UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

	þ	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

or

	o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from       to

PALL CORPORATION

(Exact name of registrant as specified in its charter)

New York		11-1541330
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
2200 Northern Boulevard, East Hills, NY		11548
(Address of principal executive offices)		(Zip Code)

(516) 484-5400
(Registrant’s telephone number, including area code)

     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 þ      No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o
Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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

     The number of shares of the registrant’s common stock outstanding as of December 3, 2008 was 118,079,381.

Table of Contents

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements (Unaudited).
Condensed Consolidated Balance Sheets as of October 31, 2008 and July 31, 2008.			3
Condensed Consolidated Statements of Earnings for the three months ended October 31, 2008 and October 31, 2007.			4
Condensed Consolidated Statements of Cash Flows for the three months ended October 31, 2008 and October 31, 2007.			5
Notes to Condensed Consolidated Financial Statements.			6
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.			20
Item 3.    Quantitative and Qualitative Disclosures About Market Risk.			28
Item 4.    Controls and Procedures.			29
PART II. OTHER INFORMATION
Item 1.    Legal Proceedings.			30
Item 1A. Risk Factors.			31
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.			32
Item 6.    Exhibits.			32
SIGNATURES			33

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PALL CORPORATION AND SUBSIDIARIES

		Oct. 31, 2008				July 31, 2008
ASSETS
Current assets:
Cash and cash equivalents		$	266,303			$	454,065
Accounts receivable			520,317				617,079
Inventories			469,971				492,977
Prepaid expenses			36,989				34,026
Other current assets			123,828				61,492
Total current assets			1,417,408				1,659,639
Property, plant and equipment, net			619,307				662,985
Goodwill			275,089				265,893
Intangible assets			58,046				46,204
Other non-current assets			219,780				322,025
Total assets		$	2,589,630			$	2,956,746
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable		$	37,399			$	26,062
Accounts payable and other current liabilities			398,330				471,266
Income taxes payable			127,638				57,882
Current portion of long-term debt			2,837				3,252
Dividends payable			15,313				15,501
Total current liabilities			581,517				573,963
Long-term debt, net of current portion			619,759				747,051
Income taxes payable – non-current			134,453				233,420
Deferred taxes and other non-current liabilities			233,882				263,077
Total liabilities			1,569,611				1,817,511
Stockholders’ equity:
Common stock, par value $.10 per share			12,796				12,796
Capital in excess of par value			186,691				178,608
Retained earnings			1,142,108				1,118,616
Treasury stock, at cost			(328,328	)			(290,508	)
Stock option loans			(450	)			(450	)
Accumulated other comprehensive income (loss):
Foreign currency translation			68,919				179,429
Minimum pension liability			(61,322	)			(61,322	)
Unrealized investment gains			161				2,343
Unrealized losses on derivatives			(556	)			(277	)
			7,202				120,173
Total stockholders’ equity			1,020,019				1,139,235
Total liabilities and stockholders’ equity		$	2,589,630			$	2,956,746

See accompanying notes to condensed consolidated financial statements.

PALL CORPORATION AND SUBSIDIARIES

		Three Months Ended
		Oct. 31, 2008				Oct. 31, 2007
Net sales		$	578,022			$	561,007
Cost of sales			298,631				299,691
Gross profit			279,391				261,316
Selling, general and administrative expenses			180,506				170,987
Research and development			18,933				16,895
Restructuring and other charges, net			8,175				8,769
Interest expense, net			9,426				7,721
Earnings before income taxes			62,351				56,944
Provision for income taxes			19,264				20,842
Net earnings		$	43,087			$	36,102
Earnings per share:
Basic		$	0.36			$	0.29
Diluted		$	0.36			$	0.29
Dividends declared per share		$	0.13			$	0.24
Average shares outstanding:
Basic			119,363				123,167
Diluted			120,520				124,360

See accompanying notes to condensed consolidated financial statements.

PALL CORPORATION AND SUBSIDIARIES

		Three Months Ended
		Oct. 31, 2008				Oct. 31, 2007
Operating activities:
Net cash provided/(used) by operating activities		$	50,854			$	(125,806	)
Investing activities:
Capital expenditures			(26,287	)			(23,586	)
Proceeds from sale of retirement benefit assets			4,748				6,862
Purchases of retirement benefit assets			(5,669	)			(7,130	)
Disposals of long lived assets			2,053				2,682
Acquisitions of businesses, net of disposals and cash acquired			(36,832	)			--
Other			(1,055	)			(1,363	)
Net cash used by investing activities			(63,042	)			(22,535	)
Financing activities:
Notes payable			17,711				1,845
Dividends paid			(15,501	)			(14,715	)
Net proceeds from stock plans			6,984				7,222
Purchase of treasury stock			(49,894	)			--
Long-term borrowings			33,578				119,387
Repayments of long-term debt			(134,334	)			(12,451	)
Excess tax benefits from stock-based compensation arrangements			449				554
Net cash (used)/provided by financing activities			(141,007	)			101,842
Cash flow for period			(153,195	)			(46,499	)
Cash and cash equivalents at beginning of year			454,065				443,036
Effect of exchange rate changes on cash and cash equivalents			(34,567	)			11,240
Cash and cash equivalents at end of period		$	266,303			$	407,777
Supplemental disclosures:
Interest paid		$	18,378			$	17,727
Income taxes paid (net of refunds)			19,692				174,704

See accompanying notes to condensed consolidated financial statements.

PALL CORPORATION AND SUBSIDIARIES

NOTE 1 - BASIS OF PRESENTATION

     The condensed consolidated financial information included herein is unaudited. Such information reflects all adjustments of a normal recurring nature, which are, in the opinion of Company management, necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows as of the dates and for the periods presented herein. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2008 (“2008 Form 10-K”).

NOTE 2 - ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

     Effective August 1, 2008, the Company adopted, on a prospective basis, certain required provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”). The provisions not yet adopted by the Company relate to non-financial assets and liabilities that are recognized or disclosed on a non-recurring basis, as permitted under FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157 (“FSP FAS No. 157-2”). Those remaining aspects of SFAS No. 157 for which the effective date was deferred by FSP FAS No. 157-2 are being evaluated by the Company and will be effective for the first quarter of fiscal 2010.

     SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements; rather, it applies to all other accounting pronouncements that require or permit fair value, except for those pronouncements specifically excluded from its scope. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

     SFAS No. 157 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

	•		Level 1: Use of observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
	•		Level 2: Use of inputs other than quoted prices included in Level 1, which are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
	•		Level 3: Use of inputs that are unobservable.

     The following table presents, for each of these hierarchy levels, the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of October 31, 2008:

						Fair Value Measurements
		As of
		Oct. 31, 2008				Level 1				Level 2
Financial assets carried at fair value
Available-for-sale debt securities		$	49,895			$	49,895			$	--
Available-for-sale equity securities			6,739				6,739			--
Financial liabilities carried at fair value
Derivative financial instruments			4,568				--				4,568

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

     The Company’s available-for-sale securities are valued using quoted market prices and, as such, are classified within Level 1 of the fair value hierarchy.

     The derivative financial instruments are comprised of an interest rate swap and foreign currency forward contracts. The fair value of the Company’s outstanding interest rate swap contract was determined based upon a non-binding valuation from the counterparty that is corroborated by observable market data. The fair values of the Company’s foreign currency forward contracts were valued using pricing models, with all significant inputs derived from or corroborated by observable market data such as yield curves, currency spot and forward rates and currency volatilities.

     Effective August 1, 2008, the Company also adopted the provisions of SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 permits entities to elect to measure specified financial instruments and certain other items at fair value with changes in fair value recognized in earnings each reporting period. The Company has opted not to apply the fair value option to any of its financial assets or liabilities as of October 31, 2008.

NOTE 3 - ACQUISITIONS

     On September 2, 2008 (the “Closing Date”), the Company acquired 100% of the share capital and voting rights, on a fully diluted basis, of GeneSystems, SA (“GeneSystems”), a privately held French biotechnology company that has developed a patented approach to rapid microbiological detection equipment and disposables. On the Closing Date, the Company paid a cash purchase price of 25,000 Euros ($36,265 U.S. dollar equivalent at the foreign exchange rate on the Closing Date), subject to a post closing working capital adjustment.

     In the event that French regulations relating to the monitoring of possible contamination of hot water systems and/or water cooling towers by legionella are amended by the second anniversary of the Closing Date, with effect within 12 months of such amendment, to either (i) make the use of Polymerase Chain Reaction (“PCR”) technology mandatory for such monitoring in France or (ii) validate its use as the only or preferred method for such monitoring in France (the “Legionella Regulation”), a post closing payment equal to 11,500 Euros (less any indemnity related payments of up to 2,000 Euros) will also be paid. If the Legionella Regulation is published after the second anniversary of the Closing Date, but prior to the third anniversary of the Closing Date, and becomes effective within 12 months of publication, the sellers will be paid 5,000 Euros (less any indemnity related payments of up to 2,000 Euros).

     The acquisition is accounted for using the purchase method of accounting in accordance with SFAS No. 141, Business Combinations (“SFAS No.141”). SFAS No. 141 requires that the total cost of the acquisitions be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition. The valuation of in-process research and development, amortizable intangible assets, inventory and other assets and liabilities are in process and as such, the cost of the acquisition has been preliminarily allocated to the assets acquired and liabilities assumed in the condensed consolidated balance sheet at October 31, 2008 based upon such preliminary valuations.

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

     The following table summarizes the preliminary allocation of the purchase price to the assets acquired and liabilities assumed at the date of the acquisition:

Purchase price		$	36,265
Transaction costs			663
Total purchase price			36,928
Cash acquired			96
Total purchase price, net of cash acquired			36,832
Accounts receivable			909
Inventories			1,883
Other current assets			683
Property plant and equipment			491
In-process research and development			1,743
Intangible assets			16,618
Total assets and in-process research and development acquired			22,327
Accounts payable and other current liabilities			2,260
Other non-current liabilities			4,785
Total liabilities assumed			7,045
Excess cost over book value of net assets acquired		$	21,550

Based upon the valuation of in-process research and development, the Company wrote-off approximately $1,743.

     The amount of in-process research and development was determined by identifying research projects for which technological feasibility had not been established and for which no alternative future uses existed. As of the acquisition date, there was one project that met the above criteria. The project identified is targeted for the BioPharmaceuticals market. The value of the research project identified to be in-process was determined by estimating the future cash flows from the project once commercially feasible and discounting the net cash flows back to their present value. The key assumptions specifically underlying the valuation for purchased in-process research and development consist of an expected completion date for the in-process project, estimated costs to complete the projects, revenue and expense projections, and discount rates based on the risks associated with the development life cycle of the in-process technology acquired. The weighted average discount rate used was approximately 40%. The project is expected to be completed by calendar year 2010.

     Based upon the markets GeneSystems serves, the excess of cost over the fair value of the net assets acquired was assigned to the Company’s Life Sciences segment and has been reported in goodwill in the condensed consolidated balance sheet as of October 31, 2008. The excess cost over the fair value of the net assets acquired related to the acquisition is not tax deductible. Pro forma financial information has not been provided as it is not material. The results of GeneSystems have been included in the results of operations of the Company since the date of acquisition.

NOTE 4 - BALANCE SHEET DETAILS

     The following tables provide details of selected balance sheet items:

		Oct. 31, 2008				July 31, 2008
Accounts receivable:
Billed		$	479,014			$	572,262
Unbilled			51,748				55,746
Total			530,762				628,008
Less: Allowances for doubtful accounts			(10,445	)			(10,929	)
		$	520,317			$	617,079

Unbilled receivables principally relate to long-term contracts recorded under the percentage-of-completion method of accounting.

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

		Oct. 31, 2008				July 31, 2008
Inventories:
Raw materials and components		$	135,759			$	138,146
Work-in-process			66,522				77,245
Finished goods			267,690				277,586
		$	469,971			$	492,977
		Oct. 31, 2008				July 31, 2008
Property, plant and equipment:
Property, plant and equipment		$	1,408,957			$	1,496,121
Less: Accumulated depreciation and amortization			(789,650	)			(833,136	)
		$	619,307			$	662,985

NOTE 5 - GOODWILL AND INTANGIBLE ASSETS

     The following table presents goodwill, net of accumulated amortization recorded prior to adopting SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), allocated by reportable segment, in accordance with SFAS No. 142.

		Oct. 31, 2008				July 31, 2008
Life Sciences		$	85,902			$	72,629
Industrial			189,187				193,264
		$	275,089			$	265,893

     The change in the carrying amount of goodwill is primarily attributable to the acquisition of GeneSystems, SA, as discussed in Note 3, Acquisitions partly offset by changes in foreign exchange rates used to translate the goodwill contained in the financial statements of foreign subsidiaries using the rates at each respective balance sheet date.

     Intangible assets, net, consist of the following:

		Oct. 31, 2008
						Accumulated
		Gross				Amortization				Net
Patents and unpatented technology		$	95,608			$	45,126			$	50,482
Trademarks			6,156				3,254				2,902
Other			6,770				2,108				4,662
		$	108,534			$	50,488			$	58,046
		July 31, 2008
						Accumulated
		Gross				Amortization				Net
Patents and unpatented technology		$	85,336			$	43,853			$	41,483
Trademarks			4,902				3,123				1,779
Other			5,058				2,116				2,942
		$	95,296			$	49,092			$	46,204

     The change in the carrying amount of intangible assets is primarily attributable to the acquisition of GeneSystems, SA, as discussed in Note 3, Acquisitions.

     Amortization expense for intangible assets for the three months ended October 31, 2008 and October 31, 2007 was $2,262 and $2,105, respectively. Amortization expense is estimated to be approximately $6,586 for the remainder of fiscal year 2009, $8,598 in fiscal year 2010, $8,379 in fiscal year 2011, $8,114 in fiscal year 2012, $5,325 in fiscal year 2013 and $4,452 in fiscal year 2014.

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

NOTE 6 - TREASURY STOCK

     On November 15, 2006, the board of directors authorized an expenditure of $250,000 to repurchase shares of the Company’s common stock. On October 16, 2008, the board authorized an additional expenditure of $350,000 to repurchase shares. The Company’s shares may be purchased over time, as market and business conditions warrant. There is no time restriction on these authorizations. During the three months ended October 31, 2008, the Company purchased 1,568 shares in open-market transactions at an aggregate cost of $49,894 with an average price per share of $31.82. At October 31, 2008, approximately $499,488 remained available to be expended under the current stock repurchase programs. Repurchased shares are held in treasury for use in connection with the Company’s stock-based compensation plans and for general corporate purposes.

     During the three months ended October 31, 2008, 364 shares were issued under the Company’s stock-based compensation plans. At October 31, 2008, the Company held 9,921 treasury shares.

NOTE 7 - CONTINGENCIES AND COMMITMENTS

     With respect to the matters described below under the headings Federal Securities Class Actions, Shareholder Derivative Lawsuits and Other Proceedings, no liabilities or insurance recoveries have been reflected in the condensed consolidated financial statements as of October 31, 2008 as these amounts are not currently estimable.

Federal Securities Class Actions:

     Four putative class action lawsuits were filed against the Company and certain members of its management team alleging violations of the federal securities laws relating to the Company’s understatement of certain of its U.S. income tax payments and of its provision for income taxes in certain prior periods as described in Note 2, Audit Committee Inquiry and Restatement, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2007 (“2007 Form 10-K”). These lawsuits were filed between August 14, 2007 and October 11, 2007 in the United States District Court for the Eastern District of New York. By Order dated May 28, 2008, the Court consolidated the cases under the caption “In re Pall Corp,” No. 07-CV-3359 (E.D.N.Y.) (JS) (ARL), appointed a lead plaintiff and ordered that the lead plaintiff file a consolidated amended complaint. The lead plaintiff filed its consolidated amended complaint on August 4, 2008. The lead plaintiff seeks to act as representative for a class consisting of purchasers of the Company’s stock between April 20, 2007 and August 2, 2007, inclusive. The consolidated amended complaint names the Company and its current chief executive officer and chief financial officer as defendants and alleges violations of Section 10(b) and 20(a) of the Exchange Act, as amended, and Rule 10b-5 promulgated by the Securities and Exchange Commission (“SEC”). It alleges that the defendants violated these provisions of the federal securities laws by issuing materially false and misleading public statements about the Company’s financial results and financial statements, including the Company’s income tax liability, effective tax rate, internal controls and accounting practices. The plaintiffs seek unspecified compensatory damages, costs and expenses. The Company moved to dismiss the consolidated amended complaint on September 19, 2008 and filed its reply brief to the lead plaintiff’s opposition to the Company’s motion to dismiss on December 2, 2008.

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

Shareholder Derivative Lawsuits:

     On October 5, 2007, two plaintiffs filed identical derivative lawsuits in New York Supreme Court, Nassau County relating to the tax matter described above. These actions purport to bring claims on behalf of the Company based on allegations that certain current and former directors and officers of the Company breached their fiduciary duties by failing to evaluate and otherwise inform themselves about the Company’s internal controls and financial reporting systems and procedures. In addition, plaintiffs allege that certain officers of the Company were unjustly enriched as a result of the Company’s inaccurate financial results over fiscal years 1999-2006 and the first three quarters of fiscal year 2007. The complaints seek unspecified compensatory damages on behalf of Pall Corporation, disgorgement of defendants’ salaries, bonuses, stock grants and stock options, equitable relief and costs and expenses. The Company, acting in its capacity as nominal defendant, moved to dismiss the complaints for failure to make a demand upon the Company’s board of directors, which motions were granted on April 30 and May 2, 2008. On September 19, 2008, the same two plaintiffs filed a derivative lawsuit in New York Supreme Court, Nassau County, which was served on the Company on September 26, 2008 (the “September Derivative”). This action purports to bring claims on behalf of the Company based on allegations that certain current and former directors and officers of the Company breached their fiduciary duties and were unjustly enriched in connection with the tax matter. In addition, the plaintiffs allege that the Board’s refusal of their demand to commence an action against the defendants was not made in good faith. The plaintiffs and the Company agreed to stay these proceedings pending resolution of the Company’s motion to dismiss in the federal securities class action lawsuit.

     On November 13, 2008, another shareholder filed a derivative lawsuit in New York Supreme Court, Nassau County, against certain current and former directors and officers of the Company, and against the Company, as nominal defendant, which was served on the Company on December 4, 2008. This action purports to bring similar claims as the September Derivative.

Other Proceedings:

     The SEC and U.S. Attorney’s Office for the Eastern District of New York are conducting investigations in connection with the tax matter described above. The Company is cooperating with these investigations.

Environmental Matters:

     The Company’s condensed consolidated balance sheet at October 31, 2008 includes liabilities for environmental matters of approximately $14,729, which relate primarily to the previously reported environmental proceedings involving a Company subsidiary, Gelman Sciences Inc., pertaining to groundwater contamination. In the opinion of management, the Company is in substantial compliance with applicable environmental laws and its current accruals for environmental remediation are adequate. However, as regulatory standards under environmental laws are becoming increasingly stringent, there can be no assurance that future developments, additional information and experience gained will not cause the Company to incur material environmental liabilities or costs beyond those accrued in its condensed consolidated financial statements.

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

NOTE 8 - RESTRUCTURING AND OTHER CHARGES, NET

     The following tables summarize the restructuring and other charges/(gains) (“ROTC”) recorded for the three months ended October 31, 2008 and October 31, 2007:

		Three Months Ended Oct. 31, 2008
						Other
		Restructuring				Charges
		(1)				(2)				Total
Impairment of investments (2a)		$	--			$	1,977			$	1,977
In-process research and development (2b)			--				1,743				1,743
Severance			1,647				--				1,647
Other exit costs			950				--				950
Environmental matters (2c)			--				1,279				1,279
Costs related to inquiry (2d)			--				586				586
		$	2,597			$	5,585			$	8,182
Reversal of excess restructuring reserves			(7	)			--				(7	)
		$	2,590			$	5,585			$	8,175
Cash		$	2,590			$	1,865			$	4,455
Non-cash			--				3,720				3,720
		$	2,590			$	5,585			$	8,175

		Three Months Ended Oct. 31, 2007
						Other
						Charges
		Restructuring				/(Gains)
		(1)				(2)				Total
Severance		$	4,856			$	--			$	4,856
Costs related to inquiry (2d)			--				3,766				3,766
Other exit costs			505				--				505
Loss/(gain) on disposal of assets, net			30				(484	)			(454	)
Environmental matters (2c)			--				283				283
Other			--				13				13
		$	5,391			$	3,578			$	8,969
Reversal of excess restructuring reserves			(200	)			--				(200	)
		$	5,191			$	3,578			$	8,769
Cash		$	5,161			$	3,578			$	8,739
Non-cash			30				--				30
		$	5,191			$	3,578			$	8,769

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

(1) Restructuring

     Following the completion of the integration of the Filtration and Separations Group (“FSG”), which was acquired in fiscal year 2002, Company management began a much broader initiative to examine the overall structure of the Company and the manner in which it conducts business activities with the objective of increasing revenue growth and achieving cost reduction. This resulted in a series of restructuring activities, including the realignment of the overall business structure into vertically integrated businesses, which commenced at the end of fiscal year 2004, the Company’s facilities rationalization initiative and European cost reduction initiative (“EuroPall”), which commenced in fiscal year 2006, and the Western Hemisphere cost reduction initiative (“AmeriPall”), which commenced in fiscal year 2007. In fiscal year 2009, the Company commenced the second phase of its European cost reduction initiative (“EuroPall II”).

     Three Months Ended October 31, 2007 and October 31, 2008:

•

The Company continued its cost reduction initiatives as discussed above. As a result, the Company recorded severance liabilities for the termination of certain employees worldwide as well as other costs related to these initiatives.

     The following table summarizes the activity related to restructuring liabilities that were recorded in the three months ended October 31, 2008 and in fiscal years 2008, 2007 and 2006:

						Lease
						Termination
						Liabilities &
		Severance				Other				Total
2009
Original charge		$	1,647			$	950			$	2,597
Utilized			(335	)			(530	)			(865	)
Other changes (a)			(15	)			(16	)			(31	)
Balance at Oct. 31, 2008		$	1,297			$	404			$	1,701
2008
Original charge		$	8,814			$	3,110			$	11,924
Utilized			(8,059	)			(2,849	)			(10,908	)
Other changes (a)			220				6				226
Balance at Jul. 31, 2008			975				267				1,242
Utilized			(105	)			(168	)			(273	)
Reversal of excess reserves (b)			(3	)			(4	)			(7	)
Other changes (a)			(129	)			(25	)			(154	)
Balance at Oct. 31, 2008		$	738			$	70			$	808

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

						Lease
						Termination
						Liabilities &
		Severance				Other				Total
2007
Original charge		$	22,083			$	4,321			$	26,404
Utilized			(6,146	)			(3,573	)			(9,719	)
Other changes (a)			611				9				620
Balance at Jul. 31, 2007			16,548				757				17,305
Utilized			(13,994	)			(727	)			(14,721	)
Reversal of excess reserves (b)			(297	)			(65	)			(362	)
Other changes (a)			1,281				57				1,338
Balance at Jul. 31, 2008			3,538				22				3,560
Utilized			(579	)			--				(579	)
Other changes (a)			(228	)			(5	)			(233	)
Balance at Oct. 31, 2008		$	2,731			$	17			$	2,748
2006
Original charge		$	13,335			$	3,043			$	16,378
Utilized			(7,221	)			(2,900	)			(10,121	)
Other changes (a)			182				9				191
Balance at Jul. 31, 2006			6,296				152				6,448
Utilized			(2,712	)			(108	)			(2,820	)
Reversal of excess reserves (b)			(1,385	)			(40	)			(1,425	)
Other changes (a)			126				2				128
Balance at Jul. 31, 2007			2,325				6				2,331
Utilized			(1,414	)			(6	)			(1,420	)
Reversal of excess reserves (b)			(56	)			--				(56	)
Other changes (a)			(4	)			--				(4	)
Balance at Jul. 31, 2008			851				--				851
Utilized			(389	)			--				(389	)
Balance at Oct. 31, 2008		$	462			$	--			$	462

	(a)		Other changes primarily reflect translation impact.
	(b)		Reflects the reversal of excess restructuring reserves originally recorded in fiscal years 2008, 2007 and 2006.

(2) Other Charges/(Gains):

          (a) Investments:

In the three months ended October 31, 2008, the Company recorded a charge of $1,977 for the other-than-temporary diminution in value of certain equity and debt investments held by its benefits protection trust.

          (b) In-process research and development:

In the three months ended October 31, 2008, the Company recorded a charge of $1,743 to write off in-process research and development acquired in the acquisition of GeneSystems, SA (refer to Note 3, Acquisitions, for further discussion of purchase accounting).

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

          (c) Environmental matters:

In the three months ended October 31, 2008 and October 31, 2007, the Company increased its previously established environmental reserves by $1,279 and $283, respectively, primarily related to environmental matters in Pinellas Park, Florida and Ann Arbor, Michigan.

          (d) Costs related to inquiry:

In the three months ended October 31, 2008 and October 31, 2007, the Company recorded costs of $586 and $3,766, respectively, primarily comprised of legal and other professional fees related to matters that were under audit committee inquiry. See Note 2, Audit Committee Inquiry and Restatement, to the consolidated financial statements included in the 2007 Form 10-K for a description of this inquiry.

NOTE 9 - INCOME TAXES

     The Company’s effective tax rate for the three months ended October 31, 2008 and October 31, 2007 was 30.9% and 36.6%, respectively. For the three months ended October 31, 2008, the effective tax rate varied from the U.S. federal statutory rate primarily due to the benefits of foreign operations and the retroactive extension of the federal research credit per the Emergency Economic Stabilization Act of 2008 which was enacted in the quarter ended October 31, 2008. For the three months ended October 31, 2007, the effective tax rate varied from the U.S. federal statutory rate primarily due to the net impact of foreign operations and a discrete tax charge resulting from new tax legislation in Germany.

     At October 31, 2008 and July 31, 2008, the Company had gross unrecognized tax benefits of $231,747 and $242,287, respectively. During the three month period ended October 31, 2008, the amount of unrecognized tax benefits decreased by $14,877, primarily due to foreign currency translation adjustments, and increased by $4,337 as a result of tax positions taken during the current period, resulting in a net decrease of $10,540.

     If recognized, $147,496 and $152,000 of the net unrecognized tax benefits would have reduced the effective tax rate at October 31, 2008 and July 31, 2008, respectively. The reduction in net unrecognized tax benefits was primarily due to foreign currency translation adjustments.

     Based on recent discussions with various tax authorities, the Company believes it is reasonably possible that the gross amount of unrecognized tax benefits will decrease by approximately $96,257 within the next 12 months. As a result, the company has reclassified $92,558 from non-current income tax liabilities to current tax liabilities. In addition, the Company reclassified $65,985 of non-current prepaid income tax included in other non-current assets as of July, 31, 2008 to other current assets as of October 31, 2008 as this amount could be utilized in the resolution of the unrecognized tax benefits.

NOTE 10 - COMPONENTS OF NET PERIODIC PENSION COST

     The Company provides substantially all domestic and foreign employees with retirement benefits. Net periodic pension benefit cost for the Company’s defined benefit pension plans includes the following components:

		Three Months Ended
		U.S. Plans								Foreign Plans								Total
		Oct. 31,				Oct. 31,				Oct. 31,				Oct. 31,				Oct. 31,				Oct. 31,
		2008				2007				2008				2007				2008				2007
Service cost		$	2,033			$	2,000			$	1,238			$	916			$	3,271			$	2,916
Interest cost			3,107				2,893				4,563				4,704				7,670				7,597
Expected return on plan assets			(2,114	)			(2,190	)			(3,847	)			(3,957	)			(5,961	)			(6,147	)
Amortization of prior service cost			385				276				52				80				437				356
Recognized actuarial loss			264				467				348				1,090				612				1,557
Loss due to curtailments and settlements			--				--				--				3				--				3
Net periodic benefit cost		$	3,675			$	3,446			$	2,354			$	2,836			$	6,029			$	6,282

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

NOTE 11 - STOCK-BASED PAYMENT

     The Company applies the provisions of SFAS No. 123(R), Share-Based Payment, which establishes the accounting for employee stock-based awards. The Company currently has four stock-based employee and director compensation plans (Stock Option Plans, Management Stock Purchase Plan (“MSPP”), Employee Stock Purchase Plan (“ESPP”) and Restricted Stock Unit Plans), which are more fully described in Note 14, Common Stock, to the consolidated financial statements included in the 2008 Form 10-K.

     The detailed components of stock-based compensation expense recorded in the condensed consolidated statements of earnings for the three months ended October 31, 2008 and October 31, 2007 are reflected in the table below.

		Three Months Ended
		Oct. 31,				Oct. 31,
		2008				2007
Stock options		$	1,015			$	628
Restricted stock units			2,301				1,471
ESPP			1,024				819
MSPP			857				520
Total		$	5,197			$	3,438

     The following table illustrates the income tax effects related to stock-based compensation.

		Three Months Ended
		Oct. 31,				Oct. 31,
		2008				2007
Tax excess benefits in cash flows from financing activities		$	449			$	554
Tax benefit recognized related to total stock-based compensation expense			1,410				893
Actual tax benefit realized for tax deductions from option exercises of stock-based payment arrangements			1,308				1,297

Stock Options and ESPP

     A summary of option activity for all stock option plans during the three months ended October 31, 2008 is presented below:

										Weighted-
						Weighted-				Average
						Average				Remaining				Aggregate
						Exercise				Contractual Term				Intrinsic
Stock Options		Shares				Price				(in years)				Value
Outstanding at August 1, 2008			3,357			$	28.15
Granted			--				--
Exercised			(62	)			22.82
Forfeited or Expired			(3	)			37.95
Outstanding at October 31, 2008			3,292			$	28.24				4.5			$	8,641
Expected to vest at October 31, 2008			1,331			$	35.33				5.4			$	50
Exercisable at October 31, 2008			1,922			$	23.11				3.6			$	8,588

     As of October 31, 2008, there was $8,840 of total unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a weighted-average period of 2.8 years. The total intrinsic value of options exercised during the three months ended October 31, 2008 and October 31, 2007 was $1,075 and $393, respectively.

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

     The ESPP enables participants to purchase shares of the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the market price at the beginning or end of each semi-annual stock purchase period. The semi-annual offering periods end in April and October. A total of 244 shares and 200 shares were issued under the ESPP during the semi-annual stock purchase periods ended October 31, 2008 and October 31, 2007, respectively.

     The following weighted average assumptions were used in estimating the fair value of stock options granted during the three months ended October 31, 2007 (there were no stock options granted during the three months ended October 31, 2008 and there were no grants related to the ESPP during the three months ended October 31, 2008 or October 31, 2007):

		Three Months Ended
		Oct. 31, 2007
Stock Options
Weighted average fair value at grant date		$	9.69
Valuation assumptions:
Expected dividend yield			1.7	%
Expected volatility			25.5	%
Expected life (years)			5.0
Risk-free interest rate			4.3	%

     The fair value of the options and ESPP shares granted is estimated using a Black-Scholes-Merton option-pricing formula and amortized to expense over the options’ service periods. The Company has placed exclusive reliance on historical volatility in its estimate of expected volatility. The Company used a sequential period of historical data equal to the expected term (or expected life) of the options and ESPP shares granted using a simple average calculation based upon the daily closing prices of the aforementioned period.

     The expected life (years) represents the period of time for which the options and ESPP shares granted are expected to be outstanding. This estimate was derived from historical share option exercise experience, which management believes provides the best estimate of the expected term.

MSPP

     The purpose of the MSPP is to encourage key employees of the Company to increase their ownership of shares of the Company’s common stock by providing such employees with an opportunity to elect to have portions of their total annual compensation paid in the form of restricted units, to make cash purchases of restricted units and to earn additional matching restricted units which vest over a three year period for matches prior to August 1, 2003 and vest over a four year period for matches made thereafter. Such restricted units aggregated 1,009 and 831 as of October 31, 2008 and October 31, 2007, respectively. As of October 31, 2008, there was $9,230 of total unrecognized compensation cost related to nonvested restricted stock units granted under the MSPP, which is expected to be recognized over a weighted-average period of 3.1 years.

     The following is a summary of MSPP activity during the three months ended October 31, 2008 and October 31, 2007:

		Three Months Ended
		Oct. 31,				Oct. 31,
		2008				2007
Deferred compensation and cash contributions		$	4,241			$	2,644
Fair value of restricted stock units vested		$	669			$	751
Vested units distributed			72				90

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

RSUs

     A summary of restricted stock unit activity, related to employees, for the Pall Corporation 2005 Stock Compensation Plan (“2005 Stock Plan”) during the three months ended October 31, 2008, is presented below:

						Weighted-
						Average
						Grant-Date
		Shares				Fair Value
Nonvested at August 1, 2008			1,025			$	34.80
Granted			1				34.85
Vested			(13	)			31.81
Forfeited			(6	)			33.09
Nonvested at October 31, 2008			1,007			$	34.85

     As of October 31, 2008, there was $21,135 of total unrecognized compensation cost related to nonvested restricted stock units granted under the 2005 Stock Plan, which is expected to be recognized over a weighted-average period of 2.9 years.

     There were no annual award units granted to non-employee directors of the Company during the three months ended October 31, 2008.

     The Company uses treasury shares that have been repurchased through the Company’s stock repurchase program to satisfy share award exercises.

NOTE 12 - EARNINGS PER SHARE

     The condensed consolidated statements of earnings present basic and diluted earnings per share. Basic earnings per share is determined by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share considers the potential effect of dilution on basic earnings per share assuming potentially dilutive shares that meet certain criteria, such as those issuable upon exercise of stock options, were outstanding. The treasury stock method reduces the dilutive effect of potentially dilutive securities as it assumes that cash proceeds (from the issuance of potentially dilutive securities) are used to buy back shares at the average share price during the period. Employee stock options and units aggregating 1,517 and 656 shares were not included in the computation of diluted shares for the three months ended October 31, 2008 and October 31, 2007, respectively, because their effect would have been antidilutive. The following is a reconciliation between basic shares outstanding and diluted shares outstanding:

		Three Months Ended
		Oct. 31, 2008				Oct. 31, 2007
Basic shares outstanding			119,363				123,167
Effect of stock plans			1,157				1,193
Diluted shares outstanding			120,520				124,360

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

NOTE 13 - COMPREHENSIVE INCOME

		Three Months Ended
		Oct. 31, 2008				Oct. 31, 2007
Net earnings		$	43,087			$	36,102
Unrealized translation adjustment			(102,815	)			23,376
Income taxes			(7,695	)			2,439
Unrealized translation adjustment, net			(110,510	)			25,815
Change in unrealized investment (losses)/gains			(2,304	)			2,041
Income taxes			122				(720	)
Change in unrealized investment (losses)/gains, net			(2,182	)			1,321
Unrealized losses on derivatives			(429	)			(553	)
Income taxes			150				152
Unrealized losses on derivatives, net			(279	)			(401	)
Total comprehensive (loss) income		$	(69,884	)		$	62,837

     Unrealized investment (losses)/gains on available-for-sale securities, net of related taxes, consist of the following:

		Three Months Ended
		Oct. 31, 2008				Oct. 31, 2007
Unrealized (losses) gains arising during the period		$	(4,144	)		$	2,041
Income taxes			122				(720	)
Net unrealized (losses) gains arising during the period			(4,022	)			1,321
Reclassification adjustment for net losses included in net earnings			1,840			--
Change in unrealized investment (losses) gains, net		$	(2,182	)		$	1,321

NOTE 14 - SEGMENT INFORMATION

     The Company’s reportable segments as identified in accordance with the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which are also its operating segments, consist of the Company’s two vertically integrated businesses, Life Sciences and Industrial.

     The following table presents sales and operating profit by segment reconciled to earnings before income taxes, for the three months ended October 31, 2008 and October 31, 2007.

		Three Months Ended
		Oct. 31, 2008				Oct. 31, 2007
SALES:
Life Sciences		$	220,329			$	214,614
Industrial			357,693				346,393
Total		$	578,022			$	561,007
OPERATING PROFIT:
Life Sciences		$	41,868			$	39,783
Industrial			55,106				45,077
Total operating profit			96,974				84,860
General corporate expenses			17,022				11,426
Earnings before ROTC, interest expense, net and income taxes			79,952				73,434
ROTC			8,175				8,769
Interest expense, net			9,426				7,721
Earnings before income taxes		$	62,351			$	56,944

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements and Risk Factors

     The following discussion should be read together with the accompanying condensed consolidated financial statements and notes thereto and other financial information in this Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2008 (“2008 Form 10-K”). The discussion under the subheading “Review of Operating Segments” below is in local currency unless otherwise indicated. Company management considers local currency growth an important measure because by excluding the volatility of exchange rates, underlying volume change is clearer. Dollar amounts discussed below are in thousands, unless otherwise indicated, except per share dollar amounts. In addition, per share dollar amounts are discussed on a diluted basis.

     The matters discussed in this Quarterly Report on Form 10-Q contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements contained in this and other written and oral reports are based on current Company expectations and are subject to risks and uncertainties, which could cause actual results to differ materially. All statements regarding future performance, earnings projections, earnings guidance, management’s expectations about its future cash needs and effective tax rate, and other future events or developments are forward-looking statements. Such risks and uncertainties include, but are not limited to, those discussed in Part I, Item 1A, “Risk Factors” in the 2008 Form 10-K, and other reports the Company files with the Securities and Exchange Commission, including the current credit market crisis, volatility in currency and energy costs and other macro economic challenges currently affecting the Company, our customers and vendors and the economy of the United States and other parts of the world. The Company makes these statements as of the date of this disclosure and undertakes no obligation to update them.

Results of Operations

Review of Consolidated Results

     Sales in the quarter increased 3% to $578,022 from $561,007 in the first quarter of fiscal year 2008. Exchange rates reduced reported sales by $7,000, primarily due to the strengthening of the U.S. dollar against the British Pound, the Canadian dollar and several Asian currencies, partly offset by the weakening of the U.S. dollar against the Japanese Yen, Chinese Renminbi and Euro. In local currency (i.e., had exchange rates not changed year over year), sales increased 4.3%. Increased pricing achieved in both the Life Sciences and Industrial segments contributed 0.6% to overall sales growth in the quarter and, as such, the overall volume increase was 3.7%. In the first quarter of fiscal year 2009, the Company launched its Pricing Excellence initiative that is focused on optimizing prices and product margins by better defining the value equation to the benefit of the Company and its customers.

     Life Sciences segment sales increased 4.1% (in local currency), attributable to growth in the BioPharmaceuticals market. Sales in the Medical market were down slightly. Industrial segment sales increased 4.4% (in local currency) driven by growth in the Energy, Water & Process Technologies and Aerospace & Transportation markets, partly offset by decreased sales in the Microelectronics market. Overall systems sales increased 6.3%, primarily attributable to growth in the BioPharmaceuticals and Energy, Water & Process Technologies markets. Systems sales represented 10.4% of total sales in the quarter, on par with the first quarter of fiscal year 2008. For a detailed discussion of sales, refer to the section “Review of Operating Segments” below.

     Gross margin, as a percentage of sales, was 48.3% in the quarter compared to 46.6% in the first quarter of fiscal year 2008. The improvement in gross margin reflects the effects of the ongoing cost reduction and lean manufacturing initiatives. Furthermore, improved pricing in both segments contributed approximately 30 basis points in margin. For a detailed discussion of gross margin by segment, refer to the section “Review of Operating Segments” below.

     Selling, general and administrative (“SG&A”) expenses in the quarter increased by $9,519, or about 5¹/2% (approximately 6¹/2% in local currency). As a percentage of sales, SG&A expenses were 31.2% compared to 30.5% in the first quarter of fiscal year 2008. The increase in SG&A as a percentage of sales primarily reflects increased selling and marketing personnel-related costs as well as consulting costs, mainly related to the Company’s Pricing Excellence initiative, partly offset by the leveraging of growth in sales and the impact of the Company’s cost reduction initiatives. In fiscal year 2007, the Company launched the equivalent of its European cost reduction initiative (”EuroPall”) in the Western Hemisphere (“AmeriPall”). AmeriPall is in the early implementation phase, with the majority of the impact expected in fiscal year 2009 and beyond. In fiscal year 2009, the Company also began implementing the second phase of EuroPall (“EuroPall II”).

     Research and development (“R&D”) expenses were $18,933 in the quarter compared to $16,895 in the first quarter of fiscal year 2008, up about 12% (approximately 14% in local currency). As a percentage of sales, R&D expenses were 3.3% compared to 3% in the first quarter of fiscal year 2008.

     In the first quarter of fiscal year 2009, the Company recorded restructuring and other charges (“ROTC”) of $8,175. ROTC in the quarter was primarily comprised of a charge of $1,743 to write-off in-process research and development acquired in the acquisition of GeneSystems, SA (refer to Note 3, Acquisitions, for further discussion of purchase accounting), a charge of $1,977 for the other-than-temporary diminution in value of certain equity and debt investments held by its benefits protection trust, severance and other exit costs related to the Company’s on-going cost reduction initiatives of $2,590 and increases to previously established environmental reserves of $1,279. Additionally, ROTC includes legal fees of $586 related to matters that were under inquiry by the audit committee (see Note 2, Audit Committee Inquiry and Restatement, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2007 (“2007 Form 10-K”)).

     In the first quarter of fiscal year 2008, the Company recorded ROTC of $8,769. ROTC in the quarter was primarily comprised of severance liabilities related to the Company’s on-going cost reduction initiatives (including its facilities rationalization, EuroPall and AmeriPall initiatives), and legal and other professional fees related to the matters that were under inquiry by the audit committee (see Note 2, Audit Committee Inquiry and Restatement, to the consolidated financial statements included in the 2007 Form 10-K). Additionally, the charges in the quarter included an increase to a previously established environmental reserve. Such charges were partly offset by the reversal of excess restructuring reserves previously recorded in the consolidated statements of earnings in fiscal years 2005 and 2007.

     The details of ROTC for the three months ended October 31, 2008 and October 31, 2007 can be found in Note 8, Restructuring and Other Charges, Net, to the accompanying condensed consolidated financial statements.

     The following table summarizes the activity related to restructuring liabilities that were recorded in the three months ended October 31, 2008 and in fiscal years 2008, 2007 and 2006:

						Lease
						Termination
						Liabilities &
		Severance				Other				Total
2009
Original charge		$	1,647			$	950			$	2,597
Utilized			(335	)			(530	)			(865	)
Other changes (a)			(15	)			(16	)			(31	)
Balance at Oct. 31, 2008		$	1,297			$	404			$	1,701
2008
Original charge		$	8,814			$	3,110			$	11,924
Utilized			(8,059	)			(2,849	)			(10,908	)
Other changes (a)			220				6				226
Balance at Jul. 31, 2008			975				267				1,242
Utilized			(105	)			(168	)			(273	)
Reversal of excess reserves (b)			(3	)			(4	)			(7	)
Other changes (a)			(129	)			(25	)			(154	)
Balance at Oct. 31, 2008		$	738			$	70			$	808

						Lease
						Termination
						Liabilities &
		Severance				Other				Total
2007
Original charge		$	22,083			$	4,321			$	26,404
Utilized			(6,146	)			(3,573	)			(9,719	)
Other changes (a)			611				9				620
Balance at Jul. 31, 2007			16,548				757				17,305
Utilized			(13,994	)			(727	)			(14,721	)
Reversal of excess reserves (b)			(297	)			(65	)			(362	)
Other changes (a)			1,281				57				1,338
Balance at Jul. 31, 2008			3,538				22				3,560
Utilized			(579	)			--				(579	)
Other changes (a)			(228	)			(5	)			(233	)
Balance at Oct. 31, 2008		$	2,731			$	17			$	2,748
2006
Original charge		$	13,335			$	3,043			$	16,378
Utilized			(7,221	)			(2,900	)			(10,121	)
Other changes (a)			182				9				191
Balance at Jul. 31, 2006			6,296				152				6,448
Utilized			(2,712	)			(108	)			(2,820	)
Reversal of excess reserves (b)			(1,385	)			(40	)			(1,425	)
Other changes (a)			126				2				128
Balance at Jul. 31, 2007			2,325				6				2,331
Utilized			(1,414	)			(6	)			(1,420	)
Reversal of excess reserves (b)			(56	)			--				(56	)
Other changes (a)			(4	)			--				(4	)
Balance at Jul. 31, 2008			851				--				851
Utilized			(389	)			--				(389	)
Balance at Oct. 31, 2008		$	462			$	--			$	462

	(a)		Other changes primarily reflect translation impact.
	(b)		Reflects the reversal of excess restructuring reserves originally recorded in fiscal years 2008, 2007 and 2006.

     Earnings before interest and income taxes (“EBIT”) were $71,777 in the quarter compared to $64,665 in the first quarter of fiscal year 2008, reflecting the factors discussed above. As a percentage of sales, EBIT was 12.4% compared to 11.5% in the first quarter of fiscal year 2008.

     Net interest expense in the quarter increased to $9,426 from $7,721 in the first quarter of fiscal year 2008. The increase in net interest expense was primarily related to a decrease in interest income related to reduced cash balances compared to the same period last year, combined with the effect of lower returns due to a decision to invest cash in more conservative investments.

     In the first quarter of fiscal year 2009, the Company’s effective tax rate was 30.9% as compared to 36.6% in the first quarter of fiscal year 2008. For the three months ended October 31, 2008, the effective tax rate varied from the U.S. federal statutory rate primarily due to the benefits of foreign operations and the retroactive extension of the federal research credit per the Emergency Economic Stabilization Act of 2008 which was enacted in the quarter ended October 31, 2008. For the three months ended October 31, 2007, the effective tax rate varied from the U.S. federal statutory rate primarily due to the net impact of foreign operations and a discrete tax charge resulting from new tax legislation in Germany. The Company expects its effective tax rate to be 31.5% for the full fiscal year 2009, exclusive of the impact of discrete items in future periods. The actual effective tax rate for the full fiscal year 2009 may differ materially based on several factors, including the geographical mix of earnings in tax jurisdictions, enacted tax laws, the timing and amount of foreign dividends, state and local taxes, the ratio of permanent items to pretax book income, and the implementation of various global tax strategies, as well as nonrecurring factors.

     Net earnings in the quarter were $43,087, or 36 cents per share, compared with net earnings of $36,102, or 29 cents per share in the first quarter of fiscal year 2008. In summary, net earnings reflect the growth in EBIT and a decrease in the effective tax rate, partly offset by an increase in net interest expense. Company management estimates that foreign currency translation had no material impact on earnings per share in the quarter. The acquisition of GeneSystems was dilutive to earnings by 2 cents per share in the quarter.

Review of Operating Segments

     The following table presents sales and operating profit by segment, reconciled to earnings before income taxes, for the three months ended October 31, 2008 and October 31, 2007.

						%								%				%
		Oct. 31, 2008				Margin				Oct. 31, 2007				Margin				Change
SALES:
Life Sciences		$	220,329							$	214,614								2.7
Industrial			357,693								346,393								3.3
Total		$	578,022							$	561,007								3.0
OPERATING PROFIT:
Life Sciences		$	41,868				19.0			$	39,783				18.5				5.2
Industrial			55,106				15.4				45,077				13.0				22.2
Total operating profit			96,974				16.8				84,860				15.1				14.3
General corporate expenses			17,022								11,426								49.0
Earnings before ROTC, interest expense, net and income taxes			79,952				13.8				73,434				13.1				8.9
ROTC			8,175								8,769
Interest expense, net			9,426								7,721
Earnings before income taxes		$	62,351							$	56,944