PLL-01/31/2013-Q2FY2013


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
R
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended January 31, 2013
or
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to

Commission File Number: 001- 04311
PALL CORPORATION
(Exact name of registrant as specified in its charter)

New York
 
11-1541330
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
   
25 Harbor Park Drive, Port Washington, NY
 
11050
(Address of principal executive offices)
 
(Zip Code)

(516) 484-5400
(Registrant’s telephone number, including area code)
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 þ    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer þ
Accelerated filer o
 
 
 
 
 
Non-accelerated filer o
Smaller reporting company o
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The number of shares of the registrant’s common stock outstanding as of March 1, 2013 was 111,292,279.




Table of Contents

 
 
Page No.
 
 
 
 
 
 
 
 
 


2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)

 
Jan 31, 2013
 
Jul 31, 2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
870,232

 
$
500,274

Accounts receivable
580,031

 
655,436

Inventory
404,651

 
364,766

Prepaid expenses
66,252

 
40,814

Other current assets
118,990

 
154,650

Assets held for sale
—

 
136,517

Total current assets
2,040,156

 
1,852,457

Property, plant and equipment
764,182

 
750,993

Goodwill
344,040

 
338,941

Intangible assets
143,812

 
151,144

Other non-current assets
160,903

 
254,357

Total assets
$
3,453,093

 
$
3,347,892

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Notes payable
$
234,964

 
$
204,940

Accounts payable
149,301

 
184,868

Accrued liabilities
295,965

 
380,466

Income taxes payable
94,987

 
57,422

Current portion of long-term debt
457

 
453

Dividends payable
27,804

 
23,979

Total current liabilities
803,478

 
852,128

Long-term debt, net of current portion
474,492

 
490,706

Income taxes payable – non-current
116,618

 
161,684

Deferred taxes and other non-current liabilities
354,932

 
333,339

Total liabilities
1,749,520

 
1,837,857

 
 
 
 
Stockholders’ equity:
 
 
 
Common stock, par value $.10 per share
12,796

 
12,796

Capital in excess of par value
282,399

 
271,489

Retained earnings
2,192,519

 
1,840,926

Treasury stock, at cost
(763,405
)
 
(552,215
)
Stock option loans
—

 
(54
)
Accumulated other comprehensive income/(loss):
 
 
 
Foreign currency translation
138,985

 
97,663

Pension liability adjustment
(159,881
)
 
(164,444
)
Unrealized investment gains
3,667

 
3,604

Unrealized gains/(losses) on derivatives
(3,507
)
 
270

 
(20,736
)
 
(62,907
)
Total stockholders’ equity
1,703,573

 
1,510,035

Total liabilities and stockholders’ equity
$
3,453,093

 
$
3,347,892


See accompanying notes to condensed consolidated financial statements.


3


PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
Jan 31, 2013
 
Jan 31, 2012
 
Jan 31, 2013
 
Jan 31, 2012
Net sales
$
662,455

 
$
640,047

 
$
1,290,055

 
$
1,291,309

Cost of sales
320,492

 
301,882

 
621,009

 
617,792

Gross profit
341,963

 
338,165

 
669,046

 
673,517

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
206,009

 
209,576

 
401,974

 
417,756

Research and development
23,399

 
20,050

 
45,974

 
39,571

Restructuring and other charges, net
4,399

 
5,156

 
8,673

 
28,140

Interest expense, net
6,017

 
5,386

 
5,449

 
11,331

Earnings from continuing operations before income taxes
102,139

 
97,997

 
206,976

 
176,719

Provision for income taxes
21,820

 
23,351

 
37,492

 
42,421

Net earnings from continuing operations
$
80,319

 
$
74,646

 
$
169,484

 
$
134,298

Earnings/(loss) from discontinued operations, net of income taxes
$
(3,549
)
 
$
10,083

 
$
246,758

 
$
19,886

Net earnings
$
76,770

 
$
84,729

 
$
416,242

 
$
154,184

 
 
 
 
 
 
 
 
Earnings per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.71

 
$
0.64

 
$
1.49

 
$
1.16

Diluted
$
0.70

 
$
0.63

 
$
1.48

 
$
1.14

Earnings/(loss) per share from discontinued operations:
 
 
 
 
 
 
 
Basic
$
(0.03
)
 
$
0.09

 
$
2.18

 
$
0.17

Diluted
$
(0.03
)
 
$
0.09

 
$
2.15

 
$
0.17

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.68

 
$
0.73

 
$
3.67

 
$
1.33

Diluted
$
0.67

 
$
0.72

 
$
3.63

 
$
1.31

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.250

 
$
0.210

 
$
0.500

 
$
0.385

 
 
 
 
 
 
 
 
Average shares outstanding:
 
 
 
 
 
 
 
Basic
112,420

 
116,196

 
113,398

 
115,997

Diluted
113,809

 
117,914

 
114,784

 
117,555


See accompanying notes to condensed consolidated financial statements.


4


PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
Jan 31, 2013
 
Jan 31, 2012
 
Jan 31, 2013
 
Jan 31, 2012
 
 
 
 
 
 
 
 
Net earnings
$
76,770

 
$
84,729

 
$
416,242

 
$
154,184

Other comprehensive income/(loss), net of income taxes:
 
 
 
 
 
 
 
Foreign currency translation
7,570

 
(41,848
)
 
41,322

 
(65,980
)
Pension liability adjustment
3,375

 
3,554

 
4,563

 
7,785

Unrealized investment gains/(losses)
(344
)
 
558

 
63

 
(5,590
)
Unrealized loss on derivatives
(1,825
)
 
—

 
(3,777
)
 
—

Total other comprehensive income/(loss), net of income taxes
$
8,776

 
$
(37,736
)
 
$
42,171

 
$
(63,785
)
Comprehensive income
$
85,546

 
$
46,993

 
$
458,413

 
$
90,399


See accompanying notes to condensed consolidated financial statements.


5


PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Six Months Ended
 
Jan 31, 2013
 
Jan 31, 2012
Operating activities:
 
 
 
Net cash provided by operating activities
$
89,382

 
$
203,983

 
 
 
 
Investing activities:
 
 
 
Capital expenditures
(42,403
)
 
(94,285
)
Acquisition of businesses
—

 
(25,669
)
Purchases of retirement benefit assets
(28,166
)
 
(22,388
)
Proceeds from retirement benefit assets
30,322

 
21,862

Proceeds from sale of assets
542,088

 
19,856

Other
(1,094
)
 
(9,094
)
Net cash provided/(used) by investing activities
500,747

 
(109,718
)
 
 
 
 
Financing activities:
 
 
 
Notes payable
30,024

 
(74,987
)
Dividends paid
(52,634
)
 
(40,274
)
Long-term borrowings
15

 
84

Repayments of long-term debt
(239
)
 
(266
)
Net proceeds from stock plans
24,623

 
16,662

Purchase of treasury stock
(250,000
)
 
—

Excess tax benefits from stock-based compensation
arrangements
8,426

 
2,057

Net cash used by financing activities
(239,785
)
 
(96,724
)
Cash flow for period
350,344

 
(2,459
)
Cash and cash equivalents at beginning of year
500,274

 
557,766

Effect of exchange rate changes on cash and cash
equivalents
19,614

 
(27,403
)
Cash and cash equivalents at end of period
$
870,232

 
$
527,904

Supplemental disclosures:
 
 
 
Interest paid
$
22,612

 
$
11,913

Income taxes paid (net of refunds)
103,876

 
50,485


See accompanying notes to condensed consolidated financial statements.


6

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)

NOTE 1 – BASIS OF PRESENTATION
The condensed consolidated financial information of Pall Corporation and its subsidiaries (hereinafter collectively called the “Company”) included herein is unaudited. Such information reflects all adjustments of a normal recurring nature, which are, in the opinion of Company management, necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows as of the dates and for the periods presented herein. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2012 (“2012 Form 10-K”). Certain prior year amounts have been reclassified to conform to the current year presentation.
As discussed in Note 16, Discontinued Operations, on August 1, 2012, the Company sold certain assets of its blood collection, filtration and processing product line, which was a component of the Company’s Life Sciences segment, and met the criteria for discontinued operations and held for sale presentation during the third quarter of fiscal year 2012. As such, it has been reported as a discontinued operation in the Company’s condensed consolidated financial statements for all periods presented.

NOTE 2 – BALANCE SHEET DETAILS
The following tables provide details of selected balance sheet items:
 
Jan 31, 2013
 
Jul 31, 2012
Accounts receivable:
 
 
 
Billed
$
515,468

 
$
584,449

Unbilled
78,525

 
82,720

Total
593,993

 
667,169

Less: Allowances for doubtful accounts
(13,962
)
 
(11,733
)
 
$
580,031

 
$
655,436

Unbilled receivables principally relate to revenues accrued for long-term contracts recorded under the percentage-of-completion method of accounting.
 
Jan 31, 2013
 
Jul 31, 2012
Inventory:
 
 
 
Raw materials and components
$
98,959

 
$
86,659

Work-in-process
105,627

 
92,427

Finished goods
200,065

 
185,680

 
$
404,651

 
$
364,766

Property, plant and equipment:
 
 
 
Property, plant and equipment
$
1,658,387

 
$
1,608,718

Less: Accumulated depreciation and amortization
(894,205
)
 
(857,725
)
 
$
764,182

 
$
750,993




7

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

NOTE 3 – GOODWILL AND INTANGIBLE ASSETS
The following table presents goodwill, allocated by reportable segment.
 
Jan 31, 2013
 
Jul 31, 2012
Life Sciences
$
181,756

 
$
178,359

Industrial
162,284

 
160,582

 
$
344,040

 
$
338,941

Intangible assets, net, consist of the following:
 
Jan 31, 2013
 
Gross
 
Accumulated
Amortization
 
Net
Patents and unpatented technology
$
126,714

 
$
69,079

 
$
57,635

Customer-related intangibles
95,222

 
18,484

 
76,738

Trademarks
13,278

 
5,788

 
7,490

Other
4,496

 
2,547

 
1,949

 
$
239,710

 
$
95,898

 
$
143,812

 
 
 
 
 
 
 
Jul 31, 2012
 
Gross
 
Accumulated
Amortization
 
Net
Patents and unpatented technology
$
125,938

 
$
65,262

 
$
60,676

Customer-related intangibles
93,901

 
13,323

 
80,578

Trademarks
13,104

 
5,269

 
7,835

Other
5,179

 
3,124

 
2,055

 
$
238,122

 
$
86,978

 
$
151,144

The changes in both goodwill and intangible assets relate to the impact of changes in foreign exchange rates used to translate the goodwill and intangible assets contained in the financial statements of foreign subsidiaries using the rates at each respective balance sheet date.
Amortization expense from continuing operations for intangible assets for the three and six months ended January 31, 2013 was $4,857 and $10,135, respectively. Amortization expense from continuing operations for intangible assets for the three and six months ended January 31, 2012 was $4,552 and $8,699, respectively (excluded is amortization expense included in discontinued operations for the three and six months ended January 31, 2012 of $46 and $91, respectively). Amortization expense is estimated to be approximately $9,410 for the remainder of fiscal year 2013, $17,950 in fiscal year 2014, $15,879 in fiscal year 2015, $14,706 in fiscal year 2016, $14,625 in fiscal year 2017 and $14,417 in fiscal year 2018.

NOTE 4 – TREASURY STOCK
On October 16, 2008, the board authorized an expenditure of $350,000 to repurchase shares. On September 26, 2011, the board authorized an additional expenditure of $250,000 to repurchase shares. On January 17, 2013, the board authorized an additional expenditure of $250,000 to repurchase shares. The Company’s shares may be purchased over time, as market and business conditions warrant. There is no time restriction on these authorizations. Total repurchases during the six months ended January 31, 2013 were 3,971 shares at an aggregate cost of $250,000, with an average price per share of $62.95. As of January 31, 2013, $331,873 remains to be expended under the current board repurchase authorizations. Repurchased shares are held in treasury for use in connection with the Company’s stock plans and for general corporate purposes.

8

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

During the six months ended January 31, 2013, 1,000 shares were issued under the Company’s stock-based compensation plans. At January 31, 2013, the Company held 16,741 treasury shares.
NOTE 5 – CONTINGENCIES AND COMMITMENTS
With respect to the matters described in Note 14, Contingencies and Commitments, to the Company’s consolidated financial statements included in the 2012 Form 10-K, under the heading Shareholder Derivative Lawsuits and Other Proceedings, the Company has assessed the ultimate resolution of these matters and has reflected appropriate contingent liabilities and any related insurance recoveries of an equal amount in the condensed consolidated financial statements as of January 31, 2013 and July 31, 2012.
With respect to the matters previously disclosed in Note 14, Contingencies and Commitments, to the Company’s consolidated financial statements included in the Company’s 2012 Form 10-K under the heading Federal Securities Class Actions, on December 14, 2012, the Company and the lead plaintiff presented a proposed settlement agreement to the U.S. District Court for the Eastern District of New York. The Court deferred its approval of the settlement pending the resolution of an objection brought by two class action members to plaintiffs’ attorney fees under the proposed settlement.
The Company and its subsidiaries are subject to certain other legal actions that arise in the normal course of business. Other than those legal proceedings and claims discussed in the 2012 Form 10-K, the Company did not have any other current legal proceedings and claims that would individually or in the aggregate have a reasonably possible material adverse effect on its financial condition or operating results. As such, any reasonably possible loss or range of loss, other than those legal proceedings discussed in this note and in the 2012 Form 10-K, is immaterial. However, the results of legal proceedings cannot be predicted with certainty. If the Company failed to prevail in several of these legal matters in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.
Environmental Matters:
With respect to the environmental matters at the Company’s Glen Cove, New York site, previously disclosed in Note 14, Contingencies and Commitments to the Company’s consolidated financial statements included in the Company’s 2012 Form 10-K, the New York State Department of Environmental Conservation (“NYSDEC”) provided the Company with its proposed remedial action plan (“PRAP”) for the operable unit related to the deep groundwater zone at the site (“OU-2”) on January 16, 2013. The NYSDEC is accepting public comments on the PRAP until March 14, 2013; the Company will submit its written comments on the PRAP on or before March 11, 2013. On February 28, 2013, the NYSDEC presented its findings on its remedial investigation and feasibility study, along with its summary of the proposed remedy at a public meeting attended by Company representatives.
On January 29, 2013, the Company and the State entered into another Tolling Agreement extending the statute of limitation exclusion period concerning OU-2 through January 31, 2014.
The Company’s condensed consolidated balance sheet at January 31, 2013 includes liabilities for environmental matters of approximately $10,863, which relate primarily to the environmental proceedings discussed in the 2012 Form 10-K. In the opinion of management, the Company is in substantial compliance with applicable environmental laws and its current accruals for environmental remediation are adequate. However, as regulatory standards under environmental laws are becoming increasingly stringent, there can be no assurance that future developments, additional information and experience gained will not cause the Company to incur material environmental liabilities or costs beyond those accrued in its condensed consolidated financial statements.


9

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

NOTE 6 – RESTRUCTURING AND OTHER CHARGES, NET
The following tables summarize the restructuring and other charges (“ROTC”) recorded for in the three and six months ended January 31, 2013 and January 31, 2012:
 
Three Months Ended Jan 31, 2013
 
Six Months Ended Jan 31, 2013
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
Severance benefits and other employment contract obligations
$
1,916

 
$
1,451

 
$
3,367

 
$
5,195

 
$
1,451

 
$
6,646

(Gain)/loss on sale and impairment of assets, net
(49
)
 
—

 
(49
)
 
(6
)
 
—

 
(6
)
Professional fees and other costs, net of receipt of insurance claim payments
345

 
887

 
1,232

 
788

 
1,586

 
2,374

Reversal of excess restructuring reserves
(151
)
 
—

 
(151
)
 
(341
)
 
—

 
(341
)
 
$
2,061

 
$
2,338

 
$
4,399

 
$
5,636

 
$
3,037

 
$
8,673

 
 
 
 
 
 
 
 
 
 
 
 
Cash
$
1,705

 
$
1,825

 
$
3,530

 
$
5,237

 
$
2,524

 
$
7,761

Non-cash
356

 
513

 
869

 
399

 
513

 
912

 
$
2,061

 
$
2,338

 
$
4,399

 
$
5,636

 
$
3,037

 
$
8,673

 
Three Months Ended Jan 31, 2012
 
Six Months Ended Jan 31, 2012
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
Severance benefits and other employment contract obligations
$
2,894

 
$
862

 
$
3,756

 
$
28,302

 
$
8,832

 
$
37,134

(Gain)/loss on sale and impairment of assets, net
—

 
—

 
—

 
(1,515
)
 
(9,196
)
 
(10,711
)
Professional fees and other costs, net of receipt of insurance claim payments
591

 
809

 
1,400

 
1,366

 
397

 
1,763

Reversal of excess restructuring reserves
—

 
—

 
—

 
(46
)
 
—

 
(46
)
 
$
3,485

 
$
1,671

 
$
5,156

 
$
28,107

 
$
33

 
$
28,140

 
 
 
 
 
 
 
 
 
 
 
 
Cash
$
3,485

 
$
1,302

 
$
4,787

 
$
28,107

 
$
(2,504
)
 
$
25,603

Non-cash
—

 
369

 
369

 
—

 
2,537

 
2,537

 
$
3,485

 
$
1,671

 
$
5,156

 
$
28,107

 
$
33

 
$
28,140


(1) Restructuring:
Restructuring charges recorded in the three and six months ended January 31, 2013 reflect the expenses incurred in connection with the Company’s structural cost improvement initiatives impacting both segments as well as the Corporate Services Group.

10

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

Restructuring charges recorded in the three and six months ended January 31, 2012 reflect the expenses incurred in connection with the Company’s cost reduction initiatives, primarily in the Industrial segment. Restructuring charges in the six months ended ended January 31, 2012 also includes a gain on the divestiture of a non-strategic asset group.
(2) Other (Gains) / Charges:
Severance benefits and other employment contract obligations:
In the three and six months ended January 31, 2013 and January 31, 2012, the Company recorded charges related to certain employment contract obligations.
Gain on sale of assets:
The six months ended January 31, 2012 includes a gain of $9,196 on the sale of the Company’s investment in Satair A/S.
Professional fees and other:
In the three and six months ended January 31, 2013 and January 31, 2012, the Company recorded settlement related costs as well as legal and other professional fees, related to the Federal Securities Class Actions, Shareholder Derivative Lawsuits and Other Proceedings (see Note 14, Contingencies and Commitments in the 2012 Form 10-K) which pertain to matters that had been under audit committee inquiry as discussed in Note 2, Audit Committee Inquiry and Restatement, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2007 (“2007 Form 10-K”). The receipt of insurance claim payments partly offset the costs discussed above in the six months ended January 31, 2013 and the three and six months ended January 31, 2012.
The three and six months ended January 31, 2013 also includes a loss related to a fire at a manufacturing facility.
The following table summarizes the activity related to restructuring liabilities recorded for the Company’s structural cost improvement initiatives and Industrial cost reduction initiatives which began in fiscal year 2012:
 
Severance
 
Other
 
Total
 
 
 
 
 
 
Original charge
$
61,852

 
$
3,448

 
$
65,300

Utilized
(27,365
)
 
(2,798
)
 
(30,163
)
Translation
(123
)
 
(47
)
 
(170
)
Balance at Jul 31, 2012
$
34,364

 
$
603

 
$
34,967

Additions
5,195

 
788

 
5,983

Utilized
(19,009
)
 
(949
)
 
(19,958
)
Reversal of excess reserves
(246
)
 
(19
)
 
(265
)
Translation
402

 
18

 
420

Balance at Jan 31, 2013
$
20,706

 
$
441

 
$
21,147

Excluded from the table above are restructuring liabilities relating to restructuring plans initiated in fiscal years 2009 and 2010. At January 31, 2013, the balance of these liabilities was $366.

NOTE 7 – INCOME TAXES
The Company’s effective tax rate on continuing operations for the six months ended January 31, 2013 and January 31, 2012 was 18.1% and 24.0%, respectively. For the six months ended January 31, 2013, the effective tax rate varied from the U.S. federal statutory rate primarily due to the benefits of foreign operations and a net tax benefit of $7,757 primarily from the resolution of a U.S. tax audit partly offset by the establishment of deferred tax liabilities for the repatriation of foreign earnings. For the six months ended January 31, 2012, the effective tax rate varied from the U.S. federal statutory rate primarily due to the benefits of foreign operations.

11

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

During the six months ended January 31, 2013, the Company reached a final agreement with the Internal Revenue Service (“IRS”) resolving the outstanding tax positions for fiscal years ended 2006 through 2008. As a result, the Company reversed $10,193 of previously recorded liabilities related to tax and penalties, as well as $6,704 related to interest ($4,268 net of income tax cost) that were accrued but not assessed as part of the IRS agreement.
At January 31, 2013 and July 31, 2012, the Company had gross unrecognized income tax benefits of $180,063 and $194,829, respectively. During the six months ended January 31, 2013, the amount of gross unrecognized tax benefits decreased by $14,766, primarily due to the settlement of the IRS income tax examinations for fiscal years ended 2006 through 2008, partially offset by tax positions taken during the current period and the impact of foreign currency translation. As of January 31, 2013, the amount of net unrecognized income tax benefits that, if recognized, would impact the effective tax rate was $128,970.
At January 31, 2013 and July 31, 2012, the Company had liabilities of $17,769 and $25,314, respectively, for potential payment of interest and penalties.
Due to the potential resolution of tax examinations and the expiration of various statutes of limitation, the Company believes that it is reasonably possible that the gross amount of unrecognized tax benefits may decrease within the next twelve months by a range of zero to $74,526.

NOTE 8 – COMPONENTS OF NET PERIODIC PENSION COST
Net periodic pension benefit cost for the Company’s defined benefit pension plans includes the following components (included in the table below is net periodic benefit cost included in discontinued operations for the three and six months ended January 31, 2012 of $184 and $367, respectively):
 
Three Months Ended
 
U.S. Plans
 
Foreign Plans
 
Total
 
Jan 31, 2013
 
Jan 31, 2012
 
Jan 31, 2013
 
Jan 31, 2012
 
Jan 31, 2013
 
Jan 31, 2012
Service cost
$
2,647

 
$
2,231

 
$
1,161

 
$
1,181

 
$
3,808

 
$
3,412

Interest cost
2,618

 
3,051

 
4,048

 
4,481

 
6,666

 
7,532

Expected return on plan assets
(2,384
)
 
(2,303
)
 
(4,118
)
 
(3,855
)
 
(6,502
)
 
(6,158
)
Amortization of prior service cost/(credit)
393

 
374

 
(15
)
 
(34
)
 
378

 
340

Amortization of actuarial loss
2,411

 
1,546

 
1,412

 
1,297

 
3,823

 
2,843

Loss due to curtailments and settlements
17

 
—

 
—

 
—

 
17

 
—

Net periodic benefit cost
$
5,702

 
$
4,899

 
$
2,488

 
$
3,070

 
$
8,190

 
$
7,969

 
Six Months Ended
 
U.S. Plans
 
Foreign Plans
 
Total
 
Jan 31, 2013
 
Jan 31, 2012
 
Jan 31, 2013
 
Jan 31, 2012
 
Jan 31, 2013
 
Jan 31, 2012
Service cost
$
5,295

 
$
4,462

 
$
2,350

 
$
2,391

 
$
7,645

 
$
6,853

Interest cost
5,235

 
6,647

 
8,066

 
9,116

 
13,301

 
15,763

Expected return on plan assets
(4,767
)
 
(4,606
)
 
(8,221
)
 
(7,819
)
 
(12,988
)
 
(12,425
)
Amortization of prior service cost/(credit)
786

 
1,031

 
(32
)
 
(67
)
 
754

 
964

Amortization of actuarial loss
4,822

 
5,000

 
2,812

 
2,632

 
7,634

 
7,632

Loss due to curtailments and settlements
33

 
—

 
—

 
—

 
33

 
—

Net periodic benefit cost
$
11,404

 
$
12,534

 
$
4,975

 
$
6,253

 
$
16,379

 
$
18,787



12

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

NOTE 9 – STOCK–BASED PAYMENT
The Company currently has four stock-based employee and director compensation award types (Restricted Stock Unit, Stock Option Plans, Management Stock Purchase Plan (“MSPP”), and Employee Stock Purchase Plan (“ESPP”)), which are more fully described in Note 15, Common Stock, to the consolidated financial statements included in the 2012 Form 10-K.
The detailed components of stock-based compensation expense recorded in the condensed consolidated statements of earnings for the three and six months ended January 31, 2013 and January 31, 2012 are reflected in the table below (excluded from the table below is stock-based compensation expense included in discontinued operations for the three and six months ended and January 31, 2012 of $181 and $331, respectively):
 
Three Months Ended
 
Six Months Ended
 
Jan 31, 2013
 
Jan 31, 2012
 
Jan 31, 2013
 
Jan 31, 2012
Restricted stock units
$
4,609

 
$
4,637

 
$
7,917

 
$
9,339

Stock options
1,544

 
1,321

 
2,678

 
3,195

ESPP
302

 
1,414

 
690

 
2,565

MSPP
937

 
1,111

 
1,787

 
2,104

      Total
$
7,392

 
$
8,483

 
$
13,072

 
$
17,203


NOTE 10 – EARNINGS PER SHARE
The condensed consolidated statements of earnings present basic and diluted earnings per share. Basic earnings per share is determined by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share considers the potential effect of dilution on basic earnings per share assuming potentially dilutive shares that meet certain criteria, such as those issuable upon exercise of stock options, were outstanding. The treasury stock method reduces the dilutive effect of potentially dilutive securities as it assumes that cash proceeds (from the issuance of potentially dilutive securities) are used to buy back shares at the average share price during the period. Employee stock options and restricted stock units aggregating 1,254 and 829 shares were not included in the computation of diluted shares for the three months ended January 31, 2013 and January 31, 2012, respectively, because their effect would have been antidilutive. For the six months ended January 31, 2013 and January 31, 2012, 1,175 and 1,339 antidilutive shares, respectively, were excluded. The following is a reconciliation between basic shares outstanding and diluted shares outstanding:

 
Three Months Ended
 
Six Months Ended
 
Jan 31, 2013
 
Jan 31, 2012
 
Jan 31, 2013
 
Jan 31, 2012
Basic shares outstanding
112,420

 
116,196

 
113,398

 
115,997

Effect of stock plans
1,389

 
1,718

 
1,386

 
1,558

Diluted shares outstanding
113,809

 
117,914

 
114,784

 
117,555



13

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

NOTE 11 – FAIR VALUE MEASUREMENTS
The Company records certain of its financial assets and liabilities at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
The current authoritative guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). Authoritative guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
•
Level 1: Use of observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
•
Level 2: Use of inputs other than quoted prices included in Level 1, which are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
•
Level 3: Use of inputs that are unobservable.
The following table presents, for each of these hierarchy levels, the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of January 31, 2013:
 
Fair Value Measurements
 
As of
 
 
 
 
 
 
 
Jan 31, 2013
 
Level 1
 
Level 2
 
Level 3
Financial assets carried at fair value
 
 
 
 
 
 
 
Money market funds
$
5,380

 
$
5,380

 
$
—

 
$
—

Available-for-sale securities:
 
 
 
 
 
 
 
Equity securities
173

 
173

 
—

 
—

Debt securities:
 
 
 
 
 
 
 
Corporate
32,098

 
—

 
32,098

 
—

U.S. Treasury
8,966

 
—

 
8,966

 
—

Federal Agency
25,141

 
—

 
25,141

 
—

Mortgage-backed
6,136

 
—

 
6,136

 
—

Municipal government
1,002

 
—

 
1,002

 
—

Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
2,551

 
—

 
2,551

 
—

Financial liabilities carried at fair value
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
5,504

 
—

 
5,504

 
—



14

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

The following table presents, for each of these hierarchy levels, the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of July 31, 2012:
 
Fair Value Measurements
 
As of
 
 
 
 
 
 
 
Jul 31, 2012
 
Level 1
 
Level 2
 
Level 3
Financial assets carried at fair value
 
 
 
 
 
 
 
Money market funds
$
4,684

 
$
4,684

 
$
—

 
$
—

Available-for-sale securities:
 
 
 
 
 
 
 

Equity securities
206

 
206

 
—

 
—

Debt securities:
 
 
 
 
 
 
 
Corporate
32,378

 
—

 
32,378

 
—

U.S. Treasury
8,610

 
—

 
8,610

 
—

Federal Agency
27,231

 
—

 
27,231

 
—

Mortgage-backed
6,392

 
—

 
6,392

 
—

Municipal government
1,004

 
—

 
1,004

 
—

Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
3,778

 
—

 
3,778

 
—

Financial liabilities carried at fair value
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
1,457

 
—

 
1,457

 
—


The Company’s money market funds and equity securities are valued using quoted market prices and, as such, are classified within Level 1 of the fair value hierarchy.
The fair value of the Company’s investments in debt securities are valued utilizing third party pricing services and verified by management. The pricing services use inputs to determine fair value which are derived from observable market sources including reportable trades, benchmark curves, credit spreads, broker/dealer quotes, bids, offers, and other industry and economic events. These investments are included in Level 2 of the fair value hierarchy.
The fair values of the Company’s foreign currency forward contracts are valued using pricing models, with all significant inputs derived from or corroborated by observable market data such as yield curves, currency spot and forward rates, and currency volatilities. These investments are included in Level 2 of the fair value hierarchy.


15

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

NOTE 12 – INVESTMENT SECURITIES
The following is a summary of the Company’s available-for-sale investment securities by category which are classified within other non-current assets in the Company’s condensed consolidated balance sheets. Contractual maturity dates of debt securities held by the trust at January 31, 2013 range from 2013 to 2044.
 
Cost/
Amortized
Cost Basis
 
Fair Value
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Net Unrealized
Holding
Gains/(Losses)
January 31, 2013
 
 
 
 
 
 
 
 
 
Equity securities
$
174

 
$
173

 
$
—

 
$
(1
)
 
$
(1
)
Debt securities:
 
 
 
 
 
 
 
 
 
Corporate
30,061

 
32,098

 
2,039

 
(2
)
 
2,037

U.S. Treasury
8,449

 
8,966

 
520

 
(3
)
 
517

Federal agency
23,500

 
25,141

 
1,681

 
(40
)
 
1,641

Mortgage-backed
5,796

 
6,136

 
361

 
(21
)
 
340

Municipal government
1,000

 
1,002

 
2

 
—

 
2

 
$
68,980

 
$
73,516

 
$
4,603

 
$
(67
)
 
$
4,536

 
 
 
 
 
 
 
 
 
 
July 31, 2012
 
 
 
 
 
 
 
 
 
Equity securities
$
212

 
$
206

 
$
—

 
$
(6
)
 
$
(6
)
Debt securities:
 
 
 
 
 
 
 
 
 
Corporate
30,548

 
32,378

 
1,838

 
(8
)
 
1,830

U.S. Treasury
8,049

 
8,610

 
562

 
(1
)
 
561

Federal agency
25,454

 
27,231

 
1,777

 
—

 
1,777

Mortgage-backed
6,129

 
6,392

 
290

 
(27
)
 
263

Municipal government
1,000

 
1,004

 
4

 
—

 
4

 
$
71,392

 
$
75,821

 
$
4,471

 
$
(42
)
 
$
4,429

The following table shows the gross unrealized losses and fair value of the Company’s available-for-sale investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
 
Less than 12 months
 
12 months or greater
 
Total
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
January 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Corporate
$
766

 
$
(2
)
 
$
—

 
$
—

 
$
766

 
$
(2
)
U.S. Treasury
1,080

 
(3
)
 
—

 
—

 
1,080

 
(3
)
Mortgage-backed
—

 
—

 
1,509

 
(21
)
 
1,509

 
(21
)
Federal agency
1,920

 
(40
)
 
—

 
—

 
1,920

 
(40
)
Equity securities
32

 
(1
)
 
—

 
—

 
32

 
(1
)
 
$
3,798

 
$
(46
)
 
$
1,509

 
$
(21
)
 
$
5,307

 
$
(67
)

16

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

 
Less than 12 months
 
12 months or greater
 
Total
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
July 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed
$
—

 
$
—

 
$
1,504

 
$
(27
)
 
$
1,504

 
$
(27
)
U.S. Treasury
589

 
(1
)
 
—

 
—

 
589

 
(1
)
Corporate
—

 
—

 
462

 
(8
)
 
462

 
(8
)
Equity securities
27

 
(6
)
 
—

 
—

 
27

 
(6
)
 
$
616

 
$
(7
)
 
$
1,966

 
$
(35
)
 
$
2,582

 
$
(42
)
The following table shows the proceeds and gross gains and losses from the sale of available-for-sale investments for the three and six months ended January 31, 2013 and January 31, 2012:
 
Three Months Ended
 
Six Months Ended
 
Jan 31, 2013
 
Jan 31, 2012
 
Jan 31, 2013
 
Jan 31, 2012
Proceeds from sales
$
6,689

 
$
5,180

 
$
12,286

 
$
21,227

Realized gross gains on sales
160

 
115

 
352

 
9,478

Realized gross losses on sales
3

 
—

 
5

 
16


NOTE 13 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company manages certain financial exposures through a risk management program that includes the use of foreign exchange and interest rate derivative financial instruments. Derivatives are executed with counterparties with a minimum credit rating of “A” by Standard & Poors and Moody’s Investor Services, in accordance with the Company’s policies. The Company does not utilize derivative instruments for trading or speculative purposes.
Foreign Exchange Related:
a. Derivatives Not Designated as Hedging Instruments
The risk management objective of holding foreign exchange derivatives is to mitigate volatility to earnings and cash flows due to changes in foreign exchange rates. The Company and its subsidiaries conduct transactions in currencies other than their functional currencies. These transactions include non-functional intercompany and external sales as well as intercompany and external purchases. The Company uses foreign exchange forward contracts, matching the notional amounts and durations of the receivables and payables resulting from the aforementioned underlying foreign currency transactions, to mitigate the exposure to earnings and cash flows caused by the changes in fair value of these receivables and payables from fluctuating foreign exchange rates. The notional amount of foreign currency forward contracts entered into during the three and six months ended January 31, 2013 was $616,719 and $1,223,486. The notional amount of foreign currency forward contracts outstanding as of January 31, 2013 was $331,353.
b. Cash Flow Hedges
The Company uses foreign exchange forward contracts for cash flow hedging on its future transactional exposure to the Euro due to changes in market rates to exchange Euros for British Pounds. The hedges cover a British subsidiary (British Pound functional) with Euro revenues and a Swiss subsidiary (Euro functional) with British Pound expenses. The probability of the occurrence of these transactions is high and our assessment is based on observable facts including the frequency and amounts of similar past transactions. The objective of the cash flow hedges is to lock the British Pound equivalent amount of Euro sales for the British subsidiary and the Euro equivalent amount of British Pound expenses for the Swiss subsidiary at the agreed upon exchange rates in the foreign exchange forward contracts. The notional amount of foreign currency forward contracts outstanding as of January 31, 2013 was $36,238 and cover certain monthly transactional exposures through July 2013.

17

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

c. Net Investment Hedges
The risk management objective of designating the Company’s foreign currency loan as a hedge of a portion of its net investment in a wholly owned Japanese subsidiary is to mitigate the change in the fair value of the Company’s net investment due to changes in foreign exchange rates. The Company uses a JPY loan outstanding to hedge its equity of the same amount in the Japanese wholly owned subsidiary. The hedge of net investment consists of a JPY 9 billion loan.
Interest Rate Related:
As of January 31, 2013, there are no existing interest rate related derivatives.
The fair values of the Company’s derivative financial instruments included in the condensed consolidated balance sheets are presented as follows:
 
Asset Derivatives
 
Liability Derivatives
January 31, 2013
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
—

 
Other current liabilities
 
$
3,472

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
2,551

 
Other current liabilities
 
$
2,032

Total derivatives
 
 
$
2,551

 
 
 
$
5,504

Nonderivative instruments designated as hedging instruments
 
 
 
 
 
 
 
Net investment hedge
 
 
 
 
Long-term debt, net of current portion
 
$
98,820

 
Asset Derivatives
 
Liability Derivatives
July 31, 2012
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
270

 
Other current liabilities
 
$
—

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
3,508

 
Other current liabilities
 
$
1,457

Total derivatives
 
 
$
3,778

 
 
 
$
1,457

Nonderivative instruments designated as hedging instruments
 
 
 
 
 
 
 
Net investment hedge
 
 
 
 
Long-term debt, net of current portion
 
$
115,129


18

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

The amounts of the gains and losses related to the Company’s derivative financial instruments designated as hedging instruments for the three and six months ended January 31, 2013 and January 31, 2012 are presented as follows:
 
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)
 
Location of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion) (a)
 
Three Months Ended
 
 
 
Three Months Ended
 
Jan 31, 2013
 
Jan 31, 2012
 
 
 
Jan 31, 2013
 
Jan 31, 2012
Derivatives in cash flow hedging relationships
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
(1,825
)
 
$
—

 
Net sales
 
$
(296
)
 
$
—

 
 
 
 
 
Cost of sales
 
(170
)
 
—

Total derivatives
$
(1,825
)
 
$
—

 
 
 
$
(466
)
 
$
—

 
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)
 
Location of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion) (a)
 
Six Months Ended
 
 
 
Six Months Ended
 
Jan 31, 2013
 
Jan 31, 2012
 
 
 
Jan 31, 2013
 
Jan 31, 2012
Derivatives in cash flow hedging relationships
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
(3,777
)
 
$
—

 
Net sales
 
$
(387
)
 
$
—

 
 
 
 
 
Cost of sales
 
(170
)
 
—

Total derivatives
$
(3,777
)
 
$
—

 
 
 
$
(557
)
 
$
—

(a)
There were no gains or losses recognized in earnings related to the ineffective portion of the hedging relationship or related to the amount excluded from the assessment of hedge effectiveness for the three and six months ended January 31, 2013 and January 31, 2012.
The amounts of the gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments for the three and six months ended January 31, 2013 and January 31, 2012 are presented as follows:
 
 
 
Amount of Gain or (Loss) Recognized in
Earnings on Derivatives
 
 
 
Three Months Ended
 
Six Months Ended
 
Location of Gain or (Loss) Recognized in Earnings on Derivatives
 
Jan 31, 2013
 
Jan 31, 2012
 
Jan 31, 2013
 
Jan 31, 2012
Derivatives not designated as hedging relationships
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
Selling, general and administrative expenses
 
$
(7,388
)
 
$
4,747

 
$
(9,826
)
 
$
6,162


19

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

The amounts of the gains and losses related to the Company’s nonderivative financial instruments designated as hedging instruments for the three and six months ended January 31, 2013 and January 31, 2012 are presented as follows:
 
Amount of Gain or (Loss)
Recognized in OCI on Derivatives
(Effective Portion)
 
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Earnings
(Effective Portion)
 
Amount of Gain or (Loss) Reclassified from
Accumulated OCI into Earnings
(Effective Portion) (b)
 
Three Months Ended
 
 
 
Three Months Ended
 
Jan 31, 2013
 
Jan 31, 2012
 
 
 
Jan 31, 2013
 
Jan 31, 2012
Nonderivatives designated as hedging relationships
 
 
 
 
 
 
 
 
 
Net investment hedge
$
9,100

 
$
513

 
N/A
 
$
—

 
$
—

 
Amount of Gain or (Loss)
Recognized in OCI on Derivatives
(Effective Portion)
 
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Earnings
(Effective Portion)
 
Amount of Gain or (Loss) Reclassified from
Accumulated OCI into Earnings
(Effective Portion) (b)
 
Six Months Ended
 
 
 
Six Months Ended
 
Jan 31, 2013
 
Jan 31, 2012
 
 
 
Jan 31, 2013
 
Jan 31, 2012
Nonderivatives designated as hedging relationships
 
 
 
 
 
 
 
 
 
Net investment hedge
$
10,437

 
$
(1,336
)
 
N/A
 
$
—

 
$
—

(b)
There were no gains or losses recognized in earnings related to the ineffective portion of the hedging relationship or related to the amount excluded from the assessment of hedge effectiveness for the three and six months ended January 31, 2013 and January 31, 2012.

NOTE 14 – COMPONENTS OF OTHER COMPREHENSIVE INCOME
 
Three Months Ended
 
Six Months Ended
 
Jan 31, 2013
 
Jan 31, 2012
 
Jan 31, 2013
 
Jan 31, 2012
Unrealized translation adjustment
$
12,661

 
$
(40,736
)
 
$
47,164

 
$
(65,670
)
Income taxes
(5,091
)
 
(1,112
)
 
(5,842
)
 
(310
)
Unrealized translation adjustment, net
$
7,570

 
$
(41,848
)
 
$
41,322

 
$
(65,980
)
 
 
 
 
 
 
 
 
Pension liability adjustment
$
4,900

 
$
7,113

 
$
6,886

 
$
13,367

Income taxes
(1,525
)
 
(3,559
)
 
(2,323
)
 
(5,582
)
Pension liability adjustment, net
$
3,375

 
$
3,554

 
$
4,563

 
$
7,785

 
 
 
 
 
 
 
 
Change in unrealized investment gains/(losses)
$
(481
)
 
$
812

 
$
107

 
$
(8,794
)
Income taxes
137

 
(254
)
 
(44
)
 
3,204

Change in unrealized investment gains/(losses), net
$
(344
)
 
$
558

 
$
63

 
$
(5,590
)
 
 
 
 
 
 
 
 
Change in unrealized gains/(losses) on derivatives
$
(1,967
)
 
$
—

 
$
(4,089
)
 
$
—

Income taxes
142

 
—

 
312

 
—

Change in unrealized gains/(losses) on derivatives, net
$
(1,825
)
 
$
—

 
$
(3,777
)
 
$
—


20

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

Unrealized investment gains on available-for-sale securities, net of related income taxes, consist of the following:
 
Three Months Ended
 
Six Months Ended
 
Jan 31, 2013
 
Jan 31, 2012
 
Jan 31, 2013
 
Jan 31, 2012
Unrealized gains/(losses) arising during the period
$
(308
)
 
$
778

 
$
470

 
$
403

Income taxes
75

 
(242
)
 
(174
)
 
(270
)
Net unrealized gains/(losses) arising during the period
(233
)
 
536

 
296

 
133