Event Brief of Q3 2004 Donaldson Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

CORPORATE PARTICIPANTS

. Tom VerHage, Donaldson, VP, CFO . Bill Van Dyke, Donaldson, Chairman, President, CEO . Bill Cook, Donaldson, SVP . Nick Priadka, Donaldson, SVP, International . Lowell Schwab, Donaldson, SVP, Engine Systems and Parts . Jim Giertz, Donaldson, SVP, Industrial and Commercial

. Bill Vann, Donaldson, VP, Operations

OVERVIEW

Co. reported 3Q04 revenues of $371m and EPS of $0.33. Guidance was given in the press release. Q&A focus: markets, opex, commodity prices, and margins.

FINANCIAL DATA

A. Key Data From Call 1. 3Q04 revenues = $371m 2. 3Q04 EPS = $0.33

3. YTD nine-month revenues = over $1b 4. YTD diluted EPS = $0.89

PRESENTATION SUMMARY

S1. 3Q04 Financial Highlights (T.VH.) 1. Comments: 1. 3Q04 strong, turned in record sales and earnings. 2. Backlogs up substantially over last year entering 4Q, near record levels, co. confident to deliver double-digit earnings growth for another year which would be its 15th consecutive year. 3. $371m in revenues, up 23% from $303m last year. 4. YTD nine-month revenues over $1b, up 16% from $888m last year. 5. Record diluted net EPS $0.33, up 18% from $0.28 last year. 6. YTD diluted EPS $0.89, up 17% over last year. 7. Operating expenses higher than expected, one-third of YoverY increase is due to weaker dollar, balance of increase due to expenses related to revenue growth. 1. Some adjustments are not expected to reoccur in 4Q. 2. Expect operating expenses will decrease as percentage of sales in comparison to the 3Q. 8. Decreased tax rate to 22.3%. 1. Due to $1.8m additional credit from prior years' research efforts. 2. Expect it to return to typical 27% in 4Q04. 9. See continuation of strong business conditions during first nine months of year. 10. Co. expects to deliver another record full year earnings and double-digit increase in EPS over last year.

S2. CEO Remarks (B.VD.) 1. Comments: 1. Most striking feature of business is strength of sales volume, which has been building for several quarters, not softening. 1. It is organic revenue growth running in excess of 20% YoverY. 2. Sales are up and increasing at an increasing rate for the past several quarters.

3. 90-day backlog is strong, up nearly 30% over prior year.

4. Broadly based strength, growth has affected almost all product lines across the business. 5. 3Q04 sales show off road up 24%, disk drive up 30%, engine after-market -- replacement parts business for diesels -- up 29%, transportation products 36%, membranes 47%, compressors 22%, hydraulics 61%. 6. Industrial filtration up 12% after languishing for past couple years. 7. Gas turbine business was bad last year, saw 3Q04 sales flat with prior year and a 17% increase in 90-day backlog. 2. Sales increases are across all markets co. serves. 3. Optimistic about near term, focused on capturing all opportunities. 4. Raised revenue guidance in press release. 5. Continuing program of moving and consolidating production capacity. 1. Have confidence about future and this organization. 6. Management transition: 1. Current CEO retiring in 14 months, transition to Bill Cook who will be the new CEO is on schedule. 2. Board has confidence in Bill Cook and veteran management team to continue success.

QUESTION AND ANSWER SUMMARY

Q1. (Bill Benton, William Blair) Could you talk about aftermarket strength in engine in particular, which accelerated nicely. You cite not only utilization rates, but it sounds like some traction from internal efforts, can you offer a little color on that?

A. (Lowell Schwab) Nick and the aftermarket group have been investing in growing that market for several years, so there is growth in virtually every channel in the engine aftermarket. It was also helped by inventory correction with large customers who had under-ordered in prior quarters. The ongoing rate of order is at record levels in virtually every channel in the aftermarket right now.

Q2. (Bill Benton, William Blair) Of the growth, …