0000897101-11-001008.txt : 20110603 0000897101-11-001008.hdr.sgml : 20110603 20110603162151 ACCESSION NUMBER: 0000897101-11-001008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20110430 FILED AS OF DATE: 20110603 DATE AS OF CHANGE: 20110603 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONALDSON CO INC CENTRAL INDEX KEY: 0000029644 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL & COMMERCIAL FANS & BLOWERS & AIR PURIFYING EQUIP [3564] IRS NUMBER: 410222640 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07891 FILM NUMBER: 11892492 BUSINESS ADDRESS: STREET 1: 1400 W. 94TH ST. CITY: MINNEAPOLIS STATE: MN ZIP: 55431 BUSINESS PHONE: 6128873131 MAIL ADDRESS: STREET 1: 1400 W 94TH STREET CITY: MINNEAPOLIS STATE: MN ZIP: 55431 10-Q 1 donaldson112670s1_10q.htm FORM 10-Q FOR THE QUARTER ENDED APRIL 30, 2011

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

FORM 10-Q


(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2011 OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO _________________.

Commission File Number 1-7891

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


Delaware	41-0222640
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1400 West 94th Street
Minneapolis, Minnesota 55431
(Address of principal executive offices, including zip code)

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

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $5 Par Value – 76,332,352 shares as of April 30, 2011.

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Thousands of dollars, except share and per share amounts)
(Unaudited)


	Three Months Ended April 30,						Nine Months Ended April 30,
	2011			2010			2011			2010
Net sales	$	594,565		$	497,619		$	1,668,579		$	1,361,821
Cost of sales		385,407			320,248			1,081,788			890,103
Gross margin		209,158			177,371			586,791			471,718
Operating expenses		125,826			105,288			361,515			308,140
Operating income, net		83,332			72,083			225,276			163,578
Interest expense		2,897			2,956			9,486			8,701
Other income, net		(1,381	)		(942	)		(5,990	)		(2,743	)
Earnings before income taxes		81,816			70,069			221,780			157,620
Income taxes		20,005			20,611			62,256			42,627
Net earnings	$	61,811		$	49,458		$	159,524		$	114,993

Weighted average shares - basic		77,325,611			77,872,665			77,358,459			78,002,070
Weighted average shares - diluted		78,704,047			79,222,705			78,762,314			79,333,246
Net earnings per share - basic	$	0.80		$	0.64		$	2.06		$	1.47
Net earnings per share - diluted	$	0.79		$	0.62		$	2.03		$	1.45
Dividends paid per share	$	0.130		$	0.120		$	0.385		$	0.350

See Notes to Condensed Consolidated Financial Statements.

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands of dollars, except share amounts)
(Unaudited)


	April 30, 2011			July 31, 2010
Assets
Current assets
Cash and cash equivalents	$	263,493		$	232,000
Short-term investments		71,828			—
Accounts receivable, less allowance of $6,886 and $6,315		421,751			358,917
Inventories		257,886			203,631
Prepaids and other current assets		67,338			65,667
Total current assets	$	1,082,296		$	860,215
Property, plant and equipment, at cost		957,931			876,758
Less accumulated depreciation		(567,559	)		(510,866	)
Property, plant and equipment, net		390,372			365,892
Goodwill		172,841			165,315
Intangible assets, net		55,357			58,292
Other assets		40,941			49,792
Total assets	$	1,741,807		$	1,499,506

Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings	$	56,698		$	50,000
Current maturities of long-term debt		46,845			5,536
Trade accounts payable		201,316			165,907
Other current liabilities		189,289			167,813
Total current liabilities		494,148			389,256
Long-term debt		204,689			256,192
Deferred income taxes		7,707			7,076
Other long-term liabilities		80,046			100,349
Total liabilities		786,590			752,873

Shareholders’ equity
Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued		—			—
Common stock, $5.00 par value, 120,000,000 shares authorized, 88,643,194 shares issued		443,216			443,216
Retained earnings		882,969			744,247
Stock compensation plans		24,074			22,326
Accumulated other comprehensive income (loss)		42,774			(40,486	)
Treasury stock at cost, 12,218,134 and 12,222,381 shares at April 30, 2011 and July 31, 2010, respectively		(437,816	)		(422,670	)
Total shareholders’ equity		955,217			746,633
Total liabilities and shareholders’ equity	$	1,741,807		$	1,499,506

See Notes to Condensed Consolidated Financial Statements.

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of dollars)
(Unaudited)


	Nine Months Ended April 30,
	2011			2010
Operating Activities
Net earnings	$	159,524		$	114,993
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		45,276			45,158
Changes in operating assets and liabilities		(23,958	)		(6,848	)
Tax benefit of equity plans		(8,272	)		(3,815	)
Stock compensation plan expense		7,560			7,110
Deferred taxes		6,188			1,944
Other, net		(17,775	)		(9,775	)
Net cash provided by operating activities		168,543			148,767

Investing Activities
Net expenditures on property and equipment		(42,400	)		(27,230	)
Purchase of short-term investments		(67,985	)		—
Acquisitions and divestitures		3,493			(250	)
Net cash used in investing activities		(106,892	)		(27,480	)

Financing Activities
Purchase of treasury stock		(43,101	)		(23,783	)
Proceeds from settlement of interest rate swap		4,710			—
Repayments of long-term debt		(13,202	)		(5,386	)
Change in short-term borrowings		6,976			(10,024	)
Dividends paid		(29,547	)		(27,040	)
Tax benefit of equity plans		8,272			3,815
Exercise of stock options		13,535			7,332
Net cash used in financing activities		(52,357	)		(55,086	)
Effect of exchange rate changes on cash		22,199			(1,527	)
Increase in cash and cash equivalents		31,493			64,674
Cash and cash equivalents, beginning of year		232,000			143,687
Cash and cash equivalents, end of period	$	263,493		$	208,361

See Notes to Condensed Consolidated Financial Statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Donaldson Company, Inc. and its subsidiaries (the Company) have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the three and nine month periods ended April 30, 2011 are not necessarily indicative of the results that may be expected for future periods. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended July 31, 2010.

Note B – Short-Term Investments

Classification of the Company’s investments as current or non-current is dependent upon management’s intended holding period, the investment’s maturity date and liquidity considerations based on market conditions. If management intends to hold the investments for longer than one year as of the balance sheet date, they are classified as non-current.

All short-term investments have original maturities in excess of three months but not more than six months. There were no short-term investments as of July 31, 2010. The following is a summary of amounts recorded on the Consolidated Balance Sheet for the Company’s short-term investments as of April 30, 2011 (thousands of dollars):


	April 30, 2011
Certificates of deposit	$	44,430
Commercial paper		27,398
Total short-term investments	$	71,828

Note C – Inventories

The components of inventory as of April 30, 2011 and July 31, 2010 are as follows (thousands of dollars):


	April 30, 2011		July 31, 2010
Materials	$	106,273	$	79,371
Work in process		30,278		23,163
Finished products		121,335		101,097
Total inventories	$	257,886	$	203,631

Note D – Accounting for Stock-Based Compensation

Stock-based employee compensation cost is recognized using the fair-value based method for all awards. The Company determined the fair value of its option awards using the Black-Scholes option pricing model. The following assumptions were used to value the options, including reload options which generally have a shorter contractual life, granted during the nine months ended April 30, 2011: range of 8 days to 8 years expected life; expected volatility range of 25.5 percent to 34.7 percent; risk-free interest rate range of 0.12 percent to 3.1 percent; and annual dividend yield of 1.0 percent. The expected life selected for options granted during the period represents the period of time that the options are expected to be outstanding based on the contractual life and historical data of option holder exercise and termination behavior. Expected volatilities are based upon historical volatility of the Company’s stock over a period at least equal to the expected life of each option grant. Option grants are priced at the fair market value of the Company’s stock on the date of grant. The weighted average fair value for options granted during the nine months ended April 30, 2011 and 2010 was $17.26 per share and $13.24 per share, respectively. For the three and nine months ended April 30, 2011, the Company recorded pretax compensation expense associated with stock options of $0.8 million and $5.6 million, respectively, and recorded $0.3 million and $2.1 million of related tax benefit, respectively. For the three and nine months ended April 30, 2010, the Company recorded pretax compensation expense associated with stock options of $1.0 million and $6.3 million, respectively, and recorded $0.3 million and $2.3 million of related tax benefit.

The following table summarizes stock option activity during the nine months ended April 30, 2011:


	Options Outstanding			Weighted Average Exercise Price
Outstanding at July 31, 2010		4,771,812		$	30.04
Granted		551,601			57.22
Exercised		(944,412	)		22.65
Canceled		(7,665	)		47.20
Outstanding at April 30, 2011		4,371,336			35.04

The total intrinsic value of options exercised during the nine months ended April 30, 2011 and 2010 was $27.9 million and $15.6 million, respectively.

The following table summarizes information concerning outstanding and exercisable options as of April 30, 2011:


Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$12 to $22	747,366	1.37	$	17.92	747,366	$	17.92
$22 to $32	1,115,025	3.19		30.12	1,099,113		30.10
$32 to $42	1,195,623	5.66		34.84	1,175,101		34.85
$42 and above	1,313,322	8.48		49.15	655,215		44.32
	4,371,336	5.14		35.04	3,676,795		31.67

At April 30, 2011, the aggregate intrinsic value of options outstanding and exercisable was $114.5 million and $108.7 million, respectively.

As of April 30, 2011, there was $7.0 million of total unrecognized compensation cost related to non-vested stock options granted under the 2001 and 2010 Master Stock Incentive Plans. This unvested cost is expected to be recognized during the remainder of Fiscal Years 2011, 2012, 2013 and 2014.

Note E – Net Earnings Per Share

The Company’s basic net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares. The Company’s diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and common equivalent shares relating to stock options and stock incentive plans. Certain outstanding options were excluded from the diluted net earnings per share calculations because their exercise prices were greater than the average market price of the Company’s common stock during those periods. For the three and nine months ended April 30, 2011, there were 79,243 options and 495,938 options excluded from the diluted net earnings per share calculation, respectively. For the three and nine months ended April 30, 2010, there were 293,816 options and 844,366 options excluded from the diluted net earnings per share calculation, respectively.

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


	Three Months Ended April 30,				Nine Months Ended April 30,
	2011		2010		2011		2010
Weighted average shares - basic		77,326		77,873		77,358		78,002
Common share equivalents		1,378		1,350		1,404		1,331
Weighted average shares - diluted		78,704		79,223		78,762		79,333
Net earnings for basic and diluted earnings per share computation	$	61,811	$	49,458	$	159,524	$	114,993
Net earnings per share - basic	$	0.80	$	0.64	$	2.06	$	1.47
Net earnings per share - diluted	$	0.79	$	0.62	$	2.03	$	1.45

Note F – Shareholders’ Equity

The Company reports accumulated other comprehensive income (loss) as a separate item in the shareholders’ equity section of the balance sheet.

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


	Three Months Ended April 30,					Nine Months Ended April 30,
	2011		2010			2011			2010
Net earnings	$	61,811	$	49,458		$	159,524		$	114,993
Foreign currency translation adjustment		48,929		(7,697	)		81,031			(10,722	)
Currency realization upon sale of business		—		—			(101	)		—
Gain on hedging derivatives, net of deferred taxes		229		179			363			493
Pension and postretirement liability adjustment, net of deferred taxes		664		550			1,967			1,694
Total comprehensive income	$	111,633	$	42,490		$	242,784		$	106,458

Total accumulated other comprehensive income (loss) and its components at April 30, 2011 and July 31, 2010 are as follows (thousands of dollars):


	April 30, 2011			July 31, 2010
Foreign currency translation adjustment	$	140,124		$	59,194
Net loss on hedging derivatives, net of deferred taxes		(99	)		(462	)
Pension and postretirement liability, net of deferred taxes		(97,251	)		(99,218	)
Total accumulated other comprehensive income (loss)	$	42,774		$	(40,486	)

The Company’s Board of Directors authorized the repurchase of 8.0 million shares of common stock on March 26, 2010. During the three months ended April 30, 2011 the Company repurchased 650,006 shares for $36.6 million at an average price of $56.32 per share. During the nine months ended April 30, 2011, the Company repurchased 800,000 shares for $43.1 million at an average price of $53.88 per share. As of April 30, 2011, the Company had remaining authorization to repurchase up to 6.2 million shares pursuant to the current authorization.

On May 24, 2011, the Company’s Board of Directors declared a cash dividend in the amount of $0.15 per common share payable to stockholders of record on June 10, 2011. The dividend will be paid on June 24, 2011.

Note G – Segment Reporting

The Company has two reportable segments, Engine Products and Industrial Products, that have been identified based on the Company’s internal organization structure, management of operations, and performance evaluation. Corporate and Unallocated includes corporate expenses determined to be non-allocable to the segments and interest income and expense. The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the operating profit and other financial information shown below. Segment detail is summarized as follows (thousands of dollars):


	Engine Products		Industrial Products		Corporate & Unallocated			Total Company
Three Months Ended April 30, 2011:
Net sales	$	377,609	$	216,956	$	—		$	594,565
Earnings before income taxes		56,469		33,074		(7,727	)		81,816

Three Months Ended April 30, 2010:
Net sales	$	301,312	$	196,307	$	—		$	497,619
Earnings before income taxes		48,535		25,831		(4,297	)		70,069

Nine Months Ended April 30, 2011:
Net sales	$	1,042,500	$	626,079	$	—		$	1,668,579
Earnings before income taxes		149,123		92,236		(19,579	)		221,780
Assets		843,450		503,962		394,395			1,741,807

Nine Months Ended April 30, 2010:
Net sales	$	809,061	$	552,760	$	—		$	1,361,821
Earnings before income taxes		107,833		61,318		(11,531	)		157,620
Assets		678,543		456,522		289,123			1,424,188

For the three and nine months ended April 30, 2010, net sales reflect the reclassification of $8,514 and $22,641, respectively, earnings before income taxes reflect a reclassification of $1,845 and $3,687, respectively, and assets at April 30, 2010 reflect a reclassification of $27,287, as a result of an internal reorganization of Industrial Hydraulics from Industrial Products to Engine Products, which became effective August 1, 2010.

There were no restructuring expenses incurred during the three months ended April 30, 2011. The Industrial Products segment incurred $0.7 million of restructuring expenses during the nine months ended April 30, 2011. The Engine Products and Industrial Products segments incurred $0.2 million and $3.5 million of restructuring and asset impairment charges for the three months ended April 30, 2010, respectively, and $1.7 million and $8.4 million of restructuring and asset impairment expenses for the nine months ended April 30, 2010, respectively.

There were no Customers over 10 percent of net sales for the three or nine months ended April 30, 2011 and 2010. There were no Customers over 10 percent of gross accounts receivable as of April 30, 2011 and 2010.

Note H – Goodwill and Other Intangible Assets

Goodwill is assessed for impairment between annual assessments whenever events or circumstances make it more likely than not that an impairment may have occurred. The Company’s most recent annual impairment assessment for goodwill was completed during the third quarter of Fiscal 2011. The results of this assessment showed that the fair values of the reporting units to which goodwill is assigned continue to exceed the book values of the respective reporting units, resulting in no goodwill impairment. As of August 1, 2010, as a result of an internal reorganization, the Company transferred Industrial Hydraulics, a component of its Industrial Filtration Solutions Products within the Industrial Products segment to Aftermarkets Products within the Engine Products segment, along with the goodwill associated with this component. Following is a reconciliation of goodwill for the nine months ended April 30, 2011 (thousands of dollars):


	Engine Products		Industrial Products			Total Goodwill
Balance as of July 31, 2010	$	60,914	$	104,401		$	165,315
Goodwill transferred		11,258		(11,258	)		—
Disposition activity		—		(325	)		(325	)
Foreign exchange translation		1,030		6,821			7,851
Balance as of April 30, 2011	$	73,202	$	99,639		$	172,841

Disposition of goodwill during the fiscal year relates to the sale of the Company’s Ultracool chiller business, based in Terrassa, Spain, for $3.6 million, which resulted in a gain on sale of $0.4 million in the second quarter. The Ultracool chiller business manufactured industrial circulation chillers and was part of the Company’s Industrial Products segment.

As of April 30, 2011, other intangible assets were $55.4 million, a $2.9 million decrease from the balance of $58.3 million at July 31, 2010. The decrease in other intangible assets is due to amortization of existing assets of $4.4 million which was partially offset by a $1.5 million increase due to foreign exchange translation. There were no intangible asset additions during the nine months ended April 30, 2011.

Note I – Guarantees

The Company and Caterpillar Inc. equally own the shares of Advanced Filtration Systems Inc. (AFSI), an unconsolidated joint venture, and guarantee certain debt of the joint venture. As of April 30, 2011 the joint venture had $13.4 million of outstanding debt of which the Company guarantees half. For the three and nine months ended April 30, 2011, the Company recorded $0.3 million and $1.2 million of earnings for this equity method investment, respectively. The Company recorded $0.3 million and $0.1 million of earnings for this equity method investment during the three and nine months ended April 30, 2010, respectively. During the three and nine months ended April 30, 2011 and 2010, the Company also recorded royalty income of $1.4 million and $4.7 million, respectively, and $1.3 million and $3.8 million, respectively, related to AFSI.

At April 30, 2011, the Company had a contingent liability for standby letters of credit totaling $20.0 million that have been issued and are outstanding. The letters of credit guarantee payment to third parties in the event the Company is in breach of a specified bond financing agreement and insurance contract terms as detailed in each letter of credit. At April 30, 2011, there were no amounts drawn upon these letters of credit.

Note J – Warranty

The Company estimates warranty costs using quantitative measures based on historical warranty claim experience and evaluation of specific Customer warranty issues. Following is a reconciliation of warranty reserves for the nine months ended April 30, 2011 and 2010 (thousands of dollars):


	April 30,
	2011			2010
Beginning balance	$	15,707		$	9,215
Accruals for warranties issued during the reporting period		5,175			7,311
Adjustments related to pre - existing warranties (including changes in estimates)		5,981			(857	)
Less settlements made during the period		(8,347	)		(3,261	)
Ending balance	$	18,516		$	12,408

The increase in warranty accruals is primarily due to three specific warranty matters during the first nine months of Fiscal 2011. One in the Company’s Retrofit Emissions Product group for $3.0 million, one in the Company’s Off-Road Products group for $1.8 million and one in the On-Road Product group for $3.8 million. These warranty accruals were partially offset by supplier and insurance recoveries of $3.8 million.

Note K – Employee Benefit Plans

The Company and certain of its international subsidiaries have defined benefit pension plans for many of their hourly and salaried employees. There are two types of domestic plans. The first type of domestic plan is a traditional defined benefit pension plan primarily for production employees. The second is a plan for salaried workers that provides defined benefits pursuant to a cash balance feature whereby a participant accumulates a benefit comprised of a percentage of current salary that varies with years of service, interest credits, and transition credits. The international plans generally provide pension benefits based on years of service and compensation level.

Net periodic pension costs for the Company’s pension plans include the following components (thousands of dollars):


	Three Months Ended April 30,						Nine Months Ended April 30,
	2011			2010			2011			2010
Net periodic cost:
Service cost	$	4,077		$	3,265		$	12,151		$	9,903
Interest cost		4,872			4,831			14,533			14,676
Expected return on assets		(6,920	)		(7,069	)		(20,616	)		(21,382	)
Transition amount amortization		58			56			167			175
Prior service cost amortization		119			73			347			221
Actuarial loss amortization		839			707			2,491			2,171
Net periodic benefit cost	$	3,045		$	1,863		$	9,073		$	5,764

The Company’s general funding policy for its pension plans is to make at least the minimum contributions as required by applicable regulations. Additionally, the Company may elect to make additional contributions up to the maximum tax deductible contribution. For the nine months ended April 30, 2011, the Company made contributions of $5.5 million to its non-U.S. pension plans and a discretionary contribution of $20.0 million to its U.S. pension plans. The Company does not currently plan to make any additional contributions to its U.S. pension plans in Fiscal 2011. The Company currently estimates that it will contribute up to an additional $1.0 million to its non-U.S. pension plans during the remainder of Fiscal 2011.

Note L – Long – Term Debt

On April 25, 2011, the Company paid off its Variable Rate Industrial Development Revenue Bond for $7.8 million.

Note M – Financial Instruments

The Company uses forward exchange contracts to manage its exposure to fluctuations in foreign exchange rates. The Company enters into forward exchange contracts of generally less than one year to hedge forecasted transactions between its subsidiaries and to reduce potential exposure related to fluctuations in foreign exchange rates for existing recognized assets and liabilities. It also utilizes forward exchange contracts for anticipated intercompany and third-party transactions such as purchases, sales, and dividend payments denominated in local currencies. Forward exchange contracts are designated as cash flow hedges as they are designed to hedge the variability of cash flows associated with the underlying existing recognized or anticipated transactions. Changes in the value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) in shareholders’ equity until earnings are affected by the variability of the underlying cash flows. At that time, the applicable amount of gain or loss from the derivative instrument that is deferred in shareholders’ equity is reclassified to earnings. Effectiveness is measured using spot rates to value both the hedge contract and the hedged item. The excluded forward points, as well as any ineffective portions of hedges, are recorded in earnings through the same line as the underlying transaction. During the first nine months of Fiscal 2011, $0.3 million of losses were recorded due to the exclusion of forward points from the assessment of hedge effectiveness.

These unrealized losses and gains are reclassified, as appropriate, when earnings are affected by the variability of the underlying cash flows during the term of the hedges. The Company expects to record $0.3 million of net deferred losses from these forward exchange contracts during the next 12 months.

The impact on accumulated other comprehensive income (loss) and earnings from foreign exchange contracts that qualified as cash flow hedges for the nine months ended April 30, 2011 and 2010 was as follows (thousands of dollars):


	April 30,
	2011			2010
Net carrying amount at beginning of year	$	(660	)	$	(650	)
Cash flow hedges deferred in other comprehensive income		(425	)		(2,349	)
Cash flow hedges reclassified to income (effective portion)		1,048			3,164
Change in deferred taxes		(218	)		(280	)
Net carrying amount at April 30	$	(255	)	$	(115	)

Note N – Fair Values

The Company uses interest rate swaps to manage its exposure to changes in the fair value of its fixed-rate debt resulting from interest rate fluctuations. 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 counterparties with high credit ratings. 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 losses, nor does the Company anticipate any material losses.

The following summarizes the Company’s fair value of outstanding derivatives at April 30, 2011 and July 31, 2010, on the Consolidated Balance Sheets (thousands of dollars):


	April 30, 2011		July 31, 2010
Asset derivatives recorded under the caption Prepaids and other current assets
Foreign exchange contracts	$	694	$	807
Asset derivatives recorded under the caption Other assets
Interest rate swap asset	$	1,297	$	4,590
Liability derivatives recorded under the caption Other current liabilities
Foreign exchange contracts	$	2,089	$	2,127

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

The fair values of the Company’s financial assets and financial liabilities listed below reflect the amounts that would be received to sell the assets or paid to transfer the liabilities in an orderly transaction between market participants at the measurement date (exit price). The fair values are based on inputs other than quoted prices that are observable for the asset or liability. These inputs include foreign currency exchange rates and interest rates. The financial assets and financial liabilities are primarily valued using standard calculations and models that use as their basis readily observable market parameters. Industry standard data providers are the primary source for forward and spot rate information for both interest rates and currency rates.


	Significant Other Observable Inputs (Level 2)*
	April 30, 2011			July 31, 2010
Forward exchange contracts - net liability position	$	(1,394	)	$	(1,320	)
Interest rate swaps - net asset position		1,297			4,590


*	Inputs to the valuation methodology of level 2 assets include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Note O – Commitments and Contingencies

The Company records provisions with respect to identified claims or lawsuits when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Claims and lawsuits are reviewed quarterly and provisions are taken or adjusted to reflect the status of a particular matter. The Company believes the recorded reserves in its consolidated financial statements are adequate in light of the probable and estimable outcomes. The recorded liabilities were not material to the Company’s financial position, results of operation, or liquidity, and the Company does not believe that any of the currently identified claims or litigation will materially affect its financial position, results of operation, or liquidity.

On March 31, 2008, S&E Quick Lube, a filter distributor, filed a lawsuit in U.S. District Court for the District of Connecticut alleging that 12 filter manufacturers, including the Company, engaged in a conspiracy to fix prices, rig bids, and allocate U.S. Customers for aftermarket automotive filters. This lawsuit seeks various remedies including injunctive relief and monetary damages of an unspecified amount and is a purported class action on behalf of direct purchasers of automotive aftermarket filters from the defendants. Parallel purported class actions, including on behalf of a variety of direct and indirect purchasers of aftermarket filters, have been filed by other plaintiffs in a variety of jurisdictions in the United States and Canada. The U.S. cases have been consolidated into a single multi-district litigation in the Northern District of Illinois. On April 14, 2011, the Court granted a stay on discovery and depositions until mid-July. The Company denies any liability and intends to vigorously defend the claims raised in these lawsuits.

On May 19, 2010, the Air Resources Board for the State of California (ARB) revoked its verification of the Company’s DFM Diesel Multi-Stage Filter System (DMF) for use with on-road diesel engines, for which verification was originally issued on December 16, 2005. In addition, ARB notified the Company by letter that it may seek fines and penalties in connection with the past sales of the DMF product in California. The Company denies that any sales were made in California without ARB verification. The Company is not currently selling any DMF product and is working with the EPA and state regulatory authorities to obtain the necessary approvals.

Note P – Income Taxes

The effective tax rate for the three and nine months ended April 30, 2011, was 24.5 percent and 28.1 percent, respectively. The effective tax rate for the three and nine months ended April 30, 2010, was 29.4 percent and 27.0 percent, respectively. The decrease in our effective tax rate for the three months ended April 30, 2011 was due to $3.5 million of tax benefits primarily from the release of reserves after the expiration of statutes or favorable conclusions of tax audits in various jurisdictions. The increase in our effective tax rate for the nine months ended April 30, 2011 was due to fewer favorable discrete items as compared to the nine months ended April 30, 2010. Without consideration of discrete items, the estimated annual effective tax rate of 29.6 percent was comparable to the 29.9 percent in the prior year.

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


Major Jurisdictions		Open Tax Years
Belgium		2009 through 2010
China		2000 through 2010
France		2008 through 2010
Germany		2005 through 2010
Italy		2003 through 2010
Japan		2009 through 2010
Mexico		2006 through 2010
Thailand		2005 through 2010
United Kingdom		2009 through 2010
United States		2008 through 2010

At April 30, 2011, the total unrecognized tax benefits were $16.6 million, and accrued interest and penalties on these unrecognized tax benefits were $1.6 million. The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense. If the Company were to prevail on all unrecognized tax benefits recorded, substantially all of the unrecognized tax benefits would benefit the effective tax rate. With an average statute of limitations of about 5 years, up to $3.6 million of the unrecognized tax benefits could potentially reverse in the next 12 month period, unless extended by audit. It is possible that quicker than expected settlement of either current or future audits and disputes would cause additional reversals of previously recorded reserves in the next 12 month period. Currently, the Company has approximately $0.4 million of unrecognized tax benefits that are in dispute with various taxing authorities related to transfer pricing and deductibility of expenses. Quantification of an estimated range and timing of future audit settlements cannot be made at this time.

Note Q – Restructuring and Asset Impairment

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


Balance at July 31, 2008	$	—
Accruals for restructuring during the reporting period		17,755
Less settlements made during the period		(13,915	)
Balance at July 31, 2009	$	3,840
Accruals for restructuring during the reporting period		10,165
Less settlements made during the period		(9,866	)
Balance at July 31, 2010	$	4,139
Accruals for restructuring during the reporting period		759
Less settlements made during the period		(4,790	)
Balance at April 30, 2011	$	108

The Company commenced certain restructuring actions in Fiscal 2009 in response to the dramatic downturn in the worldwide economy. The restructuring expenses in the first quarter of 2011 include employee severance costs for approximately five employees related to the completion of the Company’s planned restructuring activities. The Company did not previously anticipate these additional charges in the first quarter of 2011. The Company did not incur any restructuring charges during the second and third quarters of 2011 and does not expect to incur additional restructuring charges during the remainder of Fiscal 2011. The remaining liability will be settled during Fiscal 2011.

Fiscal 2010 included $2.1 million in asset impairment costs related to the downsizing of a plant in Germany and $8.1 million in employee severance costs related to the reduction in workforce of approximately 550 employees. Fiscal 2009 included $17.4 million in employee severance costs related to the reduction in workforce of approximately 2,800 employees. In addition, $0.4 million was incurred primarily for distribution center consolidation and production line transfers.

Restructuring expense detail is summarized as follows (in thousands):


	Three Months Ended April 30,				Nine Months Ended April 30,
	2011		2010		2011		2010
Gross Margin	$	—	$	1,624	$	20	$	5,745
Operating expenses		—		—		739		2,229
Total restructuring expenses	$	—	$	1,624	$	759	$	7,974

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company is a worldwide manufacturer of filtration systems and replacement parts. The Company’s core strengths are leading filtration technology, strong Customer relationships, and its global presence. Products are manufactured at 40 plants around the world and through three joint ventures.

The Company has two reporting segments: Engine Products and Industrial Products. Products in the Engine Products segment consist of air filtration systems, exhaust and emissions systems, liquid filtration systems, and replacement filters. The Engine Products segment sells to original equipment manufacturers (OEMs) in the construction, mining, agriculture, aerospace, defense, and truck markets, and to OEM dealer networks, independent distributors, private label accounts, and large equipment fleets. Products in the Industrial Products segment consist of dust, fume, and mist collectors, compressed air purification systems, air filtration systems for gas turbines, PTFE membrane based products, and specialized air filtration systems for applications including computer hard disk drives. The Industrial Products segment sells to various industrial end-users, OEMs of gas-fired turbines, and OEMs and end-users requiring clean air.

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

Overview

The Company reported diluted net earnings per share of $0.79 for the third quarter of Fiscal 2011, up from $0.62 in the third quarter of the prior year. Net earnings for the quarter were $61.8 million, compared to $49.5 million in the third quarter of the prior year. The Company reported sales in the third quarter of Fiscal 2011 of $594.6 million, an increase of 19.5 percent from $497.6 million in the third quarter of the prior year. The impact of foreign currency translation increased reported sales by 3.4 percent in the quarter compared to the prior year quarter.

Continued strength in many of the Company’s early and mid-cycle businesses helped drive the 19.5 percent year-over-year sales increase. The Company’s higher sales levels, combined with its improved cost structure as a result of the Company’s ongoing Continuous Improvement initiatives, resulted in an operating margin performance of 14.0 percent for the third quarter. Purchased raw material cost increases were consistent with the Company’s expectations. The Company plans to offset the majority of the impact of these cost increases through its ongoing Continuous Improvement initiatives and selective price increases.

There were no pre-tax restructuring charges for the quarter ended April 30, 2011, as compared to $3.7 million of pre-tax restructuring and asset impairment charges included in the above results for the quarter ended April 30, 2010. The Company has incurred total restructuring costs of $28.7 million since commencing its restructuring activities in Fiscal 2009. The Company’s restructuring activities are now completed.

Sales in the Company’s Engine Products’ segment and Industrial Products’ segments increased 25 percent and 11 percent, respectively. Business levels improved in many of the Company’s regions as local currency sales increased 26 percent in the Americas and 15 percent in Europe. Local currency sales were flat in Asia. Within Asia, the Company’s Gas Turbine and Special Applications Products were down from the prior year; however, they were offset by the Engine and Industrial Filtration Solutions Products, which grew 18 percent and 20 percent, respectively, driven primarily by the rapid growth in China.

Results of Operations

Sales in the U.S. increased $52.8 million or 26.8 percent compared to the third quarter of the prior year. Total international sales increased $44.1 million or 14.7 percent in the third quarter compared to the prior year. Sales in Europe increased $27.2 million or 19.1 percent, other international sales increased $8.7 million or 27.1 percent and sales in Asia increased $8.2 million or 6.5 percent for the third quarter of Fiscal 2011 as compared to the prior year period. Translated at constant exchange rates, total international sales increased 9.1 percent over the prior year quarter. For the nine month period ended April 30, 2011, sales in the U.S. increased $159.2 million or 29.8 percent from the prior year and total international sales increased $147.6 million or 17.8 percent from the prior year.

The impact of foreign currency translation during the third quarter of Fiscal 2011 increased net sales by $16.7 million, or 3.4 percent from the prior year third quarter. The impact of foreign currency translation on the year-to-date results as of the third quarter of Fiscal 2011 increased net sales by $9.5 million, or 0.7 percent. Worldwide sales for the third quarter of Fiscal 2011, excluding the impact of foreign currency translation, increased 16.1 percent from the third quarter of the prior year and 21.8 percent year-to-date over the prior year. The impact of foreign currency translation increased net earnings by $1.8 million and $2.1 million, or 3.7 percent and 1.8 percent for the three and nine month periods ended April 30, 2011.

Although net sales excluding foreign currency translation and net earnings excluding foreign currency translation are not measures of financial performance under U.S. GAAP, the Company believes they are useful in understanding its financial results. Both measures enable the Company to obtain a clearer understanding of the operating results of its foreign entities without the varying effects that changes in foreign currency exchange rates may have on those results. A shortcoming of these financial measures is that they do not reflect the Company’s actual results under U.S. GAAP. Management does not intend for these items to be considered in isolation or as a substitute for the related U.S. GAAP measures.

Following is a reconciliation to the most comparable U.S. GAAP financial measure of these non-U.S. GAAP financial measures (thousands of dollars):


	Three Months Ended April 30,				Nine Months Ended April 30,
	2011		2010		2011		2010
Net sales, excluding foreign currency translation	$	577,858	$	476,957	$	1,659,088	$	1,310,392
Foreign currency translation		16,707		20,662		9,491		51,429
Net sales	$	594,565	$	497,619	$	1,668,579	$	1,361,821

Net earnings, excluding foreign currency translation	$	59,991	$	47,199	$	157,423	$	111,193
Foreign currency translation		1,820		2,259		2,101		3,800
Net earnings	$	61,811	$	49,458	$	159,524	$	114,993

Gross margin for the third quarter of Fiscal 2011 was 35.2 percent for both the quarter and year-to-date, compared to prior year margins of 35.6 percent and 34.6 percent, respectively. The decreased gross margin was the result of increases in purchased raw material costs and a change in our sales mix, partially offset by better fixed cost absorption and the Company’s ongoing Continuous Improvement initiatives. The prior year three and nine month periods included $3.7 million and $7.8 million of restructuring and asset impairment charges, as compared to none and less than $0.1 million in the current year.

Operating expenses were $125.8 million for the quarter, up 19.5 percent from $105.3 million in the prior year period. As a percent of sales, operating expenses for the third quarter remained flat at 21.2 percent for the third quarter of fiscal 2011 and 2010. The third quarter operating expenses included no restructuring costs in fiscal 2011 or 2010. Operating expenses year-to-date were $361.5 million, or 21.7 percent of sales, compared to $308.1 million, or 22.6 percent of sales, in the prior year. The first quarter included an expense of $1.5 million, net of supplier recoveries, due to a specific Retrofit Emissions Products warranty matter. Restructuring costs in the current year include employee workforce reductions of five employees related to the completion of the Company’s planned restructuring activities. The Company did not previously anticipate these additional charges in the first quarter of 2011 and does not expect to incur additional restructuring charges during the remainder of Fiscal 2011.

Other income for the third quarter of Fiscal 2011 totaled $1.4 million, compared to $0.9 million in the third quarter of the prior year. Other income for the third quarter consisted of royalty income of $2.3 million, income from unconsolidated affiliates of $1.0 million, and interest income of $0.8 million, partially offset by foreign exchange losses of $1.9 million and other miscellaneous net expense of $0.8 million. For the quarter, interest expense was $2.9 million, down slightly from $3.0 million in the third quarter of the prior year. Year-to-date other income totaled $6.0 million compared to $2.7 million reported in the prior year. The increase was driven by an increase in royalty income of $1.5 million, a $1.7 million increase in income from unconsolidated affiliates and a $1.1 million increase in interest income, partially offset by an increase in foreign exchange losses of $0.9 million. Year-to-date interest expense was $9.5 million, up from $8.7 million in the prior year.

Operations by Segment

Following is financial information for the Company’s Engine Products and Industrial Products segments. Corporate and Unallocated includes corporate expenses determined to be non-allocable to the segments, and interest income and expense. Segment detail is summarized as follows (thousands of dollars):


	Engine Products		Industrial Products		Corporate & Unallocated			Total Company
Three Months Ended April 30, 2011:
Net sales	$	377,609	$	216,956	$	—		$	594,565
Earnings before income taxes		56,469		33,074		(7,727	)		81,816

Three Months Ended April 30, 2010:
Net sales	$	301,312	$	196,307	$	—		$	497,619
Earnings before income taxes		48,535		25,831		(4,297	)		70,069

Nine Months Ended April 30, 2011:
Net sales	$	1,042,500	$	626,079	$	—		$	1,668,579
Earnings before income taxes		149,123		92,236		(19,579	)		221,780
Assets		843,450		503,962		394,395			1,741,807

Nine Months Ended April 30, 2010:
Net sales	$	809,061	$	552,760	$	—		$	1,361,821
Earnings before income taxes		107,833		61,318		(11,531	)		157,620
Assets		678,543		456,522		289,123			1,424,188

Following are net sales by product category within the Engine Products and Industrial Products segments (thousands of dollars):


	Three Months Ended April 30,				Nine Months Ended April 30,
	2011		2010		2011		2010
Engine Products segment:
Off-Road Products	$	90,174	$	64,223	$	236,672	$	157,233
Aerospace and Defense Products		27,194		27,118		77,772		84,807
On-Road Products		30,924		20,838		88,726		57,728
Aftermarket Products*		223,284		183,122		625,042		494,915
Retrofit Emissions Products		6,033		6,011		14,288		14,378
Total Engine Products segment		377,609		301,312		1,042,500		809,061

Industrial Products segment:
Industrial Filtration Solutions Products		126,226		106,289		369,009		310,359
Gas Turbine Products		44,231		43,489		114,607		108,673
Special Applications Products		46,499		46,529		142,463		133,728
Total Industrial Products segment		216,956		196,307		626,079		552,760
Total Company	$	594,565	$	497,619	$	1,668,579	$	1,361,821



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

For the three and nine months ended April 30, 2010, sales reflect the reclassification of $8,514 and $22,641, respectively, earnings before income taxes reflect a reclassification of $1,845 and $3,687, respectively, and assets reflect a reclassification of $27,287 as of April 30, 2011, as a result of an internal reorganization of Industrial Hydraulics from Industrial Products to Engine Products, which became effective August 1, 2010.

Engine Products Segment For the third quarter of Fiscal 2011, worldwide Engine Products sales were $377.6 million, an increase of 25.3 percent from $301.3 million in the third quarter of the prior year. Sales in the U.S. increased by 23.7 percent compared to the same period in the prior year and international sales increased by 26.9 percent as discussed below. The impact of foreign currency translation during the third quarter of Fiscal 2011 increased sales by $10.0 million, or 3.3 percent. Earnings before income taxes as a percentage of sales of 15.0 percent decreased from 16.1 percent in the prior year period. The decrease in earnings as a percentage of sales was the result of a less favorable product mix of OEM versus Aftermarket sales as well as commodity price increases. There were no restructuring expenses for the Engine Products segment for the current quarter, as compared to $0.2 million in the prior year period. Year-to-date worldwide net sales were $1,042.5 million, an increase of 28.9 percent from $809.1 million in the prior year. International Engine Products sales increased 29.2 percent and sales in the United States increased 28.5 percent from the prior year on a year-to-date basis. The impact of foreign currency translation on the year-to-date results as of the third quarter of Fiscal 2011 increased sales by $7.5 million, or 0.9 percent. Year-to-date earnings before income taxes as a percentage of Engine Products segment sales of 14.3 percent increased from 13.3 percent in the prior year. For the nine months ended April 30, 2011, the Engine Products segment incurred less than $0.1 million in restructuring charges, compared to $1.7 million in the prior year. The earnings improvement for the nine months ended April 30, 2011, was driven by better absorption of fixed costs due to improved volumes and the Company’s ongoing Continuous Improvement initiatives, partially offset by increased commodity costs compared to the prior year.

Worldwide sales of Off-Road Products in the current quarter were $90.2 million, an increase of 40.4 percent from $64.2 million in the third quarter of the prior year, driven by an overall increase in build rates at the Company’s OEM Customers. U.S. sales of Off-Road Products increased 28.1 percent. International sales were up 49.6 percent from the third quarter of the prior year with increases in Europe and Asia of 53.6 percent and 45.7 percent, respectively. Year-to-date worldwide Off-Road Products sales totaled $236.7 million, an increase of 50.5 percent from $157.2 million in the prior year. Year-to-date sales of Off-Road Products increased 41.3 percent in the United States and increased 57.4 percent internationally over the prior year. Sales in Europe and Asia increased 52.8 percent and 65.1 percent, respectively. For both the three and nine months ended April 30, 2011, the sales increases were driven by higher demand for agriculture and mining equipment due to continued strong commodity prices and improved sales of heavy construction equipment, which was due to increased global infrastructure spending, especially in developing economies. These increases were slightly offset by U.S. residential and non-residential construction markets which continued to decrease over the prior year, resulting in lower sales of the Company’s products into those markets.

Worldwide sales of Aerospace and Defense Products were $27.2 million, an increase of 0.3 percent from $27.1 million in the third quarter of the prior year. Sales slightly increased in the U.S. by 1.4 percent. International Aerospace and Defense Products sales decreased by 3.1 percent, driven by decreased sales in Europe of 3.7 percent. The U.S. sales increase was primarily a result of improvements in the Aerospace market and the international sales decreases were due to lower defense sales in Europe. Year-to-date, worldwide Aerospace and Defense Products sales totaled $77.8 million, a decrease of 8.3 percent from $84.8 million in the prior year. Year-to-date sales of Aerospace and Defense Products decreased 11.5 percent in the United States and increased 4.3 percent internationally over the prior year. For the nine month period ended April 30, 2011, sales in the U.S. decreased primarily as a result of slowdowns in U.S. military activity, which is causing an associated slowdown in government procurement spending for major programs. These decreases were slightly offset by increases in sales due to improved market share and an expansion of the Company’s Aerospace distribution capabilities in Europe.

Worldwide sales of On-Road Products in the current quarter were $30.9 million, an increase of 48.4 percent from $20.8 million in the third quarter of the prior year. International On-Road Products sales increased by 4.3 percent, driven by increased sales in Europe of 33.4 percent, which were partially offset by decreased sales in Asia of 16.0 percent. The decreased sales in Asia were a result of the natural disaster in Japan during March. Sales increased in the U.S. by 103.5 percent over the prior year quarter, due to an increase in Customer truck build rates, higher content per truck, and a slightly higher market share. Class 8 build rates increased 39.0 percent and medium duty truck build rates increased 37.1 percent over the prior year quarter. Year-to-date worldwide On-Road Products sales totaled $88.7 million, an increase of 53.7 percent from $57.7 million in the prior year. International On-Road Products sales increased 24.8 percent from the prior year on a year-to-date basis. On-Road Products sales in the United States increased 87.2 percent from the prior year on a year-to-date basis. The year to date increase in On-Road Products sales is due to an increase in Customer build rates, higher content on vehicles, and increased market share.

Worldwide sales of Aftermarket Products in the third quarter were $223.3 million, an increase of 21.9 percent from $183.1 million in the third quarter of the prior year. U.S. Aftermarket Products sales increased 20.4 percent. International sales were up 23.1 percent from the prior year quarter, primarily a result of increased sales in Asia of 28.9 percent and Europe of 17.8 percent. Year-to-date worldwide Aftermarket Products sales totaled $625.0 million, an increase of 26.3 percent from $494.9 million in the prior year. Year-to-date Aftermarket Products sales increased 31.7 percent in the United States and 22.2 percent internationally over the prior year, driven by increased sales in Asia of 36.6 percent. The sales increases in the U.S. and internationally for the three and nine months ended April 30, 2011, were attributable to improved On-Road and Off-Road equipment utilization rates from a year ago, the Company’s increased distribution and market share growth, and the continued increase in the percentage of equipment in the field that uses the Company’s proprietary filter systems.

Worldwide sales of Retrofit Emissions Products in the third quarter were $6.0 million, which were relatively flat as compared to the third quarter of the prior year. The Company’s Retrofit Emissions Products sales are solely in the U.S. Year-to-date worldwide Retrofit Emissions Products sales were $14.3 million, relatively flat compared to $14.4 million in the prior year. Challenges still remain in the supply chain for certain components and delays in regulatory approval for certain of the Company’s products.

Industrial Products Segment For the current quarter, worldwide sales in the Industrial Products segment were $217.0 million, an increase of 10.5 percent from $196.3 million in the third quarter of the prior year. Total third quarter international Industrial Products sales were up 1.4 percent compared to the same period in the prior year, while sales in the U.S. increased by 35.4 percent. The impact of foreign currency translation during the third quarter increased sales by $6.7 million, or 3.4 percent. Earnings before income taxes as a percentage of sales for the third quarter of Fiscal 2011 of 15.2 percent increased from 13.2 percent in the prior year period. The earnings increase for the third quarter was driven by a better mix of higher margin products, better absorption of fixed costs due to improved volumes, and no restructuring expenses for the current quarter, compared to $3.5 million in the prior year period. Year-to-date worldwide net sales were $626.1 million, up 13.3 percent from $552.8 million in the prior year. International Industrial Products sales increased 6.1 percent and sales in the United States increased 33.5 percent from the prior year on a year-to-date basis. The impact of foreign currency translation on the year-to-date results increased sales by $2.0 million, or 0.4 percent. Year-to-date earnings before income taxes as a percentage of Industrial Products segment sales of 14.7 percent increased from 11.1 percent in the prior year. The improvement in earnings as a percentage of sales over the prior year for the three and nine months ended April 30, 2011, was driven by sales of higher margin products, better leverage of fixed operating costs, and better plant utilization. In addition, the Industrial Products segment incurred $0.7 million of restructuring expenses year-to-date as compared to $8.4 million in the prior year.

Worldwide sales of Industrial Filtration Solutions Products in the current quarter were $126.2 million, an increase of 18.8 percent from $106.3 million in the prior year. International sales increased 16.7 percent from the prior year period, with Asia sales increasing 28.2 percent and Europe sales increasing 10.2 percent. Sales in the U.S. increased 23.4 percent from the prior year quarter. Year-to-date worldwide sales of Industrial Filtration Solutions were $369.0 million, up 18.9 percent from $310.4 million in the prior year. International Industrial Filtration Solutions sales increased 14.0 percent from the prior year on a year-to-date basis, driven by increased sales in Asia of 27.3 percent. Sales in the United States increased 30.6 percent from the prior year on a year-to-date basis. Overall, for the three and nine months ended April 30, 2011, the Company continued to experience improved market conditions for its Industrial Filtration Solutions. The increased sales were due to a rebound in demand for industrial dust collectors, compressed air purification systems, and replacement parts. North American general industrial activity remained strong as evidenced by a 121 percent increase in machine tool consumption in the United States during Fiscal 2011 as compared to Fiscal year 2010.

Worldwide sales of the Company’s Gas Turbine Products in the third quarter were $44.2 million, an increase of 1.7 percent from sales of $43.5 million in the prior year quarter. Year-to-date worldwide Gas Turbine Products sales were $114.6 million, an increase of 5.5 percent from $108.7 million in the prior year. Sales remained stable for our large Gas Turbine Products and there was additional demand for smaller systems used in the oil and gas industry, as well as an increase in Aftermarket sales for both the three and nine months ended April 30, 2011.

Worldwide sales of Special Application Products were $46.5 million in the third quarter of Fiscal 2011, flat with 2010. International sales decreased by 4.3 percent from the prior year period. Sales increased in the United States by 25.9 percent. Year-to-date worldwide Special Application Products sales were $142.5 million, an increase of 6.5 percent from $133.7 million in the prior year. The sales increases were driven by strong sales in some of the Company’s product lines serving the membrane, semiconductor, imaging, and venting end markets, partially offset by a slight decline in the Company’s disk drive filter sales due to soft demand in the global end market for hard disk drives.

Liquidity and Capital Resources

During the current fiscal year, $168.5 million of cash was generated from operating activities, compared with $148.8 million in the first nine months of the prior year. Operating cash flows increased as the Company’s net earnings increased. Higher sales levels also resulted in increases in accounts receivable and inventory of $38.2 million and $37.9 million, respectively, to levels to support the increased business. The increased volume also led to increases in accounts payable of $27.3 million. For the nine months ended April 30, 2011, income taxes payable increased $15.3 million. Additionally, a discretionary contribution of $20.0 million was made to the Company’s U.S. pension plans during the second quarter of Fiscal 2011.

In the first nine months of Fiscal 2011, operating cash flows and cash on hand were used to purchase $68.0 million in short-term investments, the repurchase of 800,000 shares of the Company’s common stock for $43.1 million, $42.4 million in capital additions, and the payment of $29.5 million in dividends. For additional information regarding share repurchases see Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds.”

At the end of the third quarter, the Company held $263.5 million in cash and cash equivalents, up from $232.0 million at July 31, 2010. Short-term investments were $71.8 million at April 30, 2011, compared to none at July 31, 2010. Short-term debt totaled $56.7 million, up from $50.0 million at July 31, 2010. The amount of unused lines of credit as of April 30, 2011 was approximately $504.4 million. Long-term debt of $204.7 million at quarter end decreased from $256.2 million at July 31, 2010. Long-term debt represented 17.6 percent of total long-term capital, defined as long-term debt plus total shareholders’ equity, compared to 25.5 percent at July 31, 2010. On April 25, 2011, the Company paid off its Variable Rate Industrial Development Revenue Bond for $7.8 million.

The following table summarizes the Company’s contractual obligations as of April 30, 2011 (in thousands):


			Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Long-term debt obligations	$	245,605	$	44,866	$	80,141	$	20,487	$	100,111
Capital lease obligations		947		538		395		14		—
Interest on long-term debt obligations		54,916		12,650		22,347		11,014		8,905
Operating lease obligations		26,870		9,912		12,674		3,069		1,215
Purchase obligations ⁽¹⁾		206,127		194,184		11,620		235		88
Pension and deferred compensation ⁽²⁾		61,696		3,917		7,719		7,453		42,607
Total ⁽³⁾	$	596,161	$	266,067	$	134,896	$	42,272	$	152,926



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

(2)	Pension and deferred compensation consists of long-term pension liabilities and salary and bonus deferrals elected by certain executives under the Company’s deferred compensation plan. Deferred compensation balances earn interest based on a treasury bond rate as defined by the plan (10 year treasury bond STRIP rate plus two percent for deferrals prior to January 1, 2011 and 10 year treasury bond rates for deferrals after December 31, 2010) and approved by the Human Resources Committee of the Board of Directors, and are payable at the election of the participants.

(3)	In addition to the above contractual obligations, the Company may be obligated for additional cash outflows of $18.2 million of potential tax obligations, including accrued interest and penalties. The payment and timing of any such payments is affected by the ultimate resolution of the tax years that are under audit or remain subject to examination by the relevant taxing authorities.

At April 30, 2011, the Company had a contingent liability for standby letters of credit totaling $20.0 million 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 a specified financing agreement and insurance contract terms as detailed in each letter of credit. At April 30, 2011, there were no amounts drawn upon these letters of credit.

The Company has approximately $504.4 million of unused lines of credit as of April 30, 2011. Of these, the most significant is a five-year, multi-currency revolving facility with a group of banks under which the Company may borrow up to $250 million. This facility expires on April 2, 2013. As of April 30, 2011, there was $50.0 million of borrowings under this facility. Our multi-currency revolving facility contains debt covenants specifically related to maintaining a certain interest coverage ratio and a certain leverage ratio as well as other covenants that under certain circumstances can restrict our ability to incur additional indebtedness, make investments and other restricted payments, create liens, and sell assets. As of April 30, 2011, the Company was in compliance with all such covenants.

Certain note agreements contain debt covenants related to limitations on indebtedness and interest expense. As of April 30, 2011, the Company was in compliance with all such covenants. The Company expects to remain in compliance with these covenants.

The Company believes that, collectively, the present capital resources, internally generated funds and unused financing sources are adequate to meet cash requirements for the next 12-month period, as the Company expects to continue to generate positive cash flows from operations.

During the quarter, credit availability in the global credit markets was stable and market interest rates remained low. The Company has assessed the implications of these factors on its current business and believes that its financial resources are sufficient to continue financing its operations for the next 12 months. There can be no assurance, however, that the cost or availability of future borrowings will not be impacted by future capital market disruptions.

The Company does not have any off-balance sheet arrangements, with the exception of the guarantee of 50 percent of certain debt of its joint venture, Advanced Filtration Systems, Inc., as further discussed in Note I of the Company’s Notes to Condensed Consolidated Financial Statements.

Critical Accounting Policies

There have been no material changes to the Company’s critical accounting policies as disclosed in the Company’s Annual Report on Form 10-K/A for the year ended July 31, 2010.

Outlook

The Company expects to deliver record full year sales and EPS records in FY11.


	•	The Company is expecting its total Fiscal 2011 sales to be nearly $2.3 billion, or up about 21 to 23 percent from the prior year. The Company’s current forecast is based on forecasted rates for the Euro at US$1.44 and 81 Yen to the US$.

	•	The Company is forecasting its full year operating margin to be 13.4 to 13.8 percent.

	•	The full year Fiscal 2011 tax rate is projected to be between 27 and 29 percent.

	•	The full year Fiscal 2011 earnings per share is expected to be between $2.76 and $2.86.

	•	The Company projects that cash generated by operating activities will be between $210 and $230 million. Capital spending is estimated to be approximately $70 million.

Engine Products Segment – The Company expects full year Engine Product sales to increase 26 to 29 percent, including the impact of foreign currency translation.


	•	The Company anticipates sales to its agricultural, mining, and construction equipment OEM Customers to remain strong globally. The Company also expects to benefit from increased market share on its Customers’ new Tier IV equipment platforms.

	•	In the Company’s On-Road Products’ business, it believes that build rates for heavy- and medium-duty trucks at its OEM Customers will continue accelerating consistent with current industry forecasts.


	•	Aftermarket Products’ sales are expected to remain strong based on current utilization rates for both off-road equipment and heavy trucks. The Company also expects to benefit as its distribution networks continue to expand in the emerging economies and from the increasing number of systems installed in the field with the Company’s proprietary filtration systems.

Industrial Products Segment – The Company forecasts full year Industrial Product sales to increase 11 to 14 percent, including the impact of foreign currency translation.


	•	Industrial Filtration Solutions’ sales are projected to increase 16 to 19 percent as the demand for new filtration equipment and replacement filters continues to improve as general industry capital activity and spending increase globally.

	•	The Company anticipates that its Gas Turbine Products’ sales will be up 2 percent due to strength in the oil and gas market segment.

	•	Special Applications Products’ sales are projected to increase 7 percent due to growing sales of the Company’s membrane products, which are partially offset by slower disk drive filter sales.

SAFE HARBOR STATEMENT UNDER THE SECURITIES REFORM ACT OF 1995

The Company, through its management, may make forward-looking statements reflecting the Company’s current views with respect to future events and financial performance. These forward-looking statements, which may be included in reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), in press releases and in other documents and materials as well as in written or oral statements made by or on behalf of the Company, are subject to certain risks and uncertainties, including those discussed in Item 1A of the Company’s Annual Report on Form 10-K/A for the year ended July 31, 2010, which could cause actual results to differ materially from historical results or those anticipated. The words or phrases “will likely result,” “are expected to,” “will continue,” “estimate,” “project,” “believe,” “expect,” “anticipate,” “forecast” and similar expressions are intended to identify forward-looking statements within the meaning of Section 21e of the Exchange Act and Section 27A of the Securities Act of 1933, as amended, as enacted by the Private Securities Litigation Reform Act of 1995 (PSLRA). In particular, the Company desires to take advantage of the protections of the PSLRA in connection with the forward-looking statements made in this Quarterly Report on Form 10-Q, including those contained in the “Outlook” section of Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date such statements are made. In addition, the Company wishes to advise readers that the factors listed in Item 1A of the Company’s Annual Report on Form 10-K/A for the year ended July 31, 2010, as well as other factors, could affect the Company’s performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed. These factors include, but are not limited to, risks associated with: world economic factors and the ongoing economic uncertainty, the potential for some Customers to increase their reliance on their own filtration capabilities, currency fluctuations, commodity prices, political factors, the Company’s international operations, highly competitive markets, governmental laws and regulations, including the impact of the various economic stimulus and financial reform measures, the implementation of our new information technology systems, potential global events resulting in market instability including financial bailouts of sovereign nations, political changes, military and terrorist activities, health outbreaks and other factors included in Item 1A of the Company’s Annual Report on Form 10-K/A for the year ended July 31, 2010. 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 3.	Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in the reported market risk of the Company since July 31, 2010. See further discussion of these market risks in the Company’s Annual Report on Form 10-K/A for the year ended July 31, 2010.


Item 4.	Controls and Procedures


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

	(b)	Changes in Internal Control over Financial Reporting: No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) identified in connection with such evaluation during the fiscal quarter ended April 30, 2011, has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

The Company records provisions with respect to identified claims or lawsuits when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Claims and lawsuits are reviewed quarterly and provisions are taken or adjusted to reflect the status of a particular matter. The Company believes the recorded reserves in its consolidated financial statements are adequate in light of the probable and estimable outcomes. Any recorded liabilities were not material to the Company’s financial position, results of operation, or liquidity, and the Company does not believe that any of the currently identified claims or litigation will materially affect its financial position, results of operation, or liquidity.


Item 1A.	Risk Factors

There are inherent risks and uncertainties associated with our global operations that involve the manufacturing and sale of products for highly demanding Customer applications throughout the world. These risks and uncertainties could adversely affect our operating performances or financial condition. The “Risk Factors” section in the Company’s Annual Report on Form 10-K/A for the year ended July 31, 2010, includes a discussion of these risks and uncertainties.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of Equity Securities

The following table sets forth information in connection with purchases made by, or on behalf of, the Company or any affiliated purchaser of the Company, of shares of the Company’s common stock during the quarterly period ended April 30, 2011.


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
February 1 - February 28, 2011		247,200	$	56.11		247,200		6,590,046
March 1 - March 31, 2011		402,806	$	56.45		402,806		6,187,240
April 1 - April 30, 2011		—	$	—		—		6,187,240
Total		650,006	$	56.32		650,006		6,187,240



(1)	On March 26, 2010, the Company announced that the Board of Directors authorized the repurchase of up to 8.0 million common shares. This repurchase authorization, which is effective until terminated by the Board of Directors, replaced the existing authority that was authorized on March 31, 2006. There were no repurchases of common stock made outside of the Company’s current repurchase authorization during the quarter ended April 30, 2011. While not considered repurchases of shares, the Company does at times withhold shares that would otherwise be issued under equity-based awards to cover the withholding taxes due as a result of exercising stock options or payment of equity-based awards.


Item 6.	Exhibits

	*3-A – Restated Certificate of Incorporation of Registrant as currently in effect (Filed as Exhibit 3-A to Form 10-K/A Report for the Fiscal Year ended July 31, 2010)

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

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

	4 – *

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

	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


	101 – The following information from the Donaldson Company, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2011 as filed with the Securities and Exchange Commission, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements.

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

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

SIGNATURES

Pursuant to the requirements 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: June 3, 2011	By:	/s/ William M. Cook
		William M. Cook
		Chairman, President and
		Chief Executive Officer
		(duly authorized officer)

Date: June 3, 2011	By:	/s/ Thomas R. VerHage
		Thomas R. VerHage
		Vice President,
		Chief Financial Officer
		(principal financial officer)

Date: June 3, 2011	By:	/s/ James F. Shaw
		James F. Shaw
		Controller
		(principal accounting officer)

EX-31.A 2 donaldson112670s1_ex31-a.htm CERTIFICATION OF CEO PURSUANT TO SECTION 302

Exhibit 31A

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

I, William M. Cook, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Donaldson Company, Inc.;

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

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

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

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

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

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

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

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

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

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 3, 2011


	/s/ William M. Cook
	William M. Cook
	Chief Executive Officer

EX-31.B 3 donaldson112670s1_ex31-b.htm CERTIFICATION OF CFO PURSUANT TO SECTION 302

Exhibit 31B

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

I, Thomas R. VerHage, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Donaldson Company, Inc.;

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

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

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

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

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

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

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

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

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

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 3, 2011


	/s/ Thomas R. VerHage
	Thomas R. VerHage
	Chief Financial Officer

EX-32 4 donldson112670s1_ex32.htm CERTIFICATION OF CEO/CFO PURSUANT TO SECTION 906

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 Form 10-Q for the quarter ended April 30, 2011 for Donaldson Company, Inc.:

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

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


	1.	The Form 10-Q of Donaldson Company, Inc. for the quarter ended April 30, 2011, (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Donaldson Company, Inc.

Date: June 3, 2011


	/s/ William M. Cook
	William M. Cook
	Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER

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


	1.	The Form 10-Q of Donaldson Company, Inc. for the quarter ended April 30, 2011, (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Donaldson Company, Inc.

Date: June 3, 2011


	/s/ Thomas R. VerHage
	Thomas R. VerHage
	Chief Financial Officer

EX-101.INS 5 dci-20110430.xml INSTANCE DOCUMENT 0000029644 2011-02-01 2011-04-30 0000029644 2010-02-01 2010-04-30 0000029644 2010-04-30 0000029644 2009-07-31 0000029644 2009-08-01 2010-04-30 0000029644 2010-08-01 2011-04-30 0000029644 2011-04-30 0000029644 2010-07-31 iso4217:USD xbrli:shares xbrli:shares iso4217:USD 65667000 67338000 false --07-31 Q3 2011 2011-04-30 10-Q 0000029644 76332352 Large Accelerated Filer DONALDSON CO INC

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<div> Note O – Commitments and Contingencies           The Company records provisions with respect to identified claims or lawsuits when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Claims and lawsuits are reviewed quarterly and provisions are taken or adjusted to reflect the status of a particular matter. The Company believes the recorded reserves in its consolidated financial statements are adequate in light of the probable and estimable outcomes. The recorded liabilities were not material to the Company's financial position, results of operation, or liquidity, and the Company does not believe that any of the currently identified claims or litigation will materially affect its financial position, results of operation, or liquidity.           On March 31, 2008, S&E Quick Lube, a filter distributor, filed a lawsuit in U.S. District Court for the District of Connecticut alleging that 12 filter manufacturers, including the Company, engaged in a conspiracy to fix prices, rig bids, and allocate U.S. Customers for aftermarket automotive filters. This lawsuit seeks various remedies including injunctive relief and monetary damages of an unspecified amount and is a purported class action on behalf of direct purchasers of automotive aftermarket filters from the defendants. Parallel purported class actions, including on behalf of a variety of direct and indirect purchasers of aftermarket filters, have been filed by other plaintiffs in a variety of jurisdictions in the United States and Canada. The U.S. cases have been consolidated into a single multi-district litigation in the Northern District of Illinois. On April 14, 2011, the Court granted a stay on discovery and depositions until mid-July. The Company denies any liability and intends to vigorously defend the claims raised in these lawsuits.           On May 19, 2010, the Air Resources Board for the State of California (ARB) revoked its verification of the Company's DFM Diesel Multi-Stage Filter System (DMF) for use with on-road diesel engines, for which verification was originally issued on December 16, 2005. In addition, ARB notified the Company by letter that it may seek fines and penalties in connection with the past sales of the DMF product in California. The Company denies that any sales were made in California without ARB verification. The Company is not currently selling any DMF product and is working with the EPA and state regulatory authorities to obtain the necessary approvals. </div>

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<div> Note D – Accounting for Stock-Based Compensation           Stock-based employee compensation cost is recognized using the fair-value based method for all awards. The Company determined the fair value of its option awards using the Black-Scholes option pricing model. The following assumptions were used to value the options, including reload options which generally have a shorter contractual life, granted during the nine months ended April 30, 2011: range of 8 days to 8 years expected life; expected volatility range of 25.5 percent to 34.7 percent; risk-free interest rate range of 0.12 percent to 3.1 percent; and annual dividend yield of 1.0 percent. The expected life selected for options granted during the period represents the period of time that the options are expected to be outstanding based on the contractual life and historical data of option holder exercise and termination behavior. Expected volatilities are based upon historical volatility of the Company's stock over a period at least equal to the expected life of each option grant. Option grants are priced at the fair market value of the Company's stock on the date of grant. The weighted average fair value for options granted during the nine months ended April 30, 2011 and 2010 was $17.26 per share and $13.24 per share, respectively. For the three and nine months ended April 30, 2011, the Company recorded pretax compensation expense associated with stock options of $0.8 million and $5.6 million, respectively, and recorded $0.3 million and $2.1 million of related tax benefit, respectively. For the three and nine months ended April 30, 2010, the Company recorded pretax compensation expense associated with stock options of $1.0 million and $6.3 million, respectively, and recorded $0.3 million and $2.3 million of related tax benefit.           The following table summarizes stock option activity during the nine months ended April 30, 2011: <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="70%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="10%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="10%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> Options Outstanding</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> Weighted Average Exercise Price</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Outstanding at July 31, 2010</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 4,771,812</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 30.04</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Granted</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 551,601</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 57.22</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Exercised</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> (944,412</td> <td bgcolor="#d6f3e8" valign="bottom"> )</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 22.65</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td style="padding-bottom: 1px;" valign="bottom"> Canceled</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> (7,665</td> <td style="padding-bottom: 1px;" valign="bottom"> )</td> <td valign="bottom">  </td> <td valign="bottom"> 47.20</td> <td style="padding-bottom: 1px;" valign="bottom">  </td></tr> <tr><td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom"> Outstanding at April 30, 2011</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 4,371,336</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 35.04</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td></tr></table>           The total intrinsic value of options exercised during the nine months ended April 30, 2011 and 2010 was $27.9 million and $15.6 million, respectively.           The following table summarizes information concerning outstanding and exercisable options as of April 30, 2011: <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="29%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="10%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="10%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="10%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="10%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="10%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td style="border-bottom: black 1px solid;" valign="bottom"> Range of Exercise Prices</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> Number Outstanding</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> Weighted Average Remaining Contractual Life (Years)</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> Weighted Average Exercise Price</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> Number Exercisable</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> Weighted Average Exercise Price</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> $12 to $22</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 747,366</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 1.37</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 17.92</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 747,366</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 17.92</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> $22 to $32</td> <td valign="bottom">  </td> <td valign="bottom"> 1,115,025</td> <td valign="bottom">  </td> <td valign="bottom"> 3.19</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 30.12</td> <td valign="bottom">  </td> <td valign="bottom"> 1,099,113</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 30.10</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> $32 to $42</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 1,195,623</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 5.66</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 34.84</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 1,175,101</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 34.85</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td style="padding-bottom: 1px;" valign="bottom"> $42 and above</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> 1,313,322</td> <td valign="bottom">  </td> <td style="padding-bottom: 1px;" valign="bottom"> 8.48</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td style="padding-bottom: 1px;" valign="bottom"> 49.15</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> 655,215</td> <td style="padding-bottom: 1px;" valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 44.32</td> <td valign="bottom">  </td></tr> <tr><td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 4,371,336</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom"> 5.14</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom"> 35.04</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 3,676,795</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 31.67</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr></table>           At April 30, 2011, the aggregate intrinsic value of options outstanding and exercisable was $114.5 million and $108.7 million, respectively.           As of April 30, 2011, there was $7.0 million of total unrecognized compensation cost related to non-vested stock options granted under the 2001 and 2010 Master Stock Incentive Plans. This unvested cost is expected to be recognized during the remainder of Fiscal Years 2011, 2012, 2013 and 2014. </div>

1.47

0.64

2.06

0.80

1.45

0.62

2.03

0.79

<div> Note E – Net Earnings Per Share           The Company's basic net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares. The Company's diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and common equivalent shares relating to stock options and stock incentive plans. Certain outstanding options were excluded from the diluted net earnings per share calculations because their exercise prices were greater than the average market price of the Company's common stock during those periods. For the three and nine months ended April 30, 2011, there were 79,243 options and 495,938 options excluded from the diluted net earnings per share calculation, respectively. For the three and nine months ended April 30, 2010, there were 293,816 options and 844,366 options excluded from the diluted net earnings per share calculation, respectively.           The following table presents information necessary to calculate basic and diluted net earnings per common share (thousands, except per share amounts): <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="50%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="5"> Three Months Ended April 30,</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="5"> Nine Months Ended April 30,</td> <td valign="bottom">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2010</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2010</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Weighted average shares - basic</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 77,326</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 77,873</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 77,358</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 78,002</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td style="padding-bottom: 1px;" valign="bottom"> Common share equivalents</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> 1,378</td> <td style="padding-bottom: 1px;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> 1,350</td> <td style="padding-bottom: 1px;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> 1,404</td> <td style="padding-bottom: 1px;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> 1,331</td> <td style="padding-bottom: 1px;" valign="bottom">  </td></tr> <tr><td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom"> Weighted average shares - diluted</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 78,704</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 79,223</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 78,762</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 79,333</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Net earnings for basic and diluted earnings per share computation</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 61,811</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 49,458</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 159,524</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 114,993</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Net earnings per share - basic</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 0.80</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 0.64</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 2.06</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 1.47</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Net earnings per share - diluted</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 0.79</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 0.62</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 2.03</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 1.45</td> <td valign="bottom">  </td></tr></table> </div>

-1527000

22199000

3815000

8272000

3815000

8272000

<div> Note N – Fair Values           The Company uses interest rate swaps to manage its exposure to changes in the fair value of its fixed-rate debt resulting from interest rate fluctuations. 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 counterparties with high credit ratings. 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 losses, nor does the Company anticipate any material losses.           The following summarizes the Company's fair value of outstanding derivatives at April 30, 2011 and July 31, 2010, on the Consolidated Balance Sheets (thousands of dollars): <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="74%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> April 30, 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> July 31, 2010</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Asset derivatives recorded under the caption Prepaids and other current assets</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Foreign exchange contracts</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 694</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 807</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Asset derivatives recorded under the caption Other assets</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Interest rate swap asset</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 1,297</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 4,590</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Liability derivatives recorded under the caption Other current liabilities</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Foreign exchange contracts</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 2,089</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 2,127</td> <td valign="bottom">  </td></tr></table>           The Company's derivative financial instruments present certain market and counterparty risks. However, concentration of counterparty risk is mitigated as the Company deals with a variety of major banks worldwide. In addition, only conventional derivative financial instruments are utilized. The Company would not be materially impacted if any of the counterparties to the derivative financial instruments outstanding failed to perform according to the terms of its agreement. At this time, the Company does not require collateral or any other form of securitization to be furnished by the counterparties to its derivative instruments.           The fair values of the Company's financial assets and financial liabilities listed below reflect the amounts that would be received to sell the assets or paid to transfer the liabilities in an orderly transaction between market participants at the measurement date (exit price). The fair values are based on inputs other than quoted prices that are observable for the asset or liability. These inputs include foreign currency exchange rates and interest rates. The financial assets and financial liabilities are primarily valued using standard calculations and models that use as their basis readily observable market parameters. Industry standard data providers are the primary source for forward and spot rate information for both interest rates and currency rates. <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="71%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="9%">  </td> <td valign="bottom" width="4%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="9%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="5"> Significant Other Observable Inputs (Level 2)*</td> <td valign="bottom">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> April 30, 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> July 31, 2010</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Forward exchange contracts - net liability position</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> (1,394</td> <td bgcolor="#d6f3e8" valign="bottom"> )</td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> (1,320</td> <td bgcolor="#d6f3e8" valign="bottom"> )</td></tr> <tr><td valign="bottom"> Interest rate swaps - net asset position</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 1,297</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 4,590</td> <td valign="bottom">  </td></tr></table> <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td style="border-bottom: black 1px solid;" valign="top" width="5%">  </td> <td style="border-bottom: black 1px solid;" valign="top" width="15%">  </td> <td valign="top" width="80%">  </td></tr> <tr><td valign="top"> *</td> <td valign="top" colspan="2"> Inputs to the valuation methodology of level 2 assets include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. </td></tr></table> </div>

165315000

172841000

<div> Note H – Goodwill and Other Intangible Assets           Goodwill is assessed for impairment between annual assessments whenever events or circumstances make it more likely than not that an impairment may have occurred. The Company's most recent annual impairment assessment for goodwill was completed during the third quarter of Fiscal 2011. The results of this assessment showed that the fair values of the reporting units to which goodwill is assigned continue to exceed the book values of the respective reporting units, resulting in no goodwill impairment. As of August 1, 2010, as a result of an internal reorganization, the Company transferred Industrial Hydraulics, a component of its Industrial Filtration Solutions Products within the Industrial Products segment to Aftermarkets Products within the Engine Products segment, along with the goodwill associated with this component. Following is a reconciliation of goodwill for the nine months ended April 30, 2011 (thousands of dollars): <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="62%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> Engine Products</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> Industrial Products</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> Total Goodwill</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Balance as of July 31, 2010</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 60,914</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 104,401</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 165,315</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Goodwill transferred</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 11,258</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> (11,258</td> <td valign="bottom"> )</td> <td valign="bottom">  </td> <td valign="bottom"> —</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Disposition activity</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> —</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> (325</td> <td bgcolor="#d6f3e8" valign="bottom"> )</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> (325</td> <td bgcolor="#d6f3e8" valign="bottom"> )</td></tr> <tr><td style="padding-bottom: 1px;" valign="bottom"> Foreign exchange translation</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> 1,030</td> <td style="padding-bottom: 1px;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> 6,821</td> <td style="padding-bottom: 1px;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> 7,851</td> <td style="padding-bottom: 1px;" valign="bottom">  </td></tr> <tr><td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom"> Balance as of April 30, 2011</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 73,202</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 99,639</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 172,841</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td></tr></table>           Disposition of goodwill during the fiscal year relates to the sale of the Company's Ultracool chiller business, based in Terrassa, Spain, for $3.6 million, which resulted in a gain on sale of $0.4 million in the second quarter. The Ultracool chiller business manufactured industrial circulation chillers and was part of the Company's Industrial Products segment.           As of April 30, 2011, other intangible assets were $55.4 million, a $2.9 million decrease from the balance of $58.3 million at July 31, 2010. The decrease in other intangible assets is due to amortization of existing assets of $4.4 million which was partially offset by a $1.5 million increase due to foreign exchange translation. There were no intangible asset additions during the nine months ended April 30, 2011. </div>

471718000

177371000

586791000

209158000

157620000

70069000

221780000

81816000

<div> Note P – Income Taxes           The effective tax rate for the three and nine months ended April 30, 2011, was 24.5 percent and 28.1 percent, respectively. The effective tax rate for the three and nine months ended April 30, 2010, was 29.4 percent and 27.0 percent, respectively. The decrease in our effective tax rate for the three months ended April 30, 2011 was due to $3.5 million of tax benefits primarily from the release of reserves after the expiration of statutes or favorable conclusions of tax audits in various jurisdictions. The increase in our effective tax rate for the nine months ended April 30, 2011 was due to fewer favorable discrete items as compared to the nine months ended April 30, 2010. Without consideration of discrete items, the estimated annual effective tax rate of 29.6 percent was comparable to the 29.9 percent in the prior year.           The Company's uncertain tax positions are affected by the tax years that are under audit or remain subject to examination by the relevant taxing authorities. The following tax years, in addition to the current year, remain subject to examination, at least for certain issues, by the major tax jurisdictions indicated: <table border="0" cellspacing="0" cellpadding="0" width="44%"> <tr style="font-size: 1px;"><td valign="top" width="54%">  </td> <td valign="top" width="6%">  </td> <td valign="top" width="39%">  </td></tr> <tr><td style="border-bottom: black 1px solid;" valign="top"> Major Jurisdictions</td> <td valign="top">  </td> <td style="border-bottom: black 1px solid;" valign="top"> Open Tax Years</td></tr> <tr><td bgcolor="#d6f3e8" valign="top"> Belgium</td> <td bgcolor="#d6f3e8" valign="top">  </td> <td bgcolor="#d6f3e8" valign="top"> 2009 through 2010</td></tr> <tr><td valign="top"> China</td> <td valign="top">  </td> <td valign="top"> 2000 through 2010</td></tr> <tr><td bgcolor="#d6f3e8" valign="top"> France</td> <td bgcolor="#d6f3e8" valign="top">  </td> <td bgcolor="#d6f3e8" valign="top"> 2008 through 2010</td></tr> <tr><td valign="top"> Germany</td> <td valign="top">  </td> <td valign="top"> 2005 through 2010</td></tr> <tr><td bgcolor="#d6f3e8" valign="top"> Italy</td> <td bgcolor="#d6f3e8" valign="top">  </td> <td bgcolor="#d6f3e8" valign="top"> 2003 through 2010</td></tr> <tr><td valign="top"> Japan</td> <td valign="top">  </td> <td valign="top"> 2009 through 2010</td></tr> <tr><td bgcolor="#d6f3e8" valign="top"> Mexico</td> <td bgcolor="#d6f3e8" valign="top">  </td> <td bgcolor="#d6f3e8" valign="top"> 2006 through 2010</td></tr> <tr><td valign="top"> Thailand</td> <td valign="top">  </td> <td valign="top"> 2005 through 2010</td></tr> <tr><td bgcolor="#d6f3e8" valign="top"> United Kingdom</td> <td bgcolor="#d6f3e8" valign="top">  </td> <td bgcolor="#d6f3e8" valign="top"> 2009 through 2010</td></tr> <tr><td valign="top"> United States</td> <td valign="top">  </td> <td valign="top"> 2008 through 2010</td></tr></table>           At April 30, 2011, the total unrecognized tax benefits were $16.6 million, and accrued interest and penalties on these unrecognized tax benefits were $1.6 million. The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense. If the Company were to prevail on all unrecognized tax benefits recorded, substantially all of the unrecognized tax benefits would benefit the effective tax rate. With an average statute of limitations of about 5 years, up to $3.6 million of the unrecognized tax benefits could potentially reverse in the next 12 month period, unless extended by audit. It is possible that quicker than expected settlement of either current or future audits and disputes would cause additional reversals of previously recorded reserves in the next 12 month period. Currently, the Company has approximately $0.4 million of unrecognized tax benefits that are in dispute with various taxing authorities related to transfer pricing and deductibility of expenses. Quantification of an estimated range and timing of future audit settlements cannot be made at this time. </div>

42627000

20611000

62256000

20005000

-6848000

-23958000

58292000

55357000

8701000

2956000

9486000

2897000

<div> Note C – Inventories           The components of inventory as of April 30, 2011 and July 31, 2010 are as follows (thousands of dollars): <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="70%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="10%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="10%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> April 30, 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> July 31, 2010</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Materials</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 106,273</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 79,371</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Work in process</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 30,278</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 23,163</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Finished products</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom"> 121,335</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom"> 101,097</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td style="padding-bottom: 3px;" valign="bottom"> Total inventories</td> <td valign="bottom">  </td> <td style="border-bottom: black 3px double;" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" valign="bottom"> 257,886</td> <td style="padding-bottom: 3px;" valign="bottom">  </td> <td style="border-bottom: black 3px double;" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" valign="bottom"> 203,631</td> <td style="padding-bottom: 3px;" valign="bottom">  </td></tr></table> </div>

203631000

257886000

<div> Note B – Short-Term Investments           Classification of the Company's investments as current or non-current is dependent upon management's intended holding period, the investment's maturity date and liquidity considerations based on market conditions. If management intends to hold the investments for longer than one year as of the balance sheet date, they are classified as non-current.           All short-term investments have original maturities in excess of three months but not more than six months. There were no short-term investments as of July 31, 2010. The following is a summary of amounts recorded on the Consolidated Balance Sheet for the Company's short-term investments as of April 30, 2011 (thousands of dollars): <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="83%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="11%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> April 30, 2011</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Certificates of deposit</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 44,430</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Commercial paper</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> 27,398</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Total short-term investments</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 71,828</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr></table> </div>

752873000

786590000

1499506000

1741807000

389256000

494148000

256192000

204689000

5536000

46845000

<div> Note L – Long – Term Debt           On April 25, 2011, the Company paid off its Variable Rate Industrial Development Revenue Bond for $7.8 million. </div>

-55086000

-52357000

-27480000

-106892000

148767000

168543000

114993000

49458000

159524000

61811000

308140000

105288000

361515000

125826000

163578000

72083000

225276000

83332000

<div> Note A – Basis of Presentation           The accompanying unaudited condensed consolidated financial statements of Donaldson Company, Inc. and its subsidiaries (the Company) have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the three and nine month periods ended April 30, 2011 are not necessarily indicative of the results that may be expected for future periods. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K/A for the year ended July 31, 2010. </div>

49792000

40941000

167813000

189289000

100349000

80046000

2743000

942000

5990000

1381000

250000

-3493000

-4710000

23783000

43101000

27040000

29547000

27230000

42400000

67985000

<div> Note K – Employee Benefit Plans           The Company and certain of its international subsidiaries have defined benefit pension plans for many of their hourly and salaried employees. There are two types of domestic plans. The first type of domestic plan is a traditional defined benefit pension plan primarily for production employees. The second is a plan for salaried workers that provides defined benefits pursuant to a cash balance feature whereby a participant accumulates a benefit comprised of a percentage of current salary that varies with years of service, interest credits, and transition credits. The international plans generally provide pension benefits based on years of service and compensation level.           Net periodic pension costs for the Company's pension plans include the following components (thousands of dollars): <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="50%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="5"> Three Months Ended April 30,</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="5"> Nine Months Ended April 30,</td> <td valign="bottom">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2010</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2010</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Net periodic cost:</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Service cost</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 4,077</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 3,265</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 12,151</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 9,903</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Interest cost</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 4,872</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 4,831</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 14,533</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 14,676</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Expected return on assets</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> (6,920</td> <td valign="bottom"> )</td> <td valign="bottom">  </td> <td valign="bottom"> (7,069</td> <td valign="bottom"> )</td> <td valign="bottom">  </td> <td valign="bottom"> (20,616</td> <td valign="bottom"> )</td> <td valign="bottom">  </td> <td valign="bottom"> (21,382</td> <td valign="bottom"> )</td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Transition amount amortization</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 58</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 56</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 167</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 175</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Prior service cost amortization</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 119</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 73</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 347</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 221</td> <td valign="bottom">  </td></tr> <tr><td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom"> Actuarial loss amortization</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom"> 839</td> <td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom"> 707</td> <td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom"> 2,491</td> <td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom"> 2,171</td> <td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td style="padding-bottom: 3px;" valign="bottom"> Net periodic benefit cost</td> <td valign="bottom">  </td> <td style="border-bottom: black 3px double;" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" valign="bottom"> 3,045</td> <td style="padding-bottom: 3px;" valign="bottom">  </td> <td style="border-bottom: black 3px double;" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" valign="bottom"> 1,863</td> <td style="padding-bottom: 3px;" valign="bottom">  </td> <td style="border-bottom: black 3px double;" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" valign="bottom"> 9,073</td> <td style="padding-bottom: 3px;" valign="bottom">  </td> <td style="border-bottom: black 3px double;" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" valign="bottom"> 5,764</td> <td style="padding-bottom: 3px;" valign="bottom">  </td></tr></table>           The Company's general funding policy for its pension plans is to make at least the minimum contributions as required by applicable regulations. Additionally, the Company may elect to make additional contributions up to the maximum tax deductible contribution. For the nine months ended April 30, 2011, the Company made contributions of $5.5 million to its non-U.S. pension plans and a discretionary contribution of $20.0 million to its U.S. pension plans. The Company does not currently plan to make any additional contributions to its U.S. pension plans in Fiscal 2011. The Company currently estimates that it will contribute up to an additional $1.0 million to its non-U.S. pension plans during the remainder of Fiscal 2011. </div>

1000000

-10024000

6976000

7332000

13535000

<div> Note J – Warranty           The Company estimates warranty costs using quantitative measures based on historical warranty claim experience and evaluation of specific Customer warranty issues. Following is a reconciliation of warranty reserves for the nine months ended April 30, 2011 and 2010 (thousands of dollars): <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="74%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="5"> April 30,</td> <td valign="bottom">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2010</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Beginning balance</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 15,707</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 9,215</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Accruals for warranties issued during the reporting period</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 5,175</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 7,311</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Adjustments related to pre - existing warranties (including changes in estimates)</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 5,981</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> (857</td> <td bgcolor="#d6f3e8" valign="bottom"> )</td></tr> <tr><td style="padding-bottom: 1px;" valign="bottom"> Less settlements made during the period</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> (8,347</td> <td style="padding-bottom: 1px;" valign="bottom"> )</td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> (3,261</td> <td style="padding-bottom: 1px;" valign="bottom"> )</td></tr> <tr><td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom"> Ending balance</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 18,516</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 12,408</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td></tr></table>             The increase in warranty accruals is primarily due to three specific warranty matters during the first nine months of Fiscal 2011. One in the Company's Retrofit Emissions Product group for $3.0 million, one in the Company's Off-Road Products group for $1.8 million and one in the On-Road Product group for $3.8 million. These warranty accruals were partially offset by supplier and insurance recoveries of $3.8 million. </div>

876758000

957931000

365892000

390372000

5386000

13202000

<div> Note Q – Restructuring and Asset Impairment           The following is a reconciliation of restructuring reserves (in thousands of dollars): <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="86%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Balance at July 31, 2008</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> —</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Accruals for restructuring during the reporting period</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 17,755</td> <td valign="bottom">  </td></tr> <tr><td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom"> Less settlements made during the period</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom"> (13,915</td> <td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom"> )</td></tr> <tr><td valign="bottom"> Balance at July 31, 2009</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 3,840</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Accruals for restructuring during the reporting period</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 10,165</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td style="padding-bottom: 1px;" valign="bottom"> Less settlements made during the period</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> (9,866</td> <td style="padding-bottom: 1px;" valign="bottom"> )</td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Balance at July 31, 2010</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 4,139</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Accruals for restructuring during the reporting period</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 759</td> <td valign="bottom">  </td></tr> <tr><td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom"> Less settlements made during the period</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom"> (4,790</td> <td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom"> )</td></tr> <tr><td style="padding-bottom: 3px;" valign="bottom"> Balance at April 30, 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 3px double;" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" valign="bottom"> 108</td> <td style="padding-bottom: 3px;" valign="bottom">  </td></tr></table>           The Company commenced certain restructuring actions in Fiscal 2009 in response to the dramatic downturn in the worldwide economy. The restructuring expenses in the first quarter of 2011 include employee severance costs for approximately five employees related to the completion of the Company's planned restructuring activities. The Company did not previously anticipate these additional charges in the first quarter of 2011. The Company did not incur any restructuring charges during the second and third quarters of 2011 and does not expect to incur additional restructuring charges during the remainder of Fiscal 2011. The remaining liability will be settled during Fiscal 2011.           Fiscal 2010 included $2.1 million in asset impairment costs related to the downsizing of a plant in Germany and $8.1 million in employee severance costs related to the reduction in workforce of approximately 550 employees. Fiscal 2009 included $17.4 million in employee severance costs related to the reduction in workforce of approximately 2,800 employees. In addition, $0.4 million was incurred primarily for distribution center consolidation and production line transfers.           Restructuring expense detail is summarized as follows (in thousands): <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="50%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="5"> Three Months Ended April 30,</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="5"> Nine Months Ended April 30,</td> <td valign="bottom">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2010</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2010</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Gross Margin</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> —</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 1,624</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 20</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 5,745</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td style="padding-bottom: 1px;" valign="bottom"> Operating expenses</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> —</td> <td style="padding-bottom: 1px;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> —</td> <td style="padding-bottom: 1px;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> 739</td> <td style="padding-bottom: 1px;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> 2,229</td> <td style="padding-bottom: 1px;" valign="bottom">  </td></tr> <tr><td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom"> Total restructuring expenses</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> —</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 1,624</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 759</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> 7,974</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom">  </td></tr></table> </div>

744247000

882969000

1361821000

497619000

1668579000

594565000

<div> <div> <div> Note M – Financial Instruments           The Company uses forward exchange contracts to manage its exposure to fluctuations in foreign exchange rates. The Company enters into forward exchange contracts of generally less than one year to hedge forecasted transactions between its subsidiaries and to reduce potential exposure related to fluctuations in foreign exchange rates for existing recognized assets and liabilities. It also utilizes forward exchange contracts for anticipated intercompany and third-party transactions such as purchases, sales, and dividend payments denominated in local currencies. Forward exchange contracts are designated as cash flow hedges as they are designed to hedge the variability of cash flows associated with the underlying existing recognized or anticipated transactions. Changes in the value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) in shareholders' equity until earnings are affected by the variability of the underlying cash flows. At that time, the applicable amount of gain or loss from the derivative instrument that is deferred in shareholders' equity is reclassified to earnings. Effectiveness is measured using spot rates to value both the hedge contract and the hedged item. The excluded forward points, as well as any ineffective portions of hedges, are recorded in earnings through the same line as the underlying transaction. During the first nine months of Fiscal 2011, $0.3 million of losses were recorded due to the exclusion of forward points from the assessment of hedge effectiveness.           These unrealized losses and gains are reclassified, as appropriate, when earnings are affected by the variability of the underlying cash flows during the term of the hedges. The Company expects to record $0.3 million of net deferred losses from these forward exchange contracts during the next 12 months.           The impact on accumulated other comprehensive income (loss) and earnings from foreign exchange contracts that qualified as cash flow hedges for the nine months ended April 30, 2011 and 2010 was as follows (thousands of dollars): <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="74%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="5"> April 30,</td> <td valign="bottom">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2010</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Net carrying amount at beginning of year</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> (660</td> <td bgcolor="#d6f3e8" valign="bottom"> )</td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> (650</td> <td bgcolor="#d6f3e8" valign="bottom"> )</td></tr> <tr><td valign="bottom"> Cash flow hedges deferred in other comprehensive income</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> (425</td> <td valign="bottom"> )</td> <td valign="bottom">  </td> <td valign="bottom"> (2,349</td> <td valign="bottom"> )</td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Cash flow hedges reclassified to income (effective portion)</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 1,048</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 3,164</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td style="padding-bottom: 1px;" valign="bottom"> Change in deferred taxes</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> (218</td> <td style="padding-bottom: 1px;" valign="bottom"> )</td> <td style="border-bottom: black 1px solid;" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom"> (280</td> <td style="padding-bottom: 1px;" valign="bottom"> )</td></tr> <tr><td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom"> Net carrying amount at April 30</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> (255</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom"> )</td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" bgcolor="#d6f3e8" valign="bottom"> (115</td> <td style="padding-bottom: 3px;" bgcolor="#d6f3e8" valign="bottom"> )</td></tr></table></div></div> </div>

<div> Note I – Guarantees           The Company and Caterpillar Inc. equally own the shares of Advanced Filtration Systems Inc. (AFSI), an unconsolidated joint venture, and guarantee certain debt of the joint venture. As of April 30, 2011 the joint venture had $13.4 million of outstanding debt of which the Company guarantees half. For the three and nine months ended April 30, 2011, the Company recorded $0.3 million and $1.2 million of earnings for this equity method investment, respectively. The Company recorded $0.3 million and $0.1 million of earnings for this equity method investment during the three and nine months ended April 30, 2010, respectively. During the three and nine months ended April 30, 2011 and 2010, the Company also recorded royalty income of $1.4 million and $4.7 million, respectively, and $1.3 million and $3.8 million, respectively, related to AFSI.           At April 30, 2011, the Company had a contingent liability for standby letters of credit totaling $20.0 million that have been issued and are outstanding. The letters of credit guarantee payment to third parties in the event the Company is in breach of a specified bond financing agreement and insurance contract terms as detailed in each letter of credit. At April 30, 2011, there were no amounts drawn upon these letters of credit. </div>

<div> Note G – Segment Reporting           The Company has two reportable segments, Engine Products and Industrial Products, that have been identified based on the Company's internal organization structure, management of operations, and performance evaluation. Corporate and Unallocated includes corporate expenses determined to be non-allocable to the segments and interest income and expense. The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the operating profit and other financial information shown below. Segment detail is summarized as follows (thousands of dollars): <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="50%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2" nowrap="nowrap"> Engine Products</td> <td valign="bottom" nowrap="nowrap">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2" nowrap="nowrap"> Industrial Products</td> <td valign="bottom" nowrap="nowrap">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2" nowrap="nowrap"> Corporate & Unallocated</td> <td valign="bottom" nowrap="nowrap">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2" nowrap="nowrap"> Total Company</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Three Months Ended April 30, 2011:</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Net sales</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 377,609</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 216,956</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> —</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 594,565</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Earnings before income taxes</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 56,469</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 33,074</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> (7,727</td> <td bgcolor="#d6f3e8" valign="bottom"> )</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 81,816</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="top">  </td></tr> <tr><td valign="bottom"> Three Months Ended April 30, 2010:</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Net sales</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 301,312</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 196,307</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> —</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 497,619</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Earnings before income taxes</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 48,535</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 25,831</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> (4,297</td> <td valign="bottom"> )</td> <td valign="bottom">  </td> <td valign="bottom"> 70,069</td> <td valign="bottom">  </td></tr> <tr><td valign="top">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Nine Months Ended April 30, 2011:</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Net sales</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 1,042,500</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 626,079</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> —</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 1,668,579</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Earnings before income taxes</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 149,123</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 92,236</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> (19,579</td> <td bgcolor="#d6f3e8" valign="bottom"> )</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 221,780</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Assets</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 843,450</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 503,962</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 394,395</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 1,741,807</td> <td valign="bottom">  </td></tr> <tr><td valign="top">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Nine Months Ended April 30, 2010:</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Net sales</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 809,061</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 552,760</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> —</td> <td valign="bottom">  </td> <td valign="bottom"> $</td> <td valign="bottom"> 1,361,821</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Earnings before income taxes</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 107,833</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 61,318</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> (11,531</td> <td bgcolor="#d6f3e8" valign="bottom"> )</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> 157,620</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Assets</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 678,543</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 456,522</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 289,123</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 1,424,188</td> <td valign="bottom">  </td></tr></table>           For the three and nine months ended April 30, 2010, net sales reflect the reclassification of $8,514 and $22,641, respectively, earnings before income taxes reflect a reclassification of $1,845 and $3,687, respectively, and assets at April 30, 2010 reflect a reclassification of $27,287, as a result of an internal reorganization of Industrial Hydraulics from Industrial Products to Engine Products, which became effective August 1, 2010.           There were no restructuring expenses incurred during the three months ended April 30, 2011. The Industrial Products segment incurred $0.7 million of restructuring expenses during the nine months ended April 30, 2011. The Engine Products and Industrial Products segments incurred $0.2 million and $3.5 million of restructuring and asset impairment charges for the three months ended April 30, 2010, respectively, and $1.7 million and $8.4 million of restructuring and asset impairment expenses for the nine months ended April 30, 2010, respectively.           There were no Customers over 10 percent of net sales for the three or nine months ended April 30, 2011 and 2010. There were no Customers over 10 percent of gross accounts receivable as of April 30, 2011 and 2010. </div>

7110000

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<div> Note F – Shareholders' Equity           The Company reports accumulated other comprehensive income (loss) as a separate item in the shareholders' equity section of the balance sheet.           Total comprehensive income and its components are as follows (thousands of dollars): <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="font-size: 1px;"><td valign="bottom" width="50%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="5"> Three Months Ended April 30,</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="5"> Nine Months Ended April 30,</td> <td valign="bottom">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2010</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> 2010</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Net earnings</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 61,811</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 49,458</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 159,524</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 114,993</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Foreign currency translation adjustment</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 48,929</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> (7,697</td> <td valign="bottom"> )</td> <td valign="bottom">  </td> <td valign="bottom"> 81,031</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> (10,722</td> <td valign="bottom"> )</td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Currency realization upon sale of business</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> —</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> —</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> (101</td> <td bgcolor="#d6f3e8" valign="bottom"> )</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> —</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Gain on hedging derivatives, net of deferred taxes</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 229</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 179</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 363</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> 493</td> <td valign="bottom">  </td></tr> <tr><td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom"> Pension and postretirement liability adjustment, net of deferred taxes</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom"> 664</td> <td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom"> 550</td> <td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom"> 1,967</td> <td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom"> 1,694</td> <td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td style="padding-bottom: 3px;" valign="bottom"> Total comprehensive income</td> <td valign="bottom">  </td> <td style="border-bottom: black 3px double;" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" valign="bottom"> 111,633</td> <td style="padding-bottom: 3px;" valign="bottom">  </td> <td style="border-bottom: black 3px double;" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" valign="bottom"> 42,490</td> <td style="padding-bottom: 3px;" valign="bottom">  </td> <td style="border-bottom: black 3px double;" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" valign="bottom"> 242,784</td> <td style="padding-bottom: 3px;" valign="bottom">  </td> <td style="border-bottom: black 3px double;" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" valign="bottom"> 106,458</td> <td style="padding-bottom: 3px;" valign="bottom">  </td></tr></table>           Total accumulated other comprehensive income (loss) and its components at April 30, 2011 and July 31, 2010 are as follows (thousands of dollars): <table border="0" cellspacing="0" cellpadding="0" width="99%"> <tr style="font-size: 1px;"><td valign="bottom" width="74%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="3%">  </td> <td valign="bottom" width="1%">  </td> <td valign="bottom" width="8%">  </td> <td valign="bottom" width="1%">  </td></tr> <tr><td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> April 30, 2011</td> <td valign="bottom">  </td> <td style="border-bottom: black 1px solid;" valign="bottom" colspan="2"> July 31, 2010</td> <td valign="bottom">  </td></tr> <tr><td bgcolor="#d6f3e8" valign="bottom"> Foreign currency translation adjustment</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 140,124</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td bgcolor="#d6f3e8" valign="bottom"> $</td> <td bgcolor="#d6f3e8" valign="bottom"> 59,194</td> <td bgcolor="#d6f3e8" valign="bottom">  </td></tr> <tr><td valign="bottom"> Net loss on hedging derivatives, net of deferred taxes</td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom"> (99</td> <td valign="bottom"> )</td> <td valign="bottom">  </td> <td valign="bottom"> (462</td> <td valign="bottom"> )</td></tr> <tr><td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom"> Pension and postretirement liability, net of deferred taxes</td> <td bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom"> (97,251</td> <td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom"> )</td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom">  </td> <td style="border-bottom: black 1px solid;" bgcolor="#d6f3e8" valign="bottom"> (99,218</td> <td style="padding-bottom: 1px;" bgcolor="#d6f3e8" valign="bottom"> )</td></tr> <tr><td style="padding-bottom: 3px;" valign="bottom"> Total accumulated other comprehensive income (loss)</td> <td valign="bottom">  </td> <td style="border-bottom: black 3px double;" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" valign="bottom"> 42,774</td> <td style="padding-bottom: 3px;" valign="bottom">  </td> <td style="border-bottom: black 3px double;" valign="bottom"> $</td> <td style="border-bottom: black 3px double;" valign="bottom"> (40,486</td> <td style="padding-bottom: 3px;" valign="bottom"> )</td></tr></table>           The Company's Board of Directors authorized the repurchase of 8.0 million shares of common stock on March 26, 2010. During the three months ended April 30, 2011 the Company repurchased 650,006 shares for $36.6 million at an average price of $56.32 per share. During the nine months ended April 30, 2011, the Company repurchased 800,000 shares for $43.1 million at an average price of $53.88 per share. As of April 30, 2011, the Company had remaining authorization to repurchase up to 6.2 million shares pursuant to the current authorization.           On May 24, 2011, the Company's Board of Directors declared a cash dividend in the amount of $0.15 per common share payable to stockholders of record on June 10, 2011. The dividend will be paid on June 24, 2011. </div>

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Assets, Net (Excluding Goodwill), Total Net intangible assets Other assets Other Assets, Noncurrent, Total Assets Total assets Liabilities and shareholders' equity Short-term borrowings Short-term Borrowings, Total Current maturities of long-term debt Long-term Debt and Capital Lease Obligations, Current, Total Trade accounts payable Accounts Payable, Current, Total Other current liabilities Other Liabilities, Current, Total Liabilities, Current Total current liabilities Long Term Debt And Capital Lease Obligations Long-term debt Total long-term debt Deferred income taxes Other long-term liabilities Other Liabilities, Noncurrent, Total Liabilities Total liabilities StockholdersEquityAbstract Shareholders' equity Preferred Stock, Value, Issued Preferred Stock, Value, Issued, Ending Balance Preferred Stock, Value, Issued, Beginning Balance Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued Preferred Stock, Value, Issued, Total Common stock, $5.00 par value, 120,000,000 shares authorized, 88,643,194 shares issued Common Stock, Value, Issued, Ending Balance Common Stock, Value, Issued, Beginning Balance Common Stock, Value, Issued, Total Common stock, $5.00 par value, 120,000,000 shares authorized, 88,643,194 shares issued Retained earnings Retained Earnings (Accumulated Deficit), Ending Balance Retained Earnings (Accumulated Deficit), Beginning Balance Retained Earnings (Accumulated Deficit), Total Deferred Compensation Equity Stock compensation plans Deferred Compensation Equity, Ending Balance Deferred Compensation Equity, Beginning Balance Stock compensation plans Deferred Compensation Equity, Total Accumulated other comprehensive income (loss) Accumulated other comprehensive loss Total accumulated other comprehensive income (loss) Net carrying amount at July 31 Net carrying amount at beginning of year Total accumulated other comprehensive income (loss) Treasury Stock, Value Treasury stock at cost, 12,218,134 and 12,222,381 shares at April 30, 2011 and July 31, 2010, respectively Treasury Stock, Value, Ending Balance Treasury Stock, Value, Beginning Balance Treasury stock, 12,222,381 and 11,295,409 shares in 2010 and 2009, at cost Treasury stock acquired Stockholders' Equity Attributable to Parent Balance Balance Total shareholders' equity Liabilities and Stockholders' Equity Total liabilities and shareholders' equity Accounts receivable, allowance Allowance for Doubtful Accounts Receivable, Current, Ending Balance Allowance for Doubtful Accounts Receivable, Current, Beginning Balance Accounts receivable, allowance Preferred stock, share par value Junior participating preferred stock with out par value Preferred stock, share par value Preferred stock, shares authorized Preferred stock, shares issued Preferred Stock, Shares Issued, Total Common stock, share par value Right are redeemable under certain circumstances per right Common stock, share par value Common stock, shares authorized Common stock, shares issued Stock options Common Stock, Shares, Issued, Total Treasury stock, shares Balance at end of year Balance at beginning of year Balance at end of year Consolidated Statements of Cash Flows Operating Activities Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization Depreciation, Depletion and Amortization, Total Changes in operating assets and liabilities Changes in operating assets and liabilities Changes in operating assets and liabilities Changes in operating assets and liabilities Tax benefit of equity plans Tax benefit of equity plans Stock compensation plan expense Share-based Compensation, Total Deferred taxes Deferred Income Taxes Current Total Income taxes, Deferred Deferred income taxes Other, net Net Cash Provided by (Used in) Operating Activities Net cash provided by operating activities Investing Activities PaymentsToAcquireOtherPropertyPlantAndEquipment Net expenditures on property and equipment Payments to Acquire Property, Plant, and Equipment, Total Net expenditures on property and equipment Purchase of short-term investments Purchase of short-term investments Payments for (Proceeds from) Businesses and Interest in Affiliates Acquisitions and divestitures Acquisitions, investments and divestitures, net Acquisitions, investments and divestitures, net Net Cash Provided by (Used in) Investing Activities Net cash used in investing activities Financing Activities Purchase of treasury stock Purchase of treasury stock Stock repurchases Payments for (Proceeds from) Hedge, Financing Activities Proceeds from settlement of interest rate swap Proceeds from settlement of interest rate swap Repayments of long-term debt Repayments of long-term debt Repayments of Long-term Debt, Total ProceedsFromRepaymentsOfShortTermDebt Change in short-term borrowings Change in short-term borrowings Dividends paid Dividends paid Tax benefit of equity plans 2009 Tax benefit of equity plans Exercise of stock options Stock options exercised Net Cash Provided by (Used in) Financing Activities Net cash used in financing activities Effect of exchange rate changes on cash Effect of Exchange Rate on Cash and Cash Equivalents, Total Cash and Cash Equivalents, Period Increase (Decrease) Increase in cash and cash equivalents Increase in cash and cash equivalents Basis of Presentation [Abstract] Basis of Presentation Organization Consolidation And Presentation Of Financial Statements Disclosure Text Block Basis of Presentation Short-Term Investments InvestmentsInDebtAndMarketableEquitySecuritiesAndCertainTradingAssetsDisclosureTextBlock Short-Term Investments Inventories Inventory Disclosure Text Block Inventories Accounting for Stock-Based Compensation Disclosure Of Compensation Related Costs Share Based Payments Text Block Accounting for Stock-Based Compensation Stock Option Plans Net Earnings Per Share Earnings Per Share Text Block Net Earnings Per Share Shareholders' Equity Stockholders Equity Note Disclosure Text Block Shareholders' Equity Segment Reporting Segment Reporting Disclosure Text Block Segment Reporting Goodwill and Other Intangible Assets [Abstract] Goodwill and Other Intangible Assets Goodwill And Intangible Assets Disclosure Text Block Goodwill and Other Intangible Assets Guarantees [Abstract] Guarantees Schedule Of Guarantee Obligations Text Block Guarantees Warranty Product Warranty Disclosure Text Block Warranty Employee Benefit Plans Pension And Other Postretirement Benefits Disclosure Text Block Employee Benefit Plans Long - Term Debt Long-term Debt [Text Block] Long - Term Debt Financial Instruments Schedule Of Derivative Instruments Text Block Financial Instruments Fair Value [Abstract] Fair Values Fair Value Disclosures [Text Block] Fair Values Commitments and Contingencies [Abstract] Commitments and Contingencies Commitments And Contingencies Disclosure Text Block Commitments and Contingencies Income Taxes Income Tax Disclosure Text Block Income Taxes Restructuring and Asset Impairment Restructuring And Related Activities Disclosure Text Block Restructuring and Asset Impairment EX-101.PRE 9 dci-20110430_pre.xml PRESENTATION LINKBASE DOCUMENT XML 10 R3.htm IDEA: XBRL DOCUMENT

Consolidated Balance Sheets (USD $) In Thousands	Apr. 30, 2011	Jul. 31, 2010
Assets
Cash and cash equivalents	$ 263,493	$ 232,000
Short-term investments	71,828
Accounts receivable, less allowance of $6,886 and $6,315	421,751	358,917
Inventories	257,886	203,631
Prepaids and other current assets	67,338	65,667
Total current assets	1,082,296	860,215
Property, plant and equipment, at cost	957,931	876,758
Less accumulated depreciation	(567,559)	(510,866)
Property, plant and equipment, net	390,372	365,892
Goodwill	172,841	165,315
Intangible assets, net	55,357	58,292
Other assets	40,941	49,792
Total assets	1,741,807	1,499,506
Liabilities and shareholders' equity
Short-term borrowings	56,698	50,000
Current maturities of long-term debt	46,845	5,536
Trade accounts payable	201,316	165,907
Other current liabilities	189,289	167,813
Total current liabilities	494,148	389,256
Long-term debt	204,689	256,192
Deferred income taxes	7,707	7,076
Other long-term liabilities	80,046	100,349
Total liabilities	786,590	752,873
Shareholders' equity
Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued
Common stock, $5.00 par value, 120,000,000 shares authorized, 88,643,194 shares issued	443,216	443,216
Retained earnings	882,969	744,247
Stock compensation plans	24,074	22,326
Accumulated other comprehensive income (loss)	42,774	(40,486)
Treasury stock at cost, 12,218,134 and 12,222,381 shares at April 30, 2011 and July 31, 2010, respectively	(437,816)	(422,670)
Total shareholders' equity	955,217	746,633
Total liabilities and shareholders' equity	$ 1,741,807	$ 1,499,506

XML 11 R4.htm IDEA: XBRL DOCUMENT

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data	Apr. 30, 2011	Jul. 31, 2010
Consolidated Balance Sheets
Accounts receivable, allowance	$ 6,886	$ 6,315
Preferred stock, share par value	$ 1	$ 1
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Common stock, share par value	$ 5	$ 5
Common stock, shares authorized	120,000,000	120,000,000
Common stock, shares issued	88,643,194	88,643,194
Treasury stock, shares	12,218,134	12,222,381

XML 12 R1.htm IDEA: XBRL DOCUMENT

Document and Entity Information	9 Months Ended
Document and Entity Information	Apr. 30, 2011
Document and Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Apr. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Entity Registrant Name	DONALDSON CO INC
Entity Central Index Key	0000029644
Current Fiscal Year End Date	--07-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding	76,332,352

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Segment Reporting

9 Months Ended

Apr. 30, 2011

Segment Reporting

Segment Reporting

Note G – Segment Reporting

The Company has two reportable segments, Engine Products and Industrial Products, that have been identified based on the Company's internal organization structure, management of operations, and performance evaluation. Corporate and Unallocated includes corporate expenses determined to be non-allocable to the segments and interest income and expense. The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the operating profit and other financial information shown below. Segment detail is summarized as follows (thousands of dollars):


	Engine Products		Industrial Products		Corporate & Unallocated			Total Company
Three Months Ended April 30, 2011:
Net sales	$	377,609	$	216,956	$	—		$	594,565
Earnings before income taxes		56,469		33,074		(7,727	)		81,816

Three Months Ended April 30, 2010:
Net sales	$	301,312	$	196,307	$	—		$	497,619
Earnings before income taxes		48,535		25,831		(4,297	)		70,069

Nine Months Ended April 30, 2011:
Net sales	$	1,042,500	$	626,079	$	—		$	1,668,579
Earnings before income taxes		149,123		92,236		(19,579	)		221,780
Assets		843,450		503,962		394,395			1,741,807

Nine Months Ended April 30, 2010:
Net sales	$	809,061	$	552,760	$	—		$	1,361,821
Earnings before income taxes		107,833		61,318		(11,531	)		157,620
Assets		678,543		456,522		289,123			1,424,188

XML 16 R17.htm IDEA: XBRL DOCUMENT

Long - Term Debt	9 Months Ended
Long - Term Debt	Apr. 30, 2011
Long - Term Debt
Long - Term Debt	Note L – Long – Term Debt On April 25, 2011, the Company paid off its Variable Rate Industrial Development Revenue Bond for $7.8 million.

XML 17 R8.htm IDEA: XBRL DOCUMENT

Inventories

9 Months Ended

Apr. 30, 2011

Inventories

Inventories

Note C – Inventories

The components of inventory as of April 30, 2011 and July 31, 2010 are as follows (thousands of dollars):


	April 30, 2011		July 31, 2010
Materials	$	106,273	$	79,371
Work in process		30,278		23,163
Finished products		121,335		101,097
Total inventories	$	257,886	$	203,631

XML 18 R14.htm IDEA: XBRL DOCUMENT

Guarantees	9 Months Ended
Guarantees	Apr. 30, 2011
Guarantees
Guarantees	Note I – Guarantees The Company and Caterpillar Inc. equally own the shares of Advanced Filtration Systems Inc. (AFSI), an unconsolidated joint venture, and guarantee certain debt of the joint venture. As of April 30, 2011 the joint venture had $13.4 million of outstanding debt of which the Company guarantees half. For the three and nine months ended April 30, 2011, the Company recorded $0.3 million and $1.2 million of earnings for this equity method investment, respectively. The Company recorded $0.3 million and $0.1 million of earnings for this equity method investment during the three and nine months ended April 30, 2010, respectively. During the three and nine months ended April 30, 2011 and 2010, the Company also recorded royalty income of $1.4 million and $4.7 million, respectively, and $1.3 million and $3.8 million, respectively, related to AFSI. At April 30, 2011, the Company had a contingent liability for standby letters of credit totaling $20.0 million that have been issued and are outstanding. The letters of credit guarantee payment to third parties in the event the Company is in breach of a specified bond financing agreement and insurance contract terms as detailed in each letter of credit. At April 30, 2011, there were no amounts drawn upon these letters of credit.

XML 19 R19.htm IDEA: XBRL DOCUMENT

Fair Values

9 Months Ended

Apr. 30, 2011

Fair Values

Fair Values

Note N – Fair Values

The Company uses interest rate swaps to manage its exposure to changes in the fair value of its fixed-rate debt resulting from interest rate fluctuations. 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 counterparties with high credit ratings. 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 losses, nor does the Company anticipate any material losses.

The following summarizes the Company's fair value of outstanding derivatives at April 30, 2011 and July 31, 2010, on the Consolidated Balance Sheets (thousands of dollars):


	April 30, 2011		July 31, 2010
Asset derivatives recorded under the caption Prepaids and other current assets
Foreign exchange contracts	$	694	$	807
Asset derivatives recorded under the caption Other assets
Interest rate swap asset	$	1,297	$	4,590
Liability derivatives recorded under the caption Other current liabilities
Foreign exchange contracts	$	2,089	$	2,127

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

The fair values of the Company's financial assets and financial liabilities listed below reflect the amounts that would be received to sell the assets or paid to transfer the liabilities in an orderly transaction between market participants at the measurement date (exit price). The fair values are based on inputs other than quoted prices that are observable for the asset or liability. These inputs include foreign currency exchange rates and interest rates. The financial assets and financial liabilities are primarily valued using standard calculations and models that use as their basis readily observable market parameters. Industry standard data providers are the primary source for forward and spot rate information for both interest rates and currency rates.


	Significant Other Observable Inputs (Level 2)*
	April 30, 2011			July 31, 2010
Forward exchange contracts - net liability position	$	(1,394	)	$	(1,320	)
Interest rate swaps - net asset position		1,297			4,590


*	Inputs to the valuation methodology of level 2 assets include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

- Definition

This item represents the complete disclosure regarding the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the Company is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risk is are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References+ Details

XML 20 R15.htm IDEA: XBRL DOCUMENT

Warranty

9 Months Ended

Apr. 30, 2011

Warranty

Warranty

Note J – Warranty


	April 30,
	2011			2010
Beginning balance	$	15,707		$	9,215
Accruals for warranties issued during the reporting period		5,175			7,311
Adjustments related to pre - existing warranties (including changes in estimates)		5,981			(857	)
Less settlements made during the period		(8,347	)		(3,261	)
Ending balance	$	18,516		$	12,408

The increase in warranty accruals is primarily due to three specific warranty matters during the first nine months of Fiscal 2011. One in the Company's Retrofit Emissions Product group for $3.0 million, one in the Company's Off-Road Products group for $1.8 million and one in the On-Road Product group for $3.8 million. These warranty accruals were partially offset by supplier and insurance recoveries of $3.8 million.

XML 21 R13.htm IDEA: XBRL DOCUMENT

Goodwill and Other Intangible Assets

9 Months Ended

Apr. 30, 2011

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Note H – Goodwill and Other Intangible Assets

Goodwill is assessed for impairment between annual assessments whenever events or circumstances make it more likely than not that an impairment may have occurred. The Company's most recent annual impairment assessment for goodwill was completed during the third quarter of Fiscal 2011. The results of this assessment showed that the fair values of the reporting units to which goodwill is assigned continue to exceed the book values of the respective reporting units, resulting in no goodwill impairment. As of August 1, 2010, as a result of an internal reorganization, the Company transferred Industrial Hydraulics, a component of its Industrial Filtration Solutions Products within the Industrial Products segment to Aftermarkets Products within the Engine Products segment, along with the goodwill associated with this component. Following is a reconciliation of goodwill for the nine months ended April 30, 2011 (thousands of dollars):


	Engine Products		Industrial Products			Total Goodwill
Balance as of July 31, 2010	$	60,914	$	104,401		$	165,315
Goodwill transferred		11,258		(11,258	)		—
Disposition activity		—		(325	)		(325	)
Foreign exchange translation		1,030		6,821			7,851
Balance as of April 30, 2011	$	73,202	$	99,639		$	172,841

Disposition of goodwill during the fiscal year relates to the sale of the Company's Ultracool chiller business, based in Terrassa, Spain, for $3.6 million, which resulted in a gain on sale of $0.4 million in the second quarter. The Ultracool chiller business manufactured industrial circulation chillers and was part of the Company's Industrial Products segment.

- Definition

Discloses the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain or loss on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss. This element may be used as a single block of text to include the entire intangible asset disclosure including data and tables.

+ References+ Details

XML 22 R6.htm IDEA: XBRL DOCUMENT

Basis of Presentation	9 Months Ended
Basis of Presentation	Apr. 30, 2011
Basis of Presentation
Basis of Presentation	Note A – Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Donaldson Company, Inc. and its subsidiaries (the Company) have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the three and nine month periods ended April 30, 2011 are not necessarily indicative of the results that may be expected for future periods. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K/A for the year ended July 31, 2010.

- Definition

Description containing the entire organization, consolidation and basis of presentation of financial statements disclosure. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements.

+ References+ Details

XML 23 R9.htm IDEA: XBRL DOCUMENT

Accounting for Stock-Based Compensation

9 Months Ended

Apr. 30, 2011

Accounting for Stock-Based Compensation

Accounting for Stock-Based Compensation

Note D – Accounting for Stock-Based Compensation

Stock-based employee compensation cost is recognized using the fair-value based method for all awards. The Company determined the fair value of its option awards using the Black-Scholes option pricing model. The following assumptions were used to value the options, including reload options which generally have a shorter contractual life, granted during the nine months ended April 30, 2011: range of 8 days to 8 years expected life; expected volatility range of 25.5 percent to 34.7 percent; risk-free interest rate range of 0.12 percent to 3.1 percent; and annual dividend yield of 1.0 percent. The expected life selected for options granted during the period represents the period of time that the options are expected to be outstanding based on the contractual life and historical data of option holder exercise and termination behavior. Expected volatilities are based upon historical volatility of the Company's stock over a period at least equal to the expected life of each option grant. Option grants are priced at the fair market value of the Company's stock on the date of grant. The weighted average fair value for options granted during the nine months ended April 30, 2011 and 2010 was $17.26 per share and $13.24 per share, respectively. For the three and nine months ended April 30, 2011, the Company recorded pretax compensation expense associated with stock options of $0.8 million and $5.6 million, respectively, and recorded $0.3 million and $2.1 million of related tax benefit, respectively. For the three and nine months ended April 30, 2010, the Company recorded pretax compensation expense associated with stock options of $1.0 million and $6.3 million, respectively, and recorded $0.3 million and $2.3 million of related tax benefit.

The following table summarizes stock option activity during the nine months ended April 30, 2011:


	Options Outstanding			Weighted Average Exercise Price
Outstanding at July 31, 2010		4,771,812		$	30.04
Granted		551,601			57.22
Exercised		(944,412	)		22.65
Canceled		(7,665	)		47.20
Outstanding at April 30, 2011		4,371,336			35.04

The total intrinsic value of options exercised during the nine months ended April 30, 2011 and 2010 was $27.9 million and $15.6 million, respectively.

The following table summarizes information concerning outstanding and exercisable options as of April 30, 2011:


Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$12 to $22	747,366	1.37	$	17.92	747,366	$	17.92
$22 to $32	1,115,025	3.19		30.12	1,099,113		30.10
$32 to $42	1,195,623	5.66		34.84	1,175,101		34.85
$42 and above	1,313,322	8.48		49.15	655,215		44.32
	4,371,336	5.14		35.04	3,676,795		31.67

At April 30, 2011, the aggregate intrinsic value of options outstanding and exercisable was $114.5 million and $108.7 million, respectively.

XML 24 R10.htm IDEA: XBRL DOCUMENT

Net Earnings Per Share

9 Months Ended

Apr. 30, 2011

Net Earnings Per Share

Net Earnings Per Share

Note E – Net Earnings Per Share

The Company's basic net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares. The Company's diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and common equivalent shares relating to stock options and stock incentive plans. Certain outstanding options were excluded from the diluted net earnings per share calculations because their exercise prices were greater than the average market price of the Company's common stock during those periods. For the three and nine months ended April 30, 2011, there were 79,243 options and 495,938 options excluded from the diluted net earnings per share calculation, respectively. For the three and nine months ended April 30, 2010, there were 293,816 options and 844,366 options excluded from the diluted net earnings per share calculation, respectively.

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


	Three Months Ended April 30,				Nine Months Ended April 30,
	2011		2010		2011		2010
Weighted average shares - basic		77,326		77,873		77,358		78,002
Common share equivalents		1,378		1,350		1,404		1,331
Weighted average shares - diluted		78,704		79,223		78,762		79,333
Net earnings for basic and diluted earnings per share computation	$	61,811	$	49,458	$	159,524	$	114,993
Net earnings per share - basic	$	0.80	$	0.64	$	2.06	$	1.47
Net earnings per share - diluted	$	0.79	$	0.62	$	2.03	$	1.45

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Financial Instruments

9 Months Ended

Apr. 30, 2011

Financial Instruments

Financial Instruments

Note M – Financial Instruments

The Company uses forward exchange contracts to manage its exposure to fluctuations in foreign exchange rates. The Company enters into forward exchange contracts of generally less than one year to hedge forecasted transactions between its subsidiaries and to reduce potential exposure related to fluctuations in foreign exchange rates for existing recognized assets and liabilities. It also utilizes forward exchange contracts for anticipated intercompany and third-party transactions such as purchases, sales, and dividend payments denominated in local currencies. Forward exchange contracts are designated as cash flow hedges as they are designed to hedge the variability of cash flows associated with the underlying existing recognized or anticipated transactions. Changes in the value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) in shareholders' equity until earnings are affected by the variability of the underlying cash flows. At that time, the applicable amount of gain or loss from the derivative instrument that is deferred in shareholders' equity is reclassified to earnings. Effectiveness is measured using spot rates to value both the hedge contract and the hedged item. The excluded forward points, as well as any ineffective portions of hedges, are recorded in earnings through the same line as the underlying transaction. During the first nine months of Fiscal 2011, $0.3 million of losses were recorded due to the exclusion of forward points from the assessment of hedge effectiveness.


	April 30,
	2011			2010
Net carrying amount at beginning of year	$	(660	)	$	(650	)
Cash flow hedges deferred in other comprehensive income		(425	)		(2,349	)
Cash flow hedges reclassified to income (effective portion)		1,048			3,164
Change in deferred taxes		(218	)		(280	)
Net carrying amount at April 30	$	(255	)	$	(115	)

XML 27 R11.htm IDEA: XBRL DOCUMENT

Shareholders' Equity

9 Months Ended

Apr. 30, 2011

Shareholders' Equity

Shareholders' Equity

Note F – Shareholders' Equity

The Company reports accumulated other comprehensive income (loss) as a separate item in the shareholders' equity section of the balance sheet.

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


	Three Months Ended April 30,					Nine Months Ended April 30,
	2011		2010			2011			2010
Net earnings	$	61,811	$	49,458		$	159,524		$	114,993
Foreign currency translation adjustment		48,929		(7,697	)		81,031			(10,722	)
Currency realization upon sale of business		—		—			(101	)		—
Gain on hedging derivatives, net of deferred taxes		229		179			363			493
Pension and postretirement liability adjustment, net of deferred taxes		664		550			1,967			1,694
Total comprehensive income	$	111,633	$	42,490		$	242,784		$	106,458

Total accumulated other comprehensive income (loss) and its components at April 30, 2011 and July 31, 2010 are as follows (thousands of dollars):


	April 30, 2011			July 31, 2010
Foreign currency translation adjustment	$	140,124		$	59,194
Net loss on hedging derivatives, net of deferred taxes		(99	)		(462	)
Pension and postretirement liability, net of deferred taxes		(97,251	)		(99,218	)
Total accumulated other comprehensive income (loss)	$	42,774		$	(40,486	)

The Company's Board of Directors authorized the repurchase of 8.0 million shares of common stock on March 26, 2010. During the three months ended April 30, 2011 the Company repurchased 650,006 shares for $36.6 million at an average price of $56.32 per share. During the nine months ended April 30, 2011, the Company repurchased 800,000 shares for $43.1 million at an average price of $53.88 per share. As of April 30, 2011, the Company had remaining authorization to repurchase up to 6.2 million shares pursuant to the current authorization.

On May 24, 2011, the Company's Board of Directors declared a cash dividend in the amount of $0.15 per common share payable to stockholders of record on June 10, 2011. The dividend will be paid on June 24, 2011.

- Definition

Disclosures related to accounts comprising shareholders' equity, including other comprehensive income. Includes: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables; effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

+ References+ Details

XML 28 R21.htm IDEA: XBRL DOCUMENT

Income Taxes

9 Months Ended

Apr. 30, 2011

Income Taxes

Income Taxes

Note P – Income Taxes

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


Major Jurisdictions		Open Tax Years
Belgium		2009 through 2010
China		2000 through 2010
France		2008 through 2010
Germany		2005 through 2010
Italy		2003 through 2010
Japan		2009 through 2010
Mexico		2006 through 2010
Thailand		2005 through 2010
United Kingdom		2009 through 2010
United States		2008 through 2010

XML 29 R5.htm IDEA: XBRL DOCUMENT

Consolidated Statements of Cash Flows (USD $) In Thousands	9 Months Ended
Consolidated Statements of Cash Flows (USD $) In Thousands	Apr. 30, 2011	Apr. 30, 2010
Operating Activities
Net earnings	$ 159,524	$ 114,993
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	45,276	45,158
Changes in operating assets and liabilities	(23,958)	(6,848)
Tax benefit of equity plans	(8,272)	(3,815)
Stock compensation plan expense	7,560	7,110
Deferred taxes	6,188	1,944
Other, net	(17,775)	(9,775)
Net cash provided by operating activities	168,543	148,767
Investing Activities
Net expenditures on property and equipment	(42,400)	(27,230)
Purchase of short-term investments	(67,985)
Acquisitions and divestitures	3,493	(250)
Net cash used in investing activities	(106,892)	(27,480)
Financing Activities
Purchase of treasury stock	(43,101)	(23,783)
Proceeds from settlement of interest rate swap	4,710
Repayments of long-term debt	(13,202)	(5,386)
Change in short-term borrowings	6,976	(10,024)
Dividends paid	(29,547)	(27,040)
Tax benefit of equity plans	8,272	3,815
Exercise of stock options	13,535	7,332
Net cash used in financing activities	(52,357)	(55,086)
Effect of exchange rate changes on cash	22,199	(1,527)
Increase in cash and cash equivalents	31,493	64,674
Cash and cash equivalents, beginning of year	232,000	143,687
Cash and cash equivalents, end of year	$ 263,493	$ 208,361

XML 30 R22.htm IDEA: XBRL DOCUMENT

Restructuring and Asset Impairment

9 Months Ended

Apr. 30, 2011

Restructuring and Asset Impairment

Restructuring and Asset Impairment

Note Q – Restructuring and Asset Impairment

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


Balance at July 31, 2008	$	—
Accruals for restructuring during the reporting period		17,755
Less settlements made during the period		(13,915	)
Balance at July 31, 2009	$	3,840
Accruals for restructuring during the reporting period		10,165
Less settlements made during the period		(9,866	)
Balance at July 31, 2010	$	4,139
Accruals for restructuring during the reporting period		759
Less settlements made during the period		(4,790	)
Balance at April 30, 2011	$	108

The Company commenced certain restructuring actions in Fiscal 2009 in response to the dramatic downturn in the worldwide economy. The restructuring expenses in the first quarter of 2011 include employee severance costs for approximately five employees related to the completion of the Company's planned restructuring activities. The Company did not previously anticipate these additional charges in the first quarter of 2011. The Company did not incur any restructuring charges during the second and third quarters of 2011 and does not expect to incur additional restructuring charges during the remainder of Fiscal 2011. The remaining liability will be settled during Fiscal 2011.

Restructuring expense detail is summarized as follows (in thousands):


	Three Months Ended April 30,				Nine Months Ended April 30,
	2011		2010		2011		2010
Gross Margin	$	—	$	1,624	$	20	$	5,745
Operating expenses		—		—		739		2,229
Total restructuring expenses	$	—	$	1,624	$	759	$	7,974

XML 31 R7.htm IDEA: XBRL DOCUMENT

Short-Term Investments

9 Months Ended

Apr. 30, 2011

Short-Term Investments

Short-Term Investments

Note B – Short-Term Investments

Classification of the Company's investments as current or non-current is dependent upon management's intended holding period, the investment's maturity date and liquidity considerations based on market conditions. If management intends to hold the investments for longer than one year as of the balance sheet date, they are classified as non-current.

All short-term investments have original maturities in excess of three months but not more than six months. There were no short-term investments as of July 31, 2010. The following is a summary of amounts recorded on the Consolidated Balance Sheet for the Company's short-term investments as of April 30, 2011 (thousands of dollars):


	April 30, 2011
Certificates of deposit	$	44,430
Commercial paper		27,398
Total short-term investments	$	71,828

- Definition

This item represents the entire disclosure related to Investments in Certain Debt and Equity Securities (and certain other trading assets) which include all debt and equity securities (other than those equity securities accounted for under the equity or cost methods of accounting) with readily determinable fair values. Other trading assets include assets that are carried on the balance sheet at fair value and held for trading purposes. A debt security represents a creditor relationship with an enterprise that is in the form of a security. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt. An entity may opt to provide the reader with additional narrative text to better understand the nature of investments in debt and equity securities (and other trading assets).

+ References+ Details

XML 32 R16.htm IDEA: XBRL DOCUMENT

Employee Benefit Plans

9 Months Ended

Apr. 30, 2011

Employee Benefit Plans

Employee Benefit Plans

Note K – Employee Benefit Plans

Net periodic pension costs for the Company's pension plans include the following components (thousands of dollars):


	Three Months Ended April 30,						Nine Months Ended April 30,
	2011			2010			2011			2010
Net periodic cost:
Service cost	$	4,077		$	3,265		$	12,151		$	9,903
Interest cost		4,872			4,831			14,533			14,676
Expected return on assets		(6,920	)		(7,069	)		(20,616	)		(21,382	)
Transition amount amortization		58			56			167			175
Prior service cost amortization		119			73			347			221
Actuarial loss amortization		839			707			2,491			2,171
Net periodic benefit cost	$	3,045		$	1,863		$	9,073		$	5,764

The Company's general funding policy for its pension plans is to make at least the minimum contributions as required by applicable regulations. Additionally, the Company may elect to make additional contributions up to the maximum tax deductible contribution. For the nine months ended April 30, 2011, the Company made contributions of $5.5 million to its non-U.S. pension plans and a discretionary contribution of $20.0 million to its U.S. pension plans. The Company does not currently plan to make any additional contributions to its U.S. pension plans in Fiscal 2011. The Company currently estimates that it will contribute up to an additional $1.0 million to its non-U.S. pension plans during the remainder of Fiscal 2011.

- Definition

Description containing the entire pension and other postretirement benefits disclosure as a single block of text.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name FASB Staff Position (FSP)
-Number FAS106-2
-Paragraph 20, 21, 22

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 132R
-Paragraph 5, 6, 7, 8

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 87
-Paragraph 264

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Implementation Guide (Q and A)
-Number FAS88
-Paragraph 63

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 158
-Paragraph 7, 21, 22

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 132R
-Paragraph 5
-Subparagraph b

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Principles Board Opinion (APB)
-Number 30
-Paragraph 26

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 106
-Paragraph 518

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Emerging Issues Task Force (EITF)
-Number 03-2
-Paragraph 8

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 132R
-Paragraph 8
-Subparagraph m

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 132R
-Paragraph 5
-Subparagraph h

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 132R
-Paragraph 5
-Subparagraph a

Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 132R
-Paragraph 5
-Subparagraph q

+ Details

XML 33 R20.htm IDEA: XBRL DOCUMENT

Commitments and Contingencies	9 Months Ended
Commitments and Contingencies	Apr. 30, 2011
Commitments and Contingencies
Commitments and Contingencies	Note O – Commitments and Contingencies The Company records provisions with respect to identified claims or lawsuits when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Claims and lawsuits are reviewed quarterly and provisions are taken or adjusted to reflect the status of a particular matter. The Company believes the recorded reserves in its consolidated financial statements are adequate in light of the probable and estimable outcomes. The recorded liabilities were not material to the Company's financial position, results of operation, or liquidity, and the Company does not believe that any of the currently identified claims or litigation will materially affect its financial position, results of operation, or liquidity. On March 31, 2008, S&E Quick Lube, a filter distributor, filed a lawsuit in U.S. District Court for the District of Connecticut alleging that 12 filter manufacturers, including the Company, engaged in a conspiracy to fix prices, rig bids, and allocate U.S. Customers for aftermarket automotive filters. This lawsuit seeks various remedies including injunctive relief and monetary damages of an unspecified amount and is a purported class action on behalf of direct purchasers of automotive aftermarket filters from the defendants. Parallel purported class actions, including on behalf of a variety of direct and indirect purchasers of aftermarket filters, have been filed by other plaintiffs in a variety of jurisdictions in the United States and Canada. The U.S. cases have been consolidated into a single multi-district litigation in the Northern District of Illinois. On April 14, 2011, the Court granted a stay on discovery and depositions until mid-July. The Company denies any liability and intends to vigorously defend the claims raised in these lawsuits. On May 19, 2010, the Air Resources Board for the State of California (ARB) revoked its verification of the Company's DFM Diesel Multi-Stage Filter System (DMF) for use with on-road diesel engines, for which verification was originally issued on December 16, 2005. In addition, ARB notified the Company by letter that it may seek fines and penalties in connection with the past sales of the DMF product in California. The Company denies that any sales were made in California without ARB verification. The Company is not currently selling any DMF product and is working with the EPA and state regulatory authorities to obtain the necessary approvals.

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Consolidated Statements of Earnings (USD $) In Thousands, except Share data	3 Months Ended		9 Months Ended
	Apr. 30, 2011	Apr. 30, 2010	Apr. 30, 2011	Apr. 30, 2010
Consolidated Statements of Earnings
Net sales	$ 594,565	$ 497,619	$ 1,668,579	$ 1,361,821
Cost of sales	385,407	320,248	1,081,788	890,103
Gross margin	209,158	177,371	586,791	471,718
Operating expenses	125,826	105,288	361,515	308,140
Operating income, net	83,332	72,083	225,276	163,578
Interest expense	2,897	2,956	9,486	8,701
Other income, net	(1,381)	(942)	(5,990)	(2,743)
Earnings before income taxes	81,816	70,069	221,780	157,620
Income taxes	20,005	20,611	62,256	42,627
Net earnings	$ 61,811	$ 49,458	$ 159,524	$ 114,993
Weighted average shares - basic	77,325,611	77,872,665	77,358,459	78,002,070
Weighted average shares - diluted	78,704,047	79,222,705	78,762,314	79,333,246
Net earnings per share - basic	$ 0.80	$ 0.64	$ 2.06	$ 1.47
Net earnings per share - diluted	$ 0.79	$ 0.62	$ 2.03	$ 1.45
Dividends paid per share	$ 0.13	$ 0.12	$ 0.385	$ 0.35

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