Good day and welcome to the Donaldson Company Incorporated Donaldson's Third Quarter Fiscal Year 2015 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brad Pogalz, IR Director. Please go ahead.

Thanks, Don. Good morning, everyone, and welcome. With me today are: Tod Carpenter, Donaldson's CEO; Jim Shaw, our CFO; and Bill Cook, our Chairman. Following this brief introduction, Tod and Jim will cover our third quarter performance, review our outlook for fiscal 2015, and provide an update on some of our strategic initiatives. But first, let me review our Safe Harbor statement. 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 forward-looking statements made today. Our actual results may be affected by many important factors, including risks and uncertainties identified in our press release and in our SEC filings. Now, I'll turn the call over to Tod Carpenter. Tod? Tod E. Carpenter - President, Chief Executive Officer & Director: Thanks, Brad, and good morning, everyone. Our third quarter results were in line with our revised guidance, reflecting a constant currency sales decline of 2% and adjusted earnings per share of $0.36. Additionally, our expectations for full-year sales and adjusted earnings per share are in line with our prior guidance. In fact, results across our businesses were in line with what we discussed a few weeks ago, and Jim and I will today supply the details now that the quarter has closed. Beyond those details, I plan to spend time this morning talking to our response to projected market conditions, along with providing some perspective on how we're executing against our growth strategy. With that, I'll do a quick review of our third quarter segment results. Our third quarter Engine Products sales declined 1% from last year, led by a 17% decline in our off-road business. Pressure from agriculture and mining end markets continued in our third quarter with mining taking another step down. Most notably,…

Thank you. And we'll take our first question from Eli Lustgarten with Longbow Securities.

Good morning, everyone. Tod E. Carpenter - President, Chief Executive Officer & Director: Good morning, Eli. Tod E. Carpenter - President, Chief Executive Officer & Director: Eli.

It's nice to not be surprised for a change, right? Can we get a little bit of a rundown of what you're actually seeing in the business conditions? I know you talked about a step-down in mining, ag is still weak growth. But I mean, the expectations for the weakness was there all year just maybe exacerbated a little bit more. But there's an expectation that we're seeing almost the worst of it or something the worst of it in mining and ag, which I personally don't believe. So, what are your customers telling you with the step-down, does it stay at this level for awhile, does it change, can we get some feel as we go through the fourth quarter, so we can get some insight into what kind of conditions, I guess, as we go into fiscal 2016 for you? Tod E. Carpenter - President, Chief Executive Officer & Director: Eli, this is Tod. When we – I'll start first with mining. When we take a look at mining and we take the inputs from our customer, it's clear across our customer base that mining is taking another step down after multiple years of decline. We had – previously had and guided our first-fit portion of that business to be down 10%. We've now taken that down to 15% to 20% within our model. So mining, globally, is really creating more headwind than we had originally predicted. That's a big one on us. The other one that really is the change on the first-fit portion is ag. Ag remains weak, as we all know, in North America and Europe; but Latin America due to Brazil, weakened in this quarter. We had, as you know, we've talked before, Eli, between – agriculture down 35% to 40%, we've now taken ag down between 40% and 50% on the first-fit piece. Those are the two changes that we've seen. As we look to the replacement parts portion of our company, there has been change as well and specifically, that is within mining. So, we've seen aggressive destocking through our OE channel – through the OE channel of replacement parts, but we've also – that's particularly in mining. That's also in agriculture. And then, the additional surprise for us this time was that on the replacement parts revenue in on-road, which we had expected to be flat, North America really became cautious as their demand had kind of – had weakened. So, the independent channel for on-road softened for us in this last quarter. Those are the changes we're seeing and that's what we put within our guidance.

Yeah. Well, I guess, what I'm trying to drive at is the step-down that we're going through now into the fourth quarter, are your customers saying this is the level we're going to stay at for a while? Is there any indication of, well, this is just immaterial condition and we get a little bounce? Or how do we – as we exit 2015, is the momentum staying the same at these lower levels? I mean, that's what I was sort of driving at more than anything. Tod E. Carpenter - President, Chief Executive Officer & Director: You know, Eli, I would just point to, for example, CAT's guidance where they're suggesting that the full year, they'll be down 10%. When we look to that external information and when we talk directly to the customers, I think there's a really cohesiveness to what you're hearing and what we're hearing. However, the visibility, the long-term visibility is not great out there. We'll bake into what we see when we give fiscal 2016 outlook here in about three months.

Okay. And if we go over to Industrial's outlook, the $10 million postponements, I guess, we talked about it was $7 million during your guidance change postponements. And I guess at that time you indicated in gas turbine that it was – the postponement from the third to fourth has an equal amount from the fourth and to next year. Can you give us some profile of what we're seeing in gas turbines? I think you indicated you expected $10 million to be shipped but not necessarily when. And so, are we seeing just a stretch out of business going into – well, into next year leaving conditions, say, uncertain and slowing in that market? James F. Shaw - CFO, Vice President & Head-Investor Relations: Eli, this is Jim. The changes that Tod referred to are consistent with what we talked about a couple weeks ago on our pre-release that the delays are not indicative of the projects not being completed or us not getting the revenue. It's simply timing. And because we're on the back half, very near the commissioning of these projects, any delays upstream affects our delivery date. So, you summarized it well. We had roughly $10 million go from our third quarter to fourth quarter. And then in our guidance, we did take out a similar number going from fourth quarter to early next year. So it's simply timing. I would say these shifts are not reflective of any changes in the end markets. This is typical for this business that we would see some of these delays. I would say we're probably just seeing a few more than what I would call normal.

And frankly, (27:04) are we seeing any pricing changes or so, any pricing pressures you go through all these because of the weakened condition? Tod E. Carpenter - President, Chief Executive Officer & Director: Eli, this is Tod. No, there's no change in behavior across our markets; not at this time. It's not – we are not seeing any of that.

Great. Thank you very much.

We'll go next to Brian Drab with William Blair. Brian P. Drab - William Blair & Co. LLC: Good morning. Thanks for taking my questions. Tod E. Carpenter - President, Chief Executive Officer & Director: Good morning. Brian P. Drab - William Blair & Co. LLC: Good morning. The first, and I guess, set of questions, quickly just on the restructuring and make sure that I have this correct. You said an additional $15 million to $20 million in savings expected for 2016; so the total of savings is $35 million to $40 million expected for 2016? James F. Shaw - CFO, Vice President & Head-Investor Relations: That's correct. The second one... Brian P. Drab - William Blair & Co. LLC: Okay. James F. Shaw - CFO, Vice President & Head-Investor Relations: ...as Tod mentioned, we're still refining, but that's right. Brian P. Drab - William Blair & Co. LLC: Okay. And then, we've completed the actions in the first round of restructuring and that's a $20 million annual run rate; so for the fourth quarter of 2015, we should expect about $5 million in restructuring savings. Is that correct? James F. Shaw - CFO, Vice President & Head-Investor Relations: This is Jim, Brian. Not entirely because some of those, depending on the timing of the action being implemented. We're substantially complete, but there's still some open items. So, in terms of the savings that we've already reflected here in the guidance, it's a little less than $5 million, I would say about half to little over half of that will be realized. But that's in our guidance. Brian P. Drab - William Blair & Co. LLC: Got it. Okay. Thanks. And then next set of questions focusing on the aftermarket. So, you talked about softening and caution in the…

We'll go next to Rick Eastman with Robert Baird. Rick C. Eastman - Robert W. Baird & Co., Inc. (Broker): Yes. Good morning. Tod E. Carpenter - President, Chief Executive Officer & Director: Good morning. Rick C. Eastman - Robert W. Baird & Co., Inc. (Broker): Jim, could you just kind of – I just want to follow up on aftermarket. If you just take the overall Engine aftermarket business, can you just give an approximate split on off-road versus on-road, just in total, irrespective of channel? James F. Shaw - CFO, Vice President & Head-Investor Relations: One second. I've got – it's hard to track those just given the fact that some of the parts... Rick C. Eastman - Robert W. Baird & Co., Inc. (Broker): Sure. The part number. Yeah. The part numbers. I'm sure. James F. Shaw - CFO, Vice President & Head-Investor Relations: Yeah. But... Rick C. Eastman - Robert W. Baird & Co., Inc. (Broker): Yeah. I mean, it would almost appear by the growth rates that you're talking about – I mean, are you talking about 50%-50% or – I presume the off-road must be larger than 50%, though? James F. Shaw - CFO, Vice President & Head-Investor Relations: Yes, it is. Give me one second. I'm looking for the number, but it is. Tod E. Carpenter - President, Chief Executive Officer & Director: While he digs, Rick, do you have another? Rick C. Eastman - Robert W. Baird & Co., Inc. (Broker): Yeah, no, that's fine. I just had a similar question. On the IFS business, maybe a thought or two as to – I think, Tod, you defined the aftermarket piece of IFS as strong versus capital equipment soft. Tod E. Carpenter - President, Chief Executive Officer & Director: Right. Rick C.…

We'll take our next question from Laurence Alexander with Jefferies.

Good morning. Two quick ones – or actually, three. What's your – is there a net FX headwind still flowing through in 2016 given the timing of the move this year? James F. Shaw - CFO, Vice President & Head-Investor Relations: Laurence, it's Jim. Yeah, there is. If we hold rates similar to where they are today, it's about a 2% impact on our revenue next year, just given a lot of this headwind didn't start until December.

And then how are you thinking – given the restructuring you're doing, how is that going to affect your incremental margins going forward? If we did get an upside surprise in demand trends next year or the year after, how do you see your incremental margins and how much room would you have to grow before you'd have to start reinvesting again? James F. Shaw - CFO, Vice President & Head-Investor Relations: The way we look at that, Laurence, is generally the first 10% to 15% of a fluctuation in our sales gives us higher than company average margin impact. So, from a gross margin standpoint, we've said historically that that could be 40% to 50% gross margin incremental on that first portion, but then we'd have to get back to adding shifts, people, et cetera. It also depends how quickly it comes back because to the extent it comes back more suddenly, it does result in overtime and some of those types of cost. So, it does depend on the slope of the increase but generally, we would see some incremental margin just like we've seen some degradation here this quarter on that first 10% or so.

And then, lastly, do you have any perspective on the impacts on your business over the next couple of years or opportunities created by the Poland and Polypore (42:00) situations? James F. Shaw - CFO, Vice President & Head-Investor Relations: I think it's hard to tell any direct impact to us. I think one thing it does do is reemphasize that the filtration business is a very attractive business and we're very happy to be part of it.

Thank you.

We'll take our next question from Brian Sponheimer with Gabelli & Company. Brian C. Sponheimer - Gabelli & Company, Inc.: Hi. Good morning, guys. Tod E. Carpenter - President, Chief Executive Officer & Director: Good morning. Brian C. Sponheimer - Gabelli & Company, Inc.: Just to go – kind of go back to that – the idea of acquisitions. I think in your comments you had mentioned some degree of – I wouldn't say frustration, but a lack of activity over the course of the past several years. Talk about just from a strategic standpoint, the ways in which you're potentially changing how you're looking at companies or potential targets internally now versus, say, the past five years. Tod E. Carpenter - President, Chief Executive Officer & Director: Brian, there's two pieces to it. So, the first piece is really the identification of the opportunity. And that really- what we've done is we've circled back and we'd made sure that we are identifying through the strategic opportunities across all of our businesses a lift essentially and really kind of opened our minds to accelerating our growth through acquisitions. However, I want to reemphasize that our financial metrics of what a good acquisition versus a bad acquisition is has not changed. We'll still be thoughtful when we apply an opportunity. We still have to have a solid value-creation model to be able to acquire. So, all of the metrics that we've talked about, 15% ROI in year five, accretive in year two; these are still baseline metrics that we apply to any opportunity as we see forward. Brian C. Sponheimer - Gabelli & Company, Inc.: And, I guess, just to follow that up, you mentioned that there's – it's a – I suppose, a target-rich environment at this point. Has anything changed about potential sellers multiples, particularly, if you see areas to grow in, say, in Engine or for off-highway where markets are depressed? Tod E. Carpenter - President, Chief Executive Officer & Director: Brian, I don't think that we look at the multiple as much as we stress do we have a clear path to value creation right now. And if we see that opportunity to create the proper shareholder value and deliver those returns, then clearly, we'll act. We really focus on shareholder value and a way forward. That's our focus. Brian C. Sponheimer - Gabelli & Company, Inc.: Right. And would you able to say if you have any NDA signed right now? Tod E. Carpenter - President, Chief Executive Officer & Director: No, we would not. Brian C. Sponheimer - Gabelli & Company, Inc.: All right. I had to ask. Thank you very much, guys.

We'll go next to Larry Pfeffer with Avondale Partners.

Good morning, gentlemen. James F. Shaw - CFO, Vice President & Head-Investor Relations: Good morning.

So, just sticking in the same vein, obviously, with the share repurchase activity, you're around 4% of the float and looking at more acquisition candidates. Does it say hypothetically you found one or multiple candidates you liked; are you comfortable taking the leverage ratio to 2 to 2.5 times and continuing the share repo at the same time? James F. Shaw - CFO, Vice President & Head-Investor Relations: Larry, it's Jim. I think we have to evaluate it. We would definitely look at all potential acquisitions that can add the value and the fit with the company that we're looking for. The share repurchase is the variable piece of our cash deployment. So, depending on the facts and circumstances, yeah, we'd tank it up (46:24) temporarily, but then I think we have to look how aggressive would we continue with the share repurchase part of that. And like I said, that would be the variable lever that we would fluctuate.

Okay. Got you. And then just kind of a quick macro question. How are you guys seeing things progress in Europe right now? Tod E. Carpenter - President, Chief Executive Officer & Director: This is Tod, Larry. So, Europe for us is going fairly well, to be honest. We're still up roughly 4% to 5% year-over-year year-to-date. It has been a little bit more cautious in the last quarter. So we're being careful. But it's still implementing our strategies going forward that we have, just being a bit more cautious.

Okay. Thanks, guys. Best of luck. James F. Shaw - CFO, Vice President & Head-Investor Relations: Thank you.

This concludes today's question-and-answer session. At this time, I would like to turn the conference back to Mr. Tod Carpenter for any additional remarks. Tod E. Carpenter - President, Chief Executive Officer & Director: Thank you, Don. That concludes today's call. I want to thank everyone for their time and continued support of Donaldson. I also want to thank the employees for what they do every day to make our company a filtration leader. Thank you and goodbye.

This concludes today's conference. Thank you for your participation.