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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 February 1, 1997
Commission File No. 1-4311
PALL CORPORATION
Incorporated in New York State I.R.S. Employer Identifi-
cation # 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 March 6, 1997, 126,465,885 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 - February 1, 1997
and August 3, 1996 3
Condensed consolidated statements of earnings -
three months and six months ended February 1, 1997
and January 27, 1996 4
Condensed consolidated statements of cash flows -
six months ended February 1, 1997 and January 27, 1996 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)
February 1, August 3,
1997 1996
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 24,543 $ 34,528
Short-term investments 87,000 71,450
Accounts receivable, net of allowances
for doubtful accounts of $4,646
and $4,170, respectively 212,416 242,157
Inventories - Note 2 208,714 193,764
Deferred income taxes 17,502 15,995
Prepaid expenses 19,940 19,151
Other current assets 6,341 4,160
----------- -----------
Total Current Assets 576,456 581,205
Property, plant and equipment, net of
accumulated depreciation of $308,706
and $290,308, respectively 478,378 463,905
Other assets 139,662 139,848
----------- -----------
Total Assets $ 1,194,496 $ 1,184,958
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 155,269 $ 139,957
Accounts payable 42,680 61,071
Accrued liabilities:
Salaries 22,031 31,985
Other 43,492 44,213
----------- -----------
65,523 76,198
Income taxes 10,236 21,699
Current portion of long-term debt 15,404 17,163
Dividends payable 16,193 14,133
----------- -----------
Total Current Liabilities 305,305 330,221
Long-term debt, less current portion 51,077 46,712
Deferred income taxes 38,814 36,134
Other non-current liabilities 38,707 39,591
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Total Liabilities 433,903 452,658
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Stockholders' Equity:
Common stock, $.10 par value 11,735 11,735
Capital in excess of par value 53,939 53,769
Retained earnings 743,221 727,814
Treasury stock, at cost (32,582) (50,410)
Foreign currency translation adjustment (2,110) 2,901
Minimum pension liability adjustment (4,658) (4,629)
Stock option loans (8,843) (8,652)
Cumulative unrealized (losses) on investments (109) (228)
----------- -----------
Total Stockholders' Equity 760,593 732,300
----------- -----------
Total Liabilities and
Stockholders' Equity $ 1,194,496 $ 1,184,958
=========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements.
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PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, (in thousands,
except per share data) except per share data)
Three Months Ended Six Months Ended
------------------------------- -------------------------------
Feb. 1, Jan. 27, Feb. 1, Jan. 27,
1997 1996 1997 1996
-------- -------- -------- --------
Net sales $233,958 $239,316 $441,414 $430,866
Costs and expenses:
Cost of sales 95,509 95,488 178,492 171,042
Selling, general and
administrative expenses 86,657 84,796 170,019 163,347
Research and development 11,557 11,664 23,237 22,592
Interest expense, net 662 866 1,292 1,657
-------- -------- -------- --------
Total costs and expenses 194,385 192,814 373,040 358,638
Earnings before income taxes 39,573 46,502 68,374 72,228
Provisions for income taxes 11,871 14,416 20,512 22,390
-------- -------- -------- --------
Net earnings $ 27,702 $ 32,086 $ 47,862 $ 49,838
======== ======== ======== ========
Earnings per share $ 0.24 $ 0.28 $ 0.42 $ 0.44
Dividends declared per share $ 0.1400 $ 0.1200 $ 0.2625 $ 0.2300
Average number of shares
outstanding 115,432 114,624 115,253 114,543
See accompanying Notes to Condensed Consolidated Financial Statements.
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PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
-----------------------
Feb. 1, Jan. 27,
1997 1996
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $37,393 $ 62,448
INVESTING ACTIVITIES:
Acquisition of Medical Plastics business
of Bayer Corporation -- (43,017)
Acquisition of License (2,000) --
Capital expenditures (43,879) (35,601)
Disposals of fixed assets 777 1,842
Short-term investments (15,550) 3,500
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NET CASH USED BY INVESTING ACTIVITIES (60,652) (73,276)
FINANCING ACTIVITIES:
Net short-term borrowings 20,528 29,916
Long-term borrowings 8,596 --
Payments on long-term debt (2,455) (6,229)
Net proceeds from exercise of stock options 12,274 5,688
Sale of treasury stock 3,375 --
Dividends paid (28,237) (24,035)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 14,081 5,340
------- --------
CASH FLOW FOR PERIOD (9,178) (5,488)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 34,528 37,913
EFFECT OF EXCHANGE RATE CHANGES ON CASH (807) (1,702)
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $24,543 $ 30,723
======= ========
Supplemental disclosures:
Interest paid (net of amount capitalized) $ 4,174 $ 4,453
Income taxes paid (net of refunds) 30,141 26,110
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 material adjustments which are, in the opinion of
management, necessary to present fairly (i) the financial position of the
Company at February 1, 1997 and August 3, 1996, (ii) the results of its
operations for the three months and six months periods ended February 1, 1997
and January 27, 1996, and (iii) its cash flows for the six months ended
February 1, 1997 and January 27, 1996. These financial statements should be
read in conjunction with the financial statements and notes set forth in the
Company's Annual Report and Form 10-K for the fiscal year ended August 3, 1996.
NOTE 2 - INVENTORIES
The major classes of inventory are as follows:
(in thousands)
Feb. 1, Aug. 3,
1997 1996
-------- --------
Raw materials and components $ 95,737 $ 82,402
Work-in-process 25,644 21,132
Finished goods 87,333 90,230
-------- --------
Total inventory $208,714 $193,764
======== ========
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
I. Results of Operations
A. Quarter ended February 1, 1997 compared to quarter ended January 27, 1996.
Sales for the quarter in local currency were flat. Including exchange rate
effects, sales declined by 2 1/2%. By market segment, before the effects of
exchange rates, Health Care was down 3%, Aeropower grew 7% and Fluid Processing
was down 1/2%. Within the Health Care sub-segment, Pharmaceuticals grew 7 1/2%,
led by Asia which grew 34% and Western Hemisphere grew 21%; however, Europe
declined by 5%. Food & Beverage increased 15%, which included 20% growth in
Asia. Patient Protection decreased 7% and BioSupport fell 36%. The reduction in
BioSupport sales relates to an overstocking at one of the customers who has now
started ordering again. Patient Protection sales decreased 7% and by geography,
Western Hemisphere was down 8%, Europe was down 16% and Asia grew 19%. Breaking
it down further, blood filter sales overall were down 4%, including a reduction
of 3% related to pricing. Bedside blood filter sales were up 2% and sales to
blood centers were down 12%. However, in the Western Hemisphere, sales of blood
filters increased 2%, led by a 7% increase in sales to blood centers. The
company noted widespread reduction in Europe, particularly in Germany, France
und the UK where Health Care costs are under pressure. The Fluid Processing
sub-segment, excluding Microelectronics showed 4% growth in sales. Growth was
strong in Europe and Asia where sales increases were greater than 17%; however,
Western Hemisphere declined by 10 1/2% due to reductions in Power Generation and
sales of our Stratapac technology. Microelectronics sales decreased 8%, all of
which was in the Western Hemisphere which fell 28% following an 86% increase in
the same quarter last year. Sales in the Aeropower segment increased 7%.
Commercial Aerospace increased 17 1/2%, and Military Aerospace grew 13%.
Commercial Aerospace now represents 55% of Aerospace sales, up from 50% last
year. Industrial Hydraulics was flat with a 19% growth rate in the Western
Hemisphere offset by an 8% reduction in Europe.
By geography, sales in Asia grew by 15 1/2% in local currency, whereas Europe
and Western Hemisphere sales declined by 4 1/2% and 2 1/2%, respectively.
Cost of sales in the second quarter increased nearly 1% of sales due to the
effect of foreign currency exchange rates, particularly by the Yen and the
Deutschmark. Selling, general and administrative expenses were up about 2% in
dollars but as sales declined, this represented an increase of 1 1/2% as a
percentage of sales. Pre-tax margins decreased 2 1/2% over the same quarter last
year mainly as sales for the quarter were flat. The tax rate for the current
quarter was 30% compared to 31% last year. The Company anticipates using a 30%
tax rate for the remainder of the year. Net earnings quarter-on-quarter declined
by 13 1/2%.
B. Six months ended February 1, 1997 compared to six months ended January 27,
1996
Sales for the first six months in local currency were up 5%. By market,
Aeropower sales increased 7 1/2%, Fluid Processing 6% and Health Care 3 1/2%. By
geography, sales in Asia increased 19 1/2 % and Western Hemisphere increased 4%.
Europe sales decreased by 1/2%.
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For the six months, cost of sales increased by nearly 1% of sales for the same
reasons as mentioned above. Selling, general and administrative expenses as a
percentage of sales were up just over 1/2% mainly because sales for the first
six months grew at a rate lower than the increase in selling, general and
administrative expenses. Pre-tax margins declined by nearly 1 1/2% over the same
six month period last year mainly due to lower sales growth. The tax rate for
the first six months was 30% compared to 31% last year. Net earnings for the
first six months declined by 4% over the same period last year.
II. Liquidity and Capital Resources
Borrowings, net of cash and short-term investments, at the end of the quarter
came to $110 million which represents an increase of $12 million over the end of
the fiscal year. Capital expenditures for the first six months were $44 million
and depreciation expense for the same period was $26 million.
On February 3, 1997 the Company completed its merger with Gelman Sciences Inc.
Gelman Sciences will operate as a subsidiary of Pall Corporation and will be
responsible for the sale of Gelman and Pall products to the Laboratory, Medical
OEM and specialty materials markets. Pursuant to the terms of the merger
agreement, Gelman shareholders received 1.3047 shares of Pall common stock
for each share of Gelman common stock. Pall Corporation is issuing approximately
10,600,000 shares of its common stock in exchange for all the outstanding shares
of Gelman Sciences Inc. The Company will account for the merger as
pooling-of-interests. Condensed comparative proforma results of the merged
operations for the second quarter and the six months ended February 1, 1997 are
as follows -
(Amounts in thousands, except per share data)
Second Quarter Ended Six Months Ended
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Feb 1,1997 Jan 27,1996 Feb 1,1997 Jan 27,1996
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Net sales $260,759 $266,440 $ 496,550 $485,325
Net earnings $ 28,967 $ 33,942 $ 46,251(a) $ 53,616
Earnings per share $ 0.23 $ 0.27 $ 0.37(a) $ 0.43
(a) Includes $3,911 ($3,600 net of taxes) merger related expenses incurred by
Gelman Sciences in connection with the termination of its proposed merger
transaction with Memtec Ltd. Excluding this expense, net earnings would be
$49,851 ($0.40 per share).
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See the Exhibit Index immediately following this page.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the three
months ended February 1, 1997.
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
March 14, 1997 /s/ Jeremy Hayward-Surry
- --------------- ----------------------------
Date Jeremy Hayward-Surry
President, Treasurer and
Chief Financial Officer
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Exhibit Index
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Exhibit
Number Description of Exhibit
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2 * Agreement and Plan of Reorganization and Merger
made on October 27, 1996, by and among the
Registrant, Pall Acquisition Corporation and
Gelman Sciences Inc., filed as Exhibit A to The
Proxy Statement - Prospectus constituting Part I of
the Registrant's Registration Statement on
Form S-4 (Registration No. 333-17417).
3 ( i )* Restated Certificate of Incorporation of the Registrant
as amended through November 23, 1993, filed as
Exhibit 3 ( i ) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 30, 1994.
3 (ii )* By-Laws of the Registrant as amended on November
21, 1995, filed as Exhibit 3 (ii) to the Registrant's
Quarterly Report on Form 10-Q for the quarterly
period ended October 28, 1995.
10 (a) Employment Agreement dated October 27, 1996 among
the Registrant, Gelman Sciences Inc. and Kim A. Davis.
27 Financial Data Schedule (only filed electronically).
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement.