Forward-Looking Statements and Risk Factors

You should read the following discussion together with the accompanying consolidated financial statements and notes thereto and other financial information in this Form 10-K. The discussions under the subheadings "Review of Operating Segments" below are in local currency unless indicated otherwise. 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 Annual Report on Form 10-K 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 this Form 10-K. The Company makes these statements as of the date of this disclosure and undertakes no obligation to update them.

Critical Accounting Policies and Estimates

The Company's accompanying consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). These accounting principles require the Company to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the accompanying consolidated financial statements, as well as the reported amounts of revenues and expenses during the periods presented. Although these estimates are based on Company management's knowledge of current events and actions it may undertake in the future, actual results may differ from estimates. The following discussion addresses the Company's critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results, and that require judgment. See also the notes to the accompanying consolidated financial statements, which contain additional information regarding the Company's accounting policies.

Income Taxes

Significant judgment is required in determining the worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and cost reimbursement arrangements among related entities, the process of identifying items of revenue and expense that qualify for preferential tax treatment and appropriate segregation of foreign and domestic income and expense to avoid double taxation. No assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in the Company's historical income tax provisions and accruals. Such differences could have a material effect on the Company's income tax provision and net earnings in the period in which a final determination is made.

The Company records a valuation allowance to reduce deferred tax assets to the amount of the future tax benefit that is more likely than not to be realized. While Company management has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, there is no assurance that the valuation allowance would not need to be increased to cover additional deferred tax assets that may not be realizable. Any increase in the valuation allowance could have a material adverse impact on the Company's income tax provision and net earnings in the period in which such determination is made.

Purchase Accounting and Goodwill

Determining the fair value of certain assets and liabilities acquired in a business combination in accordance with SFAS No. 141 is judgmental in nature and often involves the use of significant estimates and assumptions. There are various methods used to estimate the value of tangible and intangible assets acquired, such as discounted cash flow and market multiple approaches. Some of the more significant estimates and assumptions inherent in the two approaches include: projected future cash flows (including timing); discount rates reflecting the risk inherent in the future cash flows; perpetual growth rate; determination of appropriate market comparables; and the determination of whether a premium or a discount should be applied to comparables. There are also judgments made to determine the expected useful lives assigned to each class of assets and liabilities acquired.

When testing for impairment, the Company uses significant estimates and assumptions to estimate the fair values of its reporting units. Fair value of the Company's reporting units is determined using market multiples (derived from trailing-twelve-month revenue, earnings before interest and taxes ("EBIT") and earnings before interest, taxes depreciation and amortization ("EBITDA")), of publicly traded companies with similar operating and investment characteristics as the Company's reporting units. These various market multiples are applied to the operating performance of the reporting unit being tested to determine a range of fair values for the reporting unit. The fair value of the reporting units is then determined using the average of the fair values derived from the minimum and median market multiples. The minimum and median market multiples used in the fiscal year 2009 impairment testing ranged from 0.2 to 2.4 times revenue, 5.4 to 14.5 times EBIT and 2.1 to 10.7 times EBITDA. The median and minimum market multiples used in the fiscal year 2008 impairment testing ranged from 1.1 to 3.6 times revenue, 8.3 to 22.4 times EBIT and 6.5 to 15.0 times EBITDA. To further substantiate the reasonableness of the fair value of its reporting units, the Company compares enterprise value (outstanding shares multiplied by the closing market price per share, plus debt, less cash and cash equivalents) to the aggregate fair value of its reporting units.

Revenue Recognition

Revenue is recognized when title and risk of loss have transferred to the customer and when contractual terms have been fulfilled, except for certain long-term contracts, whereby revenue is recognized under the percentage of completion method (see below). Transfer of title and risk of loss occurs when the product is delivered in accordance with the contractual shipping terms. In instances where contractual terms include a provision for customer acceptance, revenue is recognized when either (i) the Company has previously demonstrated that the product meets the specified criteria based on either seller or customer-specified objective criteria or (ii) upon formal acceptance received from the customer where the product has not been previously demonstrated to meet customer-specified objective criteria.

For contracts accounted for under the percentage of completion method, revenue is based upon the ratio of costs incurred to date compared with estimated total costs to complete. The cumulative impact of revisions to total estimated costs is reflected in the period of the change, including anticipated losses.

Allowance for Doubtful Accounts

Company management evaluates its ability to collect outstanding receivables and provide allowances when collection becomes doubtful. In performing this evaluation, significant estimates are involved, including an analysis of specific risks on a customer-by-customer basis. Based upon this information, Company management records in earnings an amount believed to be uncollectible. If the factors used to estimate the allowance provided for doubtful accounts do not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected.

Inventories

Inventories are valued at the lower of cost (principally on the first-in, first-out method) or market. The Company records adjustments to the carrying value of inventory based upon assumptions about historic usage, future demand and market conditions. These adjustments are estimates which could vary significantly, either favorably or unfavorably, from actual requirements if future conditions, customer inventory levels or competitive conditions differ from the Company's expectations.

Other than temporary losses relating to available-for-sale investments are recognized in earnings when Company management determines that the recoverability of the cost of the investment is unlikely. Such losses could result in a material adjustment in the period of the change. Company management considers numerous factors, on a case-by-case basis, in evaluating whether the decline in market value of an available-for-sale security below cost is other than temporary. Such factors include, but are not limited to, (i) the length of time and the extent to which the market value has been less than cost; (ii) the financial condition and the near-term prospects of the issuer of the investment; and (iii) whether Company management intends to retain the investment for a period of time that is sufficient to allow for any anticipated recovery in market value.

Defined Benefit Retirement Plans

The Company sponsors defined benefit retirement plans in various forms covering substantially all employees who meet eligibility requirements. Several statistical and other factors that attempt to anticipate future events are used in calculating the expense and liabilities related to those plans for which the benefit is actuarially determined. These factors include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases as determined by the Company, within certain guidelines. In addition, the Company's actuarial consultants also use subjective factors, such as withdrawal and mortality rates, to calculate the liabilities and expense. The actuarial assumptions used by the Company are long-term assumptions and may differ materially from actual experience in the short-term due to changing market and economic conditions and changing participant demographics. These differences may have a significant effect on the amount of pension expense and pension assets/(liabilities) recorded by the Company.

Pension expense associated with the Company's defined benefit plans was $23,240 in fiscal year 2009, which was based on a weighted average discount rate of 6.22% (calculated using the projected benefit obligation) and a weighted average expected long-term rate of return on plan assets of 6.55% (calculated using the fair value of plan assets).

The expected rates of return on the various defined benefit pension plans' assets are based on the asset allocation of each plan and the long-term projected return of those assets. If the expected long-term rate of return on plan assets was reduced by 50 basis points, projected pension expense in fiscal year 2009 would have increased approximately $1,700.

The objective of the discount rate assumption is to reflect the rate at which the pension benefits could be effectively settled. The Company's methodology for selecting the discount rate for the U.S. plans as of July 31, 2009 was to match the plan's cash flows to that of a yield curve that provides the equivalent yields on zero-coupon corporate bonds for each maturity. Benefit cash flows due in a particular year can be "settled" theoretically by "investing" them in the zero-coupon bond that matures in the same year. The discount rate is the single rate that produces the same present value of cash flows. The discount rate assumption for non-U.S. plans reflects the market rate for high-quality, fixed-income debt instruments. Both discount rate assumptions are based on the expected duration of benefit payments for each of the Company's pension plans as of the annual measurement date and is subject to change each year. If the weighted average discount rate was reduced by 50 basis points, pension expense in fiscal year 2009 would have increased by approximately $1,600.

Accrued Expenses and Contingencies

Company management estimates certain material expenses in an effort to record those expenses in the period incurred. When no estimate in a given range is deemed to be better than any other, the low end of the range is accrued. Differences between estimates and assumptions and actual results could result in an accrual requirement materially different from the calculated accrual.

Environmental accruals are recorded based upon historical costs incurred and estimates for future costs of remediation and on-going legal expenses which have a high degree of uncertainty.

Self-insured workers' compensation insurance accruals are recorded based on insurance claims processed, including applied loss development factors as well as historical claims experience for claims incurred but not yet reported. Self-insured employee medical insurance accruals are recorded based on medical claims processed as well as historical medical claims experience for claims incurred but not yet reported.

Review of Consolidated Results

Sales for the fiscal year 2009 decreased 9.4% to $2.3 billion from $2.6 billion in fiscal year 2008. Exchange rates used to translate foreign subsidiary results into U.S. dollars, reduced reported sales by $155,096, primarily due to the strengthening of the U.S. dollar against the Euro, the British Pound and several Asian currencies, partly offset by the weakening of the U.S. dollar against the Japanese Yen and Chinese Renminbi. In local currency, sales decreased 3.4%. Increased pricing achieved in both the Life Sciences and Industrial segments contributed $30,905 to overall sales in the year. 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, among other things, better defining the value equation to the benefit of the Company and its customers. Life Sciences segment sales increased 3% (in local currency), primarily attributable to growth in the BioPharmaceuticals market. Sales in the Medical market were up slightly (in local currency). Industrial segment sales decreased 7.3% (in local currency) in the year reflecting declines in the Energy, Water & Process Technologies ("EWPT") and Microelectronics markets. The Aerospace & Transportation market increased 1.3% (in local currency) in the year. Overall systems sales increased 6.9% (in local currency) reflecting growth in the Pharmaceuticals market as well as in EWPT's Municipal Water, Power Generation and Food & Beverage markets. Systems sales represented 13.3% of total sales compared to 12.4% in fiscal year 2008. For a detailed discussion of sales, refer to the section "Review of Operating Segments" below.

Gross margin was 47.3% in fiscal year 2009 compared to 47.1% in fiscal year 2008. The improvement in gross margin reflects improved pricing, which contributed about 70 basis points in margin, and the effects of the ongoing cost reduction and lean manufacturing initiatives, partly offset by a shift in product mix to a higher percentage of systems sales as discussed above, a change in market mix within the Industrial segment resulting from decreased sales in higher margin markets such as Microelectronics and Industrial Manufacturing and reduced absorption of manufacturing overhead in Industrial, related to lower volumes. 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 fiscal year 2009 decreased by $49,687, or 6.6% (1% in local currency). As a percentage of sales, SG&A expenses were 30% compared to 29.1% in fiscal year 2008. The increase in SG&A as a percentage of sales primarily reflects the impact of decreased sales period over period, increased selling and marketing personnel-related costs, including those related to the expansion into Latin American and other geographies, increased stock compensation expense, as well as consulting costs, mainly related to the Company's Pricing Excellence and Enterprise Risk Management initiatives, partly offset by the impact of the Company's cost reduction initiatives described below. In fiscal year 2009, the Company began implementing the second phase of its European cost reduction initiative ("EuroPall II"). Furthermore, in fiscal year 2009, the Company implemented plans to reduce its workforce globally in response to current economic conditions.

Research and development ("R&D") expenses were $71,213 in fiscal year 2009 compared to $71,647 in fiscal year 2008, a decrease of less than 1% (an increase of 3.5% in local currency). As a percentage of sales, R&D expenses were 3.1% compared to 2.8% in fiscal year 2008.

In fiscal year 2009, the Company recorded restructuring and other charges ("ROTC") of $30,723. ROTC in the year was primarily comprised of severance and other costs related to the Company's on-going cost reduction initiatives, a charge to write-off in-process R&D acquired in the acquisition of GeneSystems, SA ("GeneSystems") (refer to Note 2, Acquisitions, to the accompanying consolidated financial statements for further discussion of purchase accounting), a charge primarily for the other-than-temporary diminution in value of certain equity investment securities held by the Company's benefits protection trust, a charge for the impairment of capitalized software, increases to previously established environmental reserves, net of an insurance settlement and legal fees related to matters that were under inquiry by the audit committee, net of an insurance settlement (see Note 2, Audit Committee Inquiry and Restatement, to the consolidated financial statements included in the 2007 Form 10-K). Such charges were partly offset by the reversal of excess restructuring reserves that were previously recorded in the Company's consolidated statements of earnings in fiscal years 2008 and 2007.

In fiscal year 2008, the Company recorded ROTC of $31,538. ROTC in the year was primarily comprised of legal and other professional fees 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 2007 Form 10-K). Additionally, ROTC includes severance and other exit costs related to the Company's on-going cost reduction initiatives (including its facilities rationalization, EuroPall and AmeriPall cost reduction initiatives), as well as an increase to previously established environmental reserves. Such charges were partly offset by the reversal of excess restructuring reserves previously recorded in the Company's consolidated statements of earnings in fiscal years 2007, 2006 and 2005.

The following table summarizes the activity related to restructuring liabilities that were recorded in fiscal years 2009, 2008, 2007 and 2006.

                                                                    Lease
                                                              Termination
                                                            Liabilities &
                                           Severance                Other              Total
    2009
    Original charge                   $     18,938       $        4,734       $     23,672
    Utilized                               (12,757 )             (4,133 )          (16,890 )
    Other changes (a)                          412                   20                432
    Balance at Jul. 31, 2009          $      6,593       $          621       $      7,214

    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                                  (741 )               (201 )             (942 )
    Reversal of excess reserves (b)            (24 )                 (4 )              (28 )
    Other changes (a)                          (96 )                (19 )             (115 )
    Balance at Jul. 31, 2009          $        114       $           43       $        157

    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                                (1,984 )                (13 )           (1,997 )
    Reversal of excess reserves (b)           (136 )                  -               (136 )
    Other changes (a)                         (158 )                 (4 )             (162 )
    Balance at Jul. 31, 2009          $      1,260       $            5       $      1,265

    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                                  (706 )                  -               (706 )
    Balance at Jul. 31, 2009          $        145       $            -       $        145

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

Net interest expense in fiscal year 2009 decreased to $28,136 from $32,576 in fiscal year 2008. The reduction in net interest expense was primarily attributable to a decrease in interest expense, which was related to lower interest rates and a reduced level of debt due to the repayment of higher interest bearing European debt. A decrease in interest income related to reduced cash balances and lower returns compared to the same period last year partly offset the above.

In fiscal year 2009, the Company's effective tax rate was 27.8% as compared to 33.2% in fiscal year 2008. For the year ended July 31, 2009, the effective tax rate varied from the U.S. federal statutory rate primarily due to the benefits related to foreign operations, the repatriation of foreign earnings, the restructuring of certain foreign operations, the retroactive extension of the federal research credit provided for in the Emergency Economic Stabilization Act of 2008 and a favorable tax settlement. For the year ended July 31, 2008, the effective tax rate varied from the U.S. federal statutory rate primarily due to the net impact of foreign operations and a tax charge resulting from new tax legislation in Germany.

Net earnings in fiscal year 2009 were $195,619, or $1.64 per share, compared with net earnings of $217,279, or $1.76 per share in fiscal year 2008. In summary, the decline in net earnings dollars reflects the decrease in EBIT partly offset by a decline in net interest expense and a decrease in the effective tax rate. The decline in earnings per share reflects the decrease in net earnings partly offset by the impact of reduced shares outstanding due to stock buybacks. Company management estimates that foreign currency translation reduced net earnings per share by 16 cents in the year. The acquisition of GeneSystems was dilutive to earnings by 5 cents per share in the year.

Review of Operating Segments

   The following table presents sales and operating profit by segment,
reconciled to earnings before income taxes, for the fiscal years ended July 31,
2009 and July 31, 2008.

                                                                         %                              %              %
                                                         2009      Margin               2008      Margin          Change
    SALES:
. . .