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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended April 27, 1996
Commission File No. 1-4311
PALL CORPORATION
Incorporated in New York State I.R.S. Employer Identification
# 11-1541330
2200 Northern Boulevard, East Hills, N.Y. 11548
Telephone Number (516) 484-5400
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 X No
--- ---
At May 24, 1996, 115,331,198 shares of common stock of the Registrant were
outstanding.
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PALL CORPORATION
INDEX TO FORM 10-Q
------------------
COVER SHEET 1
INDEX TO FORM 10-Q 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed consolidated balance sheets - April 27,
1996 and July 29, 1995 3
Condensed consolidated statements of earnings -
three months and nine months ended April 27, 1996
and April 29, 1995 4
Condensed consolidated statements of cash flows -
nine months ended April 27, 1996 and April 29,
1995 5
Notes to condensed consolidated financial statements 6
Item 2. Management's discussion and analysis of financial
condition and results of operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 9
SIGNATURES 9
EXHIBIT INDEX 10
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands) Apr. 27, July 29,
ASSETS 1996 1995
---- ----
Current Assets:
Cash and cash equivalents $ 44,549 $ 37,913
Short-term investments 68,860 72,850
Accounts receivable, net of allowances
for doubtful accounts of $4,618
and $5,008, respectively 216,858 216,216
Inventories - Note 2 182,349 158,430
Deferred income taxes 22,625 19,443
Prepaid expenses 18,126 15,546
Other current assets 4,196 4,369
---------- ----------
Total Current Assets 557,563 524,767
Property, plant and equipment, net of
accumulated depreciation of $282,394
and $262,884, respectively 444,742 427,931
Other assets 139,714 122,224
---------- ----------
Total Assets $1,142,019 $1,074,922
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 137,255 $ 117,489
Accounts payable 49,628 47,814
Accrued liabilities:
Salaries 29,730 25,676
Income taxes 27,495 34,311
Other 45,754 40,935
---------- ----------
102,979 100,922
Current portion of long-term debt 4,940 9,494
Dividends payable 14,122 12,014
---------- ----------
Total Current Liabilities 308,924 287,733
Long-term debt, less current portion 61,448 68,814
Deferred income taxes 34,308 33,444
Other non-current liabilities 39,438 33,132
---------- ----------
Total Liabilities 444,118 423,123
---------- ----------
Stockholders' Equity:
Common stock, $.10 par value 11,735 11,735
Capital in excess of par value 54,167 56,304
Retained earnings 691,268 643,675
Treasury stock, at cost (43,029) (60,389)
Foreign currency translation adjustment (2,263) 13,036
Minimum pension liability adjustment (5,194) (5,145)
Stock option loans (8,503) (7,580)
Cumulative unrealized (losses) gains on investments (280) 163
---------- ----------
Total Stockholders' Equity 697,901 651,799
---------- ----------
Total Liabilities and
Stockholders' Equity $1,142,019 $1,074,922
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
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PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except Three Months Ended Nine Months Ended
per share data) ----------------------- -----------------------
Apr. 27, Apr. 29, Apr. 27, Apr. 29,
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Net sales $247,874 $217,309 $678,740 $569,351
Interest earned 1,678 1,711 5,131 4,564
-------- -------- -------- --------
Total revenues 249,552 219,020 683,871 573,915
Costs and expenses:
Cost of sales 95,553 77,125 266,595 212,278
Selling, general and
administrative expenses 85,788 79,804 249,135 216,419
Research and development 12,492 12,106 35,084 34,107
Interest expense 2,514 2,410 7,624 6,697
-------- -------- -------- --------
Total costs and expenses 196,347 171,445 558,438 469,501
Earnings before income taxes
and the cumulative effect of
an accounting change 53,205 47,575 125,433 104,414
Provisions for income taxes 15,240 14,067 37,630 31,116
-------- -------- -------- --------
Earnings before the cumulative
effect of an accounting change 37,965 33,508 87,803 73,298
Cumulative effect of a change in
accounting for postemployment
benefits - Note 3 0 0 0 (780)
-------- -------- -------- --------
Net earnings $ 37,965 $ 33,508 $ 87,803 $ 72,518
======== ======== ======== ========
Earnings per share:
Before the cumulative effect of
an accounting change $ 0.33 $ 0.29 $ 0.77 $ 0.64
Cumulative effect of a change in
accounting for postemployment
benefits - Note 3 0 0 0 (0.01)
-------- -------- -------- --------
Net earnings per share $ 0.33 $ 0.29 $ 0.77 $ 0.63
======== ======== ======== ========
Dividends declared per share $ 0.12 $ 0.11 $ 0.35 $ 0.30
Average number of shares
outstanding 115,048 115,560 114,723 115,418
See accompanying Notes to Condensed Consolidated Financial Statements.
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PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
-----------------
(in thousands) Apr. 27, Apr. 29,
1996 1995
---- ----
NET CASH PROVIDED BY OPERATING ACTIVITIES $106,427 $116,306
INVESTING ACTIVITIES:
Acquisition of Medical Plastics business
of Bayer Corporation and Filtron Technology Corporation
(net of cash acquired) (43,017) (230)
Capital expenditures (52,556) (47,039)
Disposals of fixed assets 3,528 2,008
Short-term investments 3,990 (7,170)
Benefits protection trust (2,596) (2,450)
-------- --------
NET CASH (USED) BY INVESTING ACTIVITIES (90,651) (54,881)
FINANCING ACTIVITIES:
Net short-term borrowings 24,218 8,266
Payments on long-term debt (7,386) (2,126)
Net proceeds from exercise of stock options 14,300 1,353
Dividends paid (38,102) (33,445)
Treasury stock 0 (26,730)
-------- --------
NET CASH ( USED) BY FINANCING ACTIVITIES (6,970) (52,682)
CASH FLOW FOR PERIOD 8,806 8,743
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 37,913 38,224
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,170) 3,134
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 44,549 $ 50,101
======== ========
Supplemental disclosures:
Interest paid (net of amount capitalized) $ 6,899 $ 6,340
Income taxes paid (net of refunds) 43,931 23,973
Treasury stock issued upon acquisition of Filtron
Technology Corporation 0 24,854
See accompanying Notes to Condensed Consolidated Financial Statements.
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PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The financial information included herein is unaudited. However, such
information reflects all adjustments which are, in the opinion of management,
necessary to present fairly (i) the financial position of the Company at April
27, 1996 and July 29, 1995, (ii) the results of its operations for the
three-month and nine-month periods ended April 27, 1996 and April 29, 1995, and
(iii) its cash flows for the nine-month periods ended April 27, 1996 and April
29, 1995.
NOTE 2 - INVENTORIES
The major classes of inventory are as follows:
Apr. 27, July 29,
(in thousands) 1996 1995
---- ----
Raw materials and components $ 74,615 $ 61,436
Work-in-process 26,969 17,901
Finished goods 80,765 79,093
------ ------
Total inventory $182,349 $158,430
======== ========
NOTE 3 - CUMULATIVE EFFECT OF A CHANGE IN AN ACCOUNTING PRINCIPLE
In the first quarter of fiscal 1995, the Company adopted Financial
Accounting Standards Board Statement No. 112 (Employers' Accounting for
Postemployment Benefits). The effect of initially applying this Statement
($1,200,000 pre-tax, $780,000 after taxes, 1 cent per share) was reported as the
cumulative effect of a change in an accounting principle.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
I. Results of Operations
A. Third quarter ended April 27, 1996 compared to third quarter ended April 29,
1995
Sales for the third quarter increased 14%. Exchange rates reduced the sales by
4% this quarter. Before that effect, sales increased 18% including about $10
million due to the acquisition of the Medical Plastics business of Bayer
Corporation. Price increases for the quarter were 1.5%.
Cost of sales as a percentage of sales increased 3.1%, mainly attributable to
the effect of exchange rates, product mix and the acquisition of the Medical
Plastics business of Bayer which operations brought with it lower gross margin
products. Selling, general and administrative expenses as a percentage of sales
decreased by 2.1%. During the quarter the company received $6.2 million as a
partial payment of a judgment awarded Pall in a patent litigation with Micron
Separations, Inc. involving one of Pall's nylon membrane patents. Offset against
this were $3.9 million of related legal fees. The company also wrote off $1.2
million of fixed assets following the transfer of most industrial cartridge
manufacturing from its Japanese plant into existing facilities elsewhere. The
net pretax benefit of $1.1 million has been reflected as a reduction of selling,
general and administrative expenses.
The company's pretax profit rate of 21.5% is about the same as last year's.
The company's effective tax rate for the quarter is 28.6% compared to 29.6% last
year. However on a year-to-date basis the effective tax rate for nine months for
both periods is about the same - 30%.
Net earnings grew 13.3% over quarter three of last year.
B. Nine months ended April 27, 1996 compared to nine months ended April 29, 1995
Sales for the nine months were up 19%. Exchange rates reduced sales by 1%.
Excluding the effect of exchange rates, total sales increased by $113 million,
of which $83 million was due to unit and price growth and the remainder was due
to acquisitions.
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Cost of sales as a percentage of sales for the nine months increased 2% mainly
due to product mix and the acquisition of the Medical Plastics business of Bayer
which operations brought with it lower gross margin products. Selling, general
and administrative expenses as a percentage of sales decreased by 1.3%. Research
and development expenses as a percentage of sales decreased by 0.8%. This
reduction does not constitute a decrease in efforts on the Company's part but
more of a reevaluation to ensure that various research and development related
activities across the world are working in concert.
The company's pretax profit rate of 18.5% is about the same as last year's rate.
The company's effective tax rate for the nine month period is 30% which is about
the same as last year's rate. Net earnings for the nine months (excluding the
accounting change in quarter one of last year - see Note 3 above) grew 19.8%
over last year.
II. Liquidity and Capital Resources
On September 29, 1995 the Company completed its acquisition of the Medical
Plastics business of Bayer Corporation for a total cost of about $43 million.
Capital expenditures and depreciation expense through the first nine months
totaled about $53 million and $35 million, respectively.
On February 27, 1996, the Company's Board of Directors authorized a program to
purchase $40 million of its outstanding shares. The Company has not yet bought
back any shares under this program.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the three
months ended April 27, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PALL CORPORATION
June 7, 1996 /s/ Jeremy Hayward-Surry
- ----------------------------- ------------------------------
Date Jeremy Hayward-Surry
President and Treasurer -
Chief Financial Officer
June 7, 1996 /s/ Peter Schwartzman
- ----------------------------- ------------------------------
Date Peter Schwartzman
Secretary and Chief Corporate
Accountant
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EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule