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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 November 2, 1996
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 December 5, 1996, 115,294,087 shares of common stock of the Registrant were
outstanding.
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PALL CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<S> <C>
COVER SHEET 1
INDEX TO FORM 10-Q 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed consolidated balance sheets - November 2, 1996
and August 3, 1996 3
Condensed consolidated statements of earnings - three months ended
November 2, 1996 and October 28, 1995 4
Condensed consolidated statements of cash flows - three months ended
November 2, 1996 and October 28, 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
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(in thousands)
November 2, August 3,
ASSETS 1996 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 11,874 $ 34,528
Short-term investments 74,900 71,450
Accounts receivable, net of allowances
for doubtful accounts of $4,458
and $4,170, respectively 206,418 242,157
Inventories - Note 2 209,360 193,764
Deferred income taxes 16,500 15,995
Prepaid expenses 19,910 19,151
Other current assets 5,404 4,160
----------- -----------
Total Current Assets 544,366 581,205
Property, plant and equipment, net of
accumulated depreciation of $301,843
and $290,308, respectively 475,248 463,905
Other assets 139,085 139,848
----------- -----------
Total Assets $ 1,158,699 $ 1,184,958
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 119,977 $ 139,957
Accounts payable 49,531 61,071
Accrued liabilities:
Salaries 32,383 31,985
Other 49,273 44,213
----------- -----------
81,656 76,198
Income taxes 7,556 21,699
Current portion of long-term debt 16,360 17,163
Dividends payable 14,104 14,133
----------- -----------
Total Current Liabilities 289,184 330,221
Long-term debt, less current portion 47,004 46,712
Deferred income taxes 37,542 36,134
Other non-current liabilities 39,447 39,591
----------- -----------
Total Liabilities 413,177 452,658
----------- -----------
Stockholders' Equity:
Common stock, $.10 par value 11,735 11,735
Capital in excess of par value 53,769 53,769
Retained earnings 733,358 727,814
Treasury stock, at cost (47,361) (50,410)
Foreign currency translation adjustment 6,749 2,901
Minimum pension liability adjustment (4,645) (4,629)
Stock option loans (8,085) (8,652)
Cumulative unrealized gains (losses) on investments 2 (228)
----------- -----------
Total Stockholders' Equity 745,522 732,300
----------- -----------
Total Liabilities and
Stockholders' Equity $ 1,158,699 $ 1,184,958
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
(in thousands,
except per share data)
Three Months Ended
---------------------------
Nov. 2, Oct. 28,
1996 1995
-------- --------
<S> <C> <C>
Net sales $207,456 $191,550
Costs and expenses:
Cost of sales 82,983 75,554
Selling, general and
administrative expenses 83,362 78,551
Research and development 11,680 10,928
Interest expense, net 630 791
-------- --------
Total costs and expenses 178,655 165,824
Earnings before income taxes 28,801 25,726
Provisions for income taxes 8,641 7,974
-------- --------
Net earnings $ 20,160 $ 17,752
======== ========
Earnings per share $ 0.18 $ 0.16
Dividends declared per share $ 0.1225 $ 0.1050
Average number of shares
outstanding 115,045 114,446
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended
------------------------
Nov. 2, Oct. 28,
1996 1995
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 30,135 $ 43,852
INVESTING ACTIVITIES:
Acquisition of Medical Plastics business
of Bayer Corporation (38,888)
Capital expenditures (21,913) (17,131)
Disposals of fixed assets 517 715
Short-term investments (3,450) 9,480
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (24,846) (45,824)
FINANCING ACTIVITIES:
Net short-term borrowings (17,906) (2,096)
Long-term borrowings 2,295 134
Payments on long-term debt (1,169) (279)
Net proceeds from exercise of stock options 3,102 930
Dividends paid (14,133) (12,014)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (27,811) (13,325)
-------- --------
CASH FLOW FOR PERIOD (22,522) (15,297)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 34,528 37,913
EFFECT OF EXCHANGE RATE CHANGES ON CASH (132) 649
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,874 $ 23,265
======== ========
Supplemental disclosures:
Interest paid (net of amount capitalized) $ 2,131 $ 2,260
Income taxes paid (net of refunds) 22,281 13,202
</TABLE>
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
November 2, 1996 and August 3, 1996, (ii) the results of its operations for the
three months ended November 2, 1996 and October 28, 1995, and (iii) its cash
flows for the three months ended November 2, 1996 and October 28, 1995. 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)
<TABLE>
<CAPTION>
Nov. 2, Aug. 3,
1996 1996
-------- --------
<S> <C> <C>
Raw materials and components $84,758 $82,402
Work-in-process 27,834 21,132
Finished goods 96,768 90,230
-------- --------
Total inventory $209,360 $193,764
======== ========
</TABLE>
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
I. Results of Operations
Quarter ended November 2, 1996 compared to quarter ended October 28, 1995
Sales for the quarter increased 8 1/2% (11 1/2% in local currency) compared to
the same quarter last year. Of the increase, approximately $5 million was
related to the acquisition of Medsep Corporation and there were no price
increases during the quarter.
By market segment, Fluid Processing grew 14% in local currency. Within Fluid
Processing, Microelectronics grew 10% and Hydrocarbon, Chemical and Polymer grew
41%. The Health Care market segment grew 12% in local currency. By subsegment,
Patient Protection and Pharmaceutical, grew 18 1/2% and 11%, respectively.
Growth in the Aeropower market segment was 8%. By subsegment, Industrial
Hydraulics grew 15% and Commercial Aerospace grew 20%; however, Military
Aerospace was down 25%.
By geography, Asia and Australia grew 24% in local currency, followed by 12% in
the Western Hemisphere and 4 1/2% in Europe. Growth in Europe was held back by
Germany where sales declined by 3%.
Cost of sales for the quarter increased to 40.0% from 39.4% last year. The
increase in cost of sales is mainly due to product mix and the negative effect
of foreign currency exchange rates. Selling, general and administrative expenses
decreased from 41.0% last year to 40.2% this year, as sales grew at a rate
faster than selling, general and administrative expenses. The pretax profit
margin increased to 13.9% from 13.4% last year. 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 grew by
13 1/2%.
II. Liquidity and Capital Resources
Borrowings, net of cash and short-term investments at the end of the quarter are
at $96.5 million, which is about the same as at the end of fiscal 1996. Capital
expenditures for the quarter were $22 million and depreciation expense was $12.5
million.
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On October 27, 1996 the Company signed a definitive merger agreement with Gelman
Sciences Inc. Shareholders of Gelman will receive Pall common stock having a
value of $33.00 for each share of Gelman common stock if the average closing
price of Pall shares has been between $25.29 and $27.96 during the period of 30
trading days ending on the third business day before the Gelman shareholders'
meeting. If during that 30-day period the average closing price of Pall has been
$25.29 or less, the exchange ratio will be 1.3047 Pall shares for each Gelman
share, and if the average closing price has been $27.96 or more, the exchange
ratio will be 1.1804 Pall shares for each Gelman share. If the average Pall
closing price during that period is less than $21.00, Gelman will have the right
to terminate the merger agreement. The merger, which is subject to the approval
of Gelman's shareholders, is intended to be a tax free reorganization to the
Gelman shareholders and accounted for as a pooling of interests. Based on the
Gelman shares outstanding on the date the definitive agreement was signed, the
total value of the transaction is approximated at $270 million. The closing of
the merger is expected to take place during the second or third quarter of
fiscal 1997. The Company anticipates that there will be merger related expenses
when the transaction closes and a one-time charge related to the reorganization
of the two companies upon consummation of the transaction. The Company has just
recently filed with the Securities and Exchange Commission a registration
statement in connection with the Gelman merger.
On October 29, 1996 the Board of Directors of the Company withdrew its
authorization for the balance of the expenditure of up to $40 million to buy
back the Company's own shares. Under this program, announced February 28, 1996,
the Company had already spent $10 million (433,000 shares). No additional shares
were bought in the current quarter.
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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
November 2, 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
December 12, 1996 /s/ Jeremy Hayward-Surry
- ------------------ ---------------------------
Date Jeremy Hayward-Surry
President and Treasurer -
Chief Financial Officer
December 12, 1996 /s/ Peter Schwartzman
- ------------------ ---------------------------
Date Peter Schwartzman
Secretary and Chief Corporate
Accountant
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Exhibit Index
-------------
Exhibit
Number Description of Exhibit
- ------- ----------------------
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.
27 Financial Data Schedule (only filed electronically).
* Incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-02-1997
<PERIOD-END> NOV-02-1996
<EXCHANGE-RATE> 1
<CASH> 11,874
<SECURITIES> 74,900
<RECEIVABLES> 210,876
<ALLOWANCES> 4,458
<INVENTORY> 209,360
<CURRENT-ASSETS> 544,366
<PP&E> 777,091
<DEPRECIATION> 301,843
<TOTAL-ASSETS> 1,158,699
<CURRENT-LIABILITIES> 289,184
<BONDS> 0
0
0
<COMMON> 11,735
<OTHER-SE> 733,787
<TOTAL-LIABILITY-AND-EQUITY> 1,158,699
<SALES> 207,456
<TOTAL-REVENUES> 207,456
<CGS> 82,983
<TOTAL-COSTS> 178,655
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 630
<INCOME-PRETAX> 28,801
<INCOME-TAX> 8,641
<INCOME-CONTINUING> 20,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,160
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
