<PAGE> 1
10Q296 -1-
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 January 27, 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 February 27, 1996, 115,039,638 shares of common stock
of the Registrant were outstanding.
<PAGE> 2
10QIX296 -2-
PALL CORPORATION
<TABLE>
<CAPTION>
INDEX TO FORM 10-Q
-------------------
<S> <C>
COVER SHEET 1
INDEX TO FORM 10-Q 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed consolidated balance sheets - January 27,
1996 and July 29, 1995 3
Condensed consolidated statements of earnings -
three months and six months ended January 27, 1996
and January 28, 1995 4
Condensed consolidated statements of cash flows -
six months ended January 27, 1996 and January 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
</TABLE>
<PAGE> 3
10QBS296 -3-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(in thousands) Jan. 27, July 29,
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 30,723 $ 37,913
Short-term investments 69,350 72,850
Accounts receivable, net of allowances
for doubtful accounts of $4,334
and $5,008, respectively 208,742 216,216
Inventories - Note 2 168,230 158,430
Deferred income taxes 22,125 19,443
Prepaid expenses 17,959 15,546
Other current assets 3,194 4,369
----------- -----------
Total Current Assets 520,323 524,767
Property, plant and equipment, net of
accumulated depreciation of $275,079
and $262,884, respectively 442,158 427,931
Other assets 141,150 122,224
----------- -----------
Total Assets $ 1,103,631 $ 1,074,922
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 142,450 $ 117,489
Accounts payable 42,274 47,814
Accrued liabilities:
Salaries 20,669 25,676
Income taxes 30,281 34,311
Other 47,472 40,935
----------- -----------
98,422 100,922
Current portion of long-term debt 4,919 9,494
Dividends payable 14,067 12,014
----------- -----------
Total Current Liabilities 302,132 287,733
Long-term debt, less current portion 62,209 68,814
Deferred income taxes 33,538 33,444
Other non-current liabilities 39,004 33,132
----------- -----------
Total Liabilities 436,883 423,123
----------- -----------
Stockholders' Equity:
Common stock, $.10 par value 11,735 11,735
Capital in excess of par value 55,469 56,304
Retained earnings 667,426 643,675
Treasury stock, at cost (53,673) (60,389)
Foreign currency translation adjustment (1,601) 13,036
Minimum pension liability adjustment (5,181) (5,145)
Stock option loans (7,770) (7,580)
Cumulative unrealized gains on investments 343 163
----------- -----------
Total Stockholders' Equity 666,748 651,799
----------- -----------
Total Liabilities and
Stockholders' Equity $ 1,103,631 $ 1,074,922
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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10QIS296 -4-
PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
(in thousands, except Three Months Ended Six Months Ended
per share data) ------------------ ----------------
Jan. 27, Jan. 28, Jan. 27, Jan. 28,
1996 1995 1996 1995
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Net sales $239,316 $192,847 $430,866 $ 352,042
Interest earned 1,481 1,483 3,453 2,853
-------- -------- -------- ---------
Total revenues 240,797 194,330 434,319 354,895
Costs and expenses:
Cost of sales 95,488 73,165 171,042 135,153
Selling, general and
administrative expenses 84,796 69,392 163,347 136,615
Research and development 11,664 11,841 22,592 22,001
Interest expense 2,347 2,105 5,110 4,287
-------- -------- -------- ---------
Total costs and expenses 194,295 156,503 362,091 298,056
Earnings before income taxes
and the cumulative effect of
an accounting change 46,502 37,827 72,228 56,839
Provisions for income taxes 14,416 11,346 22,390 17,049
-------- -------- -------- ---------
Earnings before the cumulative
effect of an accounting change 32,086 26,481 49,838 39,790
Cumulative effect of a change in
accounting for postemployment
benefits - Note 3 0 0 0 (780)
-------- -------- -------- ---------
Net earnings $ 32,086 $ 26,481 $ 49,838 $ 39,010
======== ======== ======== =========
Earnings per share:
Before the cumulative effect of
an accounting change $ 0.28 $ 0.23 $ 0.44 $ 0.35
Cumulative effect of a change in
accounting for postemployment
benefits - Note 3 0 0 0 (0.01)
-------- -------- -------- ---------
Net earnings per share $ 0.28 $ 0.23 $ 0.44 $ 0.34
======== ======== ======== =========
Dividends declared per share $ 0.12 $ 0.11 $ 0.23 $ 0.20
Average number of shares
outstanding 114,624 115,329 114,543 115,325
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
10QCF296 -5-
PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
(in thousands) Jan. 27, Jan. 28,
1996 1995
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 62,448 $ 73,378
INVESTING ACTIVITIES:
Acquisition of Medical Plastics business
of Bayer Corporation (43,017)
Capital expenditures (35,601) (32,105)
Disposals of fixed assets 1,842 1,868
Short-term investments 3,500 (2,600)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (73,276) (32,837)
FINANCING ACTIVITIES:
Net short-term borrowings 29,916 (20,337)
Payments on long-term debt (6,229) (1,813)
Net proceeds from exercise of stock options 5,688 423
Dividends paid (24,035) (21,334)
-------- --------
NET CASH PROVIDED/ ( USED) BY FINANCING ACTIVITIES 5,340 (43,061)
CASH FLOW FOR PERIOD (5,488) (2,520)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 37,913 38,224
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,702) 864
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 30,723 $ 36,568
======== ========
Supplemental disclosures:
Interest paid (net of amount capitalized) $ 4,453 $ 4,037
Income taxes paid (net of refunds) 26,110 12,888
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE> 6
10QNT296 -6-
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 January
27, 1996 and July 29, 1995, (ii) the results of its operations for the
three-month and six-month periods ended January 27, 1996 and January 28, 1995,
and (iii) its cash flows for the six-month periods ended January 27, 1996 and
January 28, 1995.
NOTE 2 - INVENTORIES
The major classes of inventory are as follows:
<TABLE>
<CAPTION>
Jan. 27, July 29,
(in thousands) 1996 1995
-------- ---------
<S> <C> <C>
Raw materials and components $ 66,142 $ 61,436
Work-in-process 25,083 17,901
Finished goods 77,005 79,093
------- --------
Total inventory $168,230 $158,430
======= ========
</TABLE>
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.
<PAGE> 7
-7-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
I. Results of Operations
A. Second quarter ended January 27, 1996 compared to second
quarter ended January 28, 1995
Sales for the second quarter increased by 24%. Of this increase,
1% each was due to price increases and foreign currency exchange
rates, 6% was due to acquisitions and the remaining 16% was due
to unit growth.
Cost of sales as a percentage of sales increased 2%. Half of the
increase was due to the acquisition of the Medical Plastics
business of Bayer Corporation which operations brought with it
lower gross margin products. The remaining half of the increase
is attributable to product mix and foreign currency exchange
rates. Selling, general and administrative expenses, as a
percentage of sales, have decreased by 0.6% while research and
development costs have decreased by 1.3%. The reduction in
research and development costs 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 pretax profit rate of 19.4% is about the same as last year.
The Company's effective tax rate increased to 31% from 30% last
year, mainly as a reduction in the tax benefits from its Puerto
Rican operations due to changes in the tax laws. Net earnings
for the quarter increased by 21%.
B. Six months ended January 27, 1996 compared to six months
ended January 28, 1995
Sales for the first six months of fiscal 1996 were up 22 1/2%.
Of this increase, 1 1/2% was due to foreign currency exchange
rates and 5% was due to acquisitions.
Cost of sales as a percentage of sales increased by 1.3% for the
similar reasons as explained above. Both selling, general and
administrative expenses and research and development costs as a
percentage of sales have decreased by about 1% each.
The Company's effective tax rate increased to 31% from 30% last
year for the same reason mentioned above. Net earnings
<PAGE> 8
-8-
(excluding the effect of the accounting change in quarter one of
last year - see Note 3 of the Condensed Consolidated Financial
Statements) increased by 25 1/2%.
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.
The Company's working capital decreased by $18.8 million from
the beginning of the year. Excluding the net effect of the above
acquisition and the effects of foreign exchange rates, working
capital would have increased by $18.6 million.
Capital expenditures and depreciation expense through the first
six months totaled about $36 million and $23 million,
respectively.
On February 27, 1996, the Company's Board of Directors
authorized a program to purchase $40 million of its outstanding
shares. The repurchased shares will be added to the shares
already held in treasury and will be available for general
corporate purposes including stock options and acquisitions.
<PAGE> 9
10QOI296 -9-
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 January 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
March 5, 1996 /s/ Jeremy Hayward-Surry
- -------------------- -----------------------------
Date Jeremy Hayward-Surry
President and Treasurer -
Chief Financial Officer
March 5, 1996 /s/ Peter Schwartzman
- -------------------- -----------------------------
Date Peter Schwartzman
Secretary and Chief Corporate
Accountant
<PAGE> 10
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
EX-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-03-1996
<PERIOD-END> JAN-27-1996
<EXCHANGE-RATE> 1
<CASH> 30723
<SECURITIES> 69350
<RECEIVABLES> 213076
<ALLOWANCES> 4334
<INVENTORY> 168230
<CURRENT-ASSETS> 520323
<PP&E> 717237
<DEPRECIATION> 275079
<TOTAL-ASSETS> 1103631
<CURRENT-LIABILITIES> 302132
<BONDS> 0
0
0
<COMMON> 11735
<OTHER-SE> 655013
<TOTAL-LIABILITY-AND-EQUITY> 1103631
<SALES> 430866
<TOTAL-REVENUES> 434319
<CGS> 171042
<TOTAL-COSTS> 362091
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5110
<INCOME-PRETAX> 72228
<INCOME-TAX> 22390
<INCOME-CONTINUING> 49838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49838
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
