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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, 2002
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 June 5, 2002, 122,733,108 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, 2002
and July 28, 2001 3
Condensed consolidated statements of earnings -
three months and nine months ended April 27, 2002 4
and April 28, 2001
Condensed consolidated statements of cash flows -
nine months ended April 27, 2002 and April 28, 2001 5
Notes to condensed consolidated financial statements 6
Item 2. Management's discussion and analysis of financial condition and
results of operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Exhibits and reports on Form 8-K 23
SIGNATURES 24
EXHIBIT INDEX 25
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
April 27, July 28,
ASSETS 2002 2001
Current Assets: ----------- -----------
Cash and cash equivalents $ 75,181 $ 54,927
Short-term investments 53,000 146,600
Accounts receivable, net of allowances
for doubtful accounts of $12,907
and $7,197, respectively 367,477 309,171
Inventories (Note - 4) 272,395 209,499
Other current assets 95,569 58,791
-------- ---------
Total Current Assets 863,622 778,988
Property, plant and equipment, net of
accumulated depreciation of $507,141
and $477,232, respectively 597,319 503,016
Excess cost over book value of net
assets acquired of FSG (Note - 2) 190,400 -
Goodwill, net (Note - 3) 54,776 54,044
Intangible assets, net of accumulated amortization of
$28,662 and $24,606, respectively 38,991 37,009
Other assets 163,984 175,453
---------- ----------
Total Assets $1,909,092 $1,548,510
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 383,257 $ 57,089
Accounts payable and
other current liabilities 243,450 203,647
Income taxes 39,340 27,531
Current portion of long-term debt 27,840 25,582
---------- ----------
Total Current Liabilities 693,887 313,849
Long-term debt, less current portion 309,622 359,094
Deferred taxes and other
non-current liabilities 124,810 105,525
---------- ----------
Total Liabilities 1,128,319 778,468
---------- ----------
Stockholders' Equity:
Common stock, $.10 par value 12,796 12,796
Capital in excess of par value 110,843 108,164
Retained earnings 835,469 825,247
Treasury stock, at cost (120,359) (120,431)
Stock option loans (3,612) (4,635)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (46,603) (49,947)
Minimum pension liability (1,751) (1,799)
Unrealized investment (losses) gains (4,896) 1,704
Unrealized losses on derivatives (1,114) (1,057)
---------- ----------
(54,364) (51,099)
Total Stockholders' Equity 780,773 770,042
---------- ----------
Total Liabilities and
Stockholders' Equity $1,909,092 $1,548,510
========== ==========
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 Nine Months Ended
--------------------------- ---------------------------
April 27, April 28, April 27, April 28,
2002 2001 2002 2001
--------- ---------- ---------- ---------
Net sales $ 302,377 $ 321,057 $ 861,931 $ 903,905
--------- ---------- ---------- ---------
Costs and expenses:
Cost of sales (Note - 3) 145,482 153,855 425,946 428,775
Selling, general and
administrative expenses 107,245 100,831 306,471 301,868
Research and development 13,159 14,778 38,474 42,029
Interest expense, net 2,590 4,343 8,668 12,840
--------- ---------- ---------- ---------
Total costs and expenses 268,476 273,807 779,559 785,512
--------- ---------- ---------- ---------
Earnings before income taxes 33,901 47,250 82,372 118,393
Income taxes 7,458 10,395 18,122 26,047
--------- ----------- ---------- ---------
Net earnings $ 26,443 $ 36,855 $ 64,250 $ 92,346
========= =========== ========== =========
Earnings per share:
Basic $0.22 $0.30 $0.53 $0.75
Diluted $0.21 $0.30 $0.52 $0.75
Dividends declared per share $0.090 $0.170 $0.430 $0.505
Average number of shares
outstanding:
Basic 122,336 122,472 122,242 122,631
Diluted 123,512 123,721 123,478 123,705
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)
Nine Months Ended
---------------------------
April 27, April 28,
2002 2001
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES, NET OF
EFFECT OF ACQUISITIONS $ 104,693 $ 120,311
---------- ---------
INVESTING ACTIVITIES:
Capital expenditures (47,791) (56,517)
Disposals of fixed assets 4,164 2,305
Short-term investments 93,600 (5,200)
Benefits protection trust (1,562) (3,947)
Investments and licenses - (4,221)
Acquisitions of businesses, net of cash acquired (345,490) (1,426)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (297,079) (69,006)
-------- --------
FINANCING ACTIVITIES:
Notes payable 325,034 (210,821)
Long-term borrowings 1,485 243,789
Payments on long-term debt (53,921) (44,275)
Net proceeds from stock plans 12,139 23,159
Purchase of treasury stock (10,000) (35,635)
Dividends paid (62,337) (61,334)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 212,400 (85,117)
-------- --------
CASH FLOW FOR PERIOD 20,014 (33,812)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 54,927 81,008
EFFECT OF EXCHANGE RATE CHANGES ON CASH 240 (1,671)
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 75,181 $ 45,525
========= ========
Supplemental disclosures:
Interest paid $ 14,048 $ 16,754
Income taxes paid (net of refunds) 30,435 18,555
See accompanying Notes to Condensed Consolidated Financial Statements.
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PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(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 the Company's financial position, results of
operations and cash flows as of the dates and for the periods presented herein.
These financial statements should be read in conjunction with the financial
statements and notes set forth in the Company's Annual Report on Form 10-K for
the fiscal year ended July 28, 2001.
NOTE 2 - ACQUISITION
On April 24, 2002, the Company borrowed $360,000 to acquire the Filtration
and Separations Group ("FSG") from USFilter Corporation for total cash
consideration of $360,000, subject to a post closing adjustment of the purchase
price based on the net assets acquired as of April 27, 2002. The amount of the
consideration was determined by the Company's Board of Directors after review of
the FSG business and its potential impact on the Company's operations, if
acquired.
FSG designs, manufactures and sells filtration products for the separation and
purification of liquids and gases, primarily for the food & beverage, fuels &
chemicals, machinery & equipment and microelectronics markets, as well as, the
biotech and pharmaceutical industries.
FSG's balance sheet has been consolidated with the Company's balance sheet as of
April 27, 2002; however, FSG's earnings subsequent to April 24, 2002 have not
been included in the consolidated operating results of the Company because such
amounts were insignificant to the consolidated operating results for the quarter
and nine months ended April 27, 2002.
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The acquisition is being 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 acquisition be allocated to the
tangible and intangible assets acquired and liabilities assumed based upon their
respective fair values at the date of acquisition. The allocation of the
purchase price is dependent upon certain valuations and other studies that have
not progressed to a stage where there is sufficient information to make such
allocations because the transaction closed at the end of the Company's third
quarter. As such, the cost of the acquisition has been preliminarily allocated
in the accompanying condensed consolidated balance sheet at April 27, 2002 based
upon the book values of the net assets acquired. At the date of acquisition,
management began formulating integration plans, which contemplate the closure or
sale of redundant facilities. In addition, the synergies created by joining the
two organizations will result in employee terminations. The results of these
valuations and studies as well as finalization and announcement of integration
plans will result in revisions to the purchase price allocation that may be
significant and will be reported in future periods as increases and decreases to
the excess cost over net assets acquired and to the assets acquired and
liabilities assumed. The finalization and announcement of those plans may also
result in a charge to earnings if it is Pall employees or facilities that are
determined to be redundant.
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 $ 360,000
Transaction costs 4,818
----------
Total purchase price 364,818
Cash acquired 19,671
---------
Total purchase price, net of cash acquired 345,147
---------
Accounts receivable, net 66,737
Inventories 61,400
Other current assets 34,116
Property, plant and equipment, net 98,783
Other non-current assets 1,911
---------
Total assets acquired 262,947
----------
Notes payable to banks 230
Accounts payable and other current liabilities 62,389
Income taxes 19,885
Long-term debt 3,363
Other non-current liabilities 22,333
---------
Total liabilities assumed 108,200
----------
Excess cost over book value of net assets acquired $ 190,400
==========
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Because the excess cost over the book value of the net assets acquired, as
presented above, is subject to what may be significant adjustments, it has not
been assigned to the Company's reportable segments in accordance with SFAS No.
142, Goodwill and Other Intangible Assets ("SFAS No. 142"). Based on the markets
that FSG serves, the majority of the excess of cost over the fair value of the
net assets acquired will be assigned to the Company's General Industrial
segment. The excess of cost over the fair value of net assets acquired related
to the FSG acquisition is not tax deductible.
The following table presents the Company's pro forma net sales, net earnings and
basic and diluted earnings per share, assuming the acquisition of FSG occurred
at the beginning of each period presented after giving effect to FSG businesses
sold prior to the acquisition, the interest expense on acquisition borrowings
based on an assumed permanent financing rate of 6 1/2%, and the reversal of
FSG's pre-acquisition goodwill amortization and the Company's goodwill
amortization prior to the adoption of SFAS No. 142.
Three Months Ended Nine Months Ended
----------------------------- -------------------------------
April 27, April 28, April 27, April 28,
2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 360,953 $ 390,012 $ 1,055,253 $ 1,111,668
Net earnings 23,465 36,593 62,614 86,690
Earnings per share
Basic 0.19 0.30 0.51 0.71
Diluted 0.19 0.30 0.51 0.70
The pro forma results do not give effect to any synergies expected to result
from the acquisition. They also do not give effect to the income statement
effect of purchase accounting adjustments, charges that may result from the
finalization of integration plans or the potential write-off of in-process R&D
that was acquired. Accordingly, the pro forma results are not necessarily
indicative of what actually would have occurred if the acquisition had been
consummated on these dates, nor are they necessarily indicative of future
combined operating results.
NOTE 3 - NEW ACCOUNTING STANDARDS
Effective July 29, 2001, the Company adopted SFAS No. 142. SFAS No. 142 requires
that goodwill and intangible assets determined to have indefinite lives no
longer be amortized, but instead be tested for impairment at least annually and
whenever events or circumstances occur that indicate impairment might have
occurred.
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Upon the adoption of SFAS No. 142, the Company reassessed the useful lives of
its intangible assets to make any necessary amortization period adjustments. No
adjustments resulted from this assessment. The Company's intangible assets,
which are comprised almost entirely of patents, are subject to amortization.
Amortization expense for these intangible assets for the three months and nine
months ended April 27, 2002 was $1,372 and $3,883, respectively. In fiscal year
2001, amortization expense for the three months and nine months ended April 28,
2001 was $1,195 and $3,425, respectively. Amortization expense, excluding
amortization related to intangible assets purchased in the FSG acquisition which
fair values are yet to be determined, is estimated to be $1,300 for the
remainder of fiscal 2002, $4,700 in 2003, $4,700 in 2004, $3,700 in 2005 and
$3,200 in 2006.
The statement provides a six-month transitional period from the date of adoption
for the Company to perform an assessment of whether there is an indication that
goodwill is impaired. The assessment requires the comparison of the fair value
of each of the Company's operating segments, or a component thereof, to the
carrying value of its respective net assets, including allocated goodwill. If
the fair value is below the carrying value, the Company must perform a second
test to measure the amount of impairment. The second test must be performed as
soon as possible, but no later than the end of the fiscal year.
The Company completed this impairment test on goodwill in the second quarter,
including the creation of estimated segment balance sheets solely for the
purpose of carrying out the impairment tests required by SFAS No. 142. The
assessment indicated that no impairment of goodwill exists.
The following table presents goodwill, net of accumulated amortization prior to
the adoption of SFAS No. 142, allocated by reportable segment solely for
purposes of SFAS No. 142 disclosure as of April 27, 2002 and July 28, 2001:
April 27, July 28,
2002 2001
--------- ---------
Blood $ 18,859 $ 18,349
BioPharmaceutical 15,434 15,302
--------- ---------
Life Sciences 34,293 33,651
--------- ---------
General Industrial 14,287 14,234
Aerospace 6,036 6,032
Microelectronics 160 127
--------- ---------
Industrial 20,483 20,393
--------- ---------
Total $ 54,776 $ 54,044
--------- ---------
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The change in the carrying amount of goodwill is primarily attributable to the
translation of goodwill contained in the financial statements of foreign
subsidiaries using the rates at each respective balance sheet date and an
acquisition of a small distributor in the U.S.
Goodwill amortization, net of the pro forma tax effect, was approximately $781
and $2,216 for the three months and nine months ended April 28, 2001,
respectively. Had SFAS No. 142 been adopted on July 30, 2000, pro forma basic
earnings per share would have increased by one cent and two cents for the three
months and nine months ended April 28, 2001, respectively, and pro forma diluted
earnings per share would have increased by one cent for the nine months ended
April 28, 2001. The effect of these pro forma adjustments is reflected in the
pro forma calculations in Note 2 - Acquisitions.
In fiscal 2001, the Company adopted the provisions of Emerging Issues Task Force
Consensus No. 00-10 Accounting for Shipping and Handling Fees. Accordingly, the
Company reclassified freight costs incurred to deliver products to customers,
which were historically included in "Selling, general and administrative
expenses" to "Cost of sales". The amount of freight cost reclassified to cost of
sales approximated $2,040 and $5,742 for the three months and nine months ended
April 28, 2001, respectively.
NOTE 4 - INVENTORIES
The major classes of inventory are as follows:
April 27, July 28,
2002 2001
---------- ----------
Raw materials and components $ 99,220 $ 78,487
Work-in-process 46,443 22,104
Finished goods 126,732 108,908
--------- ---------
Total inventory $ 272,395(a) $ 209,499
========= =========
(a) Includes inventory from the FSG acquisition of $61,400.
NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT
The acquisition of FSG was funded via a 364-day variable rate (LIBOR plus 57.5
basis points) credit facility. At April 27, 2002, the applicable rate was 2.45%.
The credit agreement contains various covenants, including financial covenants
pertaining to interest coverage, funded debt and minimum net worth.
-11-
As a result of the additional borrowing to fund the acquisition, certain
non-financial covenants and the funded debt covenant of the Company's existing
senior revolving credit facility and private placement debt were waived and
amended, respectively.
During the three months ended October 28, 2000, the Company completed a $100
million private placement of 7.83% unsecured senior notes due in 2010. In
addition, the Company closed a $200 million unsecured senior revolving credit
facility, of which $150 million expires in 2005 and $50 million renews annually.
Borrowings under this facility bear interest at a floating rate based upon
LIBOR. The agreements contain various covenants, including financial covenants
pertaining to interest coverage, funded debt and minimum net worth. As a result
of these transactions, uncommitted lines of credit amounting to $230 million
were cancelled and the immediate credit availability of the Company increased
$70 million. Such proceeds are reflected in the consolidated statement of cash
flows for the nine months of fiscal 2001.
NOTE 6 - COMPREHENSIVE INCOME
Comprehensive income was comprised of the following for the three months and
nine months ended April 27, 2002 and April 28, 2001:
Three months ended Nine months ended
------------------------ -----------------------
April 27, April 28, April 27, April 28,
2002 2001 2002 2001
--------- -------- -------- --------
Net income $26,443 $36,855 $64,250 $92,346
-------- ------- ------- -------
Foreign currency translation adjustment 11,033 (7,728) 3,445 (13,609)
Income taxes 568 (694) (101) (1,273)
-------- ------- ------- -------
Foreign currency translation adjustment, net 11,601 (8,422) 3,344 (14,882)
-------- ------- ------- -------
Minimum pension liability adjustment (33) (186) (8) 7
Income taxes 16 83 56 6
-------- ------- ------- -------
Minimum pension liability adjustment, net (17) (103) 48 13
-------- ------- ------- -------
Unrealized investment (losses) gains (4,566) 1,979 (10,214) 3,423
Income taxes 1,599 (693) 3,614 (1,198)
-------- ------- ------- -------
Unrealized investment (losses) gains, net (2,967) 1,286 (6,600) 2,225
-------- ------- ------- -------
Unrealized gains (losses) on derivatives 462 (421) (88) (891)
Income taxes (161) 147 31 312
-------- ------- ------- -------
Unrealized gains (losses) on derivatives, net 301 (274) (57) (579)
-------- ------- ------- -------
Total comprehensive income $35,361 $29,342 $60,985 $79,123
======== ======= ======= =======
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NOTE 7 - SEGMENT INFORMATION AND GEOGRAPHIES
Market Segment Information (a): Three Months Ended Nine Months Ended
----------------------------- -----------------------------
April 27, April 28, April 27, April 28,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Sales to Unaffiliated Customers:
Blood $ 58,528 $ 60,080 $165,615 $170,777
BioPharmaceuticals 93,640 91,554 259,595 247,990
-------- -------- -------- --------
Total Life Sciences 152,168 151,634 425,210 418,767
-------- -------- -------- --------
General Industrial 84,351 86,933 245,046 243,977
Aerospace 38,454 43,504 114,836 115,753
Microelectronics 27,404 38,986 76,839 125,408
------- -------- -------- --------
Total Industrial 150,209 169,423 436,721 485,138
-------- -------- -------- --------
Total $302,377 $321,057 $861,931 $903,905
- ------------------------------------------------------------------------------------------------------------------
Operating Profit:
Blood $ 7,181 $ 5,760 $ 20,745 $ 30,334
BioPharmaceuticals 23,479 25,073 59,379 53,521
-------- -------- -------- --------
Total Life Sciences 30,660 30,833 80,124 83,855
-------- -------- -------- --------
General Industrial 9,042 15,086 25,338 43,860
Aerospace 8,961 13,942 27,672 33,221
Microelectronics 2,416 3,869 2,560 14,365
-------- -------- -------- --------
Total Industrial 20,419 32,897 55,570 91,446
-------- -------- -------- --------
Subtotal 51,079 63,730 135,694 175,301
General corporate expenses (14,588) (12,137) (44,654) (44,068)
Interest expense, net (2,590) (4,343) (8,668) (12,840)
-------- -------- -------- --------
Earnings before income taxes $ 33,901 $ 47,250 $ 82,372 $118,393
- ------------------------------------------------------------------------------------------------------------------
Geographies (a):
Sales to Unaffiliated Customers:
Western Hemisphere $141,829 $148,912 $393,841 $ 422,889
Europe 107,328 114,204 307,348 304,436
Asia 53,220 57,941 160,742 176,580
-------- ------- -------- --------
Total $302,377 $321,057 $861,931 $ 903,905
- ------------------------------------------------------------------------------------------------------------------
Intercompany Sales between
Geographic Areas:
Western Hemisphere $ 30,892 $ 34,745 $ 85,755 $ 96,979
Europe 16,525 12,708 42,890 40,462
Asia 389 1,002 1,355 3,889
-------- ------ -------- -------
Total $ 47,806 $ 48,455 $130,000 $141,330
- ------------------------------------------------------------------------------------------------------------------
Total Sales:
Western Hemisphere $172,721 $183,657 $ 479,596 $519,868
Europe 123,853 126,912 350,238 344,898
Asia 53,609 58,943 162,097 180,469
Eliminations (47,806) (48,455) (130,000) (141,330)
-------- -------- --------- ---------
Total $302,377 $321,057 $ 861,931 $903,905
- ------------------------------------------------------------------------------------------------------------------
Operating Profit:
Western Hemisphere $ 19,981 $ 28,718 $ 51,564 $ 86,762
Europe 22,956 23,221 57,640 56,317
Asia 8,607 10,859 26,174 32,459
Eliminations (465) 932 316 (237)
-------- ---- -------- --------
Subtotal 51,079 63,730 135,694 175,301
General corporate expenses (14,588) (12,137) (44,654) (44,068)
Interest expense, net (2,590) (4,343) (8,668) (12,840)
-------- ------- -------- --------
Earnings before income taxes $ 33,901 $ 47,250 $ 82,372 $118,393
- ------------------------------------------------------------------------------------------------------------------
(a) Certain prior year amounts have been reclassified to conform to the current
year presentation.
-13-
NOTE 8 - OTHER MATTERS
The Company bought back an additional $10 million of its common stock during the
first nine months of fiscal 2002 leaving $140 million remaining under the
current $200 million authorization program.
Beginning in the third quarter of fiscal 2002, the Company has reduced the
quarterly dividend to $0.09 from the previous $0.17 level. The approximately $40
million in cash conserved annually may be used for future investments, debt
reduction or other means of creating shareholder value.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion & analysis may contain "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995. These
statements are based on current Company expectations and are subject to risks
and uncertainties, which could cause actual results to differ materially. Such
risks and uncertainties include, but are not limited to: fluctuations in foreign
currency exchange rates; regulatory approval and market acceptance of new
technologies; changes in product mix and product pricing and in interest rates
and cost of raw materials; the Company's success in enforcing its patents and
protecting its proprietary products and manufacturing techniques and in
integrating the operations of the Filtration and Separations Group ("FSG") into
the Company's existing business; global and regional economic conditions and
legislative, regulatory and political developments; and domestic and
international competition in the Company's global markets.
I. Acquisition
On April 24, 2002, we acquired FSG from USFilter Corporation for total cash
consideration of $360 million, subject to a post closing adjustment of the
purchase price based on the net assets acquired as of April 27, 2002. The amount
of the consideration was determined by our Board of Directors after review of
the FSG business and its potential impact on our operations, if acquired.
FSG is a pioneer and global leader in the design, manufacture and sale of
filtration products for the separation and purification of liquids and gases.
FSG primarily serves the food & beverage, fuels & chemicals, machinery &
equipment and microelectronics markets as well as the biotech and pharmaceutical
industries. With a diversified portfolio of filter media, FSG provides end-users
with an array of filter elements, housings and systems with high technology and
superior performance. FSG complements our global franchise with outstanding
branded products and technology, enabling us to provide the fullest range of
integrated filtration products and services. This acquisition also broadens our
exposure to the growth and stability of the food and beverage sector and
enhances our ability to better serve our customers.
The acquisition was funded via a 364-day variable rate (LIBOR plus 57.5 basis
points) credit facility. At April 27, 2002, the applicable rate was 2.45%. The
credit agreement contains various covenants, including financial covenants
pertaining to interest coverage, funded debt and minimum net worth. We expect to
refinance the acquisition credit facility on a long-term basis at an estimated
annual interest rate of 6 1/2%.
As a result of the additional borrowing to fund the acquisition, certain
non-financial covenants and the funded debt covenant of the Company's existing
senior revolving credit facility and private placement debt were waived and
amended, respectively. Additionally, as a result of the increased debt level,
Standard & Poors lowered our credit rating to single-`A'-minus from single-`A'.
The expected annual increase in interest expense as a result of the revised
credit rating approximates $700,000.
15
FSG's balance sheet has been consolidated with our balance sheet as of April 27,
2002; however, FSG's earnings subsequent to April 24, 2002 have not been
included in our consolidated operating results because such amounts were
insignificant to the consolidated operating results for the quarter and nine
months ended April 27, 2002.
The acquisition is being 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 acquisition be allocated to the
tangible and intangible assets acquired and liabilities assumed based upon their
respective fair values at the date of acquisition. The allocation of the
purchase price is dependent upon certain valuations and other studies that have
not progressed to a stage where there is sufficient information to make such
allocations because the transaction closed at the end of our third quarter. As
such, the cost of the acquisition has been preliminarily allocated in the
accompanying condensed consolidated balance sheet at April 27, 2002 based upon
the book values of the net assets. At the date of acquisition, management began
formulating integration plans, which contemplate the closure or sale of
redundant facilities. In addition, the synergies created by joining the two
organizations will result in employee terminations. The results of these
valuations and studies as well as finalization and announcement of integration
plans will result in revisions to the purchase price allocation that may be
significant and will be reported in future periods as increases and decreases to
the excess of cost over net assets acquired and to the assets acquired and
liabilities assumed. The finalization and announcement of those plans may also
result in a charge to earnings if it is Pall employees or facilities that are
determined to be redundant.
II. Results of Operations
Review of Consolidated Results
Sales for the quarter were $302.4 million as compared to $321.1 million in the
third quarter of last year. For the nine months, sales were $861.9 million as
compared to $903.9 million last year. Exchange rates reduced reported sales for
the quarter by $6.6 million, or 2%, primarily due to the weakness of the Euro
and Yen. For the nine months, exchange rates reduced reported sales by $17.3
million, or 2%, the majority of which was attributable to the weakness of the
Yen. Excluding the effects of exchange rates, sales declined 4% in the quarter
and 2 1/2% for the nine months. Overall, pricing reduced sales by 2% in the
quarter and 1% for the nine months. Although we are starting to see signs of a
recovery, the industrial malaise in certain key markets still exists. The
downturn in the semiconductor industry has had the greatest impact on our
top-line growth. Excluding Microelectronics, sales in local currency for the
balance of our business were essentially flat for the quarter and increased 2
1/2% for the nine months. For a detailed discussion of sales, refer to
paragraphs below under "Review of Market Segments and Geographies".
16
In fiscal 2001, we adopted the provisions of Emerging Issues Task Force
Consensus No. 00-10, Accounting for Shipping and Handling Fees. Accordingly,
freight costs incurred to deliver products to customers, that were historically
included in selling, general and administrative expenses were reclassified to
cost of sales. The reclassification to cost of sales was approximately $2
million and $5.7 million for the quarter and nine months ended April 28, 2001,
respectively.
Cost of sales, as a percentage of sales, increased to 48.1% in the quarter from
47.9% last year. For the nine months, cost of sales was 49.4% as compared to
47.4% last year. The increase in cost of sales in the quarter and nine months
reflects the reduced pricing related to multiple long-term contracts with large
blood center customers, most of which took effect in the fourth quarter of
fiscal 2001 and the effect of a change in product mix in our industrial
business. The impact of these factors is not as apparent in the quarter to
quarter comparison, as last year's third quarter included a $3.6 million
provision for blood product inventory.
Selling, general and administrative expenses and R&D expenses for the quarter
increased by $4.8 million reflecting the $2.5 million property tax refund that
reduced last year's third quarter and $.9 million in costs incurred to integrate
FSG in this year's quarter. For the nine-month period, selling, general and
administrative expenses and R&D expenses increased $1 million, reflecting the
factors discussed above, partly offset by our continued efforts to hold down
controllable costs.
Net interest expense declined as compared to last year by $1.8 million and $4.2
million for the quarter and nine months, respectively. The reduction in interest
expense reflects decreased interest rates and lower average debt levels
(pre-acquisition) as compared to last year, as well as the benefits reaped from
a "receive fixed, pay variable" interest rate swap that we entered into on our
$100 million private placement fixed rate debt at the end of the fourth quarter
of fiscal 2001.
The underlying effective tax rate was 22% in the quarter, the same rate achieved
last year. In the second quarter of fiscal 2001 we were able to reduce our
underlying effective tax rate from 23% to 22% due to increased sourcing from
lower tax jurisdictions such as Puerto Rico and Ireland. Management believes
that a rate of approximately 22% will be sustained at least through the end of
fiscal 2002, including the effect of the acquisition of FSG.
Net earnings were $26.4 million, or 21 cents per share for the quarter, compared
with net earnings of $36.9 million, or 30 cents per share last year. For the
nine months, net earnings were $64.3 million, or 52 cents per share as compared
with net earnings of $92.3 million, or 75 cents per share last year. The
majority of the decline in net earnings for the quarter relates to lower sales,
principally in our Microelectronics and Aerospace segments and increased
expenses that were related to the integration of FSG and the benefit in the
prior year of a property tax refund. For the nine-month period, earnings were
impacted by the same factors as in the quarter, in addition to lower gross
margins, principally related to reduced pricing for large blood bank customers
and a change in the industrial product mix, as discussed previously. In
addition, it is estimated that earnings per share decreased approximately 1 cent
in the quarter and 4 cents for the nine-month period, due to the negative effect
of foreign currency exchange rates.
17
We implemented SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS No.
142") in the first quarter of fiscal 2002. On a pro forma basis, if SFAS No. 142
had been implemented in last year's first quarter, earnings per share would have
been unchanged from the 30 cents reported in the third quarter of last year and
would have been 76 cents per share for the nine-month period. The full year
effect on fiscal 2001 was $3 million, after pro forma tax effect, or 2 cents per
share.
Review of Market Segments and Geographies
The sales growth by segment and geographies discussion below is in local
currency unless indicated otherwise.
Life Sciences sales for the quarter and nine months grew 2% and 3%,
respectively, as compared to the same periods last year. Life Sciences
represented around 50% of our total sales in the quarter and year-to-date.
Overall Blood segment sales declined in the quarter and nine months by 1 1/2%
and 2%, respectively, as compared to last year. A reduction in pricing primarily
related to multiple long-term supply agreements with large blood bank customers,
which took effect in the fourth quarter of last year, reduced sales by 14% and
11% in the quarter and nine months, respectively. Much of the impact of
decreased pricing was offset by increases in volume of 12 1/2% and 9 1/2% in the
quarter and nine months, respectively. The majority of the long-term supply
agreements took effect in the fourth quarter of fiscal 2001, therefore the blood
filter volume growth experienced as a result of these contracts will begin to
show in top-line growth in our upcoming fourth quarter. Sales to blood centers
continue to comprise approximately three quarters of our worldwide blood filter
sales.
By geography, Western Hemisphere Blood sales, which represent about
two-thirds of worldwide Blood sales, increased 3% in the quarter and declined 1
1/2% for the nine-month period. Blood center sales increased 7 1/2% in the
quarter and 4% year-to-date despite the aforementioned pricing decreases in the
long-term supply agreements, by achieving increased volume. Decreased hospital
and cardiovascular sales partly offset the blood center sales growth in the
quarter and more than offset it in the nine-month period. In Europe, Blood sales
declined 12 1/2% and 8 1/2% for the quarter and nine-month period, respectively,
as growth in hospital sales were offset by declines in blood center sales. Blood
sales in Asia were down 4% in the quarter, however for the nine-month period
grew 8 1/2%, primarily related to increases in both blood center and hospital
business.
BioPharmaceuticals sales grew 4 1/2% in the quarter and 6 1/2% for the
nine-month period as compared to last year, reflecting growth in both our
BioSciences and Pharmaceutical sub-markets. BioSciences, which sells to the
laboratory, hospital and OEM markets, grew 6 1/2% in the quarter and 4 1/2%
year-to-date. BioSciences' laboratory market grew 15 1/2% in the quarter,
reflecting strong sales in the molecular biology arena. This high growth market
is one major focus of our R&D efforts. Sales to the hospital market increased 16
1/2% and 9 1/2% in the quarter and year-to-date, respectively, reflecting strong
sales of our Aquasafe products. By geography, BioSciences sales growth in the
quarter and year-to-date was driven by the Western Hemisphere and Europe. In
Asia, sales were up slightly in the quarter and down for the nine-month period.
18
Following two consecutive quarters of double-digit growth driven by robust sales
in the biotechnology sector, the Pharmaceutical division reported sales growth
in the quarter of 3% reflecting lumpiness in this market. Year-to-date
Pharmaceutical sales were up 8%. By geography, Pharmaceutical product sales were
particularly strong in Europe and Asia.
Sales in our Industrial business, which accounted for approximately 50% of total
sales in the quarter and for the nine months, declined 9% in the quarter and 7
1/2% for the nine-month period compared to last year. Excluding
Microelectronics, sales for the balance of our Industrial business declined 4%
in the quarter and increased 2% for the nine-month period.
General Industrial segment sales, which comprise the largest portion of our
Industrial business, were essentially flat in the quarter and grew 3% for the
nine-month period, despite a backdrop of weakened U.S. and European demand in
the cyclical industrial end markets. For the quarter and nine months, solid
growth was achieved in the Power Generation, Food & Beverage and Water
Processing product lines, as these are generally non-cyclical in nature. Fuels &
Chemicals, although down in the quarter, posted mid single-digit growth for the
nine-month period. Sales in Machinery & Equipment, the largest market within
General Industrial, declined 10% in the quarter and 7% for the nine months. The
Machinery & Equipment market includes cyclical markets such as pulp & paper,
primary metals, machine tools and mobile equipment, and as such, sales were
negatively impacted by weakened demand, principally in the U.S.
By geography, General Industrial sales in Asia were flat in the quarter as good
growth in Power Generation, Food & Beverage and Machinery & Equipment were
offset by declines in Fuels & Chemicals and Water Processing. For the nine
months, sales were up 12% reflecting double-digit gains in the Fuels & Chemicals
and Food & Beverage product lines. Sales in Europe were flat in the quarter, as
good growth in Fuels & Chemicals was offset by declines in most of the other
product lines. Year-to-date sales were up 4 1/2%, driven by growth in all of the
product lines with the exception of Machinery & Equipment. In the Western
Hemisphere, sales were flat in the quarter as strong growth in the non-cyclical
markets such as Power Generation, Water Processing and Food & Beverage offset
the decline in Machinery & Equipment that was attributable to weakened demand in
the U.S. marketplace. For the nine-month period, sales declined 5 1/2% primarily
attributable to the decline in Machinery & Equipment sales. As in the quarter,
strong growth was achieved in the non-cyclical markets, partly offsetting the
shortfall in Machinery & Equipment sales.
19
Aerospace sales declined 11% in the quarter and were flat for the nine-month
period. The quarter was negatively impacted by the continued downturn in the
commercial airline industry as well as a difficult comparison to the same period
last year when sales grew 18 1/2%. In the quarter, Military Aerospace sales grew
3 1/2%, while the Commercial side of the business declined by 21%. Military
comprised 47% of the total Aerospace business in the quarter as compared to 40%
last year. For the nine-month period, increased Military Aerospace sales were
offset by the decline in the Commercial side of the business. As in the quarter,
the comparison to last year is especially difficult as sales for the nine months
of fiscal 2001 grew 16 1/2%.
By geography, Aerospace sales in Europe were down 15 1/2% in the quarter
reflecting declines in both the Commercial and Military portion of the business.
Year-to-date sales were up 4%, reflecting strong Military and Marine Water sales
in the first and second quarters, partly offset by a decline in the balance of
the Commercial business. In the Western Hemisphere, where approximately 60% of
the Commercial Aerospace business is generated, sales declined 11% in the
quarter and 4 1/2% year-to-date, as declines in the Commercial side of the
business more than offset strong growth in Military sales. Asia reported strong
growth in Aerospace sales, attributable to increased Military sales partly
offset by declines in Commercial sales, although the size of our Aerospace
business there is not as significant.
Microelectronics sales declined 26 1/2% in the quarter due to the continued
slump in the semiconductor industry. For the same quarter last year sales were
up 6%, as the effects of the overcapacity in the semiconductor industry were
just starting to take their toll. For the nine-month period, sales declined
35 1/2% due to the downturn in the semiconductor industry noted previously and
a difficult comparison to last year's nine months when sales grew 24 1/2%. All
geographies reported double-digit declines in Microelectronics sales in the
quarter and nine months. In dollars, the Western Hemisphere and Asia were hit
the hardest. We are beginning to see signs of a recovery, and on a sequential
quarter basis, sales were up 10%. We continue to develop new products and are
well positioned to benefit from the next up cycle. Additionally, our acquisition
of FSG materially strengthens our position in this marketplace.
The consolidated operating profit as a percentage of sales for the third quarter
declined to 16.9% from 19.9% last year. For the nine months, operating profit
declined to 15.7% from 19.4% last year. In Life Sciences, overall operating
profit in the quarter was essentially flat as this year's quarter included the
effect of reduced pricing related to multiple long-term contracts with large
blood center customers and the impact of a change in product mix in
Biopharmaceuticals, while last year's third quarter included a $3.6 million
provision for blood product inventory.
Within Life Sciences, Blood operating profit for the quarter increased to 12.3%
from 9.6% last year. Excluding the effect of the provision for blood product
inventory taken in the third quarter of last year, operating profit would have
been down (12.3% compared to 15.5% last year). This decrease reflects the price
decreases related to contracts with major blood bank customers as mentioned
previously. Operating profit in BioPharmaceuticals decreased to 25.1% from 27.4%
last year, attributable to a change in product mix. For the nine-month period,
Life Sciences operating profit declined to 18.8% from 20% last year. Blood
operating profit for the nine months declined to 12.5% from 17.8% last year,
reflecting the factors discussed above. Operating profit in BioPharmaceuticals
increased to 22.9% from 21.6% last year, attributable to increased sales volume
and pricing increases, as well as a charge taken in last year's second quarter
for costs to update certain membrane filtration systems.
20
Overall operating profit in Industrial decreased to 13.6% from 19.4% last year,
reflecting the effect of lower overall sales in the quarter coupled with a
change in product mix. For the nine-month period the same trend was evident as
operating profit declined to 12.7% from 18.8% last year. In General Industrial,
operating profit declined in the quarter to 10.7% from 17.4% last year and for
the nine-month period declined to 10.3% from 18%. Contributing to the profit
declines were decreased Machinery & Equipment sales and a change in product mix.
Aerospace operating profit in the quarter declined to 23.3% from 32% last year
and for the nine months declined to 24.1% from 28.7%, primarily due to decreased
sales volume and a change in product mix. Reflecting the sales volume reduction,
Microelectronics operating profit was 8.8% for the quarter and 3.3% for the
nine-month period as compared to operating profit of 9.9% and 11.5% for the same
periods last year.
General corporate expenses increased $2.5 million in the quarter principally
reflecting the $2.5 million property tax refund that reduced last year's third
quarter and $.9 million in costs incurred to integrate FSG. For the nine-month
period, general corporate expenses increased $.6 million, reflecting the factors
discussed above, partly offset by our continued efforts to hold down
controllable costs.
By geography, sales in the Western Hemisphere decreased 4% in the quarter and 6
1/2% for the nine-month period. Exchange rates, primarily related to the
weakening of the Argentine Peso negatively impacted sales in the quarter and
nine months by $.9 million and $1.3 million, respectively. Operating profit in
the quarter declined to 11.6% from 15.6% last year. For the nine months,
operating profit declined to 10.8% from 16.7% last year. The shortfalls in
operating profit reflect the reduced pricing in the blood bank contracts
mentioned above as well as the effects of lower Industrial sales coupled with a
change in the Industrial product mix. The impact of these factors on the
comparisons to last year were offset somewhat by the fact that last year's third
quarter included a provision for blood product inventory as mentioned
previously.
In Europe, sales decreased 3 1/2% for the quarter and increased 2% for the
nine-month period. The weakening of European currencies negatively impacted
sales in the quarter by $3 million, resulting in a sales decline in the quarter
on a reported basis of 6%. Sales on a reported basis for the nine-month period
were flat. Operating profit for the quarter increased slightly to 18.5% from
18.3% last year as last year's third quarter included a provision for blood
product inventory and costs related to the ramp up of the blood systems plant
that was purchased in fiscal 2000. For the nine-month period, operating profit
increased to 16.5% from 16.3% last year, reflecting the same factors in the
quarter.
21
Asia's sales declined 3 1/2% and 2% for the quarter and nine months,
respectively. A weakening of the Yen reduced sales by $2.6 million and $12.4
million in the quarter and nine months, resulting in a decline in sales on a
reported basis of 8% and 9%, respectively. Operating profit declined in the
quarter and nine months to 16.1% from 18.4% and 18% for the same periods last
year, primarily due to the effects of the weakening Yen and the shortfall in
Microelectronics sales.
III. Liquidity and Capital Resources
Our balance sheet is affected by spot exchange rates used to translate local
currency amounts into U.S. dollars. In comparing spot exchange rates to those at
the end of fiscal 2001, the Asian currencies, particularly the Yen, have
weakened against the U.S. dollar and the European currencies, such as the Euro
and the Pound Sterling, have strengthened.
In the third quarter, net cash provided by operating activities increased by
$9.3 million as compared to the same period last year, as the changes in
accounts receivable and accounts payable more than offset the decline in
earnings. Compared to the first nine months of fiscal 2001, net cash provided by
operating activities has decreased by approximately $15.6 million primarily due
to the decrease in earnings as well as the payment of a rebate to a major blood
bank customer in the first quarter of fiscal 2002, partly offset by the effect
of lower inventory levels. The decline in inventory reflects improved inventory
turnover resulting from improvements in supply chain management.
We purchased approximately $10 million of treasury stock during the first nine
months, all of which was purchased in the first quarter, leaving $140 million of
the $200 million authorized by the Board of Directors in January 2000.
Offsetting the cash outlays to purchase stock were proceeds from stock plans of
$1.1 million in the quarter and $12.1 million year-to-date. Capital expenditures
were $47.8 million during the first nine months of fiscal 2002, of which $13.9
million was spent in the third quarter. Depreciation and amortization expense
was $17.7 million and $52.8 million in the quarter and nine months,
respectively. Our goal is to keep capital expenditures at or below $80 million
in fiscal 2002.
Under our agreement with V.I. Technologies, upon commencement of Phase III,
we will make a milestone investment of $4 million through the purchase of
V.I. Technologies stock. R&D costs for this project are currently running at
about $1.5 million per quarter.
When operating the business day-to-day, excluding acquisitions but including
funding capital expenditures and buying back common stock, our guideline is to
keep net debt (debt, net of cash and cash equivalents) at 25% to 30% of total
capitalization (net debt plus equity). Debt and short-term borrowings, net of
cash and short-term investments, increased by $352.3 million, compared to
year-end fiscal 2001, attributable to the $360 million debt incurred to purchase
FSG. Overall, net debt, as a percentage of total capitalization, was 43.1% at
the end of the third quarter of fiscal 2002 as compared to 24% at year-end
fiscal 2001. Excluding the debt incurred to purchase FSG, the percentage remains
at 24%. Our intention is to return to the levels that existed prior to the
acquisition as quickly as possible. We consider our existing lines of credit
along with the cash generated from operations to be sufficient for future
growth.
22
We reduced our quarterly dividend to $0.09 from the current $0.17 level. The
reduction in the quarterly dividend brings our dividend payout ratio to a level
consistent with industry averages. The approximately $40 million in cash we will
conserve annually may be used for future investments, debt reduction or other
more tax-efficient means of creating value for our shareholders. The dividend
action does not reflect a fundamental change in our earnings or asset quality
outlook for 2002.
IV. Other Matters
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" effective for
fiscal years beginning after December 15, 2001. SFAS No. 144 supersedes SFAS
No.121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and provides a single accounting model for long-lived
assets to be disposed of. We will adopt the statement in fiscal year 2003, which
begins August 4, 2002. We are currently assessing the impact of this new
statement on our consolidated financial position and results of operations and
have not yet determined the impact of adoption.
-23-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In February 1988, an action was filed in the Circuit Court for Washtenaw County,
Michigan ("Court") by the State of Michigan ("State") against Gelman Sciences
Inc. ("Gelman") (a subsidiary acquired by the Company in February 1997)
requesting reimbursement of costs the State had expended in investigating
contamination near Gelman's Ann Arbor facility, which the State alleged was
caused by Gelman's disposal of waste water from its manufacturing process.
Pursuant to a consent judgment entered into by Gelman and the State in October
1992 (amended September 1996 and October 1999), which resolved that litigation,
Gelman is remediating the contamination without admitting wrongdoing. In
February 2000, the State Assistant Attorney General filed a Motion to Enforce
Consent Judgement in the Court seeking approximately $4.9 million in stipulated
penalties for alleged violations of the consent judgment and additional
injunctive relief. Gelman disputed these assertions and in July 2000, the Court
took the matter of penalties "under advisement" and held that Gelman was not in
violation of the Consent Judgement. The Court issued a Remediation Enforcement
Order requiring Gelman to complete the cleanup within five years under a Court
approved plan. In the opinion of management, the Company is in substantial
compliance with applicable environmental laws and its current accruals for
environmental remediation are adequate.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See the Index to Exhibits for a list of exhibits filed
herewith.
(b) Reports on Form 8-K.
During the three-month period ending April 27, 2002, the
following report was filed on Form 8-K under Item 2.
Acquisition or Disposition of Assets and Item 7. Financial
Statements and Exhibits:
The report bearing cover date of April 24, 2002 concerning the
Registrant's acquisition of the Filtration and Separations
Group ("FSG") from USFilter Corporation. Financial statements
of FSG to be filed by amendment no later than July 8, 2002.
-24-
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 11, 2002 /s/ John Adamovich, Jr.
- --------------- ------------------------
Date John Adamovich, Jr.
Chief Financial Officer
and Treasurer
June 11, 2002 /s/ Lisa Kobarg
- --------------- ------------------------
Date Lisa Kobarg
Chief Corporate
Accountant
-25-
Exhibit Index
-------------
Exhibit
Number Description of Exhibit
- ------------- ----------------------
2 (i)* Stock Purchase Agreement dated February 14, 2002 by and
between the Registrant and United States Filter Corporation,
filed as Exhibit 2 to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended January 26, 2002.
2 (ii)* Amendment dated April 24, 2002 to Stock Purchase
Agreement dated February 14, 2002, by and between the
Registrant and United States Filter Corporation, filed as
Exhibit 2.2 to the Registrant's Current Report on Form 8-K
bearing cover date of April 24, 2002.
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 October 5, 1999,
filed as Exhibit 3 (ii) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 31, 1999.
4 (i)* Credit Agreement dated as of August 30, 2000 by and
among the Registrant and Fleet Bank, National Association
as Administrative Agent, The Chase Manhattan Bank as
Syndication Agent, Wachovia Bank, N.A. as Documentation
Agent and The Lenders Party Thereto, filed as Exhibit 4 to
the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended October 28, 2000.
4 (ii)* Credit Agreement dated as of April 24, 2002 between the
Registrant, UBS AG, Stamford Branch, as Administrative
Agent, UBS Warburg LLC, as Arranger, Fleet National Bank,
as Syndication Agent, and the Lenders Party Thereto, filed
as Exhibit 2.3 to the Registrant's Current Report on Form 8-K
bearing cover date of April 24, 2002.
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement.
-26-
Exhibit Index
-------------
Exhibit
Number Description of Exhibit
- ------------- ----------------------
The exhibits filed herewith do not include other instruments
with respect to long-term debt of the Registrant and its
subsidiaries, inasmuch as the total amount of debt
authorized under any such instrument does not exceed
10% of the total assets of the Registrant and its subsidiaries
on a consolidated basis. The Registrant agrees, pursuant to
Item 601 (b) (4) (iii) of Regulation S-K, that it will furnish
a copy of any such instrument to the Securities and Exchange
Commission upon request.
10.1 (a) Pall Corporation 1991 Stock Option Plan, as amended
effective April 17, 2002.
10.2 (a) Pall Corporation 1993 Stock Option Plan, as amended
effective April 17, 2002.
10.3 (a) Pall Corporation 1995 Stock Option Plan, as amended
effective April 17, 2002.
10.4 (a) Pall Corporation 1998 Stock Option Plan, as amended
effective April 17, 2002.
10.5 (a) Employment agreement dated April 8, 2002 between
the Registrant and Gregory Scheessele.
10.6 (a) Service agreement dated March 1, 2002 between
Pall Europe Limited and Marcus Albert Wilson.
10.7 (a) Service agreement dated March 1, 2002 between
Pall Europe Limited and Neil MacDonald.
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement.