Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS. - ------------------ (a) General development of business.
Pall Corporation, incorporated in July 1946, and its subsidiaries (hereinafter collectively called "the Company" unless the context requires otherwise) is a leading supplier of fine filters mainly made by the Company using its proprietary filter media, and other fluid clarification equipment for the removal of solid, liquid and gaseous contaminants from a wide variety of liquids and gases. The Company's business is best analyzed by the following three principal markets, or industry segments, in which it sells its products:
(1) Health care. (2) Aeropower. (3) Fluid processing.
During the past five years, the Company has continued its development of fluid clarification products and of their sale in a wide variety of markets.
(b) Financial information about industry segments.
Reference is made to page 39 of the registrant's 1994 Annual Report to Shareholders.
(c) Narrative description of business.
1) The Company sells its products in three principal markets. The products sold are mainly filters made with proprietary Pall filter media produced by chemical film casting, melt-blowing of polymer fibers, papermaking and metallurgical processes. Metal and plastic housings and a wide variety of appurtenant devices, are also made.
(A) Health Care Market:
See the following sections of the registrant's 1994 Annual Report to Shareholders, which are incorporated herein by reference: Patient Protection, Hospital and Blood Bank - pages 12-14. BioSupport and OEM Diagnostics - page 15. Pharmaceutical, Biologicals and Bioprocessing - pages 16 and 17. Food and Beverage - pages 18 and 19.
Sales of Health Care products in fiscal 1994 were $351,849,000 or 50% of total sales. Sales in this market are made about equally through the Company's own personnel and through distributors. Backlog information is omitted, as it is not considered meaningful to an understanding of this segment of the Company's business.
The Company feels that safety, efficacy, ease of use and technical support, rather than price, are the principal competitive factors in this market, although economy of use is important.
(B) Aeropower Market:
See the following sections of the registrant's 1994 Annual Report to Shareholders, which are incorporated herein by reference: Airborne, Military Land and Marine - pages 22 and 23. Industrial and Mobile Fluid Power - pages 24 and 25.
Sales in fiscal 1994 were $179,297,000 or 26% of total sales. Backlog at July 30, 1994 was $48,448,000, a 14% decrease from the prior year backlog of $56,250,000. The backlog at July 30, 1994 is equal to about three months of sales. The Company's sales to aerospace and military customers are made principally through its own personnel; sales to industrial customers are made in about equal proportions through Company personnel and through distributors and manufacturers' representatives.
The Company believes that product performance and quality, and service to the customer, as well as price, are the principal competitive factors in this market segment.
(C) Fluid Processing Market:
See the following sections of the registrant's 1994 Annual Report to Shareholders, which are incorporated herein by reference: Microelectronics, Data Storage and Photographic Film - pages 28 and 29. Oil and Gas, Chemical and Petrochemical, and Power Generation - pages 30-32.
Sales in this market in fiscal 1994 were $169,702,000 or 24% of total sales. The Company's products are sold to customers in these markets in about equal proportions through its own personnel, and through distributors and manufacturers' representatives. Backlog information is omitted, as it is not considered material for an understanding of this segment of the Company's business.
The Company believes that performance and quality of product and service, as well as price, are determinative in most sales.
(D) The following comments relate to the three segments discussed above:
(i) Raw materials:
Most raw materials used by the Company are available from multiple sources of supply. A limited number of materials are proprietary products of major chemical companies. The Company believes that it could find satisfactory substitutes for these materials if they should become unavailable, and has in fact done so several times in the past.
(ii) Patents:
The Company owns a broad range of patents covering its filter media, filter designs and other products, but it considers these to be mainly defensive, and relies on its proprietary manufacturing methods and engineering skills. However, it does act against infringers when it believes such action is economically justified.
2) The following comments relate to the Company's business in general:
(a) With limited exceptions, research activities conducted by the Company are Company-sponsored. Such expenditures totalled $41,283,000 in 1994, $40,036,000 in 1993 and $34,787,000 in 1992.
(b) There was no one customer to whom sales were made totalling 10% or more of consolidated sales in fiscal 1994, 1993 or 1992.
(c) There is no material effect on the Company's capital expenditures, earnings or competitive position resulting from compliance with Federal, state or local environmental protection laws.
(d) At July 30, 1994, the Company employed approximately 6,200 persons.
(d) Financial information about foreign and domestic operations and export sales.
Reference is made to page 40 of the registrant's 1994 Annual Report to Shareholders.
ITEM 2.



ITEM 2. PROPERTIES. - -------------------
In the opinion of management, these premises are suitable and adequate to meet the Company's requirements.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS. - ------------------------- The Company had been one of several third-party defendants in an action brought by the City of Glen Cove, N.Y., involving potential environmental damages and hazardous waste contamination. The City sought from the primary defendants the cost of environ- mental clean-up, compensatory damages of $10 million, and punitive damages of $25 million. On December 30, 1993, the several parties in this matter agreed to settle for a total of $625,000, of which the Company's share was $200,000.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ----------------------------------------------------------- There were no matters submitted to a vote of shareholders during the fourth quarter of fiscal year 1994.
PART II -------
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. - ------------------------------------------------------------ Pall Corporation's Common Stock is listed on the New York and London Stock Exchanges. The table sets forth quarterly data relating to the Company's Common Stock prices and cash dividends declared per share for the past two fiscal years.
As of October 3, 1994, there were approximately 7,200 holders of record of the Company's Common Stock.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA. - -------------------------------- (In thousands, except per share data)
(a) Fiscal 1994 includes a pre-tax charge of $3,696 ($2,332 after taxes, 2 cents per share) due principally to the restructuring of the German operations and to the write-off of a bad debt in the Aerospace operations.
(b) Fiscal 1993 includes a pre-tax charge of $26,710 ($17,310 after taxes, 15 cents per share) representing the cost of downsizing and further integrating the military portion of the Aeropower business with the Industrial Fluid Power business, and also writing off certain excess corporate leasehold improvements.
(c) Fiscal 1992 includes (i) a pre-tax charge of $3,690 (2 cents per share) from the settlement of certain promissory notes received in connection with the sale of the air dryer business in a leveraged buy-out reported in fiscal 1988, and (ii) an increase in net earnings of $2,475 (2 cents per share) as a result of adopting the Financial Accounting Standards Board Statement No. 109 (Accounting for Income Taxes).
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - ------------------------------------------------------------------- Reference is made to pages 33 and 34 of the registrant's 1994 Annual Report to Shareholders.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. - ---------------------------------------------------- Reference is made to pages 35-38 and 41-47 of the registrant's 1994 Annual Report to Shareholders.
ITEM 9.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. - ------------------------------------------------------------- None.
PART III --------
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. - ----------------------------------------------------------- (a) Identification of directors:
Reference is made to "Election of Directors" on page 1 of the registrant's Proxy Statement for the 1994 annual meeting of shareholders, previously filed.
None of the persons listed in the section of the Proxy Statement referred to in the preceding paragraph has been involved in those legal proceedings required to be disclosed by Item 401(f) of Regulation S-K during the past five years.
(b) Identification of executive officers:
* Member of the Executive Committee of the Board of Directors.
None of the persons listed above is related.
Messrs. Krasnoff and Hayward-Surry are directors of Pall Corpor- ation. Mr. Williams is a nominee for director.
For more than the past five years, the principal occupation of each person listed above has been in the employ of the registrant.
Executive officers are elected by the Board of Directors annually, to serve until the next annual organizational meeting of the Board.
None of the above persons has been involved in those legal pro- ceedings required to be disclosed by Item 401(f) of Regulation S-K, during the past five years.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION. - -------------------------------- Reference is made to "Compensation and Other Benefits of Senior Management" on page 5 of the registrant's Proxy Statement for the 1994 annual meeting of shareholders, previously filed.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. - ------------------------------------------------------------- Reference is made to "Beneficial Ownership of Common Stock" on page 16 of the registrant's Proxy Statement for the 1994 annual meeting of shareholders, previously filed.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. - -------------------------------------------------------- None.
PART IV -------
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. - -------------------------------------------------------------------------- a. Certain documents filed as part of the Form 10-K:
(1) The following documents are incorporated by reference to the indicated pages of the 1994 Annual Report to Shareholders, filed as Exhibit 13 hereto.
(2) The following schedules are filed herewith:
Schedules not listed above have been omitted wither because they are not applicable or the required information is shown in the financial statements or in the notes thereto.
(3) Exhibits filed herewith:
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
b. Reports on Form 8-K:
The registrant filed no reports on Form 8-K during the three months ended July 30, 1994. Schedule I PALL CORPORATION AND SUBSIDIARIES MARKETABLE SECURITIES - OTHER INVESTMENTS JULY 30, 1994
(1) Amounts shown at cost as fair value is approximately equal to the carrying value at year end.
(2) Amounts shown at fair value as it is lower than cost.
PALL CORPORATION AND SUBSIDIARIES Schedule II
AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
NOTES 2 NOTES TO SCHEDULE II --------------------
A Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $99,000 loan secured by 10,000 shares, and $109,000 loan secured by 12,500 shares.
B Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $34,000 loan secured by 3,333 shares, $61,000 loan secured by 6,000 shares, and $46,000 loan secured by 5,666 shares.
C Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $58,000 loan secured by 5,846 shares, and $197,000 loan secured by 24,154 shares.
D Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $75,000 loan secured by 7,500 shares, and $63,000 loan secured by 7,500 shares.
E Represents an $86,000 non-interest bearing stock option loan payable on demand, secured by 8,500 shares of Pall Corporation common stock.
F Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $76,000 loan secured by 7,500 shares, $38,000 loan secured by 3,749 shares, and $38,000 loan secured by 3,750 shares.
Also includes a $13,000 9.22% stock option loan secured by 3,000 shares of Pall Corporation common stock, which loan is payable in January 1995.
G Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $41,000 loan secured by 4,000 shares, $30,000 loan secured by 3,000 shares, and $66,000 loan secured by 8,000 shares.
H Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $53,000 loan secured by 6,000 shares, and $59,000 loan secured by 6,000 shares.
I Represents non-interest bearing stock option loan payable on demand and secured by 15,000 shares of Pall Corporation common stock.
J Represents non-interest bearing stock option loan payable on demand and secured by 20,000 shares of Pall Corporation common stock.
K Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $98,000 loan secured by 10,000 shares, $19,000 loan secured by 7,500 shares, and $75,000 loan secured by 7,500 shares.
L Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $76,000 loan secured by 7,500 shares, $38,000 loan secured by 3,749 shares, and $38,000 loan secured by 3,750 shares.
Also includes a $7,000 9.08% stock option loan secured by 1,500 shares of Pall Corporation common stock, which was paid in full in September 1994.
M Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $99,000 loan secured by 12,000 shares, and $89,000 loan secured by 10,500 shares.
N Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $38,000 loan secured by 3,733 shares, $36,000 loan secured by 3,766 shares, and $33,000 loan secured by 3,750 shares.
O Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $134,000 loan secured by 15,000 shares, and $151,000 loan secured by 15,000 shares.
P Represents non-interest bearing stock option loan payable on demand and secured by 30,000 shares of Pall Corporation common stock.
Q Represents non-interest bearing stock option loan payable on demand and secured by 14,000 shares of Pall Corporation common stock.
R Represents non-interest bearing stock option loan payable on demand and secured by 15,000 shares of Pall Corporation common stock.
S Represents non-interest bearing stock option loan payable on demand and secured by 16,666 shares of Pall Corporation common stock.
T Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $122,000 loan secured by 12,000 shares, $76,000 loan secured by 7,500 shares, and $75,000 loan secured by 7,500 shares.
U Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $46,000 loan secured by 4,700 shares, $38,000 loan secured by 3,749 shares, and $38,000 loan secured by 3,750 shares.
V Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $131,000 loan secured by 13,292 shares, $96,000 loan secured by 7,407 shares, and $52,000 loan secured by 3,843 shares.
W Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $66,000 loan secured by 6,666 shares, and $64,000 loan secured by 7,500 shares.
X Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $50,000 loan secured by 5,000 shares, and $84,000 loan secured by 10,000 shares.
Y Represents non-interest bearing stock option loan payable on demand and secured by 15,000 shares of Pall Corporation common stock.
All number of shares shown above reflect the 3-for-2 stock split declared by the Board on November 22, 1991, and the 4-for-3 stock split declared by the Board on November 20, 1992.
SCHEDULE II
SCHEDULE II
Schedule V
PALL CORPORATION AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT YEAR ENDED JULY 30, 1994
NOTES:
(A) FOREIGN SUBSIDIARY ADDITIONS AND RETIREMENTS/ SALES/ WRITE OFFS ARE TRANSLATED AT WEIGHTED AVERAGE EXCHANGE RATES.
(B) REFLECTS THE EFFECT ON CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT OF CHANGES IN THE EXCHANGE RATES USED TO TRANSLATE FOREIGN CURRENCY FIXED ASSETS BETWEEN THE RESPECTIVE BALANCE SHEET DATES. Schedule V
PALL CORPORATION AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT YEARS ENDED JULY 31, 1993 AND AUGUST 1, 1992
NOTES: (A) FOREIGN SUBSIDIARY ADDITIONS AND RETIREMENTS ARE TRANSLATED AT WEIGHTED AVERAGE EXCHANGE RATES.
(B) PREDOMINANTLY DUE TO THE EFFECT ON CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT OF CHANGES IN THE EXCHANGE RATES USED TO TRANSLATE FOREIGN CURRENCY FIXED ASSETS BETWEEN THE RESPECTIVE BALANCE SHEET DATES.
Schedule VI
PALL CORPORATION AND SUBSIDIARIES ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEAR ENDED JULY 30,1994
NOTES:
(A) FOREIGN SUBSIDIARY ADDITIONS AND RETIREMENTS/ SALES/ WRITE OFFS ARE TRANSLATED AT WEIGHTED AVERAGE EXCHANGE RATES.
(B) REFLECTS THE EFFECT ON CONSOLIDATED ACCUMULATED DEPRECIATION AND AMORTIZATION OF CHANGES IN THE EXCHANGE RATES USED TO TRANSLATE FOREIGN CURRENCY AMOUNTS BETWEEN THE RESPECTIVE BALANCE SHEET DATES.
Schedule VI
PALL CORPORATION AND SUBSIDIARIES ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEARS ENDED JULY 31, 1993 AND AUGUST 1, 1992
NOTES: (A) FOREIGN SUBSIDIARY ADDITIONS AND RETIREMENTS ARE TRANSLATED AT WEIGHTED AVERAGE EXCHANGE RATES.
(B) PREDOMINANTLY DUE TO THE EFFECT ON CONSOLIDATED ACCUMULATED DEPRECIATION AND AMORTIZATION OF CHANGES IN THE EXCHANGE RATES USED TO TRANSLATE FOREIGN CURRENCY FIXED ASSETS BETWEEN THE RESPECTIVE BALANCE SHEET DATES.
Schedule VIII
PALL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JULY 30, 1994, JULY 31, 1993 AND AUGUST 1, 1992
Schedule IX
PALL CORPORATION AND SUBSIDIARIES SHORT-TERM BORROWINGS YEARS ENDED JULY 30, 1994 JULY 31, 1993 AND AUGUST 1, 1992
Schedule X
PALL CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION YEARS ENDED JULY 30, 1994, JULY 31, 1993, AND AUGUST 1, 1992
Amounts for taxes, other than payroll and income taxes, royalties and amortization of intangibles do not exceed one percent of sales. [KPMG PEAT MARKWICK LETTERHEAD]
Independent Auditors' Report on Schedules -----------------------------------------
The Board of Directors Pall Corporation:
Under date of September 7, 1994, we reported on the consolidated balance sheets of Pall Corporation and subsidiaries as of July 30, 1994 and July 31, 1993, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended July 30, 1994, as contained in the Company's fiscal 1994 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the Company's annual report on Form 10-K for fiscal year 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in the Income Taxes note to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" on a prospective basis in fiscal year 1992.
/s/ KPMG PEAT MARWICK LLP ------------------------- KPMG PEAT MARWICK LLP
Jericho, New York September 7, 1994
Pursuant to the requirements of Section 13 or 15(d) 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 authorised.
/s/ Jeremy Hayward-Surry ------------------------- PALL CORPORATION By: Jeremy Hayward-Surry President and Treasurer Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, and in the capacities and on the dates indicated.
EXHIBIT INDEX *************
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.