PLL-04/30/2014-Q3FY2014


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 April 30, 2014
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 May 27, 2014 was 109,681,236.




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)

 
Apr 30, 2014
 
Jul 31, 2013
Assets:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
870,874

 
$
936,886

Accounts receivable
564,782

 
566,335

Inventory
428,648

 
381,047

Prepaid expenses
80,676

 
72,808

Other current assets
82,368

 
92,953

Total current assets
2,027,348

 
2,050,029

Property, plant and equipment
799,197

 
774,948

Goodwill
445,030

 
342,492

Intangible assets
211,586

 
137,243

Other non-current assets
163,104

 
168,127

Total assets
$
3,646,265

 
$
3,472,839

 
 
 
 
Liabilities and Stockholders’ Equity:
 
 
 
Current liabilities:
 
 
 
Notes payable
$
304,959

 
$
169,967

Accounts payable
160,049

 
157,176

Accrued liabilities
307,930

 
312,829

Income taxes payable
57,009

 
60,732

Current portion of long-term debt
406

 
420

Dividends payable
30,159

 
27,947

Total current liabilities
860,512

 
729,071

Long-term debt, net of current portion
463,666

 
467,319

Income taxes payable – non-current
135,366

 
141,843

Deferred taxes and other non-current liabilities
365,551

 
319,650

Total liabilities
1,825,095

 
1,657,883

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

 
12,796

Capital in excess of par value
324,025

 
298,150

Retained earnings
2,424,552

 
2,285,031

Treasury stock, at cost
(950,506
)
 
(740,229
)
Accumulated other comprehensive income/(loss):
 
 
 
Foreign currency translation
130,928

 
84,598

Pension liability adjustment
(125,257
)
 
(125,211
)
Unrealized investment gains
1,525

 
2,123

Unrealized gains/(losses) on derivatives
3,107

 
(2,302
)
Total accumulated other comprehensive income/(loss)
10,303

 
(40,792
)
Total stockholders’ equity
1,821,170

 
1,814,956

Total liabilities and stockholders’ equity
$
3,646,265

 
$
3,472,839


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
 
Nine Months Ended
 
Apr 30, 2014
 
Apr 30, 2013
 
Apr 30, 2014
 
Apr 30, 2013
Net sales
$
682,445

 
$
641,190

 
$
1,989,193

 
$
1,931,245

Cost of sales
334,371

 
307,111

 
971,146

 
928,120

Gross profit
348,074

 
334,079

 
1,018,047

 
1,003,125

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
201,045

 
199,595

 
592,228

 
601,569

Research and development
26,644

 
22,608

 
74,890

 
68,582

Restructuring and other charges, net
11,542

 
12,824

 
29,910

 
21,497

Interest expense, net
4,747

 
5,298

 
15,919

 
10,747

Earnings from continuing operations before income taxes
104,096

 
93,754

 
305,100

 
300,730

Provision for income taxes
15,405

 
19,483

 
61,230

 
56,975

Net earnings from continuing operations
$
88,691

 
$
74,271

 
$
243,870

 
$
243,755

Earnings/(loss) from discontinued operations, net of income taxes
$
—

 
$
(1,206
)
 
$
—

 
$
245,552

Net earnings
$
88,691

 
$
73,065

 
$
243,870

 
$
489,307

 
 
 
 
 
 
 
 
Earnings per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.80

 
$
0.66

 
$
2.20

 
$
2.16

Diluted
$
0.80

 
$
0.65

 
$
2.17

 
$
2.13

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

 
$
(0.01
)
 
$
—

 
$
2.17

Diluted
$
—

 
$
(0.01
)
 
$
—

 
$
2.15

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.80

 
$
0.65

 
$
2.20

 
$
4.33

Diluted
$
0.80

 
$
0.64

 
$
2.17

 
$
4.28

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.550

 
$
0.250

 
$
0.825

 
$
0.750

 
 
 
 
 
 
 
 
Average shares outstanding:
 
 
 
 
 
 
 
Basic
110,183

 
111,964

 
110,946

 
112,979

Diluted
111,466

 
113,311

 
112,215

 
114,415


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
 
Nine Months Ended
 
Apr 30, 2014
 
Apr 30, 2013
 
Apr 30, 2014
 
Apr 30, 2013
Net earnings
$
88,691

 
$
73,065

 
$
243,870

 
$
489,307

Other comprehensive income/(loss), net of income taxes:
 
 
 
 
 
 
 
Foreign currency translation
25,041

 
(33,127
)
 
46,330

 
8,195

Pension liability adjustment
619

 
4,199

 
(46
)
 
8,762

Unrealized investment gains/(losses)
(224
)
 
(208
)
 
(598
)
 
(145
)
Unrealized gains/(losses) on derivatives
(172
)
 
1,548

 
5,409

 
(2,229
)
Total other comprehensive income/(loss), net of income taxes
25,264

 
(27,588
)
 
51,095

 
14,583

Comprehensive income
$
113,955

 
$
45,477

 
$
294,965

 
$
503,890


See accompanying notes to condensed consolidated financial statements.



5


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

 
Nine Months Ended
 
Apr 30, 2014
 
Apr 30, 2013
Operating activities:
 
 
 
Net cash provided by operating activities
$
342,164

 
$
206,890

 
 
 
 
Investing activities:
 
 
 
Capital expenditures
(50,301
)
 
(66,387
)
Acquisition of businesses, net of cash acquired
(195,262
)
 
—

Purchases of retirement benefit assets
(29,518
)
 
(33,503
)
Proceeds from retirement benefit assets
36,020

 
36,689

Proceeds from sale of assets
5,618

 
537,284

Other
(9,167
)
 
(3,862
)
Net cash provided/(used) by investing activities
(242,610
)
 
470,221

 
 
 
 
Financing activities:
 
 
 
Notes payable
134,992

 
10,020

Dividends paid
(88,596
)
 
(80,197
)
Long-term borrowings
—

 
14

Repayments of short-term debt
(3,927
)
 
—

Repayments of long-term debt
(545
)
 
(352
)
Net proceeds from stock plans
13,814

 
31,054

Additions to deferred financing costs
—

 
(3,043
)
Purchase of treasury stock
(250,000
)
 
(250,000
)
Excess tax benefits from stock-based compensation
arrangements
11,327

 
11,774

Net cash used by financing activities
(182,935
)
 
(280,730
)
Cash flow for period
(83,381
)
 
396,381

Cash and cash equivalents at beginning of year
936,886

 
500,274

Effect of exchange rate changes on cash and cash
equivalents
17,369

 
7,312

Cash and cash equivalents at end of period
$
870,874

 
$
903,967

Supplemental disclosures:
 
 
 
Interest paid
$
13,068

 
$
23,780

Income taxes paid (net of refunds)
44,782

 
133,417


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, 2013 (“2013 Form 10-K”).
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:
 
Apr 30, 2014
 
Jul 31, 2013
Accounts receivable:
 
 
 
Billed
$
513,137

 
$
508,448

Unbilled
65,661

 
72,787

Total
578,798

 
581,235

Less: Allowances for doubtful accounts
(14,016
)
 
(14,900
)
 
$
564,782

 
$
566,335

Unbilled receivables principally relate to revenues accrued for long-term contracts recorded under the percentage-of-completion method of accounting.
 
Apr 30, 2014
 
Jul 31, 2013
Inventory:
 
 
 
Raw materials and components
$
124,837

 
$
94,837

Work-in-process
109,028

 
94,998

Finished goods
194,783

 
191,212

 
$
428,648

 
$
381,047

 
Apr 30, 2014
 
July 31, 2013

Property, plant and equipment:
 
 
 
Property, plant and equipment
$
1,757,331

 
$
1,650,274

Less: Accumulated depreciation and amortization
(958,134
)
 
(875,326
)
 
$
799,197

 
$
774,948




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 Company completed its annual goodwill impairment test for all reporting units in the third quarter of fiscal year 2014 and determined that no impairment existed. In addition, the Company had no impairment of goodwill in the prior year. In connection with the annual goodwill impairment test, the Company estimates the fair value of its reporting units using a market approach employing Level 3 inputs as defined in the fair value hierarchy described in Note 11, Fair Value Measurements.
The following table presents changes in the carrying value of goodwill, allocated by reportable segment.
 
Life Sciences
 
Industrial
 
Total
Balance as of July 31, 2013
$
180,896

 
$
161,596

 
$
342,492

Acquisitions
99,744

 
—

 
99,744

Foreign currency translation
1,818

 
976

 
2,794

Balance as of April 30, 2014
$
282,458

 
$
162,572

 
$
445,030

In connection with the acquisitions in the first nine months of fiscal year 2014, see Note 17, Acquisitions, the Company recorded the fair value of the intangible assets acquired, which were valued using the income approach. The valuation employed level 3 inputs, as defined in the fair value hierarchy.
Intangible assets consist of the following:
 
Apr 30, 2014
 
Gross
 
Accumulated
Amortization
 
Net
Patents and unpatented technology
$
166,112

 
$
64,522

 
$
101,590

Customer-related intangibles
129,777

 
30,480

 
99,297

Trademarks
16,412

 
6,835

 
9,577

Other
3,674

 
2,552

 
1,122

 
$
315,975

 
$
104,389

 
$
211,586

 
 
 
 
 
 
 
Jul 31, 2013
 
Gross
 
Accumulated
Amortization
 
Net
Patents and unpatented technology
$
123,707

 
$
69,992

 
$
53,715

Customer-related intangibles
97,016

 
22,425

 
74,591

Trademarks
13,291

 
6,166

 
7,125

Other
4,425

 
2,613

 
1,812

 
$
238,439

 
$
101,196

 
$
137,243

Amortization expense from continuing operations for intangible assets for the three and nine months ended April 30, 2014 was $5,399 and $14,778, respectively. Amortization expense from continuing operations for intangible assets for the three and nine months ended April 30, 2013 was $4,765 and $14,900, respectively. Amortization expense is estimated to be approximately $5,699 for the remainder of fiscal year 2014, $21,202 in fiscal year 2015, $19,920 in fiscal year 2016, $19,841 in fiscal year 2017, $19,670 in fiscal year 2018, and $17,316 in fiscal year 2019.



8

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

NOTE 4 – TREASURY STOCK
The following table highlights the share repurchase authorizations in effect during fiscal year 2014:
 
 
Date of Authorization
 
 
Sep 26, 2011
 
Jan 17, 2013
 
Total
Amount available for repurchases as of July 31, 2013
 
$
81,873

 
$
250,000

 
$
331,873

New authorizations
 
—

 
—

 
—

Utilized
 
(81,873
)
 
(168,127
)
 
(250,000
)
Amount available for repurchases as of April 30, 2014
 
$
—

 
$
81,873

 
$
81,873

The Company’s shares may be purchased over time as market and business conditions warrant. There is no time restriction on these authorizations. In September 2013, the Company entered into an Accelerated Share Repurchase (“ASR”) agreement with a third-party financial institution to repurchase $125,000 of the Company’s common stock. This transaction was completed in the second quarter of fiscal year 2014. Under the agreement, the Company paid $125,000 to the financial institution. Upon completion of the transaction, the Company received a total of 1,573 shares with an average price per share of $79.45.
In December 2013, the Company entered into a second ASR agreement with a third-party financial institution to repurchase $125,000 of the Company’s common stock. This transaction was completed in the third quarter of fiscal year 2014. Under the agreement, the Company paid $125,000 to the financial institution. Upon completion of the transaction, the Company received a total of 1,483 shares with an average price per share of $84.31.
During the nine months ended April 30, 2014, 935 shares were issued under the Company’s stock-based compensation plans. At April 30, 2014, the Company held 18,291 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 Company’s 2013 Form 10-K and below, the Company has assessed the ultimate resolution of these matters and has reflected appropriate contingent liabilities in the condensed consolidated financial statements as of April 30, 2014 and July 31, 2013.
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 2013 Form 10-K and this Note, the Company is not facing any other 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 the 2013 Form 10-K and this Note, 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 Pinellas Park, Florida site, previously disclosed in Note 14, Contingencies and Commitments, to the Company’s consolidated financial statements included in the Company’s 2013 Form 10-K, the Florida Department of Environmental Protection approved the remedial action plan in September 2013. As a result of this, the Company added $4,440 to its environmental reserves in the first quarter of fiscal year 2014.
The Company’s condensed consolidated balance sheet at April 30, 2014 includes liabilities for environmental matters of approximately $20,738 which relate primarily to the environmental proceedings discussed in the 2013 Form 10-K and as updated in this Note. 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 in the three and nine months ended April 30, 2014 and April 30, 2013:
 
Three Months Ended Apr 30, 2014
 
Nine Months Ended Apr 30, 2014
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
Severance benefits and other employment contract obligations
$
8,289

 
$
—

 
$
8,289

 
$
18,751

 
$
(402
)
 
$
18,349

Professional fees and other costs, net of receipt of insurance claim payments
567

 
1,498

 
2,065

 
2,704

 
3,693

 
6,397

(Gain)/loss on sale and impairment of assets, net
3,986

 
(1,640
)
 
2,346

 
3,986

 
(1,480
)
 
2,506

Environmental matters
—

 
—

 
—

 
—

 
4,440

 
4,440

Reversal of excess restructuring reserves
(1,158
)
 
—

 
(1,158
)
 
(1,782
)
 
—

 
(1,782
)
 
$
11,684

 
$
(142
)
 
$
11,542

 
$
23,659

 
$
6,251

 
$
29,910

 
 
 
 
 
 
 
 
 
 
 
 
Cash
$
7,698

 
$
(142
)
 
$
7,556

 
$
19,673

 
$
6,091

 
$
25,764

Non-cash
3,986

 
—

 
3,986

 
3,986

 
160

 
4,146

 
$
11,684

 
$
(142
)
 
$
11,542

 
$
23,659

 
$
6,251

 
$
29,910

 
Three Months Ended Apr 30, 2013
 
Nine Months Ended Apr 30, 2013
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
Severance benefits and other employment contract obligations
$
5,701

 
$
1,452

 
$
7,153

 
$
10,896

 
$
2,903

 
$
13,799

Professional fees and other costs, net of receipt of insurance claim payments
361

 
531

 
892

 
1,149

 
2,117

 
3,266

(Gain)/loss on sale and impairment of assets, net
999

 
1,357

 
2,356

 
993

 
1,357

 
2,350

Environmental matters
—

 
2,715

 
2,715

 
—

 
2,715

 
2,715

Reversal of excess restructuring reserves
(292
)
 
—

 
(292
)
 
(633
)
 
—

 
(633
)
 
$
6,769

 
$
6,055

 
$
12,824

 
$
12,405

 
$
9,092

 
$
21,497

 
 
 
 
 
 
 
 
 
 
 
 
Cash
$
5,770

 
$
4,185

 
$
9,955

 
$
11,007

 
$
6,709

 
$
17,716

Non-cash
999

 
1,870

 
2,869

 
1,398

 
2,383

 
3,781

 
$
6,769

 
$
6,055

 
$
12,824

 
$
12,405

 
$
9,092

 
$
21,497



10

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

(1) Restructuring:
In fiscal year 2012, the Company announced a multi-year strategic cost reduction initiative (“structural cost improvement initiative”). This initiative impacts both segments as well as the Corporate Services Group. The goal of this initiative is to properly position the Company’s cost structure globally to perform in the current economic environment without adversely impacting its growth or innovation potential.
Key components of the structural cost improvement initiative include:
•
the strategic alignment of manufacturing, sales and R&D facilities to cost-effectively deliver high-quality products and superior service to the Company’s customers worldwide,
•
creation of regional shared financial services centers for the handling of accounting transaction processing and other accounting functions,
•
reorganization of sales functions, to more cost-efficiently deliver superior service to the Company’s customers globally, and
•
reductions in headcount across all functional areas, enabled by efficiencies gained through the Company’s ERP systems, as well as in order to align to economic conditions.
Restructuring charges recorded in the three and nine months ended April 30, 2014 and April 30, 2013 primarily reflect the expenses incurred in connection with the Company’s structural cost improvement initiative as discussed above.
Restructuring charges in the three and nine months ended April 30, 2014 also includes the impairment of assets of $3,986 related to the discontinuance of a specific manufacturing line due to excess capacity as a result of recent acquisitions.
(2) Other (Gains)/Charges:
Severance benefits and other employment contract obligations: In the three and nine months ended April 30, 2013, the Company recorded charges related to certain employment contract obligations.
Professional fees and other: In the three months ended April 30, 2014, the Company recorded costs related to the settlement of a legal matter. Furthermore, in the three and nine months ended April 30, 2014, the Company recorded acquisition related legal and other professional fees. In the three and nine months ended April 30, 2013, 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 2013 Form 10-K).
Gain on sale and impairment of assets: In the three months ended April 30, 2014, the Company recorded a gain on the sale of a building in Europe. In the three months ended April 30, 2013, the Company recorded an impairment related to a software project.
Environmental matters: As discussed in Note 5, Contingencies and Commitments, in the nine months ended April 30, 2014, the Company increased its previously established environmental reserve related to a matter in Pinellas Park, Florida. In the three months ended April 30, 2013, the Company increased its previously established environmental reserve related to a matter in Glen Cove, New York.


11

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

The following table summarizes the activity related to restructuring liabilities recorded for the Company’s structural cost improvement initiative 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
21,637

 
2,840

 
24,477

Utilized
(29,574
)
 
(1,936
)
 
(31,510
)
Reversal of excess reserves
(500
)
 
(57
)
 
(557
)
Translation
313

 
23

 
336

Balance at Jul 31, 2013
$
26,240

 
$
1,473

 
$
27,713

Additions
18,751

 
2,704

 
21,455

Utilized
(18,996
)
 
(2,533
)
 
(21,529
)
Reversal of excess reserves
(1,682
)
 
(100
)
 
(1,782
)
Translation
628

 
63

 
691

Balance at Apr 30, 2014
$
24,941

 
$
1,607

 
$
26,548

Excluded from the table above are restructuring liabilities relating to restructuring plans initiated in fiscal year 2010. At April 30, 2014, the balance of these liabilities was $213.

NOTE 7 – INCOME TAXES
The Company’s effective tax rates on continuing operations for the nine months ended April 30, 2014 and April 30, 2013 were 20.1% and 18.9%, respectively. For the nine months ended April 30, 2014, 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 $10,054 from the resolution of tax audits. For the nine months ended April 30, 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.
During the nine months ended April 30, 2014, the Company reached a final settlement with Her Majesty’s Revenue and Customs (“HMRC”) in the United Kingdom resolving the outstanding tax positions for fiscal years ended July 2010 and July 2011. As a result, the Company reversed $10,961 of previously recorded liabilities related to tax and penalties, as well as $1,478 related to interest ($1,138 net of income tax cost) that were accrued but not assessed as part of the settlement.
During the nine months ended April 30, 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 April 30, 2014 and July 31, 2013, the Company had gross unrecognized income tax benefits of $198,899 and $203,376, respectively. During the nine months ended April 30, 2014, the amount of gross unrecognized tax benefits decreased by $4,477, primarily due to the settlement with HMRC for fiscal years ended July 2010 and July 2011 and the expiration of various foreign statutes of limitation, partially offset by tax positions taken during the current period and the impact of foreign currency translation. As of April 30, 2014, the amount of net unrecognized income tax benefits that, if recognized, would impact the effective tax rate was $155,469.
At April 30, 2014 and July 31, 2013, the Company had liabilities of $17,450 and $18,622, respectively, for potential payment of interest and penalties.


12

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

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 $55,781.
Subsequent to the balance sheet date, the Company received official notification of the resolution of a tax audit in Germany related to fiscal years 2005 through 2008. This will result in the recognition of previously unrecognized income tax benefits of approximately $7,000 and a reversal of interest of approximately $3,000 in the Company's fourth fiscal quarter ending July 31, 2014.

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:
 
Three Months Ended
 
U.S. Plans
 
Foreign Plans
 
Total
 
Apr 30, 2014
 
Apr 30, 2013
 
Apr 30, 2014
 
Apr 30, 2013
 
Apr 30, 2014
 
Apr 30, 2013
Service cost
$
2,169

 
$
2,648

 
$
1,005

 
$
1,093

 
$
3,174

 
$
3,741

Interest cost
3,028

 
2,617

 
4,398

 
3,899

 
7,426

 
6,516

Expected return on plan assets
(2,325
)
 
(2,383
)
 
(3,611
)
 
(3,937
)
 
(5,936
)
 
(6,320
)
Amortization of prior service cost/(credit)
395

 
392

 
(10
)
 
(12
)
 
385

 
380

Amortization of actuarial loss
1,344

 
2,411

 
1,450

 
1,358

 
2,794

 
3,769

Loss due to curtailments and settlements
—

 
16

 
—

 
—

 
—

 
16

Net periodic benefit cost
$
4,611

 
$
5,701

 
$
3,232

 
$
2,401

 
$
7,843

 
$
8,102

 
Nine Months Ended
 
U.S. Plans
 
Foreign Plans
 
Total
 
Apr 30, 2014
 
Apr 30, 2013
 
Apr 30, 2014
 
Apr 30, 2013
 
Apr 30, 2014
 
Apr 30, 2013
Service cost
$
6,509

 
$
7,943

 
$
2,998

 
$
3,443

 
$
9,507

 
$
11,386

Interest cost
9,083

 
7,852

 
12,923

 
11,965

 
22,006

 
19,817

Expected return on plan assets
(6,974
)
 
(7,150
)
 
(10,591
)
 
(12,158
)
 
(17,565
)
 
(19,308
)
Amortization of prior service cost/(credit)
1,185

 
1,178

 
(31
)
 
(44
)
 
1,154

 
1,134

Amortization of actuarial loss
4,033

 
7,233

 
4,261

 
4,170

 
8,294

 
11,403

Loss due to curtailments and settlements
—

 
49

 
—

 
—

 
—

 
49

Net periodic benefit cost
$
13,836

 
$
17,105

 
$
9,560

 
$
7,376

 
$
23,396

 
$
24,481




13

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 2013 Form 10-K.
The detailed components of stock-based compensation expense recorded in the condensed consolidated statements of earnings for the three and nine months ended April 30, 2014 and April 30, 2013 are reflected in the table below:
 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2014
 
Apr 30, 2013
 
Apr 30, 2014
 
Apr 30, 2013
Restricted stock units
$
5,064

 
$
3,978

 
$
15,511

 
$
11,895

Stock options
2,069

 
1,825

 
5,555

 
4,503

MSPP
961

 
976

 
2,125

 
2,763

ESPP
273

 
302

 
771

 
992

      Total
$
8,367

 
$
7,081

 
$
23,962

 
$
20,153


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 any cash proceeds (from the issuance of potentially dilutive securities) are used to buy back shares at the average share price during the period. Equity awards aggregating 496 and 742 shares were not included in the computation of diluted shares for the three months ended April 30, 2014 and April 30, 2013, respectively, because their effect would have been antidilutive. For the nine months ended April 30, 2014 and April 30, 2013, 524 and 586 antidilutive shares, respectively, were excluded. The following is a reconciliation between basic shares outstanding and diluted shares outstanding:
 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2014
 
Apr 30, 2013
 
Apr 30, 2014
 
Apr 30, 2013
Basic shares outstanding
110,183

 
111,964

 
110,946

 
112,979

Effect of stock plans
1,283

 
1,347

 
1,269

 
1,436

Diluted shares outstanding
111,466

 
113,311

 
112,215

 
114,415




14

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 April 30, 2014:
 
Fair Value Measurements
 
As of
 
 
 
 
 
 
 
Apr 30, 2014
 
Level 1
 
Level 2
 
Level 3
Financial assets carried at fair value
 
 
 
 
 
 
 
Money market funds
$
3,948

 
$
3,948

 
$
—

 
$
—

Available-for-sale securities:
 
 
 
 
 
 
 
Equity securities
4,524

 
4,524

 
—

 
—

Debt securities:
 
 
 
 
 
 
 
Corporate
30,359

 
—

 
30,359

 
—

U.S. Treasury
10,416

 
—

 
10,416

 
—

Federal agency
16,374

 
—

 
16,374

 
—

Mortgage-backed
9,544

 
—

 
9,544

 
—

Trading securities
788

 
788

 
—

 
—

Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
3,555

 
—

 
3,555

 
—

Financial liabilities carried at fair value
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
689

 
—

 
689

 
—



15

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, 2013:
 
Fair Value Measurements
 
As of
 
 
 
 
 
 
 
Jul 31, 2013
 
Level 1
 
Level 2
 
Level 3
Financial assets carried at fair value
 
 
 
 
 
 
 
Money market funds
$
6,404

 
$
6,404

 
$
—

 
$
—

Available-for-sale securities:
 
 
 
 
 
 
 

Equity securities
176

 
176

 
—

 
—

Debt securities:
 
 
 
 
 
 
 
Corporate
32,393

 
—

 
32,393

 
—

U.S. Treasury
11,543

 
—

 
11,543

 
—

Federal agency
20,642

 
—

 
20,642

 
—

Mortgage-backed
5,990

 
—

 
5,990

 
—

Trading securities
190

 
190

 
—

 
—

Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
301

 
—

 
301

 
—

Financial liabilities carried at fair value
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
3,066

 
—

 
3,066

 
—

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.



16

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 benefits protection trusts at April 30, 2014 range from 2014 to 2046.
 
Cost/
Amortized
Cost Basis
 
Fair Value
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Net Unrealized
Holding
Gains/(Losses)
April 30, 2014
 
 
 
 
 
 
 
 
 
Equity securities
$
5,029

 
$
4,524

 
$
5

 
$
(510
)
 
$
(505
)
Debt securities:
 
 
 
 
 
 
 
 
 
Corporate
29,435

 
30,359

 
1,172

 
(248
)
 
924

U.S. Treasury
10,310

 
10,416

 
215

 
(109
)
 
106

Federal agency
16,075

 
16,374

 
878

 
(579
)
 
299

Mortgage-backed
9,366

 
9,544

 
189

 
(11
)
 
178

 
$
70,215

 
$
71,217

 
$
2,459

 
$
(1,457
)
 
$
1,002

 
 
 
 
 
 
 
 
 
 
July 31, 2013
 
 
 
 
 
 
 
 
 
Equity securities
$
176

 
$
176

 
$
—

 
$
—

 
$
—

Debt securities:
 
 
 
 
 
 
 
 
 
Corporate
31,546

 
32,393

 
1,274

 
(427
)
 
847

U.S. Treasury
11,339

 
11,543

 
294

 
(90
)
 
204

Federal agency
19,810

 
20,642

 
1,131

 
(299
)
 
832

Mortgage-backed
5,752

 
5,990

 
238

 
—

 
238

 
$
68,623

 
$
70,744

 
$
2,937

 
$
(816
)
 
$
2,121



17

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

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
April 30, 2014
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Corporate
$
8,865

 
$
(248
)
 
$
—

 
$
—

 
$
8,865

 
$
(248
)
U.S. Treasury
4,372

 
(109
)
 
—

 
—

 
4,372

 
(109
)
Federal agency
1,634

 
(63
)
 
1,598

 
(516
)
 
3,232

 
(579
)
Mortgage-backed
1,109

 
(11
)
 
—

 
—

 
1,109

 
(11
)
Equity securities
4,326

 
(510
)
 
—

 
—

 
4,326

 
(510
)
 
$
20,306

 
$
(941
)
 
$
1,598

 
$
(516
)
 
$
21,904

 
$
(1,457
)
 
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, 2013
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Corporate
$
10,990

 
$
(427
)
 
$
—

 
$
—

 
$
10,990

 
$
(427
)
U.S. Treasury
3,778

 
(90
)
 
—

 
—

 
3,778

 
(90
)
Federal agency
3,701

 
(299
)
 
—

 
—

 
3,701

 
(299
)
 
$
18,469

 
$
(816
)
 
$
—

 
$
—

 
$
18,469

 
$
(816
)
The following table shows the proceeds and gross gains and losses from the sale of available-for-sale investments for the three and nine months ended April 30, 2014 and April 30, 2013:
 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2014
 
Apr 30, 2013
 
Apr 30, 2014
 
Apr 30, 2013
Proceeds from sales
$
4,915

 
$
883

 
$
7,973

 
$
13,169

Realized gross gains on sales
93

 
18

 
177

 
370

Realized gross losses on sales
6

 
—

 
106

 
5

The following is a summary of the Company’s trading securities by category which are classified within other non-current assets in the Company’s condensed consolidated balance sheets.
 
Apr 30, 2014
 
Jul 31, 2013
Equity securities
$
788

 
$
190

Total trading securities
$
788

 
$
190



18

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

The following table shows the net gains and losses recognized on trading securities for the three and nine months ended April 30, 2014 and April 30, 2013:
 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2014
 
Apr 30, 2013
 
Apr 30, 2014
 
Apr 30, 2013
Gains/(losses), net recognized for securities held
$
(1
)
 
$
—

 
$
22

 
$
—

Gains/(losses), net recognized for securities sold
—

 
—

 
—

 
—

Total gains/(losses), net recognized
$
(1
)
 
$
—

 
$
22

 
$
—


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 derivative financial instruments. Derivatives are executed with counterparties with a minimum credit rating of “A” by Standard & Poors and “A2” by Moody’s Investor Services, in accordance with the Company’s policies. The Company does not utilize derivative instruments for trading or speculative purposes. As of April 30, 2014, the Company had foreign currency forward contracts outstanding with notional amounts aggregating $512,733, whose fair values were a net asset of $2,866.
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 not designated as hedging instruments entered into during the three and nine months ended April 30, 2014 was $664,039 and $1,845,481, respectively. The notional amount of foreign currency forward contracts outstanding that were not designated as hedging instruments as of April 30, 2014 was $406,572.
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 the Company’s 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 a portion of the British Pound equivalent amount of Euro sales for the British subsidiary and a portion of 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 designated as hedging instruments entered into during the three and nine months ended April 30, 2014 was $23,174 and $77,941. The notional amount of foreign currency forward contracts outstanding designated as hedging instruments as of April 30, 2014 was $106,161 and covers certain monthly transactional exposures through May 2015.
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.


19

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

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
April 30, 2014
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
2,895

 
Other current liabilities
 
$
7

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
660

 
Other current liabilities
 
$
682

Total derivatives
 
 
$
3,555

 
 
 
$
689

Nonderivative instruments designated as hedging instruments
 
 
 
 
 
 
 
Net investment hedge
 
 
 
 
Long-term debt, net of current portion
 
$
87,687

 
Asset Derivatives
 
Liability Derivatives
July 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
 
$
1,941

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
301

 
Other current liabilities
 
$
1,125

Total derivatives
 
 
$
301

 
 
 
$
3,066

Nonderivative instruments designated as hedging instruments
 
 
 
 
 
 
 
Net investment hedge
 
 
 
 
Long-term debt, net of current portion
 
$
91,800



20

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 nine months ended April 30, 2014 and April 30, 2013 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
 
Apr 30, 2014
 
Apr 30, 2013
 
 
 
Apr 30, 2014
 
Apr 30, 2013
Derivatives in cash flow hedging relationships
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
305

 
$
1,548

 
Net sales
 
$
440

 
$
(615
)
 
 
 
 
 
Cost of sales
 
171

 
(537
)
Total derivatives
$
305

 
$
1,548

 
 
 
$
611

 
$
(1,152
)
 
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)
 
Nine Months Ended
 
 
 
Nine Months Ended
 
Apr 30, 2014
 
Apr 30, 2013
 
 
 
Apr 30, 2014
 
Apr 30, 2013
Derivatives in cash flow hedging relationships
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
5,615

 
$
(2,229
)
 
Net sales
 
$
552

 
$
(1,002
)
 
 
 
 
 
Cost of sales
 
(695
)
 
(707
)
Total derivatives
$
5,615

 
$
(2,229
)
 
 
 
$
(143
)
 
$
(1,709
)
(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 nine months ended April 30, 2014 and April 30, 2013.
The amounts of the gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments for the three and nine months ended April 30, 2014 and April 30, 2013 are presented as follows:
 
 
 
Amount of Gain or (Loss) Recognized in
Earnings on Derivatives
 
 
 
Three Months Ended
 
Nine Months Ended
 
Location of Gain or (Loss) Recognized in Earnings on Derivatives
 
Apr 30, 2014
 
Apr 30, 2013
 
Apr 30, 2014
 
Apr 30, 2013
Derivatives not designated as hedging relationships
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
Selling, general and administrative expenses
 
$
(607
)
 
$
(5,206
)
 
$
(2,950
)
 
$
(15,032
)


21

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 nine months ended April 30, 2014 and April 30, 2013 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
 
Apr 30, 2014
 
Apr 30, 2013
 
 
 
Apr 30, 2014
 
Apr 30, 2013
Nonderivatives designated as hedging relationships
 
 
 
 
 
 
 
 
 
Net investment hedge
$
63

 
$
4,320

 
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)
 
Nine Months Ended
 
 
 
Nine Months Ended
 
Apr 30, 2014
 
Apr 30, 2013
 
 
 
Apr 30, 2014
 
Apr 30, 2013
Nonderivatives designated as hedging relationships
 
 
 
 
 
 
 
 
 
Net investment hedge
$
(4,113
)
 
$
14,757

 
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 nine months ended April 30, 2014 and April 30, 2013.

NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
Changes in accumulated other comprehensive income by component are presented below:
 
Foreign Currency Translation
 
Defined Benefit Pension Plan
 
Unrealized investment gains/(losses)
 
Unrealized gains/(losses) on derivatives
 
Accumulated other comprehensive income/(loss)
Balance at July 31, 2013
$
84,598

 
$
(125,211
)
 
$
2,123

 
$
(2,302
)
 
$
(40,792
)
Other comprehensive income/(loss) before reclassifications
46,330

 
—

 
(813
)
 
5,154

 
50,671

Amounts reclassified from accumulated other comprehensive income (loss)
—

 
6,551

 
215

 
255

 
7,021

Foreign exchange adjustments and other
—

 
(6,597
)
 
—

 
—