10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

x    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended July 31, 2006 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 incorporation or organization)	(I.R.S. Employer Identification No.)

1400 West 94th Street, Minneapolis, Minnesota	55431
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (952) 887-3131
Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $5 Par Value Preferred Stock Purchase Rights	New York Stock Exchange New York Stock Exchange

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

        Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes x   No o   

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes o   No x   

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x   No o   

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

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

Large accelerated filer x      Accelerated filer o      Non-accelerated filer o

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

        As of January 31, 2006, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant was $2,818,808,220 (based on the closing price of $34.55 as reported on the New York Stock Exchange as of that date).

        As of September 30, 2006, there were approximately 80,793,495 shares of the registrant’s common stock outstanding.

Documents Incorporated by Reference

        Portions of (1) the Company’s Annual Report to Shareholders for the fiscal year ended July 31, 2006 are incorporated in Item 6 of Part II, and (2) the Proxy Statement for the 2006 annual shareholders’ meeting are incorporated by reference in Part III, as specifically set forth in Part III.

DONALDSON COMPANY, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
	General	1
	Seasonality	2
	Competition	2
	Raw Materials	2
	Patents and Trademarks	2
	Major Customers	2
	Backlog	2
	Research and Development	2
	Environmental Matters	3
	Employees	3
	Geographic Areas	3
Item 1A.	Risk Factors	3
Item 1B.	Unresolved Staff Comments	4
Item 2.	Properties	5
Item 3.	Legal Proceedings	5
Item 4.	Submission of Matters to a Vote of Security Holders	5
	Executive Officers of the Registrant	6
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	6
Item 6.	Selected Financial Data	7
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	7
	Forward-Looking Statements	20
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	20
Item 8.	Financial Statements and Supplementary Data	21
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	48
Item 9A.	Controls and Procedures	48
Item 9B.	Other Information	49
PART III
Item 10.	Directors and Executive Officers of the Registrant	49
Item 11.	Executive Compensation	49
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	50
Item 13.	Certain Relationships and Related Transactions	51
Item 14.	Principal Accountant Fees and Services	51
PART IV
Item 15.	Exhibits and Financial Statement Schedules	51
	Signatures	52
	Schedule II – Valuation and Qualifying Accounts	53
	Exhibit Index	54
	Consent of Independent Registered Public Accounting Firm	56
	Certifications of Officers	57

PART I

Item 1.  BUSINESS

General

        Donaldson Company, Inc. (“Donaldson” or the “Company”) was founded in 1915 and organized in its present corporate form under the laws of the State of Delaware in 1936.

        The Company is a worldwide manufacturer of filtration systems and replacement parts. The Company’s product mix includes air and liquid filters and exhaust and emission control products for mobile equipment; in-plant air cleaning systems; compressed air purification systems; air intake systems for industrial gas turbines and specialized filters for such diverse applications as computer disk drives and semi-conductor processing. Products are manufactured at more than 30 plants around the world and through three of our joint ventures. The Company has two reporting segments engaged in the design, manufacture and sale of systems to filter air and liquid and other complementary products. The two segments are Engine Products and Industrial Products. Products in the Engine Products segment consist of air intake systems, exhaust and emissions systems, liquid filtration systems and replacement parts. The Engine Products segment sells to original equipment manufacturers (“OEM”) in the construction, mining, agriculture and transportation markets and to independent distributors, OEM dealer networks, private label accounts and large equipment fleets. Products in the Industrial Products segment consist of dust, fume and mist collectors, compressed air purification systems, liquid filters and parts, static and pulse-clean air filter systems for gas turbines, and specialized air filtration systems for diverse applications including computer disk drives. The Industrial Products segment sells to various industrial end-users, OEMs of gas-fired turbines and OEMs and end-users requiring highly purified air.

        The table below shows the percentage of total net sales contributed by the principal classes of similar products for each of the last three fiscal years:

	Year Ended July 31
	2006			2005			2004
Engine Products segment
Off-road equipment products (including defense products)		18	%		18	%		17	%
Truck products		11	%		11	%		11	%
Aftermarket products (including replacement part sales to our OEMs)		29	%		29	%		29	%
Industrial Products segment
Industrial filtration solutions products		26	%		27	%		26	%
Gas turbine systems products		8	%		7	%		9	%
Special applications products		8	%		8	%		8	%

        Financial information about segment operations appears in Note J in the Notes to Consolidated Financial Statements on page 44.

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

1

Seasonality

        The Company’s business in aggregate is not considered to be seasonal. A number of our end markets are dependent on the construction and agricultural industries, which are generally stronger in the second half of our fiscal year.

Competition

        Principal methods of competition in both the Engine Products and Industrial Products segments are price, geographic coverage, service and product performance. The Company competes in a number of highly competitive filtration markets in both the Engine Products and Industrial Products segments. The Company believes it is a market leader in many of its primary product lines. The Industrial Products segment’s principal competitors vary from country to country and include several large regional or global competitors and a significant number of small competitors who compete in a limited geographical region or in a limited number of product applications. The Company believes within the Engine Products segment it is a market leader in its off-road equipment and truck product lines for OEMs and is a significant participant in the aftermarket for replacement filters and hard parts. The Engine Products segment’s principal competitors vary from country to country and include several large regional or global competitors, and small regional competitors, especially in the engine aftermarket businesses.

Raw Materials

        Although the Company experienced an increase in commodity prices, during the year, the Company responded through a combination of cost reductions and by recovering a portion of these price increases from customers. The Company experienced no other significant or unusual problems in the purchase of raw materials or commodities. The Company has more than one source of raw materials essential to its business. The Company is not required to carry significant amounts of inventory to meet rapid delivery demands or secure supplier allotments. However, the Company does stock limited amounts of inventory in order to meet anticipated customer demand.

Patents and Trademarks

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

Major Customers

        Sales to Caterpillar Inc. and its subsidiaries (“Caterpillar”) accounted for 12 percent of net sales in 2006 and 2005, respectively, and 10 percent of net sales in 2004. Caterpillar has been a customer of the Company for many years and it purchases many models and types of products for a variety of applications. Sales to the U.S. Government do not constitute a material portion of the Company’s business. There were no customers over 10 percent of gross accounts receivable in 2006 or 2005.

Backlog

        At August 31, 2006, the backlog of orders expected to be delivered within 90 days was $291,011,000. The 90-day backlog at August 31, 2005 was $227,243,000. Backlog is one of many indicators of business conditions in our market. However, it is not always indicative of future results for a number of reasons, including short lead times in our aftermarket and the timing of receipt of orders in many of our original equipment and industrial markets.

Research and Development

        During 2006, the Company spent $33,887,000 on research and development activities relating to the development of new products or improvements of existing products or manufacturing processes. The Company spent $32,234,000 in 2005 and $30,487,000 in 2004 on research and development activities. Essentially all commercial research and development is Company-sponsored.

2

Environmental Matters

        The Company does not anticipate any material effect on its capital expenditures, earnings or competitive position during fiscal 2007 due to compliance with government regulations involving environmental matters.

Employees

        The Company employed approximately 11,500 persons in worldwide operations as of August 31, 2006.

Geographic Areas

        Financial information about geographic areas appears in Note J of the Notes to Consolidated Financial Statements on page 44.

Item 1A.  RISK FACTORS

        There are inherent risks and uncertainties associated with our global operations that involve manufacturing and sale of products for highly demanding customer applications throughout the world. The risks and uncertainties associated with our business could adversely affect our operating performance or financial condition. The following discussion along with discussions elsewhere in this report outlines the risks and uncertainties that we believe are the most material to our business. However, these are not the only risks or uncertainties that could affect our business. Therefore, the following is not intended to be a complete discussion of all potential risks or uncertainties.

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

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

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

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

• political and military events,

• legal and regulatory requirements in local jurisdictions,

• tariffs and trade barriers,

• potential difficulties in staffing and managing local operations,

• credit risk of local customers and distributors,

• difficulties in protecting intellectual property, and

• local economic, political and social conditions, specifically in China where we have significant investments in both our Engine and Industrial products segments.

Maintaining a competitive advantage requires continuing investment, with uncertain returns.

        We operate in highly competitive markets and have numerous competitors who may already be well established in those markets. We experience price pressures from these competitors in certain product lines and geographic markets. We expect our competitors to continue improving the design and performance of their products and to introduce new products that are competitive in both price and performance. We believe that we have certain technological advantages over our competitors but maintaining

3

these advantages requires us to continually invest in research and development, sales and marketing and customer service and support. There is no guarantee that we will be successful in maintaining these advantages. We are currently making investments in emissions technology development to meet the changing regulatory requirements worldwide. Our financial performance may be negatively impacted if a competitor’s successful product innovation reaches the market before ours or gains broader market acceptance before our product offerings.

        A number of our major OEM customers manufacture component products for their own use. Although these OEM customers rely on us and other suppliers for other of their component products, they could choose to manufacture additional component products for their own use. There is also a risk that one of our customers would acquire one of our competitors.

        We may be adversely impacted by changes in technology that could reduce or eliminate the demand for our products. We are at risk with respect to:

• Breakthroughs in technology which provide a viable alternative to diesel engines.

• Reduced demand for disk drive products if our customers further develop flash memory or a similar technology which would eliminate the need for filtration solutions.

Acquisitions may not necessarily have a positive impact on our results.

        We have and continue to pursue acquisitions of complementary product lines, technologies and businesses. We cannot guarantee that these acquisitions will have a positive impact on our results. These acquisitions could negatively impact our profitability due to dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to intangible assets. There are also a number of risks involved in acquisitions. For example, we could have difficulties in assimilating the acquired operations, assume unanticipated legal liabilities or lose key employees of the acquired company.

Compliance with environmental laws and regulations can be costly.

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

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

        Demand for certain of our products tends to be cyclical and responds to varying levels of construction, agricultural, mining and industrial activity in the United States and in other industrialized nations.

        Sales to Caterpillar, Inc. and its subsidiaries have accounted for greater than 10 percent of our net sales in the past three fiscal years. An adverse change in Caterpillar’s financial performance or a material reduction in our sales to it could negatively impact our operating results.

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

        We obtain raw material and certain manufactured components from third-party suppliers and tend to carry limited raw material inventories. Even a brief unanticipated delay in delivery or increases in prices by our suppliers could result in the inability to satisfy our customers on delivery and pricing. This could negatively affect our financial performance.

Changes in our product mix impacts our financial performance.

        We sell products in various product lines that have varying profit margins. Our financial performance can be impacted positively or negatively depending on the mix of products we sell during a given period as compared to a previous period.

Item 1B.  UNRESOLVED STAFF COMMENTS

        None.

4

Item 2.  PROPERTIES

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

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

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

        The Company’s properties are utilized for both the Engine and Industrial Product segments except as indicated with an (E) for Engine or (I) for Industrial. The Company also leases certain of its facilities, primarily under long-term leases, some of which provide for options to purchase the facilities at the end of the lease term. The denoted facilities (*) are leased facilities. The Company’s properties are considered to be suitable for their present purposes, well-maintained and in good operating condition.

Item 3.  LEGAL PROCEEDINGS

        The Company is not currently subject to any pending litigation other than litigation which arises out of and is incidental to the conduct of the Company’s business. All such matters are subject to many uncertainties and outcomes that are not predictable with assurance. The Company does not consider any of such proceedings that are currently pending to be likely to result in a material adverse effect on the Company’s consolidated financial position or results of operation.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders of the Company during the quarter ended July 31, 2006.

5

Executive Officers of the Registrant

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

Name	Age	Positions and Offices Held	First Year Elected or Appointed as an Executive Officer
William M. Cook	53	Chairman, President and Chief Executive Officer	1994
Thomas R. VerHage	53	Vice President and Chief Financial Officer	2004
Norman C. Linnell	47	Vice President, General Counsel and Secretary	1996
Charles J. McMurray	52	Senior Vice President, Industrial Products, Technology and South Africa	2003
Lowell F. Schwab	58	Senior Vice President, Engine Systems and Parts	1994
William I. Vann	61	Vice President, NAFTA Operations and Mexico	2004
Geert Henk Touw	60	Senior Vice President, Asia-Pacific	2004
Sandra N. Joppa	41	Vice President, Human Resources, Communications and Facilities	2005

        Mr. Cook, Mr. Linnell and Mr. Schwab each has served as an officer of the Company during the past five years. Mr. VerHage was appointed Vice President and Chief Financial Officer in March 2004. Prior to that time Mr. VerHage was a partner for Deloitte & Touche, LLP, an international accounting firm, from 2002 to 2004 and prior to this a partner for Arthur Andersen, LLP, an international accounting firm, from 1987 to 2002. Mr. McMurray was appointed Vice President, Human Resources in September 2003 and was promoted to Vice President, Human Resources, Information Technology, Europe, South Africa and Mexico in August 2005. In September 2006, Mr. McMurray was promoted to Senior Vice President, Industrial Products, Technology, and South Africa. Mr. McMurray served as Director of Information Technology from 2001 to 2003. Mr. Vann was appointed Vice President, Operations in May 2004 and prior to that served as General Manager of Industrial Air Filtration from 2000 to 2004. Mr. Touw was appointed Senior Vice President, Asia-Pacific in November 2004 and prior to that served as Vice President and General Manager of Donaldson Europe, Middle East and South Africa from 2000 to 2004. Ms. Joppa was appointed Vice President, Human Resources and Communications in November 2005. Prior to that time Ms. Joppa was a Director of Human Resources at General Mills, a consumer food products company, from 1999 to 2005. In September 2006, James R. Giertz resigned his position as an executive officer of the Company to accept a position with Residential Capital Corporation.

PART II

Item 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        The common shares of the Company are traded on the New York Stock Exchange under the symbol DCI. The amount and frequency of all cash dividends declared on the Company’s common stock for 2006 and 2005 appear in Note L of the Notes to Consolidated Financial Statements on page 48. Also see Note D on page 33 for restrictions on payment of dividends. As of September 30, 2006, there were 1,905 shareholders of record of common stock.

6

        The low and high sales prices for the Company’s common stock for each full quarterly period during 2006 and 2005 were as follows:

	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
2005	$25.11 — 30.27	$29.05 — 34.45	$29.40 — 32.84	$29.60 — 32.65
2006	$28.60 — 32.88	$29.91 — 34.64	$32.08 — 36.00	$30.16 — 33.99

        The following table sets forth information in connection with purchases made by, or on behalf of, the Company or any affiliated purchaser of the Company, of shares of the Company’s common stock during the quarterly period ended July 31, 2006.

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
May 1-May 31, 2006		—		—		—		7,596,800
June 1-June 30, 2006		868,000	$	31.94		868,000		6,728,800
July 1-July 31, 2006		567,290	$	31.94		566,800		6,162,000
Total		1,435,290	$	31.94		1,434,800		6,162,000

(1) On March 31, 2006, the Company announced that the Board of Directors authorized the repurchase of up to 8.0 million shares of common stock. This repurchase authorization, which is effective until terminated by the Board of Directors, replaced the existing authority that was authorized on January 17, 2003. There were no repurchases of common stock made outside of the Company’s current repurchase authorization during the quarter ended July 31, 2006. However, the table above includes 490 previously owned shares tendered by option holders in payment of the exercise price of options. While not considered repurchases of shares, the Company does at times withhold shares that would otherwise be issued under equity-based awards to cover the withholding taxes due as a result of exercising stock options or payment of equity-based awards.

Item 6.  SELECTED FINANCIAL DATA

        The information for the years 2002 through 2006 on page 8 of the 2006 Annual Report to Shareholders is incorporated herein by reference.

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

Results of Operation

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

        Overview    The Company manufactures filtration systems and replacement parts. The Company’s core strengths are leading filtration technology, strong customer relationships and global presence. The Company operates through two reporting segments, Engine Products and Industrial Products, and has a product mix including air and liquid filters and exhaust and emission control products. As a worldwide business, the Company’s results of operations are affected by global industrial and economic factors. The Company’s diversity between its original equipment and replacement parts customers, its diesel engine and industrial end markets, and its North American and international end markets has helped to limit the impact of these factors on the consolidated results of the Company. The continued strong demand in most of the Company’s end markets drove record earnings in fiscal 2006.

        The Company reported record sales in 2006 of $1.694 billion, up 6.2 percent from $1.596 billion in the prior year. The Company’s results were negatively impacted by foreign currency translation for the year. The impact of foreign currency translation during the year decreased sales by $25.3 million. Excluding the current year impact of foreign currency translation, worldwide sales increased 7.8 percent during the year.

7

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

	July 31, 2006			July 31, 2005
Net sales, excluding foreign currency translation	$	1,719.6		$	1,561.6
Current year foreign currency translation impact		(25.3	)		34.1
Net sales	$	1,694.3		$	1,595.7

        Commodity prices continued to impact the Company during the year. These cost pressures were effectively offset by cost reduction programs, improved production efficiencies and selective price adjustments. Gross margin of 32.9 percent was up from the gross margin of 31.7 percent in the prior year.

        Operating expenses as a percent of net sales in fiscal 2006 were 21.5 percent, down from 21.9 percent in the prior year. Operating expenses in fiscal 2006 included $2.8 million of stock option expense that was not included in fiscal 2005. However, operating expenses in fiscal 2005 included $6.4 million, or $.05 per share, related to the ruling of the Federal Circuit on the patent litigation between the Company and Engineered Products Company, Inc. (“EPC”).

        Although not as significant as the impact on net sales, the Company’s net earnings were also negatively impacted by foreign currency translation for the year. The impact of foreign currency translation during the year decreased net earnings by $0.8 million. Excluding the current year impact of foreign currency translation, net earnings increased 20.4 percent during the year.

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

	July 31, 2006			July 31, 2005
Net earnings, excluding foreign currency translation	$	133.1		$	108.6
Current year foreign currency translation impact, net of tax		(0.8	)		2.0
Net earnings	$	132.3		$	110.6

        The Company reported record diluted earnings per share of $1.55, a 22.1 percent increase from $1.27 in the prior year.

        During fiscal 2006, the Company’s Engine Products segment increased slightly from the prior year as a percent of total net sales at 58.5 percent compared to 57.9 percent in the prior year. For the Company’s Industrial Products segment, percent of total net sales decreased slightly to 41.5 percent from 42.1 percent in the prior year. The comparable sales percentages reflect the strength in the conditions in the markets that both segments serve and the continued strong demand in most of the end markets in each 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, interest income and expense, non-operating income and expense and expenses not allocated to the business segments in the same period. During the first quarter of 2006, the Company adjusted its basis of measurement for earnings before income taxes such that certain expenses, such as amortization of intangibles, which were previously considered to be Corporate and Unallocated, are now included in the Engine and Industrial Products segment results. The impact of the change in the basis of measurement resulted in approximately $16.0 million of Corporate and Unallocated expenses being charged to

8

the Engine and Industrial Products segments’ aggregate earnings before income taxes in fiscal 2006 as compared to fiscal 2005. This change resulted in approximately $8.0 million of additional expense to each of the Engine and Industrial Products segments during fiscal 2006. This adjustment to the basis of measurement of segment earnings did not change the business components included in each of the Company’s reportable segments. See further discussion of segment information in Note J of the Company’s Notes to Consolidated Financial Statements.

	Engine Products		Industrial Products		Corporate & Unallocated			Total Company
	(thousands of dollars)
2006
Net sales	$	991,554	$	702,773	$	—		$	1,694,327
Earnings before income taxes		135,994		65,550		(12,377	)		189,167
2005
Net sales	$	923,840	$	671,893	$	—		$	1,595,733
Earnings before income taxes		125,454		53,709		(24,430	)		154,733
2004
Net sales	$	811,543	$	603,437	$	—		$	1,414,980
Earnings before income taxes		114,662		42,985		(15,811	)		141,836

        Factors within the Company’s reporting segments that contributed to the Company’s results for fiscal 2006 included strong business conditions across the products within the Engine Products segment worldwide. North American heavy truck build rates remained at record levels. Strength in new construction and mining equipment spurred off-road equipment sales worldwide. Additionally, equipment utilization rates remained strong and sales of diesel emission retrofit equipment continued to ramp up throughout the year, driving aftermarket parts sales growth. In the Industrial Products segment, improvement initiatives, higher volumes and a focus on selling more replacement parts drove sales growth in the Company’s industrial filtration solutions products. Worldwide sales in gas turbine products were higher than the prior year as business conditions in that market began to strengthen, specifically in the Middle East, Asia and parts of Africa. Sales of special application products were strong with continued strong demand for computer hard drives and other consumer electronics impacting the Company’s special application products sales.

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

	2006		2005		2004
	(thousands of dollars)
Engine Products segment:
Off-road products	$	308,175	$	286,230	$	244,749
Truck products		184,303		175,048		156,373
Aftermarket products*		499,076		462,562		410,421
Total Engine Products segment		991,554		923,840		811,543
Industrial Products segment:
Industrial filtration solutions		440,230		424,727		370,095
Gas turbine products		121,194		112,872		117,705
Special application products		141,349		134,294		115,637
Total Industrial Products segment		702,773		671,893		603,437
Total Company	$	1,694,327	$	1,595,733	$	1,414,980

* Includes replacement part sales to our original equipment manufacturers.

        Outlook    The Company expects mid single-digit sales growth in fiscal 2007 for sales in its Engine Products segment. North American heavy-duty truck build rates are expected to remain at their current high levels through calendar 2006 as truck manufacturers are near capacity. Build rates are then

9

expected to decrease resulting in a decrease in sales of approximately $30 million to $35 million in the second half of fiscal 2007 as compared to the second half of 2006 as a result of the implementation of the new diesel emissions standards. Strong worldwide conditions are expected to continue in the production of new construction and mining equipment. Aftermarket sales are expected to grow with continued strong equipment utilization, ongoing growth by our OEM customers of their replacement parts business and the increasing amount of equipment in the field with the Company’s PowerCore™ filtration systems. The Company expects sales growth in fiscal 2007 for its Industrial Products segment to be in the low double-digits. Industrial filtration solutions sales growth is expected to continue with healthy global industrial conditions. Globally, the Company expects full-year gas turbine sales to continue rebounding with sales increasing approximately 20 percent. Market conditions for special applications products are expected to remain strong.

Fiscal 2006 Compared to Fiscal 2005

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

        Sales for the Engine Products segment were $991.6 million, an increase of 7.3 percent from $923.8 million in the prior year, reflecting increased sales across all products within this segment both in the United States and internationally.

        Within the Engine Products segment, worldwide sales of off-road products were $308.2 million, an increase of 7.7 percent from $286.2 million in the prior year. Sales in the United States showed an increase of 5.8 percent due to continued improvements in new construction and mining equipment demand. Internationally, sales of off-road products were up 9.9 percent from the prior year with sales increasing in both Asia and Europe by 14.0 percent and 8.4 percent, respectively, reflecting the strength in the off-road equipment market internationally.

        Worldwide sales of truck products were $184.3 million, an increase of 5.3 percent from $175.0 million in the prior year. Truck products sales in the United States increased 6.9 percent from the prior year due to record heavy truck build rates and strong diesel emission sales. International truck products sales increased 0.9 percent from the prior year. Strong sales in Europe resulted in an increase of 10.4 percent from stronger build rates and increased market share. Offsetting Europe’s increase was a decrease in sales in Asia of 5.9 percent primarily as a result of the weaker Japanese Yen.

        Worldwide aftermarket product sales of $499.1 million increased 7.9 percent from $462.6 million in the prior year as equipment utilization rates remained high spurring demand for replacement filters. Sales in the United States increased 9.1 percent over the prior year while international sales increased 6.5 percent with sales increasing in Europe, Asia and Mexico by 6.1 percent, 5.4 percent and 25.7 percent, respectively.

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

        Sales for the Industrial Products segment were $702.8 million, an increase of 4.6 percent from $671.9 million in the prior year resulting from stronger sales of industrial filtration solutions, gas turbine products and special application products.

        Within the Industrial Products segment, worldwide sales of industrial filtration solutions products of $440.2 million increased 3.6 percent from $424.7 million in the prior year. Sales in the United States, Asia, South Africa and Mexico increased 5.8 percent, 2.7 percent, 33.6 percent and 45.1 percent, respectively. Sales in Europe decreased 0.9 percent from the prior year reflecting stability in the market despite the negative impact of foreign currency translation.

10

        Worldwide sales of gas turbine products were $121.2 million, an increase of 7.4 percent from $112.9 million in the prior year as business conditions strengthened primarily toward the end of fiscal 2006.

        Worldwide sales of special application products were $141.3 million, a 5.3 percent increase from $134.3 million in the prior year. Sales in the United States decreased 16.9 percent from the prior year due primarily to softness in the end markets served by our membrane product line while sales in Europe and Asia increased 13.4 percent and 8.5 percent from the prior year, respectively, due to strong demand for computer hard drives and other consumer electronics.

        Consolidated Results    The Company reported record net earnings for 2006 of $132.3 million compared to $110.6 million in 2005, an increase of 19.7 percent. Diluted net earnings per share was a record $1.55, up 22.1 percent from $1.27 in the prior year. The Company’s operating income of $192.8 million increased from prior year operating income of $156.5 million by 23.2 percent. Operating income in the Engine Products segment as a percent of total operating income decreased to 67.7 percent from 77.4 percent in the prior year. Operating income in the Industrial Products segment as a percent of total operating income of 33.6 percent decreased from the prior year of 34.2 percent. This change is primarily attributable to the Company’s decision to adjust its basis of measurement for earnings before income taxes such that certain expenses, such as amortization of intangibles, which were previously considered to be Corporate and Unallocated, are now included in the Engine and Industrial Products segment results. This adjustment is discussed further in Note J. International operating income, prior to corporate expense allocations, totaled 77.2 percent of consolidated operating income in 2006 as compared to 82.7 percent in 2005. Of the 2006 international operating income, prior to corporate expense allocations, Europe contributed 42.4 percent while Asia contributed 48.5 percent. Total international operating income increased 15.0 percent from the prior year. This increase is attributable to strong sales of special application products and gas turbine systems.

        Gross margin for 2006 was 32.9 percent, an increase from 31.7 percent in the prior year. The margin benefited from the Company’s focus on cost reduction efforts, production efficiencies and some selective price increases. The Company continued its efforts to improve manufacturing infrastructure and reduce product costs through plant rationalization. Plant rationalization and start-up costs for new facilities were $5.4 million in 2006, up from the $4.0 million in the prior year.

        Operating expenses for 2006 were $363.8 million or 21.5 percent of sales, up from $349.1 million or 21.9 percent in the prior year. Operating expenses in fiscal 2006 included $2.8 million of stock option expense that was not included in fiscal 2005. Operating expenses in fiscal 2005 included a $6.4 million increase to the Company’s legal reserve for the EPC patent infringement judgment. The Company continued to focus on operating expense controls in 2006.

        Interest expense of $9.9 million increased $0.5 million from $9.4 million in the prior year. Net other income totaled $6.3 million in 2006 compared to $7.7 million in the prior year. Components of other income for 2006 were as follows: interest income of $1.7 million, earnings from non-consolidated joint ventures of $5.0 million, charitable donations of $2.1 million, foreign exchange gains of $0.3 million and other miscellaneous income and expense items resulting in income of $1.4 million.

        The effective income tax rate for fiscal 2006 was 30.1 percent. In the fourth quarter of fiscal 2006, the Company recognized a $3.6 million tax charge for the $80.0 million foreign earnings repatriation plan pursuant to the American Jobs Creation Act of 2004. The effective income tax rate for fiscal 2005 was 28.6 percent and also included a $4.0 million tax charge for a previous $80.0 million foreign earnings repatriation plan pursuant to the American Jobs Creation Act of 2004. Although the tax rate going forward is dependent upon the applicable tax rates and the geographic mix of profits, the Company expects that it will be approximately 29 percent in fiscal 2007. The higher fiscal 2006 effective tax rate as compared to the prior year is primarily a result of the mix of earnings in our various jurisdictions. Higher tax jurisdictions such as Japan, Germany and the United States contributed a higher proportion of our taxable earnings as compared to the prior year. The unfavorable timing of the phase-out/phase-in provisions of the United States export credit versus the manufacturing credit and the expiration of the research and development credit also adversely affected the rate for fiscal 2006. The Company undergoes examination by various taxing authorities in the multiple jurisdictions in which it operates. Such

11

taxing authorities may require changes in the amount of tax expense to be recognized when their interpretations differ from those of management. The Company maintains reserves against such differences and the effect of such adjustments are recorded at the time of resolution of the applicable examination.

        Total backlog at July 31, 2006 was $516.7 million, up 25.4 percent from the same period in the prior year. Backlog is one of many indicators of business conditions in our market. However, it is not always indicative of future results for a number of reasons, including short lead times in our aftermarket and the timing of receipt of orders in many of our original equipment and industrial markets. In the Engine Products segment, total open order backlog increased 20.3 percent from the prior year. In the Industrial Products segment, total open order backlog increased 36.4 percent from the prior year. Because some of the change in backlog can be attributed to a change in the ordering patterns of our customers, it may not necessarily correspond to higher future sales.

Fiscal 2005 Compared to Fiscal 2004

        (Certain fiscal 2004 amounts have been reclassified between the segments to conform to the current structure for comparison between years.)

        Engine Products Segment    Sales for the Engine Products segment were $923.8 million, an increase of 13.8 percent from $811.5 million in the prior year, reflecting increased sales across all products within this segment both in North America and internationally.

        Within the Engine Products segment, worldwide sales of off-road products were $286.2 million, an increase of 16.9 percent from $244.7 million in the prior year. North American sales showed an increase of 12.4 percent due to continued improvements in new construction, agriculture and mining equipment demand. Internationally, sales of off-road products were up 23.6 percent from the prior year with sales increasing in both Asia and Europe by 22.8 percent and 23.4 percent, respectively, reflecting the strength in the off-road equipment market internationally.

        Worldwide sales of truck products were $175.0 million, an increase of 11.9 percent from $156.4 million in the prior year. North American truck sales increased 23.3 percent from the prior year due to growing truck build rates and strong diesel emission sales. International truck sales decreased 10.7 percent from the prior year. Strong sales in Europe resulted in an increase of 24.7 percent from stronger build rates and increased market share. Offsetting Europe’s increase was a decrease in sales in Asia of 23.2 percent as emission sales spiked in Japan in the prior year ahead of new emissions regulations.

        Worldwide aftermarket product sales of $462.6 million increased 12.7 percent from $410.4 million in the prior year as equipment utilization rates remained strong and sales of diesel emission retrofit equipment continued to ramp up throughout the year, driving aftermarket parts sales growth. Sales in North America increased 13.1 percent over the prior year while international sales increased 13.0 percent with sales increasing in both Europe and Asia by 13.7 percent and 6.5 percent, respectively.

        Industrial Products Segment    Sales for the Industrial Products segment were $671.9 million, an increase of 11.3 percent from $603.4 million in the prior year resulting from strong sales of industrial filtration solutions and special application products, partially offset by a slight decrease in sales of gas turbine products.

        Within the Industrial Products segment, worldwide sales of industrial filtration solutions products of $424.7 million increased 14.8 percent from $370.1 million in the prior year. Sales in North America and Asia increased 20.2 percent and 17.3 percent, respectively, from the prior year reflecting strength in the manufacturing economy. Sales in Europe increased 10.0 percent from the prior year, reflecting stability in the market and the benefits of foreign currency translation.

        Worldwide sales of gas turbine products were $112.9 million, a decrease of 4.1 percent from $117.7 million in the prior year as business conditions in that market remained stable. North American sales decreased 6.5 percent from the prior year while sales in Asia increased 5.5 percent and sales in Europe decreased 5.9 percent.

        Worldwide sales of special application products were $134.3 million, a 16.1 percent increase from $115.6 million in the prior year. North American sales decreased 2.2 percent from the prior year while

12

sales in Europe and Asia increased 28.1 percent and 18.8 percent from the prior year, respectively. Continued strong demand for computer hard drives in Asia impacted the Company’s special application product sales. Worldwide sales of membrane products increased 13.6 percent from the prior year due to strong sales in that market in both Europe and Asia with increases of 32.0 percent and 29.4 percent, respectively.

        Consolidated Results    The Company reported record net earnings for 2005 of $110.6 million compared to $106.3 million in 2004, an increase of 4.0 percent. Net earnings per share — diluted were a record $1.27, up 7.6 percent from $1.18 in the prior year. The Company’s operating income of $156.5 million increased from prior year operating income of $141.6 million by 10.5 percent. Operating income in the Engine Products segment as a percent of total operating income was consistent with the prior year at 77.4 percent of total operating income compared to 77.5 percent in the prior year. Operating income in the Industrial Products segment as a percent of total operating income of 34.2 percent increased from the prior year percent of 29.8 percent of total operating income. International operating income, prior to corporate expense allocations, totaled 82.7 percent of consolidated operating income in 2005 as compared to 83.7 percent in 2004. Of the 2005 international operating income, prior to corporate expense allocations, Europe contributed 49.2 percent while Asia contributed 42.3 percent. Total international operating income increased 9.2 percent from the prior year.

        Gross margin for 2005 was 31.7 percent, flat with 31.6 percent in the prior year. Commodity price increases related to steel and, to a lesser extent, petrochemicals later in the year, impacted gross margin even though the Company worked to recover these increases through cost reduction programs and price adjustments. Somewhat offsetting the unrecovered portion of commodity price increases was operating leverage gained from higher production volumes throughout the year. The fiscal 2003 adjustment that was identified in the fiscal 2004 closing process negatively impacted gross margin in 2004 by $2.3 million. The Company continued its efforts to improve manufacturing infrastructure and reduce product costs through plant rationalization. Plant rationalization and start-up costs were $4.0 million in 2005, lower than the $6.2 million in the prior year.

        Operating expenses for 2005 were $349.1 million or 21.9 percent of sales, up from $311.8 million or 22.0 percent in the prior year. Operating expenses in fiscal 2005 included a $6.4 million increase to the Company’s legal reserve for the EPC patent infringement judgment recorded in the fourth quarter. Also included in 2005 operating costs were incremental costs associated with compliance with the Sarbanes-Oxley Act of 2002 totaling approximately $3.0 million. Included in operating expenses for 2004 was the adjustment of $5.0 million to increase the Company’s reserve for the patent infringement judgment, a $3.0 million increase to the Company’s warranty reserve on a specific warranty-related matter and $1.3 million for the fiscal 2003 adjustment that was identified in the fiscal 2004 closing process. The Company continued to focus on operating expense controls in 2005.

        Interest expense of $9.4 million increased $4.4 million from $5.0 million in the prior year. Net other income totaled $7.7 million in 2005 compared to $5.2 million in the prior year. Components of other income for 2005 were as follows: interest income of $2.7 million, earnings from non-consolidated joint ventures of $3.5 million, foreign exchange gains of $1.0 million and other miscellaneous income and expense items totaling $0.5 million.

        The effective income tax rate for fiscal 2005 was 28.6 percent. During fiscal 2005, the Company filed an amended tax return related to a prior year, which resulted in additional research and development tax credits. This resulted in a $1.0 million reduction in the income tax provision during fiscal 2005. Additionally, at the end of fiscal 2005, the Company recognized a $4.0 million tax charge for the $80.0 million foreign earnings repatriation plan pursuant to the American Jobs Creation Act of 2004. The effective income tax rate for fiscal 2004 was 25.0 percent and included a $1.8 million reduction in the income tax provision as a result of the completion of a research and development tax credit study.

        Total backlog at July 31, 2005 was $412.0 million, up 11.0 percent from the same period in the prior year. In the Engine Products segment, total open order backlog increased 15.1 percent compared to the same period in the prior year. In the Industrial Products segment, total open order backlog increased 1.9 percent from the same period in the prior year.

13

Liquidity and Capital Resources

        Financial Condition    At July 31, 2006, the Company’s capital structure was comprised of $79.9 million of current debt, $100.5 million of long-term debt and $546.8 million of shareholders’ equity. The Company had cash and cash equivalents of $45.5 million at July 31, 2006. The ratio of long-term debt to total capital was 15.5 percent and 16.5 percent at July 31, 2006 and 2005, respectively.

        Total debt outstanding decreased $32.7 million for the year to $180.4 million outstanding at July 31, 2006. The decrease is a result of a decrease in short-term borrowings outstanding at the end of the year of $28.6 million as compared to the prior year and a decrease in long-term debt of $4.0 million (including current maturities) from the prior year. The decrease in long-term debt was comprised of an addition of a $4.1 million commercial property loan offset by payments made during the year of $7.6 million, which includes a payment of a $7.1 million guaranteed note.

        The following table summarizes the Company’s fixed cash obligations as of July 31, 2006 for the years indicated (thousands of dollars):

			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	$	104,851	$	5,819	$	40,024	$	10,786	$	48,222
Capital lease obligations		2,185		722		1,111		128		224
Interest on long-term debt obligations		23,329		5,618		8,102		4,925		4,684
Operating lease obligations		11,670		6,461		4,908		301		—
Purchase obligations(1)		115,966		115,247		719		—		—
Deferred compensation and other(2)		10,675		1,535		3,010		1,870		4,260
Total	$	268,676	$	135,402	$	57,874	$	18,010	$	57,390

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

        For its U.S. pension plans, the Company does not have a minimum required contribution for fiscal 2007. However, the Company may elect to contribute up to its maximum deductible contribution of $28.6 million in fiscal 2007. For its non-U.S. pension plans, the Company estimates that it will contribute approximately $8.1 million in fiscal 2007. Future estimates of the Company’s pension plan contributions may change significantly depending on the actual rate of return on plan assets, discount rates and regulatory rules.

        The Company has a three-year multi-currency revolving facility with a group of banks under which the Company may borrow up to $150.0 million. The facility, as amended in September 2004, expires in September 2009. The agreement provides that loans may be made under a selection of currencies and rate formulas including Base Rate Advances or Off Shore Rate Advances. The interest rate on each advance is based on certain market interest rates and leverage ratios. Facility fees and other fees on the entire loan commitment are payable over the duration of this facility. There were no amounts outstanding at July 31, 2006 and $65.0 million outstanding at July 31, 2005, leaving $150.0 million and $85.0 million available for further borrowing under such facilities at July 31, 2006 and July 31, 2005, respectively. The weighted average interest rate on these short-term borrowings outstanding at July 31, 2005 was 3.77 percent.

        The Company also has three agreements under uncommitted credit facilities, which provide unsecured borrowings for general corporate purposes. At July 31, 2006 and 2005, there was $70.0 million and $60.0 million available for use under these facilities, respectively. There were no amounts outstanding under these facilities at July 31, 2006 and $36.7 million outstanding under these facilities at July 31, 2005. The weighted average interest rate on these short-term borrowings outstanding at July 31, 2005 was 3.67 percent.

14

        The Company also has a 100 million euro program for issuing treasury notes for raising short-, medium- and long-term financing for its European operations. There was 35.3 million euro outstanding at July 31, 2006 and no amounts outstanding at July 31, 2005 under the program. The weighted average interest rate on these short-term issuances at July 31, 2006 was 3.13 percent. Additionally, the Company’s European operations have lines of credit in the amount of 50.2 million euro. As of July 31, 2006 there was 20.1 million euro outstanding. As of July 31, 2005 there were no amounts outstanding. The weighted average interest rate on these short-term borrowings outstanding at July 31, 2006 was 3.38 percent.

        Other international subsidiaries may borrow under various credit facilities. As of July 31, 2006 and 2005, borrowings under these facilities were $2.6 million and $0.3 million, respectively. The weighted average interest rate on these international borrowings outstanding at July 31, 2006 and 2005 was 7.92 percent and 8.50 percent, respectively.

        Also, at July 31, 2006 and 2005, the Company had outstanding standby letters of credit totaling $18.7 million. The letters of credit guarantee payment to beneficial third parties in the event the Company is in breach of specified contract terms as detailed in each letter of credit. At July 31, 2006 and 2005, there were no amounts drawn upon these letters of credit.

        The Company repatriated $160.0 million of its accumulated foreign earnings in fiscal 2006 under the favorable provisions of the American Jobs Creation Act of 2004. Total U.S. income taxes of $3.6 million and $4.0 million have been provided on these repatriations in 2006 and 2005, respectively.

        Shareholders’ equity increased $22.2 million in 2006 to $546.8 million. The increase was due to current year earnings of $132.3 million, an increase in accumulated other comprehensive income of $23.6 million and $18.9 million of stock option and other stock activity offset by $118.9 million of treasury stock repurchases and $33.7 million of dividend declarations. The increase in accumulated other comprehensive income consisted primarily of foreign currency translation adjustment of $15.3 million and a decrease in the Company’s additional minimum pension liability of $8.4 million.

        Cash Flows    During fiscal 2006, $156.7 million of cash was generated from operating activities, compared with $142.6 million in 2005 and $118.1 million in 2004. Operating cash flows in 2006, which increased by $14.1 million from the prior year, included payment of the previously accrued EPC judgment of $14.2 million, the payment of $41.3 million to the Company’s defined benefit plans, smaller increases in accounts receivable of $12.1 million and the presentation of the tax benefit of equity plans of $10.9 million partially offset by larger increases in trade accounts payable and other accrued expenses of $26.6 million. The tax benefit is required to be presented as a financing activity pursuant to new accounting standards. The tax benefit from equity plans was presented as an operating cash flow in the prior years and not shown separately as a financing activity. In addition to cash generated from operating activities, the Company decreased its outstanding short-term debt by $31.7 million and net long-term debt by $3.2 million. Cash flow generated by operations was used primarily to support $81.3 million for capital expenditures, $118.9 million for stock repurchases and $26.4 million for dividend payments. Cash and cash equivalents increased $88.6 million during 2006.

        Capital expenditures for property, plant and equipment totaled $81.3 million in 2006, $55.0 million in 2005 and $47.7 million in 2004. Capital expenditures primarily related to new overseas facilities and productivity enhancing investments at various plants worldwide.

        Capital spending in 2007 is planned at $60.0 million to $70.0 million. Significant planned expenditures include the further upgrade of information systems and investment in manufacturing plants, equipment and tooling. It is anticipated that 2007 capital expenditures will be financed primarily by cash generated from operations and existing lines of credit.

        The Company expects that cash generated by operating activities will exceed $100 million again in 2007. At July 31, 2006, the Company had $45.5 million cash, $220.0 million available under existing credit facilities in the United States and 94.8 million euro available under existing credit facilities in Europe. The Company believes that the combination of existing cash, available credit under existing credit facilities and the expected cash generated by operating activities is adequate to meet cash requirements for fiscal 2007, including debt repayment, issuance of anticipated dividends, share repurchase activity,

15

capital expenditures, and execution of the Company’s domestic reinvestment plan pursuant to the American Jobs Creation Act of 2004.

        Dividends    The Company’s dividend policy is to maintain a payout ratio, which allows dividends to increase with the long-term growth of earnings per share. The Company’s dividend payout ratio target is 20.0 percent to 30.0 percent of the average earnings per share of the last three years. The current quarterly dividend of 0.09 cents per share equates to 27.0 percent of the average net earnings per share for 2004 through 2006.

        Share Repurchase Plan    In fiscal 2006, the Company repurchased 3.8 million shares of common stock for $118.9 million under the share repurchase plan authorized in March 2006 at an average price of $31.43 per share. The Company repurchased 3.8 million shares for $116.3 million in 2005. The Company repurchased 1.1 million shares for $29.8 million in 2004.

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

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

        New Accounting Standards    In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) (“SFAS 158”). This statement requires recognition of the overfunded or underfunded status of defined benefit postretirement plans as an asset or liability in the statement of financial position and to recognize changes in that funded status in comprehensive income in the year in which the changes occur. SFAS 158 also requires measurement of the funded status of a plan as of the date of the statement of financial position. SFAS 158 is effective for recognition of the funded status of the benefit plans for fiscal years ending after December 15, 2006 and is effective for the measurement date provisions for fiscal years ending after December 15, 2008. The Company is currently evaluating the effect of SFAS 158 on its consolidated financial statements.

        In March 2005, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, (“FIN 47”) which clarifies that the term “conditional asset retirement obligation” as used in SFAS No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. However, the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. FIN 47 requires that the uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 was effective for the Company’s fiscal period ended July 31, 2006. The adoption of FIN 47 in the fourth quarter of fiscal 2006 did not have a material impact on the Company’s consolidated financial statements.

        In December 2004, the FASB issued FASB Staff Position No. FAS 109-1, Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004 (“FSP 109-1”). FSP 109-1 concludes that the deduction should be accounted for as a special deduction in accordance with SFAS No. 109. This deduction, which was available to the Company during fiscal 2006, did not have a material impact on the Company’s consolidated financial statements.

16

        In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”). This pronouncement prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the effect of FIN 48 on its consolidated financial statements.

Market Risk

        The Company’s market risk includes the potential loss arising from adverse changes in foreign currency exchange rates and interest rates. The Company manages foreign currency market risk from time to time through the use of a variety of financial and derivative instruments. The Company does not

enter into any of these instruments for trading purposes to generate revenue. Rather, the Company’s objective in managing these risks is to reduce fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates. The Company uses forward exchange contracts and other hedging activities to hedge the U.S. dollar value resulting from existing recognized foreign currency denominated asset and liability balances and also for anticipated foreign currency transactions. The Company also naturally hedges foreign currency through its production in the countries in which it sells its products. The Company’s market risk on interest rates is the potential decrease in fair value of long-term debt resulting from a potential increase in interest rates. See further discussion of these market risks below.

        Foreign Currency    During 2006, the U.S. dollar was generally stronger throughout the year relative to the currencies of the foreign countries in which the Company operates. The overall strength of the dollar had a negative impact on the Company’s international net sales results because the foreign denominated revenues translated into less U.S. dollars.

        It is not possible to determine the true impact of foreign currency translation changes; however, the direct effect on net sales and net earnings can be estimated. For the year ended July 31, 2006, the impact of foreign currency translation resulted in an overall decrease in net sales of $25.3 million and a decrease in net earnings of $0.8 million. Foreign currency translation had a negative impact in several regions around the world. In Europe, the stronger U.S. dollar relative to the euro and British pound sterling resulted in a decrease of $17.9 million in net sales and a decrease of $0.9 million in net earnings. In the Asia-Pacific region, the stronger U.S. dollar relative to the Japanese yen had a negative impact on foreign currency translation with a decrease in net sales of $9.9 million and a decrease in net earnings of $0.6 million.

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

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

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

        Interest    The Company’s exposure to market risks for changes in interest rates relates primarily to its short-term investments, short-term borrowings and interest rate swap agreements as well as the potential increase in fair value of long-term debt resulting from a potential decrease in interest rates. The Company has no earnings or cash flow exposure due to market risks on its long-term debt obligations

17

as a result of the fixed-rate nature of the debt. However, interest rate changes would affect the fair market value of the debt. As of July 31, 2006, the estimated fair value of long-term debt with fixed interest rates was $91.3 million compared to its carrying value of $92.5 million. The fair value is estimated by discounting the projected cash flows using the rate that similar amounts of debt could currently be borrowed. As of July 31, 2006, our financial liabilities with exposure to changes in interest rates consisted mainly of $73.4 million of short-term debt outstanding. Assuming a hypothetical increase of one-half percent in short-term interest rates, with all other variables remaining constant, interest expense would have increased $0.4 million in fiscal 2006.

Critical Accounting Policies

        The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial

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

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

        Goodwill and other intangible assets    Goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company performs impairment reviews for its reporting units and uses a discounted cash flow model based on management’s judgments and assumptions to determine the estimated fair value. An impairment loss generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The Company performed an impairment test during the third quarter of fiscal 2006 to satisfy its annual impairment requirement. Impairment testing in the third quarter indicated that the estimated fair value of each reporting unit exceeded its corresponding carrying amount, including recorded goodwill and, as such, no impairment existed at that time. Other intangible assets with definite lives continue to be amortized over their estimated useful lives. Definite lived intangible assets are also subject to impairment testing. A considerable amount of management judgment and assumptions are required in performing the impairment tests, principally in determining the fair value of each reporting unit. While the Company believes its judgments and assumptions are reasonable, different assumptions could change the estimated fair values and, therefore, impairment charges could be required.

18

        Inventory    The Company’s inventories are valued at the lower of cost or market. Domestic inventories are valued using the last-in first-out (“LIFO”) method, while the international subsidiaries use the first-in, first-out (“FIFO”) method. Reserves for shrink and obsolescence are estimated using standard quantitative measures based on historical losses, including issues related to specific inventory items. Though management considers these balances adequate and proper, changes in economic conditions in specific markets in which the Company operates could have an effect on reserve balances required.

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

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

        Income taxes    As part of the process of preparing the Company’s Consolidated Financial Statements, management is required to estimate income taxes in each of the jurisdictions in which the Company operates. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and book accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the Company’s Consolidated Balance Sheet. These assets and liabilities are evaluated by using estimates of future taxable income streams and the impact of tax planning strategies. Management assesses the likelihood that deferred tax assets will be recovered from future taxable income and to the extent management believes that recovery is not likely, a valuation allowance is established. To the extent that a valuation allowance is established or increased, an expense within the tax provision is included in the statement of operations. Reserves are also estimated for uncertain tax positions that are currently unresolved. The Company routinely monitors the potential impact of such situations and believes that it is properly reserved. Valuations related to tax accruals and assets can be impacted by changes to tax codes, changes in statutory tax rates and the Company’s future taxable income levels.

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

        To develop the expected long-term rate of return on assets assumption for its pension plans, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. Reflecting the relatively long-term nature of the plans’ obligations, approximately 70 percent of the plans’ assets were invested in equities and 30 percent of plans’ assets in alternative investments with the balance primarily invested in fixed income instruments. A one percent change in the expected long-term rate of return on plan assets would change the 2006 annual pension expense by approximately $2.3 million. The expected long-term rate of return on assets assumption for the plans outside the U.S. follows the same methodology as described above but reflects the investment allocation and expected total portfolio returns specific to each plan and country.

        The Company’s objective in selecting a discount rate for its pension plans is to select the best estimate of the rate at which the benefit obligations could be effectively settled on the measurement date taking into account the nature and duration of the benefit obligations of the plan. In making this best estimate, the Company looks at rates of return on high-quality fixed-income investments currently available and expected to be available during the period to maturity of the benefits. This process includes looking at the universe of bonds available on the measurement date with a quality rating of Aa or better. Similar appropriate benchmarks are used to determine the discount rate for the non-U.S. plans. As of our measurement date of April 30, 2006, the Company increased its discount rate on U.S. plans to 6.25 percent from 5.5 percent as of April 30, 2005. The increase of 75 basis points was consistent with the changes in published bond indices. The change decreased the Company’s U.S. projected benefit obligation as of April 30, 2006 by approximately $14.5 million and is expected to decrease pension expense in fiscal year 2007 by approximately $0.9 million.

19

        At April 30, 2006, the Company’s annual measurement date for its pension plans, the plans were over-funded by $18.8 million since the fair value of plan assets exceeded the projected benefit obligation. As of April 30, 2006, the Company has an unrecognized actuarial loss of $18.7 million which will be recognized as pension expense into the future over the average remaining service period of the employees in the plans in accordance with SFAS 87.

Forward-Looking Statements

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

        Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date such statements are made. In addition, the Company wishes to advise readers that the factors listed in Item 1A of this Form 10-K, as well as other factors, could affect the Company’s performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed. The discussion of factors in Item 1A is not intended to be exhaustive, but rather to highlight important risk factors that impact results. General economic and political conditions and many other contingencies that may cause the Company’s actual results to differ from those currently anticipated are not separately discussed. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Market risk disclosure appears in Management’s Discussion and Analysis on page 17 under “Market Risk.”

20

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Report on Internal Control over Financial Reporting

        Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of July 31, 2006.

        Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of July 31, 2006 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report which is included herein.

William M. Cook Chief Executive Officer September 30, 2006	Thomas R. VerHage Chief Financial Officer September 30, 2006

Report of Independent Registered Public Accounting Firm

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

        We have completed integrated audits of Donaldson Company, Inc.’s July 31, 2006 and 2005 consolidated financial statements and of its internal control over financial reporting as of July 31, 2006, and an audit of its 2004 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

        In our opinion, the consolidated balance sheets and the related consolidated statements of earnings, of cash flows and of changes in shareholders’ equity present fairly, in all material respects, the financial position of Donaldson Company, Inc. and its subsidiaries (the “Company”) at July 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2006, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        As discussed in Note A to the consolidated financial statements, the Company changed its method of accounting for share-based payments as of August 1, 2005.

21

Internal control over financial reporting

        Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 8, that the Company maintained effective internal control over financial reporting as of July 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

        A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for

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

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

PricewaterhouseCoopers LLP

Minneapolis, Minnesota
September 30, 2006

22

Consolidated Statements of Earnings
Donaldson Company, Inc. and Subsidiaries

	Year ended July 31,
	2006			2005			2004
	(thousands of dollars, except share and per share amounts)
Net sales	$	1,694,327		$	1,595,733		$	1,414,980
Cost of sales		1,137,747			1,090,158			967,254
Gross margin		556,580			505,575			447,726
Selling, general and administrative		329,905			316,851			281,267
Research and development		33,887			32,234			30,487
Gain on sale of Ome land and building		—			—			(5,616	)
Operating income		192,788			156,490			141,588
Interest expense		9,875			9,414			4,954
Other income, net		(6,254	)		(7,657	)		(5,202	)
Earnings before income taxes		189,167			154,733			141,836
Income taxes		56,860			44,179			35,519
Net earnings	$	132,307		$	110,554		$	106,317
Weighted average shares — basic		82,992,475			84,990,739			87,960,423
Weighted average shares — diluted		85,139,250			86,883,408			90,429,956
Net earnings per share — basic	$	1.59		$	1.30		$	1.21
Net earnings per share — diluted	$	1.55		$	1.27		$	1.18

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

23

Consolidated Balance Sheets
Donaldson Company, Inc. and Subsidiaries

	At July 31,
	2006			2005
	(thousands of dollars, except share amounts)
Assets
Current assets
Cash and cash equivalents	$	45,467		$	134,066
Accounts receivable, less allowance of $8,398 and $8,409		312,214			294,016
Inventories		153,165			151,599
Deferred income taxes		17,407			13,517
Prepaids and other current assets		33,152			25,624
Total current assets		561,405			618,822
Property, plant and equipment, net		317,364			275,493
Goodwill		110,609			105,304
Intangible assets		22,129			23,166
Other assets		112,560			88,988
Total assets	$	1,124,067		$	1,111,773
Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings	$	73,368		$	102,004
Current maturities of long-term debt		6,541			7,772
Trade accounts payable		163,783			134,063
Accrued employee compensation and related taxes		49,129			45,480
Accrued liabilities		42,969			26,960
Other current liabilities		24,079			37,923
Total current liabilities		359,869			354,202
Long-term debt		100,495			103,302
Deferred income taxes		40,890			29,468
Other long-term liabilities		76,011			100,185
Total liabilities		577,265			587,157
Commitments and contingencies (Note K)
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 in 2006 and 2005		443,216			443,216
Retained earnings		275,598			172,775
Stock compensation plans		20,535			40,574
Accumulated other comprehensive income		51,194			27,620
Treasury stock — 8,102,921 and 5,583,393 shares in 2006 and 2005, at cost		(243,741	)		(159,569	)
Total shareholders’ equity		546,802			524,616
Total liabilities and shareholders’ equity	$	1,124,067		$	1,111,773

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

24

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

	Year ended July 31,
	2006			2005			2004
	(thousands of dollars)
Operating Activities
Net earnings	$	132,307		$	110,554		$	106,317
Adjustments to reconcile net earnings to net cash provided by operating activities
Gain on sale of Ome land and building		—			—			(5,616	)
Depreciation and amortization		44,700			44,284			41,555
Equity in (earnings) loss of affiliates		(664	)		323			(1,066	)
Deferred income taxes		6,868			2,957			(1,598	)
Tax benefit of equity plans		(10,943	)		—			—
Stock option expense		2,832			—			—
Other, net		(13,551	)		2,520			10,272
Changes in operating assets and liabilities, net of acquired businesses
Accounts receivable		(12,147	)		(17,349	)		(37,270	)
Inventories		587			(6,745	)		(20,734	)
Prepaids and other current assets		(5,794	)		2,087			4,107
Trade accounts payable and other accrued expenses		26,649			3,957			22,085
Payment of litigation judgment		(14,170	)		—			—
Net cash provided by operating activities		156,674			142,588			118,052
Investing Activities
Purchases of property, plant and equipment		(81,272	)		(54,979	)		(47,738	)
Proceeds from sale of property, plant, and equipment		3,688			4,781			4,708
Acquisitions and investments in affiliates, net of cash acquired		(4,560	)		(13,362	)		(4,397	)
Net cash used in investing activities		(82,144	)		(63,560	)		(47,427	)
Financing Activities
Proceeds from long-term debt		4,400			30,000			—
Repayments of long-term debt		(7,613	)		(23,944	)		(1,873	)
Change in short-term borrowings		(31,650	)		81,917			5,195
Purchase of treasury stock		(118,909	)		(116,268	)		(29,765	)
Dividends paid		(26,443	)		(19,757	)		(17,779	)
Tax benefit of equity plans		10,943			—			—
Exercise of stock options		4,774			2,703			3,298
Net cash used in financing activities		(164,498	)		(45,349	)		(40,924	)
Effect of exchange rate changes on cash		1,369			883			2,733
Increase (decrease) in cash and cash equivalents		(88,599	)		34,562			32,434
Cash and cash equivalents, beginning of year		134,066			99,504			67,070
Cash and cash equivalents, end of year	$	45,467		$	134,066		$	99,504
Supplemental Cash Flow Information
Cash paid during the year for:
Income taxes	$	36,145		$	33,087		$	25,998
Interest		9,287			8,453			4,629

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

25

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

	Common Stock		Additional Paid-in Capital			Retained Earnings			Stock Compensation Plans			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
	(thousands of dollars, except per share amounts)
Balance July 31, 2003	$	248,280	$	—		$	337,952		$	13,817		$	(6,888	)	$	(145,768	)	$	447,393
Comprehensive income
Net earnings							106,317												106,317
Foreign currency translation													23,675						23,675
Additional minimum pension liability													14,356						14,356
Net gain on cash flow hedging derivatives													415						415
Comprehensive income																			144,763
Treasury stock acquired																(29,765	)		(29,765	)
Stock options exercised				(2,076	)		(6,687	)		1,900						5,838			(1,025	)
Deferred stock and other activity							(2,653	)		4,872						1,202			3,421
Performance awards							117									92			209
Tax reduction — employee plans				2,076															2,076
Two-for-one stock split		194,936					(303,996	)								109,060			—
Dividends ($.205 per share)							(17,779	)											(17,779	)
Balance July 31, 2004		443,216		—			113,271			20,589			31,558			(59,341	)		549,293
Comprehensive income
Net earnings							110,554												110,554
Foreign currency translation													1,877						1,877
Additional minimum pension liability, net of tax													(5,499	)					(5,499	)
Net loss on cash flow hedging derivatives													(316	)					(316	)
Comprehensive income																			106,616
Treasury stock acquired																(116,268	)		(116,268	)
Stock options exercised				(7,273	)		(30,080	)		9,310						14,992			(13,051	)
Deferred stock and other activity							(1,207	)		10,675						428			9,896
Performance awards							(6	)								620			614
Tax reduction — employee plans				7,273															7,273
Dividends ($.235 per share)							(19,757	)											(19,757	)
Balance July 31, 2005		443,216		—			172,775			40,574			27,620			(159,569	)		524,616
Comprehensive income
Net earnings							132,307												132,307
Foreign currency translation													15,287						15,287
Additional minimum pension liability, net of tax													8,438						8,438
Net loss on cash flow hedging derivatives													(151	)					(151	)
Comprehensive income																			155,881
Treasury stock acquired																(118,909	)		(118,909	)
Stock options exercised				(22,381	)		12,358			—						11,934			1,911
Deferred stock and other activity							(11,310	)		(17,291	)					20,893			(7,708	)
Performance awards							320			(2,748	)					1,910			(518	)
Stock option expense							2,832												2,832
Tax reduction — employee plans				22,381															22,381
Dividends ($.041 per share)							(33,684	)											(33,684	)
Balance July 31, 2006	$	443,216	$	—		$	275,598		$	20,535		$	51,194		$	(243,741	)	$	546,802

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

26

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

NOTE A
Summary of Significant Accounting Policies

        Description of Business    Donaldson Company, Inc. (“Donaldson” or the “Company”), is a leading worldwide provider of filtration systems and replacement parts. The Company’s product mix includes air and liquid filters and exhaust and emission control products for mobile equipment; in-plant air cleaning systems; compressed air purification systems; air intake systems for industrial gas turbines and specialized filters and membranes for such diverse applications as computer disk drives, industrial bags and semi-conductor processing. Products are manufactured at more than 30 plants around the world and through three joint ventures. Products are sold to original equipment manufacturers (“OEM”), distributors and dealers, and directly to end users.

        Principles of Consolidation    The Consolidated Financial Statements include the accounts of Donaldson Company, Inc. and all majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated. The Company’s three joint ventures that are not majority-owned are accounted for under the equity method. The Company does not have any variable interests in variable interest entities as of July 31, 2006.

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

        Foreign Currency Translation    For most foreign operations, local currencies are considered the functional currency. Assets and liabilities are translated to U.S. dollars at year-end exchange rates, and the resulting gains and losses arising from the translation of net assets located outside the United States are recorded as a cumulative translation adjustment, a component of accumulated other comprehensive income in the consolidated balance sheets. Elements of the consolidated statements of earnings are translated at average exchange rates in effect during the year. Realized and unrealized foreign currency transaction gains and losses are included in income, net in the consolidated statements of earnings. Foreign currency transaction gains of $0.3 million and $1.0 million and losses of $0.5 million are included in other income, net in the consolidated statements of earnings in 2006, 2005 and 2004, respectively.

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

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

        Inventories    Inventories are stated at the lower of cost or market. Domestic inventories are valued using the last-in, first-out (“LIFO”) method, while the international subsidiaries use the first-in, first-out (“FIFO”) method. Inventories valued at LIFO were approximately 34 and 36 percent of total inventories at July 31, 2006 and 2005, respectively. For inventories valued under the LIFO method, the FIFO cost exceeded the LIFO carrying values by $31.7 million and $30.4 million at July 31, 2006 and 2005,

27

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

	July 31, 2006		July 31, 2005
Materials	$	56,194	$	57,939
Work in process		20,304		19,897
Finished products		76,667		73,763
Total inventories	$	153,165	$	151,599

        Property, Plant and Equipment    Property, plant and equipment are stated at cost. Additions, improvements or major renewals are capitalized, while expenditures that do not enhance or extend the asset’s useful life are charged to operating expense as incurred. Depreciation is computed under the straight-line method. Depreciation expense was $42.6 million in 2006, $42.6 million in 2005, and $40.1 million in 2004. The estimated useful lives of property, plant and equipment are 10 to 40 years for buildings and 3 to 10 years for machinery and equipment. The components of property, plant and equipment are as follows (thousands of dollars):

	July 31, 2006			July 31, 2005
Land	$	18,336		$	16,654
Buildings		182,969			153,126
Machinery and equipment		473,483			436,951
Construction in progress		33,246			24,197
Less accumulated depreciation		(390,670	)		(355,435	)
Total property, plant and equipment	$	317,364		$	275,493

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

        Goodwill and Other Intangible Assets    Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations under the purchase method of accounting. Other intangible assets, consisting primarily of patents, trademarks and customer relationships and lists, are recorded at cost and are amortized on a straight-line basis over their estimated useful lives of 5 to 15 years. Goodwill is tested for impairment annually or if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment testing for goodwill is done at a reporting unit level. Reporting units are one level below the business segment level, but can be combined when reporting units within the same segment have similar economic characteristics. An impairment loss generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The Company completed its annual impairment tests in the third quarter of fiscal 2006 and 2005, which indicated no impairment.

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

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

28

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

	July 31, 2006			July 31, 2005			July 31, 2004
Foreign currency translation adjustment	$	52,774		$	37,487		$	35,610
Net gain (loss) on cash flow hedging derivatives, net of deferred taxes		(325	)		(174	)		142
Additional minimum pension liability, net of deferred taxes		(1,255	)		(9,693	)		(4,194	)
Total accumulated other comprehensive income	$	51,194		$	27,620		$	31,558

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

        Cumulative foreign translation is not adjusted for income taxes as substantially all translation relates to permanent investments in non-U.S. subsidiaries.

        Earnings Per Share    The Company’s basic net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares. The Company’s diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and dilutive shares relating to stock options, restricted stock and stock incentive plans. Certain outstanding options were excluded from the diluted net earnings per share calculations because their exercise prices were greater than the average market price of the Company’s common stock during those periods. There were 443,703 and 540,095 options excluded from the diluted net earnings per share calculation for the fiscal year ended July 31, 2006 and 2005, respectively. The following table presents information necessary to calculate basic and diluted earnings per share:

	2006		2005		2004
	(thousands of dollars, except per share amounts)
Weighted average shares — basic		82,992		84,991		87,960
Dilutive shares		2,147		1,892		2,470
Weighted average shares — diluted		85,139		86,883		90,430
Net earnings for basic and diluted earnings per share computation	$	132,307	$	110,554	$	106,317
Net earnings per share — basic	$	1.59	$	1.30	$	1.21
Net earnings per share — diluted	$	1.55	$	1.27	$	1.18

        Stock Split    On January 16, 2004, the Company’s Board of Directors declared a two-for-one stock split effected in the form of a 100 percent dividend. The Company distributed 43.4 million shares of common stock on March 19, 2004, to shareholders of record as of March 5, 2004. All share and per share amounts have been retroactively adjusted to reflect the stock split.

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

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

        Stock-Based Compensation    The Company offers stock-based employee compensation plans, which are more fully described in Note H. On August 1, 2005, the Company adopted the Statement of Financial Standards (“SFAS”) No. 123R, Share Based Payment – Revised 2004, using the modified prospective transition method. Under this method, stock-based employee compensation cost is recognized using the

29

fair-value based method for all new awards granted after August 1, 2005. Compensation costs for unvested stock options and awards that are outstanding at August 1, 2005 will be recognized over the requisite service period based on the grant-date fair value of those options and awards as previously calculated under the pro-forma disclosures under SFAS 123.

        Prior to the adoption of SFAS 123R, the Company accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Boards (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. If the fair value based method prescribed in SFAS 123 had been applied in fiscal 2005 and 2004 to all stock awards, the Company’s net income and basic and diluted net income per share would have been reduced as summarized below:

	2005			2004
	(thousands of dollars, except per share amounts)
Net earnings, as reported	$	110,554		$	106,317
Add total stock-based employee compensation expenses included in the determination of net income, net of tax		3,784			2,364
Less total stock-based employee compensation expense under the fair value-based method, net of tax		(12,150	)		(8,182	)
Pro forma net earnings	$	102,188		$	100,499
Basic net earnings per share
As reported	$	1.30		$	1.21
Pro forma	$	1.20		$	1.14
Diluted net earnings per share
As reported	$	1.27		$	1.18
Pro forma	$	1.17		$	1.11

        Effective June 27, 2005, the Board of Directors of the Company authorized the acceleration of vesting of certain unvested and “out-of-the-money” stock options outstanding under the Plan. The accelerated options were granted in fiscal 2004 and fiscal 2005 with a three-year vesting period and had exercise prices per share ranging from $30.38 to $30.69. Options for the purchase of 511,242 shares of the common stock of the Company became exercisable immediately as a result of this action. No options held by any director or named executive officer were included in the acceleration action. As a result, the amount of pre-tax compensation expense amortized during fiscal 2006 was reduced by approximately $2.1 million from what it would have otherwise been.

        Revenue Recognition    Revenue is recognized when product ownership and the risk of loss has transferred to the customer and the Company has no remaining obligations. The Company records estimated discounts and rebates as a reduction of sales in the same period revenue is recognized. Shipping and handling costs for fiscal 2006, 2005 and 2004 totaling $35.3 million, $34.2 million and $31.8 million, respectively, are classified as a component of operating expenses.

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

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

        Asset Retirement Obligations    The Company accounts for obligations under retirements of long-lived assets under SFAS No. 143, Accounting for Asset Retirement Obligations (“SFAS 143”). This statement addresses financial accounting and reporting for obligations associated with the retirement of

30

tangible long-lived assets and the associated asset retirement costs. In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, (“FIN 47”) which clarifies that the term “conditional asset retirement obligation” as used in SFAS 143 refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. However, the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. FIN 47 requires that the uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 was effective for the Company’s fiscal period ended July 31, 2006. As of July 31, 2006 and 2005, the Company did not have any obligations associated with the retirement of long-lived assets.

        Exit or Disposal Activities    The Company accounts for costs relating to exit or disposal activities under SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities for exit and disposal activities initiated beginning in fiscal 2003. SFAS No. 146 addresses recognition, measurement and reporting of costs associated with exit and disposal activities including restructuring.

        Guarantees    Upon issuance of a guarantee, the Company recognizes a liability for the fair value of an obligation assumed under a guarantee. See Note K for disclosures related to guarantees.

        New Accounting Standards    In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) (“SFAS 158”). This statement requires recognition of the overfunded or underfunded status of defined benefit postretirement plans as an asset or liability in the statement of financial position and to recognize changes in that funded status in comprehensive income in the year in which the changes occur. SFAS 158 also requires measurement of the funded status of a plan as of the date of the statement of financial position. SFAS 158 is effective for recognition of the funded status of the benefit plans for fiscal years ending after December 15, 2006 and is effective for the measurement date provisions for fiscal years ending after December 15, 2008. The Company is currently evaluating the effect of SFAS 158 on its consolidated financial statements.

        In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”). This pronouncement prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the effect of FIN 48 on its consolidated financial statements.

NOTE B
Goodwill and Other Intangible Assets

        The Company has allocated goodwill to its Industrial Products and Engine Products segments. Additions to goodwill and other intangible assets in fiscal 2005 relate to the acquisitions of Triboguard Company Limited for a purchase price of $7.3 million on December 1, 2004 as a part of the Industrial Products segment and Le Bozec Filtration Systems for a purchase price of $9.3 million on March 31, 2005 as a part of the Engine Products segment. Fiscal 2006 additions to the Industrial Products segment were a result of the acquisition of AirCel Corporation on January 19, 2006 for $4.5 million. The current year addition to the Engine Products segment is a result of the final purchase price allocation for the Le Bozec acquisition. Financial results for each of the above acquisitions are included in the Company’s consolidated results from the date of acquisition. Pro forma financial results are not presented as the acquisitions are not material individually or in the aggregate. As of August 1, 2004, the Company transferred a component of its Engine Products segment to its Industrial Products segment along with

31

the goodwill associated with this component. At that time, the Company performed an impairment test of the reporting unit to which this goodwill is now assigned resulting in no impairment. Following is a reconciliation of goodwill for the years ended July 31, 2006 and 2005:

	Industrial Products			Engine Products			Total Goodwill
	(thousands of dollars)
Balance as of August 1, 2004	$	72,601		$	23,973		$	96,574
Transfer of goodwill between segments		22,903			(22,903	)		—
Acquisition activity		4,310			5,135			9,445
Foreign exchange translation		(374	)		(341	)		(715	)
Balance as of July 31, 2005	$	99,440		$	5,864		$	105,304
Acquisition activity		2,234			—			2,234
Final purchase price allocation		—			1,394			1,394
Usage of pre-acquisition net operating losses		(1,166	)		—			(1,166	)
Foreign exchange translation		2,419			424			2,843
Balance as of July 31, 2006	$	102,927		$	7,682		$	110,609

        Intangible assets are comprised of patents, trademarks and customer relationships and lists. Following is a reconciliation of intangible assets for the years ended July 31, 2006 and 2005:

	Gross Carrying Amount			Accumulated Amortization			Net Intangible Assets
	(thousands of dollars)
Balance as of August 1, 2004	$	21,734		$	(2,607	)	$	19,127
Intangibles acquired		5,864			—			5,864
Amortization expense		—			(1,769	)		(1,769	)
Foreign exchange translation		(109	)		53			(56	)
Balance as of July 31, 2005	$	27,489		$	(4,323	)	$	23,166
Intangibles acquired		300			(23	)		277
Amortization expense		—			(2,037	)		(2,037	)
Foreign exchange translation		994			(271	)		723
Balance as of July 31, 2006	$	28,783		$	(6,654	)	$	22,129

        Net intangible assets consist of patents, trademarks and tradenames of $15.9 million and $16.7 million as of July 31, 2006 and 2005, respectively, and customer related intangibles of $6.2 million and $6.4 million as of July 31, 2006 and 2005, respectively. Amortization expense relating to existing intangible assets is expected to be approximately $2.1 million for each of the years ending July 31, 2007, 2008, 2009 and 2010, respectively. For fiscal 2011, the amortization is expected to be $2.0 million.

NOTE C
Credit Facilities

        The Company has a three-year multi-currency revolving facility with a group of banks under which the Company may borrow up to $150.0 million. The facility, as amended in September 2004, expires in September 2009. The agreement provides that loans may be made under a selection of currencies and rate formulas including Base Rate Advances or Off Shore Rate Advances. The interest rate on each advance is based on certain market interest rates and leverage ratios. Facility fees and other fees on the entire loan commitment are payable over the duration of this facility. There were no amounts outstanding at July 31, 2006 and $65.0 million outstanding at July 31, 2005, leaving $150.0 million and $85.0 million available for further borrowing under such facilities at July 31, 2006 and July 31, 2005, respectively. The weighted average interest rate on these short-term borrowings outstanding at July 31, 2005 was 3.77 percent.

        The Company also has three agreements under uncommitted credit facilities, which provide unsecured borrowings for general corporate purposes. At July 31, 2006 and 2005, there was $70.0 million and

32

$60.0 million available for use under these facilities, respectively. There were no amounts outstanding at July 31, 2006 and $36.7 million outstanding at July 31, 2005 under these facilities. The weighted average interest rate on these short-term borrowings outstanding at July 31, 2005 was 3.67 percent.

        The Company also has a 100 million euro program for issuing treasury notes for raising short, medium and long-term financing for its European operations. There was 35.3 million euro outstanding at July 31, 2006 and no amounts outstanding at July 31, 2005. The weighted average interest rate on these short-term issuances at July 31, 2006 was 3.13 percent. Additionally, the Company’s European operations have lines of credit in the amount of 50.2 million euro. As of July 31, 2006, there was 20.1 million euro outstanding. As of July 31, 2005 there were no amounts outstanding. The weighted average interest rate of these short-term borrowings outstanding at July 31, 2006 was 3.38 percent.

        Other international subsidiaries may borrow under various credit facilities. As of July 31, 2006 and 2005, borrowings under these facilities were $2.6 million and $0.3 million, respectively. The weighted average interest rate on these international borrowings outstanding at July 31, 2006 and 2005 was 7.92 percent and 8.50 percent, respectively.

        As discussed further in Note K, at July 31, 2006 and 2005, the Company had outstanding standby letters of credit totaling $18.7 million, upon which no amounts had been drawn.

NOTE D
Long-Term Debt

        Long-term debt consists of the following:

	2006		2005
	(thousands of dollars)
6.31% Unsecured senior notes, interest payable semi-annually, principal payment of $28.2 million due July 15, 2008	$	27,771	$	28,164
6.39% Unsecured senior notes due August 15, 2010, interest payable semi-annually, principal payments of $5.0 million, to be paid annually commencing August 16, 2006		24,775		24,624
4.85% Unsecured senior notes, interest payable semi-annually, principal amount of $30.0 million due December 17, 2011		30,000		30,000
1.418% Guaranteed senior notes, interest payable semi-annually, principal amount of 1.2 billion yen due January 31, 2012		10,468		10,668
1.51% Guaranteed note repaid March 28, 2006		—		7,112
Variable Rate Industrial Development Revenue Bonds (“Lower Floaters”) due September 1, 2024, principal amount of $7.755 million, interest payable monthly, and an interest rate of 3.73% as of July 31, 2006		7,755		7,755
Variable Rate Commercial Property Loan, to a maximum of 37 million rand, final installment due September 2016, interest payable monthly, and an interest rate of 9.25% as of July 31, 2006		4,082		—
Capitalized lease obligations and other, with various maturity dates and Interest rates		2,185		2,751
Total		107,036		111,074
Less current maturities		6,541		7,772
Total long-term debt	$	100,495	$	103,302

        Annual maturities of long-term debt are $6.5 million in 2007, $34.5 million in 2008, $6.6 million in 2009, $5.4 million in 2010, $5.5 million in 2011 and $48.5 million thereafter. The Company estimates that the carrying value of long-term debt approximates its fair market value.

        Certain note agreements contain debt covenants related to working capital levels and limitations on indebtedness. Further, the Company is restricted from paying dividends or repurchasing common stock if its tangible net worth (as defined) does not exceed certain minimum levels. As of July 31, 2006, the Company was in compliance with all such covenants.

33

NOTE E
Derivatives and Other Financial Instruments

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

        Each derivative transaction the Company enters into is designated at inception as a hedge and is expected to be highly effective. The Company evaluates hedge effectiveness at inception and on an ongoing basis. When a derivative is determined to be or is no longer expected to be highly effective, hedge accounting is discontinued. Hedge ineffectiveness, if any, is recorded in earnings on the same line as the underlying transaction risk.

        The Company is exposed to changes in the fair value of its fixed-rate debt resulting from interest rate fluctuations. To hedge this exposure, the Company has from time to time entered into fixed to variable interest rate swaps that were accounted for as fair value hedges. The fair value of these swaps was recorded net of the underlying outstanding debt. Changes in the payment of interest resulting from the interest rate swaps are recorded as an offset to interest expense. Effectiveness is assessed based on changes in the fair value of the underlying debt using incremental borrowing rates currently available on loans with similar terms and maturities. The Company did not have any interest rate swaps outstanding as of July 31, 2006.

        The Company enters into forward exchange contracts of generally less than one year to hedge forecasted transactions with its foreign subsidiaries, and to reduce potential exposure related to fluctuations in foreign exchange rates for existing recognized assets and liabilities and also for anticipated intercompany transactions such as purchases, sales and dividend payments denominated in local currencies. Forward exchange contracts are designated as cash flow hedges as they are designed to hedge the variability of cash flows associated with the underlying existing recognized or anticipated transactions. Changes in the value of derivatives designated as cash flow hedges are recorded in other comprehensive income in shareholders’ equity until earnings are affected by the variability of the underlying cash flows. At that time, the applicable amount of gain or loss from the derivative instrument that is deferred in shareholders’ equity is reclassified to earnings and is included in other income or expense. For foreign currency forward contracts used as cash flow hedges, effectiveness is measured using spot rates to value both the hedge contract and the hedged item. The excluded forward points as well as any ineffective portions of hedges are recorded in earnings through the same line as the underlying transaction. During fiscal year 2006, $0.4 million in gains were recorded in fiscal 2006 due to the exclusion of forward points from the assessment of hedge effectiveness.

        Net unrealized losses of $0.7 million and $0.3 million from cash flow hedges were recorded in accumulated other comprehensive income as of July 31, 2006 and 2005, respectively. These unrealized losses and gains are reclassified, as appropriate, as earnings are affected by the variability of the underlying cash flows during the term of the hedges. For fiscal year 2006, $0.8 million of net deferred gains were reclassified from accumulated other comprehensive income to other income.

        Fair Value of Financial Instruments    At July 31, 2006 and 2005, the Company’s financial instruments included cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings, long-term debt and derivative contracts. The fair values of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings approximated carrying values because of the short-term nature of these instruments. Derivative contracts are reported at their fair values based on third-party quotes. As of July 31, 2006, the estimated fair value of long-term debt with fixed interest rates was $91.3 million compared to its carrying value of $92.5 million. The fair value is estimated by discounting the projected cash flows using the rate that similar amounts of debt could currently be borrowed.

34

         Credit Risk    The Company is exposed to credit loss in the event of nonperformance by counterparties in interest rate swaps and foreign exchange forward contracts. Collateral is generally not required of the counterparties or of the Company. In the unlikely event a counterparty fails to meet the contractual terms of an interest rate swap or foreign exchange forward contract, the Company’s risk is limited to the fair value of the instrument. The Company actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as counterparties. The Company has not had any historical instances of non-performance by any counterparties, nor does it anticipate any future instances of non-performance.

NOTE F
Employee Benefit Plans

        Pension Plans    The Company and certain of its subsidiaries have defined benefit pension plans for many of its hourly and salaried employees. The domestic plans include plans that provide defined benefits as well as a plan for salaried workers that provides defined benefits pursuant to a cash balance feature whereby a participant accumulates a benefit comprised of a percentage of current salary that varies with years of service, interest credits and transition credits. The international plans generally provide pension benefits based on years of service and compensation level. The Company uses an April 30 measurement date for its pension plans.

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

	2006			2005			2004
	(thousands of dollars)
Net periodic cost:
Service cost	$	14,851		$	13,369		$	12,302
Interest cost		14,577			14,404			12,389
Expected return on assets		(20,060	)		(18,235	)		(16,365	)
Transition amount amortization		551			1,223			980
Prior service cost amortization		208			214			152
Actuarial (gain) loss amortization		1,898			455			1,605
Curtailment loss		1,296			—			1
Settlement (gain)/loss		(356	)		102			—
Special termination benefit cost		—			307			—
Net periodic benefit cost	$	12,965		$	11,839		$	11,064

        The funded status of the Company’s pension plans as of 2006 and 2005, is as follows:

	2006			2005
	(thousands of dollars)
Change in benefit obligation:
Benefit obligation, beginning of year	$	285,152		$	233,867
Addition of non-U.S. plans		—			14,184
Service cost		14,851			13,369
Interest cost		14,577			14,404
Participant contributions		1,220			1,068
Plan amendments		1,508			488
Actuarial (gain) loss		(5,720	)		22,594
Currency exchange rates		3,787			(900	)
Settlement		(956	)		(1,459	)
Benefits paid		(15,418	)		(12,463	)
Benefit obligation, end of year	$	299,001		$	285,152

35

	2006			2005
	(thousands of dollars)
Change in plan assets:
Fair value of plan assets, beginning of year	$	254,670		$	220,200
Addition of non-U.S. plans		—			8,613
Actual return on plan assets		50,941			12,870
Company contributions		23,973			26,824
Participant contributions		1,220			1,068
Currency exchange rates		2,733			(983	)
Settlement		(368	)		(1,459	)
Benefits paid		(15,418	)		(12,463	)
Fair value of plan assets, end of year	$	317,751		$	254,670
Reconciliation of funded status:
Funded status	$	18,750		$	(30,482	)
Unrecognized actuarial loss		18,715			57,143
Unrecognized prior service cost		4,333			4,389
Unrecognized net transition obligation		4,796			5,200
Fourth quarter contributions		17,311			288
Net amount recognized in consolidated balance sheet	$	63,905		$	36,538
Amounts recognized in consolidated balance sheet consist of:
Prepaid benefit cost	$	81,939		$	55,554
Accrued benefit liability		(18,034	)		(19,016	)
Additional minimum liability		(2,815	)		(23,798	)
Intangible asset		812			8,402
Accumulated other comprehensive income		2,003			15,396
Net amount recognized in consolidated balance sheet	$	63,905		$	36,538

        The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $45.5 million, $35.7 million and $14.6 million, respectively, as of April 30, 2006 and $86.8 million, $79.5 million and $54.1 million, respectively, as of April 30, 2005.

        For the years ended July 31, 2006 and 2005, the U.S. pension plans represented approximately 82 percent and 84 percent, respectively, of the Company’s total plan assets, and approximately 71 percent and 74 percent, respectively, of the Company’s total projected benefit obligation. Considering the significance of the U.S. pension plans in comparison with the Company’s total pension plans, the Company will present and discuss some of the critical pension assumptions related to the U.S. pension plans and the non-U.S. pension plans, separately.

        The weighted-average discount rates and rates of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation are as follows:

Weighted average actuarial assumptions	2006			2005
All U.S. plans:
Discount rate		6.25	%		5.50	%
Rate of compensation increase		5.00	%		5.00	%
Non-U.S. plans:
Discount rate		4.64	%		4.43	%
Rate of compensation increase		3.62	%		3.29	%

36

        The weighted-average discount rates, expected returns on plan assets and rates of increase in future compensation levels used to determine the net periodic benefit cost are as follows:

Weighted average actuarial assumptions	2006			2005			2004
All U.S. plans:
Discount rate		5.50	%		6.25	%		6.25	%
Expected return on plan assets		8.50	%		8.50	%		8.50	%
Rate of compensation increase		5.00	%		5.00	%		5.00	%
Non-U.S. plans:
Discount rate		4.43	%		4.73	%		4.15	%
Expected return on plan assets		6.08	%		6.71	%		6.88	%
Rate of compensation increase		3.29	%		3.43	%		3.14	%

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

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

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

	Plan Assets at
Asset Category	2006			2005
All U.S. plans:
Equity securities		62	%		63	%
Alternative investments		31	%		29	%
Bonds		7	%		7	%
Cash and other		—			1	%
Total U.S. plans		100	%		100	%
Non U.S. plans:
Equity securities		64	%		64	%
Debt securities		33	%		34	%
Cash and other		3	%		2	%
Total Non U.S. plans		100	%		100	%

        Investment Policies and Strategies.    For the Company’s U.S. plans, the Company uses a total return investment approach to achieve a long-term return on plan assets with a prudent level of risk for the purpose of meeting its retirement income commitments to employees. The plan’s investments are diversified to assist in managing risk. The Company’s asset allocation guidelines target an allocation of 60 percent equity securities, 30 percent alternative investments (fund of hedge funds) and 10 percent bonds. Within equity securities, the Company targets an allocation of 25 percent small cap, 15 percent

37

large cap, 15 percent international and 5 percent private equity. These target allocation guidelines are determined in consultation with the Company’s investment consultant and through the use of modeling the risk/return trade-offs among asset classes utilizing assumptions about expected annual return, expected volatility/standard deviation of returns and expected correlations with other asset classes. Investment policy and performance is measured and monitored on an ongoing basis by the Company’s investment committee through its use of an investment consultant and through quarterly investment portfolio reviews.

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

        Estimated Contributions and Future Payments    For its U.S. pension plans, the Company does not have a minimum required contribution for fiscal 2007. However, the Company may elect to contribute up to its maximum deductible contribution of $28.6 million in fiscal 2007. For its non-U.S. pension plans, the Company estimates that it will contribute approximately $8.1 million in fiscal 2007.

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

Fiscal year 2007	$	16,827
Fiscal year 2008	$	16,532
Fiscal year 2009	$	17,405
Fiscal year 2010	$	19,841
Fiscal year 2011	$	17,910
Fiscal years 2012-2016	$	110,021

        Postemployment and Postretirement Benefit Plans    The Company provides certain postemployment and postretirement health care benefits for certain U.S. employees for a limited time after termination of employment. The Company has recorded a liability for its postretirement benefit plan in the amount of $3.6 million and $3.9 million as of July 31, 2006 and July 31, 2005, respectively. The annual cost resulting from these benefits is not material. For measurement purposes, a 10 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2006. We have assumed that the long-term rate of increase will decrease gradually to an ultimate annual rate of 5 percent. A one-percentage point increase in the health care cost trend rate would increase the fiscal 2006 and 2005 costs by $0.4 million.

        401(k) Savings Plan    The Company provides a contributory employee savings plan to U.S. employees that permits participants to make contributions by salary reduction pursuant to section 401(k) of the Internal Revenue Code. Employee contributions of up to 25 percent of compensation are matched at a rate equaling 100 percent of the first 3 percent contributed and 50 percent of the next 2 percent contributed. The Company’s contributions under this plan are based on the level of employee contributions as well as a discretionary contribution based on performance of the Company. Total contribution expense for these plans was $6.4 million, $5.8 million and $5.9 million for the years ended July 31, 2006, 2005 and 2004, respectively.

        Employee Stock Ownership Plan    The Company maintains an Employee Stock Ownership Plan (“ESOP”) for eligible employees. As of July 31, 2006, all shares of the plan have been allocated to participants. The ESOP’s only assets are Company common stock. Total ESOP shares are considered to be shares outstanding for earnings per share calculations.

        Deferred Compensation and Other Benefit Plans    The Company provides various deferred compensation and other benefit plans to certain executives. The deferred compensation plan allows these employees to defer the receipt of all or a portion of their salary, bonus and other stock related compensation to future periods. Other benefit plans are provided to supplement the benefits for a select group of highly compensated individuals which are reduced because of compensation limitations set by

38

the Internal Revenue Code. The Company has recorded a liability in the amount of $10.7 million and $10.6 million as of July 31, 2006 and July 31, 2005, respectively, related primarily to its deferred compensation plans.

NOTE G
Shareholders’ Equity

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

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

        Treasury Stock    The Company believes that the share repurchase program is a way of providing return to its shareholders. The Board of Directors authorized the repurchase, at the Company’s discretion, of 8.0 million shares of common stock under the stock repurchase plan dated March 31, 2006. As of July 31, 2006, the Company had remaining authorization to repurchase 6.2 million shares under this plan. Following is a summary of treasury stock share activity for fiscal 2006 and 2005:

	2006			2005
Balance at beginning of year		5,583,393			2,361,899
Stock repurchases		3,783,000			3,763,700
Net issuance upon exercise of stock options		(399,612	)		(523,845	)
Issuance under compensation plans		(851,331	)		(6,549	)
Other activity		(12,529	)		(11,812	)
Balance at end of year		8,102,921			5,583,393

        During fiscal 2005, the Company repurchased 3.0 million shares from Banc of America Securities LLC under an overnight share repurchase program which was completed at a total cost of $91.9 million. The overnight share repurchase program permitted the Company to purchase the shares immediately, while Banc of America Securities purchased the shares in the market over six months.

NOTE H
Stock Option Plans

        Employee Incentive Plans    In November 2001, shareholders approved the 2001 Master Stock Incentive Plan (the “Plan”) that replaced the 1991 Plan that expired on December 31, 2001 and provided for similar awards. The Plan extends through December 2011 and allows for the granting of nonqualified stock options, incentive stock options, restricted stock, stock appreciation rights (“SAR”), dividend equivalents, dollar-denominated awards and other stock-based awards. Options under the Plan are granted to key employees at or above market price at the date of grant. Options are exercisable for up

39

to 10 years from the date of grant. The Plan also allows for the granting of performance awards to a limited number of key executives. As administered by the Human Resources Committee of the Company’s Board of Directors, these performance awards are payable in common stock and are based on a formula which measures performance of the Company over a three-year period. Performance award expense under these plans totaled $5.2 million, $5.3 million and $2.9 million in 2006, 2005 and 2004, respectively.

        Stock Options    Stock options issued during fiscal 2006 become exercisable for non-executives in equal increments over three years and become exercisable for most executives immediately upon the date of grant. Certain stock options issued to executives during fiscal 2006 become exercisable in equal increments over three years. Stock options issued during fiscal 2005 become exercisable for non-executives in equal increments over three years and become exercisable for executives upon the date of grant. Stock options issued during fiscal 2004 become exercisable for non-executives in equal increments over three years and become exercisable for most executives immediately upon the date of grant. Certain stock options issued to executives during fiscal 2004 become exercisable in equal increments over three years. Stock options issued from fiscal 1999 through fiscal 2003 became exercisable for non-executives in equal increments over three years and became exercisable for executives immediately upon the date of grant. Stock options issued during fiscal 1997 and 1998 became exercisable in equal increments over three years for both executives and non-executives. Stock options issued prior to fiscal l997 for non-executives and during fiscal 1996 for executives became exercisable in equal increments over four years. Prior to fiscal 1996, stock options became exercisable immediately for executives.

        Effective June 27, 2005, the Board of Directors of the Company authorized the acceleration of vesting of certain unvested and “out-of-the-money” stock options outstanding under the Plan. The accelerated options were granted in fiscal 2004 and fiscal 2005 with a three-year vesting period and had exercise prices per share ranging from $30.38 to $30.69. Options for the purchase of 511,242 shares of the common stock of the Company became exercisable immediately as a result of this action. No options held by any director or named executive officer were included in the acceleration action. As a result, the amount of pre-tax compensation expense amortized during fiscal 2006 was reduced by approximately $2.1 million from what it would have otherwise been. For fiscal 2006, the Company recorded pretax compensation expense associated with stock options of $2.8 million and recorded $1.0 million of related tax benefit.

        On August 1, 2005, the Company adopted SFAS No. 123R, Share Based Payment – Revised 2004, using the modified prospective transition method. Under this method, stock-based employee compensation cost is recognized using the fair-value based method for all new awards granted after August 1, 2005. Compensation costs for unvested stock options and awards that were outstanding at August 1, 2005 are recognized over the requisite service period based on the grant-date fair value of those options and awards as previously calculated under the pro-forma disclosures under SFAS 123. The Company determined the fair value of these awards using the Black-Scholes option pricing model with the following weighted average assumptions:

	2006		2005		2004
Risk-free interest rate		4.3-5.0%		3.74%		3.55%
Expected volatility		20.2-27.2%		24.4%		31.5%
Expected dividend yield		1.0%		0.8%		1.0%
Expected life
Director original grants without reloads		7 years		—		—
Director original grants with reloads		—		3 years		2 years
Non-officer original grants		6 years		6 years		6 years
Officer original grants with reloads		3 years		3 years		2 years
Reload grants		—		7 years		7 years
Officer original grants without reloads		6 years		6 years		6 years
Officer original grants with reloads and vesting		3 years		—		3 years

        Reload grants are grants made to officers who exercised a reloadable option during the fiscal year and made payment of the purchase price using shares of previously owned Company stock. The reload

40

grant is for the number of shares equal to the shares used in payment of the purchase price and/or withheld for minimum tax withholding. There were no reload grants made in fiscal 2006.

        Black-Scholes is a widely accepted stock option pricing model; however, the ultimate value of stock options granted will be determined by the actual lives of options granted and the actual future price levels of the Company’s common stock. The weighted average fair value for options granted during fiscal 2006, 2005 and 2004 is $9.36, $8.08 and $9.46 per share, respectively using the Black-Scholes pricing model.

        The following table summarizes stock option activity:

	Options Outstanding			Weighted Average Exercise Price
Outstanding at July 31, 2005		6,488,334		$	19.74
Granted		398,600			32.88
Exercised		(591,299	)		14.07
Canceled		(14,331	)		23.81
Outstanding at July 31, 2006		6,281,304			21.09

        The total intrinsic value of options exercised during fiscal 2006, 2005 and 2004 was $11.2 million, $38.7 million, and $15.5 million, respectively.

        Shares reserved at July 31, 2006 for outstanding options and future grants were 10,161,598. Shares reserved consist of shares available for grant plus all outstanding options. An amount is added to shares reserved each year based on shares outstanding adjusted for certain items as detailed in the Plan. The aggregate number of shares of common stock that may be issued under all awards under the Plan in any calendar year may not exceed 1.5 percent of the sum of the Company’s outstanding shares of common stock, the outstanding share equivalents, as determined by the Company in the calculation of earnings per share on a fully diluted basis, and shares held in treasury of the Company as reported for the Company’s most recent fiscal year that ends during such calendar year.

        The following table summarizes information concerning outstanding and exercisable options as of July 31, 2006:

Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$5 to $15		1,989,592		2.92	$	11.22		1,989,592	$	11.22
$15 to $25		1,742,460		5.67		18.16		1,742,460		18.16
$25 and above		2,549,252		6.89		30.80		2,333,089		30.64
		6,281,304		5.30		21.09		6,065,141		20.68

        At July 31, 2006, the aggregate intrinsic value of shares outstanding and exercisable was $72.2 million and $72.2 million, respectively.

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

	Options			Weighted Average Grant Date Fair Value
Non-vested at July 31, 2005		201,236		$	5.95
Granted		202,000			9.37
Vested		(182,574	)		5.77
Canceled		(4,499	)		7.81
Non-vested at July 31, 2006		216,163			9.26

41

        The total fair value of shares vested during fiscal 2006, 2005 and 2004 was $5.9 million, $33.2 million and $14.2 million, respectively.

        As of July 31, 2006, there was $1.4 million of total unrecognized compensation cost related to non-vested stock options granted under the Plan. This unvested cost is expected to be recognized during fiscal 2007, fiscal 2008 and fiscal 2009.

NOTE I
Income Taxes

        The components of earnings before income taxes are as follows:

	2006		2005		2004
	(thousands of dollars)
Earnings before income taxes:
United States	$	75,658	$	59,973	$	55,861
Foreign		113,509		94,760		85,975
Total	$	189,167	$	154,733	$	141,836

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

	2006		2005		2004
	(thousands of dollars)
Income taxes:
Current:
Federal	$	21,583	$	18,451	$	13,834
State		448		508		1,501
Foreign		27,961		22,263		21,782
		49,992		41,222		37,117
Deferred:
Federal		4,860		2,026		(55	)
State		278		310		(3	)
Foreign		1,730		621		(1,540	)
		6,868		2,957		(1,598	)
Total	$	56,860	$	44,179	$	35,519

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

	2006			2005			2004
Statutory U.S. federal rate		35.0	%		35.0	%		35.0	%
State income taxes		0.2			0.2			0.7
Foreign taxes at lower rates		(5.1	)		(6.5	)		(7.1	)
Export and research credits		(1.1	)		(1.5	)		(2.9	)
Tax on repatriation of earnings		1.9			2.6			—
Other		(0.8	)		(1.2	)		(0.7	)
		30.1	%		28.6	%		25.0	%

42

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

	2006			2005
	(thousands of dollars)
Deferred tax assets:
Accrued expenses	$	10,465		$	14,742
Tax credit and NOL carryforwards		2,554			5,361
LIFO inventory reserve		628			689
Investment in joint venture		82			117
Other		2,283			3,243
Gross deferred tax assets		16,012			24,152
Valuation allowance		(1,360	)		(3,722	)
Net deferred tax assets		14,652			20,430
Deferred tax liabilities:
Depreciation and amortization		(25,810	)		(27,974	)
Compensation and retirement plans		(5,826	)		62
Repatriation of foreign earnings		—			(4,000	)
Other		(6,499	)		(4,469	)
Gross deferred tax liabilities		(38,135	)		(36,381	)
Net deferred tax liability	$	(23,483	)	$	(15,951	)

        The Company repatriated $160.0 million of its accumulated foreign earnings in fiscal 2006 under the favorable provisions of the American Jobs Creation Act of 2004. Total U.S. income taxes of $3.6 million and $4.0 million have been provided on these repatriations in 2006 and 2005, respectively. U.S. income taxes have not been provided on additional undistributed earnings of non-U.S. subsidiaries of approximately $279.0 million. The Company currently plans to permanently reinvest these undistributed earnings. If any portion were to be distributed, the related U.S. tax liability may be reduced by foreign income taxes paid on those earnings plus any available foreign tax credit carryovers. Determination of the unrecognized deferred tax liability related to these undistributed earnings is not practicable.

        The increase in the tax rate from 2005 primarily reflects the mix of earnings by jurisdiction. While the underlying rate continues to reflect the significant contribution from the Company’s international operations, the majority of which now have statutory tax rates below those of the United States, a higher percentage of the Company’s 2006 earnings were made in the United States or other countries with higher than average tax rates. Additionally, the Company recognized a smaller benefit from U.S. research and development credits in 2006 than in 2005 due primarily to the credit expiring in the middle of the fiscal year. In the first quarter of 2006 the Company recognized $0.9 million of benefit from a prior year amended research and development tax credit, consistent with the amount recognized in 2005.

        While non-US operations have been profitable overall, the Company has cumulative pre-tax loss carryforwards of $8.6 million, which are carried as net operating losses in certain international subsidiaries. Approximately $3.1 million of these losses are attributable to pre-acquisition carryforwards. If fully realized, the unexpired net operating losses may be carried forward to offset future local income tax payments, at current rates of tax, of $2.6 million. Approximately 7 percent of these net operating losses expire within the next three years, while the majority of the remaining net operating loss carryforwards have no statutory expiration under current local laws. However, due to the uncertainty of being able to realize certain of these losses, a valuation allowance of $1.4 million has been recorded at July 31, 2006.

43

NOTE J
Segment Reporting

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

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

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

        Corporate and Unallocated includes corporate expenses determined to be non-allocable to the segments, interest income and expense, non-operating income and expense, and expenses not allocated to the business segments in the same period. During the first quarter of 2006, the Company adjusted its basis of measurement for earnings before income taxes such that certain expenses, such as amortization of intangibles, which were previously considered to be Corporate and Unallocated, are now included in the Engine and Industrial Products segment results. The impact of the change in the basis of measurement resulted in approximately $16.0 million of Corporate and Unallocated expenses being charged to the Engine and Industrial Products segments’ aggregate earnings before income taxes in fiscal 2006 as compared to fiscal 2005. This change resulted in approximately $8.0 million of additional expense to each of the Engine and Industrial Products segments during fiscal 2006. This adjustment to the basis of measurement of segment earnings did not change the business components included in each of the Company’s reportable segments. Assets included in Corporate and Unallocated principally are cash and cash equivalents, inventory reserves, certain prepaids, certain investments, other assets and assets allocated to intercompany transactions.

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

        Segment allocated assets are primarily accounts receivable, inventories, property, plant and equipment and goodwill. Reconciling items included in Corporate and Unallocated are created based on accounting differences between segment reporting and the consolidated, external reporting as well as internal allocation methodologies. Certain prior year amounts have been reclassified between the segments to conform to the current structure. Amounts reclassified in net sales and earnings before income taxes are not significant.

        Segment detail is summarized as follows:

	Engine Products		Industrial Products		Corporate & Unallocated			Total Company
	(thousands of dollars)
2006
Net sales	$	991,554	$	702,773	$	—		$	1,694,327
Depreciation and amortization		21,679		15,248		7,773			44,700
Equity earnings in unconsolidated affiliates		4,896		58		—			4,954
Earnings before income taxes		135,994		65,550		(12,377	)		189,167

44

	Engine Products		Industrial Products		Corporate & Unallocated			Total Company
	(thousands of dollars)
Assets		435,285		444,242		244,540			1,124,067
Equity investments in unconsolidated affiliates		13,539		1,566		—			15,105
Capital expenditures, net of acquired businesses		39,416		27,723		14,133			81,272
2005
Net sales	$	923,840	$	671,893	$	—		$	1,595,733
Depreciation and amortization		23,072		16,157		5,055			44,284
Equity earnings in unconsolidated affiliates		3,368		90		—			3,458
Earnings before income taxes		125,454		53,709		(24,430	)		154,733
Assets		416,805		436,111		258,857			1,111,773
Equity investments in unconsolidated affiliates		12,898		1,345		—			14,243
Capital expenditures, net of acquired businesses		28,645		20,059		6,275			54,979
2004
Net sales	$	811,543	$	603,437	$	—		$	1,414,980
Depreciation and amortization		22,044		15,795		3,716			41,555
Equity earnings in unconsolidated affiliates		4,305		71		—			4,376
Earnings before income taxes		114,662		42,985		(15,811	)		141,836
Assets		371,661		399,916		230,032			1,001,609
Equity investments in unconsolidated affiliates		13,358		1,263		—			14,621
Capital expenditures, net of acquired businesses		25,324		18,146		4,268			47,738

        During fiscal 2004, an error was identified totaling $3.6 million (at 2004 exchange rates) relating to 2003 transactions between certain European subsidiaries and the United States in our Industrial Products segment. We assessed the materiality of these transactions on our reported results for both years and determined that they were not material. However, if the error had been identified and recorded in 2003, the Industrial Products segment would have reported $3.6 million more earnings before income taxes for 2004.

45

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

	2006		2005		2004
	(thousands of dollars)
Engine Products segment:
Off-road products	$	308,175	$	286,230	$	244,749
Truck products		184,303		175,048		156,373
Aftermarket products*		499,076		462,562		410,421
Total Engine Products segment		991,554		923,840		811,543
Industrial Products segment:
Industrial filtration solutions		440,230		424,727		370,095
Gas turbine products		121,194		112,872		117,705
Special application products		141,349		134,294		115,637
Total Industrial Products segment		702,773		671,893		603,437
Total Company	$	1,694,327	$	1,595,733	$	1,414,980

*Includes replacement part sales to the Company’s original equipment manufacturers.

Geographic sales by origination and property, plant and equipment:

	Net Sales		Property, Plant & Equipment — Net
	(thousands of dollars)
2006
United States	$	799,487	$	134,817
Europe		491,665		104,343
Asia-Pacific		334,824		50,632
Other		68,351		27,572
Total	$	1,694,327	$	317,364
2005
United States	$	750,199	$	128,866
Europe		474,084		88,775
Asia-Pacific		311,194		37,299
Other		60,256		20,553
Total	$	1,595,733	$	275,493
2004
United States	$	663,963	$	131,245
Europe		423,267		84,659
Asia-Pacific		283,361		27,274
Other		44,389		18,351
Total	$	1,414,980	$	261,529

        Concentrations    Sales to one customer accounted for 12 percent of net sales in 2006 and 2005. There were no customers over 10 percent of gross accounts receivable in 2006 and 2005.

NOTE K
Commitments and Contingencies

        Guarantees    The Company and its partner, Caterpillar, Inc., in an unconsolidated joint venture, Advanced Filtration Systems Inc., guarantee certain debt of the joint venture. As of July 31, 2006, the joint venture did not have any outstanding debt.

46

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

Balance at August 1, 2004	$	9,529
Accruals for warranties (including changes in estimates)		2,622
Less settlements made during the period		(4,310	)
Balance at July 31, 2005	$	7,841
Accruals for warranties (including changes in estimates)		4,510
Less settlements made during the period		(3,562	)
Balance at July 31, 2006	$	8,789

        At July 31, 2006 and 2005, the Company had a contingent liability for standby letters of credit totaling $18.7 million, which have been issued and are outstanding. The letters of credit guarantee payment to beneficial third parties in the event the Company is in breach of specified contract terms as detailed in each letter of credit. At July 31, 2006 and 2005, there were no amounts drawn upon these letters of credit.

        Legal Proceedings    The Company was a defendant in a patent infringement lawsuit filed in November 1998 in the United States District Court for the Northern District of Iowa (Eastern Division)

by Engineered Products Co. (“EPC”). On August 31, 2005, the U.S. Court of Appeals for the Federal Circuit issued a ruling lowering the jury verdict against the Company from $15,839,004 to $11,480,667. The court also directed the District Court to recalculate prejudgment interest (which had previously been awarded in the amount of approximately $1.1 million), attorneys’ fees (which had previously been awarded in the amount of $1,844,933), costs (which had been awarded in the amount of $132,725) and post-judgment interest for EPC in light of the Court’s revision to the damages.

        The Company increased its reserves for the fourth quarter of fiscal 2005 by an additional $6.4 million to reflect the ruling of the Federal Circuit. The Company and EPC did not appeal the decision of the Federal Circuit. The parties subsequently agreed on a settlement amount for the recalculation of attorneys’ fees, expenses and interest and the case was concluded on September 30, 2005. The amount reserved in the fourth quarter of 2005 was adequate to cover the settlement reached by EPC and the Company.

        The Company is not currently subject to any pending litigation other than litigation which arises out of and is incidental to the conduct of the Company’s business. All such matters are subject to many uncertainties and outcomes that are not predictable with assurance. The Company does not consider any of such proceedings that are currently pending to be likely to result in a material adverse effect on the Company’s consolidated financial position or results of operations.

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

47

NOTE L
Quarterly Financial Information (Unaudited)

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(thousands of dollars, except per share amounts)
2006
Net sales	$	403,396	$	392,915	$	429,858	$	468,158
Gross margin		131,532		124,782		144,074		156,192
Net earnings		32,198		26,909		37,012		36,188
Basic earnings per share		.38		.32		.45		.44
Diluted earnings per share		.37		.32		.43		.43
Dividends declared per share		.080		.160		—		.170
2005
Net sales	$	372,906	$	388,424	$	411,664	$	422,739
Gross margin		116,239		120,954		133,800		134,582
Net earnings		27,394		26,716		31,333		25,111
Basic earnings per share		.32		.31		.37		.30
Diluted earnings per share		.31		.31		.36		.29
Dividends declared per share		—		.120		—		.060

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

        No additional disclosure is required regarding the recent change in independent registered public accounting firms for the Donaldson Company, Inc. Employee Stock Ownership and Retirement Savings Plan, as disclosed in the Company’s Form 8-K filed on January 18, 2006.

Item 9A.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

        No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) identified in connection with such evaluation during the fiscal quarter ended July 31, 2006, has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

        See Management’s Report on Internal Control over Financial Reporting under Item 8 on page 21.

Report of Independent Registered Public Accounting Firm

        See Report of Independent Registered Public Accounting Firm under Item 8 on page 21.

48

Item 9B.  OTHER INFORMATION

        None.

PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information under the captions “Item 1: Election of Directors;” “Board Structure and Governance,” “Audit Committee,” “Audit Committee Expertise; Complaint-Handling Procedures,” and “Section 16(a) Beneficial Ownership Reporting Compliance” of the Company’s proxy statement for the 2006 annual shareholders meeting is incorporated herein by reference. Information on the Executive Officers of the Company is found on page 6 of this Annual Report on Form 10-K.

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

Item 11.  EXECUTIVE COMPENSATION

        The information under the captions “Board Structure and Governance,” “Director Compensation;” “Executive Compensation;” “Pension Benefits;” and “Change-in-Control Arrangements” of the Company’s proxy statement for the 2006 annual shareholders meeting is incorporated herein by reference.

49

Item 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        The information under the caption “Security Ownership” of the Company’s proxy statement for the 2006 annual shareholders meeting is incorporated herein by reference.

        The following table sets forth information as of July 31, 2006, regarding the Company’s equity compensation plans:

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders
1980 Master Stock Compensation Plan:
Stock Options		—		—		—
Deferred Stock Gain Plan		72,445	$	12.3828		—
1991 Master Stock Compensation Plan:
Stock Options		3,287,197	$	16.8912		—
Deferred Stock Option Gain Plan		259,552	$	21.4611		—
Deferred LTC/Restricted Stock		242,824	$	19.6519		—
2001 Master Stock Incentive Plan:
Stock Options		2,525,409	$	26.7037		See Note 1
Deferred LTC/Restricted Stock		52,130	$	30.5468		See Note 1
Long Term Compensation		259,805	$	25.6039		See Note 1
Subtotal for plans approved by security holders:		6,699,362	$	21.2626
Equity compensation plans not approved by security holders
Nonqualified Stock Option Program for Non-Employee Directors		468,698	$	20.3322		See Note 2
ESOP Restoration		50,475	$	11.4566		See Note 3
Subtotal for plans not approved by security holders:		519,173	$	19.4693
Total:		7,218,535	$	21.1337

Note 1:   Shares authorized for issuance during the 10-year term are limited in each plan year to 1.5% of the Company’s “outstanding shares” (as defined in the 2001 Master Stock Incentive Plan).

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

50

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

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Not applicable.

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

        The information under “Audit Committee Report and Appointment of Auditors — Information Regarding the Independent Registered Public Accounting Firm” of the Company’s proxy statement for the 2006 annual shareholders meeting is incorporated herein by reference.

PART IV

Item 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Documents filed with this report:

(1)	Financial Statements Consolidated Statements of Earnings — years ended July 31, 2006, 2005 and 2004 Consolidated Balance Sheets — July 31, 2006 and 2005 Consolidated Statements of Cash Flows — years ended July 31, 2006, 2005 and 2004 Consolidated Statements of Changes in Shareholders’ Equity — years ended July 31, 2006, 2005 and 2004 Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm
(2)	Financial Statement Schedules — Schedule II Valuation and qualifying accounts All other schedules (Schedules I, III, IV and V) for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instruction, or are inapplicable, and therefore have been omitted.
(3)	Exhibits The exhibits listed in the accompanying index are filed as part of this report or incorporated by reference as indicated therein.

51

SIGNATURES

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

DONALDSON COMPANY, INC.

Date:	September 30, 2006	By:	/s/ William M. Cook
			William M. Cook Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on September 30, 2006.

/s/ William M. Cook	President, Chief Executive Officer and Chairman
William M. Cook	(principal executive officer)
/s/ Thomas R. VerHage	Vice President and Chief Financial Officer
Thomas R. VerHage	(principal financial officer)
/s/ James F. Shaw	Controller
James F. Shaw	(principal accounting officer)
*	Director
F. Guillaume Bastiaens
*	Director
Janet M. Dolan
*	Director
Jack W. Eugster
*	Director
John F. Grundhofer
*	Director
Michael J. Hoffman
*	Director
Paul David Miller
*	Director
Jeffrey Noddle
*	Director
Willard D. Oberton
*	Director
John P. Wiehoff
*By: /s/ Norman C. Linnell
Norman C. Linnell As attorney-in-fact

52

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

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

			Additions
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts (A)			Deductions (B) & (C)			Balance at End of Period
Year ended July 31, 2006:
Allowance for doubtful accounts deducted from accounts receivable	$	8,409	$	1,981	$	(399	)	$	(1,593	)	$	8,398
Year ended July 31, 2005:
Allowance for doubtful accounts deducted from accounts receivable	$	8,741	$	2,832	$	93		$	(3,257	)	$	8,409
Year ended July 31, 2004:
Allowance for doubtful accounts deducted from accounts receivable	$	5,836	$	3,938	$	176		$	(1,209	)	$	8,741
Restructuring reserves — Ultrafilter	$	82						$	(82	)	$	0

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

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

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

53

EXHIBIT INDEX
ANNUAL REPORT ON FORM 10-K

* 3-A	—	Restated Certificate of Incorporation of Registrant as currently in effect (Filed as Exhibit 3-A to Form 10-Q Report for the Third Quarter ended April 30, 2006)
* 3-B	—	By-laws of Registrant as currently in effect (Filed as Exhibit 3-B to 2003 Form 10-K Report)
* 3-C	—	Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of Registrant, dated as of March 3, 2006 (Filed as Exhibit 3.2 to Form 8-K Report filed March 6, 2006)
* 4	—	**
* 4-A	—	Preferred Stock Amended and Restated Rights Agreement between Registrant and Wells Fargo Bank, N.A., as Rights Agent, dated as of January 27, 2006 (Filed as Exhibit 4.1 to Form 8-K Report filed February 1, 2006)
10-A	—	Officer Annual Cash Incentive Plan
*10-B	—	Supplementary Retirement Agreement with William A. Hodder (Filed as Exhibit 10-B to 1993 Form 10-K Report)***
*10-C	—	1980 Master Stock Compensation Plan as Amended (Filed as Exhibit 10-C to 1993 Form 10-K Report)***
*10-D	—	Form of Performance Award Agreement under 1991 Master Stock Compensation Plan (Filed as Exhibit10-D to 1995 Form 10-K Report)***
*10-E	—	ESOP Restoration Plan (2003 Restatement) (Filed as Exhibit 10-E to 2003 Form 10-K Report)***
*10-F	—	Deferred Compensation Plan for Non-employee Directors as amended (Filed as Exhibit 10-F to 1990 Form 10-K Report)***
*10-G	—	Form of “Change in Control” Agreement with key employees as amended (Filed as Exhibit 10-G to Form 10-Q for the Second Quarter ended January 31, 1999)***
*10-H	—	Independent Director Retirement and Benefit Plan as amended (Filed as Exhibit 10-H to 1995 Form 10-K Report)***
*10-I	—	Excess Pension Plan (2003 Restatement) (Filed as Exhibit 10-I to 2003 Form 10-K Report)***
*10-J	—	Supplementary Executive Retirement Plan (2003 Restatement) (Filed as Exhibit 10-J to 2003 Form 10-K Report)***
*10-K	—	1991 Master Stock Compensation Plan as amended (Filed as Exhibit 10-K to 1998 Form 10-K Report)***
*10-L	—	Form of Restricted Stock Award under 1991 Master Stock Compensation Plan (Filed as Exhibit 10-L to 1992 Form 10-K Report)***
*10-M	—	Form of Agreement to Defer Compensation for certain Executive Officers (Filed as Exhibit 10-M to 1993 Form 10-K Report)***
*10-N	—	Stock Option Program for Non-employee Directors (Filed as Exhibit 10-N to 1998 Form 10-K Report)***
*10-O	—	Deferred Compensation and 401(K) Excess Plan (2003 Restatement) (Filed as Exhibit 10-O to 2003 Form 10-K Report)***
*10-P	—	Note Purchase Agreement among Donaldson Company, Inc. and certain listed Insurance Companies dated as of July 15, 1998 (Filed as Exhibit 10-R to 1998 Form 10-K Report)
*10-Q	—	First Supplement to Note Purchase Agreement among Donaldson Company, Inc. and certain listed Insurance Companies dated as of August 1, 1998 (Filed as Exhibit 10-S to 1998 Form 10-K Report)
*10-R	—	Second Supplement and First Amendment to Note Purchase Agreement among Donaldson Company, Inc. and certain listed Insurance Companies dated as of September 30, 2004 (Filed as Exhibit 10-A to Form 10-Q Report for the Second Quarter ended January 31, 2005)

54

*10-S	—	Deferred Stock Option Gain Plan (2003 Restatement) (Filed as Exhibit 10-R to 2003 Form 10-K Report)***
*10-T	—	2001 Master Stock Incentive Plan (Filed as Exhibit 4.1 to Form S-8 (SEC File No. 333-97771))***
*10-U	—	Long Term Compensation Plan (Filed as Exhibit 10-T to 2003 Form 10-K Report)***
*10-V	—	Form of Officer Stock Option Award Agreement under the 2001 Master Stock Incentive Plan (Filed as Exhibit 10-A to Form 10-Q Report for the First Quarter ended October 31, 2004)***
*10-W	—	Form of Non-Employee Director Non-Qualified Stock Option Agreement under the 2001 Master Stock Incentive Plan (Filed as Exhibit 10-B to Form 10-Q Report for the First Quarter ended October 31, 2004)***
*10-X	—	Agreement dated August 29, 2005, by and between Donaldson Company, Inc. and William G. Van Dyke (Filed as Exhibit 99.1 to Form 8-K Report filed August 29, 2005)***
*10-Y	—	Description of compensation for non-employee directors (Described under Item 1.01 of Form 8-K filed August 4, 2006)***
*10-Z	—	Description of performance-based compensation for certain executive officers (Described under Item 1.01 of Form 8-K filed October 4, 2005)***
*10-AA	—	Restated Compensation Plan for Non-Employee Directors dated July 28, 2006 (Filed as Exhibit 99.1 to Form 8-K Report filed August 4, 2006)***
*10-BB	—	Description of performance-based compensation for certain executive officers (Described under Item 1.01 of Form 8-K filed August 4, 2006)***
*10-CC	—	Restated Long-Term Compensation Plan dated May 23, 2006 (Filed as Exhibit 99.2 to Form 8-K Report filed August 4, 2006)***
10-DD	—	Qualified Performance-Based Compensation Plan
10-EE	—	Deferred Compensation and 401(k) Excess Plan (2005 Restatement)
10-FF	—	Deferred Stock Option Gain Plan (2005 Restatement)
10-GG	—	Excess Pension Plan (2005 Restatement)
10-HH	—	Supplemental Executive Retirement Plan (2005 Restatement)
11	—	Computation of net earnings per share (“Earnings Per Share” in “Summary of Significant Accounting Policies” in Note A in the Notes to Consolidated Financial Statements on page 29)
13	—	Portions of Registrant’s Annual Report to Shareholders for the year ended July 31, 2006
21	—	Subsidiaries
23	—	Consent of PricewaterhouseCoopers LLP
24	—	Powers of Attorney
31-A	—	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31-B	—	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	—	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

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

*** Denotes compensatory plan or management contract.

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

55

EX-10.A

                                                                    Exhibit 10.A







                             DONALDSON COMPANY, INC.
                       OFFICER ANNUAL CASH INCENTIVE PLAN




                                  MAY 23, 2006






                             DONALDSON COMPANY, INC.
                       OFFICER ANNUAL CASH INCENTIVE PLAN


                                TABLE OF CONTENTS

                                                                            PAGE

1.    PURPOSE..................................................................1


2.    RELATION TO MASTER PLAN..................................................1


3.    ELIGIBILITY..............................................................1


4.    PERFORMANCE REQUIREMENT..................................................1


5.    PLAN YEAR................................................................1


6.    INCENTIVE OPPORTUNITY....................................................1


7.    PERFORMANCE GOALS........................................................1


8.    GOAL WEIGHTING...........................................................2


9.    INCENTIVE PAYMENTS.......................................................2


10.   ADMINISTRATION...........................................................3







                             DONALDSON COMPANY, INC.
                       OFFICER ANNUAL CASH INCENTIVE PLAN


1. PURPOSE. It is Donaldson Company's intent to compensate its Officers in a
manner that attracts, retains and motivates key individuals. The Donaldson
Company, Inc. Officer Annual Cash Incentive Plan ("Plan") is designed to reward
Officers for their contributions toward Donaldson Company, Inc.'s ("Company")
achievement of specific, objective goals. The Plan aligns the interests of the
participants with the Company's business and financial plans.

This Plan provides variable incentive compensation for eligible positions. The
Plan is intended to increase motivation, improve operating results and provide
an incentive element as a valuable component of a competitive total compensation
package.

2. RELATION TO MASTER PLAN. The awards provided by this plan are intended to
qualify as "qualified performance based compensation" within the meaning of
section 162(m) of the Internal Revenue Code and are subject to the terms,
conditions and restrictions required by the Donaldson Company, Inc. Qualified
Performance Based Compensation Plan. No awards shall be made under this Plan
after the last date on which awards may be granted under the Qualified
Performance Based Compensation Plan.

3. ELIGIBILITY. An officer of the Company may be designated as eligible for the
Plan.

4. PERFORMANCE REQUIREMENT. Each incentive payout under the Plan is conditioned
upon the review and approval by the Human Resources Committee of the Company's
Board of Director's ("HR Committee") which consists of two or more outside
Directors and upon acceptable performance of the participant. The HR Committee
has the right to withhold or adjust any incentive payout when a participant's
performance does not warrant a payout.

5. PLAN YEAR.  The Plan Year coincides with the Company's fiscal year of
August 1 through July 31.

6. INCENTIVE OPPORTUNITY. Each approved position will be eligible for a specific
target incentive opportunity. This target incentive opportunity is expressed as
a percentage of the participant's base salary effective as of the first working
day in February. The target incentive opportunity varies based on level of
responsibility and position.

7. PERFORMANCE GOALS. Shareholders must approve performance goals on which this
plan is based at least every five years. Performance goals were last approved by
shareholders in 2005. Annual performance targets must be established, in
writing, by the HR Committee no later than 90 days after the commencement of the
performance period. Performance goals may include:

      o  Earnings per share
      o  Return on investment
      o  Revenues, including net sales growth
      o  Earnings, including net operating profit after taxes
      o  Return on equity


                                       1





      o  Profit margins
      o  Cost reductions
      o  Inventory levels
      o  Delivery performance
      o  Safety performance
      o  Quality performance
      o  Core operating earnings
      o  Total stockholder return
      o  Cash flow, including operating cash flows, free cash flow, discounted
         cash flow return on investment, and cash flow in excess of cost of
         capital
      o  Economic value added
      o  Stockholder value added
      o  Market share
      o  Price to earnings ratio
      o  Expense ratios
      o  Workforce goals
      o  Total expenditures
      o  Completion of key projects

8. GOAL WEIGHTING. Participants must have a minimum of 50% weighting based on
Earnings Per Share. This is intended to focus attention on the Company's
performance and foster cooperative efforts throughout the organization.
Appropriate goals and goal weightings for each participant vary based on the
organization's goals and job responsibilities. The minimum weighting for any
financial goal is 10%.

9. INCENTIVE PAYMENTS. Incentive payments will be made following the end of the
fiscal year and only after the HR Committee has certified, in writing, that the
performance goals and any other material terms were satisfied.

All participants must be full-time employees and actively employed by the
Company on the last working day of the fiscal year to be eligible to receive a
payout. See Section 10, Administration for provisions regarding retirement,
disability or death of a participant.








                                       2




10.      Administration.

         10.1. NEW HIRE/REHIRE. Individuals hired or rehired may be eligible to
         participate in the Plan, for that plan year, on a pro-rated basis as
         follows:

         Hire/Rehire Date                   Pro-Rated Eligibility
         ----------------                   ---------------------
              August                                 11/12
              September                              10/12
              October                                 9/12
              November                                8/12
              December                                7/12
              January                                 6/12
              February                                5/12
              March                                   4/12
              April                                   3/12
              May                                     2/12
              June                                    1/12
              July                                       0


         10.2. SALARY CHANGES WITHOUT A JOB CHANGE (MERIT INCREASES, SALARY
         ADJUSTMENTS). Incentive payout will be based on the salary in effect as
         of the first working day in February.

         10.3. JOB CHANGES (PROMOTIONS, LATERAL MOVES). If a participant has a
         job change, he/she may be eligible for two sets of goals based on the
         job change date. Incentive payout will be based on the salary in effect
         as of the first working day in February.

         Job Change Date          Previous Position            New Position
         ---------------          -----------------            ------------
              August                       0                      12/12
              September                    0                      12/12
              October                      0                      12/12
              November                     0                      12/12
              December                  5/12                       7/12
              January                   6/12                       6/12
              February                  7/12                       5/12
              March                     8/12                       4/12
              April                    12/12                          0
              May                      12/12                          0
              June                     12/12                          0
              July                     12/12                          0




                                       3





         10.4. RETIREMENT OR DEATH. If a participant retires or dies prior to
         the end of the fiscal year, the payout will be pro-rated as follows:

         Date of Retirement or Death                 Pro-Rated Eligibility
               August                                          0
               September                                    1/12
               October                                      2/12
               November                                     3/12
               December                                     4/12
               January                                      5/12
               February                                     6/12
               March                                        7/12
               April                                        8/12
               May                                          9/12
               June                                        10/12
               July                                        11/12

         The actual payment will occur at the same time as active participants.

         10.5. TERMINATIONS (FOR ANY REASON OTHER THAN RETIREMENT). If a
         participant terminates employment prior to the end of the fiscal year,
         no incentive is earned and/or paid. If a participant terminates
         employment after July 31st, the fiscal year's incentive will be earned
         and paid to the extent of the participant's goal achievement.

         10.6. DISABILITY. In the case of disability or other special
         circumstances impacting a plan participant, the HR Committee reserves
         the right to withhold or adjust an incentive payout.

         10.7. TAX WITHHOLDING. Incentive plan payments are subject to all
         applicable taxes and will be paid net of any required withholdings.

         10.8. Exceptions, deletions and/or additions of eligible employees to
         the Plan, and any changes to target incentive opportunities, or goal
         weights require the approval of the HR Committee.

         10.9 EXTRAORDINARY GAINS/LOSSES. Financial results will exclude
         extraordinary gains or losses. In any such situations, including
         acquisitions, the HR Committee will review and approve final decisions.

         10.10 The Plan is subject to change in whole or in part at the
         discretion of the HR Committee. The right is also reserved to modify
         the Plan where it does not represent equitable or satisfactory method
         for either the participant or the company with the approval of the HR
         Committee.

         10.11 Nothing in this Plan shall be deemed to give the participant any
         right to be retained in the employ of the Company. All participants
         remain "at-will" employees.



                                       4

EX-10.DD

Exhibit 10-DD

DONALDSON COMPANY, INC.
QUALIFIED PERFORMANCE-BASED COMPENSATION PLAN

Section 1.    Establishment and Purpose

        The Company has previously established the 2001 Master Stock Incentive Plan (the “Master Stock Plan”) which authorizes the issuance of, among other awards, Performance Awards which are payable upon the achievement of such performance goals as the Committee may establish. In furtherance of that authorization, this Plan is hereby established under the Master Stock Plan for the purpose of authorizing the issuance of Performance Awards specifically intended to qualify as “qualified performance-based compensation” within the meaning of Section 162(m) of the Code. All Performance Awards granted under this Plan are subject to any applicable terms, conditions and restrictions required by the Master Stock Plan, and any successor plans thereto.

Section 2.    Definitions

        Except as expressly defined herein, capitalized terms used in this Plan shall have the same meanings as appear in the Master Stock Plan.

Section 3.    Qualified Performance-Based Compensation under Section 162(m) of the Code

        From time to time, the Committee may designate an Award granted pursuant to the Plan as an award of “qualified performance-based compensation” within the meaning of Section 162(m) of the Code (a “Qualified Performance Award”). A Qualified Performance Award granted under the Plan may be payable in cash or in Shares (including, without limitation, Restricted Stock). Notwithstanding any other provision of this Plan or the Master Stock Plan to the contrary, the following additional requirements shall apply to all Qualified Performance Awards made to any Participant under the Plan:

        (i)    Stockholder Approval of Plan.   Any Qualified Performance Award shall be null and void and have no effect whatsoever unless the Plan shall have been approved by the stockholders of the Company at the Company’s November 18, 2005 annual meeting of stockholders. No Qualified Performance Award under this Plan shall be granted more than five years after such meeting of stockholders unless the stockholders have reapproved the Plan to the extent required by Section 162(m) of the Code.

        (ii)    Business Criteria.   Unless and until the Committee proposes for stockholder approval and the Company’s stockholders approve a change in the general business criteria set forth in this section, the attainment of which may determine the amount and/or vesting with respect to Qualified Performance Awards, the business criteria to be used for purposes of establishing performance goals for such Qualified Performance Awards shall be selected from among the following alternatives, each of which may be based on absolute standards or comparisons versus specified companies or groups of companies and may be applied at individual or various organizational levels (e.g., the Company as a whole or identified business units, segments or the like):

• Earnings per share

• Return on investment

• Revenues, including net sales growth

• Earnings, including net operating profit after taxes

• Return on equity

• Profit margins

• Cost reductions

• Inventory levels

• Delivery performance

• Safety performance

• Quality performance

A-1

• Core operating earnings

• Total stockholder return

• Cash flow, including operating cash flows, free cash flow, discounted cash flow return on investment, and cash flow in excess of cost of capital

• Economic value added

• Stockholder value added

• Market share

• Price to earnings ratio

• Expense ratios

• Workforce goals

• Total expenditures

• Completion of key projects

        In the event that Section 162(m) of the Code or applicable tax and/or securities laws change to permit Committee discretion to alter the governing performance measures without disclosing to stockholders and obtaining stockholder approval of such changes and without thereby exposing the Company to potentially adverse tax or other legal consequences, the Committee shall have the sole discretion to make such changes without obtaining stockholder approval.

        (iii)    Maximum Award.   The maximum bonus which may be paid to any Participant pursuant to any Qualified Performance Award with respect to any performance period shall not exceed a value of $5,000,000.

        (iv)    Payment of Qualified Performance Awards.   Qualified Performance Awards shall be paid no later than two and one-half months following the conclusion of the applicable performance period (unless the Participant has elected to have such Award deferred in accordance with the terms of the Donaldson Company, Inc. Deferred Compensation and 401(k) Excess Plan). The Committee may, in its discretion, reduce the amount of a payout otherwise to be made in connection with a Qualified Performance Award, but may not exercise discretion to increase such amount.

        (v)    Certain Events.   If a Participant dies or becomes permanently and totally disabled or has a normal retirement event before the end of a performance period or after the performance period and before a Qualified Performance Award is paid, the Committee may, in its discretion, determine that the Participant shall be paid a prorated portion of the award that the Participant would have received but for such death or disability or normal retirement event.

        (vi)    Timing of Designations.   For a Qualified Performance Award, the Committee shall, not later than 90 days after the beginning of each performance period, (A) designate all Participants for such performance period, and (B) establish the objective performance factors for each Participant for that performance period on the basis of one or more of the criteria set forth in (ii) above.

        (vii)    Certification.   Following the close of each performance period and prior to payment of any amount to a Participant with respect to a Qualified Performance Award, the Committee shall certify in writing as to the attainment of all factors (including the performance factors for a Participant) upon which any payments to a Participant for that performance period are to be based.

        (viii)    Interpretation.   Each of the provisions in this Section 3, and all of the other terms and conditions of the Plan as it applies to any Qualified Performance Award, shall be interpreted in such a fashion as to qualify all compensation paid thereunder as “qualified performance-based compensation” within the meaning of Section 162(m) of the Code. Nothing in this Plan shall be interpreted to limit the Committee’s authority to grant non-qualifying Performance Awards under the terms of the Master Stock Plan.

Section 4.    Effective Date of the Plan

        The Plan shall be effective as of the date of its approval by the stockholders of the Company.

A-2

EX-10.EE

                                                                   Exhibit 10.EE




                             DONALDSON COMPANY, INC.
                  DEFERRED COMPENSATION AND 401(K) EXCESS PLAN
                               (2005 RESTATEMENT)


             As Amended and Restated Effective as of January 1, 2005









                             DONALDSON COMPANY, INC.
                  DEFERRED COMPENSATION AND 401(K) EXCESS PLAN
                               (2005 RESTATEMENT)


                                TABLE OF CONTENTS

                                                                            PAGE


SECTION 1.            HISTORY AND PURPOSE......................................1

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

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

                      2.1.     Account
                      2.2.     Affiliate
                      2.3.     Base Salary
                      2.4.     Beneficiary
                      2.5.     Board
                      2.6.     Change of Control
                               2.6.1.  Affiliate
                               2.6.2.  Beneficial Owner
                               2.6.3.  Exchange Act
                               2.6.4.  Person
                      2.7.     Code
                      2.8.     Committee
                      2.9.     Company
                      2.10.    Company Credit
                      2.11.    Deferral Credit
                      2.12.    Disability, Disabled
                      2.13.    Effective Date
                      2.14.    Eligible Employee
                      2.15.    ERISA
                      2.16.    401(k)-ESOP Plan
                      2.17.    Participant
                      2.18.    Performance Cash
                      2.19.    Performance Share
                      2.20.    Plan


                                      -i-






                      2.21.    Plan Year
                      2.22.    Post-Termination Bonus Matching Credit
                      2.23.    Profit Sharing Credit
                      2.24.    Restoration Matching Credit
                      2.25.    Restricted Stock
                      2.26.    Restricted Stock Deferral Credits
                      2.27.    Termination of Employment
                      2.28.    Valuation Date
                      2.29.    Vested
                      2.30.    Year of Service

SECTION 3.            PARTICIPATION............................................8

                      3.1.     Enrollment and Eligibility Requirements
                      3.2.     Termination of Participation
                      3.3.     Overriding Exclusion

SECTION 4.            DEFERRED COMPENSATION AMOUNTS...........................10

                      4.1.     Minimum/Maximum Deferrals
                      4.2.     Election to Defer
                      4.3.     401(a)(17) Excess Deferral Credits
                      4.4.     Performance Share Deferral Credits
                      4.5.     Restricted Stock Deferral Credits
                      4.6.     Company Credits
                      4.7.     Vesting
                      4.8.     Reduction for Tax Withholding

SECTION 5.            TIME AND MANNER OF PAYMENTS.............................14

                      5.1.     Time of Payment
                      5.2.     Manner of Payment
                      5.3.     Changes in Time and Manner of Payment
                      5.4.     Hardship Distributions
                               5.4.1.    When Available
                               5.4.2.    Purposes
                               5.4.3.    Suspension
                               5.4.4.    Limitations
                      5.5.     Change of Control Distributions
                      5.6.     Death Benefit
                      5.7.     Beneficiary Designation

SECTION 6.            DEFERRED COMPENSATION ACCOUNT...........................18


                                      -ii-




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

SECTION 7.           FUNDING.................................................19

                     7.1.     Funding
                     7.2.     Corporate Obligation

SECTION 8.           FORFEITURE OF BENEFITS..................................20


SECTION 9.           ADMINISTRATION..........................................21

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

SECTION 10.          MISCELLANEOUS...........................................24

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




                                      -iii-





                             DONALDSON COMPANY, INC.
                  DEFERRED COMPENSATION AND 401(K) EXCESS PLAN
                               (2005 RESTATEMENT)


                                   SECTION 1

                               HISTORY AND PURPOSE

1.1. HISTORY. Since December 21, 1997, Donaldson Company, Inc. has maintained an
unfunded, nonqualified deferred compensation for a select group of highly
compensated employees, known as the "DONALDSON COMPANY, INC. DEFERRED
COMPENSATION AND 401(k) EXCESS PLAN." The Plan, in its most current amended and
restated form, is maintained under a document effective January 1, 2004 (the
"Prior Plan Statement"). Effective as of January 1, 2005, Donaldson Company,
Inc. hereby amends and restates the Plan in the manner hereinafter set forth.
Credits made to the Plan which relate entirely to services performed on or
before December 31, 2004 shall continue to be governed under the terms of the
Prior Plan Statement. Credits which relate all or in part to services performed
on or after January 1, 2005 shall be made subject to the terms of this Plan
statement, the terms of which are intended to comply with the deferred
compensation provisions in the American Jobs Creation Act of 2004.

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

1.3. RELATION TO MASTER STOCK PLANS. All benefits provided by this Plan that are
attributable to Long Term Incentive and Restricted Stock Deferral Credits are
subject to any applicable terms, conditions and restrictions required by the
Donaldson Company, Inc. 2001 Master Stock Incentive Plan. Benefits attributable
to Company Credits which are paid in the form of Common Stock are subject to any
applicable terms, conditions and restrictions required by the Donaldson Company,
Inc. 2001 Master Stock Incentive Plan.





                                   SECTION 2

                                  DEFINITIONS

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

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

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

2.3. BASE SALARY -- the annual cash compensation relating to services performed
during any calendar year, excluding distributions from nonqualified deferred
compensation plans, bonuses, commissions, overtime, fringe benefits, profit
sharing contributions, stock options, relocation expenses, incentive payments,
non-monetary awards, and automobile and other allowances paid to a Participant
for employment services rendered (whether or not such allowances are included in
the Employee's gross income). Base Salary shall be calculated before reduction
for compensation voluntarily deferred or contributed by the Participant pursuant
to all qualified or nonqualified plans of any Employer and shall be calculated
to include amounts not otherwise included in the Participant's gross income
under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans
established by any Employer; provided, however, that all such amounts will be
included in compensation only to the extent that had there been no such plan,
the amount would have been payable in cash to the Employee. In no event shall
Base Salary include any amounts payable to the Participant prior to the
commencement of his or her participation in this Plan.

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

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


                                      -2-




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

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

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

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

     (d)  the stockholders of the Company approve a plan of complete liquidation
          or dissolution of the Company or there is consummated an agreement for
          the sale or disposition by the Company of all or substantially all of
          the Company's assets, other than a sale or disposition by the Company
          of all or


                                      -3-



          substantially all of the Company's assets to an entity, at least 60%
          of the combined voting power of the voting securities of which are
          owned by stockholders of the Company in substantially the same
          proportions as their ownership of the Company immediately prior to
          such sale.

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

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

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

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

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

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

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

2.9. COMPANY -- Donaldson Company, Inc. and, except in determining under
Section 2.6 hereof whether or not any Change of Control has occurred, shall
include any successor by merger, purchase or otherwise.


                                      -4-



2.10. COMPANY CREDIT -- any amount credited to an Eligible Employee in
accordance with Section 4.6. Company Credits include Restoration Matching
Credits, Post-Termination Bonus Matching Credits and Profit Sharing Credits.

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

2.12. DISABILITY, DISABLED -- a physical or mental impairment which constitutes
total and permanent disability and during which the Eligible Employee is not
receiving any payments of an Early Retirement Pension or a Vested Benefit under
the Donaldson Company, Inc. Salaried Employees' Pension Plan (1997 Restatement)
(as amended from time to time), and the Eligible Employee either:

     (a)  is, by reason of any medically determinable physical or mental
          impairment which can be expected to result in death or can be expected
          to last for a continuous period of not less than twelve (12) months,
          receiving income replacement benefits for a period of not less than
          three (3) months under an accident and health plan covering employees
          of the Company; or

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

Notwithstanding the foregoing, the terms Disability and Disabled shall at all
times be interpreted in a manner so as not to violate section 409A of the
Internal Revenue Code.

2.13. EFFECTIVE DATE -- December 21, 1997, the original effective date of the
Plan. Except as otherwise explicitly provided herein, this amended and restated
Plan document is effective as of January 1, 2005.

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

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

     (b)  EXECUTIVE EMPLOYEES. For purposes of Sections 4.3 only, each executive
          employee of the Company or its Affiliates, other than an officer
          described in (a) above, whose Recognized Compensation for a Plan Year
          has exceeded the annual compensation limit then in effect under Code
          section 401(a)(17) for



                                      -5-



          such Plan Year shall become an Eligible Employee beginning with
          the immediately following Plan Year. Such an executive employee shall
          cease to be an Eligible Employee upon the employee's Termination of
          Employment, death or Disability, whichever happens first.

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

2.16. 401(K)-ESOP PLAN -- the tax-qualified, profit sharing and employee stock
ownership plan known as the "Donaldson Company, Inc. Retirement Savings and
Employee Stock Ownership Plan (2004 Restatement)."

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

2.18. PERFORMANCE CASH -- any performance-based cash compensation (not including
Base Salary) earned by a Participant under any Company's annual or long-term
bonus and incentive plans for services rendered during a performance period of
at least 12 months, as further specified on an election form approved by the
Committee in its sole discretion.

2.19. PERFORMANCE SHARE -- any long-term performance share awarded under the
Donaldson Company, Inc. Long-Term Compensation Plan and which is subject to the
terms, conditions and restrictions required by the Donaldson Company, Inc.
Qualified Performance Based Compensation Plan and the Donaldson Company, Inc.
2001 Master Stock Incentive Plan.

2.20. PLAN -- the Donaldson Company, Inc. Deferred Compensation and 401(k)
Excess Plan as set forth herein, and as the same may be amended from time to
time.

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

2.22. POST-TERMINATION BONUS MATCHING CREDIT -- any amount credited to an
Eligible Employee in accordance with Section 4.6(b).

2.23. PROFIT SHARING CREDIT -- any amount credited to an Eligible Employee in
accordance with Section 4.6(c).

2.24. RESTORATION MATCHING CREDIT -- any amount credited to an Eligible Employee
in accordance with Section 4.6(a).


                                      -6-



2.25. RESTRICTED STOCK -- restricted stock awarded to an Eligible Employee under
the Donaldson Company, Inc. 2001 Master Stock Incentive Plan, or any subsequent
stock compensation plan maintained by the Company.

2.26. RESTRICTED STOCK DEFERRAL CREDITS -- any amount credited to an Eligible
Employee in accordance with Section 4.5.

2.27. TERMINATION OF EMPLOYMENT -- the complete separation from service (as that
term is defined under Section 409A of the Code) with the Company and all
Affiliates for any reason other than the employee's death or Disability.

2.28. VALUATION DATE -- for Plan Years beginning on or after August 1, 2000,
each December 31 and each other day that the New York Stock Exchange is open and
conducting business, or such other date or dates as the Committee may establish.

2.29. VESTED -- nonforfeitable.

2.30. YEAR OF SERVICE -- a one-year period of employment with the Company in
which the Participant completes at least 1,000 hours of service.






                                      -7-


                                   SECTION 3

                                 PARTICIPATION

3.1. ENROLLMENT AND ELIGIBILITY REQUIREMENTS.

     (a)  As a condition to participation, each Eligible Employee who is
          eligible to participate in the Plan effective as of the first day of a
          Plan Year shall complete, execute and return to the Committee an
          election form and a beneficiary designation form prior to the first
          day of such Plan Year, or such other earlier deadline as may be
          established by Committee in its discretion. In addition, the Committee
          may establish from time to time such other enrollment requirements as
          it determines, in its sole discretion, are necessary.

     (b)  An Eligible Employee who first becomes eligible to participate in this
          Plan after the first day of a Plan Year must complete these
          requirements within 30 days after he or she first becomes eligible to
          participate in the Plan, or within such other earlier deadline as may
          be established by the Committee in its discretion, in order to
          participate for that Plan Year. In such event, such person's
          participation in this Plan shall not commence earlier than 30 days
          after he or she first becomes eligible to participate in the Plan, and
          such person shall not be permitted to defer under this Plan any
          portion of his or her Base Salary, Performance Cash, Performance
          Shares or Restricted Stock that are paid with respect to services
          performed prior to his or her participation commencement date, except
          to the extent permissible under section 409A of the Code and related
          Treasury guidance or regulations thereunder.

     (c)  Each Eligible Employee who is eligible to participate in the Plan
          shall commence participation in the Plan only after the Eligible
          Employee has met all enrollment requirements set forth in this Plan
          and required by the Committee, including returning all required
          documents to the Committee within the specified time period.

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

3.3. OVERRIDING EXCLUSION. Notwithstanding anything apparently to the contrary
in this Plan or in any written communication, summary, resolution or document or
oral communication, no individual shall be a Participant in this Plan, develop
benefits under this Plan or be entitled to receive benefits under this Plan
(either for the employee or his or her survivors) unless such individual is a
member of a select group of management or highly compensated employees (as that
expression is




                                      -8-



used in ERISA). If a court of competent jurisdiction, any representative of the
U.S. Department of Labor or any other governmental, regulatory or similar body
makes any direct or indirect, formal or informal, determination that an
individual is not a member of a select group of management or highly compensated
employees (as that expression is used in ERISA), such individual shall not be
(and shall not have ever been) a Participant in this Plan at any time. If any
person not so defined has been erroneously treated as a Participant in this
Plan, upon discovery of such error such person's erroneous participation shall
immediately terminate AB INITIO and upon demand such person shall be obligated
to reimburse the Company for all amounts erroneously paid to him or her.











                                      -9-


                                   SECTION 4


                          DEFERRED COMPENSATION AMOUNTS

4.1. MINIMUM/MAXIMUM DEFERRALS. For each Plan Year, an Eligible Employee may
elect to defer Base Salary, Performance Cash, Performance Shares and/or
Restricted Stock in the following minimum and up to the following maximum
amounts for each deferral elected:

        ------------------------------------------------------------
              CASH COMPENSATION                    DEFERRAL AMOUNT
        ------------------------------------------------------------
          Base Salary                                 1% - 75%
        ------------------------------------------------------------
          Performance Cash                            1% - 100%
        ------------------------------------------------------------


        ------------------------------------------------------------
             EQUITY COMPENSATION                   DEFERRAL AMOUNT
        ------------------------------------------------------------
          Performance Shares                          1% - 100%
        ------------------------------------------------------------
          Restricted Stock                            1% - 100%
        ------------------------------------------------------------

If, prior to the beginning of a Plan Year, an Eligible Employee has made an
election for less than the stated minimum amounts, or if no election is made,
the amount deferred shall be zero. If, at any time after the beginning of a Plan
Year, an Eligible Employee has deferred less than the stated minimum amounts for
that Plan Year, any amount credited to the Eligible Employee's Account for that
Plan Year shall be distributed to the Participant within sixty (60) days after
the last day of the Plan Year. Notwithstanding the foregoing, if an Eligible
Employee who first becomes a Participant after the first day of a Plan Year, the
maximum deferral shall be limited to the amount of compensation not yet earned
by the Participant as of the date the Participant submits an a deferral election
to the Committee for acceptance.

4.2. ELECTION TO DEFER.

     (a)  FIRST PLAN YEAR OF ELIGIBILITY. In connection with an Eligible
          Employee's commencement of participation in the Plan, the Eligible
          Employee shall make an irrevocable deferral election for the Plan Year
          in which the Participant commences participation in the Plan, along
          with such other elections as the Committee deems necessary or
          desirable under the Plan. For these elections to be valid, the
          election form must be completed and timely delivered to the Committee
          and accepted by the Committee within thirty (30) days after the
          Participant first becomes eligible to participate in the Plan.

     (b)  SUBSEQUENT PLAN YEARS. For each succeeding Plan Year, an irrevocable
          deferral election for that Plan Year, and such other elections as the
          Committee deems necessary or desirable under the Plan, shall be made
          by



                                      -10-



          timely delivering a new election form to the Committee, in accordance
          with the terms of the Plan, before the end of the Plan Year preceding
          the Plan Year for which the election is made. If no such election form
          is timely delivered for a Plan Year, the deferral election shall be
          zero for that Plan Year.

     (c)  PERFORMANCE-BASED COMPENSATION. Notwithstanding the foregoing, an
          irrevocable deferral election pertaining to Performance Cash,
          Performance Shares or other performance pay which qualifies as
          "performance-based compensation" may be made by timely delivering an
          election form to the Committee, in accordance with the terms of the
          Plan, no later than six months before the end of the performance
          period. "Performance-based compensation" shall be compensation based
          on services performed over a period of at least twelve (12) months, in
          accordance with section 409A of the Code and related guidance. For
          this purpose, Restricted Stock does not qualify as "performance-based
          compensation" unless subject to a performance-based vesting condition
          or as otherwise qualified under section 409A of the Code and related
          guidance.

     (d)  RESTRICTED STOCK SUBJECT TO TIME-BASED VESTING. Notwithstanding the
          foregoing, an irrevocable deferral election pertaining to Restricted
          Stock subject to a time-based forfeiture condition requiring the
          Eligible Employee's continued services for a period of at least twelve
          (12) months from the date of grant may be made by timely delivering an
          election no later than thirty (30) days after the grant date, and at
          least twelve (12) months in advance of the earliest date at which the
          forfeiture condition could lapse.

4.3. 401(A)(17) EXCESS DEFERRAL CREDITS. In addition to or in lieu of a Base
Salary or Performance Cash deferral election, an Eligible Employee may make a
separate election (subject to the minimum and maximum limitations in Section 4.1
above) to defer only from the Participant's Base Salary and Performance Cash in
excess of the annual compensation limit in effect for the Plan Year under
section 401(a)(17) of the Code. Such election shall be made in accordance with
the timing requirements required under Section 4.2 above (including, but not
limited to, the requirement under Section 4.2(c) that any deferral of
Performance Cash be made no later than six months before the end of the
applicable performance period).

4.4. PERFORMANCE SHARE DEFERRAL CREDITS.

     (a)  STOCK UNITS. After the end of the performance period applicable to a
          Performance Share (the "Incentive Cycle"), the Participant's Account
          shall be credited with a number of Stock Units equal to the number of
          shares of common stock of the Company ("Common Stock") deferred by the
          Participant.



                                      -11-



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

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

4.5. RESTRICTED STOCK DEFERRAL CREDITS.

     (a)  STOCK UNITS. As of the date on which the restrictions applicable to
          Restricted Stock would otherwise lapse (the "Lapse Date"), the
          Eligible Employee's Account shall be credited with a number of Stock
          Units equal to the number of shares of Restricted Stock subject to the
          Eligible Employee's deferral election.

     (b)  DIVIDENDS AND ADJUSTMENTS. Stock Units credited to a Participant's
          Account under this Section 4.5 shall be increased due to cash
          dividends and subject to adjustment as provided in subsections (b) and
          (c) of Section 4.4 above.




                                      -12-



4.6. COMPANY CREDITS.

     (a)  RESTORATION MATCHING CREDITS. An Eligible Employee's Restoration
          Matching Credit for any Plan Year shall be the amount necessary to
          make up for the lost share, if any, of fixed matching contributions
          (but not elective deferred contributions) under Section 3.2 of the
          401(k)-ESOP Plan attributable to the Eligible Employee's Base Salary
          and Performance Cash deferrals under this Plan if they would have
          otherwise been allocated to the account of the Participant under the
          401(k)-ESOP Plan for such Plan Year, without regard to the annual
          compensation limit then in effect under section 401(a)(17) of the
          Code. The amount so credited to a Participant under this Plan for any
          Plan Year (i) may be smaller or larger than the amount credited to any
          other person and (ii) may differ from the amount credited the Eligible
          Employee in the preceding Plan Year. The Restoration Matching Credit,
          if any, shall be credited to the Participant's Annual Account for the
          applicable Plan Year as soon as administratively practicable after the
          amount can determined for the applicable Plan Year.

     (b)  POST-TERMINATION BONUS MATCHING CREDIT. Notwithstanding the foregoing,
          any Eligible Employee who retires either during a Plan Year or after
          the end of a Plan Year in which such Eligible Employee is a
          Participant in this Plan and who receives a bonus after the end of the
          Plan Year that was earned in the Plan Year in which such Eligible
          Employee retired shall receive an additional Post-Termination Bonus
          Matching Credit of four percent (4%) of the bonus amount in such
          Eligible Employee's Account.

     (c)  PROFIT SHARING CREDITS. The Board may, in its sole discretion, cause
          the Account of an Eligible Employee to be credited with Profit Sharing
          Credits for a Plan Year. Such Profit Sharing Credits shall not exceed
          the amount necessary to make up for the lost share, if any, of profit
          sharing contributions under Section 3.4 of the 401(k)-ESOP Plan
          attributable to the Eligible Employee's Base Salary and Performance
          Cash deferrals under this Plan and the annual compensation limit then
          in effect under Code section 401(a)(17).

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

4.8. REDUCTION FOR TAX WITHHOLDING. Notwithstanding anything in Sections 4.4(a)
and 4.5(a) to the contrary, the number of Stock Units credited pursuant to those
sections shall be reduced by the number of shares whose aggregate fair market
value on the crediting date equals the amount of any taxes that must be withheld
at the time of crediting due to the Eligible Employee's deferral election.



                                      -13-



                                   SECTION 5

                           TIME AND MANNER OF PAYMENTS

5.1. TIME OF PAYMENT. Payment of a Participant's Account under the Plan will
commence as soon as administratively feasible after (but not later than December
31 of the Plan Year in which occurs, or if later, sixty (60) days following) the
earliest of the following events:

     (a)  the Participant's death;

     (b)  the Participant's Disability;

     (c)  the date that is twenty four (24) months following the Participant's
          Termination of Employment; or

     (d)  a date of distribution selected by the Participant (at the time the
          Participant first becomes eligible to participate, on a form
          prescribed by the Committee), which may be:

          (i)  a fixed, specified date (E.G., January 1, 2010); or

          (ii) a date that is a specified number of months after the
               Participant's Termination of Employment (not to exceed twenty
               four (24) months); provided, however, that where payment under
               this paragraph (d)(ii) is made to any "key employee" (as defined
               under section 409A of the Code) on account of Termination of
               Employment, such payment shall commence no earlier than six (6)
               months following a Termination of Employment (or upon the death
               of the employee, if earlier) if required to comply with section
               409A of the Code.

5.2. MANNER OF PAYMENT. A Participant's Account will be paid to the Participant
in either a single lump-sum payment or in annual installments of not more than
twenty (20) years. The Participant must elect a manner of payment at the time
the Participant elects his or her date of distribution pursuant to Section
5.1(d). Notwithstanding the foregoing, the following special rules shall apply:

     (a)  in the case of the Participant's death or Disability, payment shall be
          in a single lump sum;




                                      -14-



     (b)  if the Participant's Account upon commencement of distribution under
          Section 5.1 is less then Ten Thousand Dollars ($10,000), payment shall
          be in a single lump sum; and

     (c)  in the event no election was made by the Participant, payment shall be
          in a single lump sum.

Payment of the portion of a Participant's Account attributable to Deferral
Credits other than Performance Shares and Restricted Stock shall be in cash.
Payment to a Participant of the portion of the Participant's Account
attributable to Performance Shares and Restricted Stock shall be made, net of
withholding taxes, exclusively in shares of Common Stock. Payment to a
Participant on or after the date certified in writing by the Committee or its
delegate as the date on which distributions in stock of the portion of the
Participant's Account attributable to Company Credits are administratively
feasible shall be made, net of withholding taxes, exclusively in shares of
Common Stock. Payment prior to that certified date of such portion of a
Participant's Account shall be in cash. For purposes of determining any tax
withholding on a payment, the value of Common Stock will be the market price of
such Common Stock as of the close of business on the day prior to the date as of
which the payment is made.

5.3. CHANGES IN TIME AND MANNER OF PAYMENT. Notwithstanding the foregoing, a
Participant who is actively employed by the Company may make a new election that
changes the time or form of payment selected pursuant to Section 5.1(d) and
Section 5.2, subject to the following limitations:

     (a)  Such election must be submitted to and accepted by the Committee at
          least twelve (12) months prior to the date a distribution to the
          Participant would otherwise have been made or commenced;

     (b)  The election shall have no effect until at least twelve (12) months
          after the date on which the election is made;

     (c)  The election may change the time when payment shall commence but only
          if the new date selected by the Participant for commencement shall be
          a date that is at least five (5) years from the prior date of
          distribution selected by the Participant;

     (d)  The election may reduce or extend the number of installment payments
          (subject to the limitations in Section 5.2) so long as the initial
          installment is delayed at least five (5) years from the date
          distribution would have otherwise commenced; and

     (e)  If the participant changes the time and/or form of payment under this
          Section 5.3, payment shall commence as soon as administratively
          feasible after (but



                                      -15-



          not later than December 31 of the Plan Year in which occurs, or if
          later, sixty (60) days following) the earliest of the following
          events:

          (i)  the Participant's death;

          (ii) the Participant's Disability; or

          (iii) the new date selected by the Participant for commencement.

5.4. HARDSHIP DISTRIBUTIONS.

     5.4.1. WHEN AVAILABLE. A Participant may receive a hardship distribution
from the Deferral Credits in his or her Account if the Committee determines that
such hardship distribution is for a purpose described in Section 5.4.2 and the
conditions in this Section 5.4 have been fulfilled. To receive such a
distribution, the Participant must file a written hardship distribution
application with the Committee and furnish such documentation as the Committee
may require. In the application, the Participant shall specify the basis for the
distribution and the dollar amount to be distributed. If such hardship
distribution is approved by the Committee, distribution shall be made as soon as
administratively feasible (but no more than sixty (60) days) following the
approval of a completed application by the Committee. Hardship distributions
shall be made in a lump-sum payment of either cash or Common Stock, as required
by Section 5.2. The amount of each hardship distribution shall be taken from the
portion of the Account attributable to the earliest enrollment (including
related earnings) first.

     5.4.2. PURPOSES. Hardship distributions shall be allowed under Section
5.4.1 only if the Participant establishes that the hardship distribution is to
be made on account of an unanticipated emergency that is caused by an event
beyond the control of the Participant that would result in severe financial
hardship to the Participant resulting from (i) a sudden and unexpected illness
or accident of the Participant, the Participant's spouse, or a dependent of the
Participant, (ii) a loss of the Participant's property due to casualty, or (iii)
such other similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant, all as determined in the
sole discretion of the Committee.

     5.4.3. SUSPENSION. If the Committee approves a Participant's petition for
payout, the Participant's deferrals under this Plan shall be suspended as of the
date of such approval and the Participant shall receive a payout from the Plan
within 60 days of the date of such approval.

     5.4.4. LIMITATIONS. The amount of the hardship distribution shall not
exceed the amount of the Participant's proven immediate and heavy financial
need. A hardship distribution shall not be made after the death of the
Participant. The amount of approved hardship distribution shall not exceed the
value of the Account. Notwithstanding the foregoing, the Committee, as
applicable, shall interpret all provisions relating to suspension and/or payout
under this Section 5.4 in a manner that is



                                      -16-



consistent with section 409A of the Code and other applicable tax law, including
but not limited to guidance issued after the effective date of this Plan.

5.5. CHANGE OF CONTROL DISTRIBUTIONS. Notwithstanding any other provision of
this Plan, in the event of a Change of Control, each Participant who incurs a
Termination of Employment with the Company for any reason during the two (2)
year period following such Change of Control shall receive within ten (10)
business days after the date of termination a lump sum payment of the entire
balance contained in the Participant's Account; provided, however, that with
respect to any Participant who separated from service before the date of a
Change of Control, the balance of the Participant's Account shall be paid at the
time and in the manner as elected by the Participant under this Section 5 hereof
(and shall not be commuted to a lump sum or otherwise accelerated by the Change
of Control). Where payment under this Section 5.5 is made to any "key employee"
(as defined under section 409A of the Code) on account of Termination of
Employment, such payment shall commence no earlier than six (6) months following
a Termination of Employment (or upon the death of the employee, if earlier) if
required to comply with section 409A of the Code.

5.6. DEATH BENEFIT. In the event of a Participant's death, the Company shall pay
the amount of the Participant's Account as of the date of death (as adjusted
from time to time pursuant to Section 6.2) in a lump-sum to the Participant's
designated Beneficiary as soon as administratively feasible after the
Participant's death (but not later than December 31 of the Plan Year in which
the Participant's death occurs, or if later, sixty (60) days following such
death). Payment to a Participant's designated Beneficiary shall be in cash to
the extent the Participant would have been paid in cash, and in Common Stock of
the Company (and cash for fractional shares) to the extent the Participant would
have been paid in Common Stock.

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




                                      -17-



                                   SECTION 6

                          DEFERRED COMPENSATION ACCOUNT

6.1. PARTICIPANT ACCOUNTS. The Committee shall cause a bookkeeping account to be
kept in the name of each Participant which shall reflect the value of the
Deferral Credits and Company Credits, and any earnings (including Dividend
Units) thereon, credited to a Participant. Deferral Credits shall be credited to
a Participant's Account as of the date the amounts deferred otherwise would have
become due or payable. Company Credits shall be credited at such times as the
Committee shall direct.

6.2. INVESTMENT OF ACCOUNTS. Amounts credited to a Participant's Account, other
than those described in Section 4.4, will be adjusted for gains and losses to
the same extent that equal amounts would have been adjusted if they had been
invested as directed by the Participant in the subfund or subfunds designated by
the Committee. Amounts described in Section 4.4 will be adjusted as set forth in
that section.

6.3. ASSUMPTION OF RISK. The Participant, by electing to make deferrals under
this Plan, assumes all risk in connection with any decrease in value of the
Participant's Account.

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






                                      -18-



                                   SECTION 7

                                    FUNDING

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

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






                                      -19-



                                   SECTION 8

                             FORFEITURE OF BENEFITS

All unpaid benefits under this Plan accrued under Section 4.6 shall be
permanently forfeited if the Committee determines that the Participant, either
before or after the Participant's Termination of Employment or Disability, or
before the Participant's death:

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

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












                                      -20-



                                   SECTION 9

                                 ADMINISTRATION

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

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

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

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

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

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

     (a)  the specific reasons for the denial,




                                      -21-



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

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

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

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

     9.5.3. GENERAL RULES.

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

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

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

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

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



                                      -22-



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

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

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

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

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

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

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

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



                                      -23-



understated as a result of such misstatement of the Participant. However, the
benefit of any Participant which is overstated by reason of any such
misstatement or any other reason shall be reduced to the amount appropriate in
view of the truth (and to recover any prior overpayment).

                                   SECTION 10

                                  MISCELLANEOUS

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

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

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

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

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

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


                                      -24-





10.7. RULES OF INTERPRETATION. The titles given to the various sections of this
Plan are inserted for convenience of reference only and are not part of this
Plan, and they shall not be considered in determining the purpose, meaning or
intent of any provision hereof. This Plan shall be construed and this Plan shall
be administered to create an unfunded plan providing deferred compensation to a
select group of management or highly compensated employees so that it is exempt
from the requirements of Parts 2, 3 and 4 of Title I of ERISA and qualifies for
a form of simplified, alternative compliance with the reporting and disclosure
requirements of Part 1 of Title I of ERISA.








                                      -25-

EX-10.FF

                                                                   Exhibit 10.FF




                             DONALDSON COMPANY, INC.
                         DEFERRED STOCK OPTION GAIN PLAN
                               (2005 RESTATEMENT)
8

             As Amended and Restated Effective as of January 1, 2005







                             DONALDSON COMPANY, INC.
                         DEFERRED STOCK OPTION GAIN PLAN
                               (2005 RESTATEMENT)


                                TABLE OF CONTENTS

                                                                            PAGE


SECTION 1.            HISTORY AND PURPOSE......................................1

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

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

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



                                      -i-




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

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

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

                     4.1.     Deferral Elections
                     4.2.     Stock Units
                     4.3.     Adjustment
                     4.4.     Dividend Units
                     4.5.     Vesting

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

                     5.1.     Time of Payment
                     5.2.     Manner of Payment
                     5.3.     Changes in Time and Manner of Payment
                     5.4.     Change of Control Distributions
                     5.5.     Death Benefit
                     5.6.     Beneficiary Designation

SECTION 6.           STOCK UNIT ACCOUNTS.....................................12

                     6.1.     Participant Accounts
                     6.2.     Charges Against Accounts

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

                     7.1.     Funding
                     7.2.     Corporate Obligation

SECTION 8.           ADMINISTRATION..........................................14

                     8.1.     Authority
                     8.2.     Liability
                     8.3.     Procedures
                     8.4.     Claim for Benefits
                     8.5.     Claims Procedure
                              8.5.1.   Original Claim
                              8.5.2.   Claims Review Procedure
                              8.5.3.   General Rules
                     8.6.     Payments upon Imposition of Federal or State Taxes
                     8.7.     Legal Fees


                                      -ii-




                     8.8.     Errors in Computations

SECTION 9.           MISCELLANEOUS...........................................18

                     9.1. Not an Employment Contract
                     9.2. Nontransferability
                     9.3. Tax Withholding
                     9.4. Expenses
                     9.5. Governing Law
                     9.6. Amendment and Termination
                     9.7. Rules of Interpretation
















                                     -iii-




                             DONALDSON COMPANY, INC.
                         DEFERRED STOCK OPTION GAIN PLAN
                               (2005 RESTATEMENT)


                                    SECTION 1

                               HISTORY AND PURPOSE

1.1. HISTORY. Since July 25, 1997, Donaldson Company, Inc. has maintained an
unfunded, nonqualified deferred compensation for a select group of highly
compensated employees, known as the "DONALDSON COMPANY, INC. DEFERRED STOCK
OPTION GAIN PLAN". The Plan, in its most current amended and restated form, is
maintained under a document effective August 1, 2003 (the "Prior Plan
Statement"). Effective as of January 1, 2005, Donaldson Company, Inc. hereby
amends and restates the Plan in the manner hereinafter set forth. Credits made
to the Plan which relate entirely to services performed on or before December
31, 2004 shall continue to be governed under the terms of the Prior Plan
Statement. Credits which relate all or in part to services performed on or after
January 1, 2005 shall be made subject to the terms of this Plan statement, the
terms of which are intended to comply with the deferred compensation provisions
in the American Jobs Creation Act of 2004.

1.2. PURPOSE. The purposes of this Plan are to allow a select group of
management and highly compensated employees of the Company to defer the receipt
of income that would otherwise be subject to income tax upon exercise of stock
options granted by the Company and to attract and retain certain executive
employees of outstanding competence.

1.3 RELATION TO MASTER STOCK PLANS. All benefits provided by this Plan are
subject to any applicable terms, conditions and restrictions required by the
Donaldson Company, Inc. 2001 Master Stock Incentive Plan.







                                    SECTION 2

                                   DEFINITIONS

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

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

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

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

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

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

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

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


                                      -2-





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

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

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

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

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



                                      -3-



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

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

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

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

2.7. COMMON STOCK -- the common stock of the Company.

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

2.9. DEFERRAL ELECTION -- an election to defer the receipt of gain on an option
to buy Common Stock made by an Eligible Employee in accordance with Section 4.1.

2.10. DISABILITY, DISABLED -- a physical or mental impairment which constitutes
total and permanent disability and during which the Eligible Employee is not
receiving any payments of an Early Retirement Pension or a Vested Benefit under
the Donaldson Company, Inc. Salaried Employees' Pension Plan (1997 Restatement)
(as amended from time to time), and the Eligible Employee either:

     (a)  is, by reason of any medically determinable physical or mental
          impairment which can be expected to result in death or can be expected
          to last for a continuous period of not less than twelve (12) months,
          receiving income replacement benefits for a period of not less than
          three (3) months under an accident and health plan covering employees
          of the Company; or

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



                                      -4-



Notwithstanding the foregoing, the terms Disability and Disabled shall at all
times be interpreted in a manner so as not to violate section 409A of the
Internal Revenue Code.

2.11. EFFECTIVE DATE -- July 25, 1997, the original effective date of the Plan.
The amended and restated Plan document as set forth herein is effective as of
January 1, 2005.

2.12. ELIGIBLE EMPLOYEE -- an officer of the Company who is selected by the
Committee as provided in Section 3.

2.13. EXERCISE DATE -- the date on which an Eligible Employee exercises an
option to purchase Common Stock that is subject to a Deferral Election; provided
however, that such date shall not be deemed to occur prior to the date on which
the Participant tenders mature shares of Common Stock in payment of the option
exercise price, by attestation to the ownership of shares. For the purpose of
this Plan, shares of Common Stock shall be considered mature if they have been
held by the Participant for at least six months and have not been used to pay
the exercise price for another stock option exercise during the six months prior
to their tender.

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

2.15. PLAN -- the Donaldson Company, Inc. Deferred Stock Option Gain Plan as set
forth herein, and as the same may be amended from time to time.

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

2.17. STOCK UNITS -- the units credited to a Participant's Account pursuant to
Section 4.2.

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

2.19. VESTED -- nonforfeitable.




                                      -5-



                                    SECTION 3

                          ELIGIBILITY AND PARTICIPATION

3.1. ELIGIBILITY. Any officer of the Company who is affirmatively selected by
the Committee shall be an Eligible Employee and may actively participate under
the Plan until the earlier of the officer's Termination of Employment or
transfer to a non-officer position with the Company or its Affiliates. The
Committee may rescind an officer's selection as an Eligible Employee and
discontinue an officer's active participation in the Plan at any time.

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

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

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




                                      -6-



                                    SECTION 4

                                   STOCK UNITS

4.1. DEFERRAL ELECTIONS. An Eligible Employee may file with the Committee a
Deferral Election as to any option to buy Common Stock granted to such Eligible
Employee by the Company, subject to the following:

     (a)  Deferral Elections must be made on forms approved by the Committee,
          must be made at such time as the Committee shall determine at least
          prior to the December 31 of the Plan Year preceding the Plan Year in
          which occurs the date on which the option to buy Common Stock which is
          subject to the Deferral Election is granted, and shall conform to such
          other procedural and substantive rules as the Committee shall make.

     (b)  Deferral Elections may only be made with respect to options whose
          exercise price may be paid in shares of Common Stock, and shall
          obligate the Eligible Employee making the Deferral Election to pay the
          exercise price and any tax withholding required at the time of
          exercise by attestation to the ownership of shares of Common Stock
          that the Eligible Employee has owned for at least six months and that
          have not been used to exercise another option for at least six months.

     (c)  Each Deferral Election shall specify the time and manner (in
          accordance with Sections 5.1 and 5.2) in which distribution of the
          portion of the Participant's Account attributable to that Deferral
          Election shall be made.

     (d)  Subject to permitted changes to the time and form of payment described
          in Sections 5.3, a Deferral Election shall be irrevocable once it has
          been filed with the Committee.

     (e)  Nothing in this Plan shall be deemed to extend the period during which
          stock options may be exercised, or to otherwise alter the terms of any
          stock option; provided, however, that if the Participant has not
          exercised any option subject to a Deferral Election as of the time of
          payment specified in the Deferral Election, the option shall be deemed
          exercised as of the time of payment specified in the Deferral Election
          (which shall become the Exercise Date), and the Participant's Account
          shall be credited with the appropriate number of Stock Units under
          Section 4.2, if any, immediately prior to payment of the Participant's
          Account pursuant to Section 5. In no event shall the Participant's
          Exercise Date occur after the time of payment specified in the
          Participant's Deferral Election.



                                      -7-



4.2. STOCK UNITS. As of each Exercise Date, a Participant's Account shall be
credited with the number of Stock Units equal to the difference between (a) and
(b):

     (a)  The number of shares of Common Stock obtained by exercise of the
          option being exercised; and

     (b)  The number of shares of Common Stock required to pay both the exercise
          price of the option being exercised and any required tax withholding.

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

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

4.5. VESTING. The Accounts of all Participants shall be 100% Vested at all
times.




                                      -8-



                                    SECTION 5

                           TIME AND MANNER OF PAYMENTS

5.1. TIME OF PAYMENT. Payment of a Participant's Account under the Plan will
commence as soon as administratively feasible after (but not later than December
31 of the Plan Year in which occurs, or if later, sixty (60) days following) the
earliest of the following events:

     (a)  the Participant's death;

     (b)  the Participant's Disability;

     (c)  the date that is twenty four (24) months following the Participant's
          Termination of Employment; or

     (d)  a date of distribution selected by the Participant (at the time the
          Participant first becomes eligible to participate, on a form
          prescribed by the Committee), which may be:

          (i)  a fixed, specified date (E.G., January 1, 2010); or

          (ii) a date that is a specified number of months after the
               Participant's Termination of Employment (not to exceed twenty
               four (24) months); provided, however, that where payment under
               this paragraph (d)(ii) is made to any "key employee" (as defined
               under section 409A of the Code) on account of Termination of
               Employment, such payment shall commence no earlier than six (6)
               months following a Termination of Employment (or upon the death
               of the employee, if earlier) if required to comply with section
               409A of the Code.

5.2. MANNER OF PAYMENT. A Participant's Account will be paid to the Participant
in either a single lump-sum payment or in annual installments over a period of
not more than twenty (20) years. The Participant must elect a manner of payment
at the time the Participant elects his or her date of distribution pursuant to
Section 5.1(d). Notwithstanding the foregoing, the following special rules shall
apply:

     (a)  in the case of the Participant's death or Disability, payment shall be
          in a single lump sum;

     (b)  if the Participant's Account upon commencement of distribution under
          Section 5.1 is less then Ten Thousand Dollars ($10,000), payment shall
          be in a single lump sum; and



                                      -9-



     (c)  in the event no election was made by the Participant, payment shall be
          in a single lump sum.

Payment to the Participant shall be made, net of withholding taxes, exclusively
in shares of Common Stock, one share for each Stock Unit distributed. For
purposes of determining any tax withholding on a payment, the value of Common
Stock will be the market price of such Common Stock as of the close of business
on the day prior to the date as of which the payment is made.

5.3. CHANGES IN TIME AND MANNER OF PAYMENT. Notwithstanding the foregoing, a
Participant who is actively employed by the Company may make a new election that
changes the time or form of payment selected pursuant to Section 5.1(d) and
Section 5.2, subject to the following limitations:

     (a)  Such election must be submitted to and accepted by the Committee at
          least twelve (12) months prior to the date a distribution to the
          Participant would otherwise have been made or commenced;

     (b)  The election shall have no effect until at least twelve (12) months
          after the date on which the election is made;

     (c)  The election may change the time when payment shall commence but only
          if the new date selected by the Participant for commencement shall be
          a date that is at least five (5) years from the prior date of
          distribution selected by the Participant;

     (d)  The election may reduce or extend the number of installment payments
          (subject to the limitations in Section 5.2) so long as the initial
          installment is delayed at least five (5) years from the date
          distribution would have otherwise commenced; and

     (e)  If the participant changes the time and/or form of payment under this
          Section 5.3, payment shall commence as soon as administratively
          feasible after (but not later than December 31 of the Plan Year in
          which occurs, or if later, sixty (60) days following) the earliest of
          the following events:

          (i) the Participant's death;

          (ii) the Participant's Disability; or

          (iii) the new date selected by the Participant for commencement.

5.4. CHANGE OF CONTROL DISTRIBUTIONS. Notwithstanding any other provision of
this Plan, in the event of a Change of Control, each Participant who incurs a
Termination of Employment with the Company for any reason during the two (2)
year period following such Change of Control shall




                                      -10-



receive within ten (10) business days after the date of termination a lump sum
payment of the entire balance contained in the Participant's Account; provided,
however, that with respect to any Participant who separated from service before
the date of a Change of Control, the balance of the Participant's Account shall
be paid at the time and in the manner as elected by the Participant under this
Section 5 hereof (and shall not be commuted to a lump sum or otherwise
accelerated by the Change of Control). Where payment under this Section 5.4 is
made to any "key employee" (as defined under section 409A of the Code) on
account of Termination of Employment, such payment shall commence no earlier
than six (6) months following a Termination of Employment (or upon the death of
the employee, if earlier) if required to comply with section 409A of the Code.

5.5. DEATH BENEFIT. In the event of a Participant's death, the Company shall pay
the amount of the Participant's Account as of the date of death (as adjusted
from time to time pursuant to Section 4.4) in a lump-sum to the Participant's
designated Beneficiary as soon as administratively feasible after the
Participant's death (but not later than December 31 of the Plan Year in which
the Participant's death occurs, or if later, sixty (60) days following such
death). In the event no election was made by the Participant, payment shall be
in a single lump-sum stock distribution (and cash for fractional shares).

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




                                      -11-



                                    SECTION 6

                               STOCK UNIT ACCOUNTS

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

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










                                      -12-



                                    SECTION 7

                                     FUNDING

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

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







                                      -13-



                                    SECTION 8

                                 ADMINISTRATION

8.1. AUTHORITY. The Plan shall be administered by the Committee, which shall
have full discretionary power and authority to administer and interpret the Plan
and to determine all factual and legal questions under the Plan, including but
not limited to the entitlement of Participants and Beneficiaries, and the amount
of their respective interests. Except where necessary to comply with applicable
corporate or securities law, or applicable rules of the New York Stock Exchange
(e.g., with respect to executive officers), the Committee may delegate or
redelegate to one or more persons, jointly or severally, and whether or not such
persons are members of the Committee or employees of the Company, such functions
assigned to the Committee hereunder as it may from time to time deem advisable.
Until withdrawn or redelegated by the Committee, all of the Committee's
delegable power and authority under this Section 8.1 shall be deemed delegated
to the Company's Vice President in charge of executive compensation, excluding
only the power and authority to act in such a way as would materially increase
the cost of the Plan.

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

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

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

8.5. CLAIMS PROCEDURE. Until modified by the Committee, the claims procedure set
forth in this Section 8.5 shall be the claims procedure for the resolution of
disputes and disposition of claims arising under the Plan.

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

     (a)  the specific reasons for the denial,



                                      -14-



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

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

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

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

     8.5.3. GENERAL RULES.

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

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

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

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

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



                                      -15-



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

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

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

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

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

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

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

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




                                      -16-



Participant which is overstated by reason of any such misstatement or any other
reason shall be reduced to the amount appropriate in view of the truth (and to
recover any prior overpayment).











                                      -17-



                                    SECTION 9

                                  MISCELLANEOUS

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

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

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

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

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

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


                                      -18-



9.7. RULES OF INTERPRETATION. The titles given to the various sections of this
Plan are inserted for convenience of reference only and are not part of this
Plan, and they shall not be considered in determining the purpose, meaning or
intent of any provision hereof. This Plan shall be construed and this Plan shall
be administered to create an unfunded plan providing deferred compensation to a
select group of management or highly compensated employees so that it is exempt
from the requirements of Parts 2, 3 and 4 of Title I of ERISA and qualifies for
a form of simplified, alternative compliance with the reporting and disclosure
requirements of Part 1 of Title I of ERISA.














                                      -19-

EX-10.GG

                                                                   Exhibit 10.GG



                             DONALDSON COMPANY, INC.
                               EXCESS PENSION PLAN
                               (2005 RESTATEMENT)


             As Amended and Restated Effective as of January 1, 2005







                             DONALDSON COMPANY, INC.
                               EXCESS PENSION PLAN
                               (2005 RESTATEMENT)


                                TABLE OF CONTENTS

                                                                            PAGE


SECTION 1.            HISTORY AND PURPOSE.....................................1

                      1.1.     History
                      1.2.     Purpose

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

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



                                       -i-



SECTION 3.           ELIGIBILITY AND PARTICIPATION...........................7

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

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

                     4.1.     Compensation Credit
                     4.2.     415 Credit
                     4.3.     Vesting

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

                     5.1.     Time of Payment
                     5.2.     Manner of Payment
                     5.3.     Changes in Time and Manner of Payment
                     5.4.     Change of Control Distributions
                     5.5.     Death Benefit
                     5.6.     Beneficiary Designation

SECTION 6.           ACCOUNTS...............................................13

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

SECTION 7.           FUNDING................................................14

                     7.1.     Funding
                     7.2.     Corporate Obligation

SECTION 8.           FORFEITURE OF BENEFITS.................................15


SECTION 9.           ADMINISTRATION.........................................16

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



                                      -ii-




                     9.8.     Errors in Computations

SECTION 10.          MISCELLANEOUS..........................................20

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






                                     -iii-




                             DONALDSON COMPANY, INC.
                               EXCESS PENSION PLAN
                               (2005 RESTATEMENT)


                                    SECTION 1

                               HISTORY AND PURPOSE

1.1. HISTORY. Since 1987, Donaldson Company, Inc. has maintained an unfunded,
nonqualified deferred compensation for a select group of highly compensated
employees, originally known as the "DONALDSON COMPANY, INC. EXCESS BENEFIT PLAN"
and renamed effective August 31, 1997 as the "DONALDSON COMPANY, INC. EXCESS
PENSION PLAN". The Plan, in its most current amended and restated form, is
maintained under a document effective August 1, 2003 (the "Prior Plan
Statement"). Effective as of January 1, 2005, Donaldson Company, Inc. hereby
amends and restates the Plan in the manner hereinafter set forth. Credits made
to the Plan which relate entirely to services performed on or before December
31, 2004 shall continue to be governed under the terms of the Prior Plan
Statement. Credits which relate all or in part to services performed on or after
January 1, 2005 shall be made subject to the terms of this Plan statement, the
terms of which are intended to comply with the deferred compensation provisions
in the American Jobs Creation Act of 2004.

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






                                    SECTION 2

                                   DEFINITIONS

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

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

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

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

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

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

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

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




                                      -2-



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

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

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

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

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



                                      -3-



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

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

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

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

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

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

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

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

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

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

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



                                      -4-



     (a)  is, by reason of any medically determinable physical or mental
          impairment which can be expected to result in death or can be expected
          to last for a continuous period of not less than twelve (12) months,
          receiving income replacement benefits for a period of not less than
          three (3) months under an accident and health plan covering employees
          of the Company; or

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

Notwithstanding the foregoing, the terms Disability and Disabled shall at all
times be interpreted in a manner so as not to violate section 409A of the
Internal Revenue Code.

2.14. EFFECTIVE DATE -- the amended and restated Plan document as set forth
herein is effective as of January 1, 2005.

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

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

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

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

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

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

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




                                      -5-



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

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

2.24. VESTED -- nonforfeitable.











                                      -6-



                                    SECTION 3

                          ELIGIBILITY AND PARTICIPATION

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

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

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

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

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

Committee selections shall continue in effect until rescinded by the Committee.
The Committee may rescind its selection of an Eligible Employee and discontinue
an employee's active participation in the Plan at any time. In connection with
an Eligible Employee's commencement of participation in the Plan, the Eligible
Employee shall elect the time and form of payment of such Participant's Account
as permitted under Section 5, along with such other elections as the Committee
deems necessary or desirable under the Plan. For these elections to be valid,
the election form must be completed and timely delivered to the Committee and
accepted by the Committee within thirty (30) days after the Participant first
becomes eligible to participate in the Plan.

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

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

3.4. OVERRIDING EXCLUSION. Notwithstanding anything apparently to the contrary
in this Plan or in any written communication, summary, resolution or document or
oral communication, no individual shall be a Participant in this Plan, develop
benefits under this Plan or be entitled to receive benefits under this Plan
(either for the employee or his or her survivors) unless such




                                      -7-



individual is a member of a select group of management or highly compensated
employees (as that expression is used in ERISA). If a court of competent
jurisdiction, any representative of the U.S. Department of Labor or any other
governmental, regulatory or similar body makes any direct or indirect, formal or
informal, determination that an individual is not a member of a select group of
management or highly compensated employees (as that expression is used in
ERISA), such individual shall not be (and shall not have ever been) a
Participant in this Plan at any time. If any person not so defined has been
erroneously treated as a Participant in this Plan, upon discovery of such error
such person's erroneous participation shall immediately terminate AB INITIO and
upon demand such person shall be obligated to reimburse the Company for all
amounts erroneously paid to him or her.









                                      -8-



                                    SECTION 4

                                CREDITED AMOUNTS

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

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

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

4.2. 415 CREDIT. The Eligible Employee's Account, for the Plan Year in which an
Eligible Employee's Termination of Employment occurs, also shall be credited
with a one-time Compensation Credit equal to the difference, if any, between the
amount that would be payable to the Eligible Employee under the Pension Plan if
the Eligible Employee received his or her entire benefit under the Pension Plan
in the form of a single lump-sum distribution at the earliest opportunity
following such Termination of Employment, and the amount that would have been so
payable if the limitation on benefits under Code section 415 did not apply. In
the event a former Participant is rehired after receiving a payment under this
Plan and the individual later becomes entitled to another payment from this
Plan, the amount credited pursuant to this Section 4.3 shall be reduced (but not
to less than zero) by any amounts previously credited under this Section.

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






                                      -9-



                                    SECTION 5

                           TIME AND MANNER OF PAYMENTS

5.1. TIME OF PAYMENT. Payment of a Participant's Account under the Plan will
commence as soon as administratively feasible after (but not later than December
31 of the Plan Year in which occurs, or if later, sixty (60) days following) the
earliest of the following events:

     (a)  the Participant's death;

     (b)  the Participant's Disability;

     (c)  the date that is twenty four (24) months following the Participant's
          Termination of Employment; or

     (d)  a date of distribution selected by the Participant (at the time the
          Participant first becomes eligible to participate, on a form
          prescribed by the Committee), which may be:

          (i)  a fixed, specified date (E.G., January 1, 2010); or

          (ii) a date that is a specified number of months after the
               Participant's Termination of Employment (not to exceed twenty
               four (24) months); provided, however, that where payment under
               this paragraph (d)(ii) is made to any "key employee" (as defined
               under section 409A of the Code) on account of Termination of
               Employment, such payment shall commence no earlier than six (6)
               months following a Termination of Employment (or upon the death
               of the employee, if earlier) if required to comply with section
               409A of the Code.

5.2. MANNER OF PAYMENT. A Participant's Account will be paid in cash to the
Participant in either a single lump-sum payment or in annual installments over a
period of not more than twenty (20) years. The Participant must elect a manner
of payment at the time the Participant elects his or her date of distribution
pursuant to Section 5.1(d). Notwithstanding the foregoing, the following special
rules shall apply:

     (a)  in the case of the Participant's death or Disability, payment shall be
          in a single lump sum.

     (b)  if the Participant's Account upon commencement of distribution under
          Section 5.1 is less then Ten Thousand Dollars ($10,000), payment shall
          be in a single lump sum.



                                      -10-


     (c)  in the event no election was made by the Participant, payment shall be
          in a single lump sum.

5.3. CHANGES IN TIME AND MANNER OF PAYMENT. Notwithstanding the foregoing, a
Participant who is actively employed by the Company may make a new election
concerning selection of the time and form of payment authorized pursuant to this
Section 5.3, subject to the following limitations:

     (a)  Such election must be submitted to and accepted by the Committee at
          least twelve (12) months prior to the date a distribution to the
          Participant would otherwise have been made or commenced;

     (b)  The election shall have no effect until at least twelve (12) months
          after the date on which the election is made;

     (c)  The election may change the time when payment shall commence but only
          if the new date selected by the Participant for commencement shall be
          a date that is at least five (5) years from the prior date of
          distribution selected by the Participant;

     (d)  The election may reduce or extend the number of installment payments
          (subject to the limitations in Section 5.2) so long as the initial
          installment is delayed at least five (5) years from the date
          distribution would have otherwise commenced; and

     (e)  If the participant changes the time and/or form of payment under this
          Section 5.3, payment shall commence as soon as administratively
          feasible after (but not later than December 31 of the Plan Year in
          which occurs, or if later, sixty (60) days following) the earliest of
          the following events:

          (i)  the Participant's death;

          (ii) the Participant's Disability; or

          (iii) the new date selected by the Participant for commencement.

5.4. CHANGE OF CONTROL DISTRIBUTIONS. Notwithstanding any other provision of
this Plan, in the event of a Change of Control, each Participant who incurs a
Termination of Employment with the Company for any reason during the two (2)
year period following such Change of Control shall receive within ten (10)
business days after the date of termination a lump sum payment of the entire
balance contained in the Participant's Account; provided, however, that with
respect to any Participant who separated from service before the date of a
Change of Control, the balance of the Participant's Account shall be paid at the
time and in the manner as elected by the Participant under this Section 5 hereof
(and shall not be commuted to a lump sum



                                      -11-



or otherwise accelerated by the Change of Control). Where payment under this
Section 5.4 is made to any "key employee" (as defined under section 409A of the
Code) on account of Termination of Employment, such payment shall commence no
earlier than six (6) months following a Termination of Employment (or upon the
death of the employee, if earlier) if required to comply with section 409A of
the Code.

5.5. DEATH BENEFIT. In the event of a Participant's death, the Company shall pay
the amount of the Participant's Account as of the date of death (as adjusted
from time to time pursuant to Section 6.2) in a lump-sum to the Participant's
designated Beneficiary as soon as administratively feasible after the
Participant's death (but not later than December 31 of the Plan Year in which
the Participant's death occurs, or if later, sixty (60) days following such
death). Payment to a Participant's designated Beneficiary shall be in cash.

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







                                      -12-



                                    SECTION 6

                                    ACCOUNTS

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

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

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









                                      -13-



                                    SECTION 7

                                     FUNDING

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

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







                                      -14-



                                    SECTION 8

                             FORFEITURE OF BENEFITS

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

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

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









                                      -15-



                                    SECTION 9

                                 ADMINISTRATION

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

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

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

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

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

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




                                      -16-



     (a)  the specific reasons for the denial,

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

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

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

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

     9.5.3. GENERAL RULES.

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

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

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

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

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




                                      -17-



          the claim or request for a review of a denied claim shall be deemed to
          have been denied.

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

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

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

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

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

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

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

9.8. ERRORS IN COMPUTATIONS. The Committee shall not be liable or responsible
for any error in the computation of any benefit payable to or with respect to
any Participant resulting



                                      -18-



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










                                      -19-



                                   SECTION 10

                                  MISCELLANEOUS

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

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

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

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

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

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

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




                                      -20-



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








                                      -21-

EX-10.HH

                                                                   Exhibit 10.HH






                             DONALDSON COMPANY, INC.
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
                               (2005 RESTATEMENT)


                As Amended and Restated Effective January 1, 2005







                             DONALDSON COMPANY, INC.
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
                               (2005 RESTATEMENT)


                                TABLE OF CONTENTS

                                                                            PAGE


SECTION 1.            HISTORY AND PURPOSE......................................1

                      1.1.     History
                      1.2.     Purpose

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

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




                                       -i-



                      2.26.    Vested

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

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

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

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

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

                      5.1.     Time of Payment
                      5.2.     Manner of Payment
                      5.3.     Changes in Time and Manner of Payment
                      5.4.     Change of Control Distributions
                      5.5.     Death Benefit
                      5.6.     Beneficiary Designation

SECTION 6.            ACCOUNT.................................................13

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

SECTION 7.            FUNDING.................................................14

                      7.1.     Funding
                      7.2.     Corporate Obligation

SECTION 8.            FORFEITURE OF BENEFITS..................................15


SECTION 9.            ADMINISTRATION..........................................16

                      9.1.     Authority
                      9.2.     Liability
                      9.3.     Procedures
                      9.4.     Claim for Benefits
                      9.5.     Claims Procedure
                               9.5.1.       Original Claim
                               9.5.2.       Claims Review Procedure
                               9.5.3.       General Rules


                                      -ii-


                    9.6.     Payments upon Imposition of Federal or State Taxes
                    9.7.     Legal Fees
                    9.8.     Errors in Computations

SECTION 10.         MISCELLANEOUS...........................................20

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






                                      -iii-



                             DONALDSON COMPANY, INC.
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
                               (2005 RESTATEMENT)


                                    SECTION 1

                               HISTORY AND PURPOSE

1.1. HISTORY. Donaldson Company, Inc. sponsors an unfunded, nonqualified
deferred compensation for a select group of highly compensated employees, known
as the "DONALDSON COMPANY, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN". The
Plan, in its most current amended and restated form, is maintained under a
document effective August 1, 2003 (the "Prior Plan Statement"). Effective as of
January 1, 2005, Donaldson Company, Inc. hereby amends and restates the Plan in
the manner hereinafter set forth. Credits made to the Plan which relate entirely
to services performed on or before December 31, 2004 shall continue to be
governed under the terms of the Prior Plan Statement. Credits which relate all
or in part to services performed on or after January 1, 2005 shall be made
subject to the terms of this Plan statement, the terms of which are intended to
comply with the deferred compensation provisions in the American Jobs Creation
Act of 2004.

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







                                    SECTION 2

                                   DEFINITIONS

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

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

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

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

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

     (a)  Donaldson Company, Inc. Retirement Savings and Employee Stock
          Ownership Plan (including profit sharing and PAYSOP), taking into
          account only vested benefits attributable employer contributions;

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

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

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

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




                                      -2-



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

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

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

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

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

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

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

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



                                      -3-



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

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

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

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

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

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

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



                                      -4-



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

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

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

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

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

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

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

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

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

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

     (a)  is, by reason of any medically determinable physical or mental
          impairment which can be expected to result in death or can be expected
          to last for a



                                      -5-



          continuous period of not less than twelve (12) months, receiving
          income replacement benefits for a period of not less than three (3)
          months under an accident and health plan covering employees of the
          Company; or

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

Notwithstanding the foregoing, the terms Disability and Disabled shall at all
times be interpreted in a manner so as not to violate section 409A of the
Internal Revenue Code.

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

2.16. EFFECTIVE DATE -- the amended and restated Plan document as set forth
herein is effective as of January 1, 2005.

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

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

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

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

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

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

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

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



                                      -6-



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

2.26. VESTED -- nonforfeitable.









                                      -7-



                                    SECTION 3

                          ELIGIBILITY AND PARTICIPATION

3.1. ELIGIBILITY. A senior officer of the Company who is affirmatively selected
by the Committee shall be an Eligible Employee and shall participate in the
Plan. Committee selections shall continue in effect until rescinded by the
Committee. The Committee may rescind its selection and thereby discontinue a
senior officer's active participation in the Plan at any time. If any amendment
or restatement of the Plan increases the cost of the benefits payable to a
senior officer, the senior officer's selection will be deemed rescinded
immediately prior to the effective date of the amendment or restatement, unless
reauthorized by the Committee or its delegate. If a senior officer's selection
is rescinded (or deemed rescinded), the benefit, if any, provided by this Plan
shall be calculated pursuant to the terms of the Plan in effect when the
rescission (or deemed rescission) took effect, using only the Participant's
compensation through that time, but calculating any offset for other benefits
using the amount of such other benefits at the time of the person's actual
Termination of Employment. In connection with an Eligible Employee's
commencement of participation in the Plan, the Eligible Employee shall elect the
time and form of payment of such Participant's Account as permitted under
Section 5, along with such other elections as the Committee deems necessary or
desirable under the Plan. For these elections to be valid, the election form
must be completed and timely delivered to the Committee and accepted by the
Committee within thirty (30) days after the Participant first becomes eligible
to participate in the Plan.

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

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

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


                                      -8-



                                    SECTION 4

                                CREDITED AMOUNTS

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

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

          (i)  30%;

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

          (iii) Final Average Compensation

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

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

          (iv) Early Retirement Factor

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

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

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


                                      -9-



                                    SECTION 5

                           TIME AND MANNER OF PAYMENTS

5.1. TIME OF PAYMENT. Payment of a Participant's Account under the Plan will
commence as soon as administratively feasible after (but not later than December
31 of the Plan Year in which occurs, or if later, sixty (60) days following) the
earliest of the following events:

     (a)  the Participant's death;

     (b)  the Participant's Disability;

     (c)  the date that is twenty four (24) months following the Participant's
          Termination of Employment; or

     (d)  a date of distribution selected by the Participant (at the time the
          Participant first becomes eligible to participate, on a form
          prescribed by the Committee), which may be:

          (i)  a fixed, specified date (E.G., January 1, 2010); or

          (ii) a date that is a specified number of months after the
               Participant's Termination of Employment (not to exceed twenty
               four (24) months); provided, however, that where payment under
               this paragraph (d)(ii) is made to any "key employee" (as defined
               under section 409A of the Code) on account of Termination of
               Employment, such payment shall commence no earlier than six (6)
               months following a Termination of Employment (or upon the death
               of the employee, if earlier) if required to comply with section
               409A of the Code.

5.2. MANNER OF PAYMENT. A Participant's Account shall be paid in cash to the
Participant in either a single lump-sum payment or in annual installments over a
period of not more than twenty (20) years. The Participant must elect a manner
of payment at the time the Participant elects his or her date of distribution
pursuant to Section 5.1(d). Notwithstanding the foregoing, the following special
rules shall apply:

     (a)  in the case of the Participant's death or Disability, payment shall be
          in a single lump sum;

     (b)  if the Participant's Account upon commencement of distribution under
          Section 5.1 is less then Ten Thousand Dollars ($10,000), payment shall
          be in a single lump sum; and


                                      -10-


     (c)  in the event no election was made by the Participant, payment shall be
          in a single lump sum.

5.3. CHANGES IN TIME AND MANNER OF PAYMENT. Notwithstanding the foregoing, a
Participant who is actively employed by the Company may make a new election
concerning selection of the time and form of payment authorized pursuant to this
Section 5.3, subject to the following limitations:

     (a)  Such election must be submitted to and accepted by the Committee at
          least twelve (12) months prior to the date a distribution to the
          Participant would otherwise have been made or commenced;

     (b)  The election shall have no effect until at least twelve (12) months
          after the date on which the election is made;

     (c)  The election may change the time when payment shall commence but only
          if the new date selected by the Participant for commencement shall be
          a date that is at least five (5) years from the prior date of
          distribution selected by the Participant;

     (d)  The election may reduce or extend the number of installment payments
          (subject to the limitations in Section 5.2) so long as the initial
          installment is delayed at least five (5) years from the date
          distribution would have otherwise commenced; and

     (e)  If the participant changes the time and/or form of payment under this
          Section 5.3, payment shall commence as soon as administratively
          feasible after (but not later than December 31 of the Plan Year in
          which occurs, or if later, sixty (60) days following) the earliest of
          the following events:

          (i)  the Participant's death;

          (ii) the Participant's Disability; or

          (iii) the new date selected by the Participant for commencement.

5.4. CHANGE OF CONTROL DISTRIBUTIONS. Notwithstanding any other provision of
this Plan, in the event of a Change of Control, each Participant who incurs a
Termination of Employment with the Company for any reason during the two (2)
year period following such Change of Control shall receive within ten (10)
business days after the date of termination a lump sum payment of the entire
balance contained in the Participant's Account; provided, however, that with
respect to any Participant who separated from service before the date of a
Change of Control, the balance of the Participant's Account shall be paid at the
time and in the manner as elected by the Participant under this Section 5 hereof
(and shall not be commuted to a lump sum or otherwise accelerated by the Change
of Control). Where payment under this Section 5.4 is



                                      -11-



made to any "key employee" (as defined under section 409A of the Code) on
account of Termination of Employment, such payment shall commence no earlier
than six (6) months following a Termination of Employment (or upon the death of
the employee, if earlier) if required to comply with section 409A of the Code.

5.5. DEATH BENEFIT. In the event of a Participant's death, the Company shall pay
the amount of the Participant's Account as of the date of death (as adjusted
from time to time pursuant to Section 6.2) in a lump-sum to the Participant's
designated Beneficiary as soon as administratively feasible after the
Participant's death (but not later than December 31 of the Plan Year in which
the Participant's death occurs, or if later, sixty (60) days following such
death). Payment to a Participant's designated Beneficiary shall be in cash.

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








                                      -12-


                                    SECTION 6

                                     ACCOUNT

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

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

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









                                      -13-



                                    SECTION 7

                                     FUNDING

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

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









                                      -14-


                                    SECTION 8

                             FORFEITURE OF BENEFITS

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

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

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









                                      -15-



                                    SECTION 9

                                 ADMINISTRATION

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

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

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

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

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

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

     (a)  the specific reasons for the denial;


                                      -16-



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

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

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

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

     9.5.3. GENERAL RULES.

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

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

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

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

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


                                      -17-



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

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

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

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

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

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

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

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




                                      -18-



misstatement, is found to be understated as a result of such misstatement of the
Participant. However, the benefit of any Participant which is overstated by
reason of any such misstatement or any other reason shall be reduced to the
amount appropriate in view of the truth (and to recover any prior overpayment).








                                      -19-



                                   SECTION 10

                                  MISCELLANEOUS

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

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

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

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

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

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

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



                                      -20-



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










                                      -21-

EX-13

Exhibit 13

Five-Year Comparison of Results
Donaldson Company, Inc. and Subsidiaries
(Millions of dollars, except per share amounts)

	2006			2005			2004			2003			2002
Operating Results
Net sales	$	1,694.3		$	1,595.7		$	1,415.0		$	1,218.3		$	1,126.0
Gross margin percentage		32.9	%		31.7	%		31.6	%		32.1	%		31.0	%
Operating income percentage		11.4	%		9.8	%		10.0	%		10.8	%		11.0	%
Effective income tax rate		30.1	%		28.6	%		25.0	%		27.0	%		27.0	%
Net earnings	$	132.3		$	110.6		$	106.3		$	95.3		$	86.9
Return on sales		7.8	%		6.9	%		7.5	%		7.8	%		7.7	%
Return on average shareholders’ equity		24.7	%		20.6	%		21.3	%		23.0	%		24.8	%
Return on investment		20.8	%		17.7	%		18.1	%		18.3	%		19.2	%
Financial Position
Total assets	$	1,124.1		$	1,111.8		$	1,001.6		$	882.0		$	850.1
Current debt	$	79.9		$	109.8		$	54.1		$	14.8		$	60.9
Long-term debt	$	100.5		$	103.3		$	70.9		$	105.2		$	104.6
Total debt	$	180.4		$	213.1		$	124.9		$	120.0		$	165.4
Shareholders’ equity	$	546.8		$	524.6		$	549.3		$	447.4		$	382.6
Long-term capitalization ratio	$	15.5	%		16.5	%		11.4	%		19.0	%		21.5	%
Property, plant and equipment, net	$	317.4		$	275.5		$	261.5		$	255.4		$	240.9
Net expenditures on property, plant and equipment	$	77.6		$	50.2		$	43.0		$	33.3		$	40.5
Depreciation and amortization	$	44.7		$	44.3		$	41.6		$	37.6		$	31.8
Shareholder Information
Net earnings per share – assuming dilution	$	1.55		$	1.27		$	1.18		$	1.05		$	0.95
Dividends paid per share	$	0.320		$	0.235		$	0.205		$	0.175		$	0.155
Shareholders’ equity per share	$	6.80		$	6.32		$	6.38		$	5.16		$	4.36
Shares outstanding (000s)		80,453			82,953			86,112			86,679			87,769
Common stock price range, per share
High	$	36.00		$	34.45			30.75			24.59			22.50
Low	$	28.60		$	25.11			23.55			14.96			13.47

EX-21

Exhibit 21

Wholly Owned Subsidiaries and Joint Ventures

Wholly Owned Subsidiaries

Donaldson Australasia Pty. Ltd.
Wyong, Australia Ultrafilter Pty. Ltd.
Nunwaiding, Victoria, Australia Donaldson Filtration Österreich, GmbH
Wien, Austria Donaldson Europe, b.v.b.a.
Donaldson Coordination Center, b.v.b.a.
Donaldson Belgie, b.v.b.a.
Leuven, Belgium Donaldson do Brasil
Equipamentos Inustriais Ltda
Saõ Paulo, Brazil Donaldson Canada, Inc.
Athens, Ontario, Canada Donaldson Far East Ltd.
Hong Kong, S.A.R., China Shanghai Donaldson Filtration Co., Ltd.
Shanghai, China Donaldson (Wuxi) Filters Co., Ltd.
Wuxi, China Donaldson Czech Republic s.r.o.
Klasterec nad Ohri, Czech Republic Donaldson Industrial CR - Konzern s.r.o.
Kadan, Czech Republic Donaldson Filtration CR - Konzern s.r.o.
Prague, Czech Republic Donaldson Scandinavia a.p.s.
Horsholm, Denmark Donaldson France, s.a.s.
Bron, France Donaldson, s.a.s.
Domjean, France Financiere de Segur s.a.s.
Le Bozec Filtration & Systems, s.a.s.
Paris, France Ultrafilter s.a.s.
Vigny, France Donaldson GmbH
Torit DCE GmbH
Dulmen, Germany Donaldson Filtration Deutschland GmbH
Donaldson Deutschland Holding GmbH
Quality Air GmbH
Haan, Germany Ultratroc GmbH
Flensburg, Germany Donaldson Filtration Magyarorszag Kft.
Budapest, Hungary Donaldson India Filter Systems Pvt. Ltd.
New Delhi, India P.T. Donaldson Systems Indonesia
P.T. Donaldson Filtration Indonesia
Jakarta, Indonesia Donaldson Italia s.r.l.
Ostiglia, Italy

Nippon Donaldson Ltd.
Tokyo, Japan Donaldson Company Inc. (Luxembourg) SCS
DLXH S.a.r.l.
Luxembourg City, Luxembourg Donaldson Filtration
(Malaysia) Sdn. Bnd.
Selangor Darul Ehsan, Malaysia Donaldson, S.A. de C.V.
Prestadora de Servicios Aguascalientes, S. de R.L. de C.V.
Aguascalientes, Mexico Donaldson Torit, B.V.
Donaldson Nederland B.V.
Almere, Netherlands Donaldson Filtration Norway a.s.
Moss, Norway Donaldson Filtration (Philippines) Inc.
Muntinlupa City, Philippines Donaldson Polska Sp. z.o.o.
Warsaw, Poland Donaldson Filtration (Asia Pacific) Pte. Ltd.
Singapore Donaldson Filtration Slovensko s.r.o.
Bratislava, Slovakia Donaldson Filtration Systems (Pty) Ltd.
Cape Town, South Africa Donaldson Filtros Iberica S.L.
Madrid, Spain Ultrafilter S.L.
Terrassa, Spain Donaldson Schweiz GmbH
Aarau, Switzerland Donaldson Taiwan Ltd.
Taipei, Taiwan Donaldson Filtration (Thailand) Ltd.
Nothaburi, Thailand Donaldson (Thailand) Ltd.
Rayong, Thailand Donaldson Filtre Sistemleri
Ticaret Limited Sirketi
Istanbul, Turkey Donaldson Filter Components Ltd.
Donaldson UK Holding Ltd.
DFCH Ltd.
Hull, United Kingdom Donaldson Filtration (GB) Ltd. DCE Donaldson Ltd.
DCE Group Ltd.
Ultrafilter Ltd.
Leicester, United Kingdom Donaldson Capital, Inc.
ASHC, Inc.
Minneapolis, MN USA

Donaldson Korea Co., Ltd.

Seoul, South Korea

Donaldson Iberica Soluciones

en Filtracion, S.L.

Barcelona, Spain

Joint Ventures

Advanced Filtration Systems, Inc.

Champaign, Illinois

Advanced Filtration Services, Inc.

Las Vegas, Nevada

Ultrafilter Pty. Ltd.

India

P.T. Panata Jaya Mandiri

Jakarta, Indonesia

Rashed Al-Rashed & Sons —

Donaldson Company Ltd.

Dammam, Saudi Arabia

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

        We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 333-107444, 333-97771, 333-56027, 33-27086, 2-90488 and 33-44624) of Donaldson Company, Inc. of our report dated September 30, 2006, relating to the financial statements and financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Annual Report on Form 10-K.

PricewaterhouseCoopers LLP

Minneapolis, Minnesota
September 30, 2006

EX-24

Exhibit 24

POWER OF ATTORNEY

The undersigned does hereby constitute and appoint William M. Cook, Norman C. Linnell, Amy C. Becker and each of them, the undersigned’s attorneys-in-fact and agents for the purpose of signing in the undersigned’s name and on the undersigned’s behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report for Fiscal Year 2006, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc., and any and all amendments thereto, and to deliver on the undersigned’s behalf said report so signed for filing with the Securities and Exchange Commission.

Dated: September 30, 2006

/s/ F.Guillaume Bastiaens

Signature

F. Guillaume Bastiaens

Print Name

POWER OF ATTORNEY

The undersigned does hereby constitute and appoint William M. Cook, Norman C. Linnell, Amy C. Becker and each of them, the undersigned’s attorneys-in-fact and agents for the purpose of signing in the undersigned’s name and on the undersigned’s behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report for Fiscal Year 2006, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc., and any and all amendments thereto, and to deliver on the undersigned’s behalf said report so signed for filing with the Securities and Exchange Commission.

Dated: September 30, 2006

/s/ Janet M. Dolan

Signature

Janet M. Dolan

Print Name

POWER OF ATTORNEY

The undersigned does hereby constitute and appoint William M. Cook, Norman C. Linnell, Amy C. Becker and each of them, the undersigned’s attorneys-in-fact and agents for the purpose of signing in the undersigned’s name and on the undersigned’s behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report for Fiscal Year 2006, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc., and any and all amendments thereto, and to deliver on the undersigned’s behalf said report so signed for filing with the Securities and Exchange Commission.

Dated: September 30, 2006

/s/ Jack W. Eugster

Signature

Jack W. Eugster

Print Name

POWER OF ATTORNEY

The undersigned does hereby constitute and appoint William M. Cook, Norman C. Linnell, Amy C. Becker and each of them, the undersigned’s attorneys-in-fact and agents for the purpose of signing in the undersigned’s name and on the undersigned’s behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report for Fiscal Year 2006, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc., and any and all amendments thereto, and to deliver on the undersigned’s behalf said report so signed for filing with the Securities and Exchange Commission.

Dated: September 30, 2006

/s/ John F. Grundhofer

Signature

John F. Grundhofer

Print Name

POWER OF ATTORNEY

The undersigned does hereby constitute and appoint William M. Cook, Norman C. Linnell, Amy C. Becker and each of them, the undersigned’s attorneys-in-fact and agents for the purpose of signing in the undersigned’s name and on the undersigned’s behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report for Fiscal Year 2006, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc., and any and all amendments thereto, and to deliver on the undersigned’s behalf said report so signed for filing with the Securities and Exchange Commission.

Dated: September 30, 2006

/s/ Michael J. Hoffman

Signature

Michael J. Hoffman

Print Name

POWER OF ATTORNEY

The undersigned does hereby constitute and appoint William M. Cook, Norman C. Linnell, Amy C. Becker and each of them, the undersigned’s attorneys-in-fact and agents for the purpose of signing in the undersigned’s name and on the undersigned’s behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report for Fiscal Year 2006, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc., and any and all amendments thereto, and to deliver on the undersigned’s behalf said report so signed for filing with the Securities and Exchange Commission.

Dated: September 30, 2006

/s/ Paul David Miller

Signature

Paul David Miller

Print Name

POWER OF ATTORNEY

The undersigned does hereby constitute and appoint William M. Cook, Norman C. Linnell, Amy C. Becker and each of them, the undersigned’s attorneys-in-fact and agents for the purpose of signing in the undersigned’s name and on the undersigned’s behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report for Fiscal Year 2006, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc., and any and all amendments thereto, and to deliver on the undersigned’s behalf said report so signed for filing with the Securities and Exchange Commission.

Dated: September 30, 2006

/s/ Jeffrey Noddle

Signature

Jeffrey Noddle

Print Name

POWER OF ATTORNEY

The undersigned does hereby constitute and appoint William M. Cook, Norman C. Linnell, Amy C. Becker and each of them, the undersigned’s attorneys-in-fact and agents for the purpose of signing in the undersigned’s name and on the undersigned’s behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report for Fiscal Year 2006, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc., and any and all amendments thereto, and to deliver on the undersigned’s behalf said report so signed for filing with the Securities and Exchange Commission.

Dated: September 30, 2006

/s/ Willard D. Oberton

Signature

Willard D. Oberton

Print Name

POWER OF ATTORNEY

The undersigned does hereby constitute and appoint William M. Cook, Norman C. Linnell, Amy C. Becker and each of them, the undersigned’s attorneys-in-fact and agents for the purpose of signing in the undersigned’s name and on the undersigned’s behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report for Fiscal Year 2006, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc., and any and all amendments thereto, and to deliver on the undersigned’s behalf said report so signed for filing with the Securities and Exchange Commission.

Dated: September 30, 2006

/s/ John P. Wiehoff

Signature

John P. Wiehoff

Print Name

EX-31.A

Exhibit 31-A

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

I, William M. Cook, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: September 30, 2006

/s/   William M. Cook

William M. Cook
Chief Executive Officer

EX-31.B

Exhibit 31-B

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

        I, Thomas R. VerHage, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: September 30, 2006

/s/   Thomas R. VerHage

Thomas R. VerHage
Chief Financial Officer

EX-32

Exhibit 32

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the following certifications are being made to accompany the annual report on Form 10-K for the fiscal year ended July 31, 2006 for Donaldson Company, Inc.:

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

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

1.	The Annual Report on Form 10-K of Donaldson Company, Inc. for the fiscal year ended July 31, 2006 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Donaldson Company, Inc.

Date: September 30, 2006

/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 Annual Report on Form 10-K of Donaldson Company, Inc. for the fiscal year ended July 31, 2006 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Donaldson Company, Inc.

Date: September 30, 2006

/s/   Thomas R. VerHage

Thomas R. VerHage
Chief Financial Officer