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Pall Corporation Reports Third Quarter Results

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Pall Corporation (NYSE:PLL) today reported financial results for the third quarter of fiscal year 2015 which ended April 30, 2015.

  • Sales in the quarter were flat; up 11% in local currency
  • Diluted EPS in the quarter of $0.89 up 11%; pro forma diluted EPS of $0.92, up 14%
  • Free cash flow in the nine months of $321 million, up 10%

Third Quarter and Nine Months Sales and Earnings Overview

Third quarter sales were $681.1 million compared to $682.4 million last year. Sales in local currency (“LC”) were up 11%, and about 9% excluding acquisitions. Diluted EPS were $0.89 in the quarter, compared to $0.80 last year. Pro forma diluted EPS(1) were $0.92, a 14% increase compared to $0.81 a year earlier, including a headwind of approximately $0.15 from foreign currency translation. Excluding the impact of foreign currency translation, pro forma diluted EPS increased by 32%.

Sales in the nine months were $2.1 billion, an increase of 3% year over year. Sales in LC were up 10%, and about 7% excluding acquisitions. Diluted EPS were $2.47 in the nine months, compared to $2.17 last year. Pro forma diluted EPS(1) were $2.69, a 15% increase compared to $2.33 a year earlier, including a headwind of approximately $0.30 from foreign currency translation.

Larry Kingsley, Pall Chairman and CEO, said, “We delivered yet another solid quarter, with 9% organic LC revenue growth and 14% pro forma EPS growth. Both Life Sciences and Industrial performed very well, and we continue to convert strongly to the bottom line. Our performance is all the more impressive when you consider the significant, ongoing headwinds we have been facing due to foreign currency translation.”

Life Sciences – Third Quarter Highlights

(Dollar Amounts in Millions)

Sales:

APR. 30, 2015 APR. 30, 2014

%
CHANGE

% CHANGE IN
LC

BioPharmaceuticals $ 244 $ 236 4 16
Food & Beverage 42 46 (10 ) 5
Medical 52 56 (8 ) 4
Total Consumables 338 338 - 13
Systems 26 31 (14 ) (2 )
Total Life Sciences segment $ 364 $ 369 (1 ) 11
Gross profit $ 202 $ 202
% of sales 55.4 54.9
Segment profit $ 94 $ 88
% of sales 25.8 24.0

Industrial – Third Quarter Highlights

(Dollar Amounts in Millions)

Sales:

APR. 30, 2015 APR. 30, 2014

%
CHANGE

% CHANGE IN
LC

Process Technologies $ 134 $ 137 (2 ) 9
Aerospace 55 54 2 9
Microelectronics 79 75 6 14
Total Consumables 268 266 1 10
Systems 49 47 2 12
Total Industrial segment $ 317 $ 313 1 11
Gross profit $ 153 $ 146
% of sales 48.4 46.4
Segment profit $ 57 $ 49
% of sales 17.9 15.7

Conference Call Information / Outlook

In light of the announced transaction with Danaher Corporation, the Company will no longer hold conference calls for its quarterly and annual earnings, and will no longer provide annual earnings guidance. The transaction, which is expected to close by the end of calendar 2015, is subject to Pall Corporation shareholder approval and other customary closing conditions, including regulatory approvals.

About Pall Corporation

Pall Corporation (NYSE:PLL) is a filtration, separation and purification leader providing solutions to meet the critical fluid management needs of customers across the broad spectrum of life sciences and industry. Pall works with customers to advance health, safety and environmentally responsible technologies. The Company’s engineered products enable process and product innovation and minimize emissions and waste. Pall Corporation is an S&P 500 company serving customers worldwide. Follow us on Twitter @PallCorporation or visit www.pall.com.

Forward-Looking Statements

The matters discussed in this press release contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Results for the third quarter of fiscal year 2015 are preliminary until our Form 10-Q is filed with the Securities and Exchange Commission on or before June 9, 2015. Forward-looking statements are those that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. All statements regarding future performance, earnings projections, earnings guidance, management’s expectations about our future cash needs and effective tax rate, and other future events or developments are forward-looking statements. Forward-looking statements are those that use terms such as “may,” “will,” “expect,” “believe,” “intend,” “should,” “could,” “anticipate,” “estimate,” “forecast,” “project,” “plan,” “predict,” “potential,” and similar expressions. Forward-looking statements contained in this and other written and oral reports are based on management’s assumptions and assessments in light of past experience and trends, current conditions, expected future developments and other relevant factors.

Our forward-looking statements are subject to risks and uncertainties and are not guarantees of future performance, and actual results, developments and business decisions may differ materially from those envisaged by our forward-looking statements. Such risks and uncertainties include, but are not limited to, those discussed in Part I-Item 1A.-Risk Factors in the 2014 Form 10-K, and other reports we file with the Securities and Exchange Commission, including: the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement with Danaher; the outcome of any legal proceedings that may be instituted against us related to the Merger Agreement; the inability to complete the transaction due to the failure to obtain the Required Vote or the failure to satisfy other conditions to completion of the transaction, including the receipt of all regulatory approvals related to the transaction; the disruption of management’s attention from our ongoing business operations due to the transaction; the effect of the announcement of the transaction on our relationships with our customers, operating results and business generally; the impact of disruptions in the supply of raw materials and key components for our products from suppliers, including limited or single source suppliers; the impact of terrorist acts, conflicts and wars or natural disasters; the extent to which special U.S. and foreign government laws and regulations, such as the Foreign Corrupt Practices Act and the U.K. Bribery Act, and regulations and procurement policies and practices, including regulations on import-export control, may expose us to liability or impair our ability to compete in international markets; the impact of a significant disruption in, or breach in security of, our information technology systems or we fail to implement, manage or integrate new systems, software and technologies successfully; the impact of economic, political, social and regulatory instability in emerging markets, and other risks characteristic of doing business in emerging markets; fluctuations in foreign currency exchange rates and interest rates; our ability to successfully complete or integrate acquisitions; product defects and unanticipated use or inadequate disclosure with respect to our products; our ability to develop innovative and competitive new products; the impact of global and regional economic conditions and legislative and political developments; our ability to comply with a broad array of regulatory requirements; the loss of one or more members of our senior management team and our ability to recruit and retain qualified management personnel; changes in the demand for our products and business relationships with key customers and suppliers; changes in product mix and product pricing, particularly with systems products and associated hardware and devices for our consumable filtration products; our ability to deliver our backlog on time; increases in manufacturing and operating costs and/or our ability to achieve the savings anticipated from our structural cost improvement initiative; the impact of environmental, health and safety laws and regulations, and violations; our ability to enforce patents or protect proprietary products and manufacturing techniques; costs and outcomes of pending or future litigation and the availability of insurance or indemnification rights; changes in our effective tax rate; the impact of certain risks associated with potential labor disruptions; our ability to compete effectively in domestic and global markets; and the effect of the restrictive covenants in our debt facilities. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We make these statements as of the date of this disclosure and undertake no obligation to update them, whether as a result of new information, future developments or otherwise.

Management uses certain non-GAAP measurements to assess the Company’s current and future financial performance. The non-GAAP measurements do not replace the presentation of the Company’s GAAP financial results. These measurements provide supplemental information to assist management in analyzing the Company’s financial position and results of operations. The Company has chosen to provide this information to facilitate meaningful comparisons of past, present and future operating results and as a means to emphasize the results of ongoing operations. Reconciliations of the non-GAAP financial measures used throughout this release to the most directly comparable GAAP measures appear in the accompanying tables at the end of this document and are also available on Pall’s website at www.pall.com/investor.

PALL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands)
APR. 30, 2015 JUL. 31, 2014
Assets:
Cash and cash equivalents $ 1,094,504 $ 964,110
Accounts receivable 547,295 615,713
Inventories 385,994 404,878
Other current assets 154,937 152,522
Total current assets 2,182,730 2,137,223
Property, plant and equipment 725,260 805,327
Other assets 832,383 907,930
Total assets $ 3,740,373 $ 3,850,480
Liabilities and Stockholders’ Equity:
Short-term debt $ 800,752 $ 512,898
Accounts payable, income taxes and other current liabilities 491,797 584,748
Total current liabilities 1,292,549 1,097,646
Long-term debt, net of current portion 373,472 373,793
Deferred taxes and other non-current liabilities 439,795 483,684
Total liabilities 2,105,816 1,955,123
Stockholders’ equity 1,634,557 1,895,357
Total liabilities and stockholders’ equity $ 3,740,373 $ 3,850,480
PALL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
THIRD QUARTER ENDED NINE MONTHS ENDED
APR. 30, 2015 APR. 30, 2014 APR. 30, 2015 APR. 30, 2014
Net sales $ 681,145 $ 682,445 $ 2,051,431 $ 1,989,193
Cost of sales(2) 325,747 334,371 993,607 971,146
Gross profit 355,398 348,074 1,057,824 1,018,047
% of sales 52.2 % 51.0 % 51.6 % 51.2 %
Selling, general and administrative expenses 197,683 201,045 592,173 592,228
% of sales 29.0 % 29.5 % 28.9 % 29.8 %
Research and development 24,025 26,644 73,260 74,890
Operating profit 133,690 120,385 392,391 350,929
% of sales 19.6 % 17.6 % 19.1 % 17.6 %
Restructuring and other charges (“ROTC”)(3) 14,131 11,542 34,905 29,910
Interest expense, net(5) 1,270 4,747 14,210 15,919
Earnings before income taxes 118,289 104,096 343,276 305,100
Provision for income taxes(4) 22,112 15,405 74,427 61,230
Net earnings $ 96,177 $ 88,691 $ 268,849 $ 243,870
Average shares outstanding:
Basic 107,162 110,183 107,502 110,946
Diluted 108,557 111,466 108,812 112,215
Earnings per share:
Basic $ 0.90 $ 0.80 $ 2.50 $ 2.20
Diluted $ 0.89 $ 0.80 $ 2.47 $ 2.17
Pro forma diluted earnings per share(1) $ 0.92 $ 0.81 $ 2.69 $ 2.33
PALL CORPORATION
RECONCILIATION OF PRO FORMA EARNINGS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
THIRD QUARTER ENDED NINE MONTHS ENDED
APR. 30, 2015 APR. 30, 2014 APR. 30, 2015 APR. 30, 2014
Net earnings as reported $ 96,177 $ 88,691 $ 268,849 $ 243,870
Discrete items:
Cost of sales adjustment, after pro forma tax effect(2) 1,419 1,419
ROTC, after pro forma tax effect(3) 11,250 10,272 31,049 26,055
Tax adjustments(4) (4,402 ) (9,090 ) (4,402 ) (9,090 )
Interest adjustments, after pro forma tax effect(5) (2,648 ) (1,138 ) (2,648 ) (1,138 )
Total Discrete Items 4,200 1,463 23,999 17,246
Pro forma net earnings(1) $ 100,377 $ 90,154 $ 292,848 $ 261,116
THIRD QUARTER ENDED NINE MONTHS ENDED
APR. 30, 2015 APR. 30, 2014 APR. 30, 2015 APR. 30, 2014
Diluted earnings per share as reported $ 0.89 $ 0.80 $ 2.47 $ 2.17
Discrete items:
Cost of sales adjustment, after pro forma tax effect(2) 0.01 0.01
ROTC, after pro forma tax effect(3) 0.10 0.09 0.29 0.24
Tax adjustments(4) (0.04 ) (0.08 ) (0.04 ) (0.08 )
Interest adjustments, after pro forma tax effect(5) (0.03 ) (0.01 ) (0.03 ) (0.01 )
Total discrete items 0.03 0.01 0.22 0.16
Pro forma diluted earnings per share(1) $ 0.92 $ 0.81 $ 2.69 $ 2.33
(1) Pro forma earnings measures exclude the items described in the footnotes below as they are deemed to be non-recurring in nature and/or not considered by management to be indicative of underlying operating performance. The pro forma tax effects disclosed were calculated using applicable entity-specific tax rates.
(2) Cost of sales in the quarter and nine months ended April 30, 2014 includes a purchase accounting adjustment of $2,165 ($1,419 after pro forma tax effect of $746) related to the step up of acquired inventory.
(3) ROTC in the quarter and nine months ended April 30, 2015 of $14,131 ($11,250 after pro forma tax effect of $2,881) and $34,905 ($31,049 after pro forma tax effect of $3,856), respectively, includes severance costs related to the Company’s structural cost improvement initiative as well as an impairment of a building held for sale. The nine months ended April 30, 2015 also includes the impairments of assets related to the exit of an immaterial product line and a redundant software project.
ROTC in the quarter and the nine months ended April 30, 2014 of $11,542 ($10,272 after pro forma tax effect of $1,270) and $29,910 ($26,055 after pro forma tax effect of $3,855), respectively primarily includes severance costs related to the Company’s structural cost improvement initiative. The nine months ended April 30, 2014 also includes an adjustment to environmental reserves.
(4) Provision for income taxes in the quarter and the nine months ended April 30, 2015, includes a net benefit of $4,402 related to the resolution of U.S. and Italian tax audits, partly offset by the cost of repatriation of foreign earnings.
Provision for income taxes in the quarter and the nine months ended April 30, 2014, includes a net benefit of $9,090 related to the resolution of foreign tax audits, partly offset by additional tax costs related to the Blood divestiture.
(5) Interest expense, net, in the quarter and the nine months ended April 30, 2015 includes the reversal of accrued interest of $4,170 ($2,648 after pro forma tax effect of $1,522) related to the resolution of tax audits as described in footnote (4) above.
Interest expense, net, in the quarter and the nine months ended April 30, 2014 includes the reversal of accrued interest of $1,478 ($1,138 after pro forma tax effect of $340) related to the resolution of foreign tax audits as described in footnote (4) above.
PALL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
NINE MONTHS ENDED
APR. 30, 2015 APR. 30, 2014
Net cash provided by operating activities $ 360,397 $ 342,164
Investing activities:
Acquisitions of businesses (9,382 ) (195,262 )
Capital expenditures (39,330 ) (50,301 )
Proceeds from sale of assets 2,213 5,618
Other (9,790 ) (2,665 )
Net cash provided/(used) by investing activities (56,289 ) (242,610 )
Financing activities:
Dividends paid (95,321 ) (88,596 )
Notes payable and long-term borrowings/(repayments) 299,462 130,520
Purchase of treasury stock (304,105 ) (250,000 )
Other 10,463 25,141
Net cash used by financing activities (89,501 ) (182,935 )
Cash flow for period 214,607 (83,381 )
Cash and cash equivalents at beginning of year 964,110 936,886
Effect of exchange rate changes on cash (84,213 ) 17,369
Cash and cash equivalents at end of period $ 1,094,504 $ 870,874

Free cash flow:

Net cash provided by operating activities $ 360,397 $ 342,164
Less capital expenditures 39,330 50,301
Free cash flow $ 321,067 $ 291,863
PALL CORPORATION
SUMMARY SEGMENT PROFIT BY SEGMENT
(Unaudited)
(Dollar Amounts in Thousands)
THIRD QUARTER ENDED NINE MONTHS ENDED
APR. 30, 2015 APR. 30, 2014 APR. 30, 2015 APR. 30, 2014

Life Sciences

Sales $ 364,321 $ 368,835 $ 1,075,241 $ 1,041,011
Cost of sales 162,391 166,394 477,819 456,428
Gross profit 201,930 202,441 597,422 584,583
% of sales 55.4 % 54.9 % 55.6 % 56.2 %
Selling, general and administrative expenses 93,529 97,391 283,964 284,441
% of sales 25.7 26.4 26.4 27.3
Research and development 14,490 16,711 44,185 47,902
Segment profit $ 93,911 $ 88,339 $ 269,273 $ 252,240
% of sales 25.8 % 24.0 % 25.0 % 24.2 %

Industrial

Sales $ 316,824 $ 313,610 $ 976,190 $ 948,182
Cost of sales 163,356 167,977 515,788 514,718
Gross profit 153,468 145,633 460,402 433,464
% of sales 48.4 % 46.4 % 47.2 % 45.7 %
Selling, general and administrative expenses 87,376 86,350 259,599 259,753
% of sales 27.6 % 27.5 % 26.6 % 27.4 %
Research and development 9,535 9,933 29,075 26,988
Segment profit $ 56,557 $ 49,350 $ 171,728 $ 146,723
% of sales 17.9 % 15.7 % 17.6 % 15.5 %

Consolidated:

Segment profit $ 150,468 $ 137,689 $ 441,001 $ 398,963
Corporate services group 16,778 17,304 48,610 48,034
Operating profit 133,690 120,385 392,391 350,929
% of sales 19.6 % 17.6 % 19.1 % 17.6 %
ROTC 14,131 11,542 34,905 29,910
Interest expense, net 1,270 4,747 14,210 15,919
Earnings before income taxes $ 118,289 $ 104,096 $ 343,276 $ 305,100
PALL CORPORATION
SUPPLEMENTAL SEGMENT SALES INFORMATION BY PRODUCT/MARKET AND REGION
(Unaudited)
(Dollar Amounts in Thousands)
EXCHANGE % CHANGE
RATE IN LOCAL
THIRD QUARTER ENDED APR. 30, 2015 APR. 30, 2014 % CHANGE IMPACT CURRENCY

Life Sciences

|————– Increase/(Decrease) ————-|
By Product/Market:
BioPharmaceuticals $ 244,531 $ 235,724 3.7 $ (28,890 ) 16.0
Food & Beverage 41,616 46,097 (9.7 ) (6,898 ) 5.2
Medical 51,761 56,212 (7.9 ) (6,696 ) 4.0
Total Consumables 337,908 338,033 - (42,484 ) 12.5
Systems 26,413 30,802 (14.2 ) (3,732 ) (2.1 )
Total Life Sciences $ 364,321 $ 368,835 (1.2 ) $ (46,216 ) 11.3
By Region:
Americas $ 119,740 $ 108,612 10.2 $ (1,831 ) 11.9
Europe 173,909 188,073 (7.5 ) (38,238 ) 12.8
Asia 70,672 72,150 (2.0 ) (6,147 ) 6.5
Total Life Sciences $ 364,321 $ 368,835 (1.2 ) $ (46,216 ) 11.3

Industrial

By Product/Market:
Process Technologies $ 134,452 $ 137,348 (2.1 ) $ (15,170 ) 8.9
Aerospace 55,277 54,088 2.2 (3,440 ) 8.6
Microelectronics 78,519 74,403 5.5 (6,166 ) 13.8
Total Consumables 268,248 265,839 0.9 (24,776 ) 10.2
Systems 48,576 47,771 1.7 (5,163 ) 12.5
Total Industrial $ 316,824 $ 313,610 1.0 $ (29,939 ) 10.6
By Region:
Americas $ 119,704 $ 107,087 11.8 $ (2,321 ) 13.9
Europe 88,958 88,635 0.4 (19,521 ) 22.4
Asia 108,162 117,888 (8.3 ) (8,097 ) (1.4 )
Total Industrial $ 316,824 $ 313,610 1.0 $ (29,939 ) 10.6
PALL CORPORATION
SUPPLEMENTAL SEGMENT SALES INFORMATION BY PRODUCT/MARKET AND REGION
(Unaudited)
(Dollar Amounts in Thousands)
EXCHANGE % CHANGE
RATE IN LOCAL
NINE MONTHS ENDED APR. 30, 2015 APR. 30, 2014 % CHANGE IMPACT CURRENCY

Life Sciences

|————– Increase/(Decrease) ————-|
By Product/Market:
BioPharmaceuticals $ 702,557 $ 650,467 8.0 $ (50,810 ) 15.8
Food & Beverage 127,969 133,720 (4.3 ) (13,329 ) 5.7
Medical 159,198 168,589 (5.6 ) (11,638 ) 1.3
Total Consumables 989,724 952,776 3.9 (75,777 ) 11.8
Systems 85,517 88,235 (3.1 ) (6,373 ) 4.1
Total Life Sciences $ 1,075,241 $ 1,041,011 3.3 $ (82,150 ) 11.2
By Region:
Americas $ 339,815 $ 308,701 10.1 $ (5,329 ) 11.8
Europe 526,763 536,828 (1.9 ) (64,438 ) 10.1
Asia 208,663 195,482 6.7 (12,383 ) 13.1
Total Life Sciences $ 1,075,241 $ 1,041,011 3.3 $ (82,150 ) 11.2

Industrial

By Product/Market:
Process Technologies $ 410,780 $ 402,090 2.2 $ (27,574 ) 9.0
Aerospace 172,424 166,181 3.8 (5,823 ) 7.3
Microelectronics 227,910 222,795 2.3 (12,684 ) 8.0
Total Consumables 811,114 791,066 2.5 (46,081 ) 8.4
Systems 165,076 157,116 5.1 (11,760 ) 12.6
Total Industrial $ 976,190 $ 948,182 3.0 $ (57,841 ) 9.1
By Region:
Americas $ 362,729 $ 315,505 15.0 $ (5,154 ) 16.6
Europe 272,346 284,136 (4.1 ) (34,716 ) 8.1
Asia 341,115 348,541 (2.1 ) (17,971 ) 3.0
Total Industrial $ 976,190 $ 948,182 3.0 $ (57,841 ) 9.1
PALL CORPORATION
SUPPLEMENTAL ORGANIC SALES GROWTH INFORMATION BY SEGMENT
(Unaudited)
(Dollar Amounts in Thousands)
EXCHANGE % CHANGE
RATE IN LOCAL
THIRD QUARTER ENDED APR. 30, 2015 APR. 30, 2014 % CHANGE IMPACT CURRENCY
|————– Increase/(Decrease) ————-|
Life Sciences:
Organic $ 364,321 $ 368,835 (1.2 ) $ (46,216 ) 11.3
Acquisitions
Total Life Sciences Sales $ 364,321 $ 368,835 (1.2 ) $ (46,216 ) 11.3
Industrial:
Organic $ 303,450 $ 313,610 (3.2 ) $ (29,939 ) 6.3
Acquisitions 13,375
Total Industrial Sales $ 316,825 $ 313,610 1.0 $ (29,939 ) 10.6
Total Pall:
Organic $ 667,771 $ 682,445 (2.2 ) $ (76,155 ) 9.0
Acquisitions 13,375
Total Pall Sales $ 681,146 $ 682,445 (0.2 ) $ (76,155 ) 11.0
EXCHANGE % CHANGE
RATE IN LOCAL
NINE MONTHS ENDED APR. 30, 2015 APR. 30, 2014 % CHANGE IMPACT CURRENCY
|————– Increase/(Decrease) ————-|
Life Sciences:
Organic $ 1,049,342 $ 1,041,011 0.8 $ (82,150 ) 8.7
Acquisitions 25,899
Total Life Sciences Sales $ 1,075,241 $ 1,041,011 3.3 $ (82,150 ) 11.2
Industrial:
Organic $ 930,823 $ 948,182 (1.8 ) $ (57,841 ) 4.3
Acquisitions 45,368
Total Industrial Sales $ 976,191 $ 948,182 3.0 $ (57,841 ) 9.1
Total Pall:
Organic $ 1,980,165 $ 1,989,193 (0.5 ) $ (139,991 ) 6.6
Acquisitions 71,267 $

Total Pall Sales $ 2,051,432 $ 1,989,193 3.1 $ (139,991 ) 10.2

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