Welcome to the Donaldson Q1 fiscal year 2010 webcast. During today’s presentation all parties will be in a listen-only mode. (Operator Instructions) This conference is being recorded today Thursday, November 19, 2009. I’d now like to turn the conference over to Rich Sheffer; please go ahead.

Thank you, Brandey. Welcome to Donaldson’s fiscal 2010 first quarter conference call and webcast. Following my brief introduction, Tom VerHage, our Vice President and CFO will give us a brief review of our first quarter operating results. Tom will then turn the call over to Bill Cook our Chairman, President and CEO who will discuss our updated outlook for fiscal 2010 and the business conditions shaping that view. Following Bill’s remarks, we’ll open up the call to questions. Before I turn the call over to Tom, I need to review Safe Harbor statement with you. Any statements in this call regarding our business that are not historical facts are forward looking statements. Our future results could differ materially from the statements made today. Our actual results maybe affected by many important factors including risks and uncertainties identified in our press release in our SEC filings. One more note before I turn it over to Tom. In yesterday’s release, you will notice that we have added two new product groups. Our aerospace and defense products, which was previously products, which was previously included in Off-Road products, and our Retrofit Emissions products, which was previously included in our aftermarket products, all of those within our Engine segment. We have added a schedule to our website that shows our fiscal 2008 and 2009 historical net sales in this new reporting format. You can go to the Investor Relations section of our website, www.donaldson.com to see this schedule and our normally posted foreign exchange translation schedule. Now, I’d like to introduce Tom VerHage. Tom.

Thanks Rich and good morning everyone. Yesterday we released our fiscal 2010 first quarter earnings. After the market closed and updated our guidance for the balance of the year. For the second consecutive quarter, our sales were up 2% on a sequential quarter basis after bottoming in the third quarter of fiscal 2009. Conditions in many of our end markets have either stabilized or are slowly beginning to recover. So, we have increased our earnings guidance and Bill will discuss this further in a few minutes. We are continuing to execute our previously announced restructuring plans and incurred an additional $1.3 million pre-tax cost or $0.01 per share in the quarter, with approximately $800,000 charge to cost of sales and $500,000 charge to operating expenses. By segment, $900,000 was incurred in our Engine product segment and $400,000 was incurred in our Industrial segment. Since we began these restructuring efforts last January, we have incurred restructuring costs totaling $19.1 million pre-tax, or $0.16 per share. We are continuing to work our plans and anticipate incurring an additional $11 million to 16 million of restructuring this fiscal year, assuming we can get the necessary government and labor related approvals. While we hope to incur the majority of these costs over the next two quarters, the regulatory approval process creates some uncertainty. The realized savings of $27 million in the quarter from restructuring actions we have completed since January of this $27 million savings, $12 million was in cost of sales, and $15 million was in operating expenses. By segment, $13 million of savings was in the Engine segment and $14 million was in the Industrial segment. Including the pre-tax restructuring charges we expect to incur in fiscal 2010 we are now expecting our full year operating margin to be between 11% and…

Thanks, Tom and good morning everyone. Although it seems like a long time ago, just this time one year ago we were completing a record first quarter. While the recession hadn’t yet hit us, we already see the gathering clouds unfortunately started taking many difficult, but appropriate actions early. So obviously our current quarter comparisons to last year’s record first quarter are difficult ones. On a year-over-year basis, our sales are down 25% from last year, pretty dramatic and so while this is obviously a very negative year-over-year comparison it does accurately reflect the severe impact of the recession on our customers, our end markets, and our company. Now I would like to point out a few other year-over-year comparisons, a much better picture and suggest how well we have responded and how well our company is running today. So, despite the loss of 5% of our sales volume year-over-year or about $150 million, our gross margin percent actually is better by 210 basis points than it was in last year’s record first quarter. Our operating expenses are down 18%, and our current operating margin at 12.3% is up from last year’s record first quarter. We also made significant improvements in our balance sheet generating over $60 million in free cash flow just in the last quarter. To be clear, we’ve still had a dramatic sales volume decrease and consequently have we generated fewer dollars on the bottom line than last year’s record first quarter. However, I’m very proud at how efficiently our company is running today and how well positioned we are for the future. It almost goes without saying, but I will say it anyway, getting our operating metrics to this point wasn’t easy and required a lot of very difficult decisions, sacrifices and hard work, but it…

(Operator Instructions) Your first question comes from Hamzah Mazari - Credit Suisse.

Just a question on your margins, how should we be thinking about your margins going forward over the next couple of years as a cyclical recovery takes hold, at some point you have some costs coming back into your system, but at the same time, you have a better absorption of fixed costs, which are hurting you right now, but at the same time, you have a longer term aftermarket opportunity with PowerCore that begins to take shape as well. Could you help us put that into perspective, and I’m not asking you to throw out a long term margin target out there unless you really love to do that, but just if you want to add some more color there or help us think about that?

Hamzah, this is Bill. We’re not prepared to throw out a long term margin target, but I’ll turn it over to Tom to talk about some of the details.

I want to thank Bill for taking care of the obvious question there. Hamzah, we can maybe talk about this year. As you saw, our gross margin was up very nice sequentially from the fourth quarter. I think it was 32.8% in the fourth quarter and 34.7% in the first quarter. I talked about some reasons for that being product mix. Certainly in the fourth quarter, I want to remind you we had restructuring costs as well, but our long term gross margin target as you recall has been 32%. Just given the favorability that we’ve seen so far this year of cost reduction efforts, product mix, we think now for fiscal ‘10 that gross margin target to be between 33% and maybe even pushing 34%, depending on a lot of things that can happen yet in fiscal 2010. So that besides mix, besides cost reduction efforts, some of which we certainly hope will be permanent. We are going to have some of the variable costs creep back in and for example, we think our incremental margin for the first couple of percentage points of sales of increase could be in the 30% range. Then when we bring back more sales, we’re of course, going to have to bring back some more fixed and discretionary fixed costs. So that 30% incremental margin after we get past the first 8% or 10% sales increase will certainly comedown back into the range of the mid teens. Hopefully that helps you out.

Then just a follow-up, on your replacement parts business, which is now bigger than the first side, some of that is your aftermarket business growing, but it’s also weaker. Is the mix going to be 50/50 on a normalized basis going forward? How should we be thinking about that part?

Hamzah it’s Bill here. You are right, to some extent the change in the relationship is because first-fit is down, and that will hopefully recover. I think as we’ve talked in other presentations, on an ongoing basis, sort of last fiscal year, our aftermarket parts business was under 50%, but our goal is to get it up over 50% in the near term and then over the longer period of time to move that closer to 60%. So those are the longer term target is to grow the parts business and all of our businesses be a bigger proportion of sales for the Company.

Your next question comes from Amanda Sigouin - Jefferies & Co. Amanda Sigouin - Jefferies & Co.: This is actually Amanda Sigouin on for Laurence. I wanted to ask if you guys have an impression of the year end customer shutdowns, if they’re going to be kind of a typical couple of weeks or if they’re going to be longer this year?

I think probably not as severe as last year, but longer than maybe a couple of years ago the average earlier this decade. There’s still balancing with some customers with orders and production using the holiday period to make those adjustments. Amanda Sigouin - Jefferies & Co.: Just one other, if I may, how do you see order trends in the turbine business by the geographic regions?

We don’t break it out geographically because it’s really a global market and I think probably one of the statistics that we follow is what GE, who is one of the leaders in the gas turbine market and one of our major customers talks about, and in their third quarter, which is the third calendar quarter, they talked about receiving orders for 23 gas turbines versus 33 same quarter the prior year. So in the short term or maybe over the next year, because of the contraction in electricity requirements, there’s been a slowdown in a number of turbines being ordered or built and that’s going to affect our business and why it’s a later cycle decline for us. The longer term, we’re very, very positive on the gas turbine market. It’s the cleanest fossil fuel in terms of power generation and the recent discoveries of natural gas supply has improved, so we think over the longer term it’s going to be a very good market.

Your next question comes from Kevin Maczka - BB&T Capital Markets. Kevin Maczka - BB&T Capital Markets: Bill, I guess it’s good to hear the word restocking and pre-buyback on the call again. I guess, my first question on restocking, the destocking was a multi-quarter event. Do you see a tailwind for a couple more quarters here at least on the restocking side?

I think we see it’s happening, and I think it’s going to continue to happen through our second and third quarter. It’s harder to see what’s going to happen beyond. That part of that destocking and we heard this from one of our customers in one of their investor presentations a week or so ago is just how severe and deep that was. Now going forward that their actual production is going to be more closely aligned with what the end user demand is and that’s not what happened over the past year, because part of that end user demand was satisfied with stuff coming off the shelf or out of the showroom. So I think it’s going to be through the second and third quarter, we would expect to see some of the year-over-year benefits of the absence of that destocking. Kevin Maczka - BB&T Capital Markets: On your gas turbine business and any of your other major later cycle businesses. I guess you’ve got some visibility now clearly into the early cycle rebound as it relates to gas turbine. What kind of visibility do you have there into when that may bottom out? Is that a second half 2010 type of event or should that have a multiyear tail to it until you get to this more attractive longer term story?

Kevin, Bill here. I think we have better visibility through the balance of our fiscal year. So that would be through July. We just given size of these projects and the lead time it takes to order and build them. So I can speak to that, and we feel pretty comfortable with the guidance that we provided given the lead time or the long visibility that we have in that market. I think beyond that, it becomes a little bit of a guessing game and dependent really on how strong the general economic recovery is. If the recovery is stronger, then the electricity requirements are going to grow or recover and there will be a demand for more power and gas turbines are going to be one of the solutions to that. They actually are sort of the shortest cycle way of satisfying increasing power. So I’m sort of dodging the question beyond this fiscal year because it really just depends on the strength of the global recovery. Kevin Maczka - BB&T Capital Markets: Just one more, if I could, Bill. On PowerCore, you always do a nice job of breaking out the number of platforms you’ve won, the number of proposals you’re working on. Can you just kind of frame the size of PowerCore today and maybe anything you can say about the opportunity over the next year or so?

Kevin, Rich is pulling out the details, but just to say to get the frame this up initially, a lot of the platforms that we won are related to product launches that our customers will launch either in 2010 or 2011 as they launch their new vehicles, whether it’s a piece of construction equipment or a truck or whatever. So the wins are in advance of when the production actually begins, but it will begin depending on when the customer is going to launch it. A lot of that’s being driven by the changes in the emission regulations, because they’ve got to redesign the engines and the pieces of equipment to satisfy that. A lot of this is still out in front of us. Over the longer period of time, we do see PowerCore being the dominant technology in the air filtration market in the segments that we serve. So it will be evolutionary in terms of how it happens, due to the customer platform launches, but over the next couple of years, we believe it will be the dominant technology, and replace the current technology, which was introduced about 20 years ago. Rich has got some specifics around numbers.

If we look at PowerCore as a percentage of our engine OEM and aftermarket, so I’m excluding the aerospace and defense and retrofit stuff, it’s about 6% of our sales now, and growing as a percentage last year PowerCore sales on both the first-fit and aftermarket basis were about $55 million of sales. We expect that percentage to be growing soon.

On the Torit side, same numbers, Rich?

On the Torit side, same numbers, Rich?

Torit side, just because it was introduced a little bit later, the percentages aren’t quite there, so it’s somewhere around 3% to 5% of our Torit sales, but again as that’s growing on the baghouse side, and we just recently launched, I mean, that was like last weekend, launched the new cartridge collectors for Torit PowerCore, that’s going to start growing pretty fast also as a percentage of the overall base of revenue there.

Your next question comes from [Derrick Jose] - Longbow Research.

I just had a question in terms of volumes. I was wondering if you saw in your first half of the year you guys were seeing higher volumes, because of the pre-builds, because of the 2009 pre-builds, and that if in the second half of the year, because you said you were going to see sales growth, if you were seeing that mostly because of pricing.

So on the pre-buy, the truck business is an important part of our company, but it’s a pretty small part of our company today. So we did see a little bit of the pre-buy, but it’s not really material in the aggregate for our business. Their comments on the pre-buy, but I think that probably sort of summarizes it. On your second question was around pricing, and that’s not our second half recovery. We talk about our sales going up, that’s not assuming any significant pricing that would be more around the volume recovery.

I was also wondering, you guys continue to see weakness in the construction and farm equipment segments. I was wondering if you could provide any color there about what continue to see.

I think on the construction, starting with that one, on the parts side, we’re actually seeing that being better, because of the absence of the destocking that we talked about a little earlier. Generally, if we take a look at indicators for construction, spending was up in the U.S. eight-tenths of a percent in September, so we do see that gradually recovering. On the farm equipment side, we see probably the biggest news there is, that we do see that market declining outside of North America during the balance of our fiscal year.

Last, real quick one, in terms of the aftermarket, I know it was asked previously if it was going to be about 50/50. Do you see the volumes primarily growing in that area in terms of, not the retrofit products, but the aftermarket products, and as such, would the margins, I guess, longer term, would you expect to see them increase?

Holding aside the retrofit, we’re reporting that separately, so I’m just talking the about filters. We do see that the volume is growing there both with the recovery and utilization, but more specifically, around the introduction of more and more proprietary systems, whether it’s PowerCore or other proprietary technologies, into the first-fit, which then allows us to retain more of the aftermarket. So it’s around using proprietary technologies to maintain our aftermarket or replacement filter market share. So we see that growing over time as I mentioned earlier, our target has been to get that over 50%, and longer term to get that approaching 60% of our total sales. Really this speaks to the second part of your question, is why. The way to grow our business, obviously, if you’re designing the first-fit, you want to maintain as much of the aftermarket as you can. It’s also a more stable the parts business, than first-fit, so it helps us from a diversification. Then finally, it is more profitable by between 100 and 200 basis points on an operating margin, because we’ve already made that the investments in the technology on the first-fit, but we don’t have to he repeat that on the aftermarket, so it’s a way to grow, it’s a way to diversify, and it’s a way to improve our margins overtime.

Your next question comes from Jeff Hammond - KeyBanc Capital Markets.

Just a question on the restructuring, can you just give me a better sense of what you were originally expecting for the first quarter, and then just, as you frame the year, is this simply a timing issue, or as things start to get better you’re kind of pushing off some restructuring?

Our, first quarter restructuring costs of, as I mentioned, a little over a million, were pretty much in line with what we thought we would be incurring in the first quarter. It’s for the reasons I indicated in my prepared remarks, it’s a little hard to determine specifically what quarters it’s going to fall, just given government dole and labor issues, but just something for you to think about. We think that the second quarter might be in the range of about $6 million, and then in the second half of the year, I would expect to see more in Q3 than in Q4, but we really can’t be more specific at this point for some reasons that are outside of our control.

Just on the aftermarket, I think you mentioned in all geographies the aftermarket was up sequentially. Can you just give us a better sense, and maybe just overall, what you’re seeing between different regions in terms of kind of pace of recovery, kind of this restocking phenomenon?

I think in terms of pace of recovery, we see most of Asia, maybe aside from Japan, as sort of leading in terms of the strength and the pace of the recovery, from the recession. So I don’t think that’s probably consistent with what everybody else is seeing. So Asia came out of it faster and stronger than Europe, or the U.S., or Japan. I think that from a pace, that’s what we’re seeing. Second part of your question was?

I guess any differentiation in your mind between how you’re feeling about Europe recovery versus North America? Whether it be specific to aftermarket or just overall?

I think we see probably the U.S. possibly coming out of it ahead of Europe. Both of those geographies have some very specific unusual circumstances that could change that, but that would be my guess is that the U.S. might come out of it a little bit sooner than Europe. It seems like the U.S. went in sooner, so we’re hoping it comes out sooner, from our perspective. On the other thing you asked about was the destocking, I think the destocking, that’s a global phenomenon and I think I can try to tell whether there’s any difference by region on that.

Then just finally, it seemed like we had a pocket earlier in the year where raw material costs maybe that. I’m just wondering if over the near term you’re getting any benefit from cause raw materials running through.

We track that pretty closely. Some commodities and some purchase parts have gone up a little bit. There have been a couple that has gone down, and there really hasn’t been a real significant trend or impact on our margins. Looking forward for the next quarter, again, we see some ups and downs, but in large part, there’s going to be any real inflation, it’s going to depend on the robustness of the economic recovery. So not a big deal in Q1, and based on what we know at this point, we don’t expect a significant impact inQ2.

Your next question comes from Adam Brooks - Sidoti & Co. Adam Brooks - Sidoti & Co.: Yes, a few quick questions. You guys bought back stock in this quarter. Maybe could you talk a little bit going forward kind of what your philosophy is I guess, and can we continue to see at the pace we’ve seen? I guess, historically where that’s kind of been some driver of the EPS a little bit?

I’d probably refer back to our long term strategy, which, as we say, we target to repurchase 3% of our outstanding each year, which after new option grants, should result in a net 2% reduction. I want to emphasize, we say target, not promise, because it’s obviously subject to other uses of the cash and the stock price. So overtime, that is what we’ve done, but we haven’t done it exactly in those numbers every year. So we don’t comment prospectively in any year what we’re going to do, but I just sort of go back to what we say over long periods of time what we’re trying to do. Adam Brooks - Sidoti & Co.: On the gross margin, I guess Tom said around 33% or 34%, does that exclude any restructuring charges this year, or is that inclusive of the restructuring charges?

Adam, that actually includes the restructuring charges.

Your next question comes from Charley Brady - BMO Capital Markets.

With respect to the aftermarket, I’m just wondering, normally you get a sequential decline Q2 from Q1, and I’m just wondering what your thoughts are on maybe that not happening or certainly being much more muted given that business seems to be picking up and the year ago comp was such a sharp drop-off, and maybe you don’t get a normal sequential decline into Q2?

Not breaking out all the different pieces by quarter, I think that, as I mentioned earlier, we do think that we’re going to get some positive benefit from the absence of the destocking that we had last year that you mentioned, and also in some cases the inverse of that, restocking. We said, generally that this quarter is going to be in total down a little bit sequentially, just because of the holiday period and the customer shutdowns. We would expect our aftermarket business continue to be stronger than our first-fit businesses because it’s one of our earliest cycle businesses.

Just one housekeeping question, can you give me the number of shares outstanding as of the end of the quarter, as of October 31?

On a diluted basis, give me two seconds here, Charley, was 79.3 million actual shares out at the end of the quarter excluding any dilution was just a little over 77 million.

Your next question comes from Brian Drab - William Blair.

So just a couple more questions on margin and you talked a lot about the difference between the two ideas of that the absence of destocking and the beginning of restocking; I don’t think I really have a clear sense of what you think you saw in this particular quarter. Was it more just the absence of destocking, which I would think it would be, or are you really starting to see given stability, rather than growth in utilization and truck builds, are you really seeing restocking?

I think it’s more probably the absence of the destocking, but that’s still a big deal, because that was reducing of the demand from our perspective, they worked that immature off the shell for out of the field last spring or last winter. So if we’re more closely aligned with actually how equipment is being used in the field, that’s going to help us and I think that’s. Now, we’re selling parts I think more directly with how the equipments being used in the field.

Yes, I certainly agree it’s a big deal. Just trying to get gauge what’s happening in the end markets a little bit clearer. Then could you talk a little bit about, are you seeing more of the growth in the aftermarket in the On-Road business, or is it the Off-Road business or about the same?

It’s hard for us to separate that I think we’re seeing growth in both segments.

I just wanted to ask if you could give I think I see what did you with the new segment categorization, but maybe Rich other someone could make sure that everyone is on the same page in terms of what you did to change the structure there and maybe whether or not you are going to restate some historical data for us?

We actually have a schedule posted on the IR page of our website that breaks down fiscal ‘08 and fiscal ‘09 into the new reporting structure. What we did as aerospace and defense used to be rolled into Off-Road. We have separated that out of Off-Road now, and Retrofit Emissions used to be rolled into aftermarket that’s been separated out now. Both of those or all of that is in the Engine segment of our business. So there’s no change to the Industrial segment.

Your final question comes from Richard Eastman - Robert W. Baird.

Bill, could you just comment, when you look at the business quarter-to-quarter, from fourth to first quarter. In local currency, again the sales were maybe down about 5% in local currency total and when you look at first-fit versus the aftermarket piece, how did those businesses do was the aftermarket business in total, was it up sequentially?

This is Tom. Let me comment first. I think the FX impact quarter-to-quarter for us was more like 3%. So, that 2% sequential growth might be more like pretty flat or down 1% on a local currency basis. Aftermarket was up sequentially about 9%. So, when I talked about margins and the mix impact sequentially, that was a pretty significant driver.

Tom, I’ll just direct this to you as well, given your commentary on the incremental margins and I think you commented that, until sales growth maybe surpasses 8% to 10%, that we can deliver 30% incremental EBIT. Again depending on how everybody wants to model this out, in local currency, we maybe don’t quite get to those kinds of growth rates by the end of your fiscal year. So, it would seem as though, I mean, 30% incremental to the EBIT probably a pretty good place to stay for the fiscal year?

If the overall growth in local currency does remain under 10%, we think that is achievable. That’s what we accomplished in the first quarter, but it is really hard to tell. It’s going to be determined a little bit by the mix of businesses that grow and those that don’t grow, but that’s our hope.

Then, Bill, again maybe just to not simplify this too much, but your sales guidance is up about $100 million literally for the balance of the fiscal year here, from where we were. Again, if I look at your segment commentary, it all appears, really coming from the Engine side of the business, Engine product side and where we more optimistic here since early September to the current time on the Engine side of the business to get that kind of incremental sales growth?

Rick, Bill here. There’s also some foreign exchange that helped us as well, the weaker dollar, so I just want to get that out on the table. Beyond that we have increased our constant currency volumes and I think it’s a combination of things, is that maybe from when we gave our guidance that we developed back in August, that things stopped going down. Okay, which we weren’t sure we saw the end of it summer and have stabilized from what we had been projecting in the late summer and we’ve seen some recovery in terms of utilization in the aftermarket. So the aftermarket business has been stronger over the last three months, came back sooner than we had anticipated that’s generally in all parts of the aftermarket for us.

Then in terms of either construction or mining, are you any more optimistic there on the first-fit side?

I think I look to our major customer forecast, like Caterpillar, for example it was our largest single customer, they had said Mr. Owens said that the third calendar quarter would be their worst. He said that as they went into that quarter, and he said it coming out when they announced a couple weeks ago, and that sequentially their business would be going up. They’ve given guidance for next year for 2010, pretty wide range, but the range is positive between 10% and 25%. So, I think we look at using them as one indicator they’ve said would suggest that the worst is behind them from both new equipment and parts perspective.

Just the cycle back, on the aftermarket being stronger and the tone better, is that globally?

Yes.

(Operator Instructions) At this time there are no further questions in the queue. I’d like to turn the call back over to management for any closing remarks.

To everyone on the Donaldson Team, just want to point out that we had a very good quarter and one that all of us and you especially, should be very proud of and while we haven’t seen a dramatic economic recovery, by focusing on what we could control, including providing the best possible service to our customers. We are leading our company very successfully through this crisis and positioning ourselves to achieve our long term growth plans. Sincere thanks for your efforts and support and finally, to all of you participating and listening, this is Bill Cook, and I’d like to thank all of you for your time and interest in our company.

Ladies and gentlemen, this concludes the Donaldson Q1 fiscal year 2010 webcast. If you would like to listen to a replay of today’s conference please dial, 303-590-3030 or 1-800-406-7325, followed by pass code of 4178320. ACT would like to thank you for your participation. You may now disconnect.