10-K

Annual Report on Form 10-K
 
Donaldson Company, Inc.
 
JULY 31, 2003

DONALDSON COMPANY, INC.
 
ANNUAL REPORT ON FORM 10-K
 
TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
	General	1
	Competition	1
	Raw Materials	2
	Patents and Trademarks	2
	Major Customers	2
	Backlog	2
	Research and Development	2
	Environmental Matters	2
	Employees	2
	Geographic Areas	3
Item 2.	Properties	3
Item 3.	Legal Proceedings	3
Item 4.	Submission of Matters to a Vote of Security Holders	4
	Executive Officers of the Registrant	4
PART II
Item 5.	Market for the Registrant’s Common Equity   and Related Stockholder Matters	5
Item 6.	Selected Financial Data	6
Item 7.	Management’s Discussion and Analysis of Financial Condition   and Results of Operations	6
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	18
Item 8.	Financial Statements and Supplementary Data	18
Item 9.	Changes in and Disagreements with Accountants or Accounting   and Financial Disclosure	43
Item 9A.	Controls and Procedures	44
PART III
Item 10.	Directors and Executive Officers of the Registrant	45
Item 11.	Executive Compensation	45
Item 12.	Security Ownership of Certain Beneficial Owners and Management	45
Item 13.	Certain Relationships and Related Transactions	45
Item 14.	Principal Accountant Fees and Services	45
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	45

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)
[×]	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended July 31, 2003 or
[  ]	Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) for the transition period from ___________________ to ___________________.

Commission File Number: 1-7891

DONALDSON COMPANY, INC.
(Exact name of registrant as specified in its charter)

Delaware	41-0222640
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
1400 West 94th Street, Minneapolis, Minnesota	55431
(Address of principal executive offices)	(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	Name of Each Exchange on Which Registered
Common Stock, $5 Par Value	New York Stock Exchange
Preferred Stock Purchase Rights	New York Stock Exchange

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

        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    X    No       

        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.  [  ]

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes    X    No       

        The aggregate market value of the voting stock held by nonaffiliates of the registrant as of September 26, 2003 was $2,263,757,198.

        The shares of common stock outstanding as of September 26, 2003 were 43,483,232.

Documents Incorporated by Reference

        Portions of (1) the Company’s Annual Report to Shareholders for the fiscal year ended July 31, 2003 are incorporated in Item 6 of Part I, and (2) the Proxy Statement for the 2003 annual shareholders meeting are incorporated by reference in Part III, as specifically set forth in Part III.

PART I

Item 1.  BUSINESS

GENERAL

     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 filters and exhaust and emission control products for mobile equipment; in-plant air cleaning systems; compressed air purification systems; air intake systems for industrial gas turbines; and specialized filters for such diverse applications as computer disk drives, aircraft passenger cabins and semiconductor processing. Products are manufactured at more than thirty plants around the world and through three joint ventures. The Company has two reporting segments engaged in the design, manufacture and sale of systems to filter air and liquid and other complementary products. The two segments are Engine Products and Industrial Products. Products in the Engine Products segment consist of air intake systems, exhaust systems, liquid filtration systems and replacement parts. The Engine Products segment sells to original equipment manufacturers (OEMs) in the construction, industrial, mining, agriculture and transportation markets and to independent distributors, OEM dealer networks, private label accounts and large private fleets. Products in the Industrial Products segment consist of dust, fume and mist collectors, compressed air purification systems, static and pulse-clean air filter systems for industrial gas turbines, computer disk drive filter products and other specialized air filtration systems. The Industrial Products segment sells to various industrial end-users, OEMs of gas-fired turbines, OEMs and end-users requiring highly purified 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:

	Year Ended July 31
	2003	2002	2001
Engine Products Segment
Off-Road Equipment Products   (including Defense Products)	16%	16%	16%
Truck Products	10%	8%	7%
Aftermarket Products	30%	30%	31%
Industrial Products Segment
Industrial Air Filtration Products	14%	16%	19%
Gas Turbine Systems Products	11%	20%	17%
Special Applications Products	9%	10%	10%
Ultrafilter Products	10%	—	—

     Financial information about segment operations appears in Note K in the Notes to Consolidated Financial Statements on page 40.

     The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K 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. 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.

COMPETITION

     The Company’s business is not considered to be seasonal. Principal methods of competition in both the Engine Products and Industrial Products segments are price, geographic coverage, service and

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product performance. The Company competes in a number of filtration markets in both the Engine Products and Industrial segments and both segments operate in a highly competitive environment. The Company estimates that it is a market leader in its primary product lines within the Industrial Products segment. Its principal competitors vary from country to country and include several large regional or global competitors and a significant number of small competitors who compete in a limited geographical region or in a limited number of product applications. The Company estimates that within the Engine Products segment it is a market leader in its off-road equipment and truck product lines and is a significant participant in the aftermarket for replacement filters and hard parts in its engine-related businesses. The Engine Products segment principal competitors vary from country to country and include several large regional or global competitors, and small local and regional competitors, especially in the engine aftermarket businesses.

RAW MATERIALS

     The Company experienced no significant or unusual problems in the purchase of raw materials or commodities. Donaldson has more than one source of raw materials essential to its business. The Company is not required to carry significant amounts of inventory to meet rapid delivery demands or secure supplier allotments.

PATENTS AND TRADEMARKS

     The Company owns various patents and trademarks which it considers in the aggregate to constitute a valuable asset. However, it does not regard the validity of any one patent or trademark as being of material importance.

MAJOR CUSTOMERS

     There were no sales over 10 percent of net sales to any customer in 2003. Sales to General Electric Company and subsidiaries (“GE”) accounted for 13 and 12 percent of net sales in 2002 and 2001, respectively. GE has been a customer of the Company for many years and it purchases several models and types of products from the Industrial Products segment for a variety of applications, the majority of which are for use on their gas turbine systems. Sales to the U.S. Government do not constitute a material portion of the Company’s business.

BACKLOG

     At August 31, 2003, the backlog of orders expected to be delivered within 90 days was $191,076,000. The 90 day backlog at August 31, 2002 was $174,497,000.

RESEARCH AND DEVELOPMENT

     During 2003, the Company spent $30,456,000 on research and development activities relating to the development of new products or improvements of existing products or manufacturing processes. The Company spent $28,150,000 in 2002 and $28,425,000 in 2001 on research and development activities. Essentially all commercial research and development is Company-sponsored.

ENVIRONMENTAL MATTERS

     The Company does not anticipate any material effect on its capital expenditures, earnings or competitive position due to compliance with government regulations involving environmental matters.

EMPLOYEES

     The Company employed 9,409 persons in worldwide operations as of August 31, 2003.

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GEOGRAPHIC AREAS

     Financial information about geographic areas appears in Note K of the Notes to Consolidated Financial Statements on page 41.

 
Item 2.  PROPERTIES

     The Company’s principal office and research facilities are located in Bloomington, a suburb of Minneapolis, Minnesota. The principal European administrative and engineering offices are located in Leuven, Belgium. The principal Asia-Pacific regional administrative offices are located in Singapore.

     The Company’s principal plant activities are carried on 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.

U.S. Facilities	International Facilities
Auburn, Alabama (E)	Wyong, Australia
Norcross, Georgia (I)	Brugge, Belgium (I)
Dixon, Illinois	Hong Kong, China
Frankfort, Indiana	Wuxi, China (I)
Cresco, Iowa	Klasterec, Czech Republic (E)
Grinnell, Iowa (E)	Domjean, France (E)
Nicholasville, Kentucky	Dulmen, Germany (E)
Bloomington, Minnesota	Flensburg, Germany (I)
Chillicothe, Missouri (E)	Haan, Germany (I)
Stow, Ohio	New Delhi, India
Philadelphia, Pennsylvania (I)	Ostiglia, Italy
Greeneville, Tennessee (E)	Gunma, Japan
Baldwin, Wisconsin	Aguascalientes, Mexico (E)
Stevens Point, Wisconsin	Monterrey, Mexico (I)
	Cape Town, South Africa
Joint Venture Facilities	Johannesburg, South Africa
Champaign, Illinois (E)	Barcelona, Spain (I)
Jakarta, Indonesia	Hull, United Kingdom
Dammam, Saudi Arabia (I)	Leicester, United Kingdom (I)
Distribution Centers
Ontario, California
Rensselaer, Indiana
Antwerp, Belgium
Singapore

     The Company’s properties are utilized for both the Engine and Industrial Product segments except as indicated with an (E) for Engine or (I) for Industrial. The Company is a lessee under several long-term leases. These leases provide for options to purchase the facilities at the end of the lease term and have been capitalized.

     The Company’s properties are considered to be suitable for their present purposes, well maintained and in good operating condition.

 
Item 3.  LEGAL PROCEEDINGS

     Legal Proceedings The Company is a defendant in a lawsuit filed in November 1998 in the United States District Court for the Northern District of Iowa (Eastern Division) by Engineered Products Company (“EPC”). EPC claims patent infringement by Donaldson arising out of its sales of graduated air restriction indicators in the period from 1996 through the expiration of the EPC patent in May 2001 and seeks monetary damages. EPC is also seeking damages for some period of time beyond the

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expiration of the patent. A trial date has been rescheduled for February, 2004. The Company denies any liability and believes the patent is unenforceable and invalid. The Company is vigorously defending the suit. The amount of loss, if any, to the Company currently cannot be estimated.

     The Company is currently not otherwise subject to any pending litigation other than routine litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on the business, results of operations, financial condition or liquidity of the Company.

 
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, 2003.

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 he was selected as an officer.

Name	Age	Positions and Offices Held	First Year Elected or Appointed as an Officer
William G. Van Dyke	58	Chairman, President and Chief Executive Officer	1979
William M. Cook	50	Senior Vice President, International and Chief Financial Officer	1994
James R. Giertz	46	Senior Vice President, Commercial and Industrial	1994
Norman C. Linnell	44	Vice President, General Counsel and Secretary	1996
Charles J. McMurray	49	Vice President, Human Resources	2003
Nickolas Priadka	57	Senior Vice President, Engine Systems and Parts	1989
Lowell F. Schwab	55	Senior Vice President, Operations	1994
Thomas A. Windfeldt	54	Vice President, Controller	1985

All of the above-named executive officers have served as an officer of the Registrant during the past five years, except Mr. McMurray who was appointed Vice President Human Resources after the end of fiscal 2003. Mr McMurray most recently served as Director of Information Technology and prior to that position as Director of Manufacturing for Donaldson Europe.

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PART II

 
Item 5.  MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The common shares of Donaldson Company, Inc. 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 2003 and 2002 appear in Note M of the Notes to Consolidated Financial Statements on page 43. Also see Note E on page 30 for restrictions on payment of dividends. As of September 26, 2003, there were 43,483,232 shareholders of record of Common Stock.

     The high and low sales prices for registrant’s common stock for each full quarterly period during 2003 and 2002, are as follows:

	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
2002	$26.93 – 32.80	$32.35 – 40.35	$34.10 –44.99	$30.03 – 43.12
2003	$29.91 – 38.12	$32.40 – 37.80	$32.17 – 40.57	$39.73 – 49.18

     The following table sets forth information as of July 31, 2003, regarding the Company’s equity compensation plans:

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved    by security holders
1980 Master Stock Compensation Plan:
Stock Options	180,846	$11.5117	—
1991 Master Stock Compensation Plan:
Stock Options	2,661,788	$25.1986	—
Deferred Stock Option  Gain Plan	465,651	$31.1908	—
Long Term Compensation	41,345	$48.6300	—
Deferred LTC/Restricted Stock	145,542	$27.8858	—
2001 Master Stock Incentive Plan:
Stock Options	493,953	$36.1879	See Note 1
Long Term Compensation	18,604	$48.6300	See Note 1
Subtotal for plans approved by    security holders:	4,007,729	$27.0797
Equity compensation plans not approved     by security holders
Nonqualified Stock Option Program for    Non-Employee Directors:	213,130	$23.2204	See Note 2
ESOP Restoration	58,252	$21.9507	See Note 3
Subtotal for plans not approved by     security holders:	271,382	$22.9479
Total:	4,279,111	$26.8177

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 1998 Form 10-K report) provides for each non-employee director to receive annual option grants of 3,600 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 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

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ongoing benefits under the ESOP Restoration Plan are the accural of dividend equivalent rights to the participants in the Plan.

Item 6.  SELECTED FINANCIAL DATA

     The information for the years 1993 through 2003 on page 16 of the 2003 Annual Report to Shareholders is incorporated herein by reference.

Item 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

     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.

     Following is financial information for the Company’s Engine Products and Industrial Products segments:

	Engine Products	Industrial Products	Corporate & Unallocated	Total Company
2003	(Thousands of dollars)
Net sales	$683,254	$534,998	$         —	$1,218,252
Depreciation and amortization	17,727	14,089	5,741	37,557
Equity earnings in unconsolidated affiliates	3,167	64	—	3,231
Earnings before income taxes	95,297	39,144	(3,874)	130,567
Assets	335,048	356,335	190,614	881,997
Equity investments in unconsolidated affiliates	12,324	1,182	—	13,506
Capital expenditures, net of acquired businesses	22,537	17,912	7,299	47,748
2002
Net sales	$611,647	$514,358	$         —	$1,126,005
Depreciation and amortization	16,095	9,427	6,229	31,751
Equity earnings in unconsolidated affiliates	4,160	—	—	4,160
Earnings before income taxes	69,894	73,047	(23,923)	119,018
Assets	324,952	381,467	143,712	850,131
Equity investments in unconsolidated affiliates	14,033	620	—	14,653
Capital expenditures, net of acquired businesses	23,396	13,704	9,056	46,156
2001
Net sales	$606,810	$530,205	$         —	$1,137,015
Depreciation and amortization	23,100	11,268	4,209	38,577
Equity earnings in unconsolidated affiliates	3,017	—	—	3,017
Earnings before income taxes	49,539	72,891	(17,502)	104,928
Assets	315,706	228,505	162,619	706,830
Equity investments in unconsolidated affiliates	14,115	—	—	14,115
Capital expenditures, net of acquired businesses	23,308	11,370	4,246	38,924

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

		2003	2002	2001
		(Thousands of dollars)
Engine Products segment:
	Off-road products	$  194,823	$  177,005	$  181,795
	Transportation products	116,335	89,541	79,670
	Aftermarket products	372,096	345,101	345,345
	Total Engine Products segment	683,254	611,647	606,810
Industrial Products segment:
	Industrial air filtration products	174,328	175,663	217,343
	Gas turbine products	129,606	230,897	195,042
	Special application products	110,192	107,798	117,820
	Ultrafilter products	120,872	—	—
	Total Industrial Products segment	534,998	514,358	530,205
Total Company		$1,218,252	$1,126,005	$1,137,015

Fiscal 2003 Compared to Fiscal 2002

     The Company reported sales in 2003 of $1.218 billion, up 8.2 percent from $1.126 billion last year and recorded its 14th consecutive year of double-digit earnings growth. The Company’s Engine Products segment showed strong sales and earnings growth worldwide. Within the Industrial Products segment, despite the significant contraction in the gas turbine business and the resulting drop in sales, the Company reported profitable operating income in gas turbine products. Additionally, sales and earnings were favorably impacted by the July 2002 acquisition of Ultrafilter international AG (“Ultrafilter”) and its integration into the Industrial Products segment.

     Engine Products Segment The Engine Products segment sells to original equipment manufacturers (OEMs) in the construction, industrial, mining, agriculture and transportation markets and to independent distributors, OEM dealer networks, private label accounts and large private fleets. Products include air intake systems, exhaust systems, liquid filtration systems and replacement filters.

     Sales for the Engine Products segment were $683.3 million, an increase of 11.7 percent from $611.6 million in the prior year reflecting increased sales across all products within this segment as well as both in North America and internationally.

     Within the Engine Products segment, worldwide sales of transportation products were $116.3 million, an increase of 29.9 percent from $89.5 million in the prior year. North American transportation sales increased 20.0 percent from the prior year as light-duty diesel sales more than doubled over last year, reflecting additional sales from the new small diesel filtration offering featuring the Company’s PowerCore™ technology. International transportation sales increased 59.4 percent from the prior year reflecting continued high demand for emission control products in Japan.

     Worldwide sales of off-road products were $194.8 million, an increase of 10.1 percent from $177.0 million in the prior year. North American sales showed a slight increase of 1.1 percent and were impacted by continued weak equipment demand but somewhat offset by increased defense sales over the prior year. Internationally, sales of off-road products were up 33.7 percent from the prior year with sales increasing in both Europe and Asia by 27.1 percent and 28.7 percent, respectively. The increase in Asia reflects strong sales in Japan, including the continued export demand for off-road equipment into China.

     Worldwide aftermarket product sales of $372.1 million increased 7.8 percent from $345.1 million in the prior year. Sales in North America increased 2.8 percent over the prior year as equipment utilization rates improved, thereby increasing demand for replacement parts. International sales were strong with

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an increase over the prior year of 15.5 percent with sales increasing in both Europe and Asia by 16.3 percent and 12.5 percent, respectively.

     (Please note that certain fiscal 2002 product sales amounts have been reclassified within the Engine Products segment to conform to the current year presentation. There is no impact to the total Engine Products segment for fiscal 2002.)

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

     Sales for the Industrial Products segment were $535.0 million, an increase of 4.0 percent from $514.4 million in the prior year. Excluding Ultrafilter, sales decreased 19.5 percent to $414.1 million, reflecting the contraction in North American gas turbine product sales.

     Although sales exclusive of Ultrafilter is not a measure of financial performance under GAAP, the Company believes that providing a year-over-year sales comparison of the Industrial Products segment without Ultrafilter sales for both full fiscal year periods is a useful measure, both of the change in operating performance of the Industrial Products segment and of the effect of the Ultrafilter acquisition on the 2003 operating results of the Industrial Products segment. A shortcoming of this non-GAAP measure is that it does not reflect the actual results of the Company because Ultrafilter was part of the actual results of the Company in 2003.

     Following is a reconciliation to the most comparable GAAP financial measure of this non-GAAP financial measure:

	July 31, 2003
Industrial Product sales	$535.0
Ultrafilter sales	120.9
Industrial Product sales excluding Ultrafilter	$414.1

     Within the Industrial Products segment, worldwide sales of gas turbine products were $129.6 million, a decrease of 43.9 percent from a record $230.9 million in the prior year. Despite the decrease, the gas turbine business maintained its gross margin percentage and remained profitable on the operating income line for the year by effectively managing its capacity utilization. Sales in North America declined 59.8 percent from the prior year while sales internationally increased 2.3 percent from the prior year as market conditions were steady outside of North America.

     Worldwide sales of industrial air filtration products of $174.3 million decreased 0.8 percent from $175.7 million in the prior year, reflecting the continued impact of weakness in industrial capital spending. In North America, sales decreased 9.9 percent from the prior year though orders in the fourth quarter showed the first year-over-year increase in almost three years. International sales were up 10.5 percent primarily due to foreign currency translation.

     Worldwide sales of special application products were $110.2 million, a 2.2 percent increase from $107.8 million in the prior year. Sales of membrane products increased 20.4 percent from the prior year on improvement in its core filtration markets, growing acceptance of its performance fabrics and success in technical product markets. Sales in hydraulic products increased from the prior year by 23.4 percent. Disk drive sales decreased from the prior year by 7.2 percent although the computer industry is beginning to pick up following several difficult quarters. In North America, sales of special application products decreased 6.1 percent from the prior year while sales increased 5.1 percent internationally.

     Worldwide sales of Ultrafilter products totaled $120.9 million. In fiscal 2003, the Company had a favorable impact from conforming the year end of Ultrafilter to the Company’s year end, resulting in $11.5 million of additional sales.

     Consolidated Results The Company reported record net earnings for 2003 of $95.3 million compared to $86.9 million in 2002, an increase of 9.7 percent. Net earnings per share - - diluted were a

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record $2.11, up 11.1 percent from $1.90 in the prior year. An increase in net sales as well as continued manufacturing infrastructure improvements, product cost reductions and operating expense controls all contributed to the Company achieving its 14th consecutive year of double-digit earnings growth. The Company’s operating income increased from the prior year by 6.4 percent. Operating income in the Engine Products segment again showed significant growth from the prior year as it grew to almost 70 percent of total operating income in the year from about 50 percent in the prior year. This growth reflects the continuing efforts in improving operating efficiencies in the Engine business and the increased demand for Engine products discussed above. Operating income in the Industrial Products segment decreased to about 30 percent of total operating income in the year from almost 60 percent in the prior year. International operating income totaled 72.9 percent of consolidated operating income in 2003 as compared to 64.6 percent in 2002. Of the 2003 international operating income, Europe contributed 39.1 percent while Asia-Pacific contributed 51.2 percent. Total international operating income increased 20.0 percent from the prior year. In U.S. dollars, Europe’s operating income increased 14.5 percent resulting from the effects of foreign currency translation due to the continued strengthening of the euro against the U.S. dollar. In U.S. dollars, Asia-Pacific’s operating income increased 11.6 percent resulting from the effects of foreign currency translation.

     Gross margin for 2003 increased to 32.1 percent compared to 31.0 percent in the prior year. The addition of Ultrafilter was the main driver for the increase. Also contributing were the Company’s continued efforts to improve manufacturing infrastructure and reduce product costs through plant rationalization. Plant rationalization costs, including plant closure costs, came to $.10 per share versus $.05 per share last year.

     Operating expenses as a percentage of sales for 2003 and 2002 were 21.3 percent and 20.0 percent, respectively. Operating expenses in 2003 totaled $259.4 million compared to $225.6 million in 2002, an increase of $33.7 million, or 15.0 percent. The increase over the prior year was attributable to the addition of Ultrafilter, where operating expenses, as a percentage of sales, were higher than the Company’s existing businesses. Operating expense control remained one of the Company’s key initiatives across the Company in 2003.

     Interest expense decreased $0.6 million, or 9.8 percent, reflecting lower interest rates and debt levels from the prior year. Other income, net totaled $4.7 million in 2003 compared to $1.7 million in the prior year. Components of other income for 2003 were as follows: interest income of $1.2 million, earnings from non-consolidated joint ventures of $3.2 million, foreign exchange losses of $0.1 million and other miscellaneous income and expense items netting to $0.4 million of miscellaneous income, which included a gain in the amount of $1.9 million resulting from the demutualization of a life insurance company for which the Company held shares resulting from the ownership of varous life insurance policies on its officers, offset by $1.5 million of various miscellaneous expense items. Prior year net other income included an expense for a discretionary $2.5 million contribution for funding the Donaldson Foundation.

     The effective income tax rate of 27.0 percent in 2003 remained unchanged from the prior year. The Company’s tax rate going forward is dependent upon the applicable tax rates and the geographic mix of product sales and Company locations, and is subject to change.

     Total backlog was $313.1 million, down 1.8 percent from the same period in the prior year. In the Engine Products segment, total backlog increased 6.8 percent compared to the same period in the prior year, reflecting improvement in business conditions in the markets served. In the Industrial Products segment, total backlog decreased 5.3 percent from the same period in the prior year reflecting the continued downturn in the North American gas turbine market. Hard order backlog, goods scheduled for delivery within 90 days, was $183.2 million, up 2.8 percent from $178.3 million in the prior year. In the Engine Products segment, overall hard order backlog increased 9.8 percent from the prior year. Within this segment, transportation products showed a solid increase of 25.8 percent from the prior year. Hard order backlog for off-road products increased by 10.9 percent, while aftermarket products decreased 6.6 percent. In the Industrial Products segment, overall hard order backlog decreased 6.1 percent from the prior year. Within this segment, hard order backlog for gas turbine products decreased 34.5 percent. This decrease was somewhat offset by increases in industrial air filtration products and special application products by 11.8 percent and 17.2 percent, respectively.

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     In July 2003, the Company closed on the sale of the land and building of its facility in Ome City, Japan after the closure of its manufacturing facility. The Company has received full payment of the purchase price of $10.8 million in fiscal 2003 and expects to report a gain on the sale estimated between $3.5 million and $4.5 million, net of income tax, in the first half of fiscal 2004, subject to the completion of environmental remediation of the site, which is a condition of the sale.

Fiscal 2002 Compared to Fiscal 2001

     The Company reported sales in 2002 of $1.126 billion, down 1.0 percent from $1.137 billion last year. Despite a decrease in sales, the Company achieved its 13th consecutive year of double-digit earnings growth. The Company’s diversification of filtration products was important to its success in fiscal 2002 in a difficult economic environment. Decreased sales in the Industrial Products segment were partially offset by increased sales in the Engine Products segment.

     Sales for the Industrial Products segment were $514.4 million, down 3.0 percent from a record $530.2 million in the prior year. Sales totals do not include results from Ultrafilter international AG (“Ultrafilter”), which was acquired immediately prior to the end of the fiscal year. Within the Industrial Products segment, sales of gas turbine products were a record $230.9 million, up 18.4 percent from a record $195.0 million in the prior year. Sales of gas turbine products were strong domestically as well as internationally as market conditions remained steady outside of North America. Based on public comments from gas turbine manufacturers, the Company expects the North American gas turbine contraction to be severe, possibly reducing gas turbine sales in the next fiscal year by $50 million. Sales in industrial air filtration products (formerly referred to as dust collection) of $175.7 million decreased 19.2 percent from $217.3 million in the prior year, impacted by weakness in industrial capital spending. Although these sales decreased from the prior year, sales of industrial air filtration products improved 21.8 percent in the fourth quarter of fiscal 2002 over the third quarter, showing the first meaningful improvement on a sequential quarter basis in two years. Sales of special application products were $107.8 million, an 8.5 percent decrease from a record $117.8 million in the prior year, reflecting weakness in the markets served by these products such as the computer, electronics, semiconductor and aircraft markets.

     Sales for the Engine Products segment were $611.6 million, up 0.8 percent from $606.8 million in the prior year. This increase from the prior year reflects improved business conditions in some of the markets served by products in this segment. Within the Engine Products segment, sales of truck products were $91.2 million, up 14.5 percent from $79.7 million in the prior year, reflecting increased demand for new truck orders in the North American truck market prior to the new October 2002 diesel emissions regulations. Sales of off-road products were $185.6 million, an increase of 2.1 percent from $181.8 million in the prior year. Aftermarket product sales of $334.8 million decreased 3.1 percent from $345.3 million in the prior year.

     (Please note that fiscal 2002 product sales amounts that were reclassified within the Engine Products segment in the current year to conform to the current year presentation have been left as presented in 2002 for purposes of comparison to 2001. This reclassification has no impact to the total Engine Products segment for fiscal 2002.)

     Domestic sales in the Industrial Products segment decreased 5.8 percent from the prior year. Within this segment, domestic gas turbine product sales posted an increase of 16.0 percent from the prior year. Offsetting this increase was a decrease in sales of industrial air filtration products of 25.7 percent from the prior year, as the pace of recovery in the U.S. manufacturing economy remained slow with historically high levels of excess capacity. Additionally, domestic sales of special application products decreased 23.0 percent from the prior year, reflecting a general weakness in the served markets.

     Domestic sales in the Engine Products segment were down 1.3 percent from the prior year. Within this segment, higher demand in the North American truck market drove an increase of domestic truck product sales of 12.6 percent from the prior year. Offsetting this increase was a decrease in domestic

10

aftermarket product sales of 4.8 percent resulting from weakness in U.S. truck and construction equipment utilization. Domestic sales of off-road products also declined from the prior year posting a decrease of 1.9 percent.

     In U.S. dollars, total international sales increased 2.9 percent from the prior year. Total international sales in the Industrial Products segment were up 1.1 percent from the prior year. International sales of products within this segment were mixed. International sales of gas turbine products increased 25.7 percent, reflecting positive market conditions outside of North America with Europe showing the most improvement in these sales. International sales of industrial air filtration products and special applications products decreased 9.4 percent and 2.0 percent, respectively. Total international sales in the Engine Products segment were up 4.8 percent from the prior year. International sales of aftermarket products were flat while international sales of off-road and truck products increased from the prior year by 9.5 percent and 20.3 percent, respectively.

     The Company reported record net earnings for 2002 of $86.9 million compared to $75.5 million in 2001, an increase of 15.0 percent. Net earnings per share — diluted were $1.90, up 14.5 percent from $1.66 in the prior year. Despite a decrease in sales for the year, the Company achieved its 13th consecutive year of double-digit earnings growth. This was a result of the Company’s efforts in improving operating performance as well as improvements made to the Company’s manufacturing infrastructure, product costs and expenses. These efforts have resulted in more efficient operations across the Company. The Company’s operating income increased from the prior year by 10.5 percent. Operating income in the Engine Products segment showed significant growth from the prior year as it grew to over 50 percent of total operating income in the year from about 40 percent in the prior year. This growth reflects the efforts in improving operating efficiencies in the North American Engine business. Operating income in the Industrial Products segment grew slightly during the year. International operating income totaled 64.6 percent of consolidated operating income in 2002 as compared to 68.9 percent in 2001. Of the 2002 international operating income, Europe contributed 41.0 percent while Asia-Pacific contributed 55.1 percent. Total international operating income increased 3.5 percent from the prior year. In U.S. dollars, Europe’s operating income increased 14.6 percent from strong results throughout the Engine Products segment and gas turbine products within the Industrial Products segment. In U.S. dollars, Asia-Pacific’s operating income decreased by 3.2 percent due to continued weakness in the Japanese yen.

     Gross margin for 2002 increased to 31.0 percent compared to 30.1 percent in the prior year. Ongoing efforts to reduce product costs and improve the Company’s manufacturing infrastructure through plant rationalization drove margin improvements, more than offsetting continued strong pricing pressures from major customers.

     Operating expenses as a percentage of sales for 2002 and 2001 were 20.0 percent and 20.2 percent, respectively. Operating expenses in 2002 totaled $225.6 million compared to $229.6 million in 2001, a decrease of $4.0 million, or 1.7 percent. The decrease in operating expenses relative to the prior year reflects the Company’s expense reduction initiatives, implemented late in fiscal 2001, which reduced the number of contractors and temporary employees and managed discretionary spending levels.

     Interest expense decreased $5.1 million, or 43.7 percent, partially due to lower interest rates and lower short-term debt levels throughout most of the year. This decrease is also due to a decrease in interest expense ($1.2 million) on a portion of the Company’s long-term debt as a result of an interest rate swap agreement entered into in fiscal 2001. Other income, net totaled $1.7 million in 2002 compared to $4.4 million in the prior year. Components of other income for 2002 were as follows: interest income of $0.9 million, earnings from non-consolidated joint ventures of $4.2 million, $2.5 million of funding to the Donaldson Foundation, foreign exchange losses of $1.3 million resulting from the movement of cash into Europe to complete the Ultrafilter acquisition and other miscellaneous income and expense items netting to $0.4 million of miscellaneous income.

     The effective income tax rate of 27.0 percent in 2002 decreased from the 28.0 percent tax rate in 2001. The tax rate was adjusted in the second quarter of fiscal 2002 to reflect state tax savings from infrastructure improvements.

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     Total backlog was $307.6 million, down 13.4 percent from the same period in the prior year. In the Industrial Products segment, total backlog decreased 29.4 percent from the same period in the prior year, reflecting the projected downturn in the North American gas turbine market. In the Engine Products segment, total backlog increased 3.4 percent compared to the same period in the prior year, reflecting improvement in business conditions in the markets served. Hard order backlog, goods scheduled for delivery within 90 days, was $178.3 million, down 0.9 percent from $179.9 million in the prior year. In the Industrial Products segment, overall hard order backlog decreased 10.9 percent from the prior year. Within this segment, hard order backlog for gas turbine products and industrial air filtration products decreased 21.1 percent and 7.4 percent from the prior year, respectively. These decreases were somewhat offset by a strong increase in special application products of 34.3 percent. In the Engine Products segment, overall hard order backlog increased 8.7 percent from the prior year. Within this segment, truck products showed a solid increase of 22.9 percent from the prior year. Hard order backlog for aftermarket products decreased slightly at 0.3 percent, while off-road products posted an increase of 7.6 percent.

     The Company completed the acquisition of Ultrafilter for $68.3 million in cash on July 12, 2002. The acquisition is reflected in the Consolidated Balance Sheet as of July 31, 2002. Ultrafilter’s results of operations will be included in the Consolidated Financial Statements beginning with fiscal 2003 as the results in fiscal 2002 were not material to the Company as a whole. Ultrafilter designs and manufactures components, replacement parts and complete systems for the compressed air purification industry. Ultrafilter’s operations will be included in the Industrial Products segment.

Liquidity and Capital Resources

     Financial Condition At July 31, 2003, the Company’s capital structure was comprised of $14.8 million of current debt, $105.2 million of long-term debt and $447.4 million of shareholders’ equity. The Company had cash and cash equivalents of $67.1 million at July 31, 2003. The ratio of long-term debt to total capital was 19.0 percent and 21.5 percent at July 31, 2003 and 2002, respectively.

     Total debt outstanding decreased $45.5 million for the year to $120.0 million outstanding at July 31, 2003. The decrease is a result of a decrease in short-term borrowings outstanding at the end of the year by $46.2 million from the prior year. Offsetting the decrease in short-term borrowings was an increase in long-term debt of $0.7 million from the prior year. The increase in long-term debt is comprised of a $0.9 million increase relating to foreign exchange translation for long-term debt with the Company’s foreign entities as well as an addition of $0.7 million of debt in Ultrafilter. This increase was offset by a decrease in unsecured senior notes of $0.4 million as a result of the market value adjustment for the interest rate swap agreements and a decrease of $0.5 million in long-term debt for payments made during the year.

     In September 2002, the Company entered into a new three-year multi-currency revolving facility with a group of banks under which the Company may borrow up to $150.0 million. 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. This replaces a $100.0 million multi-currency revolving facility which was terminated upon execution of this facility. There was $5.0 million and $20.0 million outstanding at July 31, 2003 and July 31, 2002, respectively, leaving $145.0 million and $80.0 million available for further borrowing under such facilities at July 31, 2003 and July 31, 2002, respectively.

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     The following table summarizes the Company’s fixed cash obligations as of July 31, 2003 over various future years (in thousands):

		Payments Due by Period
Contractual Cash Obligations	Total	Less than 1 Year	2 – 3 Years	4 – 5 Years	After 5 Years
Long-term debt	$105,802	$646	$41,122	$40,261	$23,773
Short-term debt	14,152	14,152	—	—	—
Total	$119,954	$14,798	$41,122	$40,261	$23,773

     The Company also has two agreements under uncommitted credit facilities, which provide unsecured borrowings for general corporate purposes. At July 31, 2003 and 2002, there was $35.0 million and $45.0 million available for use under these facilities, respectively. There was $2.4 million and $15.5 million outstanding under these facilities at July 31, 2003 and 2002, respectively.

     Donaldson Coordination Center, b.v.b.a. has a 100 million euro program for issuing treasury notes for raising short, medium and long-term financing. At July 31, 2003, there were no amounts outstanding and at July 31, 2002, there was $3.1 million outstanding under the program.

     Also, at July 31, 2003 and 2002, the Company had outstanding standby letters of credit totaling $16.1 million and $14.8 million, respectively. 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, 2003 and 2002 there were no amounts drawn upon these letters of credit.

     The Company believes that the combination of present capital resources, internally generated funds, and unused financing sources is adequate to meet cash requirements for fiscal 2004.

     Shareholders’ equity increased $64.8 million in 2003 to $447.4 million. The increase was due to current year earnings of $95.3 million offset by $24.9 million of treasury stock repurchases, $15.3 million of dividend payments and a net decrease in accumulated other comprehensive loss of $7.4 million and $2.3 million of stock option and other miscellaneous stock activity. The decrease in accumulated other comprehensive loss consisted primarily of a foreign currency translation adjustment of $22.7 million offset by an additional minimum pension liability of $15.0 million.

     Cash Flows During fiscal 2003, $146.7 million of cash was generated from operating activities, compared with $153.0 million in 2002 and $82.8 million in 2001. Cash generated from operating activities in 2003 resulted primarily from a decrease in accounts receivable of $34.4 million, a decrease in inventory of $5.8 million offset by a decrease in accounts payable and other accrued expenses of $21.6 million during the year.

     In addition to cash generated from operating activities, the Company decreased its outstanding short-term debt by $54.3 million while net long-term debt increased by $1.1 million. Cash flow generated by operations was used primarily to support $47.7 million for capital expenditures, $24.9 million for stock repurchases and $15.3 million for dividend payments. Cash and cash equivalents increased $21.5 million during 2003.

     Capital expenditures for property, plant and equipment totaled $47.7 million in 2003, compared to $46.2 million in 2002. Capital expenditures net of proceeds for 2001 totaled $38.9 million in 2001. Capital expenditures primarily related to productivity enhancing investments at various plants worldwide and continuing upgrades to the U.S. information systems.

     Capital spending in 2004 is planned at $48.0 million. Significant planned expenditures include the further upgrade of U.S. information systems and investment in manufacturing equipment and tooling. It is anticipated that 2004 capital expenditures will be financed primarily by cash generated from operations and existing lines of credit.

     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 20.0 percent to 25.0 percent of the average earnings per share of the last three years. The current

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quarterly dividend of 9.5 cents per share equates to 20.1 percent of the average net earnings per share for 2001 through 2003.

     Share Repurchase Plan In fiscal 2003, the Company repurchased 0.7 million shares of common stock on the open market for $24.9 million under the share repurchase plan authorized in January 2003, at an average price of $35.02 per share. The Company repurchased 0.7 million shares for $21.3 million in 2002 and 0.5 million shares for $10.3 million in 2001.

     Environmental Matters The Company has established reserves for potential environmental liabilities and plans to continue to accrue reserves in appropriate amounts. While uncertainties exist with respect to the amounts and timing of the Company’s ultimate environmental liabilities, management believes that such liabilities, individually and in the aggregate, will not have a material adverse effect on the Company’s financial condition or results of operations.

     New Accounting Standards Effective August 1, 2002, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 143, “Accounting for Asset Retirement Obligations.” This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. As of July 31, 2003 the Company has a legal obligation for environmental remediation for its Ome City, Japan facility under the environmental laws and regulations of the city of Ome City, Japan. The Company has capitalized its obligation and recorded a corresponding liability for this environmental remediation under SFAS No. 143.

     Effective August 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The statement retains the previously existing accounting requirements related to the recognition and measurement of the impairment of long-lived assets to be held and used while expanding the measurement requirements of long-lived assets to be disposed of by sale to include discontinued operations. It also expands the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been disposed of or is classified as held for sale. The adoption of SFAS No. 144 did not have a material impact on the Company’s Consolidated Financial Statements.

     Effective August 1, 2002, the Company adopted SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” for exit and disposal activities initiated in fiscal 2003. SFAS No. 146 addresses recognition, measurement and reporting of costs associated with exit and disposal activities including restructuring. See Note B in the Notes to Consolidated Financial Statements for further discussion of exit and disposal activities relating to the Company’s plant closures.

     Effective November 1, 2002, the Company adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” which amends SFAS 123, “Accounting for Stock-Based Compensation.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. Additionally, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation under the fair value-based method. The Company elected to continue to use the intrinsic value method of accounting for stock-based employee compensation. See Note I in the Notes to Consolidated Financial Statements for disclosures related to stock-based employee compensation as required by SFAS No. 148.

     Effective January 1, 2003, the Company adopted Financial Accounting Standards Board Interpretation No. (FIN) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. See Note L in the Notes to Consolidated Financial Statements for disclosures related to guarantees as required by FIN 45.

     Effective February 1, 2003, the Company adopted FIN 46, “Consolidation of Variable Interest Entities — an Interpretation of Accounting Research Bulletin (ARB) No. 51.” FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to entities in

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which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company does not have any variable interests in variable interest entities as of July 31, 2003. The Company will apply the measurement provisions of FIN 46 to any variable interest in variable interest entities created in future periods.

     On May 15, 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement requires that three types of freestanding financial instruments be classified as liabilities: mandatorily redeemable shares; instruments that do or may require the issuer to buy back some of its shares in exchange for cash or assets; and obligations that can be settled with shares, the value of which is fixed, tied to a variable or varies inversely with the share price. The Statement is effective for all financial instruments modified or entered into after May 31, 2003 and otherwise effective for interim periods beginning after June 15, 2003. The Company will adopt the Statement as required during the first quarter of fiscal 2004, with no impact on the Consolidated Financial Statements expected.

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 anticipated foreign currency transactions. 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 2003, the U.S. dollar was generally weaker throughout the year relative to the currencies of the foreign countries in which the Company operates. The weaker dollar had a positive impact on the Company’s international net sales results because the foreign denominated revenues translated into more U.S. dollars.

     It is not possible to determine the true impact of foreign currency translation changes; however, the direct effect on net sales and net earnings can be estimated. For the year ended July 31, 2003, the impact of foreign currency translation resulted in an overall increase in net sales of $60.0 million and an increase in net earnings of $4.5 million. Foreign currency translation had a positive impact in Europe, where the weaker U.S. dollar relative to the euro and British pound sterling resulted in an increase of $51.0 million on net sales and an increase of $3.9 million on net earnings. The weaker U.S. dollar relative to the Japanese yen also had a positive impact on foreign currency translation with an increase in net sales of $4.1 million and an increase on net earnings of $0.2 million. The weaker U.S. dollar relative to the South African rand also had a positive impact on foreign currency translation with an increase in net sales of $3.0 million and an increase in net earnings of $0.2 million. In addition, the weaker U.S. dollar relative to the Australian dollar resulted in an increase of $2.7 million in net sales and an increase of $0.3 million on net earnings. Going forward, the Company is planning for local currency results to remain strong.

     The Company maintains significant assets and operations in Europe, countries of the Asia-Pacific Rim, 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 purchase products and parts in various currencies. As a result, 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, primarily in Canada. As a result, sales of such products are affected by the value of the U.S. dollar relative to other currencies. Any long-term

15

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 our short-term investments, short-term borrowings and interest rate swap agreement. We have no earnings or cash flow exposure due to market risks on our 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. At July 31, 2003, the fair value of the Company’s long-term debt approximates market. Market risk is estimated as the potential decrease in fair value resulting from a hypothetical one-half percent increase in interest rates and amounts to approximately $2.4 million.

     The Company has entered into two interest rate swap agreements, effectively converting a portion of the Company’s interest rate exposure from a fixed rate to a variable rate basis to hedge against the risk of higher borrowing costs in a declining interest rate environment. The Company does not enter into interest rate swap contracts for speculative or trading purposes. The differential to be paid or received on the interest rate swap agreement is accrued and recognized as an adjustment to interest expense as interest rates change. The interest rate swap agreement entered into on June 6, 2001 has an aggregate notional amount of $27.0 million maturing on July 15, 2008. The interest rate swap agreement entered into on March 18, 2003 has an aggregate notional amount of $25.0 million maturing on August 15, 2010. The variable rate on both of the swaps is based on the current six-month London Interbank Offered Rates (“LIBOR”). As of July 31, 2003, the interest rate swaps had a fair value of $1.3 million, which is recorded net of the underlying debt in the liabilities section of the balance sheet.

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 adhere to generally accepted accounting principles and are 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 are the most important to aid in fully understanding its financial results are the following:

     Allowance for doubtful accounts — Allowances for doubtful accounts are estimated by management based on evaluation of potential losses related to customer receivable balances. Estimates are developed by using standard quantitative measures based on historical losses, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for risk of loss. 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.

     Inventory — The Company’s inventories are valued at the lower of cost or market. Reserves for shrink and obsolescence are estimated using standard quantitative measures based on historical losses, including issues related to specific inventory items. 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.

     Product warranty — The Company estimates warranty costs using standard quantitative measures based on historical warranty claim experience and, in some cases, evaluating specific customer warranty issues. The establishment of reserves requires the use of judgment and assumptions regarding the

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potential for losses relating to warranty issues. Though management considers these balances adequate and proper, changes in the future could impact these determinations.

     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 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 ongoing audits regarding federal, state and international issues 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.

     Employee Benefit Plans — The Company incurs expenses relating to employee benefits such as noncontributory 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 when determining these estimates. The Company uses third-party specialists to assist management in the determination of these estimates and the calculation of certain employee benefit expenses.

Forward-Looking Statements

     The Company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and is making this cautionary statement in connection with such safe harbor legislation. This Annual Report to Shareholders, any Form 10-K, Form 10-Q, Form 8-K, earnings releases or other press releases of the Company or any other written or oral statements made by or on behalf of the Company may include forward-looking statements which reflect the Company’s current views with respect to future events and financial performance. The words “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “plan,” “project,” “should” and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All forecasts and projections in this Annual Report are “forward-looking statements,” and are based on management’s current expectations of the Company’s near-term results, based on current information available to the Company.

     The Company wishes to caution investors that any forward-looking statements made by or on behalf of the Company are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other risk factors include, but are not limited to: risks associated with currency fluctuations, commodity prices, world economic factors, political factors, the Company’s substantial international operations including key disk drive filter production facilities in China, highly competitive markets, changes in product demand and changes in the geographic and product mix of sales, acquisition opportunities and integration of recent acquisitions, including the acquisition of Ultrafilter, facility and product line rationalization, research and development expenditures, including ongoing information technology improvements, and governmental laws and regulations, including diesel emissions controls. For a more detailed explanation of the foregoing and other risks, see Exhibit 99, to this Form 10-K filed with the Securities and Exchange Commission. The Company wishes to caution investors that other factors may in the future prove to be important in affecting the Company’s results of operations. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on

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the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

     Investors are further cautioned not to place undue reliance on such forward-looking statements as they speak only to the Company’s views as of the date the statement is made. 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 as discussed under “Market Risk” and “Foreign Currency” appears in Management’s Discussion and Analysis on page 15.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Statements of Earnings
Donaldson Company, Inc. and Subsidiaries

	Year Ended July 31,
	2003			2002			2001
	(Thousands of dollars, except share amounts)
Net sales	$	1,218,252		$	1,126,005		$	1,137,015
Cost of sales		827,101			776,513			795,281
Gross margin		391,151			349,492			341,734
Selling, general and administrative		228,930			197,492			201,201
Research and development		30,456			28,150			28,425
Operating income		131,765			123,850			112,108
Interest expense		5,889			6,531			11,608
Other (income) expense, net		(4,691	)		(1,699	)		(4,428	)
Earnings before income taxes		130,567			119,018			104,928
Income taxes		35,253			32,135			29,380
Net earnings	$	95,314		$	86,883		$	75,548
Weighted average shares -- basic		43,495,338			44,158,074			44,381,082
Weighted average shares -- diluted		45,234,983			45,714,409			45,612,165
Net earnings per share -- basic	$	2.19		$	1.97		$	1.70
Net earnings per share -- diluted	$	2.11		$	1.90		$	1.66

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

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Consolidated Balance Sheets
Donaldson Company, Inc. and Subsidiaries

	At July 31,
	2003			2002
	(Thousands of dollars, except share amounts)
Assets
Current assets
Cash and cash equivalents	$	67,070		$	45,586
Accounts receivable, less allowance of $5,836 and $6,620		226,815			251,417
Inventories
Raw materials		45,088			49,162
Work in process		12,374			16,796
Finished products		57,428			51,733
Total inventories		114,890			117,691
Deferred income taxes		16,917			18,417
Prepaids and other current assets		29,013			23,373
Total current assets		454,705			456,484
Property, plant and equipment, at cost
Land		13,195			13,479
Buildings		127,532			134,230
Machinery and equipment		405,895			375,275
Construction in progress		26,400			29,240
Property, plant and equipment held for sale		7,349			500
		580,371			552,724
Less accumulated depreciation		(324,935	)		(311,811	)
Net property, plant and equipment		255,436			240,913
Goodwill		92,143			86,428
Intangible assets		17,188			17,253
Other assets		62,525			49,053
Total assets	$	881,997		$	850,131
Liabilities and shareholders' equity
Current liabilities
Short-term borrowings	$	14,152		$	60,337
Current maturities of long-term debt		646			520
Trade accounts payable		122,759			115,299
Accrued employee compensation and related taxes		33,013			31,171
Accrued liabilities		23,597			31,542
Other current liabilities		19,909			34,384
Total current liabilities		214,076			273,253
Long-term debt		105,156			104,556
Deferred income taxes		21,316			13,376
Other long-term liabilities		94,056			76,325
Commitments and contingencies (Note L)
Shareholders' equity
Preferred stock, $1.00 par value, 1,000,000 shares
authorized, none issued		—			—
Common stock, $5.00 par value, 80,000,000 shares
authorized, 49,655,954 shares issued in 2003 and 2002		248,280			248,280
Retained earnings		351,769			274,395
Accumulated other comprehensive loss		(6,888	)		(14,296	)
Treasury stock -- 6,237,469 and 5,741,417 shares in 2003
and 2002, at cost		(145,768	)		(125,758	)
Total shareholders' equity		447,393			382,621
Total liabilities and shareholders' equity	$	881,997		$	850,131

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

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

	Year Ended July 31,
	2003			2002			2001
	(Thousands of dollars)
Operating Activities
Net earnings	$	95,314		$	86,883		$	75,548
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation and amortization		37,557			31,751			38,577
Equity in (earnings) loss of affiliates		(515	)		82			(635	)
Deferred income taxes		637			(5,266	)		7,093
Other		(1,571	)		(4,250	)		(12,949	)
Changes in operating assets and liabilities,
net of acquired businesses
Accounts receivable		34,374			8,053			(35,220	)
Inventories		5,795			13,608			2,816
Prepaids and other current assets		(3,300	)		(2,979	)		2,838
Trade accounts payable and other
accrued expenses		(21,573	)		25,153			4,731
Net cash provided by
operating activities		146,718			153,035			82,799
Investing Activities
Purchases of property, plant and equipment		(47,748	)		(46,156	)		(38,924	)
Proceeds from sale of property,
plant, and equipment		14,455			5,627			--
Acquisitions and investments in affiliates		(1,577	)		(68,349	)		--
Net cash used in investing activities		(34,870	)		(108,878	)		(38,924	)
Financing Activities
Proceeds from long-term debt		1,564			107			9,462
Repayments of long-term debt		(502	)		(23	)		(1,136	)
Change in short-term borrowings		(54,251	)		2,961			(24,417	)
Purchase of treasury stock		(24,874	)		(21,271	)		(10,297	)
Dividends paid		(15,263	)		(13,713	)		(13,092	)
Exercise of stock options		1,083			1,426			525
Net cash (used in) provided by
financing activities		(92,243	)		(30,513	)		(38,955	)
Effect of exchange rate changes on cash		1,879			(4,194	)		(801	)
Increase (decrease) in cash
and cash equivalents		21,484			9,450			4,119
Cash and cash equivalents, beginning of year		45,586			36,136			32,017
Cash and cash equivalents, end of year	$	67,070		$	45,586		$	36,136

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

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

	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Treasury Stock	Total
	(Thousands of dollars, except per share amounts)
Balance July 31, 2000	$248,280	$ 2,967	$142,176	$ (10,523)	$ (102,735)	$280,165
Comprehensive income
Net earnings			75,548			75,548
Foreign currency translation				(13,717)		(13,717)
Additional minimum pension liability				(341)		(341)
Net gain on cash flow hedging derivatives				346		346
Comprehensive income						61,836
Treasury stock acquired					(10,297)	(10,297)
Stock options exercised		(6,196)	(1,124)		4,262	(3,058)
Performance awards			(9)		319	310
Tax reduction — employee plans		3,229				3,229
Cash dividends ($.295 per share)			(13,092)			(13,092)
Balance July 31, 2001	248,280	—	203,499	(24,235)	(108,451)	319,093
Comprehensive income
Net earnings			86,883			86,883
Foreign currency translation				13,515		13,515
Additional minimum pension liability				(3,256)		(3,256)
Net loss on cash flow hedging derivatives				(320)		(320)
Comprehensive income						96,822
Treasury stock acquired					(21,271)	(21,271)
Stock options exercised		(3,023)	(2,329)		3,749	(1,603)
Performance awards			55		215	270
Tax reduction — employee plans		3,023				3,023
Cash dividends ($.31 per share)			(13,713)			(13,713)
Balance July 31, 2002	248,280	—	274,395	(14,296)	(125,758)	382,621
Comprehensive income
Net earnings			95,314			95,314
Foreign currency translation				22,660		22,660
Additional minimum pension liability				(14,953)		(14,953)
Net loss on cash flow hedging derivatives				(299)		(299)
Comprehensive income						102,722
Treasury stock acquired					(24,874)	(24,874)
Stock options exercised		(3,760)	(2,766)		4,587	(1,939)
Performance awards			89		277	366
Tax reduction — employee plans		3,760				3,760
Cash dividends ($.35 per share)			(15,263)			(15,263)
Balance July 31, 2003	$248,280	$            —	$351,769	$(6,888)	$ (145,768)	$447,393

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

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

NOTE A
Summary of Significant Accounting Policies

     Description of Business Donaldson Company, Inc., is a leading worldwide manufacturer of filtration systems and replacement parts. The Company’s product mix includes air and liquid filters and exhaust and emission control products for mobile equipment; in-plant air cleaning systems; compressed air purification systems; air intake systems for industrial gas turbines; and specialized filters for such diverse applications as computer disk drives, aircraft passenger cabins and semi-conductor processing. Products are manufactured at more than thirty Donaldson plants around the world and through three joint ventures. Products are sold to original equipment manufacturers (OEMs) and directly to end users.

     Principles of Consolidation The Consolidated Financial Statements include the accounts of Donaldson Company, Inc. and all majority-owned subsidiaries (the Company). 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. Certain amounts in prior periods have been reclassified to conform to the current presentation. The reclassifications had no impact on the Company’s net earnings or shareholders’ equity as previously reported.

     Use of Estimates The preparation of Financial Statements in conformity with generally accepted accounting principles 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 most foreign operations, local currencies are considered the functional currency. Assets and liabilities are translated using the exchange rates in effect at the balance sheet date. Results of operations are translated using the average exchange rates prevailing throughout the period. Translation gains or losses, net of applicable deferred taxes, are accumulated in the foreign currency translation adjustment in accumulated other comprehensive income (loss) in shareholders’ equity. Foreign currency transaction losses of $0.1 million in 2003 and $1.3 million in 2002 are included in earnings before income taxes. Foreign currency transaction gains or losses in 2001 were not material.

     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 which approximates market value.

     Inventories Inventories are stated at the lower of cost or market. Domestic 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 35 percent and 41 percent of total inventories at July 31, 2003 and 2002, respectively. For inventories valued under the LIFO method, the FIFO cost exceeded the LIFO carrying values by $22.2 million and $20.8 million at July 31, 2003 and 2002, respectively. Results of operations for all periods presented were not materially affected by any liquidation of LIFO inventory.

     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 primarily under the straight-line method, except for property acquired prior to July 31, 1992 for which depreciation is computed using the declining balance method. Depreciation expense was $36.3 million in 2003 and $31.7 million in 2002 and 2001. The cost and related accumulated depreciation of assets sold or disposed of are removed from the accounts and the resulting gain or loss, if any, is recognized.

     The estimated useful lives of property, plant and equipment are as follows:

Buildings	10 to 40 years
Machinery and equipment	3 to 10 years

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     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 three 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. Beginning in fiscal 2002, the Company no longer amortizes goodwill in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets.” See Note C for pro forma effects of adopting this standard. Other intangible assets are recorded at cost and are amortized on a straight-line basis over their estimated useful lives of typically 20 years. The Company tests goodwill and intangible assets for impairment on an annual basis or whenever there is an impairment indicator. Goodwill is tested for impairment using a fair-value based approach.

     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 and any related goodwill, the carrying value is reduced to the estimated fair value as measured by the undiscounted cash flows.

     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.

     Comprehensive Income Comprehensive income consists of net income, foreign currency translation adjustments, additional minimum pension liability and net gain or loss on cash flow hedging derivatives, and is presented in the Consolidated Statements of Changes in Shareholders’ Equity.

     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.

     The following table presents information necessary to calculate basic and diluted earnings per share:

	2003	2002	2001
	(Thousands of dollars)
Weighted average shares — basic	43,495	44,158	44,381
Dilutive shares	1,740	1,556	1,231
Weighted average shares — diluted	45,235	45,714	45,612
Net earnings for basic and diluted earnings    per share computation	$ 95,314	$ 86,883	$ 75,548
Net earnings per share — basic	$     2.19	$     1.97	$     1.70
Net earnings per share — diluted	$     2.11	$     1.90	$     1.66

     Treasury Stock Repurchased common stock is stated at cost and is presented as a separate reduction of shareholders’ equity.

     Research and Development All expenditures for research and development are charged against earnings in the year incurred.

     Stock-Based Compensation The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. This method defines compensation cost for stock options as the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company’s stock option plans

23

require the employee’s payment be the market value of the Company’s stock on the date of grant. Compensation cost for performance equity units is recorded based on the quoted market price of the Company’s stock at the end of the period.

     Revenue Recognition Revenue is recognized when product is shipped and title to the goods transfers to customers. The Company records estimated discounts and rebates as a reduction of sales in the same period revenue is recognized. Shipping and handling costs are classified as a component of cost of sales.

     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, in some cases, evaluating specific customer warranty issues.

     Derivative Instruments and Hedging Activities In fiscal 2001, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137 and SFAS No. 138. 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. The impact of the adoption of SFAS No. 133 was not considered material to the Company.

     New Accounting Standards Effective August 1, 2002, the Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. As of July 31, 2003 the Company has a legal obligation for environmental remediation for its Ome City, Japan facility under the environmental laws and regulations of the city of Ome City, Japan. The Company has capitalized its obligation and recorded a corresponding liability for this environmental remediation under SFAS No. 143.

     Effective August 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The statement retains the previously existing accounting requirements related to the recognition and measurement of the impairment of long-lived assets to be held and used while expanding the measurement requirements of long-lived assets to be disposed of by sale to include discontinued operations. It also expands the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been disposed of or is classified as held for sale. The adoption of SFAS No. 144 did not have a material impact on the Company’s Consolidated Financial Statements.

     Effective August 1, 2002, the Company adopted SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” for exit and disposal activities initiated in fiscal 2003. SFAS No. 146 addresses recognition, measurement and reporting of costs associated with exit and disposal activities including restructuring. See Note B in the Notes to Consolidated Financial Statements for further discussion of exit and disposal activities relating to the Company’s plant closures.

     Effective November 1, 2002, the Company adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” which amends SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. Additionally, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation under the fair value-based method. The Company elected to continue to use the intrinsic value method of accounting for stock-based employee compensation. See Note I in the Notes to Consolidated Financial Statements for disclosures related to stock-based employee compensation as required by SFAS No. 148.

     Effective January 1, 2003, the Company adopted Financial Accounting Standards Board Interpretation No. (FIN) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect

24

Guarantees of Indebtedness of Others.” FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. See Note L in the Notes to Consolidated Financial Statements for disclosures related to guarantees as required by FIN 45.

     Effective February 1, 2003, the Company adopted FIN 46, “Consolidation of Variable Interest Entities — an Interpretation of Accounting Research Bulletin (ARB) No. 51.” FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company does not have any variable interests in variable interest entities as of July 31, 2003. The Company will apply the measurement provisions of FIN 46 to any variable interest in variable interest entities created in future periods.

     On May 15, 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement requires that three types of freestanding financial instruments be classified as liabilities: mandatorily redeemable shares; instruments that do or may require the issuer to buy back some of its shares in exchange for cash or assets; and obligations that can be settled with shares, the value of which is fixed, tied to a variable or varies inversely with the share price. The Statement is effective for all financial instruments modified or entered into after May 31, 2003 and otherwise effective for interim periods beginning after June 15, 2003. The Company will adopt the Statement as required during the first quarter of fiscal 2004, with no impact on the Consolidated Financial Statements expected.

NOTE B
Acquisitions and Plant Closures

     Acquisitions All acquisitions are accounted for as purchases. The purchase price assigned to the net assets acquired is based on the fair value of such assets and liabilities at the respective acquisition dates.

     The Company completed the purchase of all of the outstanding shares of Ultrafilter for $68.3 million in cash on July 12, 2002. Ultrafilter is headquartered in Haan, Germany, with operations in 30 countries. Ultrafilter designs and manufactures components, replacement parts and complete systems for the compressed air purification industry. Its products include compressed air filters and a wide assortment of replacement filters, a complete offering of refrigeration and desiccant dryers and condensate management devices. The acquisition of Ultrafilter satisfies the Company’s diversification strategy by expanding the Company’s presence in industrial markets, focuses on replacement parts and expands revenues outside of the United States. Ultrafilter’s operations are a part of the Company’s Industrial Products segment.

     The financial results of Ultrafilter are included in the Company’s consolidated results for fiscal 2003. Additional revenue of $11.5 million was recorded as a result of conforming the year end of Ultrafilter to the Company’s year end. The company has finalized its purchase price allocation, including a contractual net asset adjustment of $0.3 million and a contingent payment in the amount of $0.4 million, resulting in an excess of purchase price over the fair values of the net assets acquired of $32.6 million. Adjustments to the initial allocation consisted of adjustments for reappraisal of assets acquired. Restructuring liabilities recorded in conjunction with the acquisition of $1.2 million were recorded as of July 31, 2002 for costs associated with the termination and relocation of employees. Costs incurred and charged to this reserve amounted to $1.1 million for fiscal year ended July 31, 2003, resulting in a remaining balance of $0.1 million as of July 31, 2003, which is expected to be paid in fiscal 2004.

25

     Following is a condensed balance sheet disclosing the final purchase price allocation of Ultrafilter based on estimated fair values of the assets acquired and liabilities assumed.

	(Thousands of dollars)
Accounts receivable	$  21,956
Net inventory	14,359
Other current assets	3,294
Property, plant and equipment	20,621
Goodwill	32,609
Other non-current assets	18,537
Total assets acquired	111,376
Current liabilities	(27,770)
Long-term debt	(3,535)
Other long-term liabilities	(11,076)
Total liabilities assumed	(42,381)
Net assets acquired	$  68,995

     Other non-current assets include other intangible assets such as patents and trademarks and deferred tax assets. Other long-term liabilities include deferred tax liabilities and other miscellaneous long-term liabilities.

     The following unaudited pro forma financial information reflects the consolidated results of the Company and Ultrafilter assuming the acquisition had occurred at the beginning of 2001. These unaudited pro forma results include estimated adjustments to operating results from purchase accounting adjustments had the acquisition occurred at the beginning of 2001 such as adjustments to depreciation expense and amortization expense of intangible assets acquired.

	2003	2002	2001
Net sales	$1,218,252	$1,217,282	$1,229,704
Net earnings	95,314	86,265	77,063
Earnings per share — diluted	2.11	1.89	1.69

     These unaudited pro forma results are presented for information purposes only. The results are not necessarily indicative of results that would have occurred had the acquisition been completed at the beginning of 2001, nor are they necessarily indicative of future operating results, or of the benefits of synergies resulting from the acquisition.

     On November 1, 2002, the Company finalized the acquisition of the remaining 50 percent of the Company’s joint venture, MSCA, LCC located in Monticello, Indiana, for $1.7 million in cash, which includes $0.4 million of cash acquired. The financial results for MSCA are included in the Company’s consolidated results from July 2002, the contractual date of acquisition. Pro forma information is not presented due to the immateriality of the operating results of MSCA.

     On May 30, 2003, the Company acquired the assets of EPE Industrial Filters, Inc., located in Barrington, Illinois, for $0.3 million in cash. The financial results for EPE are included in the Company’s consolidated results from the date of the acquisition. Pro forma information is not presented due to the immateriality of the operating results of EPE.

     Plant Closures During fiscal 2003, the Company made the decision to transfer its gas turbine product production in Baldwin, Wisconsin, to Monterrey, Mexico, resulting in the closure of one of its manufacturing facilities in Baldwin. The closure of this facility was completed by the end of fiscal 2003, with a pretax charge of $0.6 million recorded in fiscal 2003 in cost of sales in the Company’s Consolidated Statement of Earnings. This charge was primarily related to severance and other employee-related costs associated with the elimination of approximately 75 positions. Additionally, the Company closed its manufacturing facility located in Port Huron, Michigan moving production to its facility in Auburn, Alabama. The closure of this facility was completed by the end of fiscal 2003, with a pretax charge of $0.2 million recorded in fiscal 2003 in cost of sales in the Company’s Consolidated Statement of Earnings. This charge was primarily related to severance and other employee-related costs

26

associated with the elimination of approximately 51 positions. Internationally, the Company made the decision to close its manufacturing facility in Ome City, Japan, moving production to its facility in Gunma, Japan. The majority of this move was completed by the end of fiscal 2003, with a pretax charge of $2.7 million recorded in fiscal 2003 the majority of which was recorded in cost of sales in the Company’s Consolidated Statement of Earnings. This charge was primarily related to severance and other employee-related costs associated with the elimination of approximately 51 positions. Remaining costs associated with the Company’s current restructuring plans are expected to be paid in the first half of fiscal 2004. In July 2003, the Company closed on the sale of the land and building in Ome City, Japan. The Company has received full payment of the purchase price of $10.8 million in fiscal 2003 and expects to report a gain on the sale estimated between $3.5 million and $4.5 million, net of income tax, in the first half of fiscal 2004, subject to the completion of environmental remediation of the site, which is a condition of the sale.

     During fiscal 2002, the Company closed its manufacturing facility located in Old Saybrook, Connecticut. The closure of this facility was completed by the end of fiscal 2002, with a pretax charge of $0.2 million recorded in fiscal 2002 in cost of sales in the Company’s Consolidated Statement of Earnings. This charge was primarily related to severance and other employee-related costs associated with the elimination of approximately 30 positions. Additionally, the Company closed its manufacturing facility located in Guilin, China. The closure of this facility was completed by the end of fiscal 2002, with a pretax charge of $0.2 million recorded in fiscal 2002 in cost of sales in the Company’s Consolidated Statement of Earnings. The charge was primarily related to severance and other employee-related costs associated with the elimination of approximately 44 positions.

     During fiscal 2001, the Company closed its manufacturing facility located in Mooresville, North Carolina. The closure of this facility was completed by the end of fiscal 2001, with a pretax charge of $0.7 million recorded in fiscal 2001 in cost of sales in the Company’s Consolidated Statements of Earnings. This charge was primarily related to severance and other employee-related costs associated with the elimination of approximately 130 positions. Additionally, the Company closed its manufacturing facility located in Louisville, Kentucky, which was acquired as part of the DCE dust control business of Invensys, plc. The closure of this facility was completed by the end of fiscal 2001. Costs were charged against the purchase liabilities recorded in conjunction with the acquisition of DCE dust control business of Invensys, plc in fiscal 2000. This charge was primarily related to severance and other employee-related costs associated with the elimination of approximately 80 positions.

     A pretax charge relating to the Company’s plant rationalization including the above plant closures of $6.5 million and $3.1 million was recorded in the Company’s Consolidated Statement of Earnings for the years ended July 31, 2003 and 2002, respectively. Of these charges, $5.3 million and $2.2  million were recorded as period costs for the years ended July 31, 2003 and 2002, respectively. The remaining charges were primarily related to severence and other employee-related costs and were reserved in accordance with SFAS No. 146 and EITF 94-3 “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.” The following table summarizes the restructuring reserve activity for the Company’s plant rationalization for the years ended July 31, 2003 and 2002.

	(Thousands of dollars)
Balance as of August 1, 2001	$         —
Additions to reserve	1,836
Charges to reserve	(216)
Reversal of reserve	(884)
Balance as of July 31, 2002	736
Additions to reserve	1,211
Charges to reserve	(959)
Reversal of reserve	—
Balance as of July 31, 2003	$      988

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NOTE C
Goodwill and Other Intangible Assets

     The Company adopted SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets,” in fiscal 2002. In accordance with these statements, the Company ceased amortizing goodwill effective August 1, 2001. Goodwill amortization expense was $2.7 million, net of income taxes, for fiscal 2001. The Company estimates that goodwill amortization expense would have been approximately $3.2 million and $2.6 million, net of income taxes, for fiscal 2003 and 2002, respectively.

     The following table presents a reconciliation of net income and earnings per share adjusted for the exclusion of goodwill, net of income taxes:

	2003	2002	2001
	(Thousands of dollars)
Reported net income	$ 95,314	$ 86,883	$ 75,548
Add goodwill amortization, net of tax	—	—	2,722
Adjusted net income	$95,314	$86,883	$78,270
Basic earnings per share:
Reported basic earnings per share	$    2.19	$    1.97	$    1.70
Add goodwill amortization, net of tax	—	—	.06
Adjusted basic earnings per share	$    2.19	$    1.97	$    1.76
Diluted earnings per share:
Reported diluted earnings per share	$    2.11	$    1.90	$    1.66
Add goodwill amortization, net of tax	—	—	.06
Adjusted diluted earnings per share	$    2.11	$    1.90	$    1.72

     The Company has allocated goodwill to its Industrial Products and Engine Products segments. Following is a reconciliation of goodwill for the years ending July 31, 2003 and 2002:

	Industrial Products	Engine Products	Total Goodwill
	(Thousands of dollars)
Balance as of August 1, 2001	$33,373	$24,079	$57,452
Goodwill acquired	28,082	—	28,082
Purchase accounting adjustments	(547)	(166)	(713)
Foreign exchange translation	1,487	120	1,607
Balance as of July 31, 2002	62,395	24,033	86,428
Goodwill acquired	50	—	50
Purchase accounting adjustments	4,527	—	4,527
Foreign exchange translation	738	400	1,138
Balance as of July 31, 2003	$67,710	$24,433	$92,143

     The Company completed its annual impairment tests in the third quarter of fiscal 2003 and 2002, with no indications of impairment of goodwill found.

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     Intangible assets are comprised primarily of patents and trademarks. Following is a reconciliation of intangible assets for the years ending July 31, 2003, 2002 and 2001:

	Gross Carrying Amount	Accumulated Amortization	Net Intangible Assets
	(Thousands of dollars)
Balance as of August 1, 2000	396	(32)	364
Intangibles acquired	—	—	—
Amortization expense	—	(24)	(24)
Foreign exchange translation	(10)	5	(5)
Balance as of July 31, 2001	386	(51)	335
Intangibles acquired	16,970	—	16,970
Amortization expense	—	(51)	(51)
Foreign exchange translation	(10)	9	(1)
Balance as of July 31, 2002	17,346	(93)	17,253
Intangibles acquired	—	—	—
Amortization expense	—	(1,217)	(1,217)
Foreign exchange translation	1,167	(15)	1,152
Balance as of July 31, 2003	18,513	(1,325)	17,188

     Amortization expense of intangible assets is expected to be approximately $1.2 million for each of the years ending July 31, 2004, 2005, 2006, 2007 and 2008, respectively.

NOTE D
Credit Facilities

     In September 2002, the Company entered into a new three-year multi-currency revolving facility with a group of banks under which the Company may borrow up to $150.0 million. 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. This replaces a $100.0 million multi-currency revolving facility which was terminated upon execution of this facility. There was $5.0 million and $20.0 million outstanding at July 31, 2003 and July 31, 2002, respectively, leaving $145.0 million and $80.0 million available for further borrowing under such facilities at July 31, 2003 and July 31, 2002, respectively. The weighted average interest rate on these short-term borrowings outstanding at July 31, 2003 and 2002 was 1.38 percent and 2.00 percent, respectively.

     The Company also has two agreements under uncommitted credit facilities, which provide unsecured borrowings for general corporate purposes. At July 31, 2003 and 2002, there was $35.0 million and $45.0 million available for use under these facilities, respectively. There was $2.4 million and $15.5 million outstanding under these facilities at July 31, 2003 and 2002, respectively. The weighted average interest rate on these short-term borrowings outstanding at July 31, 2003 and 2002 was 1.36 percent and 2.05 percent, respectively.

     Donaldson Coordination Center, b.v.b.a. has a 100 million euro program for issuing treasury notes for raising short, medium and long-term financing. At July 31, 2003, there were no amounts outstanding and at July 31, 2002, there was $3.1 million outstanding under the program. The weighted average interest rate on these borrowings outstanding at July 31, 2002 was 3.63 percent.

     Other international subsidiaries may borrow under various credit facilities. As of July 31, 2003 and 2002, borrowings under these facilities were $6.8 million and $21.7 million, respectively. The weighted average interest rate on these international borrowings outstanding at July 31, 2003 and 2002 was 1.72 percent and 3.17 percent, respectively.

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     As discussed further in Note L, at July 31, 2003 and 2002, the Company had outstanding standby letters of credit totaling $16.1 million and $14.8 million, respectively, upon which no amounts have been drawn.

NOTE E
Long-Term Debt

     Long-term debt consists of the following:

	2003	2002
	(Thousands of dollars)
6.20% Unsecured senior notes due July 15, 2005,    interest payable semi-annually, principal    payment of $23.0 million is due July 15, 2005	$ 23,000	$ 23,000
6.31% Unsecured senior notes due July 15, 2008,    interest payable semi-annually, principal    payment of $28.9 million is due July 15, 2008	28,938	28,640
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	24,349	25,000
1.9475% Guaranteed senior note due    January 29, 2005, interest payable    semi-annually, principal amount of    1.2 billion yen is due January 29, 2005	9,974	9,996
1.51% Guaranteed note due March 28, 2006,    interest payable quarterly, principal amount    of .8 billion yen is due March 28, 2006	6,649	6,664
Variable Rate Industrial Development Revenue    Bonds (“Lower Floaters”) due September 1, 2024,    principal amount of $8.0 million, interest    payable monthly, and an interest rate of 1.0%    as of July 31, 2003	8,000	8,000
Capitalized lease obligations, with various maturity    dates and interest rates	3,766	3,546
Other	1,126	230
Total	105,802	105,076
Less current maturities	646	520
Total long-term debt	$105,156	$104,556

     Annual maturities of long-term debt are $0.6 million in 2004, $33.8 million in 2005, $7.3 million in 2006, $5.7 million in 2007, $34.6 million in 2008 and $23.8 million thereafter. The Company estimates that the carrying value of long-term debt approximates its fair market value.

     The Company has entered into two interest rate swap agreements, effectively converting a portion of the Company’s interest rate exposure from a fixed rate to a variable rate basis to hedge against the risk of higher borrowing costs in a declining interest rate environment. The Company does not enter into interest rate swap contracts for speculative or trading purposes. The differential to be paid or received on the interest rate swap agreement is accrued and recognized as an adjustment to interest expense as interest rates change. The interest rate swap agreement entered into on June 6, 2001 has an aggregate notional amount of $27.0 million maturing on July 15, 2008. The interest rate swap agreement entered into on March 18, 2003 has an aggregate notional amount of $25.0 million maturing on August 15, 2010. The variable rate on both of the swaps is based on the current six-month London Interbank Offered Rates (“LIBOR”). As of July 31, 2003, the interest rate swaps had a fair value of $1.3 million, which is recorded as an addition to the underlying debt in the liabilities section of the balance sheet.

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     Total interest paid relating to all debt was $5.5 million, $6.1 million and $11.1 million in 2003, 2002 and 2001, respectively. In addition, total interest expense recorded in 2003, 2002 and 2001 was $5.9 million, $6.5 million and $11.6 million, respectively.

     Certain note agreements contain debt covenants related to working capital levels and limitations on indebtedness. Further, the Company is restricted from paying dividends or repurchasing common stock if its tangible net worth (as defined) does not exceed certain minimum levels. As of July 31, 2003, the Company was in compliance with all such covenants.

NOTE F
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 losses.

     Each derivative transaction the Company enters into is designated at inception as a hedge and is expected to be highly effective as the critical terms of these instruments are the same as those of the underlying risks being hedged. The Company evaluates hedge effectiveness at inception and on an ongoing basis. When a derivative is no longer expected to be highly effective, hedge accounting is discontinued. Hedge ineffectiveness, if any, is recorded in earnings on the same line as the underlying transaction risk.

     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 has entered into two fixed to variable interest rate swaps. These interest rate swaps are accounted for as a fair value hedge. The fair value of these swaps is recorded net of the underlying outstanding debt. Changes in the payment of interest resulting from the interest rate swaps are recorded as an offset to interest expense. Effectiveness is assessed based on changes in the fair value of the underlying debt, using incremental borrowing rates currently available on loans with similar terms and maturities. See Note E for further discussion of the interest rate swaps.

     The Company enters into forward exchange contracts of generally less than one year to hedge forecasted transactions with its foreign subsidiaries, to reduce potential exposure related to fluctuations in foreign exchange rates for anticipated intercompany transactions such as purchases, sales and royalty payments denominated in local currencies. Forward exchange contracts designated as cash flow hedges are designed to hedge the variability of cash flows associated with the underlying 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 and is included in other income or expense. Effectiveness is assessed based on changes in forward rates. Ineffective portions of the hedges are recorded in earnings through the same line as the underlying transaction.

     Net unrealized losses of $0.3 million from cash flow hedges were recorded in Accumulated Other Comprehensive Income as of July 31, 2003. These unrealized losses will be reclassified, as appropriate, into earnings during the next 12 months.

     Fair Value of Financial Instruments At July 31, 2003 and 2002, 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. The Company estimates that the carrying value of long-term debt approximates it fair market value.

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     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. The Company actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as counterparties. The Company has not had any historical instances of nonperformance by any counterparties, nor does it anticipate any future instances of non-performance.

NOTE G
Employee Benefit Plans

     Pension Plans Donaldson Company, Inc. and certain of its subsidiaries have defined benefit pension plans for substantially all hourly and salaried employees. The domestic plans provide defined benefits pursuant to a cash balance feature whereby a participant accumulates a benefit comprised of a percentage of current salary which 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.

     The Company’s general funding policy is to make contributions as required by applicable regulations. The assets are primarily invested in diversified equity and debt portfolios and are managed by independent trustees. The Company’s actuarial valuation date is April 30.

     Costs for the Company’s pension plans include the following components:

	2003	2002	2001
	(Thousands of dollars)
Net periodic cost:
Service cost	$ 11,101	$ 10,351	$ 6,935
Interest cost	12,815	11,850	11,626
Expected return on assets	(15,341)	(14,415)	(12,862)
Transition amount on amortization	168	75	173
Prior service cost amortization	194	158	119
Actuarial (gain) loss amortization	(2,139)	(77)	(829)
Curtailment loss	1,206	—	—
Settlement loss	360	—	—
Net periodic benefit cost	$ 8,364	$ 7,942	$ 5,162

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     The funded status of the Company’s pension plans as of April 30, 2003 and April 30, 2002, is as follows:

	2003			2002
	(Thousands of dollars)
Change in benefit obligation:
Benefit obligation, beginning of year	$	182,778		$	150,101
Addition of non-U.S. plans		2,137			16,786
Service cost		11,101			10,351
Interest cost		12,815			11,850
Participant contributions		588			580
Plan amendments		—			1,433
Actuarial (gain) loss		12,153			2,553
Currency exchange rates		3,593			(203	)
Curtailment		(371	)		—
Settlement		(1,743	)		—
Benefits paid		(9,920	)		(10,673	)
Benefit obligation, end of year	$	213,131		$	182,778
Change in plan assets:
Fair value of plan assets, beginning of year	$	173,853		$	143,201
Addition of non-U.S. plans		117			15,613
Actual return on plan assets		(14,438	)		10,300
Company contributions		20,558			14,791
Participant contributions		588			580
Currency exchange rates		1,901			41
Settlement		(1,530	)		—
Benefits paid		(9,920	)		(10,673	)
Fair value of plan assets, end of year	$	171,129		$	173,853
Reconciliation of funded status:
Funded (unfunded) status	$	(42,002	)	$	(8,925	)
Unrecognized actuarial (gain) loss		55,360			10,342
Unrecognized prior service cost		3,112			3,802
Unrecognized net transition obligation		3,102			3,527
Fourth quarter contributions		144			416
Net amount recognized in
consolidated balance sheet	$	19,716		$	9,162
Amounts recognized in consolidated
balance sheet consist of:
Prepaid benefit cost	$	31,087		$	17,586
Accrued benefit liability		(11,371	)		(8,423	)
Additional minimum liability		(26,950	)		(11,399	)
Intangible asset		8,400			7,801
Accumulated other comprehensive income		18,550			3,597
Net amount recognized in
consolidated balance sheet	$	19,716		$	9,162

     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 $73.0 million, $69.8 million and $46.8 million, respectively, as of April 30, 2003 and $47.3 million, $45.3 million and $31.7 million, respectively, as of April 30, 2002.

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     Pension expense related to international plans was $5.2 million, $4.1 million and $4.3 million for 2003, 2002 and 2001, respectively. Certain international operations have defined benefit pension plans that are not presented in the tables above. Prepaid pension assets, accrued pension liabilities and pension expense associated with these plans are not material.

     Following are the assumptions used in calculating the benefit obligation:

Weighted average actuarial assumptions	April 30, 2003	April 30, 2002	April 30, 2001
All U.S. plans:
Discount rate	6.25%	7.25%	7.50%
Expected return on plan assets	8.50%	8.50%	9.00%
Rate of compensation increase	5.00%	5.00%	5.50%
Non-U.S. plans:
Discount rate	4.15%	4.59%	2.50%
Expected return on plan assets	6.80%	6.63%	4.00%
Rate of compensation increase	3.14%	3.39%	2.00%

     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 $4.2 million as of July 31, 2003 and $3.9 million as of July 31, 2002. The annual costs resulting from these benefits is not material. For measurement purposes, an 8 percent and 11 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2003 and 2002, respectively. The rate was assumed in both 2003 and 2002 to decrease gradually to an ultimate rate of 5 percent. A one percentage point increase in the health care cost trend rate would increase the fiscal 2003 and 2002 costs by $0.3 million each year.

     401(k) Savings Plan The Company provides a contributory employee savings plan to U.S. employees which permits participants to make contributions by salary reduction pursuant to section 401(k) of the Internal Revenue Code. 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. Total contribution expense for these plans was $5.0 million, $6.8 million and $4.1 million for the years ended July 31, 2003, 2002 and 2001, respectively.

     Employee Stock Option Plan The Company maintains an Employee Stock Option Plan (ESOP) for eligible employees. As of July 31, 2003, all shares of the plan have been allocated to participants. The ESOP’s only assets are Company common stock. Total ESOP shares are considered to be shares outstanding for earnings per share calculations.

NOTE H
Shareholders’ Equity

     Stock Rights On January 12, 1996, 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 12, 1996, by and between the Company and Wells Fargo Bank Minnesota, N.A., as Rights Agent, one right was issued on March 4, 1996 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 $130.00 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

34

twice the exercise price of a right. The rights are redeemable under certain circumstances at $.01 per right and will expire, unless earlier redeemed, on March 3, 2006.

     Treasury Stock The Board of Directors has authorized the repurchase, at the Company’s discretion, of 4.0 million shares of common stock under the current stock repurchase plan dated January 17, 2003. As of July 31, 2003, the Company has remaining authorization to repurchase 3.8 million shares under the current plan. Following is a summary of treasury stock share activity for fiscal 2003 and 2002:

	2003	2002
Balance at August 1	5,741,417	5,273,121
Stock repurchases	710,300	657,100
Net issuance upon exercise of stock options	(181,504)	(168,158)
Issuance under compensation plans	(24,455)	(11,941)
Other activity	(8,289)	(8,705)
Balance at July 31	6,237,469	5,741,417

     Other Comprehensive Income The components of the ending balances of accumulated other comprehensive income (loss) are as follows:

	July 31, 2003	July 31, 2002
Foreign currency translation adjustment	$ 11,935	$(10,725)
Net gain (loss) on cash flow hedging derivatives	(273)	26
Additional minimum pension liability	(18,550)	(3,597)
Total accumulated other comprehensive gain (loss)	$ (6,888)	$(14,296)

     The additional minimum pension liability adjustment is calculated on an annual basis. If the accumulated benefit obligation (ABO) exceeds the fair value of pension assets, the Company must recognize a liability that is at least equal to the unfunded ABO.

     Income tax effects for cumulative translation are not significant because no tax provision has been made for the translation of foreign currency Financial Statements into U.S. dollars.

NOTE I
Stock Option Plans

     Employee Incentive Plans In November 2001, shareholders approved the 2001 Master Stock Incentive Plan (the “Plan”) which 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 (SARs), dividend equivalents, dollar-denominated awards and other stock-based awards. The Plan 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 awards are payable in common stock and are based on a formula which measures performance of the Company over a three-year period. Performance award expense under these plans totaled $0.2 million, $2.6 million and $2.4 million in 2003, 2002 and 2001, respectively. Options under the Plan are granted to key employees at or above market price at the date of grant. Options are exercisable for up to 10 years from the date of grant.

     Stock Options Stock options issued after fiscal 1998 become exercisable for non-executives in each of the following three years, in an equal number of shares each year, and become exercisable for executives immediately upon the date of grant. Stock options issued during fiscal 1997 and 1998 become exercisable in each of the following three years, in an equal number of shares each year, for both executives and non-executives. Stock options issued prior to fiscal l997 for non-executives and during fiscal 1996 for executives become exercisable in a four-year period in an equal number of shares each year. Prior to fiscal 1996, stock options vested immediately for executives.

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     As all nonqualified stock options were granted with an exercise price equal to the quoted market price of the Company’s stock on the date of grant, the Company did not recognize compensation expense on these options. Had the Company used the fair value-based method of accounting to measure compensation expense for its stock option plan and charged compensation cost against income over the vesting periods, net income and the related basic and diluted per common share amounts would have been reduced to the following pro forma amounts (in thousands, except per share amounts):

	2003	2002	2001
Net earnings, as reported	$ 95,314	$ 86,883	$ 75,548
Less total stock-based employee    compensation expense under the    fair value-based method, net of tax	(4,152)	(3,872)	(4,584)
Pro forma net earnings	$ 91,162	$ 83,011	$ 70,964
Basic net earnings per share
As reported	$      2.19	$      1.97	$      1.70
Pro forma	$      2.10	$      1.88	$      1.60
Diluted net earnings per share
As reported	$      2.11	$      1.90	$      1.66
Pro forma	$      2.02	$      1.82	$      1.56

     For purposes of computing compensation cost of stock options granted, the fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2003	2002	2001
Risk-free interest rate	2.72%	2.85%	4.72%
Expected volatility	31.4%	30.9%	30.5%
Expected dividend growth rate	1.0%	1.0%	1.0%
Expected life
Director original grants	3 years	3 years	2 years
Non-officer original grants	6 years	6 years	7 years
Officer original grants	2 years	2 years	2 years
Reload grants	7 years	7 years	7 years

     Reload grants are grants made to officers who exercised an 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 or withheld for 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 2003, 2002 and 2001 is $9.90, $9.56 and $8.01 per share, respectively.

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     The following table summarizes stock option activity:

	Options Outstanding	Weighted Average Exercise Price
Outstanding at July 31, 2000	3,652,936	$ 15.86
Granted	862,515	26.04
Exercised	(1,025,995)	12.88
Canceled	(25,297)	21.19
Outstanding at July 31, 2001	3,464,159	19.24
Granted	633,968	36.12
Exercised	(603,551)	15.11
Canceled	(23,661)	26.60
Outstanding at July 31, 2002	3,470,915	22.99
Granted	613,609	36.52
Exercised	(522,683)	18.84
Canceled	(12,124)	30.01
Outstanding at July 31, 2003	3,549,717	$ 25.91

     Shares reserved at July 31, 2003 for outstanding options and future grants were 4,498,514. Shares reserved consist of shares available for grant plus all outstanding options. An amount is added to shares reserved each year based on criteria set in the plan.

     The following table summarizes information concerning outstanding and exercisable options as of July 31, 2003:

Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life(Years)	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$10 to $20	1,011,797	3.16	$ 15.63	1,011,797	$ 15.63
$20 to $30	1,330,181	5.86	24.29	1,242,511	24.18
$30 to $40	1,163,868	8.36	35.93	716,659	35.97
$40 and above	43,871	9.04	46.61	43,871	46.61
	3,549,717	5.95	$ 25.91	3,014,838	$ 24.44

NOTE J
Income Taxes

     The components of earnings before income taxes are as follows:

	2003	2002	2001
	(Thousands of dollars)
Earnings before income taxes:
United States	$ 59,361	$ 62,294	$ 48,705
Foreign	71,206	56,724	56,223
Total	$130,567	$119,018	$104,928

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

	2003	2002	2001
	(Thousands of dollars)
Income taxes:
Current:
Federal	$ 11,661	$ 21,146	$ 8,502
State	1,610	1,900	622
Foreign	21,345	14,355	13,163
	34,616	37,401	22,287
Deferred:
Federal	1,791	(5,033)	7,304
State	98	(287)	417
Foreign	(1,252)	54	(628)
	637	(5,266)	7,093
Total	$ 35,253	$ 32,135	$ 29,380

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

	2003	2002	2001
	(Thousands of dollars)
Deferred tax assets:
Compensation and retirement plans	$ 2,399	$ 9,226	$ 3,619
Accrued expenses	9,517	7,658	6,938
Credit and NOL tax carryforwards	10,218	10,665	6,092
Inventories	2,748	1,967	1,938
Investment in joint venture	584	777	636
Other	3,566	4,304	3,215
Gross deferred tax assets	29,032	34,597	22,438
Valuation allowance	(6,282)	(4,687)	(2,054)
Net deferred tax assets	22,750	29,910	20,384
Deferred tax liabilities:
Depreciation and amortization	(26,132)	(15,698)	(16,209)
Other	(1,016)	(9,171)	(618)
Gross deferred tax liabilities	(27,148)	(24,869)	(16,827)
Net deferred tax assets (liability)	$(4,398)	$5,041	$3,557

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

	2003	2002	2001
Statutory U.S. federal rate	35.0%	35.0%	35.0%
State income taxes	0.9	1.0	0.4
Foreign taxes at lower rates	(5.2)	(4.6)	(8.2)
Export and research credits	(2.0)	(1.0)	(1.9)
Other	(1.7)	(3.4)	2.7
	27.0%	27.0%	28.0%

     U.S. income taxes have not been provided on approximately $233.0 million of undistributed earnings of non-U.S. subsidiaries. The Company plans to reinvest these undistributed earnings. If any

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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-U.S. operations have been profitable overall, the Company has cumulative tax loss carryforwards of $23.6 million which are carried as net operating losses in certain international subsidiaries. Approximately $8.3 million of these losses arose in periods before the Company acquired the subsidiary. If fully realized, these losses can be carried forward to offset future tax payments. The majority of such carryforwards expire after 2005. Due to the uncertainty of being able to realize certain of these losses, a valuation allowance of $6.3 million has been recorded at July 31, 2003.

     The Company made cash payments for income taxes of $34.1 million, $23.7 million and $16.2 million in 2003, 2002 and 2001, respectively.

NOTE K
Segment Reporting

     Consistent with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the Company has 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 original equipment manufacturers (OEMs) in the construction, industrial, mining, agriculture and transportation markets and to independent distributors, OEM dealer networks, private label accounts and large private fleets. Products include air intake systems, exhaust systems, liquid filtration systems and replacement filters.

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

     Corporate and Unallocated include corporate expenses determined to be non-allocable to the segments, interest income and expense, non-operating income and expense, and expenses not allocated to the business segments in the same period. Assets included in Corporate and Unallocated principally are cash and cash equivalents, inventory reserves, certain prepaids, certain investments, other assets and assets allocated to intercompany transactions.

     The Company has developed 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 a complex allocation methodology to assign costs and assets to the segments. A certain amount of costs and assets is assigned to intercompany activity and is 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 differences between segment reporting and the consolidated, external reporting as well as internal allocation methodologies.

39

     Segment detail is summarized as follows (in thousands):

	Engine Products	Industrial Products	Corporate & Unallocated	Total Company
	(Thousands of dollars)
2003
Net sales	$683,254	$534,998	$      —	$1,218,252
Depreciation and amortization	17,727	14,089	5,741	37,557
Equity earnings in unconsolidated affiliates	3,167	64	—	3,231
Earnings before income taxes	95,297	39,144	(3,874)	130,567
Assets	335,048	356,335	190,614	881,997
Equity investments in unconsolidated affiliates	12,324	1,182	—	13,506
Capital expenditures, net of acquired businesses	22,537	17,912	7,299	47,748
2002
Net sales	$611,647	$514,358	$      —	$1,126,005
Depreciation and amortization	16,095	9,427	6,229	31,751
Equity earnings in unconsolidated affiliates	4,160	—	—	4,160
Earnings before income taxes	69,894	73,047	(23,923)	119,018
Assets	324,952	381,467	143,712	850,131
Equity investments in unconsolidated affiliates	14,033	620	—	14,653
Capital expenditures, net of acquired businesses	23,396	13,704	9,056	46,156
2001
Net sales	$606,810	$530,205	$      —	$1,137,015
Depreciation and amortization	23,100	11,268	4,209	38,577
Equity earnings in unconsolidated affiliates	3,017	—	—	3,017
Earnings before income taxes	49,539	72,891	(17,502)	104,928
Assets	315,706	228,505	162,619	706,830
Equity investments in unconsolidated affiliates	14,115	—	—	14,115
Capital expenditures, net of acquired businesses	23,308	11,370	4,246	38,924

40

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

	2003	2002	2001
	(Thousands of dollars)
Engine Products segment:
Off-road products	$   194,823	$   177,005	$   181,795
Transportation products	116,335	89,541	79,670
Aftermarket products	372,096	345,101	345,345
Total Engine Products segment	683,254	611,647	606,810
Industrial Products segment:
Industrial air filtration products	174,328	175,663	217,343
Gas turbine products	129,606	230,897	195,042
Special application products	110,192	107,798	117,820
Ultrafilter products	120,872	—	—
Total Industrial Products segment	534,998	514,358	530,205
Total Company	$1,218,252	$1,126,005	$1,137,015

     Geographic sales by origination and property, plant and equipment:

	Net Sales	Property, Plant & Equipment — Net
	(Thousands of dollars)
2003
United States	$605,045	$139,700
Europe	357,704	73,625
Asia-Pacific	220,283	23,410
Other	35,220	18,701
Total	$1,218,252	$255,436
2002
United States	$687,889	$139,975
Europe	225,669	40,013
Asia-Pacific	184,269	21,652
Other	28,178	39,273
Total	$1,126,005	$240,913
2001
United States	$711,268	$138,631
Europe	211,397	36,801
Asia-Pacific	185,395	19,609
Other	28,955	12,617
Total	$1,137,015	$207,658

41

NOTE L
Commitments, Contingencies and Concentrations

     Guarantees The Company and its partner of an unconsolidated joint venture, Advanced Filtration Systems Inc., guarantees certain debt of the joint venture. As of July 31, 2003, the outstanding guaranteed debt of the joint venture was $6.0 million.

     The Company provides for certain warranties on certain products; in addition, the Company may incur specific customer warranty issues. Following is a reconciliation of warranty reserves:

	(thousands of dollars)
Balance at August 1, 2001	$ 6,855
Accruals for warranties issued during the period	2,080
Accruals related to pre-existing warranties    (including changes in estimates)	2,043
Less settlements made during the period	(1,350)
Balance at July 31, 2002	$9,628
Accruals for warranties issued during the period	1,450
Accruals related to pre-existing warranties    (including changes in estimates)	(1,296)
Less settlements made during the period	(1,702)
Balance at July 31, 2003	$8,080

     At July 31, 2003 and 2002, the Company had a contingent liability for standby letters of credit totalling $16.1 million and $14.8 million, respectively, that 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, 2003 and 2002, there were no amounts drawn upon these letters of credit.

     Legal Proceedings The Company is a defendant in a lawsuit filed in November 1998 in the United States District Court for the Northern District of Iowa (Eastern Division) by Engineered Products Company (“EPC”). EPC claims patent infringement by Donaldson arising out of its sales of graduated air restriction indicators in the period from 1996 through the expiration of the EPC patent in May 2001 and seeks monetary damages. EPC is also seeking damages for some period of time beyond the expiration of the patent. A trial date has been rescheduled for February 2004. The Company denies any liability and believes the patent is unenforceable and invalid. The Company is vigorously defending the suit. The amount of loss, if any, to the Company currently cannot be estimated.

     The Company is currently not otherwise subject to any pending litigation other than routine litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on the business, results of operations, financial condition or liquidity of the Company.

     Environmental Matters The Company has established reserves for potential environmental liabilities and plans to continue to accrue reserves in appropriate amounts. While uncertainties exist with respect to the amounts and timing of the Company’s ultimate environmental liabilities, management believes that such liabilities, individually and in the aggregate, will not have a material adverse effect on the Company’s financial condition or results of operations.

     Concentrations There were no sales over 10 percent of net sales to any customer in 2003. Sales to one customer accounted for 13 percent and 12 percent of net sales in 2002 and 2001, respectively. There were no customers over 10 percent of gross accounts receivable in 2003. One customer accounted for 18 percent of gross accounts receivable in 2002.

42

NOTE M
Quarterly Financial Information (Unaudited)

	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
	(Thousands of dollars, except per share amounts)
2003
Net sales	$301,054	$284,447	$302,457	$330,294
Gross margin	94,881	90,765	98,231	107,274
Net earnings	22,837	20,002	25,332	27,143
Diluted earnings per share	.50	.45	.56	.60
Dividends declared per share	.085	.090	.090	.095
2002
Net sales	$288,429	$264,281	$269,423	$303,872
Gross margin	88,318	81,274	84,976	94,924
Net earnings	19,724	20,760	21,474	24,925
Diluted earnings per share	.43	.45	.47	.55
Dividends declared per share	.075	.080	.080	.085

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     On April 18, 2002, the board of directors (the “Board”) of Donaldson Company, Inc. (the “Company”), at the recommendation of its audit committee, dismissed Arthur Andersen LLP (“Andersen”) as the Company’s independent public accountants and engaged PricewaterhouseCoopers LLP (“PWC”) to serve as the Company’s independent public accountants for fiscal year 2002.

     Andersen’s reports on the Company’s Consolidated Financial Statements for each of the years ended July 31, 2001 and 2000 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

     During the years ended July 31, 2001 and 2000 and through April 18, 2002, there were no disagreements with Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to Andersen’s satisfaction, would have caused them to make reference to the subject matter of the disagreements in connection with their report on the Company’s Consolidated Financial Statements for such years; and there were no “reportable events,” as such term is defined in Item 304(a)(1)(v) of Regulation S-K.

     The Company reported the change in accountants on Form 8-K filed on April 24, 2002. The Form 8-K contained a letter from Arthur Andersen, addressed to the Securities and Exchange Commission, stating that it agreed with the disclosures set forth in the preceding three paragraphs.

     During the years ended July 31, 2001 and 2000 and through the date of the Board’s decision to engage PWC, the Company did not consult PWC with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s Consolidated Financial Statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.

43

Item 9A.  CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures: As of the end of the period covered by this report (the “Evaluation Date”), we 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 our disclosure controls and procedures (as defined in Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were adequately designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms.

(b) Internal Controls: No change in the Company’s internal control over financial reporting identified in connection with such evaluation during the fiscal quarter ended July 31, 2003, has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

44

PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information under the captions “Nominees For Election” and “Directors Continuing In Office” on pages 7 through 8, under “Audit Committee Report and Appointment of Auditors — Audit Committee Report” (first paragraph only), on page 9, and under the heading “Compliance With Section 16(a) of the Securities Exchange Act of 1934” on page 19 of the Company’s definitive proxy statement dated October 14, 2003, is incorporated herein by reference. Information on the Executive Officers of the Company is found on page 4 of this Annual Report on Form 10-K.

     The Company has adopted a code of 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 ethics is filed as Exhibit 14 to this Annual Report on Form 10-K.

Item 11.  EXECUTIVE COMPENSATION

     The information under “Director Compensation” on page 8 and in the section “Executive Compensation” on pages 13 through 17, the “Pension Benefits” on page 18 and under the caption “Change-in-Control Arrangements” on page 19 of the Company’s definitive proxy statement dated October 14, 2003, is incorporated herein by reference.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information in the section “Security Ownership” on page 4 of the Company’s definitive proxy statement dated October 14, 2003, is incorporated herein by reference.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information in the section “Human Resources Committee Interlocks and Insider Participation” on page 18 of the Company’s definitive proxy statement dated October 14, 2003, is incorporated herein by reference.

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The information under the “Audit Committee Report and Appointment of Auditors — Information Regarding Independent Auditors — Independent Auditors Fees” and “— Audit Committee Pre-Approval Policies and Procedures” on pages 9 through 10 of the Company’s definitive proxy statement dated October 14, 2003, is incorporated herein by reference.

Item 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)  Documents filed with this report:

          (1)     Financial Statements

      Consolidated Statements of Earnings — years ended July 31, 2003, 2002 and 2001
      Consolidated Balance Sheets — July 31, 2003 and 2002
      Consolidated Statements of Cash Flows — years ended July 31, 2003, 2002 and 2001
      Consolidated Statements of Changes in Shareholders’ Equity — years ended July 31, 2003, 2002 and 2001
      Notes to Consolidated Financial Statements
      Reports of Independent Accountants

45

          (2)     Financial Statement Schedules —

      Reports of Independent Accountants

      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.

     (b)  Reports on Form 8-K

            The Company furnished a current report on Form 8-K, dated May 27, 2003, relating to the Company’s third quarter 2003 financial results.

46

     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.
(Registrant)

Date:  October 14, 2003 By: /s/   William G. Van Dyke Chairman, President and
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 and on the date indicated.

/s/    William G. Van Dyke William G. Van Dyke	Chairman, President and Chief Executive Officer
/s/   William M. Cook William M.Cook	Senior Vice President, International and Chief Financial Officer
/s/   Thomas A. Windfeldt Thomas A. Windfeldt	Vice President, Controller
*Guillaume Bastiaens Guillaume Bastiaens	Director
*Janet M. Dolan Janet M. Dolan	Director
*Jack W. Eugster Jack W. Eugster	Director
*John F. Grundhofer John F. Grundhofer	Director
*Kendrick B. Melrose Kendrick B. Melrose	Director
*Paul David Miller Paul David Miller	Director
*Jeffrey Noddle Jeffrey Noddle	Director
*Stephen W. Sanger Stephen W. Sanger	Director
*John P. Wiehoff John P. Wiehoff	Director
*By  /s/ Norman C. Linnell   Norman C. Linnell *As attorney-in-fact	Date: October 14, 2003

47

DONALDSON COMPANY, INC. AND SUBSIDIARIES
FORM 10-K
Item 15 (a) (1)
Index of Independent Auditors’ Reports

Report of PricewaterhouseCoopers LLP	49
Report of Arthur Andersen LLP	50 & 51

48

 
Report of Independent Auditors

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

     In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) on page 45 present fairly, in all material respects, the financial position of Donaldson Company, Inc. at July 31, 2003 and 2002, and the results of its operations and its cash flows for each of the two years in the period ended July 31, 2003 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(a)(2) on page 46 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 22, 2003

49

The following report is a copy of a report previously issued by Arthur Andersen LLP. This report has not been reissued by Arthur Andersen LLP.

Report of Independent Public Accountants

To The Shareholders and Board of Directors
of Donaldson Company, Inc.:

     We have audited the accompanying consolidated balance sheets of Donaldson Company, Inc. (a Delaware corporation) and subsidiaries as of July 31, 2001 and 2000, and the related consolidated statements of earnings, changes in shareholders’ equity and cash flows for the years then ended. These Financial Statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these Financial Statements based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Financial Statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Financial Statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the Financial Statements referred to above present fairly, in all material respects, the financial position of Donaldson Company, Inc. and subsidiaries as of July 31, 2001 and 2000, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

Minneapolis, Minnesota,
August 27, 2001

50

The following report is a copy of a report previously issued by Arthur Andersen LLP. This report has not been reissued by Arthur Andersen LLP.

Report of Independent Public Accountants

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

     We have audited, in accordance with auditing standards generally accepted in the United States, the Consolidated Financial Statements included in Donaldson Company Inc.’s annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated August 27, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed as part of item 14 in this Form 10-K is the responsibility of the Company’s management and is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic Consolidated Financial Statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic Consolidated Financial Statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic Consolidated Financial Statements taken as a whole.

Minneapolis, Minnesota,
August 27, 2001

51

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)

COL. A	COL. B	COL. C		COL. D	COL. E
		Additions
Description	Balance at Beginning of Period	Charged to Costs and Expenses	Charged to Other Accounts (A) & (B)	Deductions (C) & (D)	Balance at End of Period
Year ended July 31, 2003:
Allowance for doubtful accounts deducted from accounts receivable	$6,620	$1,239	$328	$(2,351)	$5,836
Restructuring reserves — Ultrafilter	$1,219			$(1,137)	$82
Year ended July 31, 2002:
Allowance for doubtful accounts deducted from accounts receivable	$6,309	$1,820	$198	$(1,707)	$6,620
Restructuring reserves — AirMaze Acquisition	$166			$(166)	$0
Restructuring reserves — DCE Acquisition	$2,125			$(2,125)	$0
Restructuring reserves — Ultrafilter	$0		$1,219		$1,219
Year ended July 31, 2001:
Allowance for doubtful accounts deducted from accounts receivable	$4,380	$2,512	$(154)	$(429)	$6,309
Restructuring reserves — AirMaze Acquisition	$1,183			$(1,017)	$166
Restructuring reserves — DCE Acquisition	$2,775		$1,555	$(2,205)	$2,125

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

Note B — Acquisition related restructuring reserves recorded to goodwill.

Note C — Bad debts charged to allowance, net of recoveries.

Note D — Acquisition related restructuring reserves utilized and/or reversed against goodwill.

52

EXHIBIT INDEX
ANNUAL REPORT ON FORM 10-K

* 3–A	—	Certificate of Incorporation of Registrant as currently in effect (Filed as Exhibit 3-A to Form 10-Q for the Second Quarter ended January 31, 1998)
3–B	—	By-laws of Registrant as currently in effect
* 4	—	**
* 4–A	—	Preferred Stock Amended and Restated Rights Agreement (Filed as Exhibit 4.1 to Form 8-K Report Dated January 12, 1996)
*10–A	—	Annual Cash Bonus Plan (Filed as Exhibit 10-A to 1995 Form 10-K Report)***
*10–B	—	Supplementary Retirement Agreement with William A. Hodder (Filed as Exhibit 10-B to 1993 Form 10-K Report)***
*10–C	—	1980 Master Stock Compensation Plan as Amended (Filed as Exhibit 10-C to 1993 Form 10-K Report)***
*10–D	—	Form of Performance Award Agreement under 1991 Master Stock Compensation Plan (Filed as Exhibit 10-D to 1995 Form 10-K Report)***
10–E	—	ESOP Restoration Plan (2003 Restatement) ***
*10–F	—	Deferred Compensation Plan for Non-employee Directors as amended (Filed as Exhibit 10-F to 1990 Form 10-K Report)***
*10–G	—	Form of “Change in Control” Agreement with key employees as amended (Filed as Exhibit 10-G to Form 10-Q for the Second Quarter ended January 31, 1999)***
*10–H	—	Independent Director Retirement and Benefit Plan as amended (Filed as Exhibit 10-H to 1995 Form 10-K Report)***
*10–I	—	Excess Pension Plan (2003 Restatement)***
10–J	—	Supplementary Executive Retirement Plan (2003 Restatement)***
*10–K	—	1991 Master Stock Compensation Plan as amended (Filed as Exhibit 10-K to 1998 Form 10-K Report)***
*10–L	—	Form of Restricted Stock Award under 1991 Master Stock Compensation Plan (Filed as Exhibit 10-L to 1992 Form 10-K Report)***
*10–M	—	Form of Agreement to Defer Compensation for certain Executive Officers (Filed as Exhibit 10-M to 1993 Form 10-K Report)***
*10–N	—	Stock Option Program for Non-employee Directors (Filed as Exhibit 10-N to 1998 Form 10-K Report)***
10–O	—	Deferred Compensation and 401(K) Excess Plan (2003 Restatement)***
*10–P	—	Note Purchase Agreement among Donaldson Company, Inc. and certain listed Insurance Companies dated as of July 15, 1998 (Filed as Exhibit 10-R to 1998 Form 10-K Report)
*10–Q	—	First Supplement to Note Purchase Agreement among Donaldson Company, Inc. and certain listed Insurance Companies dated as of August 1, 1998 (Filed as Exhibit 10-S to 1998 Form 10-K Report)
10–R	—	Deferred Stock Option Gain Plan (2003 Restatement)***
*10–S	—	2001 Master Stock Incentive Plan (filed as Exhibit 4.1 to Form S-8 (SEC File No. 333-97771))

53

10–T	—	Long Term Compensation Plan***
11	—	Computation of net earnings per share (“Earnings Per Share” in “Summary of Significant Accounting Policies” in Note A in the Notes to Consolidated Financial Statements on page 23)
14	—	Applicable portions of Donaldson Company, Inc. Code of Ethics and Conduct
21	—	Subsidiaries
23	—	Consent of PricewaterhouseCoopers LLP
23(A)	—	Notice Regarding Consent of Arthur Andersen LLP
24	—	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
99	—	Litigation Reform Act of 1995 — Cautionary Statement

* Exhibit has heretofore 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 Registrant and its subsidiaries are not filed and in lieu thereof Registrant 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 and payment of $20 representing Registrant’s reasonable expense in furnishing such exhibits.

54

EX-3.B

Exhibit 3.B

AMENDED AND RESTATED
BYLAWS
OF
DONALDSON COMPANY, INC.

Offices

        1. The principal office of the Company shall be in Wilmington, Delaware, and the resident agent in charge thereof shall be Corporation Service Company. The Company may also have an office or offices at such place or places, within or without the State of Delaware as the Board of Directors may from time to time designate or the business of the Company may require.

Corporate Seal

        2. The corporate seal shall have inscribed thereon the name of the Company, the year of its incorporation, and the words "Incorporated Delaware."

Meetings of Stockholders

        3. The Annual Meeting of Stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on the third Friday in November of each year or on such other date as may be fixed by resolution of the Board of Directors.

        Special meetings of the stockholders may only be called at any time by (i) the chairman of the board or the president or (ii) by vote of a majority of the directors.

        All meetings of the stockholders, including meetings for the election of directors, shall be held at such place or places within or without the State of Delaware as may from time to time be fixed by the Board of Directors or shall be specified and fixed in the respective notices or waivers of notices thereof.

        No business may be transacted at an annual meeting or special meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors (or any duly authorized committee

thereof) or (c) otherwise properly brought before the meeting by any stockholder of record on the date of the giving of the notice provided for in this Bylaw 3 and on the record date for the determination of stockholders entitled to vote at such meeting.

        In addition to any other applicable requirements, for business to be properly brought before an annual meeting or special meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the secretary of the Company.

        For notice to be timely for an annual meeting, a stockholder's notice to the secretary must be delivered to or mailed and received at the principal executive offices of the Company not less than ninety days nor more than one-hundred twenty days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event the annual meeting is called for a date that is not within thirty days before or after such anniversary date, notice by the stockholder in order to be timely must be received no later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. In no event shall the public disclosure of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described in these Bylaws.

        To be in proper written form, a stockholder's notice to the secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting or special meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and record address of such stockholder, (c) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by such stockholder, (d) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the meeting to bring such business before the meeting. In the case of a proposed nomination for election or re-election as a director, a stockholder's notice shall set forth as to each person whom the stockholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder

2

(including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected).

        Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Company's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Company who is a stockholder of record at the time of giving of notice provided for in this Bylaw 3, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw 3. In the event the Company calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Company's notice of meeting, if the stockholder's notice required by this Bylaw 3 shall be delivered to the secretary at the principle executive offices of the Company not earlier than one-hundred twenty days prior to such special meeting and not later than the later of ninety days prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described in this Bylaw 3.

        A complete list of stockholders entitled to vote, arranged in alphabetical order, shall be prepared by the secretary and shall be open to the examination of any stockholder at the place of election, for ten days prior thereto, and during the whole time of the election.

        No business shall be conducted at an annual meeting or special meeting of stockholders except business brought before the meeting in accordance with the procedures set forth in this Bylaw 3; provided, however, that, once business has been properly brought before such meeting in accordance with such procedures, nothing in this Bylaw 3 shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of an annual meeting or special meeting determines that business was not properly brought before such meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.

        Except as otherwise provided by statute or by the Certificate of Incorporation, at each meeting of the stockholders each stockholder having the right to vote thereat shall be entitled to (i) one vote, in person or by proxy signed by such stock-

3

holder, for each share of common stock of the Company standing in his name, and (ii) such voting rights, if any, as are provided in the applicable Certificate of Designation, Preferences and Rights with respect to any series of preferred stock of the Company standing in his name, which voting rights may be exercised in person or by proxy signed by such stockholder, and in all such instances on the date fixed by the Board of Directors as the record date for the determination of the stockholders who shall be entitled to notice of and vote at such meeting; or if no record date shall have been fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given. Such right to vote shall be subject to the right of the Board of Directors to close the transfer books or to fix a record date for voting stockholders as hereinafter provided and if the directors shall not have exercised such right, no share of stock shall be voted on at any election for directors which shall have been transferred on the books of the Company within twenty days next preceding such election.

        Written notice of all meetings shall be given by the secretary not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting.

        The holders of a majority of the Common Stock outstanding present in person or represented by proxy shall be requisite to and shall constitute a quorum for the transaction of business except as otherwise provided by law or by the Certificate of Incorporation as amended or by these Bylaws. However, the holders of the majority of the Common Stock who are present in person or represented by proxy shall have power to adjourn such meeting from time to time without notice other than announcement at the meeting until a quorum is secured.

Directors

        4. The property and business of the Company shall be managed and controlled by its Board of Directors. The number of directors which shall constitute the whole board shall be such number, not less than three nor more than fifteen, as may be determined from time to time (i) by the stockholders by the affirmative vote of the holders of two-thirds of the outstanding shares of all classes of stock of the Company entitled to vote for the election of directors (considered for this purpose as one class) or (ii) by the Board of Directors by a vote of not less than a majority of all of the directors then in office. All directors to be elected shall be elected for three-year terms (except as hereinafter provided with respect to directors to fill certain vacancies) so that approximately one-third of the directors will be elected to each annual meeting of the stockholders. Each director shall continue in office until the annual meeting in the year in which his term expires and until his successor shall have been elected and qualified,

4

or until his death, or until he shall resign or have been removed by the vote of the holders of a majority of the outstanding shares of capital stock of all classes of the Company entitled to vote in the election of directors at a special meeting of the stockholders called for that purpose.

        Any vacancies in the Board of Directors from any cause, including vacancies created by increase in the number of directors, may be filled by a majority of the then qualified directors, even though less than a quorum. Each director so chosen shall hold office for the unexpired term of the director whose place shall be vacant, providing that each director so chosen to fill a vacancy created by increase in the number of directors shall be elected for an appropriate term so that approximately one-third of the directors will be elected at each annual meeting of the stockholders thereafter.

        Directors shall be bona fide owners of at least one hundred (100) shares of this Company's stock, shall offer their resignation from the Board at each such time that the director is standing for election or reelection after attaining the age of seventy and shall offer their resignation from the Board at such time as they may change their basic business or professional activity or affiliation; provided, however, that nonemployee directors need not offer such resignation in the event of normal retirement. Nonemployee directors shall offer their resignation from the Board at each such time that the director is standing for election or reelection after having served five consecutive three-year terms.

Powers of Directors

        5. The business and affairs of the Company shall be managed under the direction of the Board of Directors. In addition to the powers and authorities expressly conferred upon them by these Bylaws, the Board of Directors may exercise all such powers of the Company and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws required to be exercised or done by the stockholders.

Meetings of Directors

        6. Immediately after each annual election of directors, the directors shall meet for the purpose of organization, the election of officers and the transaction of other business at such place as shall be specified in the notice of such meeting provided as hereinafter established for either regular or special meetings.

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        The Board of Directors may provide by resolution, the time and place, either at the general office of the Company or elsewhere, for the holding of regular meetings without other notice than such resolution.

        Special meetings of the directors may be called at any time by the chairman of the board or the president and shall be called on the written request of any two directors. Notice of special meeting of the directors shall be given to each director at his residence or usual place of business in writing by hand delivery, first-class or overnight mail or courier service, telegram or facsimile transmission, or orally by telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five days before such meeting. If by telegram, overnight mail or courier service, such notice shall be deemed adequately delivered when the telegram is delivered to the telegraph company or the notice is delivered to the overnight mail or courier service company at least twenty-four hours before such meeting. If by facsimile transmission, such notice shall be deemed adequately delivered when the notice is transmitted at least twelve hours before such meeting. If by telephone or by hand delivery, the notice shall be given at least twelve hours prior to the time set for the meeting. Neither the business to be transacted at, nor the purposes of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting, except for amendments to these Bylaws in accordance with Bylaw 25. A meeting may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in accordance with Bylaw 24.

        Special meetings of the directors may be held within or without the State of Delaware at such place as is indicated in the notice or waiver of notice thereof.

        A majority of the directors shall constitute a quorum, but a smaller number may adjourn from time to time, without further notice, until a quorum is secured.

Executive and Other Committees

        7. The Board of Directors may by resolution or resolutions passed by a majority of the whole board designate one or more committees, each committee to consist of one or more of the directors of the Company. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at

6

the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in a resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Company, and may authorize the seal of the Company to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matter: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the Delaware General Corporation Law (the "DGCL") to be submitted to stockholders for approval or (ii) adopting, amending or releasing these Bylaws.

Compensation of Directors and Members of Committees

        8. Directors and members of standing committees shall receive such compensation for attendance at each regular or special meeting as the board shall from time to time prescribe.

Officers of the Company

        9. The officers of the Company shall be the chairman of the Board of Directors (if one is elected by the Board of Directors), the president, one or more vice presidents, a secretary, a treasurer and such other officers as may from time to time be elected by the Board of Directors.

        The officers of the Company shall hold office until their successors are elected and qualify. An officer elected by the Board of Directors may be removed either with or without cause at any time by the affirmative vote of a majority of the whole Board of Directors. Such removal, however, shall be without prejudice of the contract rights of the person so removed. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the affirmative vote of a majority of the whole Board of Directors.

Duties of the Chairman of the Board and the President

        10. The chairman of the Board of Directors, if one is elected, shall preside at all meetings of the stockholders and directors and shall have such other duties as may be prescribed from time to time by the Board of Directors.

        In the absence of the chairman of the Board of Directors, the president shall preside at all meetings of the stockholders and directors and shall have such other duties as may be prescribed from time to time by the Board of Directors.

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        If the chairman of the Board of Directors is not the president, the Board of Directors shall designate which of the chairman of the Board of Directors or the president is the chief executive officer of the Company, and shall provide for the division of executive duties and responsibilities between those two officers. If the chairman of the Board of Directors is also president, the chairman shall be the chief executive officer of the Company and shall have general and active management of the business of the Company.

Vice President

        11. The vice president or vice presidents, in the order designated by the Board of Directors, shall be vested with all the powers and required to perform all the duties of the president in his absence or disability and shall perform such other duties as may be prescribed by the Board of Directors.

President Pro Tem

        12. In the absence or disability of the chairman of the board, the president and the vice presidents, the board may appoint from their own number a president pro tem.

Secretary

        13. The secretary shall attend all meetings of the Company, the Board of Directors, the executive committee and standing committees. He shall act as clerk thereof and shall record all of the proceedings of such meetings in a book kept for that purpose. He shall give proper notice of meetings of stockholders and directors and shall perform such other duties as shall be assigned to him by the chief executive officer or the Board of Directors.

Financial Officers

        14. The Vice President-Chief Financial Officer shall have such authority and responsibility as specified herein for both the Treasurer and the Controller.

        The treasurer, vice president-finance or such other similar title shall be the financial officer, shall have custody of, and be responsible for, all funds of the Company; shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Board of Directors; shall render to the chief executive officer and directors, whenever they may

8

require it, an account of all transactions as treasurer and of the financial condition of the Company; shall keep an account of stock registered and transferred in such manner and subject to such regulations as the Board of Directors may prescribe; and shall perform all of the duties incident to the office of the treasurer and such other duties as from time to time may be assigned by the chief financial officer, chief executive officer of Board of Directors.

        The controller shall be the chief accounting officer, shall keep full and accurate accounts of all assets, liabilities, receipts, disbursements and other financial transactions in books belonging to the Company; shall cause regular audits of such books and records to be made; shall see that all expenditures are made in accordance with procedures duly established by the Company; shall render to the chief executive officer and Board of Directors, whenever requested, financial statements of the Company; and shall perform all the duties incident to the office of controller and such other duties as, from time to time, may be assigned by the chief financial officer, chief executive officer or Board of Directors.

        Financial officers may be required to furnish bond in such amount as shall be determined by the Board of Directors.

Duties of Officers May Be Delegated

        15. In case of the absence or disability of any officer of the Company or for any other reason deemed sufficient by a majority of the board, the Board of Directors may delegate his powers or duties to any other officer or to any director for the time being.

Certificates of Stock

        16. Certificates of stock shall be signed by the President or a Vice President and the Treasurer, Assistant Treasurer, Secretary or Assistant Secretary. Any or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any such certificate shall thereafter have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Company with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. If a certificate of stock be lost, mutilated or destroyed, another may be issued in its stead upon proof of such loss, mutilation or destruction, and the giving of a bond of indemnity in form, substance and amount

9

satisfactory to the Company and to the Transfer Agent and Registrar, if any, of such stock, provided that, if there be no Transfer Agent or Registrar for the class of stock of which the certificate be lost, mutilated or destroyed, the Board of Directors may waive the requirement of a bond indemnity if in its judgment such waiver is warranted by the circumstances.

Transfer of Stock

        17. All transfers of stock of the Company shall be made upon its books by the holder of the shares in person or by his lawfully constituted representative, upon surrender of certificates of stock for cancellation. Provided, however, that, with respect to stock which has been presumed abandoned under an applicable state law, appropriate officers of the Company may effect cancellation of the certificate representing the abandoned shares and cause transfer thereof to such state by means of delivery of a new certificate in the name of such state.

Record Date

        18. The Board of Directors shall fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of any meeting of stockholders, nor more than sixty days prior to any other action, for the determination of stockholders entitled to notice of, and to vote, at any such meeting or any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of stock or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Company after such record date fixed as aforesaid.

Stockholders of Record

        19. The Company shall be entitled to treat the holder of record of any share or shares as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware.

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Fiscal Year

        20. The fiscal year of the Company shall begin on the first day of August in each year.

Dividends

        21. Dividends upon the capital stock may be declared by the Board of Directors at any regular or special meeting and may be paid in cash or in property or in shares of the capital stock. Before paying any dividend or making any distribution of profits, the directors may set apart out of any of the funds of the Company available for dividends a reserve or reserves for any proper purpose and may alter or abolish any such reserve or reserves.

Checks for Money

        22. All checks, drafts or orders for the payment of money shall be signed by the treasurer or by such other officer or officers as the Board of Directors may from time to time designate. No check shall be signed in blank.

Books and Records

        23. The books, accounts and records of the Company, except as otherwise required by the laws of the State of Delaware, may be kept within or without the State of Delaware, at such place or places as may from time to time be designated by the Bylaws or by resolution of the directors.

Notices

        24. Except as specifically set forth herein, notice required to be given under the provisions of these Bylaws to any director, officer or stockholder shall not be construed to mean personal notice, but may be given in writing by depositing the same in a post office or letter-box, in a post-paid sealed wrapper, addressed to such stockholder, officer or director at such address as appears on the books of the Company, and such notice shall be deemed to be given at the time when the same shall be thus mailed. Any stockholder, officer or director may waive, in writing, any notice required to be given under these Bylaws, whether before or after the time stated therein.

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Amendments of Bylaws

        25. Except as hereinafter stated, these Bylaws may be amended, altered, repealed or added to by the stockholders by the affirmative vote of a majority of the outstanding shares entitled to vote on the matter, or by the Board of Directors by a majority of the directors then in office, at any regular meeting or at any special meeting called for that purpose. Provided that any amendment, alteration or repeal of, or addition to, the first paragraph of Bylaw 4 or this sentence of Bylaw 25 by stockholders shall require the affirmative vote of 66 2/3% of the outstanding shares of capital stock of all classes of the Company entitled to vote generally for the election of directors, considered for this purpose as one class.

Indemnification of Directors and Officers

        26. Each person who was or is made a party or is threatened to be made a party to or is involved in or called as a witness in any action, suit or proceeding, whether civil, criminal, administrative or investigative, and any appeal therefrom (hereinafter, collectively a "proceeding"), by reason of the fact that he or she is, was or had agreed to become a director of the Company or is, was or had agreed to become an officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Company to the fullest extent permitted under the DGCL as the same now exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than the DGCL permitted the Company to provide prior to such amendment), against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, excise taxes or penalties pursuant to the Employee Retirement Income Security Act of 1974, as amended, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, that except as explicitly provided herein, prior to a Change in Control of the Company, as defined herein, a person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person against the Company or any director, officer, employee or agent of the Company shall not be entitled thereto unless the Company has joined in or consented to such proceeding (or part thereof). For purposes of this Bylaw 26, a "Change in Control of the Company" shall be deemed to have occurred if (i) any "Person" (as used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes (except in a transaction approved in advance by the Board of Directors of the Company) the beneficial owner (as defined in Rule 13d-3 the Exchange Act), directly or indirectly, of securities of the Company representing 40% or more of the combined voting power

12

of the Company's then outstanding securities or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof unless the election of each director who was not a director at the beginning of the period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period.

        Any indemnification under this Bylaw 26 (unless ordered by a court) shall be paid by the Company unless within sixty days of such request for indemnification a determination is made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such proceeding, (ii) if such quorum is not obtainable, or even if obtainable a quorum of disinterested directors so directs, by independent legal counsel (who may be the regular counsel of the Company) in a written opinion or (iii) by the stockholders, that indemnification of such person is not proper under the circumstances because such person has not met the necessary standard of conduct under the DGCL, provided, however, that following a Change of Control of the Company, with respect to all matters thereafter arising out of acts, omissions or events prior to the Change of Control of the Company concerning the rights of any person seeking indemnification under this Bylaw 26, such determination shall be made by special independent counsel selected by such person and approved by the Company (which approval shall not be unreasonably withheld), which counsel has not otherwise performed services (other than in connection with similar matters) within the five years preceding its engagement to render such opinion for such person or for the Company or any affiliates (as such term is defined in Rule 405 under the Securities Act of 1933, as amended) of the Company (whether or not they were affiliates when services were so performed) ("Independent Counsel"). Unless such person has theretofore selected Independent Counsel pursuant to this Bylaw 26 and such Independent Counsel has been approved by the Company, legal counsel approved by a resolution or resolutions of the Board of Directors prior to a Change in Control of the Company shall be deemed to have been approved by the Company as required. Such Independent Counsel shall determine as promptly as practicable whether and to what extent such person would be permitted to be indemnified under applicable law and shall render its written opinion to the Company and such person to such effect. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such Independent Counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Bylaw 26 or its engagement pursuant hereto.

        Expenses, including attorneys' fees, incurred by a person referred to in this Bylaw 26 in defending or otherwise being involved in a proceeding shall be paid by the Company in advance of the final disposition of such proceeding, including any appeal

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therefrom, upon receipt of an undertaking (the "Undertaking") by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company.

        If a claim under this Bylaw 26 hereof is not paid in full by the Company within sixty days after a written claim has been received by the Company or if expenses pursuant to this Bylaw 26 have not been advanced within ten days after a written request for such advancement accompanied by the Undertaking has been received by the Company, the claimant may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim or the advancement or expenses. (If the claimant is successful, in whole or in part, in such suit or any other suit to enforce a right for expenses for indemnification against the Company or any other party under any other agreement, such claimant shall also be entitled to be paid the reasonable expense of prosecuting such claim.) It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required Undertaking has been tendered to the Company) that the claimant has not met the standards to conduct which make it permissible under the DGCL for the Company to indemnify the claimant for the amount claimed. After a Change in Control, the burden of proving such defense shall be on the Company, and any determination by the Company (including its Board of Directors, independent legal counsel to its stockholders) that the claimant had not met the applicable standard of conduct required under the DGCL shall not be a defense to the action nor create a presumption that claimant had not met such applicable standard of conduct.

        The rights conferred on any person by this Bylaw 26 shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. The Board of Directors shall have the authority, by resolution, to provide for such other indemnification of directors, officers, employees or agents as it shall deem appropriate.

        The Company may purchase and maintain insurance to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any expenses, liabilities or losses, whether or not the Company would have the power to indemnify such expenses, liabilities or losses under the DGCL.

        The provisions of this Bylaw 26 shall be applicable to all proceedings commenced after its adoption, whether such arise out of events, acts, omissions or

14

circumstances which occurred or existed prior or subsequent to such adoption, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person. This Bylaw 26 shall be deemed to grant each person who, at any time that this Bylaw 26 is in effect, serves or agrees to serve in any capacity which entitles him to indemnification hereunder rights against the Company to enforce the provisions of this Bylaw 26, and any repeal or other modification of this Bylaw 26 or any repeal or modification of the DGCL or any other applicable law shall not limit any rights of indemnification then existing or arising out of events, acts, omissions, circumstances occurring or arising out of events, acts, omissions, circumstances occurring out or existing prior to such repeal or modification, including, without limitation, the right to indemnification for proceedings commenced after such repeal or modification to enforce this Bylaw 26 with regard to acts, omissions, events or circumstances occurring or existing prior to such repeal or modification.

        If this Bylaw 26 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify such director and officer of the Company as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Company, to the full extent permitted by any applicable portion of this Bylaw 26 that shall not have been invalidated and to the full extent permitted by applicable law.

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EX-10.E

                                                                    EXHIBIT 10-E







                             DONALDSON COMPANY, INC.
                              ESOP RESTORATION PLAN
                               (2003 RESTATEMENT)


             As Amended and Restated Effective as of August 1, 2003






                             DONALDSON COMPANY, INC.
                              ESOP RESTORATION PLAN
                               (2003 RESTATEMENT)


                                TABLE OF CONTENTS


                                                                          PAGE


SECTION 1.   ESTABLISHMENT AND PURPOSE.....................................1

             1.1.   Establishment
             1.2.   Purpose

SECTION 2.   DEFINITIONS...................................................2

             2.1.   Account
             2.2.   Affiliate
             2.3.   Beneficiary
             2.4.   Board
             2.5.   Change of Control
                    2.5.1.  Affiliate
                    2.5.2.  Beneficial Owner
                    2.5.3.  Exchange Act
                    2.5.4.  Person
             2.6.   Code
             2.7.   Committee
             2.8.   Company
             2.9.   Disability, Disabled
             2.10.  Effective Date
             2.11.  Eligible Employee
             2.12.  ERISA
             2.13.  ESOP
             2.14.  Participant
             2.15.  Plan
             2.16.  Stock Units
             2.17.  Termination of Employment
             2.18.  Vested

SECTION 3.   PARTICIPATION.................................................6

             3.1.   Participation
             3.2.   Termination of Participation
             3.3.   Overriding Exclusion


                                      -i-



SECTION 4.   STOCK UNITS...................................................7

             4.1.   Stock Units
             4.2.   Adjustment
             4.3.   Dividend Units
             4.4.   Vesting

SECTION 5.   TIME AND MANNER OF PAYMENTS...................................8

             5.1.   Time of Payment
             5.2.   Manner of Payment
             5.3.   Changes in Time and Manner of Payment
             5.4.   Change in Control Distributions
             5.5.   Acceleration of Payments
                    5.5.1.  When Available
                    5.5.2.  Forfeiture
             5.6.   Death Benefit
             5.7.   Beneficiary Designation

SECTION 6.   STOCK UNIT ACCOUNT...........................................10

             6.1.   Participant Accounts
             6.2.   Charges Against Accounts

SECTION 7.   FUNDING......................................................11

             7.1.   Funding
             7.2.   Corporate Obligation

SECTION 8.   FORFEITURE OF BENEFITS.......................................12

SECTION 9.   ADMINISTRATION...............................................13

             9.1.   Authority
             9.2.   Liability
             9.3.   Procedures
             9.4.   Claim for Benefits
             9.5.   Claims Procedure
                    9.5.1.  Original Claim
                    9.5.2.  Claims Review Procedure
                    9.5.3.  General Rules
             9.6.   Payments upon Imposition of Federal or State Taxes
             9.7.   Legal Fees
             9.8.   Errors in Computations


                                      -ii-



SECTION 10.  MISCELLANEOUS................................................16

             10.1.  Not an Employment Contract
             10.2.  Nontransferability
             10.3.  Tax Withholding
             10.4.  Expenses
             10.5.  Governing Law
             10.6.  Amendment and Termination
             10.7.  Rules of Interpretation

APPENDIX A   ESOP RESTORATION PLAN PARTICIPANTS..........................A-1















                                     -iii-


                             DONALDSON COMPANY, INC.
                              ESOP RESTORATION PLAN
                               (2003 RESTATEMENT)


                                    SECTION 1

                            ESTABLISHMENT AND PURPOSE

1.1. ESTABLISHMENT. Effective as of August 1, 1990, Donaldson Company, Inc.
established a nonqualified, unfunded supplemental deferred compensation plan for
a select group of highly compensated employees known as the "DONALDSON COMPANY,
INC. ESOP RESTORATION PLAN." Effective as of August 1, 2003, the Plan document
is amended and restated to be as set forth herein.

1.2. PURPOSE. The purposes of this Plan are to enable the Company to supplement
the benefits for a select group of management or highly compensated employees
under the Donaldson Company, Inc. Employee Stock Ownership Plan which will be
reduced because of the compensation limitation under section 401(a)(17) of the
Code; to provide a means whereby certain amounts payable by the Company to a
select group of management or highly compensated employees may be deferred to
some future period; and to attract and retain certain executive employees of
outstanding competence.







                                    SECTION 2

                                   DEFINITIONS

The following words and phrases shall have the following meanings, unless a
different meaning is plainly required by the context. Any masculine terminology
used in the Plan shall also include the feminine gender and the definition of
any terms in the singular shall also include the plural.

2.1. ACCOUNT-- the bookkeeping account established under this Plan for a
Participant pursuant to Section 6.1.

2.2. AFFILIATE -- a business entity which is under "common control" with the
Company or which is a member of an "affiliated service group" that includes the
Company, as those terms are defined in section 414(b), (c) and (m) of the Code.
A business entity shall also be treated as an Affiliate if, and to the extent
that, such treatment is required by regulations under section 414(o) of the
Code. In addition to said required treatment, the Committee may, in its
discretion, designate as an Affiliate any business entity which is not such a
"common control" or "affiliated service group" business entity but which is
otherwise affiliated with the Company, subject to such limitations as the
Committee may impose.

2.3. BENEFICIARY -- any person or entity validly designated by the Participant
in accordance with Section 5 to receive the benefits, if any, payable from the
Participant's Account after the Participant's death. Designated persons or
entities shall not be considered Beneficiaries until the death of the
Participant.

2.4. BOARD -- the Board of Directors of the Company.

2.5. CHANGE OF CONTROL-- a "Change in Control" shall be deemed to have occurred
if the event set forth in any one of the following paragraphs shall have
occurred:

         (a)      any Person is or becomes the Beneficial Owner, directly or
                  indirectly, of securities of the Company representing 25% or
                  more of the combined voting power of the Company's then
                  outstanding securities, excluding any Person who becomes such
                  a Beneficial Owner in connection with a transaction described
                  in clause (i) of paragraph (c) below; or

         (b)      the following individuals cease for any reason to constitute a
                  majority of the number of directors then serving: individuals
                  who, on the date hereof, constitute the Board and any new
                  director (other than a director whose initial assumption of
                  office is in connection with an actual or threatened election
                  contest, including but not limited to a consent solicitation,
                  relating to the election of directors of the Company) whose
                  appointment or election by the Board or nomination for
                  election by the Company's stockholders was approved or
                  recommended by a vote of at least two-thirds (2/3) of the
                  directors then still in office who either were


                                      -2-


                  directors on the date hereof or whose appointment, election or
                  nomination for election was previously so approved or
                  recommended; or

         (c)      there is consummated a merger or consolidation of the Company
                  or any direct or indirect subsidiary of the Company with any
                  other corporation, other than (i) a merger or consolidation
                  which would result in the voting securities of the Company
                  outstanding immediately prior to such merger or consolidation
                  continuing to represent (either by remaining outstanding or by
                  being converted into voting securities of the surviving entity
                  or any parent thereof), in combination with the ownership of
                  any trustee or other fiduciary holding securities under an
                  employee benefit plan of the Company or any subsidiary of the
                  Company, at least 60% of the combined voting power of the
                  securities of the Company or such surviving entity or any
                  parent thereof outstanding immediately after such merger or
                  consolidation, or (ii) a merger or consolidation effected to
                  implement a recapitalization of the Company (or similar
                  transaction) in which no Person is or becomes the Beneficial
                  Owner, directly or indirectly, of securities of the Company
                  representing 25% or more of the combined voting power of the
                  Company's then outstanding securities; or

         (d)      the stockholders of the Company approve a plan of complete
                  liquidation or dissolution of the Company or there is
                  consummated an agreement for the sale or disposition by the
                  Company of all or substantially all of the Company's assets,
                  other than a sale or disposition by the Company of all or
                  substantially all of the Company's assets to an entity, at
                  least 60% of the combined voting power of the voting
                  securities of which are owned by stockholders of the Company
                  in substantially the same proportions as their ownership of
                  the Company immediately prior to such sale.

Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions. Solely for
purposes of this Section 2.5, the following words and phrases shall have the
following meanings:

         2.5.1. AFFILIATE -- an "affiliate" within the meaning of Rule 12b-2
promulgated under Section 12 of the Exchange Act.

         2.5.2. BENEFICIAL OWNER -- a "beneficial owner" within the meaning of
Rule 13d-3 under the Exchange Act.

         2.5.3. EXCHANGE ACT -- the Securities Exchange Act of 1934, as amended
from time to time.


                                      -3-



         2.5.4. PERSON -- a "person" within the meaning of Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.

2.6. CODE -- the Internal Revenue Code of 1986, including applicable regulations
for the specified section of the Code. Any reference in this Plan Statement to a
section of the Code, including the applicable regulation, shall be considered
also to mean and refer to any subsequent amendment or replacement of that
section or regulation.

2.7. COMMITTEE -- the Human Resources Committee of the Board of Directors of the
Company.

2.8. COMPANY -- Donaldson Company, Inc. and, except in determining under Section
2.5 hereof whether or not any Change in Control has occurred, shall include any
successor by merger, purchase or otherwise.

2.9. DISABILITY, DISABLED -- a physical or mental impairment which constitutes
total and permanent disability and during which the Eligible Employee is not
receiving any payments of an Early Retirement Pension or a Vested Benefit under
the Pension Plan, and the Eligible Employee either:

         (a)      is eligible to receive long-term disability benefits under the
                  Company's separate long-term disability insurance plan (which
                  program shall be administered on a uniform and
                  nondiscriminatory basis); if such separate long-term
                  disability coverage is elected by the Eligible Employee, or

         (b)      is eligible to receive and is actually receiving (after the
                  applicable waiting period) benefits under the federal Social
                  Security Act as in effect at the time of the Disability.

2.10. EFFECTIVE DATE -- August 1, 1990, the original effective date of the Plan.
The amended Plan document as set forth herein is effective as of August 1, 2003.

2.11. ELIGIBLE EMPLOYEE -- an executive employee of the Company or its
Affiliates.

2.12. ERISA -- the Employee Retirement Income Security Act of 1974, including
applicable regulations for the specified section of ERISA. Any reference in this
Plan to a section of ERISA, including the applicable regulation, shall be
considered also to mean and refer to any subsequent amendment or replacement of
that section or regulation.

2.13. ESOP -- the tax-qualified, stock bonus plan known as the "Donaldson
Company, Inc. Employee Stock Ownership Plan (1987 Restatement)," as amended from
time to time.


                                      -4-



2.14. PARTICIPANT -- an Eligible Employee or a former Eligible Employee of the
Company or its Affiliates who has any amount credited to his or her Account in
this Plan.

2.15. PLAN -- the Donaldson Company, Inc. ESOP Restoration Plan as set forth
herein, and as the same may be amended from time to time.

2.16. STOCK UNITS -- the units (previously referred to as "Performance Units")
credited to a Participant's Account as provided in Section 4.1.

2.17. TERMINATION OF EMPLOYMENT -- the complete severance of an employee's
employment relationship with the Company and all Affiliates, if any, for any
reason other than the employee's death or Disability.

2.18. VESTED -- nonforfeitable.



                                      -5-



                                    SECTION 3

                                  PARTICIPATION

3.1. PARTICIPATION. Participation in the Plan on and after August 1, 2003 shall
be limited to the persons listed on Appendix A.

3.2. TERMINATION OF PARTICIPATION. A person shall cease to be a Participant as
soon as all amounts credited to the Participant's Account have been paid in
full.

3.3. OVERRIDING EXCLUSION. Notwithstanding anything apparently to the contrary
in this Plan or in any written communication, summary, resolution or document or
oral communication, no individual shall be a Participant in this Plan, develop
benefits under this Plan or be entitled to receive benefits under this Plan
(either for the employee or his or her survivors) unless such individual is a
member of a select group of management or highly compensated employees (as that
expression is used in ERISA). If a court of competent jurisdiction, any
representative of the U.S. Department of Labor or any other governmental,
regulatory or similar body makes any direct or indirect, formal or informal,
determination that an individual is not a member of a select group of management
or highly compensated employees (as that expression is used in ERISA), such
individual shall not be (and shall not have ever been) a Participant in this
Plan at any time. If any person not so defined has been erroneously treated as a
Participant in this Plan, upon discovery of such error such person's erroneous
participation shall immediately terminate AB INITIO and upon demand such person
shall be obligated to reimburse the Company for all amounts erroneously paid to
him or her.



                                      -6-



                                    SECTION 4

                                   STOCK UNITS

4.1. STOCK UNITS. The number of Stock Units credited to a Participant's Account
shall equal the number credited as of that date under the terms of this Plan
then in effect, subject to any:

         (a)      adjustment pursuant to Section 4.2;

         (b)      increase pursuant to Section 4.3; or

         (c)      reduction due to payments made, as provided in Section 6.2.

4.2. ADJUSTMENT. In the event of any change in the outstanding shares of common
stock of the Company by reason of any stock split or stock dividend in the form
of a split, the Committee shall adjust the number of Stock Units in a
Participant's Account so that such number equals the number of Stock Units in
the Account prior to the event, multiplied by a fraction, the denominator of
which is the number of Stock Units in the Account prior to the event, and the
numerator of which is the number of shares of Common Stock the Participant would
have had after the event if the Participant had shares of Common Stock
immediately prior to the event equal in number to the number of Stock Units in
the Participant's Account immediately prior to the event. In the event of any
dividend (other than a stock dividend in the form of a split), recapitalization,
merger, consolidation, spinoff, reorganization, combination or exchange of
shares or other similar corporate change, then if the Committee, or the board of
directors of a successor corporation, shall determine, in its sole discretion,
that such change equitably requires an adjustment in the number of Stock Units
then held in the Participant's Account, such adjustment shall be made by the
Committee or said board and shall be conclusive and binding for all purposes of
the Plan.

4.3. DIVIDEND UNITS. The number of Stock Units in a Participant's Account shall
be automatically increased as of each Common Stock dividend payment date in an
amount equal to the number of shares of Common Stock that could be purchased on
such dividend payment date with the cash dividends that would be paid on a
number of shares of Common Stock equal to the number of Stock Units in the
Participant's Account on the record date for such dividend.

4.4. VESTING. Subject to the forfeiture provisions of Section 8, the Accounts of
all Participants shall be 100% Vested at all times.



                                      -7-



                                    SECTION 5

                           TIME AND MANNER OF PAYMENTS

5.1. TIME OF PAYMENT. Payment of a Participant's Account under the Plan will
commence as soon as administratively feasible (but no more than twenty (20)
days) following the occurrence of the earliest of the following events:

         (a)      death,

         (b)      Disability, or

         (c)      the date of distribution selected by the Participant in
                  writing at a time and on a form prescribed by the Committee.

Payment of a Participant's Account may not begin prior to the Participant's
Termination of Employment.

5.2. MANNER OF PAYMENT. A Participant's Account will be paid to the Participant
in either a single lump-sum payment or in annual installments of not more than
twenty (20) years. The Participant must elect a manner of payment at the time
the Participant elects his or her date of distribution pursuant to Section
5.1(c). In the event no election was made by the Participant, payment shall be
in a single lump-sum. Payment to the Participant shall be made, net of
withholding taxes, exclusively in shares of Common Stock, one share for each
Stock Unit distributed. For purposes of determining any tax withholding on a
payment, the value of Common Stock will be the market price of such Common Stock
as of the close of business on the day prior to the date as of which the payment
is made.

5.3. CHANGES IN TIME AND MANNER OF PAYMENT. Notwithstanding the foregoing, a
Participant may make a new election concerning selection of the time and form of
payment authorized pursuant to this Section 5 (the "New Election") in accordance
with the following terms and conditions, unless waived or modified by the
Committee:

         (a)      A New Election shall only be permitted once and must be made
                  and become effective as hereinafter provided, if at all, prior
                  to the Participant's Termination of Employment, death or
                  Disability, whichever happens first;

         (b)      A New Election shall become effective twelve months after it
                  is received by the Company; and

         (c)      If any of the events set forth in Section 5.1 of the Plan
                  occur prior to the effective date of a New Election with
                  respect to previously credited deferrals, then payments shall
                  be paid hereunder to or with respect to the Participant
                  according to the elections in effect at the time of the event.


                                      -8-



5.4. CHANGE IN CONTROL DISTRIBUTIONS. Notwithstanding any other provision of
this Section 5, a Participant or Beneficiary will receive a distribution of his
or her entire Account if a Change in Control occurs. Distribution of the entire
Account shall be made on the date of the Change in Control. Such distribution
shall be made in a single lump-sum cash payment.

5.5. ACCELERATION OF PAYMENTS.

         5.5.1. WHEN AVAILABLE. A Participant or Beneficiary whose Termination
of Employment has occurred may receive an accelerated payment of his or her
entire Account (after reduction for the forfeiture described in Section 5.5.2).
To receive such an accelerated payment, the Participant or Beneficiary must file
a written payment application with the Committee. Payment of the accelerated
payment (after reduction for the forfeiture described in Section 5.5.2) shall be
made as soon as administratively feasible (but no more than twenty (20) days)
following the approval of a completed application by the Committee. Such
accelerated payment shall be made in a lump-sum stock distribution. The amount
of the accelerated payment shall be equal to the value of the Account as of such
distribution date (after reduction for the forfeiture described below).

         5.5.2. FORFEITURE. Upon the approval of an accelerated payment, there
shall be irrevocably forfeited from the Account of the Participant or
Beneficiary an amount equal to ten percent (10%) of the Account.

5.6. DEATH BENEFIT. In the event of a Participant's death, the Company shall pay
the amount of the Participant's Account as of the date of death (as adjusted
from time to time pursuant to Section 6.2) in a lump-sum or in installments, as
previously elected by the Participant, to the Participant's designated
Beneficiary as soon as administratively feasible. In the event no election was
made by the Participant, payment shall be in a single lump-sum stock
distribution (and cash for fractional shares).

5.7. BENEFICIARY DESIGNATION. A Participant shall submit to the Company upon
initial designation as an Eligible Employee in the Plan, and at such other times
as the Participant desires, on a form provided by the Committee, a written
designation of the beneficiary or beneficiaries to whom payment of the
Participant's Account under the Plan shall be made in the event of the
Participant's death. Beneficiary designations shall become effective only when
received by the Company. Beneficiary designations first received by the Company
after the Participant's death, and any designations in effect at the time a
valid subsequent designation is received by the Company, shall be invalid and
have no effect. If a Participant has not designated a Beneficiary, or if no
designated Beneficiary is living on the date of distribution, the Participant's
Account shall be distributed to those persons entitled to receive the
Participant's benefit under the Donaldson Company, Inc. Salaried Employees'
Pension Plan (1997 Restatement), as amended from time to time.



                                      -9-



                                    SECTION 6

                               STOCK UNIT ACCOUNT

6.1. PARTICIPANT ACCOUNTS. The Committee shall cause a bookkeeping account to be
kept in the name of each Participant which shall reflect the Stock Units
credited to a Participant.

6.2. CHARGES AGAINST ACCOUNTS. There shall be charged against each Participant's
bookkeeping account any payments made to the Participant or the Participant's
Beneficiary in accordance with Section 5.









                                      -10-



                                    SECTION 7

                                     FUNDING

7.1. FUNDING. The Company and its Affiliates shall be responsible for paying all
benefits due hereunder. For the purpose of facilitating the payment of benefits
due hereunder, the Company may (but shall not be required to) establish and
maintain a grantor trust pursuant to an Agreement between the Company and a
trustee selected by the Company; provided, however, that any such grantor trust
must be structured so that it does not result in any federal income tax
consequences to any Participant until distributions under Section 5 are actually
received. The Company may contribute to a grantor trust thereby created such
amounts as it may from time to time determine.

7.2. CORPORATE OBLIGATION. Neither the officers nor any member of the Board of
Directors of the Company or any of its Affiliates in any way secures or
guarantees the payment of any benefit or amount which may become due and payable
hereunder to or with respect to any Participant. Each Participant and other
person entitled at anytime to payments hereunder shall look solely to the assets
of the Company and its Affiliates for such payments as an unsecured, general
creditor. Nothing herein shall be construed to give a Participant, Beneficiary
or any other person or persons any right, title, interest or claim in or to any
specific asset, fund, reserve, account or property of any kind whatsoever owned
by the Company or in which it may have any right, title or interest now or in
the future. After benefits shall have been paid to or with respect to a
Participant and such payment purports to cover in full the benefit hereunder,
such former Participant or other person or persons, as the case may be, shall
have no further right or interest in the other assets of the Company and its
Affiliates in connection with this Plan.









                                      -11-




                                    SECTION 8

                             FORFEITURE OF BENEFITS

All unpaid benefits under this Plan shall be permanently forfeited if the
Participant is discharged from employment with the Company for cause, or if the
Committee determines that the Participant:

         (a)      engaged in competition with the Company during, or within two
                  years following, his termination of employment with the
                  Company; or

         (b)      performed acts of willful malfeasance or gross negligence in a
                  matter of material importance to the Company.
















                                      -12-


                                    SECTION 9

                                 ADMINISTRATION

9.1. AUTHORITY. The Plan shall be administered by the Committee, which shall
have full discretionary power and authority to administer and interpret the Plan
and to determine all factual and legal questions under the Plan, including but
not limited to the entitlement of Participants and Beneficiaries, and the amount
of their respective interests.

9.2. LIABILITY. No member of the Committee and no director or member of the
management of the Company or its Affiliates shall be liable to any persons for
any actions taken under the Plan, or for any failure to effect any of the
objective or purposes of the Plan, by reason of insolvency or otherwise.

9.3. PROCEDURES. The Committee may from time to time adopt such rules and
procedures as it deems appropriate to assist in the administration of the Plan.

9.4. CLAIM FOR BENEFITS. No employee or other person shall have any claim or
right to payment of any amount hereunder until payment has been authorized and
directed by the Committee.

9.5. CLAIMS PROCEDURE. Until modified by the Committee, the claims procedure set
forth in this Section 9.5 shall be the claims procedure for the resolution of
disputes and disposition of claims arising under the Plan.

         9.5.1. ORIGINAL CLAIM. Any employee, former employee, or Beneficiary of
such employee or former employee may, if the employee, former employee or
Beneficiary so desires, file with the Committee a written claim for benefits
under the Plan. Within ninety (90) days after the filing of such a claim, the
Committee shall notify the claimant in writing whether the claim is upheld or
denied in whole or in part or shall furnish the claimant a written notice
describing specific special circumstances requiring a specified amount of
additional time (but not more than one hundred eighty (180) days from the date
the claim was filed) to reach a decision on the claim. If the claim is denied in
whole or in part, the Committee shall state in writing:

         (a)      the specific reasons for the denial,

         (b)      the specific references to the pertinent provisions of this
                  Plan on which the denial is based,

         (c)      a description of any additional material or information
                  necessary for the claimant to perfect the claim and an
                  explanation of why such material or information is necessary,
                  and

         (d)      an explanation of the claims review procedure set forth in
                  this Section.


                                      -13-



         9.5.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt of
notice that the claim has been denied in whole or in part, the claimant may file
with the Committee a written request for a review and may, in conjunction
therewith, submit written issues and comments. Within sixty (60) days after the
filing of such a request for review, the Committee shall notify the claimant in
writing whether, upon review, the claim was upheld or denied in whole or in part
or shall furnish the claimant a written notice describing specific special
circumstances requiring a specified amount of additional time (but not more than
one hundred twenty days (120) from the date the request for review was filed) to
reach a decision on the request for review.

         9.5.3. GENERAL RULES.

         (a)      No inquiry or question shall be deemed to be a claim or a
                  request for a review of a denied claim unless made in
                  accordance with the claims procedure. The Committee may
                  require that any claim for benefits and any request for a
                  review of a denied claim be filed on forms to be furnished by
                  the Committee upon request.

         (b)      All decisions on original claims shall be made by the
                  Committee and requests for a review of denied claims shall be
                  made by the Committee.

         (c)      The Committee may, in its discretion, hold one or more
                  hearings on a claim or a request for a review of a denied
                  claim.

         (d)      Claimants may be represented by a lawyer or other
                  representative at their own expense, but the Committee
                  reserves the right to require the claimant to furnish written
                  authorization. A claimant's representative shall be entitled
                  to copies of all notices given to the claimant.

         (e)      The decision of the Committee on an original claim or on a
                  request for a review of a denied claim shall be served on the
                  claimant in writing. If a decision or notice is not received
                  by a claimant within the time specified, the claim or request
                  for a review of a denied claim shall be deemed to have been
                  denied.

         (f)      Prior to filing a claim or a request for a review of a denied
                  claim, the claimant or the claimant's representative shall
                  have a reasonable opportunity to review a copy of this Plan
                  Statement and all other pertinent documents in the possession
                  of the Company and its Affiliates.

9.6. PAYMENTS UPON IMPOSITION OF FEDERAL OR STATE TAXES. If any Participant is
determined to be subject to federal or state income tax on any amount accrued on
his or her behalf under this Plan prior to the time of payment hereunder,
federal or state taxes attributable to the amount determined to be so taxable
shall be distributed by the Plan to such Participant. An amount accrued on his
or her behalf under this Plan shall be determined to be subject to federal
income tax upon the earliest of:


                                      -14-



                  (i)      a final determination by the United States Internal
                           Revenue Service addressed to the Participant which is
                           not appealed to the courts;

                  (ii)     a final determination by the United States Tax Court
                           or any other Federal Court affirming any such
                           determination by the Internal Revenue Service; or

                  (iii)    an opinion by the Tax Counsel of the Company,
                           addressed to the Company that, by reason of Treasury
                           Regulations, amendments to the Internal Revenue Code,
                           published Internal Revenue Service rulings, court
                           decisions or other substantial precedent, amounts
                           accrued on a Participant's behalf hereunder are
                           subject to federal or state income tax prior to
                           payment.

The Company shall undertake at its sole expense to defend any tax claims
described herein which are asserted by the Internal Revenue Service or by any
state revenue authority against any Participant, including attorney fees and
costs of appeal, and shall have the sole authority to determine whether or not
to appeal any determination made by the Internal Revenue Service, by any state
revenue authority or by a lower court. The Company also agrees to reimburse any
Participant for any interest or penalties in respect of federal or state tax
claims hereunder upon receipt of documentation of same.

9.7. LEGAL FEES. If the Company does not pay the benefits required under the
terms of the Plan for reasons other than the insolvency of the Company, the
Company agrees to reimburse any Participant for all legal fees incurred in
enforcing his or her claim to benefits under the Plan.

9.8. ERRORS IN COMPUTATIONS. The Committee shall not be liable or responsible
for any error in the computation of any benefit payable to or with respect to
any Participant resulting from any misstatement of fact made by the Participant
or by or on behalf of any Beneficiary to whom such benefit shall be payable,
directly or indirectly, to the Committee, and used by the Committee in
determining the benefit. The Committee shall not be obligated or required to
increase the benefit payable to or with respect to such Participant which, on
discovery of the misstatement, is found to be understated as a result of such
misstatement of the Participant. However, the benefit of any Participant which
is overstated by reason of any such misstatement or any other reason shall be
reduced to the amount appropriate in view of the truth (and to recover any prior
overpayment).



                                      -15-


                                   SECTION 10

                                  MISCELLANEOUS

10.1. NOT AN EMPLOYMENT CONTRACT. This Plan is not and shall not be deemed to
constitute a contract of employment between the Company and any employee or
other person, nor shall anything herein contained be deemed to give any employee
or other person any right to be retained in the Company's employ or in any way
limit or restrict the Company's right or power to discharge any employee or
other person at any time and to treat him without regard to the effect which
such treatment might have upon the employee as a Participant in the Plan.

10.2. NONTRANSFERABILITY. A Participant's rights and interest under the Plan,
including amounts payable, may not be assigned, alienated, pledged or
transferred except, in the event of a Participant's death to his Beneficiary. No
benefit payable under this Plan shall be subject to attachment, garnishment,
execution following judgment or other legal process before actual payment to the
Participant or Beneficiary.

10.3. TAX WITHHOLDING. The Company shall withhold the amount of any federal,
state or local income tax or other tax required to be withheld by the Company
under applicable law with respect to any amount payable under the Plan. Any cash
payable in lieu of fractional shares shall be applied to the payment of tax
withholding. The Participant shall not be liable for any tax withholding.

10.4. EXPENSES. All expenses of administering the Plan shall be borne by the
Company.

10.5. GOVERNING LAW. Except to the extent that federal law is controlling, the
Plan shall be construed and enforced in accordance with and governed by the laws
of the State of Minnesota.

10.6. AMENDMENT AND TERMINATION. The Company reserves the power to unilaterally
amend this Plan at any time, either prospectively or retroactively or both by
action of the Committee (with the written concurrence of the Chief Executive
Officer of the Company). The Committee may likewise terminate or curtail the
benefits of this Plan both with regard to persons expecting to receive benefits
in the future and persons already receiving benefits at the time of such action;
provided, however, that the Committee may not amend or terminate the Plan with
respect to benefits that have accrued and are Vested pursuant to Section 4 in
any manner that reduces the amount of such benefits or alters the effect of any
participant election previously filed with the Company. No modification of the
terms of this Plan shall be effective unless it is in writing and signed on
behalf of the Company by a person authorized to execute such writing. No oral
representation concerning the interpretation or effect of this Plan shall be
effective to amend the Plan.

10.7. RULES OF INTERPRETATION. The titles given to the various sections of this
Plan are inserted for convenience of reference only and are not part of this
Plan, and they shall not be considered in determining the purpose, meaning or
intent of any provision hereof. This Plan shall be construed and this Plan shall
be administered to create an unfunded plan providing


                                      -16-



deferred compensation to a select group of management or highly compensated
employees so that it is exempt from the requirements of Parts 2, 3 and 4 of
Title I of ERISA and qualifies for a form of simplified, alternative compliance
with the reporting and disclosure requirements of Part 1 of Title I of ERISA.


































                                      -17-

EX-10.I

                                                                    Exhibit 10-I








                             DONALDSON COMPANY, INC.
                               EXCESS PENSION PLAN
                               (2003 RESTATEMENT)


             As Amended and Restated Effective as of August 1, 2003






                             DONALDSON COMPANY, INC.
                               EXCESS PENSION PLAN
                               (2003 RESTATEMENT)


                                TABLE OF CONTENTS

                                                                           PAGE


SECTION 1.   ESTABLISHMENT AND PURPOSE.......................................1

             1.1.   Establishment
             1.2.   Purpose

SECTION 2.   DEFINITIONS.....................................................2

             2.1.   Account
             2.2.   Affiliate
             2.3.   Beneficiary
             2.4.   Board
             2.5.   Change of Control
                    2.5.1.   Affiliate
                    2.5.2.   Beneficial Owner
                    2.5.3.   Exchange
                    2.5.4.   Person
             2.6.   Code
             2.7.   Committee
             2.8.   Company
             2.9.   Compensation
             2.10.  Compensation Credit
             2.11.  Deferral Credit
             2.12.  Deferred Compensation Plan
             2.13.  Disability, Disabled
             2.14.  Effective Date
             2.15.  Eligible Employee
             2.16.  ERISA
             2.17.  Participant
             2.18.  Pay Credit
             2.19.  Pension Account Balance
             2.20.  Pension Plan
             2.21.  Plan
             2.22.  Plan Year
             2.23.  Termination of Employment
             2.24.  Vested


                                      -i-



SECTION 3.   ELIGIBILITY AND PARTICIPATION...................................6

             3.1.   Eligibility
             3.2.   Commencement of Participation
             3.3.   Termination of Participation
             3.4.   Overriding Exclusion

SECTION 4.   CREDITED AMOUNTS................................................8

             4.1.   Initial Credit
             4.2.   Compensation Credit
             4.3.   415 Credit
             4.4.   Vesting

SECTION 5.   TIME AND MANNER OF PAYMENTS.....................................9

             5.1.   Time of Payment
             5.2.   Manner of Payment
             5.3.   Changes in Time and Manner of Payment
             5.4.   Change in Control Distributions
             5.5.   Acceleration of Payments
                    5.5.1.   When Available
                    5.5.2.   Forfeiture
             5.6.   Death Benefit
             5.7.   Beneficiary Designation

SECTION 6.   FUNDING........................................................11

             6.1.   Participant Accounts
             6.2.   Investment of Accounts
             6.3.   Charges Against Accounts

SECTION 7.   ACCOUNT........................................................12

             7.1.   Funding
             7.2.   Corporate Obligation

SECTION 8.   FORFEITURE OF BENEFITS.........................................13


SECTION 9.   ADMINISTRATION.................................................14

             9.1.   Authority
             9.2.   Liability
             9.3.   Procedures
             9.4.   Claim for Benefits
             9.5.   Claims Procedure
                    9.5.1.   Original Claim


                                      -ii-



                    9.5.2.   Claims Review Procedure
                    9.5.3.   General Rules
             9.6.   Payments upon Imposition of Federal or State Taxes
             9.7.   Legal Fees
             9.8.   Errors in Computations





SECTION 10.  MISCELLANEOUS..................................................17

             10.1.  Not an Employment Contract
             10.2.  Nontransferability
             10.3.  Tax Withholding
             10.4.  Expenses
             10.5.  Governing Law
             10.6.  Amendment and Termination
             10.7.  Rules of Interpretation





















                                     -iii-


                             DONALDSON COMPANY, INC.
                               EXCESS PENSION PLAN
                               (2003 RESTATEMENT)


                                    SECTION 1

                            ESTABLISHMENT AND PURPOSE

1.1. ESTABLISHMENT. Effective as of August 1, 2003, Donaldson Company, Inc.
hereby amends and restates its unfunded, nonqualified deferred compensation plan
for a select group of highly compensated employees known as the "DONALDSON
COMPANY, INC. EXCESS PENSION PLAN".

Except as may be hereinafter specifically provided, this amended and restated
Plan document shall not affect the rights of, or benefits payable to or with
respect to, any Participant who died, retired or otherwise terminated employment
prior to August 1, 2003. Except as hereinafter specifically provided, the rights
of, and benefits payable to or with respect to, all such persons shall be
governed under the Plan documents as in effect at the time of such death,
retirement or other termination of employment.

1.2. PURPOSE. The purpose of this Plan is to enable the Company to replace
benefits that will not be paid to a select group of management or highly
compensated employees under the Donaldson Company, Inc. Salaried Employees'
Pension Plan because of: (i) the limitation on benefits under section 415 of the
Code, (ii) the compensation limitation under section 401(a)(17) of the Code, and
(iii) the voluntary deferral of compensation under the nonqualified deferred
compensation plan maintained by Donaldson Company, Inc. known as the Donaldson
Company, Inc. Deferred Compensation and 401(k) Excess Plan and prior
nonqualified deferred compensation arrangements.





















                                    SECTION 2

                                   DEFINITIONS

The following words and phrases shall have the following meanings, unless a
different meaning is plainly required by the context. Any masculine terminology
used in the Plan shall also include the feminine gender and the definition of
any terms in the singular shall also include the plural.

2.1. ACCOUNT -- the account established under this Plan for a Participant
pursuant to Section 6.1.

2.2. AFFILIATE -- a business entity which is under "common control" with the
Company or which is a member of an "affiliated service group" that includes the
Company, as those terms are defined in section 414(b), (c) and (m) of the Code.
A business entity shall also be treated as an Affiliate if, and to the extent
that, such treatment is required by regulations under section 414(o) of the
Code. In addition to said required treatment, the Committee may, in its
discretion, designate as an Affiliate any business entity which is not such a
"common control" or "affiliated service group" business entity but which is
otherwise affiliated with the Company, subject to such limitations as the
Committee may impose.

2.3. BENEFICIARY -- any person or entity validly designated by the Participant
in accordance with Section 5 to receive the benefits, if any, payable from the
Participant's Account after the Participant's death. Designated persons or
entities shall not be considered Beneficiaries until the death of the
Participant.

2.4. BOARD -- the Board of Directors of the Company.

2.5. CHANGE OF CONTROL -- a "Change in Control" shall be deemed to have occurred
if the event set forth in any one of the following paragraphs shall have
occurred:

         (a)      any Person is or becomes the Beneficial Owner, directly or
                  indirectly, of securities of the Company representing 25% or
                  more of the combined voting power of the Company's then
                  outstanding securities, excluding any Person who becomes such
                  a Beneficial Owner in connection with a transaction described
                  in clause (i) of paragraph (c) below; or

         (b)      the following individuals cease for any reason to constitute a
                  majority of the number of directors then serving: individuals
                  who, on the date hereof, constitute the Board and any new
                  director (other than a director whose initial assumption of
                  office is in connection with an actual or threatened election
                  contest, including but not limited to a consent solicitation,
                  relating to the election of directors of the Company) whose
                  appointment or election by the Board or nomination for
                  election by the Company's stockholders was approved or
                  recommended by a vote of at least two-thirds (2/3) of the
                  directors then still in office who either were


                                      -2-



                  directors on the date hereof or whose appointment, election or
                  nomination for election was previously so approved or
                  recommended; or

         (c)      there is consummated a merger or consolidation of the Company
                  or any direct or indirect subsidiary of the Company with any
                  other corporation, other than (i) a merger or consolidation
                  which would result in the voting securities of the Company
                  outstanding immediately prior to such merger or consolidation
                  continuing to represent (either by remaining outstanding or by
                  being converted into voting securities of the surviving entity
                  or any parent thereof), in combination with the ownership of
                  any trustee or other fiduciary holding securities under an
                  employee benefit plan of the Company or any subsidiary of the
                  Company, at least 60% of the combined voting power of the
                  securities of the Company or such surviving entity or any
                  parent thereof outstanding immediately after such merger or
                  consolidation, or (ii) a merger or consolidation effected to
                  implement a recapitalization of the Company (or similar
                  transaction) in which no Person is or becomes the Beneficial
                  Owner, directly or indirectly, of securities of the Company
                  representing 25% or more of the combined voting power of the
                  Company's then outstanding securities; or

         (d)      the stockholders of the Company approve a plan of complete
                  liquidation or dissolution of the Company or there is
                  consummated an agreement for the sale or disposition by the
                  Company of all or substantially all of the Company's assets,
                  other than a sale or disposition by the Company of all or
                  substantially all of the Company's assets to an entity, at
                  least 60% of the combined voting power of the voting
                  securities of which are owned by stockholders of the Company
                  in substantially the same proportions as their ownership of
                  the Company immediately prior to such sale.

Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions. Solely for
purposes of this Section 2.5, the following words and phrases shall have the
following meanings:

         2.5.1. AFFILIATE -- an "affiliate" within the meaning of Rule 12b-2
promulgated under Section 12 of the Exchange Act.

         2.5.2. BENEFICIAL OWNER -- a "beneficial owner" within the meaning of
Rule 13d-3 under the Exchange Act.

         2.5.3. EXCHANGE ACT -- the Securities Exchange Act of 1934, as amended
from time to time.



                                       -3-


         2.5.4. PERSON -- a "person" within the meaning of Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.

2.6. CODE -- the Internal Revenue Code of 1986, including applicable regulations
for the specified section of the Code. Any reference in this Plan Statement to a
section of the Code, including the applicable regulation, shall be considered
also to mean and refer to any subsequent amendment or replacement of that
section or regulation.

2.7. COMMITTEE -- the Human Resources Committee of the Board of Directors of the
Company.

2.8. COMPANY -- Donaldson Company, Inc. and, except in determining under Section
2.5 hereof whether or not any Change in Control has occurred, shall include any
successor by merger, purchase or otherwise.

2.9. COMPENSATION -- the amount of remuneration paid to an Eligible Employee
that was treated as "Compensation" for the purpose of calculating Pay Credits.

2.10. COMPENSATION CREDIT -- any amount credited to an Eligible Employee in
accordance with Section 4.1.

2.11. DEFERRAL CREDIT -- any amount credited to an Eligible Employee under
Section 4.1, 4.2 or 4.3 of the Deferred Compensation Plan.

2.12. DEFERRED COMPENSATION PLAN -- the nonqualified deferred compensation plan
known as the "Donaldson Company, Inc. Deferred Compensation and 401(k) Excess
Plan," as amended from time to time.

2.13. DISABILITY, DISABLED -- a physical or mental impairment which constitutes
total and permanent disability and during which the Eligible Employee is not
receiving any payments of an Early Retirement Pension or a Vested Benefit under
the Pension Plan, and the Eligible Employee either:

         (a)      is eligible to receive long-term disability benefits under the
                  Company's separate long-term disability insurance plan (which
                  program shall be administered on a uniform and
                  nondiscriminatory basis); if such separate long-term
                  disability coverage is elected by the Eligible Employee, or

         (b)      is eligible to receive and is actually receiving (after the
                  applicable waiting period) benefits under the federal Social
                  Security Act as in effect at the time of the Disability.



                                       -4-


2.14. EFFECTIVE DATE -- the amended and restated Plan document as set forth
herein is effective as of August 1, 2003.

2.15. ELIGIBLE EMPLOYEE -- any executive employee of the Company or its
Affiliates who, for the Plan Year at issue, meets all of the requirements of
Section 3.1.

2.16. ERISA -- the Employee Retirement Income Security Act of 1974, including
applicable regulations for the specified section of ERISA. Any reference in this
Plan to a section of ERISA, including the applicable regulation, shall be
considered also to mean and refer to any subsequent amendment or replacement of
that section or regulation.

2.17. PARTICIPANT -- an Eligible Employee or a former Eligible Employee of the
Company or its Affiliates who has any amount credited to his or her Account in
this Plan.

2.18. PAY CREDIT -- a pay-related amount credited to the Pension Account Balance
of a Participant under the Pension Plan.

2.19. PENSION ACCOUNT BALANCE -- the Participant's "Account Balance" in the
Pension Plan, as defined under by Pension Plan.

2.20. PENSION PLAN -- the tax-qualified pension plan known as the "Donaldson
Company, Inc. Salaried Employees' Pension Plan (1997 Restatement)," as amended
from time to time.

2.21. PLAN -- the Donaldson Company, Inc. Excess Pension Plan as set forth
herein, and as the same may be amended from time to time.

2.22. PLAN YEAR -- the period commencing on August 31, 1997 and ending July 31,
1998, and thereafter, the twelve (12) consecutive month period ending on any
July 31.

2.23. TERMINATION OF EMPLOYMENT -- the complete severance of an employee's
employment relationship with the Company and all Affiliates, if any, for any
reason other than the employee's death or Disability.

2.24. VESTED -- nonforfeitable.












                                      -5-


                                    SECTION 3

                          ELIGIBILITY AND PARTICIPATION

3.1. ELIGIBILITY. An executive employee of the Company or its Affiliates shall
be an Eligible Employee for a Plan Year if the executive employee is
affirmatively selected by the Committee, and:

         (a)      the employee is entitled to a Pay Credit for the Plan Year and

                  (i)      the employee's rate of Compensation for the Plan Year
                           exceeds the annual compensation limit then in effect
                           under Code section 401(a)(17), or

                  (ii)     the employee elects to have a portion of his or her
                           Compensation credited as a "Deferral Credit" under
                           the Deferred Compensation Plan, or

         (b)      the employee has a Termination of Employment during the Plan
                  Year, and the Pension Plan benefit payable to the employee at
                  the earliest opportunity following such Termination of
                  Employment is limited by reason of the limitation on benefits
                  under Code section 415.

Committee selections shall continue in effect until rescinded by the Committee.
The Committee may rescind its selection of an Eligible Employee and discontinue
an employee's active participation in the Plan at any time.

3.2. COMMENCEMENT OF PARTICIPATION. An Eligible Employee shall become a
Participant in the Plan when the Eligible Employee is first credited with any
amount pursuant to Section 4.

3.3. TERMINATION OF PARTICIPATION. A person shall cease to be a Participant as
soon as all amounts credited to the Participant's Account have been paid in
full.

3.4. OVERRIDING EXCLUSION. Notwithstanding anything apparently to the contrary
in this Plan or in any written communication, summary, resolution or document or
oral communication, no individual shall be a Participant in this Plan, develop
benefits under this Plan or be entitled to receive benefits under this Plan
(either for the employee or his or her survivors) unless such individual is a
member of a select group of management or highly compensated employees (as that
expression is used in ERISA). If a court of competent jurisdiction, any
representative of the U.S. Department of Labor or any other governmental,
regulatory or similar body makes any direct or indirect, formal or informal,
determination that an individual is not a member of a select group of management
or highly compensated employees (as that expression is used in ERISA), such
individual shall not be (and shall not have ever been) a Participant in this
Plan at any time. If any person not so defined has been erroneously treated as a
Participant in this Plan, upon discovery of such error such person's erroneous
participation shall immediately terminate AB



                                       -6-



INITIO and upon demand such person shall be obligated to reimburse the Company
for all amounts erroneously paid to him or her.





























                                      -7-


                                    SECTION 4

                                CREDITED AMOUNTS

4.1. INITIAL CREDIT. The Account of each person who is an Eligible Employee on
the Effective Date shall be credited as of the Effective Date with an
additional, one-time Compensation Credit equal to the difference between the
initial amount actually credited to the Eligible Employee's Pension Account
Balance as of August 31, 1997 pursuant to Section 1.3.1(b) of the Pension Plan,
and the amount that would have been so credited if the Eligible Employee's
accrued benefit under the Pension Plan as of August 1, 1997 had been determined
without regard to the compensation limit under section 401(a)(17) of the Code
and without excluding any compensation deferred under a nonqualified deferred
compensation plan maintained by the Company.

4.2. COMPENSATION CREDIT. The Account of each employee who is an Eligible
Employee for a Plan Year shall be credited with a Compensation Credit for that
Plan Year equal to the amount, if any, of the Pay Credits the Eligible Employee
did not receive under the Pension Plan, but would have been entitled to receive
under the Pension Plan for that Plan Year if:

         (a)      the Eligible Employee had not elected to have Deferral Credits
                  credited to his or her account under the Deferred Compensation
                  Plan; and

         (b)      the Eligible Employee's Compensation for purposes of the
                  Pension Plan was not limited by the annual compensation limit
                  under section 401(a)(17) of the Code.

4.3. 415 CREDIT. The Eligible Employee's Account, for the Plan Year in which an
Eligible Employee's Termination of Employment occurs, also shall be credited
with a one-time Compensation Credit equal to the difference, if any, between the
amount that would be payable to the Eligible Employee under the Pension Plan if
the Eligible Employee received his or her entire benefit under the Pension Plan
in the form of a single lump-sum distribution at the earliest opportunity
following such Termination of Employment, and the amount that would have been so
payable if the limitation on benefits under Code section 415 did not apply. In
the event a former Participant is rehired after receiving a payment under this
Plan and the individual later becomes entitled to another payment from this
Plan, the amount credited pursuant to this Section 4.3 shall be reduced (but not
to less than zero) by any amounts previously credited under this Section.

4.4. VESTING. Subject to the forfeiture provisions of Section 8, the Account of
a Participant shall be 100% Vested at all times after the Participant becomes
Vested in his or her benefits under the Pension Plan.



                                      -8-


                                    SECTION 5

                           TIME AND MANNER OF PAYMENTS

5.1. TIME OF PAYMENT. Payment of a Participant's Account under the Plan will
commence as soon as administratively feasible (but no more than twenty (20)
days) following the occurrence of the earliest of the following events:

         (a)      death,

         (b)      Disability, or

         (c)      the date of distribution selected by the Participant in
                  writing at a time and on a form prescribed by the Committee,
                  but not prior to the Participant's Termination of Employment.

5.2. MANNER OF PAYMENT. A Participant's Account will be paid in cash to the
Participant in either a single lump-sum payment or in annual installments of not
more than twenty (20) years. The Participant must elect a manner of payment at
the time the Participant elects his or her date of distribution pursuant to
Section 5.1(c). In the event no election was made by the Participant, payment
shall be in a single lump-sum.

5.3. CHANGES IN TIME AND MANNER OF PAYMENT. Notwithstanding the foregoing, a
Participant may make a new election concerning selection of the time and form of
payment authorized pursuant to this Section 5.3 (the "New Election") in
accordance with the following terms and conditions, unless waived or modified by
the Committee:

         (a)      A New Election shall only be permitted once and must be made
                  and become effective as hereinafter provided, if at all, prior
                  to the Participant's Termination of Employment, death or
                  Disability, whichever happens first;

         (b)      A New Election shall become effective twelve months after it
                  is received by the Company; and

         (c)      If any of the events set forth in Section 5.1 of the Plan
                  occur prior to the effective date of a New Election with
                  respect to previously credited deferrals, then payments shall
                  be paid hereunder to or with respect to the Participant
                  according to the elections in effect at the time of the event.

5.4. CHANGE IN CONTROL DISTRIBUTIONS. Notwithstanding any other provision of
this Section 5, a Participant or Beneficiary will receive a distribution of his
or her entire Account if a Change in Control occurs. Distribution of the entire
Account shall be made on the date of the Change in Control. Such distribution
shall be made in a lump-sum cash payment.



                                       -9-


5.5. ACCELERATION OF PAYMENTS.

         5.5.1. WHEN AVAILABLE. A Participant or Beneficiary whose Termination
of Employment has occurred may receive an accelerated payment of his or her
entire Account (after reduction for the forfeiture described in Section 5.5.2).
To receive such an accelerated payment, the Participant or Beneficiary must file
a written payment application with the Committee. Payment of the accelerated
payment (after reduction for the forfeiture described in Section 5.5.2) shall be
made as soon as administratively feasible (but no more than twenty (20) days)
following the approval of a completed application by the Committee. Such
accelerated payment shall be made in a lump-sum cash payment. The amount of the
accelerated payment shall be equal to the value of the Account as of such
distribution date (after reduction for the forfeiture described below).

         5.5.2. FORFEITURE. Upon the approval of an accelerated payment, there
shall be irrevocably forfeited from the Account of the Participant or
Beneficiary an amount equal to ten percent (10%) of the Account.

5.6. DEATH BENEFIT. In the event of a Participant's death, the Company shall pay
the amount of the Participant's Account as of the date of death (as adjusted
from time to time pursuant to Section 6.2) in a lump-sum or in installments, as
previously elected by the Participant, to the Participant's designated
Beneficiary as soon as administratively feasible. In the event no election was
made by the Participant, payment shall be in a single lump-sum cash payment.

5.7. BENEFICIARY DESIGNATION. A Participant shall submit to the Company upon
initial designation as an Eligible Employee in the Plan, and at such other times
as the Participant desires, on a form provided by the Committee, a written
designation of the beneficiary or beneficiaries to whom payment of the
Participant's Account under the Plan shall be made in the event of the
Participant's death. Beneficiary designations shall become effective only when
received by the Company. Beneficiary designations first received by the Company
after the Participant's death, and any designations in effect at the time a
valid subsequent designation is received by the Company, shall be invalid and
have no effect. If a Participant has not designated a Beneficiary, or if no
designated Beneficiary is living on the date of distribution, the Participant's
Account shall be distributed to those persons entitled to receive the
Participant's benefit under the Donaldson Company, Inc. Salaried Employees'
Pension Plan (1997 Restatement), as amended from time to time.






                                      -10-


                                    SECTION 6

                                     FUNDING

6.1. PARTICIPANT ACCOUNTS. The Committee shall cause a bookkeeping account to be
kept in the name of each Participant which shall reflect the value of the
Compensation Credits and any Initial Credits, and any earnings thereon, credited
to a Participant. Compensation Credits other than the Initial Credit described
in Section 4.1 shall be credited to a Participant's Account as of the last day
of the Plan Year to which they relate, or, if the Participant dies or elects to
commence distribution of his or her Account prior to such last day, at such time
as the Committee shall direct.

6.2. INVESTMENT OF ACCOUNTS. Amounts credited to a Participant's Account will be
adjusted as of the last day of each Plan Year (beginning July 31, 1998) to the
same extent that an equal amount would be adjusted if it was part of the
Participant's Pension Account Balance for the Plan Year.

6.3. CHARGES AGAINST ACCOUNTS. There shall be charged against each Participant's
bookkeeping account any payments made to the Participant or the Participant's
Beneficiary in accordance with Section 5.

















                                      -11-


                                    SECTION 7

                                     FUNDING

7.1. FUNDING. The Company and its Affiliates shall be responsible for paying all
benefits due hereunder. For the purpose of facilitating the payment of benefits
due hereunder, the Company may (but shall not be required to) establish and
maintain a grantor trust pursuant to an Agreement between the Company and a
trustee selected by the Company; provided, however, that any such grantor trust
must be structured so that it does not result in any federal income tax
consequences to any Participant until distributions under Section 5 are actually
received. The Company may contribute to a grantor trust thereby created such
amounts as it may from time to time determine.

7.2. CORPORATE OBLIGATION. Neither the officers nor any member of the Board of
Directors of the Company or any of its Affiliates in any way secures or
guarantees the payment of any benefit or amount which may become due and payable
hereunder to or with respect to any Participant. Each Participant and other
person entitled at anytime to payments hereunder shall look solely to the assets
of the Company and its Affiliates for such payments as an unsecured, general
creditor. Nothing herein shall be construed to give a Participant, Beneficiary
or any other person or persons any right, title, interest or claim in or to any
specific asset, fund, reserve, account or property of any kind whatsoever owned
by the Company or in which it may have any right, title or interest now or in
the future. After benefits shall have been paid to or with respect to a
Participant and such payment purports to cover in full the benefit hereunder,
such former Participant or other person or persons, as the case may be, shall
have no further right or interest in the other assets of the Company and its
Affiliates in connection with this Plan.














                                      -12-


                                    SECTION 8

                             FORFEITURE OF BENEFITS

All unpaid benefits under this Plan shall be permanently forfeited if the
Committee determines that the Participant, either before or after the
Participant's Termination of Employment or Disability, or before the
Participant's death:

         (a)      engaged in criminal or fraudulent conduct resulting in a
                  hardship to the Company or an Affiliate; or

         (b)      breached the Participant's written employment agreement with
                  the Company or an Affiliate.


























                                      -13-


                                    SECTION 9

                                 ADMINISTRATION

9.1. AUTHORITY. The Plan shall be administered by the Committee, which shall
have full discretionary power and authority to administer and interpret the Plan
and to determine all factual and legal questions under the Plan, including but
not limited to the entitlement of Participants and Beneficiaries, and the amount
of their respective interests. The Committee may delegate or redelegate to one
or more persons, jointly or severally, and whether or not such persons are
members of the Committee or employees of the Company, such functions assigned to
the Committee hereunder as it may from time to time deem advisable. Until
withdrawn or redelegated by the Committee, all of the Committee's power and
authority under this Section 9.1 shall be deemed delegated to the Company's Vice
President in charge of executive compensation, excluding only the power and
authority to act in such a way as would materially increase the cost of the
Plan.

9.2. LIABILITY. No member of the Committee and no director or member of the
management of the Company or its Affiliates shall be liable to any persons for
any actions taken under the Plan, or for any failure to effect any of the
objective or purposes of the Plan, by reason of insolvency or otherwise.

9.3. PROCEDURES. The Committee may from time to time adopt such rules and
procedures as it deems appropriate to assist in the administration of the Plan.

9.4. CLAIM FOR BENEFITS. No employee or other person shall have any claim or
right to payment of any amount hereunder until payment has been authorized and
directed by the Committee.

9.5. CLAIMS PROCEDURE. Until modified by the Committee, the claims procedure set
forth in this Section 9.5 shall be the claims procedure for the resolution of
disputes and disposition of claims arising under the Plan.

         9.5.1. ORIGINAL CLAIM. Any employee, former employee, or Beneficiary of
such employee or former employee may, if the employee, former employee or
Beneficiary so desires, file with the Committee a written claim for benefits
under the Plan. Within ninety (90) days after the filing of such a claim, the
Committee shall notify the claimant in writing whether the claim is upheld or
denied in whole or in part or shall furnish the claimant a written notice
describing specific special circumstances requiring a specified amount of
additional time (but not more than one hundred eighty (180) days from the date
the claim was filed) to reach a decision on the claim. If the claim is denied in
whole or in part, the Committee shall state in writing:

         (a)      the specific reasons for the denial,

         (b)      the specific references to the pertinent provisions of this
                  Plan on which the denial is based,


                                      -14-


         (c)      a description of any additional material or information
                  necessary for the claimant to perfect the claim and an
                  explanation of why such material or information is necessary,
                  and

         (d)      an explanation of the claims review procedure set forth in
                  this Section.

         9.5.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt of
notice that the claim has been denied in whole or in part, the claimant may file
with the Committee a written request for a review and may, in conjunction
therewith, submit written issues and comments. Within sixty (60) days after the
filing of such a request for review, the Committee shall notify the claimant in
writing whether, upon review, the claim was upheld or denied in whole or in part
or shall furnish the claimant a written notice describing specific special
circumstances requiring a specified amount of additional time (but not more than
one hundred twenty days (120) from the date the request for review was filed) to
reach a decision on the request for review.

         9.5.3. GENERAL RULES.

         (a)      No inquiry or question shall be deemed to be a claim or a
                  request for a review of a denied claim unless made in
                  accordance with the claims procedure. The Committee may
                  require that any claim for benefits and any request for a
                  review of a denied claim be filed on forms to be furnished by
                  the Committee upon request.

         (b)      All decisions on original claims shall be made by the
                  Committee and requests for a review of denied claims shall be
                  made by the Committee.

         (c)      The Committee may, in its discretion, hold one or more
                  hearings on a claim or a request for a review of a denied
                  claim.

         (d)      Claimants may be represented by a lawyer or other
                  representative at their own expense, but the Committee
                  reserves the right to require the claimant to furnish written
                  authorization. A claimant's representative shall be entitled
                  to copies of all notices given to the claimant.

         (e)      The decision of the Committee on an original claim or on a
                  request for a review of a denied claim shall be served on the
                  claimant in writing. If a decision or notice is not received
                  by a claimant within the time specified, the claim or request
                  for a review of a denied claim shall be deemed to have been
                  denied.

         (f)      Prior to filing a claim or a request for a review of a denied
                  claim, the claimant or the claimant's representative shall
                  have a reasonable opportunity to review a copy of this Plan
                  Statement and all other pertinent documents in the possession
                  of the Company and its Affiliates.



                                      -15-


9.6. PAYMENTS UPON IMPOSITION OF FEDERAL OR STATE TAXES. If any Participant is
determined to be subject to federal or state income tax on any amount accrued on
his or her behalf under this Plan prior to the time of payment hereunder,
federal or state taxes attributable to the amount determined to be so taxable
shall be distributed by the Plan to such Participant. An amount accrued on his
or her behalf under this Plan shall be determined to be subject to federal
income tax upon the earliest of:

                  (i)      a final determination by the United States Internal
                           Revenue Service addressed to the Participant which is
                           not appealed to the courts;

                  (ii)     a final determination by the United States Tax Court
                           or any other Federal Court affirming any such
                           determination by the Internal Revenue Service; or

                  (iii)    an opinion by the Tax Counsel of the Company,
                           addressed to the Company that, by reason of Treasury
                           Regulations, amendments to the Internal Revenue Code,
                           published Internal Revenue Service rulings, court
                           decisions or other substantial precedent, amounts
                           accrued on a Participant's behalf hereunder are
                           subject to federal or state income tax prior to
                           payment.

The Company shall undertake at its sole expense to defend any tax claims
described herein which are asserted by the Internal Revenue Service or by any
state revenue authority against any Participant, including attorney fees and
costs of appeal, and shall have the sole authority to determine whether or not
to appeal any determination made by the Internal Revenue Service, by any state
revenue authority or by a lower court. The Company also agrees to reimburse any
Participant for any interest or penalties in respect of federal or state tax
claims hereunder upon receipt of documentation of same.

9.7. LEGAL FEES. If the Company does not pay the benefits required under the
terms of the Plan for reasons other than the insolvency of the Company, the
Company agrees to reimburse any Participant for all legal fees incurred in
enforcing his or her claim to benefits under the Plan.

9.8. ERRORS IN COMPUTATIONS. The Committee shall not be liable or responsible
for any error in the computation of any benefit payable to or with respect to
any Participant resulting from any misstatement of fact made by the Participant
or by or on behalf of any Beneficiary to whom such benefit shall be payable,
directly or indirectly, to the Committee, and used by the Committee in
determining the benefit. The Committee shall not be obligated or required to
increase the benefit payable to or with respect to such Participant which, on
discovery of the misstatement, is found to be understated as a result of such
misstatement of the Participant. However, the benefit of any Participant which
is overstated by reason of any such misstatement or any other reason shall be
reduced to the amount appropriate in view of the truth (and to recover any prior
overpayment).


                                      -16-


                                   SECTION 10

                                  MISCELLANEOUS

10.1. NOT AN EMPLOYMENT CONTRACT. This Plan is not and shall not be deemed to
constitute a contract of employment between the Company and any employee or
other person, nor shall anything herein contained be deemed to give any employee
or other person any right to be retained in the Company's employ or in any way
limit or restrict the Company's right or power to discharge any employee or
other person at any time and to treat him without regard to the effect which
such treatment might have upon the employee as a Participant in the Plan.

10.2. NONTRANSFERABILITY. A Participant's rights and interest under the Plan,
including amounts payable, may not be assigned, alienated, pledged or
transferred except, in the event of a Participant's death to his Beneficiary. No
benefit payable under this Plan shall be subject to attachment, garnishment,
execution following judgment or other legal process before actual payment to the
Participant or Beneficiary.

10.3. TAX WITHHOLDING. The Company shall withhold the amount of any federal,
state or local income tax or other tax required to be withheld by the Company
under applicable law with respect to any amount payable under the Plan. The
Participant shall not be liable for any tax withholding.

10.4. EXPENSES. All expenses of administering the Plan shall be borne by the
Company.

10.5. GOVERNING LAW. Except to the extent that federal law is controlling, the
Plan shall be construed and enforced in accordance with and governed by the laws
of the State of Minnesota.

10.6. AMENDMENT AND TERMINATION. The Company reserves the power to unilaterally
amend this Plan at any time, either prospectively or retroactively or both by
action of the Committee (with the written concurrence of the Chief Executive
Officer of the Company). The Committee may likewise terminate or curtail the
benefits of this Plan both with regard to persons expecting to receive benefits
in the future and persons already receiving benefits at the time of such action;
provided, however, that the Committee may not amend or terminate the Plan with
respect to benefits that have accrued and are vested pursuant to Section 4 in
any manner that reduces the amount of such benefits or alters the effect of any
Participant election previously filed with the Company. No modification of the
terms of this Plan shall be effective unless it is in writing and signed on
behalf of the Company by a person authorized to execute such writing. No oral
representation concerning the interpretation or effect of this Plan shall be
effective to amend the Plan.

10.7. RULES OF INTERPRETATION. The titles given to the various sections of this
Plan are inserted for convenience of reference only and are not part of this
Plan, and they shall not be considered in determining the purpose, meaning or
intent of any provision hereof. This Plan shall be construed and this Plan shall
be administered to create an unfunded plan providing deferred compensation to a
select group of management or highly compensated employees so



                                       -17-


that it is exempt from the requirements of Parts 2, 3 and 4 of Title I of ERISA
and qualifies for a form of simplified, alternative compliance with the
reporting and disclosure requirements of Part 1 of Title I of ERISA.


































                                      -18-

EX-10.J

                                                                    Exhibit 10-J






                             DONALDSON COMPANY, INC.
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
                               (2003 RESTATEMENT)


                As Amended and Restated Effective August 1, 2003








                             DONALDSON COMPANY, INC.
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
                               (2003 RESTATEMENT)


                                TABLE OF CONTENTS

                                                                           PAGE


SECTION 1.   ESTABLISHMENT AND PURPOSE.......................................1

             1.1.   Establishment
             1.2.   Purpose

SECTION 2.   DEFINITIONS.....................................................2

             2.1.   Account
             2.2.   Actuarial Equivalent
             2.3.   Affiliate
             2.4.   Basic Retirement Plan Benefits
             2.5.   Beneficiary
             2.6.   Board
             2.7.   Change of Control
                    2.7.1.   Affiliate
                    2.7.2.   Beneficial Owner
                    2.7.3.   Exchange Act
                    2.7.4.   Person
             2.8.   Code
             2.9.   Committee
             2.10.  Company
             2.11.  Compensation
             2.12.  Deferral Credit
             2.13.  Deferred Compensation Plan
             2.14.  Disability, Disabled
             2.15.  Early Retirement Factor
             2.16.  Effective Date
             2.17.  Eligible Employee
             2.18.  ERISA
             2.19.  Final Average Compensation
             2.20.  Participant
             2.21.  Pension Plan
             2.22.  Pension Service
             2.23.  Plan
             2.24.  Plan Year



                                       -i-


             2.25.  Termination of Employment
             2.26.  Vested

SECTION 3.   ELIGIBILITY AND PARTICIPATION...................................8

             3.1.   Eligibility
             3.2.   Commencement of Participation
             3.3.   Termination of Participation
             3.4.   Overriding Exclusion

SECTION 4.   CREDITED AMOUNTS................................................9

             4.1.   Normal Retirement Benefit
             4.2.   Early Retirement Benefit
             4.3.   Disability or Death Benefit
             4.4.   Vesting

SECTION 5.   TIME AND MANNER OF PAYMENTS....................................10

             5.1.   Time of Payment
             5.2.   Manner of Payment
             5.3.   Changes in Time and Manner of Payment
             5.4.   Change in Control Distributions
             5.5.   Acceleration of Payments
                    5.5.1.   When Available
                    5.5.2.   Forfeiture
             5.6.   Death Benefit
             5.7.   Beneficiary Designation

SECTION 6.   ACCOUNT........................................................12

             6.1.   Participant Accounts
             6.2.   Investment of Accounts
             6.3.   Charges Against Accounts

SECTION 7.   FUNDING........................................................13

             7.1.   Funding
             7.2.   Corporate Obligation

SECTION 8.   FORFEITURE OF BENEFITS.........................................14

SECTION 9.   ADMINISTRATION.................................................15

             9.1.   Authority
             9.2.   Liability
             9.3.   Procedures


                                      -ii-



             9.4.   Claim for Benefits
             9.5.   Claims Procedure
                    9.5.1.   Original Claim
                    9.5.2.   Claims Review Procedure
                    9.5.3.   General Rules
             9.6.   Payments upon Imposition of Federal or State Taxes
             9.7.   Legal Fees
             9.8.   Errors in Computations

SECTION 10.  MISCELLANEOUS..................................................19

             10.1.  Not an Employment Contract
             10.2.  Nontransferability
             10.3.  Tax Withholding
             10.4.  Expenses
             10.5.  Governing Law
             10.6.  Amendment and Termination
             10.7.  Rules of Interpretation


















                                     -iii-


                             DONALDSON COMPANY, INC.
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
                               (2003 RESTATEMENT)


                                    SECTION 1

                            ESTABLISHMENT AND PURPOSE

1.1. ESTABLISHMENT. Effective as of August 1, 2003, Donaldson Company, Inc.
hereby amends and restates its nonqualified compensation plan for a select group
of highly compensated employees known as the "DONALDSON COMPANY, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN".

1.2. PURPOSE. The purpose of this Plan is to enable the Company to provide
supplemental retirement benefits to a select group of management or highly
compensated employees such that the sum of the supplemental benefits, certain
other retirement benefits provided by Company, and benefits provided by prior
employers, will not be less than a predetermined portion of the employee's final
average compensation.






                                    SECTION 2

                                   DEFINITIONS

The following words and phrases shall have the following meanings, unless a
different meaning is plainly required by the context. Any masculine terminology
used in the Plan shall also include the feminine gender and the definition of
any terms in the singular shall also include the plural.

2.1. ACCOUNT -- the compensation account established under this Plan for a
Participant pursuant to Section 6.1.

2.2. ACTUARIAL EQUIVALENT -- a benefit of equivalent value computed on the basis
of actuarial tables, factors and assumptions set forth in Appendix C to the
Donaldson Company, Inc. Salaried Employees' Pension Plan.

2.3. AFFILIATE -- a business entity which is under "common control" with the
Company or which is a member of an "affiliated service group" that includes the
Company, as those terms are defined in section 414(b), (c) and (m) of the Code.
A business entity shall also be treated as an Affiliate if, and to the extent
that, such treatment is required by regulations under section 414(o) of the
Code. In addition to said required treatment, the Committee may, in its
discretion, designate as an Affiliate any business entity which is not such a
"common control" or "affiliated service group" business entity but which is
otherwise affiliated with the Company, subject to such limitations as the
Committee may impose.

2.4. BASIC RETIREMENT PLAN BENEFITS -- the single lump-sum value of the benefits
payable under all of the following plans, determined as of the date of the
Eligible Employee's Termination of Employment, death or Disability, whichever
happens first (or if the value of a plan cannot be determined as of that date,
as of the valuation date for such plan that immediately precedes or follows such
Termination of Employment, death or Disability, whichever happens first, as
determined by the Committee), and subject to the limitations, if any, set forth
below:

         (a)      Donaldson Company, Inc. Employee Stock Ownership Plan
                  (including PAYSOP);

         (b)      Donaldson Company, Inc. Salaried Employees' Pension Plan;

         (c)      Donaldson Company, Inc. Excess Pension Plan;

         (d)      Donaldson Company, Inc. Retirement Savings Plan (including
                  profit sharing plan), taking into account only benefits
                  attributable to vested employer matching contributions;

         (e)      Donaldson Company, Inc. Deferred Compensation and 401(k)
                  Excess Plan, taking into account only benefits attributable to
                  Company Credits;


                                      -2-



         (f)      Donaldson Company, Inc. ESOP Restoration Plan;

         (g)      Any qualified or non-qualified retirement plan, program or
                  arrangement provided by the Company or an Affiliate and not
                  listed above, taking into account only vested benefits
                  attributable to employer contributions;

         (h)      Any qualified or non-qualified retirement plan, program or
                  arrangement provided by a prior employer, taking into account
                  only vested benefits attributable to employer contributions.

For purposes of paragraphs (g) and (h) above, "employer contributions" does not
include pre-tax contributions to a tax-qualified retirement plan elected by an
Eligible Employee in lieu of current compensation under a 401(k) arrangement, or
any other amount contributed due to an Eligible Employee's election to defer
compensation. If prior to the earliest of the Eligible Employee's Termination of
Employment, death or Disability the Eligible Employee received a distribution of
any benefits that, but for the distribution, would have been included in the
Eligible Employee's Basic Retirement Plan Benefits, such Basic Retirement Plan
Benefits shall be increased by the amount of such distribution, plus interest
thereon at a rate to be determined by the Committee. In the event any of the
foregoing plans do not provide for payment in a single lump-sum, the benefit
taken into account for purposes of this Section 2.4 shall be the single lump-sum
Actuarial Equivalent of the benefit payable under such plan.

2.5. BENEFICIARY -- any person or entity validly designated by the Participant
in accordance with Section 5 to receive the benefits, if any, payable under the
Plan with respect to the Participant after the Participant's death. Designated
persons or entities shall not be considered Beneficiaries until the death of the
Participant.

2.6. BOARD -- the Board of Directors of the Company.

2.7. CHANGE OF CONTROL -- a "Change in Control" shall be deemed to have occurred
if the event set forth in any one of the following paragraphs shall have
occurred:

         (a)      any Person is or becomes the Beneficial Owner, directly or
                  indirectly, of securities of the Company representing 25% or
                  more of the combined voting power of the Company's then
                  outstanding securities, excluding any Person who becomes such
                  a Beneficial Owner in connection with a transaction described
                  in clause (i) of paragraph (c) below; or

         (b)      the following individuals cease for any reason to constitute a
                  majority of the number of directors then serving: individuals
                  who, on the date hereof, constitute the Board and any new
                  director (other than a director whose initial assumption of
                  office is in connection with an actual or threatened election
                  contest, including but not limited to a consent solicitation,
                  relating to the election of directors of the Company) whose
                  appointment or election by the Board or nomination for
                  election by the Company's stockholders was approved or
                  recommended by a vote of at least


                                      -3-



                  two-thirds (2/3) of the directors then still in office who
                  either were directors on the date hereof or whose appointment,
                  election or nomination for election was previously so approved
                  or recommended; or

         (c)      there is consummated a merger or consolidation of the Company
                  or any direct or indirect subsidiary of the Company with any
                  other corporation, other than (i) a merger or consolidation
                  which would result in the voting securities of the Company
                  outstanding immediately prior to such merger or consolidation
                  continuing to represent (either by remaining outstanding or by
                  being converted into voting securities of the surviving entity
                  or any parent thereof), in combination with the ownership of
                  any trustee or other fiduciary holding securities under an
                  employee benefit plan of the Company or any subsidiary of the
                  Company, at least 60% of the combined voting power of the
                  securities of the Company or such surviving entity or any
                  parent thereof outstanding immediately after such merger or
                  consolidation, or (ii) a merger or consolidation effected to
                  implement a recapitalization of the Company (or similar
                  transaction) in which no Person is or becomes the Beneficial
                  Owner, directly or indirectly, of securities of the Company
                  representing 25% or more of the combined voting power of the
                  Company's then outstanding securities; or

         (d)      the stockholders of the Company approve a plan of complete
                  liquidation or dissolution of the Company or there is
                  consummated an agreement for the sale or disposition by the
                  Company of all or substantially all of the Company's assets,
                  other than a sale or disposition by the Company of all or
                  substantially all of the Company's assets to an entity, at
                  least 60% of the combined voting power of the voting
                  securities of which are owned by stockholders of the Company
                  in substantially the same proportions as their ownership of
                  the Company immediately prior to such sale.

Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions. Solely for
purposes of this Section 2.7, the following words and phrases shall have the
following meanings:

         2.7.1. AFFILIATE-- an "affiliate" within the meaning of Rule 12b-2
promulgated under Section 12 of the Exchange Act.

         2.7.2. BENEFICIAL OWNER-- a "beneficial owner" within the meaning of
Rule 13d-3 under the Exchange Act.


                                      -4-



         2.7.3. EXCHANGE ACT-- the Securities Exchange Act of 1934, as amended
from time to time.

         2.7.4. PERSON-- a "person" within the meaning of Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.

2.8. CODE -- the Internal Revenue Code of 1986, including applicable regulations
for the specified section of the Code. Any reference in this Plan Statement to a
section of the Code, including the applicable regulation, shall be considered
also to mean and refer to any subsequent amendment or replacement of that
section or regulation.

2.9. COMMITTEE -- the Human Resources Committee of the Board of Directors of the
Company.

2.10. COMPANY -- Donaldson Company, Inc. and, except in determining under
Section 2.7 hereof whether or not any Change in Control has occurred, shall
include any successor by merger, purchase or otherwise.

2.11. COMPENSATION -- the amount of remuneration paid to an Eligible Employee
that was treated as "Compensation" within the meaning of the Donaldson Company,
Inc. Excess Pension Plan (modified as described in subsections (a) and (b) of
Section 4.2 of such plan), subject, however to the following:

         (a)      annual bonuses shall be included in the year they are earned,
                  not the year they are paid;

         (b)      amounts paid under a non-qualified plan of deferred
                  compensation shall not be included (e.g., payments of deferred
                  salary or bonus).

2.12. DEFERRAL CREDIT -- any amount credited to an Eligible Employee under
Section 4.1, 4.2 or 4.3 of the Deferred Compensation Plan.

2.13. DEFERRED COMPENSATION PLAN -- the nonqualified deferred compensation plan
known as the "Donaldson Company, Inc. Deferred Compensation and 401(k) Excess
Plan," as amended from time to time.

2.14. DISABILITY, DISABLED -- a physical or mental impairment which constitutes
total and permanent disability and during which the Eligible Employee is not
receiving any payments of an Early Retirement Pension or a Vested Benefit under
the Pension Plan, and the Eligible Employee either:


                                      -5-



         (a)      is eligible to receive long-term disability benefits under the
                  Company's separate long-term disability insurance plan (which
                  program shall be administered on a uniform and
                  nondiscriminatory basis); if such separate long-term
                  disability coverage is elected by the Eligible Employee, or

         (b)      is eligible to receive and is actually receiving (after the
                  applicable waiting period) benefits under the federal Social
                  Security Act as in effect at the time of the Disability.

2.15. EARLY RETIREMENT FACTOR -- a one-sixth of one percent reduction for each
month, or portion thereof, that the Participant's Termination of Employment
precedes the Participant's attainment of age 62.

2.16. EFFECTIVE DATE -- the amended and restated Plan document as set forth
herein is effective as of August 1, 2003.

2.17. ELIGIBLE EMPLOYEE -- any senior officer of the Company who meets all of
the requirements of Section 3.1.

2.18. ERISA -- the Employee Retirement Income Security Act of 1974, including
applicable regulations for the specified section of ERISA. Any reference in this
Plan to a section of ERISA, including the applicable regulation, shall be
considered also to mean and refer to any subsequent amendment or replacement of
that section or regulation.

2.19. FINAL AVERAGE COMPENSATION -- the Participant's average annual
Compensation for the highest three consecutive Plan Years out of the most recent
ten Plan Years, ending with the Plan Year in which the earliest of the
Participant's Termination of Employment, death or Disability, occurs.

2.20. PARTICIPANT -- an Eligible Employee or a former Eligible Employee who has
not received all of the benefits to which he or she is entitled under this Plan.

2.21. PENSION PLAN -- the tax-qualified pension plan known as the "Donaldson
Company, Inc. Salaried Employees' Pension Plan (1997 Restatement)," as amended
from time to time.

2.22. PENSION SERVICE -- the Participant's "Benefit Service" as defined in the
Pension Plan.

2.23. PLAN -- the Donaldson Company, Inc. Supplemental Executive Retirement Plan
as set forth herein, and as the same may be amended from time to time.

2.24. PLAN YEAR -- the twelve (12) consecutive month period ending on any July
31.

2.25. TERMINATION OF EMPLOYMENT -- the complete severance of an employee's
employment relationship with the Company and all Affiliates, if any, for any
reason other than the employee's death or Disability.


                                      -6-



2.26. VESTED -- nonforfeitable.






























                                      -7-



                                    SECTION 3

                          ELIGIBILITY AND PARTICIPATION

3.1. ELIGIBILITY. A senior officer of the Company who is affirmatively selected
by the Committee shall be an Eligible Employee and shall participate in the
Plan. Committee selections shall continue in effect until rescinded by the
Committee. The Committee may rescind its selection and thereby discontinue a
senior officer's active participation in the Plan at any time. If any amendment
or restatement of the Plan increases the cost of the benefits payable to a
senior officer, the senior officer's selection will be deemed rescinded
immediately prior to the effective date of the amendment or restatement, unless
reauthorized by the Committee or its delegate. If a senior officer's selection
is rescinded (or deemed rescinded), the benefit, if any, provided by this Plan
shall be calculated pursuant to the terms of the Plan in effect when the
rescission (or deemed rescission) took effect, using only the Participant's
compensation through that time, but calculating any offset for other benefits
using the amount of such other benefits at the time of the person's actual
Termination of Employment.

3.2. COMMENCEMENT OF PARTICIPATION. An Eligible Employee shall become a
Participant in the Plan when the Eligible Employee is first affirmatively
selected as required by Section 3.1.

3.3. TERMINATION OF PARTICIPATION. A person shall cease to be a Participant as
soon as all amounts payable to the Participant have been paid in full.

3.4. OVERRIDING EXCLUSION. Notwithstanding anything apparently to the contrary
in this Plan or in any written communication, summary, resolution or document or
oral communication, no individual shall be a Participant in this Plan, develop
benefits under this Plan or be entitled to receive benefits under this Plan
(either for the employee or his or her survivors) unless such individual is a
member of a select group of management or highly compensated employees (as that
expression is used in ERISA). If a court of competent jurisdiction, any
representative of the U.S. Department of Labor or any other governmental,
regulatory or similar body makes any direct or indirect, formal or informal,
determination that an individual is not a member of a select group of management
or highly compensated employees (as that expression is used in ERISA), such
individual shall not be (and shall not have ever been) a Participant in this
Plan at any time. If any person not so defined has been erroneously treated as a
Participant in this Plan, upon discovery of such error such person's erroneous
participation shall immediately terminate AB INITIO and upon demand such person
shall be obligated to reimburse the Company for all amounts erroneously paid to
him or her.







                                      -8-


                                    SECTION 4

                                CREDITED AMOUNTS

4.1. NORMAL RETIREMENT BENEFIT. A Participant whose Termination of Employment
occurs on or after the date the Participant attains age 62 and completes at
least ten (10) years of Pension Service shall be credited with a Normal
Retirement Benefit equal to (a) minus (b):

         (a)      the product of (i), (ii) and (iii):

                  (i)      30%

                  (ii)     Years of Pension Service, limited to twenty (20)

                  (iii)    Final Average Compensation

         (b)      the lump-sum value of the Participant's Basic Retirement Plan
                  Benefits.

4.2. EARLY RETIREMENT BENEFIT. A Participant whose Termination of Employment
occurs after the Participant has completed at least fifteen (15) years of
Pension Service and attained age 55, but before the date the Participant attains
age 62 shall, in lieu of any other benefit under this Plan, be credited with an
Early Retirement Benefit equal to the amount determined in the same manner as
provided in Section 4.1 above, except that the product in Section 4.1(a) will
include a fourth factor:

                  (iv)     Early Retirement Factor

(Example: If a Participant retires early at age 60, the product in Section
4.1(a) would be further multiplied by .96.)

4.3. DISABILITY OR DEATH BENEFIT. A Participant who becomes Disabled prior to
his or her Termination of Employment and after completing at least fifteen (15)
years of Pension Service and before the date he or she attains age 62, or who
dies prior to both the Participant's Termination of Employment and Disability,
shall, in lieu of any other benefit under this Plan, be credited with a
Disability or Death Benefit equal to the amount determined in the same manner as
provided in Section 4.2, taking into account only Pension Service through the
date of Disability or death, and determining the Early Retirement Factor based
on the amount, if any, by which the Participant's Disability or death precedes
the Participant's attainment of age 62.

4.4. VESTING. The applicable amount determined in accordance with this Section 4
shall be credited to the Participant's Account at the time of the Participant's
Termination of Employment, death or Disability, as applicable. Subject to the
forfeiture provisions of Section 8, any Account established for a Participant
under this Plan shall be 100% Vested at all times.



                                      -9-


                                    SECTION 5

                           TIME AND MANNER OF PAYMENTS

5.1. TIME OF PAYMENT. Payment of a Participant's Account under the Plan will
commence as soon as administratively feasible (but no more than twenty (20)
days) following the occurrence of the earliest of the following events:

         (a)      death,

         (b)      Disability, or

         (c)      the date of distribution selected by the Participant in
                  writing at a time and on a form prescribed by the Committee,
                  but not prior to the Participant's Termination of Employment.

5.2. MANNER OF PAYMENT. A Participant's Account shall be paid in cash to the
Participant in either a single lump-sum payment or in annual installments of not
more than twenty (20) years. The Participant must elect a manner of payment at
the time the Participant elects his or her date of distribution pursuant to
Section 5.1(c). In the event no election was made by the Participant, payment
shall be in a single lump-sum.

5.3. CHANGES IN TIME AND MANNER OF PAYMENT. Notwithstanding the foregoing, a
Participant may make a new election concerning selection of the time and form of
payment authorized pursuant to this Section 5 (the "New Election") in accordance
with the following terms and conditions, unless waived or modified by the
Committee:

         (a)      A New Election shall only be permitted once and must be made
                  and become effective as hereinafter provided, if at all, prior
                  to the Participant's Termination of Employment, death or
                  Disability, whichever happens first;

         (b)      A New Election shall become effective twelve months after it
                  is received by the Company; and

         (c)      If any of the events set forth in Section 5.1 of the Plan
                  occur prior to the effective date of a New Election, then
                  payments shall be paid hereunder to or with respect to the
                  Participant according to the elections in effect at the time
                  of the event.

5.4. CHANGE IN CONTROL DISTRIBUTIONS. In the event of a Change in Control, a
Participant shall be credited with the benefit, if any, that would have been
credited to the Participant's Account if the Participant's Termination of
Employment had occurred on the date of the Change in Control. Distribution of
the entire Account shall be made on the date of the Change in Control,
notwithstanding any other provisions of this Section 5. Such distribution shall
be made in a single lump-sum cash payment.


                                      -10-


5.5. ACCELERATION OF PAYMENTS.

         5.5.1. WHEN AVAILABLE. A Participant or Beneficiary whose Termination
of Employment has occurred may receive an accelerated payment of his or her
entire Account (after reduction for the forfeiture described in Section 5.5.2).
To receive such an accelerated payment, the Participant or Beneficiary must file
a written payment application with the Committee. Payment of the accelerated
payment (after reduction for the forfeiture described in Section 5.5.2) shall be
made as soon as administratively feasible (but no more than twenty (20) days)
following the approval of a completed application by the Committee. Such
accelerated payment shall be made in a lump-sum cash payment. The amount of the
accelerated payment shall be equal to the value of the Account as of such
distribution date (after reduction for the forfeiture described below).

         5.5.2. FORFEITURE. Upon the approval of an accelerated payment, there
shall be irrevocably forfeited from the Account of the Participant or
Beneficiary an amount equal to ten percent (10%) of the Account.

5.6. DEATH BENEFIT. In the event of a Participant's death, the Company shall pay
the amount of the Participant's Account as of the date of death (as adjusted
from time to time pursuant to Section 6.2) in a lump-sum or in installments, as
previously elected by the Participant, to the Participant's designated
Beneficiary as soon as administratively feasible. In the event no election was
made by the Participant, payment shall be in a single lump-sum cash payment.

5.7. BENEFICIARY DESIGNATION. A Participant shall submit to the Company upon
initial designation as an Eligible Employee in the Plan, and at such other times
as the Participant desires, on a form provided by the Committee, a written
designation of the beneficiary or beneficiaries to whom payment of the
Participant's Account under the Plan shall be made in the event of the
Participant's death. Beneficiary designations shall become effective only when
received by the Company. Beneficiary designations first received by the Company
after the Participant's death, and any designations in effect at the time a
valid subsequent designation is received by the Company, shall be invalid and
have no effect. If a Participant has not designated a Beneficiary, or if no
designated Beneficiary is living on the date of distribution, the Participant's
Account shall be distributed to those persons entitled to receive distribution
of the Participant's benefit under the Donaldson Company, Inc. Salaried
Employees' Pension Plan (1997 Restatement), as amended from time to time.







                                      -11-


                                    SECTION 6

                                     ACCOUNT

6.1. PARTICIPANT ACCOUNTS. The Committee shall cause a bookkeeping account to be
kept in the name of each Participant which shall reflect the value of the Normal
Retirement Benefit, Early Retirement Benefit, Disability or death benefit
credited to the Participant at the time of the Participant's Termination of
Employment, death or Disability, whichever applies.

6.2. INVESTMENT OF ACCOUNTS. When the manner of payment is annual installments,
the Participant's Account will be adjusted as of the last day of each Plan Year
to the same extent that an equal amount would be adjusted if it had been
credited to the subfund under the Deferred Compensation Plan that provides a
fixed rate of return.

6.3. CHARGES AGAINST ACCOUNTS. There shall be charged against each Participant's
bookkeeping account any payments made to the Participant or the Participant's
Beneficiary in accordance with Section 5.


















                                      -12-


                                    SECTION 7

                                     FUNDING

7.1. FUNDING. The Company and its Affiliates shall be responsible for paying all
benefits due hereunder. For the purpose of facilitating the payment of benefits
due hereunder, the Company may (but shall not be required to) establish and
maintain a grantor trust pursuant to an Agreement between the Company and a
trustee selected by the Company; provided, however, that any such grantor trust
must be structured so that it does not result in any federal income tax
consequences to any Participant until distributions under Section 5 are actually
received. The Company may contribute to a grantor trust thereby created such
amounts as it may from time to time determine.

7.2. CORPORATE OBLIGATION. Neither the officers nor any member of the Board of
Directors of the Company or any of its Affiliates in any way secures or
guarantees the payment of any benefit or amount which may become due and payable
hereunder to or with respect to any Participant. Each Participant and other
person entitled at anytime to payments hereunder shall look solely to the assets
of the Company and its Affiliates for such payments as an unsecured, general
creditor. Nothing herein shall be construed to give a Participant, Beneficiary
or any other person or persons any right, title, interest or claim in or to any
specific asset, fund, reserve, account or property of any kind whatsoever owned
by the Company or in which it may have any right, title or interest now or in
the future. After benefits shall have been paid to or with respect to a
Participant and such payment purports to cover in full the benefit hereunder,
such former Participant or other person or persons, as the case may be, shall
have no further right or interest in the other assets of the Company and its
Affiliates in connection with this Plan.


















                                      -13-


                                    SECTION 8

                             FORFEITURE OF BENEFITS

All unpaid benefits under this Plan shall be permanently forfeited if the
Committee determines that the Participant, either before or after the
Participant's Termination of Employment or Disability, or before the
Participant's death:

         (a)      engaged in criminal or fraudulent conduct resulting in a
                  hardship to the Company or an Affiliate; or

         (b)      breached the Participant's written employment agreement with
                  the Company or an Affiliate.




























                                      -14-


                                    SECTION 9

                                 ADMINISTRATION

9.1. AUTHORITY. The Plan shall be administered by the Committee, which shall
have full discretionary power and authority to administer and interpret the Plan
and to determine all factual and legal questions under the Plan, including but
not limited to the entitlement of Participants and Beneficiaries, and the amount
of their respective interests. The Committee may delegate or redelegate to one
or more persons, jointly or severally, and whether or not such persons are
members of the Committee or employees of the Company, such functions assigned to
the Committee hereunder as it may from time to time deem advisable. Until
withdrawn or redelegated by the Committee, all of the Committee's power and
authority under this Section 9.1, and all of the Committee's power and authority
to reauthorize continued participation following an amendment or restatement
described in Section 3.1, shall be deemed delegated to the Company's Vice
President in charge of executive compensation, excluding only the power and
authority to act in such a way as would materially increase the cost of the
Plan.

9.2. LIABILITY. No member of the Committee and no director or member of the
management of the Company or its Affiliates shall be liable to any persons for
any actions taken under the Plan, or for any failure to effect any of the
objective or purposes of the Plan, by reason of insolvency or otherwise.

9.3. PROCEDURES. The Committee may from time to time adopt such rules and
procedures as it deems appropriate to assist in the administration of the Plan.

9.4. CLAIM FOR BENEFITS. No employee or other person shall have any claim or
right to payment of any amount hereunder until payment has been authorized and
directed by the Committee.

9.5. CLAIMS PROCEDURE. Until modified by the Committee, the claims procedure set
forth in this Section 9.5 shall be the claims procedure for the resolution of
disputes and disposition of claims arising under the Plan.

         9.5.1. ORIGINAL CLAIM. Any employee, former employee, or Beneficiary of
such employee or former employee may, if the employee, former employee or
Beneficiary so desires, file with the Committee a written claim for benefits
under the Plan. Within ninety (90) days after the filing of such a claim, the
Committee shall notify the claimant in writing whether the claim is upheld or
denied in whole or in part or shall furnish the claimant a written notice
describing specific special circumstances requiring a specified amount of
additional time (but not more than one hundred eighty (180) days from the date
the claim was filed) to reach a decision on the claim. If the claim is denied in
whole or in part, the Committee shall state in writing:

         (a)      the specific reasons for the denial,


                                      -15-


         (b)      the specific references to the pertinent provisions of this
                  Plan on which the denial is based,

         (c)      a description of any additional material or information
                  necessary for the claimant to perfect the claim and an
                  explanation of why such material or information is necessary,
                  and

         (d)      an explanation of the claims review procedure set forth in
                  this Section.

         9.5.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt of
notice that the claim has been denied in whole or in part, the claimant may file
with the Committee a written request for a review and may, in conjunction
therewith, submit written issues and comments. Within sixty (60) days after the
filing of such a request for review, the Committee shall notify the claimant in
writing whether, upon review, the claim was upheld or denied in whole or in part
or shall furnish the claimant a written notice describing specific special
circumstances requiring a specified amount of additional time (but not more than
one hundred twenty days (120) from the date the request for review was filed) to
reach a decision on the request for review.

         9.5.3. GENERAL RULES.

         (a)      No inquiry or question shall be deemed to be a claim or a
                  request for a review of a denied claim unless made in
                  accordance with the claims procedure. The Committee may
                  require that any claim for benefits and any request for a
                  review of a denied claim be filed on forms to be furnished by
                  the Committee upon request.

         (b)      All decisions on original claims shall be made by the
                  Committee and requests for a review of denied claims shall be
                  made by the Committee.

         (c)      The Committee may, in its discretion, hold one or more
                  hearings on a claim or a request for a review of a denied
                  claim.

         (d)      Claimants may be represented by a lawyer or other
                  representative at their own expense, but the Committee
                  reserves the right to require the claimant to furnish written
                  authorization. A claimant's representative shall be entitled
                  to copies of all notices given to the claimant.

         (e)      The decision of the Committee on an original claim or on a
                  request for a review of a denied claim shall be served on the
                  claimant in writing. If a decision or notice is not received
                  by a claimant within the time specified, the claim or request
                  for a review of a denied claim shall be deemed to have been
                  denied.

         (f)      Prior to filing a claim or a request for a review of a denied
                  claim, the claimant or the claimant's representative shall
                  have a reasonable

                                      -16-



                  opportunity to review a copy of this Plan Statement and all
                  other pertinent documents in the possession of the Company and
                  its Affiliates.

9.6. PAYMENTS UPON IMPOSITION OF FEDERAL OR STATE TAXES. If any Participant is
determined to be subject to federal or state income tax on any amount accrued on
his or her behalf under this Plan prior to the time of payment hereunder,
federal or state taxes attributable to the amount determined to be so taxable
shall be distributed by the Plan to such Participant. An amount accrued on his
or her behalf under this Plan shall be determined to be subject to federal
income tax upon the earliest of:

                  (i)      a final determination by the United States Internal
                           Revenue Service addressed to the Participant which is
                           not appealed to the courts;

                  (ii)     a final determination by the United States Tax Court
                           or any other Federal Court affirming any such
                           determination by the Internal Revenue Service; or

                  (iii)    an opinion by the Tax Counsel of the Company,
                           addressed to the Company that, by reason of Treasury
                           Regulations, amendments to the Internal Revenue Code,
                           published Internal Revenue Service rulings, court
                           decisions or other substantial precedent, amounts
                           accrued on a Participant's behalf hereunder are
                           subject to federal or state income tax prior to
                           payment.

The Company shall undertake at its sole expense to defend any tax claims
described herein which are asserted by the Internal Revenue Service or by any
state revenue authority against any Participant, including attorney fees and
costs of appeal, and shall have the sole authority to determine whether or not
to appeal any determination made by the Internal Revenue Service, by any state
revenue authority or by a lower court. The Company also agrees to reimburse any
Participant for any interest or penalties in respect of federal or state tax
claims hereunder upon receipt of documentation of same.

9.7. LEGAL FEES. If the Company does not pay the benefits required under the
terms of the Plan for reasons other than the insolvency of the Company, the
Company agrees to reimburse any Participant for all legal fees incurred in
enforcing his or her claim to benefits under the Plan.

9.8. ERRORS IN COMPUTATIONS. The Committee shall not be liable or responsible
for any error in the computation of any benefit payable to or with respect to
any Participant resulting from any misstatement of fact made by the Participant
or by or on behalf of any Beneficiary to whom such benefit shall be payable,
directly or indirectly, to the Committee, and used by the Committee in
determining the benefit. The Committee shall not be obligated or required to
increase the benefit payable to or with respect to such Participant which, on
discovery of the misstatement, is found to be understated as a result of such
misstatement of the Participant. However, the benefit of any Participant which
is overstated by reason of any such misstatement

                                      -17-



or any other reason shall be reduced to the amount appropriate in view of the
truth (and to recover any prior overpayment).





























                                      -18-



                                   SECTION 10

                                  MISCELLANEOUS

10.1. NOT AN EMPLOYMENT CONTRACT. This Plan is not and shall not be deemed to
constitute a contract of employment between the Company and any employee or
other person, nor shall anything herein contained be deemed to give any employee
or other person any right to be retained in the Company's employ or in any way
limit or restrict the Company's right or power to discharge any employee or
other person at any time and to treat him without regard to the effect which
such treatment might have upon the employee as a Participant in the Plan.

10.2. NONTRANSFERABILITY. A Participant's rights and interest under the Plan,
including amounts payable, may not be assigned, alienated, pledged or
transferred except, in the event of a Participant's death to his Beneficiary. No
benefit payable under this Plan shall be subject to attachment, garnishment,
execution following judgment or other legal process before actual payment to the
Participant or Beneficiary.

10.3. TAX WITHHOLDING. The Company shall withhold the amount of any federal,
state or local income tax or other tax required to be withheld by the Company
under applicable law with respect to any amount payable under the Plan. The
Participant shall not be liable for any tax withholding.

10.4. EXPENSES. All expenses of administering the Plan shall be borne by the
Company.

10.5. GOVERNING LAW. Except to the extent that federal law is controlling, the
Plan shall be construed and enforced in accordance with and governed by the laws
of the State of Minnesota.

10.6. AMENDMENT AND TERMINATION. The Company reserves the power to unilaterally
amend this Plan at any time, either prospectively or retroactively or both by
action of the Committee (with the written concurrence of the Chief Executive
Officer of the Company). The Committee may likewise terminate or curtail the
benefits of this Plan both with regard to persons expecting to receive benefits
in the future and persons already receiving benefits at the time of such action;
provided, however, that the Committee may not amend or terminate the Plan with
respect to benefits that have accrued and are vested pursuant to Section 4 in
any manner that reduces the amount of such benefits or alters the effect of any
Participant election previously filed with the Company. No modification of the
terms of this Plan shall be effective unless it is in writing and signed on
behalf of the Company by a person authorized to execute such writing. No oral
representation concerning the interpretation or effect of this Plan shall be
effective to amend the Plan.

10.7. RULES OF INTERPRETATION. The titles given to the various sections of this
Plan are inserted for convenience of reference only and are not part of this
Plan, and they shall not be considered in determining the purpose, meaning or
intent of any provision hereof. This Plan shall be construed and this Plan shall
be administered to create an unfunded plan providing deferred compensation to a
select group of management or highly compensated employees so

                                      -19-



that it is exempt from the requirements of Parts 2, 3 and 4 of Title I of ERISA
and qualifies for a form of simplified, alternative compliance with the
reporting and disclosure requirements of Part 1 of Title I of ERISA.


































                                      -20-

EX-10.O

                                                                    Exhibit 10-O






                             DONALDSON COMPANY, INC.
                  DEFERRED COMPENSATION AND 401(K) EXCESS PLAN
                               (2003 RESTATEMENT)


             As Amended and Restated Effective as of January 1, 2003





                             DONALDSON COMPANY, INC.
                  DEFERRED COMPENSATION AND 401(K) EXCESS PLAN
                               (2003 RESTATEMENT)


                                TABLE OF CONTENTS

                                                                           PAGE


SECTION 1.   ESTABLISHMENT AND PURPOSE.......................................1

             1.1.   Establishment
             1.2.   Purpose
             1.3.   Relation to Master Stock Plans

SECTION 2.   DEFINITIONS.....................................................2

             2.1.   Account
             2.2.   Affiliate
             2.3.   Beneficiary
             2.4.   Board
             2.5.   Change of Control
                    2.5.1.   Affiliate
                    2.5.2.   Beneficial Owner
                    2.5.3.   Exchange Act
                    2.5.4.   Person
             2.6.   Code
             2.7.   Committee
             2.8.   Company
             2.9.   Company Credit
             2.10.  Deferral Credit
             2.11.  Disability, Disabled
             2.12.  Effective Date
             2.13.  Eligible Employee
             2.14.  ERISA
             2.15.  ESOP
             2.16.  Fixed Matching Credit
             2.17.  401(k) Plan
             2.18.  Long Term Incentive Deferral Credit
             2.19.  Participant
             2.20.  Plan
             2.21.  Plan Year


                                      -i-



            2.22.  Profit Sharing Credit
             2.23.  Recognized Compensation
             2.24.  Restricted Stock Deferral Credits
             2.25.  Termination of Employment
             2.26.  Valuation Date
             2.27.  Variable Credit
             2.28.  Vested
             2.29.  Year of Service

SECTION 3.   ELIGIBILITY AND PARTICIPATION....................................8

             3.1.   Commencement of Participation
             3.2.   Termination of Participation
             3.3.   Overriding Exclusion

SECTION 4.   DEFERRED COMPENSATION AMOUNTS....................................9

             4.1.   Salary Deferral Credits
             4.2.   Bonus Deferral Credits
             4.3.   Excess Deferral Credits
             4.4.   Long Term Incentive Deferral Credits
             4.5.   Restricted Stock Deferral Credits
             4.6.   Company Credits
             4.7.   Vesting
             4.8.   Reduction for Tax Withholding

SECTION 5.   TIME AND MANNER OF PAYMENTS.....................................13

             5.1.   Time of Payment
             5.2.   Manner of Payment
             5.3.   Changes in Time and Manner of Payment
             5.4.   Hardship Distributions
                    5.4.1.   When Available
                    5.4.2.   Purposes
                    5.4.3.   Limitations
             5.5.   Change in Control Distributions
             5.6.   Acceleration of Payments
                    5.6.1.   When Available
                    5.6.2.   Forfeiture
             5.7.   Death Benefit
             5.8.   Beneficiary Designation

SECTION 6.   DEFERRED COMPENSATION ACCOUNT...................................16

             6.1.   Participant Accounts


                                      -ii-



             6.2.   Investment of Accounts
             6.3.   Assumption of Risk
             6.4.   Charges Against Accounts

SECTION 7.   FUNDING.........................................................17

             7.1.   Funding
             7.2.   Corporate Obligation

SECTION 8.   FORFEITURE OF BENEFITS..........................................18

SECTION 9.   ADMINISTRATION..................................................19

             9.1.   Authority
             9.2.   Liability
             9.3.   Procedures
             9.4.   Claim for Benefits
             9.5.   Claims Procedure
                    9.5.1.   Original Claim
                    9.5.2.   Claims Review Procedure
                    9.5.3.   General Rules
             9.6.   Payments upon Imposition of Federal or State Taxes
             9.7.   Legal Fees
             9.8.   Errors in Computations

SECTION 10.  MISCELLANEOUS...................................................23

             10.1.  Not an Employment Contract
             10.2.  Nontransferability
             10.3.  Tax Withholding
             10.4.  Expenses
             10.5.  Governing Law
             10.6.  Amendment and Termination
             10.7.  Rules of Interpretation









                                     -iii-



                             DONALDSON COMPANY, INC.
                  DEFERRED COMPENSATION AND 401(k) EXCESS PLAN
                               (2003 RESTATEMENT)


                                   SECTION 1

                            ESTABLISHMENT AND PURPOSE

1.1. ESTABLISHMENT. Effective as of December 21, 1997, Donaldson Company, Inc.
established a nonqualified, unfunded supplemental deferred compensation plan for
a select group of highly compensated employees known as the "DONALDSON COMPANY,
INC. DEFERRED COMPENSATION AND 401(k) EXCESS PLAN." Except as otherwise
explicitly provided in this amended and restated plan document, effective as of
January 1, 2003, the Plan document is amended and restated to be as set forth
herein.

1.2. PURPOSE. The purposes of this Plan are to enable the Company to supplement
the benefits for a select group of management or highly compensated employees
under the Donaldson Company, Inc. Retirement Savings Plan which will be reduced
because of the compensation limitation under section 401(a)(17) of the Code; to
provide a means whereby certain amounts payable by the Company to a select group
of management or highly compensated employees may be deferred to some future
period; and to attract and retain certain executive employees of outstanding
competence.

1.3. RELATION TO MASTER STOCK PLANS. All benefits provided by this Plan that are
attributable to Long Term Incentive and Restricted Stock Deferral Credits are
subject to any applicable terms, conditions and restrictions required by the
Donaldson Company, Inc. 2001 Master Stock Incentive Plan if they are credited
after December 31, 2001, or the Donaldson Company, Inc. 1991 Master Stock
Compensation Plan if they are credited on or before December 31, 2001.





                                    SECTION 2

                                   DEFINITIONS

The following words and phrases shall have the following meanings, unless a
different meaning is plainly required by the context. Any masculine terminology
used in the Plan shall also include the feminine gender and the definition of
any terms in the singular shall also include the plural.

2.1. ACCOUNT -- the deferred compensation account established under this Plan
for a Participant pursuant to Section 6.1.

2.2. AFFILIATE -- a business entity which is under "common control" with the
Company or which is a member of an "affiliated service group" that includes the
Company, as those terms are defined in section 414(b), (c) and (m) of the Code.
A business entity shall also be treated as an Affiliate if, and to the extent
that, such treatment is required by regulations under section 414(o) of the
Code. In addition to said required treatment, the Committee may, in its
discretion, designate as an Affiliate any business entity which is not such a
"common control" or "affiliated service group" business entity but which is
otherwise affiliated with the Company, subject to such limitations as the
Committee may impose.

2.3. BENEFICIARY -- any person or entity validly designated by the Participant
in accordance with Section 5 to receive the benefits, if any, payable from the
Participant's Account after the Participant's death. Designated persons or
entities shall not be considered Beneficiaries until the death of the
Participant.

2.4. BOARD -- the Board of Directors of the Company.

2.5. CHANGE OF CONTROL -- a "Change in Control" shall be deemed to have occurred
if the event set forth in any one of the following paragraphs shall have
occurred:

         (a)      any Person is or becomes the Beneficial Owner, directly or
                  indirectly, of securities of the Company representing 25% or
                  more of the combined voting power of the Company's then
                  outstanding securities, excluding any Person who becomes such
                  a Beneficial Owner in connection with a transaction described
                  in clause (i) of paragraph (c) below; or

         (b)      the following individuals cease for any reason to constitute a
                  majority of the number of directors then serving: individuals
                  who, on the date hereof, constitute the Board and any new
                  director (other than a director whose initial assumption of
                  office is in connection with an actual or threatened election
                  contest, including but not limited to a consent solicitation,
                  relating to the election of directors of the Company) whose
                  appointment or election by the Board or nomination for
                  election by the Company's stockholders was


                                      -2-



                  approved or recommended by a vote of at least two-thirds (2/3)
                  of the directors then still in office who either were
                  directors on the date hereof or whose appointment, election or
                  nomination for election was previously so approved or
                  recommended; or

         (c)      there is consummated a merger or consolidation of the Company
                  or any direct or indirect subsidiary of the Company with any
                  other corporation, other than (i) a merger or consolidation
                  which would result in the voting securities of the Company
                  outstanding immediately prior to such merger or consolidation
                  continuing to represent (either by remaining outstanding or by
                  being converted into voting securities of the surviving entity
                  or any parent thereof), in combination with the ownership of
                  any trustee or other fiduciary holding securities under an
                  employee benefit plan of the Company or any subsidiary of the
                  Company, at least 60% of the combined voting power of the
                  securities of the Company or such surviving entity or any
                  parent thereof outstanding immediately after such merger or
                  consolidation, or (ii) a merger or consolidation effected to
                  implement a recapitalization of the Company (or similar
                  transaction) in which no Person is or becomes the Beneficial
                  Owner, directly or indirectly, of securities of the Company
                  representing 25% or more of the combined voting power of the
                  Company's then outstanding securities; or

         (d)      the stockholders of the Company approve a plan of complete
                  liquidation or dissolution of the Company or there is
                  consummated an agreement for the sale or disposition by the
                  Company of all or substantially all of the Company's assets,
                  other than a sale or disposition by the Company of all or
                  substantially all of the Company's assets to an entity, at
                  least 60% of the combined voting power of the voting
                  securities of which are owned by stockholders of the Company
                  in substantially the same proportions as their ownership of
                  the Company immediately prior to such sale.

Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions. Solely for
purposes of this Section 2.5, the following words and phrases shall have the
following meanings:

         2.5.1. AFFILIATE -- an "affiliate" within the meaning of Rule 12b-2
promulgated under Section 12 of the Exchange Act.


                                      -3-



         2.5.2. BENEFICIAL OWNER -- a "beneficial owner" within the meaning of
Rule 13d-3 under the Exchange Act.

         2.5.3. EXCHANGE ACT -- the Securities Exchange Act of 1934, as amended
from time to time.

         2.5.4. PERSON -- a "person" within the meaning of Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.

2.6. CODE -- the Internal Revenue Code of 1986, including applicable regulations
for the specified section of the Code. Any reference in this Plan Statement to a
section of the Code, including the applicable regulation, shall be considered
also to mean and refer to any subsequent amendment or replacement of that
section or regulation.

2.7. COMMITTEE -- the Human Resources Committee of the Board of Directors of the
Company.

2.8. COMPANY -- Donaldson Company, Inc. and, except in determining under Section
2.5 hereof whether or not any Change in Control has occurred, shall include any
successor by merger, purchase or otherwise.

2.9. COMPANY CREDIT -- any amount credited to an Eligible Employee in accordance
with Section 4.6. Company Credits include Fixed Matching Credits, Variable
Credits and Profit Sharing Credits.

2.10. DEFERRAL CREDIT -- any amount credited to an Eligible Employee in
accordance with Sections 4.1, 4.2, 4.3, 4.4 or 4.5.

2.11. DISABILITY, DISABLED -- a physical or mental impairment which constitutes
total and permanent disability and during which the Eligible Employee is not
receiving any payments of an Early Retirement Pension or a Vested Benefit under
the Pension Plan, and the Eligible Employee either:

         (a)      is eligible to receive long-term disability benefits under the
                  Company's separate long-term disability insurance plan (which
                  program shall be administered on a uniform and
                  nondiscriminatory basis); if such separate long-term
                  disability coverage is elected by the Eligible Employee, or


                                      -4-



         (b)      is eligible to receive and is actually receiving (after the
                  applicable waiting period) benefits under the federal Social
                  Security Act as in effect at the time of the Disability.

2.12. EFFECTIVE DATE -- December 21, 1997, the original effective date of the
Plan. Except as otherwise explicitly provided herein, this amended and restated
Plan document is effective as of January 1, 2003.

2.13. ELIGIBLE EMPLOYEE -- unless the Committee determines otherwise, each
individual described in (a) or (b) below shall be an Eligible Employee to the
extent and subject to the limitations specified:

         (a)      OFFICERS. Each person who has been designated as an officer of
                  the Company by the Company's board of directors shall be an
                  Eligible Employee until such person ceases to be such an
                  officer.

         (b)      EXECUTIVE EMPLOYEES. For purposes of Sections 4.3, 4.4 and 4.5
                  only, each executive employee of the Company or its
                  Affiliates, other than an officer described in (a) above,
                  whose Recognized Compensation for a Plan Year is expected to
                  exceed the annual compensation limit then in effect under Code
                  section 401(a)(17) for such Plan Year shall be an Eligible
                  Employee. Such an executive employee shall cease to be an
                  Eligible Employee upon the employee's Termination of
                  Employment, death or Disability, whichever happens first.

2.14. ERISA -- the Employee Retirement Income Security Act of 1974, including
applicable regulations for the specified section of ERISA. Any reference in this
Plan to a section of ERISA, including the applicable regulation, shall be
considered also to mean and refer to any subsequent amendment or replacement of
that section or regulation.

2.15. ESOP -- the tax-qualified, stock bonus plan known as the "Donaldson
Company, Inc. Employee Stock Ownership Plan (1987 Restatement)."

2.16. FIXED MATCHING CREDIT -- any amount credited to an Eligible Employee in
accordance with Section 4.6(a).

2.17. 401(K) PLAN -- the tax-qualified, profit sharing plan known as the
"Donaldson Company, Inc. Retirement Savings Plan (1987 Restatement)."

2.18. LONG TERM INCENTIVE DEFERRAL CREDIT -- any amount credited to an Eligible
Employee in accordance with Section 4.4.

2.19. PARTICIPANT -- an Eligible Employee or a former Eligible Employee of the
Company or its Affiliates who has any amount credited to his or her Account in
this Plan.


                                      -5-



2.20. PLAN -- the Donaldson Company, Inc. Deferred Compensation and 401(k)
Excess Plan as set forth herein, and as the same may be amended from time to
time.

2.21. PLAN YEAR -- effective as of January 1, 2001, the twelve (12) consecutive
month period ending on any December 31. Prior to August 1, 2000, the Plan Year
was the twelve (12) consecutive month period ending on any July 31. The period
beginning on August 1, 2000 and ending on December 31, 2000 shall also be a Plan
Year.

2.22. PROFIT SHARING CREDIT -- any amount credited to an Eligible Employee in
accordance with Section 4.6(c).

2.23. RECOGNIZED COMPENSATION -- for purposes of Section 4.3 of the Plan, wages,
tips and other compensation paid to the Participant by the Employer and
reportable in the box designated "wages, tips, other compensation" on Treasury
Form W-2 (or any comparable successor box or form) for the applicable period but
determined without regard to any rules that limit the remuneration included in
wages based on the nature or location of the employment or the services
performed (such as the exception for agricultural labor in section 3401(a)(2) of
the Code) and further determined without regard to any amounts paid or
reimbursed by the Employer for moving expenses incurred by the Participant (but
only to the extent that at the time of the payment it is reasonable to believe
that these amounts are deductible by the Participant under section 217 of the
Code); subject, however, to the following:

         (a)      INCLUDED ITEMS. In determining a Participant's Recognized
                  Compensation there shall be included elective contributions
                  made by the Employer on behalf of the Participant that are not
                  includible in gross income under sections 125, 402(e)(3),
                  402(h), 403(b), 414(h)(2) and 457 of the Code including
                  elective contributions authorized by the Participant under a
                  Retirement Savings Agreement, a cafeteria plan or any other
                  qualified cash or deferred arrangement under section 401(k) of
                  the Code.

         (b)      EXCLUDED ITEMS. In determining a Participant's Recognized
                  Compensation there shall be excluded all of the following: (i)
                  reimbursements or other expense allowances including foreign
                  service allowances, station allowances, foreign tax
                  equalization payment and other similar payments, (ii) welfare
                  and fringe benefits (both cash and noncash) including
                  third-party sick pay (i.e., short-term and long-term
                  disability insurance benefits), income imputed from insurance
                  coverages and premiums, employee discounts and other similar
                  amounts, payments for vacation or sick leave accrued but not
                  taken, final payments on account of Termination of Employment,
                  death or Disability (e.g., severance payments) and settlement
                  for accrued but unused vacation and sick leave, (iii) moving
                  expenses, and (iv) deferred compensation (both when deferred
                  and when received).


                                      -6-



         (c)      ATTRIBUTION TO PERIODS. A Participant's Recognized
                  Compensation shall be considered attributable to the period in
                  which it is actually paid and not when earned or accrued;
                  provided, however, amounts earned but not paid in a Plan Year
                  because of the timing of pay periods and pay days may be
                  included in the Plan Year when earned if these amounts are
                  paid during the first few weeks of the next Plan Year, the
                  amounts are included on a uniform and consistent basis with
                  respect to all similarly situated Participants and no amount
                  is included in more than one Plan Year.

         (d)      EXCLUDED PERIODS. Amounts received after the Participant's
                  Termination of Employment, death or Disability shall not be
                  taken into account in determining a Participant's Recognized
                  Compensation.

         (e)      MULTIPLE EMPLOYERS. If a Participant is employed by more than
                  one Employer in a Plan Year, a separate amount of Recognized
                  Compensation shall be determined for each Employer.

2.24. RESTRICTED STOCK DEFERRAL CREDITS -- any amount credited to an Eligible
Employee in accordance with Section 4.5.

2.25. TERMINATION OF EMPLOYMENT -- the complete severance of an employee's
employment relationship with the Company and all Affiliates, if any, for any
reason other than the employee's death or Disability.

2.26. VALUATION DATE -- for Plan Years beginning on or after August 1, 2000,
each December 31 and each other day that the New York Stock Exchange is open and
conducting business, or such other date or dates as the Committee may establish.

2.27. VARIABLE CREDIT -- any amount credited to an Eligible Employee in
accordance with Section 4.6(b).

2.28. VESTED -- nonforfeitable.

2.29. YEAR OF SERVICE -- a one-year period of employment with the Company in
which the Participant completes at least 1,000 hours of service.










                                      -7-



                                   SECTION 3

                                  PARTICIPATION

3.1. COMMENCEMENT OF PARTICIPATION. An Eligible Employee shall become a
Participant in the Plan when the Eligible Employee is first credited with any
amount pursuant to Section 4.

3.2. TERMINATION OF PARTICIPATION. A person shall cease to be a Participant as
soon as all amounts credited to the Participant's Account have been paid in
full.

3.3. OVERRIDING EXCLUSION. Notwithstanding anything apparently to the contrary
in this Plan or in any written communication, summary, resolution or document or
oral communication, no individual shall be a Participant in this Plan, develop
benefits under this Plan or be entitled to receive benefits under this Plan
(either for the employee or his or her survivors) unless such individual is a
member of a select group of management or highly compensated employees (as that
expression is used in ERISA). If a court of competent jurisdiction, any
representative of the U.S. Department of Labor or any other governmental,
regulatory or similar body makes any direct or indirect, formal or informal,
determination that an individual is not a member of a select group of management
or highly compensated employees (as that expression is used in ERISA), such
individual shall not be (and shall not have ever been) a Participant in this
Plan at any time. If any person not so defined has been erroneously treated as a
Participant in this Plan, upon discovery of such error such person's erroneous
participation shall immediately terminate AB INITIO and upon demand such person
shall be obligated to reimburse the Company for all amounts erroneously paid to
him or her.



















                                      -8-



                                   SECTION 4

                          DEFERRED COMPENSATION AMOUNTS

4.1. SALARY DEFERRAL CREDITS. An Eligible Employee may elect to have all or a
portion of the salary which the Eligible Employee would otherwise have received
and included in gross income credited to his or her Account. Such election must
comply with the rules and limits established by the Committee and must be made
by giving advance written notice to the Company on an election form approved by
the Committee. Elections with respect to salary earned during a pay period must
be received by the Company prior to the beginning of the pay period to which the
election applies. Participant elections will remain effective until the earlier
of: (i) the time a revised election is received and becomes effective, or (ii)
the following January 1. Revised elections will take effect on the first day of
the first pay period commencing after the pay period in which the election is
received by the Company.

4.2. BONUS DEFERRAL CREDITS. An Eligible Employee may elect to have all or a
portion of the annual bonus which the Eligible Employee would otherwise have
received and included in gross income credited to his or her Account. Such
election must comply with the rules and limits established by the Committee and
must be made by giving advance written notice to the Company on an election form
approved by the Committee. Effective August 1, 1997, elections with respect to
annual bonuses must be received by the Company prior to April 1 of the year for
which the bonus was earned; provided, however, that the Committee may permit an
employee who becomes an Eligible Employee after April 1 of that year to make an
election for the remainder of that year effective with respect to bonuses earned
on or after the date the election is received.

4.3. EXCESS DEFERRAL CREDITS. An Eligible Employee may elect to have a portion
of Recognized Compensation which the Eligible Employee would otherwise have
received and included in gross income deferred and credited to his or her
Account. Such deferral shall be made only from the Eligible Employee's
Recognized Compensation after he or she has reached the annual deferral limit
under section 402(g) of the Code, if the Eligible Employee's elective deferrals
to the 401(k) Plan reach that limit. Otherwise, such deferral shall be made only
from the Participant's Recognized Compensation in excess of the annual
compensation limit in effect for the Plan Year under section 401(a)(17) of the
Code. An election under this Section 4.3 must be made by giving advance written
notice to the Company on an election form approved by the Committee. Elections
with respect to Recognized Compensation earned during a pay period must be
received by the Company prior to the beginning of the pay period to which the
election applies. An election will remain effective until a revised election is
received and becomes effective.

4.4. LONG TERM INCENTIVE DEFERRAL CREDITS. An Eligible Employee may elect to
have all or a portion of the long term performance share award under the
Donaldson Company, Inc. 1991 Master Stock Compensation Plan, or any subsequent
stock compensation plan maintained by the Company, (the "LTCP Plan") which the
Eligible Employee would otherwise have received and included in


                                      -9-



gross income credited to his or her Account. Such election must comply with the
rules and limits established by the Committee and must be made by giving advance
written notice to the Company on an election form approved by the Committee.
Elections with respect to such long term performance share awards must be
received by the Company not less than one year prior to the end of the
"Incentive Cycle" (as defined in the LTCP Plan) with respect to which the award
was earned; provided, however, that the Committee may permit an employee who
becomes an Eligible Employee after the commencement of an "Incentive Cycle" to
submit an election with respect to the award for such "Incentive Cycle" no later
than 30 days after such employee becomes an Eligible Employee.

         (a)      STOCK UNITS. After the end of the Incentive Cycle, the
                  Participant's Account shall be credited with a number of Stock
                  Units equal to the number of shares of common stock of the
                  Company ("Common Stock") deferred by the Participant.

         (b)      ADJUSTMENT. In the event of any change in the outstanding
                  shares of Common Stock by reason of any stock split or stock
                  dividend in the form of a split, the Committee shall adjust
                  the number of Stock Units in a Participant's Account so that
                  such number equals the number of Stock Units in the Account
                  prior to the event, multiplied by a fraction, the denominator
                  of which is the number of Stock Units in the Account prior to
                  the event, and the numerator of which is the number of shares
                  of Common Stock the Participant would have had after the event
                  if the Participant had shares of Common Stock immediately
                  prior to the event equal in number to the number of Stock
                  Units in the Participant's Account immediately prior to the
                  event. In the event of any dividend (other than a stock
                  dividend in the form of a split), recapitalization, merger,
                  consolidation, spinoff, reorganization, combination or
                  exchange of shares or other similar corporate change, then if
                  the Committee, or the board of directors of a successor
                  corporation, shall determine, in its sole discretion, that
                  such change equitably requires an adjustment in the number of
                  Stock Units then held in the Participant's Account, such
                  adjustment shall be made by the Committee or said board and
                  shall be conclusive and binding for all purposes of the Plan.

         (c)      DIVIDEND UNITS. The number of Stock Units in a Participant's
                  Account shall be automatically increased as of each Common
                  Stock dividend payment date in an amount equal to the number
                  of shares of Common Stock that could be purchased on such
                  dividend payment date with the cash dividends that would be
                  paid on a number of shares of Common Stock equal to the number
                  of Stock Units in the Participant's Account on the record date
                  for such dividend.

4.5. RESTRICTED STOCK DEFERRAL CREDITS. An Eligible Employee may irrevocably
elect to receive a credit to his or her Account in lieu of all or a portion of
the restricted stock awarded to that Eligible Employee under the Donaldson
Company, Inc. 1991 Master Stock Compensation Plan, or


                                      -10-



any subsequent stock compensation plan maintained by the Company. Such election
must comply with the rules and limits established by the Committee, must be made
by giving advance written notice to the Company on an election form approved by
the Committee, and shall apply only as to restricted stock for which no election
under Code Section 83(b) has been made and for which no amount was paid by the
Eligible Employee. Elections with respect to any such restricted stock must be
received by the Company not less than one year prior to the date on which the
restrictions applicable to such restricted stock would otherwise lapse (the
"Lapse Date") unless the Lapse Date is less than one year after this Section 4.5
first becomes effective and the election is authorized by the Committee.

         (a)      STOCK UNITS. The Eligible Employee's Account shall be credited
                  as of the Lapse Date with a number of Stock Units equal to the
                  number of shares of restricted stock whose restrictions lapse
                  on that date that are subject to the Eligible Employee's
                  election.

         (b)      DIVIDENDS AND ADJUSTMENTS. Stock Units credited to a
                  Participant's Account under this Section 4.5 shall be
                  increased due to cash dividends and subject to adjustment as
                  provided in subsections (b) and (c) of Section 4.4 above.

4.6. COMPANY CREDITS.

         (a)      FIXED MATCHING CREDITS. Any Eligible Employee who elects
                  Deferral Credits in lieu of receiving Recognized Compensation
                  shall be credited with a Fixed Matching Credit to the Eligible
                  Employee's Account. The amount of an Eligible Employee's Fixed
                  Matching Credit shall equal the amount the Eligible Employee
                  would have received on the deferrals made under Sections 4.1,
                  4.2 and 4.3, as set forth in Section 3.2 of the ESOP, if such
                  deferrals had been made to the 401(k) Plan, without regard to
                  the annual compensation limit then in effect under Code
                  section 401(a)(17), taking into account only salary, bonus and
                  Recognized Compensation after the Eligible Employee's
                  Recognized Compensation reached the annual compensation limit
                  in effect for the Plan Year under section 401(a)(17) of the
                  Code, and the deferrals on such salary, bonus and Recognized
                  Compensation. Notwithstanding the foregoing, any Eligible
                  Employee who retires either during a Plan Year or after the
                  end of a Plan Year in which such Eligible Employee is a
                  Participant in this Plan and who receives a bonus after the
                  end of the Plan Year that was earned in the Plan Year in which
                  such Eligible Employee retired shall receive a Fixed Matching
                  Credit of four percent (4%) of the bonus amount in such
                  Eligible Employee's Account.

         (b)      VARIABLE CREDITS. Any Eligible Employee who elects Deferral
                  Credits in lieu of receiving Recognized Compensation may be
                  credited with a Variable

                                      -11-



                  Credit to the Eligible Employee's Account. The amount of an
                  Eligible Employee's Variable Credit shall equal the amount the
                  Eligible Employee would have received on the deferrals made
                  under Sections 4.1, 4.2 and 4.3, as set forth in Section 3.3
                  of the ESOP, if such deferrals had been made to the 401(k)
                  Plan, without regard to the annual compensation limit then in
                  effect under Code section 401(a)(17). Notwithstanding the
                  foregoing provisions of this subsection (b), effective for
                  Plan Years beginning on or after January 1, 2001, Variable
                  Credits shall be permanently discontinued.

         (c)      PROFIT SHARING CREDITS. The Board may, in its sole discretion,
                  cause the Account of an Eligible Employee to be credited with
                  Profit Sharing Credits for a Plan Year. Such Profit Sharing
                  Credits shall equal the amount the Eligible Employee would
                  have received if the profit sharing contribution to the 401(k)
                  Plan and ESOP for that Eligible Employee had been made without
                  regard to the annual compensation limit then in effect under
                  Code section 401(a)(17), minus the amount of profit sharing
                  contributions actually made to the Eligible Employee's account
                  in the 401(k) Plan and ESOP.

                  4.7. VESTING. Subject to the forfeiture provisions of Section
                  8, the Accounts of all Participants shall be 100% Vested at
                  all times.

                  4.8. REDUCTION FOR TAX WITHHOLDING. Notwithstanding anything
                  in Sections 4.4(a) and 4.5(a) to the contrary, the number of
                  Stock Units credited pursuant to those sections shall be
                  reduced by the number of shares whose aggregate fair market
                  value on the crediting date equals the amount of any taxes
                  that must be withheld at the time of crediting due to the
                  Eligible Employee's deferral election.


















                                      -12-



                                   SECTION 5

                           TIME AND MANNER OF PAYMENTS

5.1. TIME OF PAYMENT. Payment of a Participant's Account under the Plan will
commence as soon as administratively feasible (but no more than twenty (20)
days) following the occurrence of the earliest of the following events:

         (a)      death,

         (b)      Disability, or

         (c)      the date of distribution selected by the Participant in
                  writing at a time and on a form prescribed by the Committee.

Distribution of a Participant's Account attributable to Deferral Credits under
Sections 4.1, 4.2, 4.4 and 4.5, and no other portion, may begin prior to the
Participant's Termination of Employment. In no event may payment of the portion
of a Participant's Account attributable to a Deferral Credit begin less than one
year after the date the Deferral Credit was first elected.

5.2. MANNER OF PAYMENT. A Participant's Account will be paid to the Participant
in either a single lump-sum payment or in annual installments of not more than
twenty (20) years. The Participant must elect a manner of payment at the time
the Participant elects his or her date of distribution pursuant to Section
5.1(c). In the event no election was made by the Participant, payment shall be
in a single lump-sum. Payment of the portion of a Participant's Account
attributable to Deferral Credits other than Long Term Incentive and Restricted
Stock Deferral Credits shall be in cash. Payment to a Participant of the portion
of the Participant's Account attributable to Long Term Incentive and Restricted
Stock Deferral Credits shall be made, net of withholding taxes, exclusively in
shares of Common Stock. Payment to a Participant on or after the date certified
in writing by the Committee or its delegate as the date on which distributions
in stock of the portion of the Participant's Account attributable to Company
Credits are administratively feasible shall be made, net of withholding taxes,
exclusively in shares of Common Stock. Payment prior to that certified date of
such portion of a Participant's Account shall be in cash. For purposes of
determining any tax withholding on a payment, the value of Common Stock will be
the market price of such Common Stock as of the close of business on the day
prior to the date as of which the payment is made.

5.3. CHANGES IN TIME AND MANNER OF PAYMENT. Notwithstanding the foregoing, a
Participant may make a new election concerning selection of the time and form of
payment authorized pursuant to this Section 5 (the "New Election") in accordance
with the following terms and conditions, unless waived or modified by the
Committee:


                                      -13-



         (a)      A New Election shall only be permitted once and must be made
                  and become effective as hereinafter provided, if at all, prior
                  to the Participant's Termination of Employment, death or
                  Disability, whichever happens first;

         (b)      A New Election shall become effective twelve months after it
                  is received by the Company; and

         (c)      If any of the events set forth in Section 5.1 of the Plan
                  occur prior to the effective date of a New Election with
                  respect to previously credited deferrals, then payments shall
                  be paid hereunder to or with respect to the Participant
                  according to the elections in effect at the time of the event.

5.4. HARDSHIP DISTRIBUTIONS.

         5.4.1. WHEN AVAILABLE. A Participant may receive a hardship
distribution from the Deferral Credits in his or her Account if the Committee
determines that such hardship distribution is for a purpose described in Section
5.4.2 and the conditions in Section 5.4.3 have been fulfilled. To receive such a
distribution, the Participant must file a written hardship distribution
application with the Committee and furnish such documentation as the Committee
may require. In the application, the Participant shall specify the basis for the
distribution and the dollar amount to be distributed. If such hardship
distribution is approved by the Committee, distribution shall be made as soon as
administratively feasible (but no more than twenty (20) days) following the
approval of a completed application by the Committee. Hardship distributions
shall be made in a lump-sum payment of either cash or Common Stock, as required
by Section 5.2. The amount of each hardship distribution shall be taken from the
portion of the Account attributable to the earliest enrollment (including
related earnings) first.

         5.4.2. PURPOSES. Hardship distributions shall be allowed under Section
5.4.1 only if the Participant establishes that the hardship distribution is to
be made on account of an immediate and heavy financial need of the Participant
for which the Participant does not have other available resources.

         5.4.3. LIMITATIONS. The amount of the hardship distribution shall not
exceed the amount of the Participant's proven immediate and heavy financial
need. A hardship distribution shall not be made after the death of the
Participant. The amount of approved hardship distribution shall not exceed the
value of the Account.

5.5. CHANGE IN CONTROL DISTRIBUTIONS. Notwithstanding any other provision of
this Section 5, a Participant or Beneficiary will receive a distribution of his
or her entire Account if a Change in Control occurs. Distribution of the entire
Account shall be made on the date of the Change in Control. Such distribution
shall be made in a single lump-sum cash payment.


                                      -14-



5.6. ACCELERATION OF PAYMENTS.

         5.6.1. WHEN AVAILABLE. A Participant or Beneficiary may receive an
accelerated payment of his or her entire Account (after reduction for the
forfeiture described in Section 5.6.2). To receive such an accelerated payment,
the Participant or Beneficiary must file a written payment application with the
Committee. Payment of the accelerated payment (after reduction for the
forfeiture described in Section 5.6.2) shall be made as soon as administratively
feasible (but no more than twenty (20) days) following the approval of a
completed application by the Committee. Such accelerated payment shall be made
in a lump-sum payment of either cash or Common Stock, as required by Section
5.2. The amount of the accelerated payment shall be equal to the value of the
Account as of such distribution date (after reduction for the forfeiture
described below).

         5.6.2. FORFEITURE. Upon the approval of an accelerated payment, there
shall be irrevocably forfeited from the Account of the Participant or
Beneficiary an amount equal to six percent (6%) of the Account. In addition, the
Participant will not be an Eligible Employee under this Plan for two (2) years
following such accelerated payment.

5.7. DEATH BENEFIT. In the event of a Participant's death, the Company shall pay
the amount of the Participant's Account as of the date of death (as adjusted
from time to time pursuant to Section 6.2) in a lump-sum or in installments, as
previously elected by the Participant, to the Participant's designated
Beneficiary as soon as administratively feasible. In the event no election was
made by the Participant, payment shall be in a single lump-sum. Payment to a
Participant's designated Beneficiary shall be in cash to the extent the
Participant would have been paid in cash, and in Common Stock of the Company
(and cash for fractional shares) to the extent the Participant would have been
paid in Common Stock.

5.8. BENEFICIARY DESIGNATION. A Participant shall submit to the Company upon
initial designation as an Eligible Employee in the Plan, and at such other times
as the Participant desires, on a form provided by the Committee, a written
designation of the beneficiary or beneficiaries to whom payment of the
Participant's Account under the Plan shall be made in the event of the
Participant's death. Beneficiary designations shall become effective only when
received by the Company. Beneficiary designations first received by the Company
after the Participant's death, and any designations in effect at the time a
valid subsequent designation is received by the Company, shall be invalid and
have no effect. If a Participant has not designated a Beneficiary, or if no
designated Beneficiary is living on the date of distribution, the Participant's
Account shall be distributed to those persons entitled to receive the
Participant's benefit under the Donaldson Company, Inc. Salaried Employees'
Pension Plan (1997 Restatement), as amended from time to time.


                                      -15-



                                   SECTION 6

                          DEFERRED COMPENSATION ACCOUNT

6.1. PARTICIPANT ACCOUNTS. The Committee shall cause a bookkeeping account to be
kept in the name of each Participant which shall reflect the value of the
Deferral Credits and Company Credits, and any earnings (including Dividend
Units) thereon, credited to a Participant. Deferral Credits shall be credited to
a Participant's Account as of the date the amounts deferred otherwise would have
become due or payable. Company Credits shall be credited at such times as the
Committee shall direct.

6.2. INVESTMENT OF ACCOUNTS. Amounts credited to a Participant's Account, other
than those described in Section 4.4, will be adjusted for gains and losses to
the same extent that equal amounts would have been adjusted if they had been
invested as directed by the Participant in the subfund or subfunds designated by
the Committee. Amounts described in Section 4.4 will be adjusted as set forth in
that section.

6.3. ASSUMPTION OF RISK. The Participant, by electing to make deferrals under
this Plan, assumes all risk in connection with any decrease in value of the
Participant's Account.

6.4. CHARGES AGAINST ACCOUNTS. There shall be charged against each Participant's
bookkeeping account any payments made to the Participant or the Participant's
Beneficiary in accordance with Section 5.


















                                      -16-



                                   SECTION 7

                                     FUNDING

7.1. FUNDING. The Company and its Affiliates shall be responsible for paying all
benefits due hereunder. For the purpose of facilitating the payment of benefits
due hereunder, the Company may (but shall not be required to) establish and
maintain a grantor trust pursuant to an Agreement between the Company and a
trustee selected by the Company; provided, however, that any such grantor trust
must be structured so that it does not result in any federal income tax
consequences to any Participant until distributions under Section 5 are actually
received. The Company may contribute to a grantor trust thereby created such
amounts as it may from time to time determine.

7.2. CORPORATE OBLIGATION. Neither the officers nor any member of the Board of
Directors of the Company or any of its Affiliates in any way secures or
guarantees the payment of any benefit or amount which may become due and payable
hereunder to or with respect to any Participant. Each Participant and other
person entitled at anytime to payments hereunder shall look solely to the assets
of the Company and its Affiliates for such payments as an unsecured, general
creditor. Nothing herein shall be construed to give a Participant, Beneficiary
or any other person or persons any right, title, interest or claim in or to any
specific asset, fund, reserve, account or property of any kind whatsoever owned
by the Company or in which it may have any right, title or interest now or in
the future. After benefits shall have been paid to or with respect to a
Participant and such payment purports to cover in full the benefit hereunder,
such former Participant or other person or persons, as the case may be, shall
have no further right or interest in the other assets of the Company and its
Affiliates in connection with this Plan.












                                      -17-



                                   SECTION 8

                             FORFEITURE OF BENEFITS

All unpaid benefits under this Plan accrued under Section 4.6 shall be
permanently forfeited if the Committee determines that the Participant, either
before or after the Participant's Termination of Employment or Disability, or
before the Participant's death:

         (a)      engaged in criminal or fraudulent conduct resulting in a
                  hardship to the Company or an Affiliate; or

         (b)      breached the Participant's written employment agreement with
                  the Company or an Affiliate.
























                                      -18-



                                    SECTION 9

                                 ADMINISTRATION

9.1. AUTHORITY. The Plan shall be administered by the Committee, which shall
have full discretionary power and authority to administer and interpret the Plan
and to determine all factual and legal questions under the Plan, including but
not limited to the entitlement of Participants and Beneficiaries, and the amount
of their respective interests. Except with respect to the portion of a
Participant's Account that is attributable to either Long Term Incentive or
Restricted Stock Deferral Credits, the Committee may delegate or redelegate to
one or more persons, jointly or severally, and whether or not such persons are
members of the Committee or employees of the Company, such functions assigned to
the Committee hereunder as it may from time to time deem advisable. Until
withdrawn or redelegated by the Committee, all of the Committee's delegable
power and authority under this Section 9.1 shall be deemed delegated to the
Company's Vice President in charge of executive compensation, excluding only the
power and authority to act in such a way as would materially increase the cost
of the Plan.

9.2. LIABILITY. No member of the Committee and no director or member of the
management of the Company or its Affiliates shall be liable to any persons for
any actions taken under the Plan, or for any failure to effect any of the
objective or purposes of the Plan, by reason of insolvency or otherwise.

9.3. PROCEDURES. The Committee may from time to time adopt such rules and
procedures as it deems appropriate to assist in the administration of the Plan.

9.4. CLAIM FOR BENEFITS. No employee or other person shall have any claim or
right to payment of any amount hereunder until payment has been authorized and
directed by the Committee.

9.5. CLAIMS PROCEDURE. Until modified by the Committee, the claims procedure set
forth in this Section 9.5 shall be the claims procedure for the resolution of
disputes and disposition of claims arising under the Plan.

         9.5.1. ORIGINAL CLAIM. Any employee, former employee, or Beneficiary of
such employee or former employee may, if the employee, former employee or
Beneficiary so desires, file with the Committee a written claim for benefits
under the Plan. Within ninety (90) days after the filing of such a claim, the
Committee shall notify the claimant in writing whether the claim is upheld or
denied in whole or in part or shall furnish the claimant a written notice
describing specific special circumstances requiring a specified amount of
additional time (but not more than one hundred eighty (180) days from the date
the claim was filed) to reach a decision on the claim. If the claim is denied in
whole or in part, the Committee shall state in writing:

         (a)      the specific reasons for the denial,

                                      -19-



         (b)      the specific references to the pertinent provisions of this
                  Plan on which the denial is based,

         (c)      a description of any additional material or information
                  necessary for the claimant to perfect the claim and an
                  explanation of why such material or information is necessary,
                  and

         (d)      an explanation of the claims review procedure set forth in
                  this Section.

         9.5.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt of
notice that the claim has been denied in whole or in part, the claimant may file
with the Committee a written request for a review and may, in conjunction
therewith, submit written issues and comments. Within sixty (60) days after the
filing of such a request for review, the Committee shall notify the claimant in
writing whether, upon review, the claim was upheld or denied in whole or in part
or shall furnish the claimant a written notice describing specific special
circumstances requiring a specified amount of additional time (but not more than
one hundred twenty days (120) from the date the request for review was filed) to
reach a decision on the request for review.

         9.5.3. GENERAL RULES.

         (a)      No inquiry or question shall be deemed to be a claim or a
                  request for a review of a denied claim unless made in
                  accordance with the claims procedure. The Committee may
                  require that any claim for benefits and any request for a
                  review of a denied claim be filed on forms to be furnished by
                  the Committee upon request.

         (b)      All decisions on original claims shall be made by the
                  Committee and requests for a review of denied claims shall be
                  made by the Committee.

         (c)      The Committee may, in its discretion, hold one or more
                  hearings on a claim or a request for a review of a denied
                  claim.

         (d)      Claimants may be represented by a lawyer or other
                  representative at their own expense, but the Committee
                  reserves the right to require the claimant to furnish written
                  authorization. A claimant's representative shall be entitled
                  to copies of all notices given to the claimant.

         (e)      The decision of the Committee on an original claim or on a
                  request for a review of a denied claim shall be served on the
                  claimant in writing. If a decision or notice is not received
                  by a claimant within the time specified, the claim or request
                  for a review of a denied claim shall be deemed to have been
                  denied.

                                      -20-



         (f)      Prior to filing a claim or a request for a review of a denied
                  claim, the claimant or the claimant's representative shall
                  have a reasonable opportunity to review a copy of this Plan
                  Statement and all other pertinent documents in the possession
                  of the Company and its Affiliates.

9.6. PAYMENTS UPON IMPOSITION OF FEDERAL OR STATE TAXES. If any Participant is
determined to be subject to federal or state income tax on any amount accrued on
his or her behalf under this Plan prior to the time of payment hereunder,
federal or state taxes attributable to the amount determined to be so taxable
shall be distributed by the Plan to such Participant. An amount accrued on his
or her behalf under this Plan shall be determined to be subject to federal
income tax upon the earliest of:

                  (i)      a final determination by the United States Internal
                           Revenue Service addressed to the Participant which is
                           not appealed to the courts;

                  (ii)     a final determination by the United States Tax Court
                           or any other Federal Court affirming any such
                           determination by the Internal Revenue Service; or

                  (iii)    an opinion by the Tax Counsel of the Company,
                           addressed to the Company that, by reason of Treasury
                           Regulations, amendments to the Internal Revenue Code,
                           published Internal Revenue Service rulings, court
                           decisions or other substantial precedent, amounts
                           accrued on a Participant's behalf hereunder are
                           subject to federal or state income tax prior to
                           payment.

The Company shall undertake at its sole expense to defend any tax claims
described herein which are asserted by the Internal Revenue Service or by any
state revenue authority against any Participant, including attorney fees and
costs of appeal, and shall have the sole authority to determine whether or not
to appeal any determination made by the Internal Revenue Service, by any state
revenue authority or by a lower court. The Company also agrees to reimburse any
Participant for any interest or penalties in respect of federal or state tax
claims hereunder upon receipt of documentation of same.

9.7. LEGAL FEES. If the Company does not pay the benefits required under the
terms of the Plan for reasons other than the insolvency of the Company, the
Company agrees to reimburse any Participant for all legal fees incurred in
enforcing his or her claim to benefits under the Plan.

9.8. ERRORS IN COMPUTATIONS. The Committee shall not be liable or responsible
for any error in the computation of any benefit payable to or with respect to
any Participant resulting from any misstatement of fact made by the Participant
or by or on behalf of any Beneficiary to whom such benefit shall be payable,
directly or indirectly, to the Committee, and used by the Committee in
determining the benefit. The Committee shall not be obligated or required to
increase the benefit


                                      -21-



payable to or with respect to such Participant which, on discovery of the
misstatement, is found to be understated as a result of such misstatement of the
Participant. However, the benefit of any Participant which is overstated by
reason of any such misstatement or any other reason shall be reduced to the
amount appropriate in view of the truth (and to recover any prior overpayment).

























                                      -22-



                                   SECTION 10

                                  MISCELLANEOUS

10.1. NOT AN EMPLOYMENT CONTRACT. This Plan is not and shall not be deemed to
constitute a contract of employment between the Company and any employee or
other person, nor shall anything herein contained be deemed to give any employee
or other person any right to be retained in the Company's employ or in any way
limit or restrict the Company's right or power to discharge any employee or
other person at any time and to treat him without regard to the effect which
such treatment might have upon the employee as a Participant in the Plan.

10.2. NONTRANSFERABILITY. A Participant's rights and interest under the Plan,
including amounts payable, may not be assigned, alienated, pledged or
transferred except, in the event of a Participant's death to his Beneficiary. No
benefit payable under this Plan shall be subject to attachment, garnishment,
execution following judgment or other legal process before actual payment to the
Participant or Beneficiary.

10.3. TAX WITHHOLDING. The Company shall withhold the amount of any federal,
state or local income tax or other tax required to be withheld by the Company
under applicable law with respect to any amount payable under the Plan. Any cash
payable in lieu of fractional shares shall be applied to the payment of tax
withholding. The Participant shall not be liable for any tax withholding.

10.4. EXPENSES. All expenses of administering the Plan shall be borne by the
Company.

10.5. GOVERNING LAW. Except to the extent that federal law is controlling, the
Plan shall be construed and enforced in accordance with and governed by the laws
of the State of Minnesota.

10.6. AMENDMENT AND TERMINATION. The Company reserves the power to unilaterally
amend this Plan at any time, either prospectively or retroactively or both by
action of the Committee (with the written concurrence of the Chief Executive
Officer of the Company). The Committee may likewise terminate or curtail the
benefits of this Plan both with regard to persons expecting to receive benefits
in the future and persons already receiving benefits at the time of such action;
provided, however, that the Committee may not amend or terminate the Plan with
respect to benefits that have accrued and are vested pursuant to Section 4 in
any manner that reduces the amount of such benefits or alters the effect of any
participant election previously filed with the Company. No modification of the
terms of this Plan shall be effective unless it is in writing and signed on
behalf of the Company by a person authorized to execute such writing. No oral
representation concerning the interpretation or effect of this Plan shall be
effective to amend the Plan.

10.7. RULES OF INTERPRETATION. The titles given to the various sections of this
Plan are inserted for convenience of reference only and are not part of this
Plan, and they shall not be considered in determining the purpose, meaning or
intent of any provision hereof. This Plan shall be construed and this Plan shall
be administered to create an unfunded plan providing deferred compensation to a


                                      -23-



select group of management or highly compensated employees so that it is exempt
from the requirements of Parts 2, 3 and 4 of Title I of ERISA and qualifies for
a form of simplified, alternative compliance with the reporting and disclosure
requirements of Part 1 of Title I of ERISA.






























                                      -24-

EX-10.R

                                                                    Exhibit 10-R







                             DONALDSON COMPANY, INC.
                         DEFERRED STOCK OPTION GAIN PLAN
                               (2003 RESTATEMENT)


             As Amended and Restated Effective as of August 1, 2003






                             DONALDSON COMPANY, INC.
                         DEFERRED STOCK OPTION GAIN PLAN
                               (2003 RESTATEMENT)


                                TABLE OF CONTENTS

                                                                           PAGE


SECTION 1.   ESTABLISHMENT AND PURPOSE.......................................1

             1.1.              Establishment
             1.2.              Purpose
             1.3.              Relation to Master Stock Plans

SECTION 2.   DEFINITIONS.....................................................2

             2.1.   Account
             2.2.   Affiliate
             2.3.   Beneficiary
             2.4.   Board
             2.5.   Change of Control
                    2.5.1.   Affiliate
                    2.5.2.   Beneficial Owner
                    2.5.3.   Exchange Act
                    2.5.4    Person
             2.6.   Committee
             2.7.   Common Stock
             2.8.   Company
             2.9.   Deferral Election
             2.10.  Disability, Disabled
             2.11.  Effective Date
             2.12.  Eligible Employee
             2.13.  Exercise Date
             2.14.  Participant
             2.15.  Plan
             2.16.  Plan Year
             2.17.  Stock Units
             2.18.  Termination of Employment
             2.19.  Vested

                                       -i-



SECTION 3.   ELIGIBILITY AND PARTICIPATION....................................6

             3.1.   Eligibility
             3.2.   Commencement of Participation
             3.3.   Termination of Participation
             3.4.   Overriding Exclusion

SECTION 4.   STOCK UNITS......................................................7

             4.1.   Deferral Elections
             4.2.   Stock Units
             4.3.   Adjustment
             4.4.   Dividend Units
             4.5.   Vesting

SECTION 5.   TIME AND MANNER OF PAYMENTS......................................9

             5.1.   Time of Payment
             5.2.   Manner of Payment
             5.3.   Changes in Time and Manner of Payment
             5.4.   Change in Control Distributions
             5.5.   Acceleration of Payments
                    5.5.1.   When Available
                    5.5.2.   Forfeiture
             5.6.   Death Benefit
             5.7.   Beneficiary Designation

SECTION 6.   STOCK UNIT ACCOUNTS.............................................12

             6.1.   Participant Accounts
             6.2.   Charges Against Accounts

SECTION 7.   FUNDING.........................................................13

             7.1.   Funding
             7.2.   Corporate Obligation

SECTION 8.   ADMINISTRATION..................................................14

             8.1.   Authority
             8.2.   Liability
             8.3.   Procedures
             8.4.   Claim for Benefits
             8.5.   Claims Procedure
                    8.5.1.   Original Claim
                    8.5.2.   Claims Review Procedure
                    8.5.3.   General Rules

                                      -ii-



             8.6.   Payments upon Imposition of Federal or State Taxes
             8.7.   Legal Fees
             8.8.   Errors in Computations

SECTION 9.   MISCELLANEOUS...................................................17

             9.1.   Not an Employment Contract
             9.2.   Nontransferability
             9.3.   Tax Withholding
             9.4.   Expenses
             9.5.   Governing Law
             9.6.   Amendment and Termination
             9.7.   Rules of Interpretation


























                                      -iii-



                             DONALDSON COMPANY, INC.
                         DEFERRED STOCK OPTION GAIN PLAN
                               (2003 RESTATEMENT)


                                    SECTION 1

                            ESTABLISHMENT AND PURPOSE

1.1. ESTABLISHMENT. Effective as of August 1, 2003, Donaldson Company, Inc.
hereby amends and restates its nonqualified elective deferral plan for a select
group of highly compensated employees known as the "DONALDSON COMPANY, INC.
DEFERRED STOCK OPTION GAIN PLAN."

1.2. PURPOSE. The purposes of this Plan are to allow a select group of
management and highly compensated employees of the Company to defer the receipt
of income that would otherwise be subject to income tax upon exercise of stock
options granted by the Company and to attract and retain certain executive
employees of outstanding competence.

1.3 RELATION TO MASTER STOCK PLANS. All benefits provided by this Plan are
subject to any applicable terms, conditions and restrictions required by the
Donaldson Company, Inc. 2001 Master Stock Incentive Plan if they are
attributable to deferrals that occur after December 31, 2001, or the Donaldson
Company, Inc. 1991 Master Stock Compensation Plan if they are attributable to
deferrals that occur on or before December 31, 2001.


















                                    SECTION 2

                                   DEFINITIONS

The following words and phrases shall have the following meanings, unless a
different meaning is plainly required by the context. Any masculine terminology
used in the Plan shall also include the feminine gender and the definition of
any terms in the singular shall also include the plural.

2.1. ACCOUNT -- the deferred compensation account established under this Plan
for a Participant pursuant to Section 6.1.

2.2. AFFILIATE -- a business entity which is under "common control" with the
Company or which is a member of an "affiliated service group" that includes the
Company, as those terms are defined in section 414(b), (c) and (m) of the Code.
A business entity shall also be treated as an Affiliate if, and to the extent
that, such treatment is required by regulations under section 414(o) of the
Code. In addition to said required treatment, the Committee may, in its
discretion, designate as an Affiliate any business entity which is not such a
"common control" or "affiliated service group" business entity but which is
otherwise affiliated with the Company, subject to such limitations as the
Committee may impose.

2.3. BENEFICIARY -- any person or entity validly designated by the Participant
in accordance with Section 5 to receive the benefits, if any, payable from the
Participant's Account after the Participant's death. Designated persons or
entities shall not be considered Beneficiaries until the death of the
Participant.

2.4. BOARD -- the Board of Directors of the Company.

2.5. CHANGE OF CONTROL -- a "Change in Control" shall be deemed to have occurred
if the event set forth in any one of the following paragraphs shall have
occurred:

         (a)      any Person is or becomes the Beneficial Owner, directly or
                  indirectly, of securities of the Company representing 25% or
                  more of the combined voting power of the Company's then
                  outstanding securities, excluding any Person who becomes such
                  a Beneficial Owner in connection with a transaction described
                  in clause (i) of paragraph (c) below; or

         (b)      the following individuals cease for any reason to constitute a
                  majority of the number of directors then serving: individuals
                  who, on the date hereof, constitute the Board and any new
                  director (other than a director whose initial assumption of
                  office is in connection with an actual or threatened election
                  contest, including but not limited to a consent solicitation,
                  relating to the election of directors of the Company) whose
                  appointment or election by the Board or nomination for
                  election by the Company's stockholders was approved or
                  recommended by a vote of at least two-thirds (2/3) of the

                                       -2-



                  directors then still in office who either were directors on
                  the date hereof or whose appointment, election or nomination
                  for election was previously so approved or recommended; or

         (c)      there is consummated a merger or consolidation of the Company
                  or any direct or indirect subsidiary of the Company with any
                  other corporation, other than (i) a merger or consolidation
                  which would result in the voting securities of the Company
                  outstanding immediately prior to such merger or consolidation
                  continuing to represent (either by remaining outstanding or by
                  being converted into voting securities of the surviving entity
                  or any parent thereof), in combination with the ownership of
                  any trustee or other fiduciary holding securities under an
                  employee benefit plan of the Company or any subsidiary of the
                  Company, at least 60% of the combined voting power of the
                  securities of the Company or such surviving entity or any
                  parent thereof outstanding immediately after such merger or
                  consolidation, or (ii) a merger or consolidation effected to
                  implement a recapitalization of the Company (or similar
                  transaction) in which no Person is or becomes the Beneficial
                  Owner, directly or indirectly, of securities of the Company
                  representing 25% or more of the combined voting power of the
                  Company's then outstanding securities; or

         (d)      the stockholders of the Company approve a plan of complete
                  liquidation or dissolution of the Company or there is
                  consummated an agreement for the sale or disposition by the
                  Company of all or substantially all of the Company's assets,
                  other than a sale or disposition by the Company of all or
                  substantially all of the Company's assets to an entity, at
                  least 60% of the combined voting power of the voting
                  securities of which are owned by stockholders of the Company
                  in substantially the same proportions as their ownership of
                  the Company immediately prior to such sale.

Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions. Solely for
purposes of this Section 2.5, the following words and phrases shall have the
following meanings:

         2.5.1. AFFILIATE -- an "affiliate" within the meaning of Rule 12b-2
promulgated under Section 12 of the Exchange Act.

         2.5.2. BENEFICIAL OWNER -- a "beneficial owner" within the meaning of
Rule 13d-3 under the Exchange Act.

                                       -3-



         2.5.3. EXCHANGE ACT -- the Securities Exchange Act of 1934, as amended
from time to time.

         2.5.4 PERSON -- a "person" within the meaning of Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.

2.6. COMMITTEE -- the Human Resources Committee of the Board of Directors of the
Company.

2.7. COMMON STOCK -- the common stock of the Company.

2.8. COMPANY -- Donaldson Company, Inc. and, except in determining under Section
2.5 hereof whether or not any Change in Control has occurred, shall include any
successor by merger, purchase or otherwise.

2.9. DEFERRAL ELECTION -- an election to defer the receipt of gain on an option
to buy Common Stock made by an Eligible Employee in accordance with Section 4.1.

2.10. DISABILITY, DISABLED -- a physical or mental impairment which constitutes
total and permanent disability and during which the Eligible Employee is not
receiving any payments of an Early Retirement Pension or a Vested Benefit under
the Pension Plan, and the Eligible Employee either:

         (a)      is eligible to receive long-term disability benefits under the
                  Company's separate long-term disability insurance plan (which
                  program shall be administered on a uniform and
                  nondiscriminatory basis); if such separate long-term
                  disability coverage is elected by the Eligible Employee, or

         (b)      is eligible to receive and is actually receiving (after the
                  applicable waiting period) benefits under the federal Social
                  Security Act as in effect at the time of the Disability.

2.11. EFFECTIVE DATE -- July 25, 1997, the original effective date of the Plan.
The amended and restated Plan document as set forth herein is effective as of
August 1, 2003.

2.12. ELIGIBLE EMPLOYEE -- an officer of the Company who is selected by the
Committee as provided in Section 3.

2.13. EXERCISE DATE -- the date on which an Eligible Employee exercises an
option to purchase Common Stock that is subject to a Deferral Election; provided
however, that such date shall not be

                                       -4-



deemed to occur prior to the date on which the Participant tenders mature shares
of Common Stock in payment of the option exercise price, by attestation to the
ownership of shares. For the purpose of this Plan, shares of Common Stock shall
be considered mature if they have been held by the Participant for at least six
months and have not been used to pay the exercise price for another stock option
exercise during the six months prior to their tender.

2.14. PARTICIPANT -- an Eligible Employee or a former Eligible Employee of the
Company or its Affiliates who has any amount credited to his Account in this
Plan.

2.15. PLAN -- the Donaldson Company, Inc. Stock Option Gain Deferral Plan as set
forth herein, and as the same may be amended from time to time.

2.16. PLAN YEAR -- the twelve (12) consecutive month period ending on any July
31.

2.17. STOCK UNITS -- the units credited to a Participant's Account pursuant to
Section 4.2.

2.18. TERMINATION OF EMPLOYMENT -- the complete severance of an employee's
employment relationship with the Company and all Affiliates, if any, for any
reason other than the employee's death or Disability.

2.19. VESTED -- nonforfeitable.





















                                      -5-


                                    SECTION 3

                          ELIGIBILITY AND PARTICIPATION

3.1. ELIGIBILITY. Any officer of the Company who is affirmatively selected by
the Committee shall be an Eligible Employee and may actively participate under
the Plan until the earlier of the officer's Termination of Employment or
transfer to a non-officer position with the Company or its Affiliates. The
Committee may rescind an officer's selection as an Eligible Employee and
discontinue an officer's active participation in the Plan at any time.

3.2. COMMENCEMENT OF PARTICIPATION. An Eligible Employee shall become a
Participant in the Plan when the Eligible Employee is first credited with any
amount pursuant to Section 4.

3.3. TERMINATION OF PARTICIPATION. A person shall cease to be a Participant as
soon as all amounts credited to the Participant's Account have been paid in
full.

3.4. OVERRIDING EXCLUSION. Notwithstanding anything apparently to the contrary
in this Plan Statement or in any written communication, summary, resolution or
document or oral communication, no individual shall be a Participant in this
Plan, develop benefits under this Plan or be entitled to receive benefits under
this Plan (either for himself or herself or his or her survivors) unless such
individual is a member of a select group of management or highly compensated
employees (as that expression is used in ERISA). If a court of competent
jurisdiction, any representative of the U.S. Department of Labor or any other
governmental, regulatory or similar body makes any direct or indirect, formal or
informal, determination that an individual is not a member of a select group of
management or highly compensated employees (as that expression is used in
ERISA), such individual shall not be (and shall not have ever been) a
Participant in this Plan at any time. If any person not so defined has been
erroneously treated as a Participant in this Plan, upon discovery of such error
such person's erroneous participation shall immediately terminate AB INITIO and
upon demand such person shall be obligated to reimburse the Company for all
amounts erroneously paid to him or her.














                                      -6-


                                    SECTION 4

                                   STOCK UNITS

4.1. DEFERRAL ELECTIONS. An Eligible Employee may file with the Committee a
Deferral Election as to any option to buy Common Stock granted to such Eligible
Employee by the Company, subject to the following:

         (a)      Except as provided in subsection (f) below and subject to the
                  modifications described in Sections 5.3 and 5.5, a Deferral
                  Election shall be irrevocable once it has been filed with the
                  Committee.

         (b)      Deferral Elections may only be made with respect to options
                  whose exercise price may be paid in shares of Common Stock,
                  and shall obligate the Eligible Employee making the Deferral
                  Election to pay the exercise price and any tax withholding
                  required at the time of exercise by attestation to the
                  ownership of shares of Common Stock that the Eligible Employee
                  has owned for at least six months and that have not been used
                  to exercise another option for at least six months.

         (c)      Each Deferral Election shall specify the time and manner in
                  which distribution of the portion of the Participant's Account
                  attributable to that Deferral Election shall be made;
                  provided, however, that distribution may not commence prior to
                  the first anniversary of the Exercise Date of the option that
                  is subject to the Deferral Election.

         (d)      Nothing in this Plan shall be deemed to extend the period
                  during which stock options may be exercised, or to otherwise
                  alter the terms of any stock option.

         (e)      Deferral Elections must be made on forms approved by the
                  Committee, must be made at such time as the Committee shall
                  determine but not less than twelve months prior to the
                  Exercise Date with respect to those options, and shall conform
                  to such other procedural and substantive rules as the
                  Committee shall make.

         (f)      Any Deferral Elections with respect to options that have not
                  been exercised shall become null and void upon an Eligible
                  Employee's Termination of Employment.

4.2. STOCK UNITS. As of each Exercise Date, a Participant's Account shall be
credited with the number of Stock Units equal to the difference between (a) and
(b):

         (a)      The number of shares of Common Stock obtained by exercise of
                  the option being exercised; and

                                       -7-


         (b)      The number of shares of Common Stock required to pay both the
                  exercise price of the option being exercised and any required
                  tax withholding.

4.3. ADJUSTMENT. In the event of any change in the outstanding shares of common
stock of the Company by reason of any stock split or stock dividend in the form
of a split, the Committee shall adjust the number of Stock Units in a
Participant's Account so that such number equals the number of Stock Units in
the Account prior to the event, multiplied by a fraction, the denominator of
which is the number of Stock Units in the Account prior to the event, and the
numerator of which is the number of shares of Common Stock the Participant would
have had after the event if the Participant had shares of Common Stock
immediately prior to the event equal in number to the number of Stock Units in
the Participant's Account immediately prior to the event. In the event of any
dividend (other than a stock dividend in the form of a split), recapitalization,
merger, consolidation, spinoff, reorganization, combination or exchange of
shares or other similar corporate change, then if the Committee, or the board of
directors of a successor corporation, shall determine, in its sole discretion,
that such change equitably requires an adjustment in the number of Stock Units
then held in the Participant's Account, such adjustment shall be made by the
Committee or said board and shall be conclusive and binding for all purposes of
the Plan.

4.4. DIVIDEND UNITS. The number of Stock Units in a Participant's Account shall
be automatically increased as of each Common Stock dividend payment date in an
amount equal to the number of shares of Common Stock that could be purchased on
such dividend payment date with the cash dividends that would be paid on a
number of shares of Common Stock equal to the number of Stock Units in the
Participant's Account on the record date for such dividend.

4.5. VESTING. The Accounts of all Participants shall be 100% Vested at all
times.

















                                      -8-


                                    SECTION 5

                           TIME AND MANNER OF PAYMENTS

5.1. TIME OF PAYMENT. Payment of a Participant's Account under the Plan will
commence as soon as administratively feasible (but no more than twenty (20)
days) following the occurrence of the earliest of the following events:

         (a)      death

         (b)      Disability, or

         (c)      the date of distribution selected by the Participant in
                  writing at a time and on a form prescribed by the Committee.

Distribution of a Participant's account may begin prior to the Participant's
Termination of Employment. In no event, however, may payment of the portion of a
Participant's Account attributable to a particular option exercise begin less
than one year after the Exercise Date with respect to that option exercise.

5.2. MANNER OF PAYMENT. A Participant's Account will be paid to the Participant
in either a single lump-sum payment or in annual installments of not more than
twenty (20) years. The Participant must elect a manner of payment at the time
the Participant elects his or her date of distribution pursuant to Section
5.1(c). In the event no election was made by a Participant, payment shall be
made in a single lump-sum. Payment to the Participant shall be made, net of
withholding taxes, exclusively in shares of Common Stock, one share for each
Stock Unit distributed. For purposes of determining any tax withholding on a
payment, the value of Common Stock will be the market price of such Common Stock
as of the close of business on the day prior to the date as of which the payment
is made.

5.3. CHANGES IN TIME AND MANNER OF PAYMENT. Notwithstanding the foregoing, a
Participant may make a new election concerning selection of the time and form of
payment authorized pursuant to this Section 5.3 (the "New Election") in
accordance with the following terms and conditions, unless waived or modified by
the Committee:

         (a)      A New Election shall only be permitted once and must be made
                  and become effective as hereinafter provided, if at all, prior
                  to the Participant's Termination of Employment, death or
                  Disability, whichever happens first;

         (b)      A New Election shall become effective twelve months after it
                  is received by the Company;

         (c)      A New Election shall be subject to the limitations described
                  in Section 4.1(a) through (f); and


                                      -9-



         (c)      If any of the events set forth in Section 5.1 of the Plan
                  occur prior to the effective date of a New Election with
                  respect to previously credited deferrals, then payments shall
                  be paid hereunder to or with respect to the Participant
                  according to the elections in effect at the time of the event.

5.4. CHANGE IN CONTROL DISTRIBUTIONS. Notwithstanding any other provision of
this Section 5, a Participant or Beneficiary will receive a distribution of his
or her entire Account if a Change in Control occurs. Distribution of the entire
Account shall be made on the date of the Change in Control. Such distribution
shall be made in a single lump-sum cash payment.

5.5. ACCELERATION OF PAYMENTS.

         5.5.1. WHEN AVAILABLE. A Participant or Beneficiary may receive an
accelerated payment of his or her entire Account (after reduction for the
forfeiture described in Section 5.5.2). To receive such an accelerated payment,
the Participant or Beneficiary must file a written payment application with the
Committee. Payment of the accelerated payment (after reduction for the
forfeiture described in Section 5.5.2) shall be made as soon as administratively
feasible (but no more than twenty (20) days) following the approval of a
completed application by the Committee. Such accelerated payment shall be made
in a lump-sum stock distribution. The amount of the accelerated payment shall be
equal to the value of the Account as of such distribution date (after reduction
for the forfeiture described below).

         5.5.2. FORFEITURE. Upon the approval of an accelerated payment, there
shall be irrevocably forfeited from the Account of the Participant or
Beneficiary an amount equal to six percent (6%) of the Account. In addition, the
Participant will not be an Eligible Employee under this Plan for two (2) years
following such accelerated payment.

5.6. DEATH BENEFIT. In the event of a Participant's death, the Company shall pay
the amount of the Participant's Account as of the date of death (as adjusted
from time to time pursuant to Section 4.4) in a lump-sum or in installments, as
previously elected by the Participant, to the Participant's designated
Beneficiary as soon as administratively feasible. In the event no election was
made by the Participant, payment shall be in a single lump-sum stock
distribution (and cash for fractional shares).

5.7. BENEFICIARY DESIGNATION. A Participant shall submit to the Company upon
initial designation as an Eligible Employee in the Plan, and at such other times
as the Participant desires, on a form provided by the Committee, a written
designation of the beneficiary or beneficiaries to whom payment of the
Participant's Account under the Plan shall be made in the event of the
Participant's death. Beneficiary designations shall become effective only when
received by the Company. Beneficiary designations first received by the Company
after the Participant's death, and any designations in effect at the time a
valid subsequent designation is received by the Company, shall be invalid and
have no effect. If a Participant has not designated a Beneficiary, or if no
designated Beneficiary is living on the date of distribution, the Participant's
Account shall be distributed to

                                      -10-



those persons entitled to receive the Participant's benefit under the Donaldson
Company, Inc. Salaried Employees' Pension Plan (1997 Restatement), as amended
from time to time.





























                                      -11-



                                    SECTION 6

                               STOCK UNIT ACCOUNTS

6.1. PARTICIPANT ACCOUNTS. The Committee shall cause a bookkeeping account to be
kept in the name of each Participant which shall reflect the Stock Units
credited to a Participant.

6.2. CHARGES AGAINST ACCOUNTS. There shall be charged against each Participant's
bookkeeping account any payments made to the Participant or the Participant's
Beneficiary in accordance with Section 5.





























                                      -12-


                                    SECTION 7

                                     FUNDING

7.1. FUNDING. The Company and its Affiliates shall be responsible for paying all
benefits due hereunder. For the purpose of facilitating the payment of benefits
due hereunder, the Company may (but shall not be required to) establish and
maintain a grantor trust pursuant to an Agreement between the Company and a
trustee selected by the Company; provided, however, that any such grantor trust
must be structured so that it does not result in any federal income tax
consequences to any Participant until distributions under Section 5 are actually
received. The Company may contribute to a grantor trust thereby created such
amounts as it may from time to time determine.

7.2. CORPORATE OBLIGATION. Neither the officers nor any member of the Board of
Directors of the Company or any of its Affiliates in any way secures or
guarantees the payment of any benefit or amount which may become due and payable
hereunder to or with respect to any Participant. Each Participant and other
person entitled at anytime to payments hereunder shall look solely to the assets
of the Company and its Affiliates for such payments as an unsecured, general
creditor. Nothing herein shall be construed to give a Participant, Beneficiary
or any other person or persons any right, title, interest or claim in or to any
specific asset, fund, reserve, account or property of any kind whatsoever owned
by the Company or in which it may have any right, title or interest now or in
the future. After benefits shall have been paid to or with respect to a
Participant and such payment purports to cover in full the benefit hereunder,
such former Participant or other person or persons, as the case may be, shall
have no further right or interest in the other assets of the Company and its
Affiliates in connection with this Plan.






















                                      -13-


                                    SECTION 8

                                 ADMINISTRATION

8.1. AUTHORITY. The Plan shall be administered by the Committee, which shall
have full discretionary power and authority to administer and interpret the Plan
and to determine all factual and legal questions under the Plan, including but
not limited to the entitlement of Participants and Beneficiaries, and the amount
of their respective interests.

8.2. LIABILITY. No member of the Committee and no director or member of the
management of the Company or its Affiliates shall be liable to any persons for
any actions taken under the Plan, or for any failure to effect any of the
objective or purposes of the Plan, by reason of insolvency or otherwise.

8.3. PROCEDURES. The Committee may from time to time adopt such rules and
procedures as it deems appropriate to assist in the administration of the Plan.

8.4. CLAIM FOR BENEFITS. No employee or other person shall have any claim or
right to payment of any amount hereunder until payment has been authorized and
directed by the Committee.

8.5. CLAIMS PROCEDURE. Until modified by the Committee, the claims procedure set
forth in this Section 8.5 shall be the claims procedure for the resolution of
disputes and disposition of claims arising under the Plan.

         8.5.1. ORIGINAL CLAIM. Any employee, former employee, or Beneficiary of
such employee or former employee may, if the employee, former employee or
Beneficiary so desires, file with the Committee a written claim for benefits
under the Plan. Within ninety (90) days after the filing of such a claim, the
Committee shall notify the claimant in writing whether the claim is upheld or
denied in whole or in part or shall furnish the claimant a written notice
describing specific special circumstances requiring a specified amount of
additional time (but not more than one hundred eighty (180) days from the date
the claim was filed) to reach a decision on the claim. If the claim is denied in
whole or in part, the Committee shall state in writing:

         (a)      the specific reasons for the denial,

         (b)      the specific references to the pertinent provisions of this
                  Plan on which the denial is based,

         (c)      a description of any additional material or information
                  necessary for the claimant to perfect the claim and an
                  explanation of why such material or information is necessary,
                  and

         (d)      an explanation of the claims review procedure set forth in
                  this Section.

                                      -14-



         8.5.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt of
notice that the claim has been denied in whole or in part, the claimant may file
with the Committee a written request for a review and may, in conjunction
therewith, submit written issues and comments. Within sixty (60) days after the
filing of such a request for review, the Committee shall notify the claimant in
writing whether, upon review, the claim was upheld or denied in whole or in part
or shall furnish the claimant a written notice describing specific special
circumstances requiring a specified amount of additional time (but not more than
one hundred twenty days (120) from the date the request for review was filed) to
reach a decision on the request for review.

         8.5.3. GENERAL RULES.

         (a)      No inquiry or question shall be deemed to be a claim or a
                  request for a review of a denied claim unless made in
                  accordance with the claims procedure. The Committee may
                  require that any claim for benefits and any request for a
                  review of a denied claim be filed on forms to be furnished by
                  the Committee upon request.

         (b)      All decisions on original claims shall be made by the
                  Committee and requests for a review of denied claims shall be
                  made by the Committee.

         (c)      The Committee may, in its discretion, hold one or more
                  hearings on a claim or a request for a review of a denied
                  claim.

         (d)      Claimants may be represented by a lawyer or other
                  representative at their own expense, but the Committee
                  reserves the right to require the claimant to furnish written
                  authorization. A claimant's representative shall be entitled
                  to copies of all notices given to the claimant.

         (e)      The decision of the Committee on an original claim or on a
                  request for a review of a denied claim shall be served on the
                  claimant in writing. If a decision or notice is not received
                  by a claimant within the time specified, the claim or request
                  for a review of a denied claim shall be deemed to have been
                  denied.

         (f)      Prior to filing a claim or a request for a review of a denied
                  claim, the claimant or the claimant's representative shall
                  have a reasonable opportunity to review a copy of this Plan
                  Statement and all other pertinent documents in the possession
                  of the Company and its Affiliates.

8.6. PAYMENTS UPON IMPOSITION OF FEDERAL OR STATE TAXES. If any Participant is
determined to be subject to federal or state income tax on any amount accrued on
his or her behalf under this Plan prior to the time of payment hereunder,
federal or state taxes attributable to the amount determined to be so taxable
shall be distributed by the Plan to such Participant. An amount accrued on his
or her behalf under this Plan shall be determined to be subject to federal
income tax upon the earliest of:

                                      -15-



                  (i)      a final determination by the United States Internal
                           Revenue Service addressed to the Participant which is
                           not appealed to the courts;

                  (ii)     a final determination by the United States Tax Court
                           or any other Federal Court affirming any such
                           determination by the Internal Revenue Service; or

                  (iii)    an opinion by the Tax Counsel of the Company,
                           addressed to the Company that, by reason of Treasury
                           Regulations, amendments to the Internal Revenue Code,
                           published Internal Revenue Service rulings, court
                           decisions or other substantial precedent, amounts
                           accrued on a Participant's behalf hereunder are
                           subject to federal or state income tax prior to
                           payment.

The Company shall undertake at its sole expense to defend any tax claims
described herein which are asserted by the Internal Revenue Service or by any
state revenue authority against any Participant, including attorney fees and
costs of appeal, and shall have the sole authority to determine whether or not
to appeal any determination made by the Internal Revenue Service, by any state
revenue authority or by a lower court. The Company also agrees to reimburse any
Participant for any interest or penalties in respect of federal or state tax
claims hereunder upon receipt of documentation of same.

8.7. LEGAL FEES. If the Company does not pay the benefits required under the
terms of the Plan for reasons other than the insolvency of the Company, the
Company agrees to reimburse any Participant for all legal fees incurred in
enforcing his or her claim to benefits under the Plan.

8.8. ERRORS IN COMPUTATIONS. The Committee shall not be liable or responsible
for any error in the computation of any benefit payable to or with respect to
any Participant resulting from any misstatement of fact made by the Participant
or by or on behalf of any Beneficiary to whom such benefit shall be payable,
directly or indirectly, to the Committee, and used by the Committee in
determining the benefit. The Committee shall not be obligated or required to
increase the benefit payable to or with respect to such Participant which, on
discovery of the misstatement, is found to be understated as a result of such
misstatement of the Participant. However, the benefit of any Participant which
is overstated by reason of any such misstatement or any other reason shall be
reduced to the amount appropriate in view of the truth (and to recover any prior
overpayment).

















                                      -16-


                                    SECTION 9

                                  MISCELLANEOUS

9.1. NOT AN EMPLOYMENT CONTRACT. This Plan is not and shall not be deemed to
constitute a contract of employment between the Company and any employee or
other person, nor shall anything herein contained be deemed to give any employee
or other person any right to be retained in the Company's employ or in any way
limit or restrict the Company's right or power to discharge any employee or
other person at any time and to treat him without regard to the effect which
such treatment might have upon the employee as a Participant in the Plan.

9.2. NONTRANSFERABILITY. A Participant's rights and interest under the Plan,
including amounts payable, may not be assigned, alienated, pledged or
transferred except, in the event of a Participant's death to his Beneficiary. No
benefit payable under this Plan shall be subject to attachment, garnishment,
execution following judgment or other legal process before actual payment to the
Participant or Beneficiary.

9.3. TAX WITHHOLDING. The Company shall withhold the amount of any federal,
state or local income tax or other tax required to be withheld by the Company
under applicable law with respect to any amount payable under the Plan. Any cash
payable in lieu of fractional shares shall be applied to the payment of tax
withholding. The Participant shall not be liable for any tax withholding.

9.4. EXPENSES. All expenses of administering the Plan shall be borne by the
Company.

9.5. GOVERNING LAW. Except to the extent that federal law is controlling, the
Plan shall be construed and enforced in accordance with and governed by the laws
of the State of Minnesota.

9.6. AMENDMENT AND TERMINATION. The Company reserves the power to unilaterally
amend this Plan at any time, either prospectively or retroactively or both by
action of the Committee (with the written concurrence of the Chief Executive
Officer of the Company). The Committee may likewise terminate or curtail the
benefits of this Plan both with regard to persons expecting to receive benefits
in the future and persons already receiving benefits at the time of such action;
provided, however, that the Committee may not amend or terminate the Plan with
respect to benefits that have accrued and are vested pursuant to Section 4 in
any manner that reduces the amount of such benefits or alters the effect of any
Participant election previously filed with the Company. No modification of the
terms of this Plan shall be effective unless it is in writing and signed on
behalf of the Company by a person authorized to execute such writing. No oral
representation concerning the interpretation or effect of this Plan shall be
effective to amend the Plan.

9.7. RULES OF INTERPRETATION. The titles given to the various sections of this
Plan are inserted for convenience of reference only and are not part of this
Plan, and they shall not be considered in determining the purpose, meaning or
intent of any provision hereof. This Plan shall be construed and this Plan shall
be administered to create an unfunded plan providing deferred compensation to a
select group of management or highly compensated employees so that it is exempt
from

                                      -17-



the requirements of Parts 2, 3 and 4 of Title I of ERISA and qualifies for a
form of simplified, alternative compliance with the reporting and disclosure
requirements of Part 1 of Title I of ERISA.










































                                       -18-

EX-10.T

                                                                    Exhibit 10-T







                             DONALDSON COMPANY, INC.
                           LONG TERM COMPENSATION PLAN
                               (1999 RESTATEMENT)


            As Amended and Restated Effective as of August 1, 1999,
                          and amended December 3, 2001





                             DONALDSON COMPANY, INC.
                           LONG TERM COMPENSATION PLAN
                               (1999 RESTATEMENT)

                                TABLE OF CONTENTS

                                                                           PAGE


SECTION 1.   ESTABLISHMENT AND PURPOSE.......................................1

             1.1.   Establishment
             1.2.   Purpose
             1.3.   Relation to Master Stock Plans

SECTION 2.   DEFINITIONS.....................................................2

             2.1.   Affiliate
             2.2.   Award
             2.3.   Award Agreement
             2.4.   Award Matrix
             2.5.   Beneficiary
             2.6.   Board
             2.7.   Change of Control
                    2.7.1.   Affiliate
                    2.7.2.   Beneficial Owner
                    2.7.3.   Exchange Act
                    2.7.4.   Person
             2.8.   Committee
             2.9.   Common Stock
             2.10.  Company
             2.11.  Disability, Disabled
             2.12.  Incentive Cycle
             2.13.  Participant
             2.14.  Performance Objective
             2.15.  Performance Unit
             2.16.  Plan
             2.17.  Retirement
             2.18.  Termination of Employment
             2.19.  Vested

SECTION 3.   ELIGIBILITY AND PARTICIPATION...................................6

             3.1.   Commencement of Participation
             3.2.   Termination of Participation


                                      -i-



SECTION 4.   AWARDS..........................................................7

             4.1.   Grant
             4.2.   Adjustment
             4.3.   Performance Objectives Alteration
             4.4.   Vesting
                    4.4.1.   Pro Rata Vesting
                    4.4.2.   Forfeiture

SECTION 5.   TIME AND MANNER OF PAYMENTS.....................................9

             5.1.   Time of Payment
             5.2.   Manner of Payment
             5.3.   Change in Control Distributions
             5.4.   Death Benefit
             5.5.   Beneficiary Designation

SECTION 6.   FUNDING........................................................10

             6.1.   Funding
             6.2.   Corporate Obligation

SECTION 7.   ADMINISTRATION.................................................11

             7.1.   Authority
             7.2.   Liability
             7.3.   Procedures
             7.4.   Claim for Benefits
             7.5.   Claims Procedure
                    7.5.1.   Original Claim
                    7.5.2.   Claims Review Procedure
                    7.5.3.   General Rules
             7.6.   Payments upon Imposition of Federal or State Taxes
             7.7.   Legal Fees
             7.8.   Errors in Computations

SECTION 8.   MISCELLANEOUS..................................................14

             8.1.   Not an Employment Contract
             8.2.   Nontransferability
             8.3.   Tax Withholding
             8.4.   Expenses
             8.5.   Governing Law
             8.6.   Amendment and Termination
             8.7.   Rules of Interpretation



                                      -ii-



                             DONALDSON COMPANY, INC.
                           LONG TERM COMPENSATION PLAN
                               (1999 RESTATEMENT)


                                    SECTION 1

                            ESTABLISHMENT AND PURPOSE

1.1. ESTABLISHMENT. Effective as of August 1, 1999, Donaldson Company, Inc.
hereby amends and restates its performance share plan for key employees, known
as the "DONALDSON COMPANY, INC. LONG TERM COMPENSATION PLAN."

Except as may be hereinafter specifically provided, this amended and restated
Plan document shall not affect any Awards made prior to August 1, 1999. All such
awards shall be governed by the plan and performance award documents in effect
at the time the Awards were granted.

1.2. PURPOSE. The purpose of this Plan is to incent key employees of the Company
by rewarding them for the Company's achievement of predetermined levels of
long-term performance.

1.3. RELATION TO MASTER STOCK PLANS. The stock-based awards provided by this
Plan are subject to any applicable terms, conditions and restrictions required
by the Donaldson Company, Inc. 2001 Master Stock Incentive Plan if they are
credited after December 31, 2001, or the Donaldson Company, Inc. 1991 Master
Stock Compensation Plan if they are credited on or before December 31, 2001. No
awards shall be made under this Plan after the last date on which awards may be
granted under the 2001 Master Stock Incentive Plan.















                                    SECTION 2

                                   DEFINITIONS

The following words and phrases shall have the following meanings, unless a
different meaning is plainly required by the context. Any masculine terminology
used in the Plan shall also include the feminine gender and the definition of
any terms in the singular shall also include the plural.

2.1. AFFILIATE -- a business entity which is under "common control" with the
Company or which is a member of an "affiliated service group" that includes the
Company, as those terms are defined in section 414(b), (c) and (m) of the Code.
A business entity shall also be treated as an Affiliate if, and to the extent
that, such treatment is required by regulations under section 414(o) of the
Code. In addition to said required treatment, the Committee may, in its
discretion, designate as an Affiliate any business entity which is not such a
"common control" or "affiliated service group" business entity but which is
otherwise affiliated with the Company, subject to such limitations as the
Committee may impose.

2.2. AWARD -- the right to receive a specified number of shares of Common Stock,
a multiple thereof, or a portion thereof, based upon the satisfaction of
Performance Objectives established by the Committee, subject to the terms,
conditions and restrictions in this Plan and the Master Stock Plan, as well as
those established by the Committee and set forth in the applicable Award
Agreement.

2.3. AWARD AGREEMENT -- the agreement entered into between the Company and the
Participant setting forth certain terms and conditions applicable to an Award.

2.4. AWARD MATRIX -- determines the award percentage for the Incentive Cycle
based on the actual net sales growth and average return on investment. The award
percentage is multiplied by the number of Performance Units granted, as
identified in the Award Agreement, to determine the number of Performance Units
payable (subject to any additional adjustment required by the Award, such as for
earnings per share consistency).

2.5. BENEFICIARY -- any person or entity designated by the Participant in
accordance with Section 5 to receive the amount, if any, payable in connection
with the Participant's Award after the Participant's death. Designated persons
or entities shall not be considered Beneficiaries until the death of the
Participant.

2.6. BOARD -- the Board of Directors of the Company.

2.7. CHANGE OF CONTROL -- a "Change in Control" shall be deemed to have occurred
if the event set forth in any one of the following paragraphs shall have
occurred:

         (a)      any Person is or becomes the Beneficial Owner, directly or
                  indirectly, of securities of the Company representing 25% or
                  more of the combined voting power of the Company's then
                  outstanding securities, excluding any

                                       -2-



                  Person who becomes such a Beneficial Owner in connection with
                  a transaction described in clause (i) of paragraph (c) below;
                  or

         (b)      the following individuals cease for any reason to constitute a
                  majority of the number of directors then serving: individuals
                  who, on the date hereof, constitute the Board and any new
                  director (other than a director whose initial assumption of
                  office is in connection with an actual or threatened election
                  contest, including but not limited to a consent solicitation,
                  relating to the election of directors of the Company) whose
                  appointment or election by the Board or nomination for
                  election by the Company's stockholders was approved or
                  recommended by a vote of at least two-thirds (2/3) of the
                  directors then still in office who either were directors on
                  the date hereof or whose appointment, election or nomination
                  for election was previously so approved or recommended; or

         (c)      there is consummated a merger or consolidation of the Company
                  or any direct or indirect subsidiary of the Company with any
                  other corporation, other than (i) a merger or consolidation
                  which would result in the voting securities of the Company
                  outstanding immediately prior to such merger or consolidation
                  continuing to represent (either by remaining outstanding or by
                  being converted into voting securities of the surviving entity
                  or any parent thereof), in combination with the ownership of
                  any trustee or other fiduciary holding securities under an
                  employee benefit plan of the Company or any subsidiary of the
                  Company, at least 60% of the combined voting power of the
                  securities of the Company or such surviving entity or any
                  parent thereof outstanding immediately after such merger or
                  consolidation, or (ii) a merger or consolidation effected to
                  implement a recapitalization of the Company (or similar
                  transaction) in which no Person is or becomes the Beneficial
                  Owner, directly or indirectly, of securities of the Company
                  representing 25% or more of the combined voting power of the
                  Company's then outstanding securities; or

         (d)      the stockholders of the Company approve a plan of complete
                  liquidation or dissolution of the Company or there is
                  consummated an agreement for the sale or disposition by the
                  Company of all or substantially all of the Company's assets,
                  other than a sale or disposition by the Company of all or
                  substantially all of the Company's assets to an entity, at
                  least 60% of the combined voting power of the voting
                  securities of which are owned by stockholders of the Company
                  in substantially the same proportions as their ownership of
                  the Company immediately prior to such sale.

Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate

                                       -3-



ownership in an entity which owns all or substantially all of the assets of the
Company immediately following such transaction or series of transactions. Solely
for purposes of this Section 2.7, the following words and phrases shall have the
following meanings:

         2.7.1. AFFILIATE -- an "affiliate" within the meaning of Rule 12b-2
promulgated under Section 12 of the Exchange Act.

         2.7.2. BENEFICIAL OWNER -- a "beneficial owner" within the meaning of
Rule 13d-3 under the Exchange Act.

         2.7.3. EXCHANGE ACT -- the Securities Exchange Act of 1934, as amended
from time to time.

         2.7.4. PERSON -- a "person" within the meaning of Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.

2.8. COMMITTEE -- the Human Resources Committee of the Board of Directors of the
Company.

2.9. COMMON STOCK -- the common stock of the Company.

2.10. COMPANY -- Donaldson Company, Inc. and, except in determining under
Section 2.7 hereof whether or not any Change in Control has occurred, shall
include any successor by merger, purchase or otherwise.

2.11. DISABILITY, DISABLED -- a physical or mental impairment which constitutes
total and permanent disability and during which the Participant is not receiving
any payments of an Early Retirement Pension or a Vested Benefit under the
Donaldson Company, Inc. Salaried Employees' Pension Plan (1997 Restatement), as
amended from time to time, and the Participant either:

         (a)      is eligible to receive long-term disability benefits under the
                  Company's separate long-term disability insurance plan (which
                  program shall be administered on a uniform and
                  nondiscriminatory basis); if such separate long-term
                  disability coverage is elected by the Participant, or

         (b)      is eligible to receive and is actually receiving (after the
                  applicable waiting period) benefits under the federal Social
                  Security Act as in effect at the time of the Disability.

                                      -4-



2.12. INCENTIVE CYCLE -- a period of three consecutive plan years designated by
the Committee.

2.13. PARTICIPANT -- an employee or former employee of the Company or its
Affiliates who has become a Participant as provided in Section 3.1, and who has
not ceased to be a Participant as provided in Section 3.2.

2.14. PERFORMANCE OBJECTIVE -- the goals for after-tax return on investment and
compound net sales growth established for an Award by the Committee and set
forth in the Participant's Award Agreement. After-tax return on investment and
compound net sales growth shall be as defined and reported in the monthly
operating reports published by the Company's Accounting Department.

2.15. PERFORMANCE UNIT -- the portion of an Award that represents the right to
receive a single share of Common Stock in the event all applicable Performance
Objectives are satisfied at target levels, before any adjustments such as an
adjustment to the target award for earnings per share consistency.

2.16. PLAN -- the Donaldson Company, Inc. Long Term Compensation Plan as set
forth herein, and as the same may be amended from time to time.

2.17. RETIREMENT -- a Termination of Employment under circumstances that entitle
the employee to a Normal or Early Retirement Pension (as defined in the
Donaldson Company, Inc. Salaried Employees' Pension Plan (1997 Restatement), as
amended from time to time).

2.18. TERMINATION OF EMPLOYMENT -- the complete severance of an employee's
employment relationship with the Company and all Affiliates, if any, for any
reason other than the employee's death or Disability.

2.19. VESTED -- nonforfeitable.


















                                      -5-


                                    SECTION 3

                          ELIGIBILITY AND PARTICIPATION

3.1. COMMENCEMENT OF PARTICIPATION. An officer or member of senior management
shall become a Participant in the Plan when he or she is granted an Award
pursuant to Section 4.

3.2. TERMINATION OF PARTICIPATION. A person shall cease to be a Participant as
soon as all Awards credited to the Participant have been paid in full or, if
deferred, credited to the Participant's Account under the Donaldson Company,
Inc. Deferred Compensation and 401(k) Excess Plan.


























                                      -6-


                                    SECTION 4

                                     AWARDS

4.1. GRANT. Prior to the start of an Incentive Cycle, or as soon as
administratively feasible thereafter, the Committee grants Awards to select
employees of the Company that establish:

         (a)      the Incentive Cycle for the Award;

         (b)      the Performance Objectives applicable to the Award;

         (c)      the Award Matrix;

         (d)      the number of Performance Units granted; and

         (e)      the manner of adjustment, if any, to the number of shares
                  payable based on earnings per share consistency, and any other
                  adjustments or special terms and conditions applicable to the
                  Award.

4.2. ADJUSTMENT. In the event of any change in the outstanding shares of common
stock of the Company by reason of any stock split or stock dividend in the form
of a split, the Committee shall adjust the number of Performance Units in a
Participant's Award so that such number equals the number of Performance Units
in the Award prior to the event, multiplied by a fraction, the denominator of
which is the number of Performance Units in the Award prior to the event, and
the numerator of which is the number of shares of Common Stock the Participant
would have had after the event if the Participant had shares of Common Stock
immediately prior to the event equal in number to the number of Performance
Units in the Participant's Award immediately prior to the event. In the event of
any dividend (other than a stock dividend in the form of a split),
recapitalization, merger, consolidation, spinoff, reorganization, combination or
exchange of shares or other similar corporate change, then if the Committee, or
the board of directors of a successor corporation, shall determine, in its sole
discretion, that such change equitably requires an adjustment in the number of
Performance Units in the Participant's Award, such adjustment shall be made by
the Committee or said board and shall be conclusive and binding for all purposes
of the Plan.

4.3. PERFORMANCE OBJECTIVES ALTERATION. In the event of an acquisition,
disposition or other change which, in the judgment of the Committee, may have a
significant effect on particular Performance Objectives, the Committee may adopt
such changes in the applicable Performance Objectives as it shall, in its sole
discretion, deem equitable and appropriate to achieve the purpose of the Plan.

4.4. VESTING. Except as otherwise indicated below and in Section 5.3, Awards
shall become Vested only at the end of the applicable Incentive Cycle, and then
only to the extent determined by the applicable Performance Objectives.

                                      -7-



         4.4.1. PRO RATA VESTING. In the event that, prior to the end of the
Incentive Cycle, the Plan is terminated, the Participant is transferred to an
ineligible position, or the Participant ceases to be an employee by reason of
Retirement, death, or Disability, the Vested Award will be based on actual
results compared to the Performance Objectives at the end of the Incentive
Cycle, and multiplied by a fraction whose numerator is the number of months
completed in the cycle and denominator is thirty-six.

         4.4.2. FORFEITURE. If a Participant ceases to be an employee prior to
the end of an Incentive Cycle for any reason other than Retirement, Disability
or death, the Participant's Award with respect to that Incentive Cycle shall be
forfeited.























                                      -8-


                                    SECTION 5

                           TIME AND MANNER OF PAYMENTS

5.1. TIME OF PAYMENT. Payment of a Participant's Vested Award under the Plan
will occur no more than 60 days, and no less than 30 days, after the end of the
Incentive Cycle with respect to which the Award was granted. Share certificates
are distributed as soon as administratively feasible after the effective date of
payment.

5.2. MANNER OF PAYMENT. A Participant's Account will be paid to the Participant
in a single lump sum. Payment to the Participant shall be made, net of
withholding taxes, exclusively in shares of Common Stock. For purposes of
determining any tax withholding on a payment, the value of Common Stock will be
the market price of such Common Stock on a date no more than 60 days nor less
than 30 days after the end of the Incentive Cycle.

5.3. CHANGE IN CONTROL DISTRIBUTIONS. Notwithstanding any other provision of
Section 4.4 or this Section 5 (other than Section 5.5), if a Change in Control
occurs prior to the end of the applicable Incentive Cycle, the Participant's
Award shall be immediately Vested and paid in accordance with this Section 5.3.
The amount payable will be determined as if the applicable Performance
Objectives had been met at target levels and as if the conditions for any
adjustments (such as for earnings per share consistency) were met for the entire
Incentive Cycle to the same extent as they were met through the date of the
Change in Control, and then prorated as if the employee retired on the date of
the Change in Control. Distribution of the entire amount payable shall be made
on the date of the Change in Control. Such distribution shall be made in a
single lump sum stock distribution.

5.4. DEATH BENEFIT. In the event of a Participant's death, the Company shall pay
the Participant's unpaid Vested Award (in the amount determined under Section
4.4.1 if Participant's death occurred prior to the end of the Incentive Cycle)
to the Participant's designated beneficiary. Such payment shall be made at the
time prescribed in Section 5.1 above, or as soon as administratively feasible
thereafter in a single lump sum stock distribution (and cash for fractional
shares).

5.5. BENEFICIARY DESIGNATION. A Participant shall submit to the Company upon
initial grant of an Award under the Plan, and at such other times as the
Participant desires, on a form provided by the Committee, a written designation
of the beneficiary or beneficiaries to whom payment of the Participant's Vested
Award under the Plan shall be made in the event of the Participant's death.
Beneficiary designations shall become effective only when received by the
Company. Beneficiary designations first received by the Company after the
Participant's death, and any designations in effect at the time a valid
subsequent designation is received by the Company, shall be invalid and have no
effect. If a Participant has not designated a Beneficiary, or if no designated
Beneficiary is living on the date of distribution, the Participant's Vested
Award shall be distributed to those persons entitled to receive the
Participant's benefit under the Donaldson Company, Inc. Salaried Employees'
Pension Plan (1997 Restatement), as amended from time to time.


                                      -9-



                                    SECTION 6

                                     FUNDING

6.1. FUNDING. The Company and its Affiliates shall be responsible for paying all
benefits due hereunder. For the purpose of facilitating the payment of benefits
due hereunder, the Company may (but shall not be required to) establish and
maintain a grantor trust pursuant to an Agreement between the Company and a
trustee selected by the Company; provided, however, that any such grantor trust
must be structured so that it does not result in any federal income tax
consequences to any Participant until distributions under Section 5 are actually
received. The Company may contribute to a grantor trust thereby created such
amounts as it may from time to time determine.

6.2. CORPORATE OBLIGATION. Neither the officers nor any member of the Board of
Directors of the Company or any of its Affiliates in any way secures or
guarantees the payment of any benefit or amount which may become due and payable
hereunder to or with respect to any Participant. Each Participant and other
person entitled at anytime to payments hereunder shall look solely to the assets
of the Company and its Affiliates for such payments as an unsecured, general
creditor. Nothing herein shall be construed to give a Participant, Beneficiary
or any other person or persons any right, title, interest or claim in or to any
specific asset, fund, reserve, account or property of any kind whatsoever owned
by the Company or in which it may have any right, title or interest now or in
the future. After benefits shall have been paid to or with respect to a
Participant and such payment purports to cover in full the benefit hereunder,
such former Participant or other person or persons, as the case may be, shall
have no further right or interest in the other assets of the Company and its
Affiliates in connection with this Plan.





















                                      -10-


                                    SECTION 7

                                 ADMINISTRATION

7.1. AUTHORITY. The Plan shall be administered by the Committee, which shall
have full discretionary power and authority to administer and interpret the Plan
and to determine all factual and legal questions under the Plan, including but
not limited to the entitlement of Participants and Beneficiaries, and the amount
of their respective interests.

7.2. LIABILITY. No member of the Committee and no director or member of the
management of the Company or its Affiliates shall be liable to any persons for
any actions taken under the Plan, or for any failure to effect any of the
objective or purposes of the Plan, by reason of insolvency or otherwise.

7.3. PROCEDURES. The Committee may from time to time adopt such rules and
procedures as it deems appropriate to assist in the administration of the Plan.

7.4. CLAIM FOR BENEFITS. No employee or other person shall have any claim or
right to payment of any amount hereunder until payment has been authorized and
directed by the Committee.

7.5. CLAIMS PROCEDURE. Until modified by the Committee, the claims procedure set
forth in this Section 7.5 shall be the claims procedure for the resolution of
disputes and disposition of claims arising under the Plan.

         7.5.1. ORIGINAL CLAIM. Any employee, former employee, or Beneficiary of
such employee or former employee may, if the employee, former employee or
Beneficiary so desires, file with the Committee a written claim for benefits
under the Plan. Within ninety (90) days after the filing of such a claim, the
Committee shall notify the claimant in writing whether the claim is upheld or
denied in whole or in part or shall furnish the claimant a written notice
describing specific special circumstances requiring a specified amount of
additional time (but not more than one hundred eighty (180) days from the date
the claim was filed) to reach a decision on the claim. If the claim is denied in
whole or in part, the Committee shall state in writing:

         (a)      the specific reasons for the denial,

         (b)      the specific references to the pertinent provisions of this
                  Plan on which the denial is based,

         (c)      a description of any additional material or information
                  necessary for the claimant to perfect the claim and an
                  explanation of why such material or information is necessary,
                  and

         (d)      an explanation of the claims review procedure set forth in
                  this Section.

                                      -11-



         7.5.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt of
notice that the claim has been denied in whole or in part, the claimant may file
with the Committee a written request for a review and may, in conjunction
therewith, submit written issues and comments. Within sixty (60) days after the
filing of such a request for review, the Committee shall notify the claimant in
writing whether, upon review, the claim was upheld or denied in whole or in part
or shall furnish the claimant a written notice describing specific special
circumstances requiring a specified amount of additional time (but not more than
one hundred twenty days (120) from the date the request for review was filed) to
reach a decision on the request for review.

         7.5.3. GENERAL RULES.

         (a)      No inquiry or question shall be deemed to be a claim or a
                  request for a review of a denied claim unless made in
                  accordance with the claims procedure. The Committee may
                  require that any claim for benefits and any request for a
                  review of a denied claim be filed on forms to be furnished by
                  the Committee upon request.

         (b)      All decisions on original claims shall be made by the
                  Committee and requests for a review of denied claims shall be
                  made by the Committee.

         (c)      The Committee may, in its discretion, hold one or more
                  hearings on a claim or a request for a review of a denied
                  claim.

         (d)      Claimants may be represented by a lawyer or other
                  representative at their own expense, but the Committee
                  reserves the right to require the claimant to furnish written
                  authorization. A claimant's representative shall be entitled
                  to copies of all notices given to the claimant.

         (e)      The decision of the Committee on an original claim or on a
                  request for a review of a denied claim shall be served on the
                  claimant in writing. If a decision or notice is not received
                  by a claimant within the time specified, the claim or request
                  for a review of a denied claim shall be deemed to have been
                  denied.

         (f)      Prior to filing a claim or a request for a review of a denied
                  claim, the claimant or the claimant's representative shall
                  have a reasonable opportunity to review a copy of this Plan
                  Statement and all other pertinent documents in the possession
                  of the Company and its Affiliates.

7.6. PAYMENTS UPON IMPOSITION OF FEDERAL OR STATE TAXES. If any Participant is
determined to be subject to federal or state income tax on any amount accrued on
his or her behalf under this Plan prior to the time of payment hereunder,
federal or state taxes attributable to the amount determined to be so taxable
shall be distributed by the Plan to such Participant. An amount accrued on his
or her behalf under this Plan shall be determined to be subject to federal
income tax upon the earliest of:

                                      -12-



                  (i)      a final determination by the United States Internal
                           Revenue Service addressed to the Participant which is
                           not appealed to the courts;

                  (ii)     a final determination by the United States Tax Court
                           or any other Federal Court affirming any such
                           determination by the Internal Revenue Service; or

                  (iii)    an opinion by the Tax Counsel of the Company,
                           addressed to the Company that, by reason of Treasury
                           Regulations, amendments to the Internal Revenue Code,
                           published Internal Revenue Service rulings, court
                           decisions or other substantial precedent, amounts
                           accrued on a Participant's behalf hereunder are
                           subject to federal or state income tax prior to
                           payment.

The Company shall undertake at its sole expense to defend any tax claims
described herein which are asserted by the Internal Revenue Service or by any
state revenue authority against any Participant, including attorney fees and
costs of appeal, and shall have the sole authority to determine whether or not
to appeal any determination made by the Internal Revenue Service, by any state
revenue authority or by a lower court. The Company also agrees to reimburse any
Participant for any interest or penalties in respect of federal or state tax
claims hereunder upon receipt of documentation of same.

7.7. LEGAL FEES. If the Company does not pay the benefits required under the
terms of the Plan for reasons other than the insolvency of the Company, the
Company agrees to reimburse any Participant for all legal fees incurred in
enforcing his or her claim to benefits under the Plan.

7.8. ERRORS IN COMPUTATIONS. The Committee shall not be liable or responsible
for any error in the computation of any benefit payable to or with respect to
any Participant resulting from any misstatement of fact made by the Participant
or by or on behalf of any Beneficiary to whom such benefit shall be payable,
directly or indirectly, to the Committee, and used by the Committee in
determining the benefit. The Committee shall not be obligated or required to
increase the benefit payable to or with respect to such Participant which, on
discovery of the misstatement, is found to be understated as a result of such
misstatement of the Participant. However, the benefit of any Participant which
is overstated by reason of any such misstatement or any other reason shall be
reduced to the amount appropriate in view of the truth (and to recover any prior
overpayment).
















                                       13


                                    SECTION 8

                                  MISCELLANEOUS

8.1. NOT AN EMPLOYMENT CONTRACT. This Plan is not and shall not be deemed to
constitute a contract of employment between the Company and any employee or
other person, nor shall anything herein contained be deemed to give any employee
or other person any right to be retained in the Company's employ or in any way
limit or restrict the Company's right or power to discharge any employee or
other person at any time and to treat him without regard to the effect which
such treatment might have upon the employee as a Participant in the Plan.

8.2. NONTRANSFERABILITY. A Participant's rights and interest under the Plan,
including amounts payable, may not be assigned, alienated, pledged or
transferred except, in the event of a Participant's death to his Beneficiary. No
benefit payable under this Plan shall be subject to attachment, garnishment,
execution following judgment or other legal process before actual payment to the
Participant or Beneficiary.

8.3. TAX WITHHOLDING. The Company shall withhold the amount of any federal,
state or local income tax or other tax required to be withheld by the Company
under applicable law with respect to any amount payable under the Plan. Any cash
payable in lieu of fractional shares shall be applied to the payment of tax
withholding. The Participant shall not be liable for any tax withholding.

8.4. EXPENSES. All expenses of administering the Plan shall be borne by the
Company.

8.5. GOVERNING LAW. Except to the extent that federal law is controlling, the
Plan shall be construed and enforced in accordance with and governed by the laws
of the State of Minnesota.

8.6. AMENDMENT AND TERMINATION. The Company reserves the power to unilaterally
amend this Plan at any time, either prospectively or retroactively or both by
action of the Committee (with the written concurrence of the Chief Executive
Officer of the Company). The Committee may likewise terminate or curtail the
benefits of this Plan both with regard to persons expecting to receive benefits
in the future and persons already receiving benefits at the time of such action;
provided, however, that the Committee may not amend or terminate the Plan with
respect to benefits that have accrued and are Vested pursuant to Section 4 in
any manner that reduces the amount of such benefits, nor may the Committee,
after a Change in Control, as that term is defined in the Master Stock Plan,
directly or indirectly alter, amend, suspend, terminate or discontinue the Plan,
establish or modify rules, regulations or procedures under the Plan, make any
interpretation or determination under the Plan, or exercise any authority or
discretion vested in the Committee unless such action is permitted under Section
1.07 of the Master Stock Plan. No modification of the terms of this Plan shall
be effective unless it is in writing and signed on behalf of the Company by a
person authorized to execute such writing. No oral representation concerning the
interpretation or effect of this Plan shall be effective to amend the Plan.


                                      -14-



8.7. RULES OF INTERPRETATION. The titles given to the various sections of this
Plan are inserted for convenience of reference only and are not part of this
Plan, and they shall not be considered in determining the purpose, meaning or
intent of any provision hereof.































                                      -15-

EX-14

Exhibit 14

Introduction to Our Global Policies

         Policy

        Donaldson is committed to applying uniformly high standards of ethics and business conduct in every country in which it and its subsidiaries operate and in every business relationship or affiliation it has worldwide. We are guided in this increasingly global economy both by the laws of the United States and the laws of the countries in which we are located or do business. In some circumstances that will mean that the laws the Company is subject to may be in conflict with a policy, and you will need to obtain guidance from your supervisor and the appropriate legal advisor. One thing, however, is constant. Wherever we do business, we are committed to doing business ethically and within the law.

        Donaldson Company, Inc. and its subsidiaries are referred to in the corporate compliance policies as “Donaldson” or “the Company.”

Conflict of Interest

         Policy

        Employees of Donaldson must avoid activities, interests and associations where their personal interests could conflict, or reasonably appear to conflict, with the interests of the Company. A conflict of interest may include any interest, whether financial or otherwise, that would, or would appear to influence a judgment or decision in favor of another person dealing with the Company other than normal passive investment activities. Each employee shall make prompt and full disclosure in writing to Donaldson’s Corporate Compliance Committee of any situation that may involve a conflict of interest. Whether a conflict exists is to be decided by the Donaldson Corporate Compliance Committee and all such decisions are final.

         Purpose

        The purpose of this Policy is to prevent conflicts of interest from interfering with the ability of any employee to make decisions solely in the best interests of Donaldson.

         Scope

        This Policy applies to all employees, officers and directors of Donaldson Company, its subsidiaries, business units, partnerships and joint ventures where Donaldson has a majority ownership position or exercises management control.

You and the Financial Markets

Accurate Books and Records

         Policy

        It is the policy of Donaldson to prepare accurate and verifiable business records. False or misleading entries must never knowingly be made or concealed in any Company record. Donaldson is also committed to maintaining complete and accurate records for the time periods they are needed for Donaldson’s business purposes and as required by law. Further guidance and requirements are provided in the Financial Control Policy manual.

         Purpose

        The purpose of this Policy is to help the Company appropriately create, manage and protect its books and records. All employees of the Company have a responsibility to create and maintain accurate records and protect and dispose of them in accordance with rules, regulations, litigation requirements and business needs. The Company is also required by state and federal statutes and regulations, and by the rules of litigation, to retain certain records and to follow specific guidelines in managing its records.

         Scope

        This Policy applies to all employees, officers and directors of Donaldson Company, its subsidiaries, business units, partnerships and joint ventures where Donaldson has a majority ownership position or exercises management control.

Compliance Program Discipline

         Policy

        It is the policy of Donaldson to enforce its Corporate Compliance Program in a consistent manner through appropriate disciplinary mechanisms. Violations of the law are considered a violation of the Donaldson Corporate Compliance Program. An employee may, however, violate the Corporate Compliance Program without violating the law.

        When an employee is suspected of violating the law or the Corporate Compliance Program, the Company will allow such an employee a reasonable opportunity to explain his or her actions. When an employee is determined to have engaged in a violation, he or she may be subject to discipline under this Policy, up to and including termination. It is the policy of Donaldson to apply its discipline in a reasonable and consistent fashion; however, the form of discipline which is appropriate will be case-specific.

         Purpose

        The purpose of this Policy is to alert employees to the types of discipline which may be imposed for violations of the law or the Corporate Compliance Program and to make them aware of the factors which are relevant to a disciplinary decision. This Corporate Policy and other documents and communications associated with the Donaldson Corporate Compliance Program do not limit Donaldson’s right to terminate employment (and any corresponding salary, bonus and employee benefits) of any employee at will at any time, subject where appropriate to terms of individual employment contracts.

         Scope

        This Policy applies to all employees, officers and directors of Donaldson Company, its subsidiaries, business units, partnerships and joint ventures where Donaldson has a majority ownership position or exercises management control.

Reporting and Investigating Violations

         Policy

        All employees of Donaldson are required to promptly report all known or suspected violations of applicable laws or of the Donaldson Compliance Program, including the Corporate Policies. Reports of such violations shall be made promptly to your manager, Donaldson’s Corporate Compliance Committee or Donaldson’s Legal Department. Employees may also report violations by calling the Donaldson Compliance Hotline. Reports to the Hotline may be made anonymously. Donaldson will promptly and thoroughly investigate all reports.

         Purpose

        This Policy has three purposes:

     ·       To encourage employees to report violations

     ·       To help ensure prompt and full investigation of violations

     ·       To assure employees that they will be protected from retribution if they make good faith reports of violations or suspected violations of the law or the Compliance Program

         Scope

        This Policy applies to all employees, officers and directors of Donaldson Company, its subsidiaries, business units, partnerships and joint ventures where Donaldson has a majority ownership position or exercises management control.

EX-21

Exhibit 21

Wholly Owned Subsidiaries and Joint Ventures

Wholly Owned Subsidiaries

Donaldson Australasia Pty. Ltd.	Ultrafilter s.d.n. Bhd.
Wyong, Australia	Selangor Darul Ehsan, Malaysia
Christchurch, New Zealand (Branch)
	Donaldson, S.A. de C.V.
Ultrafilter Pty. Ltd.	Prestadora de Servicios Aguascalientes, S. de R.L de C.V
Nunwading, Australia	Aguascalientes, Mexico
Ultrafilter G..m.b.H.	Diemo S.A. de C.V.
Vienna, Austria	Guadalajara, Mexico
Donaldson Sales, Inc.	Donaldson Filtration Industrial
Barbados	S. de R.L. de C.V.
	Monterrey, Mexico
Donaldson Europe, b.v.b.a.
Donaldson Coordination Center, b.v.b.a.	Donaldson Torit, B.V.
Donaldson Belgie, b.v.b.a.	Donaldson Nederland B.V.
Leuven, Belgium	Krommenie, Netherlands
Donaldson Canada, Inc.	Ultrafilter B.V.
Mississauga, Canada	Nieuwegein, Netherlands
Donaldson Far East Ltd.	Ultrafilter a.s.
Hong Kong, S.A.R., China	Moss, Norway
Shanghai Donaldson Filtration Co., Ltd.	Ultrafilter, Inc.
Shanghai, China	Mandaue City, Philippines
Donaldson (Wuxi) Filters Co., Ltd.	Donaldson Polska Sp. z.o.o.
Wuxi, China	Ultrafilter Sp. z.o.o.
	Warsaw, Poland
Donaldson Czech Republic s.r.o.
Klasterec nad Ohri, Czech Republic	Ultrafilter s.r.o.
	Bucharest, Romania
Ultrafilter s.r.o.
Prague, Czech Republic	Donaldson Filtration (Asia Pacific) Pte. Ltd.
	Singapore
Donaldson Scandinavia a.p.s.
Horsholm, Denmark	Ultrafilter s.r.o.
Stockholm, Sweden (Branch)	Bratislava, Slovakia
Ultrafilter a.p.s	Donaldson Filtration Systems (Pty) Ltd.
Salgelse, Denmark	Cape Town, South Africa
Donaldson France, S.A.S.	DCE South Africa Pty. Ltd.
Bron, France	Ultrafilter Pty. Ltd.
	Alrode, South Africa
Tecnov Donaldson, S.A.S.
Domjean, France

Ultrafilter S.A.S.	Donaldson Korea Co., Ltd.
Vigny, France	Seoul, South Korea
Donaldson G.m.b.H.	Donaldson Iberica Soluciones
Torit DCE G.m.b.H.	en Filtracion, S.L.
Dulmen, Germany	Barcelona, Spain
Ultrafilter International A.G.	Donaldson Filtros Iberica S.L.
Haan, Germany	Madrid, Spain
Taipei, Taiwan (Branch)
Bangalore, India (Branch)	Ultrafilter S.L.
	Terrassa, Spain
Ultrafilter G.m.b.H.
Donaldson Deutcheland Holding G.m.b.H.	Donaldson Schweiz G.m.b.H.
Quality Air G.m.b.H.	Aarau, Switzerland
Ultra Air G.m.b.H.
Haan, Germany	Ultrafilter International A.G.
	Zug, Switzerland
Ultratroc G.m.b.H.
Flensburg, Germany	Ultrafilter A.G.
	Zurich, Switzerland
Ultrafilter Kft.
Budapest, Hungary	Ultrafilter Ltd.
	Nothaburi, Thailand
Donaldson India Filter Systems Pvt. Ltd.
New Delhi, India	Donaldson Filter Components Ltd.
	Hull, United Kingdom
P.T. Donaldson Systems Indonesia
P.T. Ultrafilter	DCE Donaldson Ltd.
Jakarta, Indonesia	DCE Ltd.
	DCE Group Ltd.
Donaldson Italia s.r.l.	Leicester, United Kingdom
Ostiglia, Italy
	Ultrafilter Ltd.
Nippon Donaldson Ltd.	Tamworth, United Kingdom
Tokyo, Japan
Donaldson Luxembourg S.a.r.l.
Luxembourg
Joint Ventures
Advanced Filtration Systems, Inc.
Champaign, Illinois
P.T. Panata Jaya Mandiri
Jakarta, Indonesia
Rashed Al-Rashed & Sons —
Donaldson Company Ltd.
Dammam, Saudi Arabia
Ultrafilter (India) Pvt. Ltd.
Bangalore, India

EX-23

Exhibit 23

Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 333-97771, 333-56027, 33-27086, 2-90488 and 33-44624) of Donaldson Company, Inc. of our report dated August 22, 2003, relating to the financial statements and financial statement schedule which appear in this Annual Report on Form 10-K.

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 22, 2003

EX-23.A

Exhibit 23A

Notice Regarding Consent of Arthur Andersen LLP

     On April 24, 2002, we filed a Form 8-K reporting that on April 18, 2002, we had dismissed Arthur Andersen LLP as our independent public accountants and engaged PricewaterhouseCoopers LLP to serve as our independent public accountants for fiscal year 2002. This Form 10-K, which includes the report of Arthur Andersen on our consolidated balance sheet for the year ended July 31, 2001, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the two years in the period ended July 31, 2001, is incorporated by reference into the Company’s filings on Form S-8 (Registration Nos. 333-97771, 333-56027, 33-27086, 2-90488 and 33-44624) (collectively, the “Registration Statements”). After reasonable efforts, we have been unable to obtain Arthur Andersen’s consent to incorporate by reference into the Registration Statements its audit report with respect to the Company’s Financial Statements of the Company as of July 31, 2001 and for the two years then ended. Under these circumstances, Rule 437(a) under the Securities Act of 1933, as amended, permits us to file this Form 10-K without such consent from Arthur Andersen. The absence of such consent may limit recovery by investors on certain claims, including the inability of investors to assert claims against Arthur Andersen under Section 11 of the Securities Act for any untrue statements of a material fact contained, or any omissions to state a material fact required to be stated, in those audited Financial Statements. In addition, the ability of Arthur Andersen to satisfy any claims (including claims arising from Arthur Andersen’s provision of auditing and other services to us) may be limited as a practical matter due to recent events regarding Arthur Andersen.

EX-24

                                                                      EXHIBIT 24



                                POWER OF ATTORNEY

         The undersigned does hereby constitute and appoint William G. Van Dyke,
Norman C. Linnell, Amy C. Becker and each of them, the undersigned's
attorneys-in-fact and agents for the purpose of signing in the undersigned's
name and on the undersigned's behalf as a Director of Donaldson Company, Inc., a
report on Form 10-K for the Annual Report for Fiscal Year 2003, pursuant to
Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc.,
and any and all amendments thereto, and to deliver on the undersigned's behalf
said report so signed for filing with the Securities and Exchange Commission.



Dated: September 19, 2003



                                       /s/ Guillaume Bastiaen
                                       -----------------------------------------
                                       Signature





                                POWER OF ATTORNEY

         The undersigned does hereby constitute and appoint William G. Van Dyke,
Norman C. Linnell, Amy C. Becker and each of them, the undersigned's
attorneys-in-fact and agents for the purpose of signing in the undersigned's
name and on the undersigned's behalf as a Director of Donaldson Company, Inc., a
report on Form 10-K for the Annual Report for Fiscal Year 2003, pursuant to
Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc.,
and any and all amendments thereto, and to deliver on the undersigned's behalf
said report so signed for filing with the Securities and Exchange Commission.



Dated: September 19, 2003



                                       /s/ Janet M. Dolan
                                       -----------------------------------------
                                       Signature





                                POWER OF ATTORNEY

         The undersigned does hereby constitute and appoint William G. Van Dyke,
Norman C. Linnell, Amy C. Becker and each of them, the undersigned's
attorneys-in-fact and agents for the purpose of signing in the undersigned's
name and on the undersigned's behalf as a Director of Donaldson Company, Inc., a
report on Form 10-K for the Annual Report for Fiscal Year 2003, pursuant to
Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc.,
and any and all amendments thereto, and to deliver on the undersigned's behalf
said report so signed for filing with the Securities and Exchange Commission.



Dated: September 19, 2003



                                       /s/ Jack W. Eugster
                                       -----------------------------------------
                                       Signature





                                POWER OF ATTORNEY

         The undersigned does hereby constitute and appoint William G. Van Dyke,
Norman C. Linnell, Amy C. Becker and each of them, the undersigned's
attorneys-in-fact and agents for the purpose of signing in the undersigned's
name and on the undersigned's behalf as a Director of Donaldson Company, Inc., a
report on Form 10-K for the Annual Report for Fiscal Year 2003, pursuant to
Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc.,
and any and all amendments thereto, and to deliver on the undersigned's behalf
said report so signed for filing with the Securities and Exchange Commission.



Dated: September 26, 2003



                                       /s/ John F. Grundhofer
                                       -----------------------------------------
                                       Signature





                                POWER OF ATTORNEY

         The undersigned does hereby constitute and appoint William G. Van Dyke,
Norman C. Linnell, Amy C. Becker and each of them, the undersigned's
attorneys-in-fact and agents for the purpose of signing in the undersigned's
name and on the undersigned's behalf as a Director of Donaldson Company, Inc., a
report on Form 10-K for the Annual Report for Fiscal Year 2003, pursuant to
Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc.,
and any and all amendments thereto, and to deliver on the undersigned's behalf
said report so signed for filing with the Securities and Exchange Commission.



Dated: September 26, 2003



                                       /s/ Kendrick B. Melrose
                                       -----------------------------------------
                                       Signature





                                POWER OF ATTORNEY

         The undersigned does hereby constitute and appoint William G. Van Dyke,
Norman C. Linnell, Amy C. Becker and each of them, the undersigned's
attorneys-in-fact and agents for the purpose of signing in the undersigned's
name and on the undersigned's behalf as a Director of Donaldson Company, Inc., a
report on Form 10-K for the Annual Report for Fiscal Year 2003, pursuant to
Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc.,
and any and all amendments thereto, and to deliver on the undersigned's behalf
said report so signed for filing with the Securities and Exchange Commission.



Dated: September 19, 2003



                                       /s/ Paul David Miller
                                       -----------------------------------------
                                       Signature





                                POWER OF ATTORNEY

         The undersigned does hereby constitute and appoint William G. Van Dyke,
Norman C. Linnell, Amy C. Becker and each of them, the undersigned's
attorneys-in-fact and agents for the purpose of signing in the undersigned's
name and on the undersigned's behalf as a Director of Donaldson Company, Inc., a
report on Form 10-K for the Annual Report for Fiscal Year 2003, pursuant to
Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc.,
and any and all amendments thereto, and to deliver on the undersigned's behalf
said report so signed for filing with the Securities and Exchange Commission.



Dated: September 19, 2003



                                       /s/ Jeff Noddle
                                       -----------------------------------------
                                       Signature





                                POWER OF ATTORNEY

         The undersigned does hereby constitute and appoint William G. Van Dyke,
Norman C. Linnell, Amy C. Becker and each of them, the undersigned's
attorneys-in-fact and agents for the purpose of signing in the undersigned's
name and on the undersigned's behalf as a Director of Donaldson Company, Inc., a
report on Form 10-K for the Annual Report for Fiscal Year 2003, pursuant to
Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc.,
and any and all amendments thereto, and to deliver on the undersigned's behalf
said report so signed for filing with the Securities and Exchange Commission.



Dated: September 19, 2003



                                       /s/ Stephen W. Sanger
                                       -----------------------------------------
                                       Signature





                                POWER OF ATTORNEY

         The undersigned does hereby constitute and appoint William G. Van Dyke,
Norman C. Linnell, Amy C. Becker and each of them, the undersigned's
attorneys-in-fact and agents for the purpose of signing in the undersigned's
name and on the undersigned's behalf as a Director of Donaldson Company, Inc., a
report on Form 10-K for the Annual Report for Fiscal Year 2003, pursuant to
Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc.,
and any and all amendments thereto, and to deliver on the undersigned's behalf
said report so signed for filing with the Securities and Exchange Commission.



Dated: September 19, 2003



                                       /s/ John Wiehoff
                                       -----------------------------------------
                                       Signature

EX-31.A

Exhibit 31-A

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

I, William G. Van Dyke, 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 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)) 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)  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

     c)  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: October 14, 2003

/s/   William G. Van Dyke      William G. Van Dyke
Chief Executive Officer

EX-31.B

Exhibit 31-B

Certification of Chief Financial 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 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)) 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)  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

     c)  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: October 14, 2003

/s/   William M. Cook      William M. Cook
Chief Financial Officer

EX-32

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 Company’s annual report on Form 10-K for the fiscal year ended July 31, 2003:

CERTIFICATION OF CHIEF EXECUTIVE OFFICER (1)

I, William G. Van Dyke, Chief Executive Officer of Donaldson Company, Inc., certify that, to my knowledge:

1. The Annual Report on Form 10-K of Donaldson Company, Inc. for the fiscal year ended July 31, 2003 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 14, 2003 /s/   William G. Van Dyke      Chief Executive Officer

CERTIFICATION OF CHIEF EXECUTIVE OFFICER (1)

I, William M. Cook, Chief Financial Officer of Donaldson Company, Inc., certify that, to my knowledge:

1. The Annual Report on Form 10-K of Donaldson Company, Inc. for the fiscal year ended July 31, 2003 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 14, 2003 /s/   William M. Cook      Chief Financial Officer

(1) A signed original of this written statement required by Section 906 has been provided to Donaldson Company, Inc. and will be retained by Donaldson Company, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.A

Exhibit 99-A

FACTORS AFFECTING FUTURE OPERATING RESULTS

From time to time, 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 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 below 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.

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 below, as well as other factors could affect the company’s financial or other performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods or events in any current statement. This discussion of factors is not intended to be exhaustive, but rather to highlight important risk factors that impact results. General economic and political conditions and many other contingencies that may cause the Company’s actual results to differ from those currently anticipated are not separately discussed. 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.

RISKS ASSOCIATED WITH CURRENCY FLUCTUATIONS

The Company maintains international subsidiaries and operations in many countries, and the results of operations and the financial position of each of the company’s subsidiaries is reported in the relevant foreign currency and then translated into United States (“U.S.”) dollars at the applicable foreign currency exchange rate for inclusion in the Company’s consolidated financial statements. As exchange rates between these foreign currencies and the U.S. dollar fluctuate, the translation effect of such fluctuations may have an adverse effect on the Company’s results of operations or financial position as reported in U.S. dollars.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

The Company does business and has manufacturing operations in numerous countries and regions, including China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore and other Asia-Pacific countries, Western and Eastern Europe, the Middle East, Africa, Canada, Mexico, Central America and South America. The stability, growth and profitability of this portion of the company’s business may be affected by changes in political and military events, trade, monetary and fiscal policies and the laws and regulations of the United States and other trading nations. In addition, the Company’s international operations are subject to the risk of new and different political and military events, legal and regulatory requirements in local jurisdictions, tariffs and trade barriers, potential difficulties in staffing and managing local operations, credit risk of local customers and distributors, potential difficulties in protecting intellectual property,

1

risk of nationalization of private enterprises, potential imposition of restrictions on investments, potentially adverse tax consequences, including imposition or increase of withholding and other taxes on remittances and other payments by subsidiaries, and local economic, political and social conditions, including the possibility of hyper-inflationary conditions, in certain countries. If for whatever reason, the U.S. were to enter a recession, then demand for Company products would be negatively impacted in North America and throughout the rest of the world.

COMPETITION AND TECHNOLOGY ISSUES

The markets in which the Company operates are highly competitive and fragmented both geographically and by application. As a result, the Company competes with numerous regional or specialized competitors, many of which are well established in their respective markets. The Company has, from time to time, experienced price pressures from competitors in certain product lines and geographic markets. The Company’s competitors and new entrants into the Company’s lines of business can be expected to continue to improve the design and performance of their products and to introduce new products with competitive price and performance characteristics. Competition in the Company’s lines of business may limit its ability to recover future increases in labor and raw material expenses. Although the Company believes that it has certain technological and other advantages over its competitors, realizing and maintaining these advantages will require continued productive investment by the Company in research and development, sales and marketing and customer service and support. There can be no assurance that the Company will be successful in maintaining such advantages. Successful product innovation by competitors that reach the market prior to comparable innovation by the Company or that are amenable to patent protection may adversely affect the Company’s financial performance.

A number of the Company’s major OEM customers manufacture products for their own use that compete with the Company’s products. Although these OEM customers have indicated that they will continue to rely on outside suppliers, the OEMs could elect to manufacture products for their own use and in place of the products now supplied by the Company. In addition, customers of the Company’s engine filtration and exhaust products business line could decide to meet their filtration requirements through alternative methods, such as engine design modifications, rather than rely on the Company’s products.

RISKS RELATING TO ACQUISITIONS

The Company has in the past and may in the future pursue acquisitions of complementary product lines, technologies or businesses. It also completed the acquisition of ultrafilter international A.G. at the end of fiscal 2002. Acquisitions by the Company may result in potentially dilutive issuance’s of equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible assets, which could adversely affect the Company’s profitability. In addition, acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies and products of the acquired companies, corporate culture conflicts, the diversion of management’s attention from other business concerns, assumption of unanticipated legal liabilities and the potential loss of key employees of the acquired company. There can be no assurance that the Company will be able to identify and successfully complete and integrate acquisitions. There can be no assurance as to the effect of acquisitions on the Company’s business or operating results.

2

ENVIRONMENTAL MATTERS

The Company is subject to various environmental laws and regulations in the jurisdictions in which it operates, including those relating to air emissions, wastewater discharges, the handling and disposal of solid and hazardous wastes and the remediation of contamination associated with the use and disposal of hazardous substances. The Company, like many of its competitors, has incurred and will continue to incur, capital and operating expenditures and other costs in complying with such laws and regulations in both the United States and abroad.

PRODUCT DEMAND CONSIDERATIONS

Demand for certain of the Company’s products tends to be cyclical, responding historically to varying levels of construction, agricultural, heavy equipment manufacturing, mining and industrial activity in the United States and in other industrialized nations. Other factors affecting demand include the availability and cost of financing for equipment purchases and the market availability of used equipment.

Sales to each of Caterpillar, Inc. and its subsidiaries and General Electric and its subsidiaries have accounted for greater than 10 percent of the Company’s net sales in one or more of the last five fiscal years. An adverse change in Caterpillar’s or General Electric’s financial performance, condition or results of operations or a material reduction in sales to this customer for any other reason could negatively impact the Company’s operating results.

AVAILABILITY OF PRODUCT COMPONENTS

The Company obtains raw material and certain manufactured components from third-party suppliers, including significant purchases of steel. The Company maintains limited raw material inventories, even brief unanticipated delays in delivery or increases in prices by suppliers, including those due to capacity constraints, labor disputes, tariffs, impaired financial condition of suppliers, weather emergencies or other natural disasters, may adversely affect the Company’s ability to satisfy its customers on delivery and pricing and thereby affect the Company’s financial performance.

CHANGES IN THE MIX OF PRODUCTS COMPRISING REVENUE

The Company’s products constitute various product lines, which have varying profit margins. A change in the mix of products sold by the Company from that currently experienced could adversely affect the Company’s financial performance.

RESEARCH AND DEVELOPMENT

The Company makes significant annual investment in research and development activities to develop new and improved products and manufacturing processes. There can be no assurance that research and development activities will yield new or improved products or products which will be purchased by the Company’s customers, or new and improved manufacturing processes.

3