was $7.9 million, $6.3 million and

$2.8 million, respectively.

As of July 31, 2009 there was $1.6 million of total unrecognized compensation cost related to non-vested
stock options granted under the Plan. This unvested cost is expected to be recognized during Fiscal 2010,
Fiscal 2011 and Fiscal 2012.

48

NOTE I
Income Taxes

The components of earnings before income taxes are as follows:

Earnings before income taxes:

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

$ 69,863
91,562
________
$161,425
________
________

$ 73,445
162,718
________
$236,163
________
________

$ 88,157
116,704
________
$204,861
________
________

The components of the provision for income taxes are as follows:

2009
________

2008
________
(thousands of dollars)

2007
________

2009
_______

2008
_______
(thousands of dollars)

2007
_______

Income taxes:
Current:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Deferred:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

$18,624
2,444
13,176
_______
34,244
_______

(3,888)
90
(928)
_______
(4,726)
_______
$29,518
_______
_______

$27,180
619
37,616
_______
65,415
_______

(4,712)
2
3,505
_______
(1,205)
_______
$64,210
_______
_______

$27,430
2,975
28,140
_______
58,545
_______

(4,674)
(332)
605
_______
(4,401)
_______
$54,144
_______
_______

The following table reconciles the U.S. statutory income tax rate with the effective income tax rate:

Statutory U.S. federal rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 
State income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Foreign taxes at lower rates . . . . . . . . . . . . . . . . . . . . . . . . . . 
Export, manufacturing and research credits . . . . . . . . . . . . 
Tax on repatriation of earnings . . . . . . . . . . . . . . . . . . . . . . . 
Change in unrecognized tax benefits . . . . . . . . . . . . . . . . . . 
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2009
___
35.0%
1.3
(7.5)
(0.5)
0.7
(10.6)
(0.1)
___
18.3%
___
___

2008
___
35.0%
0.3
(7.6)
(0.6)
(0.6)
0.5
0.2
___
27.2%
___
___

2007
___
35.0%
0.8
(5.9)
(1.5)
(1.1)
0.1
(1.0)
___
26.4%
___
___

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:

Deferred tax assets:

Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Compensation and retirement plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Tax credit and NOL carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Inventory reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Deferred tax liabilities:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2009
_______

2008
_______
(thousands of dollars)

$ 8,438
30,916
1,439
10,183
2,232
_______
53,208
(1,053)
_______
52,155
_______

(31,593)
(2,923)
_______
(34,516)
_______
$ 17,639
_______
_______

$ 11,146
812
6,625
8,588
4,370
_______
31,541
(2,472)
_______
29,069
_______

(28,636)
(2,584)
_______
(31,220)
_______
$ (2,151)
_______
_______

49

The  effective  tax  rate  for  Fiscal  2009  was  18.3  percent  compared  27.2  percent  in  Fiscal  2008.
The decrease  in  effective  rate  is  primarily  due  to  the  settlements  of  long-standing  court  cases  and
examinations in various jurisdictions for tax years 2003 through 2006, the reassessment of the corresponding
unrecognized tax benefits for the subsequent open years and a favorable resolution of a foreign tax matter.
Partially  offsetting  these  effects,  the  Company’s  Fiscal  2009  tax  rate  was  unfavorably  impacted  by  an
increased expense from the repatriation of foreign earnings.  Absent these items, the underlying tax rate for
the Fiscal 2009 has decreased from Fiscal 2008 by 1.2 points to 30.4 percent.  The reinstatement of the
U.S. Research and Experimentation credit, changes in current year unrecognized tax benefits, reduced
statutory tax rates and the mix of earnings between foreign jurisdictions all contributed to the reduction in
the underlying rate.

The Company has not provided for U.S. income taxes on additional undistributed earnings of non-U.S.
subsidiaries of approximately $483.4 million. The Company currently plans to permanently reinvest these
undistributed earnings in its non-U.S. subsidiaries. If any portion were to be distributed, the related U.S. tax
liability may be reduced by foreign income taxes paid on those earnings plus any available foreign tax credit
carryovers. Determination of the unrecognized deferred tax liability related to these undistributed earnings
is not practicable.

While  non-US  operations  have  been  profitable  overall,  the  Company  has  cumulative  pre-tax  loss
carryforwards of $6.7 million, which are carried as net operating losses in certain international subsidiaries.
If fully realized, the unexpired net operating losses may be carried forward to offset future local income tax
payments, at current rates of tax, of $1.4 million. Approximately 37 percent of these net operating losses
expire within the next three years, while the majority of the remaining net operating loss carryforwards
have no statutory expiration under current local laws. However, as it is more likely than not that certain of
these losses will not be realized, a valuation allowance of $1.1 million exists as of July 31, 2009.

The  Company  adopted  the  provisions  of  FIN  48,  Accounting  for  Uncertainty  in  Income Taxes,  an
Interpretation  of  FASB  Statement  No.  109, on August  1,  2007.   The  standard  defines  the  threshold  for
recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be
sustained by the taxing authorities based solely on the technical merits of the position.  If the recognition
threshold is met, the tax benefit is measured and recognized as the largest amount of tax benefit that in the
Company’s judgment is greater than 50 percent likely to be realized.  As a result of the implementation of
FIN 48, the Company recognized a $0.3 million increase in the liability for unrecognized tax benefits, which
was accounted for as a reduction to the August 1, 2007, balance of retained earnings.  A reconciliation of the
beginning and ending amount of gross unrecognized tax benefits is as follows (thousands of dollars):

Gross unrecognized tax benefits at beginning of 

fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Additions for tax positions of the current year . . . . . . . . . . . . . . . . . . . . . . 
Additions for tax positions of prior years. . . . . . . . . . . . . . . . . . . . . . . . . . . 
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . 
Settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Reductions due to lapse of applicable statute of 

limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Gross unrecognized tax benefits at end of fiscal year . . . . . . . . . . . . . . . . . 

2008
2009
_______
_______
(thousands of dollars)

$ 32,002
3,527
772
(8,258)
(10,092)

$ 28,209
8,221
2,322
(540)
—

(1,023)
_______
$ 16,928
_______
_______

(6,210)
_______
$ 32,002
_______
_______

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income
tax expense. During the fiscal year ended July 31, 2009, the Company recognized interest expense, net of tax
benefit, of approximately $0.7 million. At July 31, 2009 and 2008, accrued interest and penalties on a gross
basis were $1.8 million and $5.7 million respectively.  

50

The Company’s uncertain tax positions are affected by the tax years that are under audit or remain
subject to examination by the relevant taxing authorities.  The following tax years, in addition to the current
year, remain subject to examination, at least for certain issues, by the major tax jurisdictions indicated:

Major Jurisdictions
______________
Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . 
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
France . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Germany . . . . . . . . . . . . . . . . . . . . . . . . . 
Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Mexico. . . . . . . . . . . . . . . . . . . . . . . . . . . 
United Kingdom . . . . . . . . . . . . . . . . . . 
United States . . . . . . . . . . . . . . . . . . . . . 

Open Tax Years
________________
2005 through 2008
2000 through 2008
2006 through 2008
2004 through 2008
2003 through 2008
2004 through 2008
2007 through 2008
2007 through 2008

If the Company were to prevail on all unrecognized tax benefits recorded, substantially all of the
unrecognized tax benefits would benefit the effective tax rate.  With an average statute of limitations of
about 5 years, up to $1.4 million of the unrecognized tax benefits could potentially be realized in the next
12 month period, unless extended by audit.

In accordance with SFAS No. 123R, Share Based Payment – Revised 2004, SFAS No. 109, Accounting
for Income Taxes and EITF Topic D-32, Intra-period Tax Allocation of the Effect of Pretax Income from
Continuing Operations, the Company has elected to use the “with-and-without” intra-period tax allocation
rules. Under these rules, the windfall tax benefit is calculated based on the incremental tax benefit received
from deductions related to stock-based compensation.

NOTE J
Segment Reporting

Consistent with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information,
the  Company  identified  two  reportable  segments:  Engine  Products  and  Industrial  Products.  Segment
selection was based on the internal organizational structure, management of operations and performance
evaluation by management and the Company’s Board of Directors.

The Engine Products segment sells to OEMs in the construction, mining, agriculture, aerospace, defense
and truck markets and to independent distributors, OEM dealer networks, private label accounts and large
equipment fleets. Products include air filtration systems, exhaust and emissions systems, liquid filtration
systems and replacement filters.

The Industrial Products segment sells to various industrial end-users, OEMs of gas-fired turbines, and
OEMs  and  end-users  requiring  highly  purified  air.  Products  include  dust,  fume  and  mist  collectors,
compressed air purification systems, air filter systems for gas turbines and specialized air filtration systems
for  applications including computer hard disk drives.

Corporate  and  Unallocated  includes  corporate  expenses  determined  to  be  non-allocable  to  the
segments and interest income and expense. Assets included in Corporate and Unallocated principally are
cash and cash equivalents, inventory reserves, certain prepaids, certain investments, other assets and assets
allocated to general corporate purposes.

The Company has an internal measurement system to evaluate performance and allocate resources
based on profit or loss from operations before income taxes. The Company’s manufacturing facilities serve
both reporting segments. Therefore, the Company uses an allocation methodology to assign costs and assets
to the segments. A certain amount of costs and assets relate to general corporate purposes and are not
assigned to either segment. Certain accounting policies applied to the reportable segments differ from those
described in the summary of significant accounting policies. The reportable segments account for receivables
on a gross basis and account for inventory on a standard cost basis.

Segment allocated assets are primarily accounts receivable, inventories, property, plant and equipment
and goodwill. Reconciling items included in Corporate and Unallocated are created based on accounting

51

differences between segment reporting and the consolidated, external reporting as well as internal allocation
methodologies.

The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost
allocations  and  sharing  of  assets.    Therefore,  we  do  not  represent  that  these  segments,  if  operated
independently, would report the operating profit and other financial information shown below.

Segment detail is summarized as follows:

Engine
Products

Corporate &
Industrial
Unallocated
Products
_________ _________ _________

Total
Company
_________

(thousands of dollars)

2009
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $1,001,961 $ 866,668
21,156
Depreciation and amortization . . . . . . . . . . . 
94
Equity earnings in unconsolidated affiliates
89,526
Earnings before income taxes . . . . . . . . . . . . 
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
495,228
Equity investments in unconsolidated

31,517
2,172
83,797
610,341

$

— $1,868,629
58,597
2,266
161,425
1,333,996

5,924
—
(11,898)
228,427

affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

15,474

517

—

15,991

Capital expenditures, net of acquired

businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

24,785

16,637

4,658

46,080

2008
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $1,229,171 $1,003,350
19,314
Depreciation and amortization . . . . . . . . . . . 
34
Equity earnings in unconsolidated affiliates
102,420
Earnings before income taxes . . . . . . . . . . . . 
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
590,273
Equity investments in unconsolidated

27,386
1,876
158,931
628,444

$

— $2,232,521
56,732
1,910
236,163
1,548,622

10,032
—
(25,188)
329,905

affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

15,190

506

—

15,696

Capital expenditures, net of acquired

businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

34,830

24,564

12,758

72,152

2007
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $1,084,262
23,735
Depreciation and amortization . . . . . . . . . . . 
6,128
Equity earnings in unconsolidated affiliates
140,762
Earnings before income taxes . . . . . . . . . . . . 
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
540,510
Equity investments in unconsolidated

$834,566
16,512
(225)
80,321
510,817

$

— $1,918,828
49,566
5,903
204,861
1,319,017

9,319
—
(16,222)
267,690

affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

14,968

2,445

—

17,413

Capital expenditures, net of acquired

businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

37,083

25,798

14,559

77,440

52

Following  are  net  sales  by  product  within  the  Engine  Products  segment  and  Industrial  Products

segment:

2009
_________

_________ _________

2008
(thousands of dollars)

2007

Engine Products segment:
Off-Road Products* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
On-Road Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Aftermarket Products** . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total Engine Products segment . . . . . . . . . . . . . . . . . . . . 

Industrial Products segment:
Industrial Filtration Solutions Products. . . . . . . . . . . . . . 
Gas Turbine Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Special Applications Products. . . . . . . . . . . . . . . . . . . . . . 
Total Industrial Products segment . . . . . . . . . . . . . . . . . . 
Total Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

$ 362,785
71,958
567,218
_________
1,001,961
_________

$ 448,681 $ 352,065
166,370
123,146
565,827
657,344
_________ _________
1,084,262
1,229,171
_________ _________

503,611
206,760
156,297
_________
866,668
_________
$1,868,629
_________
_________

515,022
600,526
158,025
213,138
161,519
189,686
_________ _________
1,003,350
834,566
_________ _________
$2,232,521 $1,918,828
_________ _________
_________ _________

*Includes Aerospace and Defense products.

**Includes replacement part sales to the Company’s OEM Customers.

Geographic sales by origination and property, plant and equipment:

Net Sales
_________

Property, Plant &
Equipment — Net
_____________

(thousands of dollars)

2009
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2008
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2007
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

$ 778,979
567,117
419,423
103,110
_________
$1,868,629
_________

$888,658
766,797
471,275
105,791
_________
$2,232,521
_________

$827,648
615,049
397,080
79,051
_________
$1,918,828
_________

$141,052
138,350
71,686
29,980
________
$381,068
________

$144,429
166,195
65,829
38,706
________
$415,159
________

$142,511
129,564
61,057
31,301
________
$364,433
________

Concentrations There were no Customers over 10 percent of net sales during Fiscal 2009.  Sales to
one Customer accounted for 10 percent of net sales in Fiscal 2008 and 2007.  There were no Customers over
10 percent of gross accounts receivable in Fiscal 2009 and 2008.

53

NOTE K
Commitments and Contingencies

Guarantees to Related Party The Company and its partner, Caterpillar Inc., in an unconsolidated joint
venture, Advanced Filtration Systems Inc., guarantee certain debt of the joint venture. As of July 31, 2009,
the joint venture had $27.7 million of outstanding debt. In addition, during Fiscal 2009, 2008 and 2007, the
Company recorded its equity in earnings of this equity method investment of $1.0 million, $0.6 million and
$5.0 million and royalty income of $5.1 million, $5.4 million and $0.4 million, respectively.

The Company provides for warranties on certain products. In addition, the Company may incur specific

Customer warranty issues. Following is a reconciliation of warranty reserves (in thousands of dollars):

$8,545
Balance at August 1, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
3,634
Accruals for warranties issued during the reporting period. . . . . . . . . . . . . . . . . . . . . . . . 
3,982
Accruals related to pre-existing warranties (including changes in estimates) . . . . . . . . . 
(4,638)
Less settlements made during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
_______
Balance at July 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $11,523
2,942
Accruals for warranties issued during the reporting period. . . . . . . . . . . . . . . . . . . . . . . . 
Accruals related to pre-existing warranties (including changes in estimates) . . . . . . . . . 
(2,141)
(3,109)
Less settlements made during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
_______
Balance at July 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 9,215
_______
_______

At July 31, 2009 and 2008, the Company had a contingent liability for standby letters of credit totaling
$20.0 million and $18.5 million, respectively, which have been issued and are outstanding. The letters of
credit guarantee payment to beneficial third parties in the event the Company is in breach of specified
contract terms as detailed in each letter of credit. At July 31, 2009 and 2008, there were no amounts drawn
upon these letters of credit.

In accordance with SFAS No. 5, “Accounting for Contingencies,” (SFAS No. 5), the Company records
provisions with respect to identified claims or lawsuits when it is probable that a liability has been incurred
and the amount of the loss can be reasonably estimated.  Claims and lawsuits are reviewed quarterly and
provisions are taken or adjusted to reflect the status of a particular matter.  The Company believes the
recorded reserves in its consolidated financial statements are adequate in light of the probable and estimable
outcomes.   The  recorded  liabilities  were  not  material  to  the  Company’s  financial  position,  results  of
operation and liquidity and the Company does not believe that any of the currently identified claims or
litigation will materially affect its financial position, results of operation and liquidity.

NOTE L
Restructuring

The following is a reconciliation of restructuring reserves (in thousands of dollars):

Balance at July 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ —
17,755
Accruals for restructuring during the reporting period . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Less settlements made during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
(13,915)
_______
Balance at July 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 3,840
_______
_______

The dramatic downturn in the worldwide economy made signification cost reduction actions necessary
during Fiscal 2009.  As a result, costs incurred and shown in the table above are primarily associated with
workforce reductions of 2,800 since the beginning of the fiscal year.  Gross margin and operating expenses
include $10.1 million and $7.7 million of restructuring expenses, respectively.  The Engine Products segment,
Industrial  Products  segment,  and  Corporate  and  Unallocated  incurred  $7.2  million,  $10.1  million  and
$0.5 million, respectively.  

The Company expects to settle its remaining liability during Fiscal 2010.

54

NOTE M
Subsequent Events

The Company has evaluated and reviewed for subsequent events that would impact the financial
statements for the 12 months ended July 31, 2009, through the issuance date of the financials, September 25,
2009.

NOTE N
Quarterly Financial Information (Unaudited)

First
Quarter
________

Fourth
Quarter
(thousands of dollars, except per share amounts)

Second
Quarter
________

________ ________

Third
Quarter

2009
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . 
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . 
Basic earnings per share . . . . . . . . . . . . . . 
Diluted earnings per share . . . . . . . . . . . . 
Dividends declared per share . . . . . . . . . . 
Dividends paid per share . . . . . . . . . . . . . . 

2008
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . 
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . 
Basic earnings per share . . . . . . . . . . . . . . 
Diluted earnings per share . . . . . . . . . . . . 
Dividends declared per share . . . . . . . . . . 
Dividends paid per share . . . . . . . . . . . . . . 

$573,260
186,703
47,962
.62
.60
—
.110

$525,576
172,864
43,323
.54
.53
—
.100

$460,601
134,012
33,793
.43
.43
.230
.115

$511,763
163,185
34,070
.43
.42
.210
.100

$413,447
130,782
26,598
.34
.34
—
.115

$587,760
188,266
45,987
.58
.57
—
.110

$421,321
138,209
23,554
.30
.30
.230
.115

$607,422
201,547
48,573
.62
.60
.220
.110

The quarters ended January 31, 2009, April 30, 2009, and July 31, 2009, include restructuring charges
after-tax of $2.9 million or $0.04 per share, $4.7 million or $0.06 per share and $4.5 million or $0.05 per
share, respectively.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report (the “Evaluation Date”), the Company carried out
an  evaluation,  under  the  supervision  and  with  the  participation  of  management,  including  the  Chief
Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation  Date,  the  Company’s  disclosure  controls  and  procedures  were  effective  to  ensure  that
information required to be disclosed by the Company in the reports that it files or submits under the
Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in
applicable rules and forms, and (ii) accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

55

Changes in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of
the Exchange Act) identified in connection with such evaluation during the fiscal quarter ended July 31,
2009, has materially affected, or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.

Management’s Report on Internal Control over Financial Reporting

See Management’s Report on Internal Control over Financial Reporting under Item 8 on page 27.

Report of Independent Registered Public Accounting Firm

See Report of Independent Registered Public Accounting Firm under Item 8 on page 28.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information under the captions “Item 1: Election of Directors”; “Director Selection Process,” “Audit
Committee,” “Audit Committee Expertise; Complaint-Handling Procedures,” and “Section 16(a) Beneficial
Ownership  Reporting  Compliance”  of  the  2009  Proxy  Statement  is  incorporated  herein  by  reference.
Information on the Executive Officers of the Company is found under the caption “Executive Officers of
the Registrant” on page 7 of this Annual Report on Form 10-K.

The Company has adopted a code of business conduct and ethics in compliance with applicable rules
of the Securities and Exchange Commission that applies to its principal executive officer, its principal
financial officer and its principal accounting officer or controller, or persons performing similar functions.
A  copy  of  the  code  of  business  conduct  and  ethics  is  posted  on  the  Company’s  website  at
www.donaldson.com. The code of business conduct and ethics is available in print, free of charge to any
shareholder who requests it. The Company will disclose any amendments to, or waivers of, the code of
business conduct and ethics for the Company’s principal executive officer, principal financial officer, and
principal accounting officer on the Company’s website.

Item 11. Executive Compensation

The information under the captions “Compensation Committee Report,” “Executive Compensation”
and ‘Director Compensation” of the Company’s proxy statement for the 2009 annual shareholders meeting
is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

The information under the caption “Security Ownership” of the Company’s proxy statement for the

2009 annual shareholders meeting is incorporated herein by reference.

56

The  following  table  sets  forth  information  as  of  July  31,  2009,  regarding  the  Company’s  equity

compensation plans:

Number of securities
to be issued upon exercise
of outstanding options,
warrants and rights
_________________
(a)
_________________

Weighted-average
exercise price of
outstanding options,
warrants and rights
______________
(b)
______________

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
_______________
(c)
_______________

Plan category
__________

Equity compensation plans approved

by security holders

1980 Master Stock Compensation 

Plan:

Stock Options . . . . . . . . . . . . . . . 
Deferred Stock Gain Plan. . . . . 

1991 Master Stock Compensation 

Plan:

Stock Options . . . . . . . . . . . . . . . 
Deferred Stock Option

Gain Plan . . . . . . . . . . . . . . . . . 

Deferred LTC/Restricted 

Stock . . . . . . . . . . . . . . . . . . . . . 

2001 Master Stock Incentive Plan:

Stock Options . . . . . . . . . . . . . . . 
Deferred LTC/Restricted 

Stock . . . . . . . . . . . . . . . . . . . . . 
Long Term Compensation . . . . 

Subtotal for plans approved by

security holders: . . . . . . . . . . . . . 

Equity compensation plans not approved
by security holders
Nonqualified Stock Option 

Program for Non-Employee 
Directors . . . . . . . . . . . . . . . . . . . . . 
ESOP Restoration . . . . . . . . . . . . . . 
Subtotal for plans not approved by
security holders: . . . . . . . . . . . . . 

Total:. . . . . . . . . . . . . . . . . . . . . . . . . . 

—
54,667

1,350,821

326,612

156,304

3,112,012

158,437
12,334
________

5,171,187
________
________

535,292
30,878
________

556,170
________
________
5,737,357
________
________

—
$13.2261

$18.2605

$30.6203

$21.6543

$30.3412

$30.7006
$43.9300
________

$26.8030
________
________

$29.0432
$12.2894
________

$28.1294
________
________
$26.9339
________
________

—
—

—

—

—

See Note 1

See Note 1
See Note 1

See Note 2
See Note 3

Note 1:  Shares authorized for issuance during the 10-year term are limited in each plan year to 1.5% of

the Company’s “outstanding shares” (as defined in the 2001 Master Stock Incentive Plan).

Note 2:  The stock option program for non-employee directors (filed as exhibit 10-N to the Company’s
1998 Form 10-K report) provides for each non-employee director to receive annual option grants
of 7,200 shares. The 2001 Master Stock Incentive Plan, which was approved by the Company’s
stockholders  on  November  16,  2001,  also  provides  for  the  issuance  of  stock  options  to  non-
employee directors.

Note 3:  The Company has a non-qualified ESOP Restoration Plan established on August 1, 1990 (filed as
exhibit 10-E to the Company’s Form 10-Q for the quarter ended January 31, 1998), to supplement
the benefits for executive employees under the Company’s Employee Stock Ownership Plan that
would otherwise be reduced because of the compensation limitations under the Internal Revenue
Code. The ESOP’s 10-year term was completed on July 31, 1997, and the only ongoing benefits
under the ESOP Restoration Plan are the accrual of dividend equivalent rights to the participants
in the Plan.

57

Item 13. Certain Relationships and Related Transactions, and Director Independence

The  information  under  the  caption “Policy  and  Procedures  Regarding Transactions  with  Related
Persons” of the Company’s proxy statement for the 2009 annual shareholders meeting is incorporated here
by reference.

Item 14. Principal Accounting Fees and Services

The information under “Audit Committee Report” of the Company’s proxy statement for the 2009

annual shareholders meeting is incorporated herein by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules

Documents filed with this report:

(1)  Financial Statements

Consolidated Statements of Earnings — years ended July 31, 2009, 2008 and 2007

Consolidated Balance Sheets — July 31, 2009 and 2008

Consolidated Statements of Cash Flows — years ended July 31, 2009, 2008 and 2007

Consolidated Statements of Changes in Shareholders’ Equity — years ended July 31, 2009,
2008 and 2007

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

(2) Financial Statement Schedules —

Schedule II Valuation and qualifying accounts

All other schedules (Schedules I, III, IV and V) for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not required under the
related instruction, or are inapplicable, and therefore have been omitted.

(3)  Exhibits

The exhibits listed in the accompanying index are filed as part of this report or incorporated
by reference as indicated therein.

58

SIGNATURES

Pursuant  to  the  requirements  of  Section  13  or  15(d)  of  the  Securities  Exchange Act  of  1934,  the
registrant  has  duly  caused  this  report  to  be  signed  on  its  behalf  by  the  undersigned,  thereunto  duly
authorized.

DONALDSON COMPANY, INC.

Date: September 25, 2009

By:

William M. Cook
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and in the capacities indicated on September 25, 2009.

_____________________________________
William M. Cook

_____________________________________
Thomas R. VerHage

_____________________________________
James F. Shaw

*
_____________________________________
F. Guillaume Bastiaens
*
_____________________________________
Janet M. Dolan
*
_____________________________________
Jack W. Eugster
*
_____________________________________
John F. Grundhofer
*
_____________________________________
Michael J. Hoffman
*
_____________________________________
Paul David Miller
*
_____________________________________
Jeffrey Noddle
*
_____________________________________
Willard D. Oberton
*
_____________________________________
John P. Wiehoff

*By:
_____________________________________
Norman C. Linnell
As attorney-in-fact

President, Chief Executive Officer and Chairman
(principal executive officer)

Vice President and Chief Financial Officer
(principal financial officer)

Controller
(principal accounting officer)

Director

Director

Director

Director

Director

Director

Director

Director

Director

59

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

DONALDSON COMPANY, INC. AND SUBSIDIARIES
(thousands of dollars)

Description
________
Year ended July 31, 2009:

Allowance for doubtful accounts

Additions
____________________

Balance at Charged to
Beginning
of Period
_______

Charged to
Costs and Other Accounts Deductions
(A)
Expenses
(B)
________
___________
_______

Balance at
End of
Period
_______

deducted from accounts receivable. . . . . . . 

$7,509

$1,240

$(534)

$(828)

$7,387

Year ended July 31, 2008:

Allowance for doubtful accounts

deducted from accounts receivable. . . . . . . 

$6,768

$1,126

$ 537

$(922)

$7,509

Year ended July 31, 2007:

Allowance for doubtful accounts

deducted from accounts receivable. . . . . . . 

$8,398

$ 914

$ 358

$(2,902)

$6,768

Note A — Allowance for doubtful accounts foreign currency translation losses (gains) recorded directly to equity.

Note B — Bad debts charged to allowance, net of reserves and changes in estimates.

60

EXHIBIT INDEX
ANNUAL REPORT ON FORM 10-K

* 3-A — Restated Certificate of Incorporation of Registrant as currently in effect (Filed as Exhibit

3-A to Form 10-Q Report for the First Quarter ended October 31, 2004)

* 3-B — Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred
Stock of Registrant, dated as of March 3, 2006 (Filed as Exhibit 3-B to Form 10-Q Report
filed for the first quarter ended October 31, 2006)

* 3-C — Amended and Restated Bylaws of Registrant (as of January 30, 2009) (Filed as Exhibit 3-C
to Form 10-Q Report filed for the Second Quarter ended January 31, 2009)

* 4

— **

* 4-A — Preferred Stock Amended and Restated Rights Agreement between Registrant and Wells
Fargo Bank, N.A., as Rights Agent, dated as of January 27, 2006 (Filed as Exhibit 4.1 to Form
8-K Report filed February 1, 2006)

*10-A — Officer Annual Cash Incentive Plan(Filed as Exhibit 10-A to 2006 Form 10-K Report)***

*10-B — 1980 Master Stock Compensation Plan as Amended (Filed as Exhibit 10-A to Form 10-Q

Report filed for the first quarter ended October 31, 2008)*** 

*10-C — Form of Performance Award Agreement under 1991 Master Stock Compensation Plan
(Filed as Exhibit 10-B to Form 10-Q Report filed for the first quarter ended October 31,
2008)***

10-D

— ESOP Restoration Plan (2003 Restatement)

*10-E — Deferred Compensation Plan for Non-employee Directors as amended (Filed as Exhibit

10-C to Form 10-Q Report filed for the first quarter ended October 31, 2008)***

*10-F — Independent Director Retirement and Benefit Plan as amended (Filed as Exhibit 10-D to
Form 10-Q Report filed for the first quarter ended October 31, 2008)*** 

10-G

10-H

— Excess Pension Plan (2003 Restatement) 

— Supplementary Executive Retirement Plan (2003 Restatement)

*10-I — 1991 Master Stock Compensation Plan as amended (Filed as Exhibit 10-E to Form 10-Q

Report filed for the first quarter ended October 31, 2008)***

*10-J — Form of Restricted Stock Award under 1991 Master Stock Compensation Plan (Filed as

Exhibit 10-F to Form 10-Q Report filed for the first quarter ended October 31, 2008)***

*10-K — Form of Agreement to Defer Compensation for certain Executive Officers (Filed as Exhibit

10-G to Form 10-Q Report filed for the first quarter ended October 31, 2008)*** 

*10-L — Stock Option Program for Non-employee Directors (Filed as Exhibit 10-H to Form 10-Q

Report filed for the first quarter ended October 31, 2008)*** 

*10-M — Note Purchase Agreement among Donaldson Company, Inc. and certain listed Insurance
Companies Dated as of July 15, 1998 (Filed as Exhibit 10-I to Form 10-Q Report filed for
the first quarter ended October 31, 2008)

*10-N — Second Supplement and First Amendment to Note Purchase Agreement among Donaldson
Company, Inc. and certain listed Insurance Companies dated as of September 30, 2004 (Filed
as Exhibit 10-A to Form 10-Q Report for the Second Quarter ended January 31, 2005)

10-O

— 2001 Master Stock Incentive Plan 

61

*10-P — Form of Officer Stock Option Award Agreement under the 2001 Master Stock Incentive
Plan (Filed as Exhibit 10-A to Form 10-Q Report for the First Quarter ended October 31,
2004)***

*10-Q — Form of Non-Employee Director Non-Qualified Stock Option Agreement under the 2001
Master  Stock  Incentive  Plan  (Filed  as  Exhibit  10-B  to  Form  10-Q  Report  for  the  First
Quarter ended October 31, 2004)***

*10-R — Agreement dated August 29, 2005, by and between Donaldson Company, Inc. and William

G. Van Dyke (Filed as Exhibit 99.1 to Form 8-K Report filed August 29, 2005)***

*10-S — Restated Compensation Plan for Non-Employee Directors dated July 28, 2006 (Filed as

Exhibit 99.1 to Form 8-K Report filed August 4, 2006)***

*10-T — Restated Long-Term Compensation Plan dated May 23, 2006 (Filed as Exhibit 99.2 to Form

8-K Report filed August 4, 2006)***

*10-U — Qualified Performance-Based Compensation Plan (Filed as Exhibit 10-DD to 2006 Form

10-K Report)***

*10-V — Deferred Compensation and 401(k) Excess Plan (2005 Restatement) (Filed as Exhibit 10-

EE to 2006 Form 10-K Report)***

*10-W — Deferred Stock Option Gain Plan (2005 Restatement) (Filed as Exhibit 10-FF to 2006 Form

10-K Report)***

*10-X — Excess  Pension  Plan  (2005  Restatement)  (Filed  as  Exhibit  10-GG  to  2006  Form  10-K

Report)***

*10-Y — Supplemental Executive Retirement Plan (2005 Restatement) (Filed as Exhibit 10-HH to

2006 Form 10-K Report)***

*10-Z — Form of Management Severance Agreement for Executive Officers (Filed as Exhibit 10-A

to Form 10-Q Report for the Third Quarter ended April 30, 2008)***

11

21

23

24

— Computation  of  net  earnings  per  share  (See  “Earnings  Per  Share”  in  “Summary  of
Significant  Accounting  Policies”  in  Note  A  in  the  Notes  to  Consolidated  Financial
Statements on page 33)

— Subsidiaries

— Consent of PricewaterhouseCoopers LLP

— Powers of Attorney

31-A

— Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

of 2002

31-B

— Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

of 2002

32

*

**

— Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit has previously been filed with the Securities and Exchange Commission and is incorporated herein by
reference as an exhibit.

Pursuant to the provisions of Regulation S-K Item 601(b)(4)(iii)(A) copies of instruments defining the rights of
holders of certain long-term debts of the Company and its subsidiaries are not filed and in lieu thereof the
Company agrees to furnish a copy thereof to the Securities and Exchange Commission upon request.

*** Denotes compensatory plan or management contract.

Note: Exhibits have been furnished only to the Securities and Exchange Commission. Copies will be furnished to
individuals upon request.

62

Consent of Independent Registered Public Accounting Firm

We  hereby  consent  to  the  incorporation  by  reference  in  the  Registration  Statement  on  Form  S-8
(No. 333-107444, 333-97771, 333-56027, 33-27086, 2-90488 and 33-44624) of Donaldson Company, Inc. of
our report dated September 25, 2009, relating to the financial statements, financial statement schedule and
the effectiveness of internal control over financial reporting, which appears in this Annual Report on Form
10-K.

Exhibit 23

PricewaterhouseCoopers LLP

Minneapolis, Minnesota
September 25, 2009

63

Exhibit 31-A

Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, William M. Cook, certify that:

1. 

I have reviewed this annual report on Form 10-K of Donaldson Company, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

a)  Designed  such  disclosure  controls  and  procedures,  or  caused  such  disclosure  controls  and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;

b)  Designed  such  internal  control  over  financial  reporting,  or  caused  such  internal  control  over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the  reliability  of  financial  reporting  and  the  preparation  of  financial  statements  for  external
purposes in accordance with generally accepted accounting principles;

c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and

d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):

a)  All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and

b)  Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant’s internal control over financial reporting.

Date:  September 25, 2009

By:

William M. Cook
Chief Executive Officer

64

Exhibit 31-B

Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas R. VerHage, certify that:

1. 

I have reviewed this annual report on Form 10-K of Donaldson Company, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

a)  Designed  such  disclosure  controls  and  procedures,  or  caused  such  disclosure  controls  and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;

b)  Designed  such  internal  control  over  financial  reporting,  or  caused  such  internal  control  over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the  reliability  of  financial  reporting  and  the  preparation  of  financial  statements  for  external
purposes in accordance with generally accepted accounting principles;

c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and

d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):

a)  All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and

b)  Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant’s internal control over financial reporting.

Date:  September 25, 2009

By:

Thomas R. VerHage
Chief Financial Officer

65

Exhibit 32

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes–Oxley Act of 2002, the
following certifications are being made to accompany the annual report on Form 10-K for the fiscal year
ended July 31, 2009 for Donaldson Company, Inc.:

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, William M. Cook, Chief Executive Officer of Donaldson Company, Inc., certify that:

1.  The Annual Report on Form 10-K of Donaldson Company, Inc. for the fiscal year ended July 31, 2009
(the “Report”),  fully  complies  with  the  requirements  of  Section  13(a)  or  15(d)  of  the  Securities
Exchange Act of 1934; and

2.  The information contained in the Report fairly presents, in all material respects, the financial condition

and results of operations of Donaldson Company, Inc.

Date:  September 25, 2009

By:

William M. Cook
Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Thomas R. VerHage, Chief Financial Officer of Donaldson Company, Inc., certify that:

1. The Annual Report on Form 10-K of Donaldson Company, Inc. for the fiscal year ended July 31, 2009
(the “Report”),  fully  complies  with  the  requirements  of  Section  13(a)  or  15(d)  of  the  Securities
Exchange Act of 1934; and

2.  The information contained in the Report fairly presents, in all material respects, the financial condition

and results of operations of Donaldson Company, Inc.

Date:  September 25, 2009

By:

Thomas R. VerHage
Chief Financial Officer

66