RNS No 9271h
PALL CORPORATION
26 May 1999
For More Information Contact:
John Adamovich, Pall Corporation
(516) 484-5400
Pall Corporation Announces Third Quarter Results
East Hills, NY (05/26/99) - - Pall Corporation (NYSE: PLL) today reported sales
and earnings for the third quarter and nine months of fiscal 1999, which ended
May 1, 1999. After a successful restructuring, earnings for quarter three, prior
to non-recurring charges, soared to 28 cents per share, an 87% improvement over
quarter two's 15 cents per share.
Sales for the quarter were up 3 1/2% at $299,896,000 compared to $289,171,000 in
last year's third quarter. Foreign exchange rates increased sales 1/2% or $2.5
million. In local currency, sales were up 3%.
Sales for the nine months grew 5 1/2% to $828,001,000 compared to $785,526,000
reported for the comparable period of the prior year. Foreign exchange added
$7.9 million or 1% to sales for the nine months.
Excluding non-recurring items, earnings for the third quarter amounted to
$35,174,000 or 28 cents per share, as compared to $34,947,000 or 28 cents in
last year's third quarter. This year's third quarter includes restructuring and
one-time charges of $89,433,000 or 51 cents per share (after pro forma tax
effect). The third quarter of fiscal 1998 included a charge of $27,000,000 or 22
cents per share to write off the in-process research and development related to
the acquisition of Rochem. Including the non-recurring items, the company
incurred a loss for this year's third quarter of $28,323,000 or 23 cents per
share, compared to last year's reported profit of $7,947,000 or 6 cents per
share.
Excluding the non-recurring items and the effect of adopting a new accounting
standard this year, earnings for the nine months amounted to $68,356,000 or 55
cents per share compared to $75,929,000 or 60 cents per share last year. After
non-recurring items and the adoption of the new accounting principle for
start-up costs, the company's earnings amounted to $1,112,000 or 1 cent per
share for the nine months compared to earnings of $53,907,000 or 43 cents per
share in the comparable period last year. The reported earnings for this year's
nine months include a charge of 51 cents per share (after pro forma tax effect)
related to the restructuring and one-time charges mentioned above. The earnings
this year also include a charge of 3 cents per share (after pro forma tax
effect) to write-off previously capitalized start-up costs pursuant to the
adoption of the AICPA's Statement of Position 98-5, "Reporting the Costs of
Start-Up Activities," retroactive to the beginning of this fiscal year. As SOP
98-5 requires retroactive restatement in the year of adoption, the prior
quarters of this fiscal year will be restated to include 1 cent in the first
quarter and 2 cents in the second quarter. The earnings for the nine months of
last year include 17 cents per share of net non-recurring charges.
Commenting on the results for the third quarter, Eric Krasnoff, Chairman and
CEO, said, "We announced our intention to restructure our operations on March 2.
This was substantially accomplished more quickly and decisively than expected.
So we are seeing some benefits of the restructuring even in this third quarter.
I am very proud of how the entire Pall organization has responded to this
challenge.
Sales came in about as expected, despite the intense restructuring effort and a
reduction in revenue from the sale of our Well Technology Division and its
Stratapac product line in March. We are pleased with the encouraging growth that
has continued in several areas of our business.
Looking at sales this quarter, Health Care's growth was again led by a strong
BioPharmaceuticals subsegment, which grew 14 1/2% in local currency. Within this
subsegment, Pharmaceuticals grew 17% and Food and Beverage was up 14%.
In the Medical area, the volume of blood filter sales continues to increase. The
comparative 5% pricing reduction based upon the continuing growth of units
shipped to blood banks is not letting this fully show through in the sales. We
have begun to receive orders based upon the decisions by the UK and Canada to
implement 100% filtration of their blood supplies but the incremental shipments
have not yet made an impact.
Sales in the Aeropower segment grew 4%, led by the Aerospace subsegment, which
increased 14%. Sales to the commercial aerospace sector were relatively flat,
while there was strong double-digit growth in Military sales, continuing a trend
that began in the first quarter. Revenues in the Industrial Hydraulics
subsegment declined 5 1/2%, somewhat offsetting this increase.
Fluid Processing, excluding Microelectronics, grew 5%. Included in the sales
last year were about $3.2 million in sales of Stratapac products, a business
that we sold during this quarter. Excluding Stratapac, sales grew 11%.
Microelectronics' sales were down 25 1/2%, a dramatic improvement from previous
quarters this year. We believe we are starting to see the beginning of the long
awaited upturn of the semiconductor market cycle.
By geography, Europe was again a strong performer, showing 11% growth. Sales in
Asia reduced 2 1/2%, due to the economic downturn in Japan. Outside of Japan,
sales in Asia increased 14%. Sales in the Western Hemisphere were down 1 1/2%,
largely due to reductions in Medical, Microelectronics and the Industrial
Process portion of Fluid Processing.
As mentioned previously, the restructuring and cost savings initiated in the
third quarter can already be seen in the numbers. Selling, General and
Administrative expenses and R&D costs were down sequentially nearly $3.8
million. Also, Cost of Sales improved sequentially by 1.7%. We expect these
improvements will continue in the fourth quarter as we get further benefits from
the restructuring.
Increased utilization of our Irish and Puerto Rico operations as well as sound
tax planning strategies have enabled us to reduce our full-year underlying
effective tax rate from 25% to 23%, which added one cent to our earnings in the
quarter. We expect to at least maintain this rate through fiscal year 2000.
Looking at the Balance Sheet, net debt reduced $26 million during the quarter.
Capital expenditure in the nine months was $51 million and depreciation and
amortization was $57 million. This reflects our decision to cut capital
expenditure substantially this year so that it comes in lower than depreciation
and amortization.
When we released our second quarter numbers, we said that we expected earnings
per share for the fiscal year to be down between 10% and 15% compared to the 92
cents we earned last year (before one-time charges). It now looks as if we will
do better than this with the earnings per share reduction being in the 5% to 10%
range before the effects of one-time charges."
PALL CORPORATION SALES BY MARKET FOR THE THIRD QUARTER AND NINE MONTHS OF
FISCAL 1999 COMPARED TO 1998 (000s omitted)
THIRD QUARTER ENDED EXCHANGE % CHANGE
MAY 1, MAY 2, % RATE IN LOCAL
1999 1999 CHANGE DIFFERENCE CURRENCY
Medical $ 68,362 $ 70,071 (2 1/2) $ 732 (3 1/2)
BioPharmaceuticals 90,006 77,993 15 1/2 617 14 1/2
Total Health Care 158,368 148,064 7 1,349 6
Aerospace 36,881 32,538 13 1/2 (138) 14
Industrial Hydraulics 32,471 34,224 (5) 181 (5 1/2)
Total Aeropower 69,352 66,762 4 43 4
Microelectronics 17,936 23,214 (22 1/2) 612 (25 1/2)
Industrial Process 54,240 51,131 6 499 5
Total
Fluid Processing 72,176 74,345 (3) 1,111 (4 1/2)
TOTAL $299,896 $289,171 3 1/2 $2,503 3
NINE MONTHS ENDED EXCHANGE % CHANGE
MAY 1, MAY 2, % RATE IN LOCAL
1999 1998 CHANGE DIFFERENCE CURRENCY
Medical $194,451 $187,253 4 $1,992 3
BioPharmaceuticals 243,407 214,292 13 1/2 2,304 12 1/2
Total Health Care 437,858 401,545 9 4,296 8
Aerospace 98,843 89,286 10 1/2 695 10
Industrial
Hydraulics 95,493 97,200 (2) 990 (3)
Total Aeropower 194,336 186,486 4 1,685 3 1/2
Microelectronics 43,836 68,461 (36) 695 (37)
Industrial Process 151,971 129,034 18 1,254 17
Total
Fluid Processing 195,807 197,495 (1) 1,949 (2)
TOTAL $828,001 $785,526 5 1/2 $7,930 4 1/2
PALL CORPORATION SALES BY GEOGRAPHIC REGION FOR THE THIRD QUARTER AND
NINE MONTHS OF FISCAL 1999 COMPARED TO 1998 (000s omitted)
THIRD QUARTER ENDED EXCHANGE % CHANGE
MAY 1, MAY 2, % RATE IN LOCAL
1999 1998 CHANGE DIFFERENCE CURRENCY
Asia $ 46,538 $ 45,099 3 $2,646 (2 1/2)
Europe 119,789 108,116 11 4 11
Western
Hemisphere 133,569 135,956 (2) (147) (1 1/2)
TOTAL $299,896 $289,171 3 1/2 $2,503 3
NINE MONTHS ENDED EXCHANGE % CHANGE
MAY 1, MAY 2, % RATE IN LOCAL
1999 1998 CHANGE DIFFERENCE CURRENCY
Asia $129,247 $132,635 (2 1/2) $ 394 (3)
Europe 331,501 279,309 18 1/2 8,185 16
Western
Hemisphere 367,253 373,582 (1 1/2) (649) (1 1/2)
TOTAL $828,001 $785,526 5 1/2 $7,930 4 1/2
PALL CORPORATION STATEMENTS OF OPERATIONS FOR THE THIRD QUARTER AND
NINE MONTHS
(Amounts in thousands, except per share data)
THIRD QUARTER ENDED NINE MONTHS ENDED
MAY 1, MAY 2, MAY 1, MAY 2,
1999 1998 1999 1998
REVENUES
Net sales $299,896 $289,171 $828,001 $785,526
COSTS AND EXPENSES
Cost of sales 159,529(a) 122,791 410,633(a) 343,786
Selling, general and
admin. expenses 103,502 101,630 306,073 290,243
Research and
development 13,452 15,271 43,421 44,026
Restructuring and other
charges, net 64,695(a) 27,000(b) 64,695(a) 19,222(c)
Interest expense, net 3,620 2,257 9,603 4,973
Total costs and 344,798 268,949 834,425 702,250
expenses
(Loss) earnings
before income taxes (44,902) 20,222 (6,424) 83,276
Income taxes (16,579) 12,275 (7,536) 29,369
Net (loss)earnings $ (28,323) $7,947 $1,112 $53,907
(Loss)earnings per share:
Basic $ (0.23) $ 0.06 $ 0.01 $ 0.43
Diluted $ (0.23) $ 0.06 $ 0.51 $ 0.43
Proforma earnings per share
excluding restructuring and
other charges, net:
Basic $ 0.28 $ 0.28 $ 0.55 $ 0.61
Diluted $ 0.28 $ 0.28 $ 0.55 $ 0.60
Average number of
shares outstanding:
Basic 124,515 124,186 124,380 125,373
Diluted 124,782 124,742 124,797 126,025
(a) During the third quarter of 1999, the Company announced and implemented a
plan to restructure its operations with targeted payroll and expense cost
reductions of over $50 million per annum. The restructuring included a global
work-force reduction of approximately 500 employees, the consolidation of
European inventory warehousing and distribution functions, the relocation and
consolidation of certain manufacturing and the discontinuance of certain
non-strategic product lines. As a result, the Company recorded a charge of
$43,912 in the third quarter of 1999.
Along with the restructuring, the Company performed a comprehensive review of
its business. Across all business lines, the review identified instances where
certain products have been superseded by our newer products and some excess
inventory that resulted from competitive conditions and adverse changes
in product demand. As a result, the Company wrote down inventory by $10,927,
which included an incremental reserve of approximately $3,900 in response to the
effects of current market conditions, shorter product life cycles, and our
technology advancements. The review also identified write-downs of $26,961 on
certain fixed and other assets, principally to provide for the impairment of
certain patents and licenses that are not fully recoverable due to lower than
anticipated market potential; and, to reflect further impairment of land and
building held for sale and write-off certain redundant fixed assets that will
no longer be used.
The Company continues the clean up of contaminated water at its Ann Arbor,
Michigan facility that began in fiscal 1998. Costs incurred during this year
indicate that the anticipated future costs for remediation will exceed the
estimate originally established. As a result, the reserve for future
environmental remediation costs has been increased.
A summary of the charges in fiscal 1999 are presented below.
Other
Restructuring Charges Total
Severance $18,243 $ - $18,243
Fixed asset write-offs 4,977 14,208 19,185
Other asset write-offs - 12,753 12,753
Lease termination costs 2,877 - 2,877
Environmental - 6,000 6,000
Other 4,004 1,633 5,637
Sub-totals 30,101 34,594 64,695
Inventory write-down 13,811 10,927 24,738*
Total pretax charges $43,912 $45,521 $89,433
Cash $25,124 $ 7,633 $32,757
Non-cash 18,788 37,888 56,676
Total $43,912 $45,521 $89,433
* Approximately $21,000 of inventory will be scrapped.
During the third quarter of 1999, the Company adopted the AICPA's Statement of
Position 98-5, "Reporting the Costs of Start-Up Activities," retroactive to the
beginning of the fiscal year. As a result, previously capitalized start-up costs
of $5,767 have been expensed. The effect of adopting this statement resulted in
a charge of $1,567 and $4,200 in the first and second quarters of fiscal 1999,
respectively.
Footnote (a) continued:
The accompanying statements of operations reflect the restructuring and other
charges and the adoption of SOP 98-5 in the following line items:
Three Months Ended Restructuring/
May 1, 1999: Other Charges
Cost of Sales $24,738
Restructuring and
other charges 64,695
$89,433
Nine Months Ended Restructuring/ Start-up
May 1, 1999: Other Charges Costs Total
Cost of Sales $24,738 $5,767 $30,505
Restructuring and
other charges 64,695 - 64,695
$89,433 $5,767 $95,200
(b) Represents a one-time charge of $27,000 to write off in-process research and
development related to the acquisition of Rochem.
(c) Represents a one-time charge of $27,000 in the third quarter to write off
in-process research and development related to the acquisition of Rochem, net of
$7,778 of other income recorded in the second quarter.
PALL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
MAY 2, AUG. 1,
1999 1998
Assets
Cash and short-term investments $ 117,101 $ 28,925
Accounts receivable, net 289,203 291,535
Inventories 201,570 227,254
Other current assets 63,455 54,775
Total current assets 671,329 602,489
Property, plant and equipment,net 504,276 520,592
Other assets 219,591 223,838
Total assets $1,395,196 $1,346,919
Liabilities and Stockholders' Equity
Short-term debt $ 303,635 $ 184,907
Accounts payable, income taxes
and other current liabilities 218,194 209,183
Total current liabilities 521,829 394,090
Long-term debt 103,496 111,469
Deferred taxes and other
non-current liabilities 77,733 75,745
Stockholders' equity 692,138 765,615
Total liabilities and
stockholders' equity $1,395,196 $1,346,919
With annual sales over $1 billion, Pall Corporation is based in East Hills, New
York, USA and operates directly in 30 countries. Pall Corporation provides
innovative solutions to complex filtration and separations problems in three
major markets: Health Care, Aeropower and Fluid Processing. The Company's
shares are listed on the New York Stock Exchange (PLL) and the London Stock
Exchange (0668260). Further information about Pall Corporation is available on
the Company's Web site at http://www.pall.com.
This release contains "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. In addition to foreign exchange
rates, such risks and uncertainties include, but are not limited to, regulatory
approval, market acceptance of new technologies, economic conditions and market
demand.
END
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