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In order to comply with the implementation requirements of SFAS 133 and SFAS 138, the company undertook a comprehensive review of its contractual relationships to ensure that all potential free-standing and embedded derivatives were identified. As a result, all of the company’s existing derivative positions qualified for hedge accounting per SFAS 133 and SFAS 138, and the impact of adoption was not considered material to the company’s results of operations or financial position. The company’s documentation policies for derivatives were revised as con- sidered necessary to comply with SFAS 133 requirements. However, the company made no substantive changes to its risk management strategy as a result of adopting SFAS 133 and SFAS 138. As a result of the implementa- tion of SFAS 133 and SFAS 138, the company has recorded a credit to other comprehensive income of $0.3 million for the year ended July 31, 2001. 

In June 2001 the company entered into an interest rate swap agreement which was determined to be a fair value hedge under SFAS 133 and SFAS 138 (see Note D). As of July 31, 2001, the interest rate swap had a fair value of $0.2 million which has been recorded as an increase to long-term debt. As a result of adopting these new account- ing standards, there has been no material impact on the results of operations of the company for fiscal year ended July 31, 2001. 

New Accounting Standards In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” Major provisions of these statements are as follows: all business combinations must now use the purchase method of accounting, the pooling of interest method of accounting is now prohibited; intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as a part of a related contract, asset or liability; goodwill and intangible assets with indefinite lives are not amortized, but tested for impairment annu- ally, except in certain circumstances, and whenever there is an impairment indicator; all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting; effective August 1, 2002, 

goodwill is no longer subject to amortization. The com- pany has adopted the provisions of these statements as of August 1, 2001. As required by SFAS 142, the com- pany will perform an impairment test on goodwill and other intangible assets as of the adoption date. Thereafter, the company will perform impairment tests annually and whenever events or circumstances occur indicating that goodwill or other intangible assets might be impaired. Beginning August 1, 2001, amortization of goodwill will cease. Goodwill amortization expense was $3.8 million, $2.7 million and $0.7 million at July 31, 2001, 2000 and 1999, respectively. The company estimates that goodwill amortization expense would have been approximately $3.5 million in 2002. 

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Acquisitions All acquisitions were accounted for as purchases. The purchase prices assigned to the net assets acquired were based on the fair value of such assets and liabilities at the respective acquisition dates. The operating results of these acquired companies have been included in the consolidated statement of earnings from the dates of acquisition. Consolidated pro forma earnings and earnings per share would not be materially different from the reported amounts for all years presented. 

The company completed the purchase of all of the outstanding shares of AirMaze Corporation for $31.9 mil- lion in cash effective November 1, 1999. AirMaze Corporation was merged into Donaldson Company, Inc. effective April 1, 2000. AirMaze products include heavy- duty air and liquid filters, air/oil separators and high purity air filter products. AirMaze manufacturing facilities are located in Stow, Ohio and Greeneville, Tennessee. The excess of purchase price over the fair values of the net assets acquired was $26.8 million and has been recorded as good- will which is being amortized on a straight-line basis over 20 years. AirMaze operations are a part of the company’s Engine Products segment. As of July 31, 2001, the balance of restructuring liabilities recorded in conjunction with the acquisition was approximately $0.2 million for costs asso- ciated with the termination and relocation of employees. Costs incurred and charged to this reserve associated with the termination and relocation of employees amounted to $0.3 million for the fiscal year ended July 31, 2001. 

## Acquisitions, Plant Closure and Plant Opening 

