10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 |
For the fiscal year ended July 31, 2007
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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)
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New York
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11-1541330 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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2200 Northern Boulevard, East Hills, NY
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11548 |
(Address of principal executive offices)
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(Zip Code) |
(516) 484-5400
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered |
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Common Stock, $.10 par value
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New York Stock Exchange |
Common Share Purchase Rights
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Act. Yes o No þ
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 registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days. Yes o No þ
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
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
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the
Act). Yes o No þ
The aggregate market value of the registrants common stock held by non-affiliates of the
registrant, computed by reference to the closing price of a share of common stock on January 31,
2008 (the last business day of the registrants most recently completed second fiscal quarter) was
$4,516,443,478.
On March 21, 2008, there were 122,872,069 outstanding shares of the registrants common stock, $.10
par value.
Special Note
Along with this report, Pall Corporation (the Company) is filing its delayed quarterly reports
for the first and second quarters of fiscal year 2008. This Form 10-K and the quarterly reports for
the first and second quarters of fiscal year 2008 on Form 10-Q were delayed pending the completion
of an inquiry conducted by the Companys audit committee into the Companys understatement of its
United States (U.S.) federal income tax payments and its provision for income taxes. The audit
committee completed its inquiry in January 2008. On August 1, 2007, the audit committee, on the
recommendation of management, concluded that the Companys previously issued financial statements
for each of the eight fiscal years in the period ended July 31, 2006 (including the interim periods
within those years), and for each of the fiscal quarters ended October 31, 2006, January 31, 2007
and April 30, 2007, should no longer be relied upon. Accordingly, the Company has restated its
previously issued financial statements for those periods in this Form 10-K. The Company has not
amended its previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the
periods affected by this restatement.
The adjustments made as a result of the restatement are discussed in Note 2, Audit Committee
Inquiry and Restatement, to the accompanying consolidated financial statements included in
Part IV Item 15 Exhibits, Financial Statement Schedules, and the cumulative impact of the
restated financial results at the beginning of fiscal year 2003 is presented in Part II Item 6
Selected Financial Data. For additional discussion of the inquiry and the restatement adjustments,
see Part II Item 7 Managements Discussion and Analysis of Financial Condition and Results of
Operations Audit Committee Inquiry and Restatement and Note 2 to the accompanying consolidated
financial statements. For a description of the material weakness identified by management in
internal control over financial reporting with respect to income taxes and managements remediation
of the material weakness, see Part II Item 9A Controls and Procedures.
PART I
ITEM 1. BUSINESS.
GENERAL:
Pall Corporation, a New York corporation incorporated in July 1946, and its subsidiaries (the
Company) is a leading supplier of filtration, separation and purification technologies,
principally made by the Company using its engineering capability and fluid management expertise,
proprietary filter media, and other fluid clarification and separations equipment for the removal
of solid, liquid and gaseous contaminants from a wide variety of liquids and gases.
The Company serves customers through two business groups globally: Life Sciences and
Industrial. The Life Sciences business group is focused on developing, manufacturing and selling
products to customers in the Medical and BioPharmaceuticals marketplaces. The Industrial business
group is focused on developing, manufacturing and selling products to customers in the Aerospace &
Transportation, Microelectronics and General Industrial markets. These business groups are
supported by shared and corporate services groups that facilitate the Companys corporate
governance and business activities globally. The transition to this business structure began in
fiscal year 2005 and was completed in the first quarter of fiscal year 2007. While there is overlap
in the intellectual property that underlies the products sold by the business groups, Company
management believes that this structure positions the Company for future profitable growth. This
business structure holistically focuses on the global marketplace presenting opportunities for
sales growth, efficiencies and cost reduction in both of the business groups, as well as in the
Companys corporate and shared services infrastructure, while leveraging its entire intellectual
property portfolio to the marketplaces efficiently.
With few exceptions, research activities conducted by the Company are Company sponsored.
Research expenditures totaled $62,414,000 in fiscal year 2007, $57,371,000 in fiscal year 2006 and
$56,183,000 in fiscal year 2005.
No one customer accounted for 10% or more of the Companys consolidated sales in fiscal years
2007, 2006 or 2005.
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The Company is in substantial compliance with federal, state and local laws regulating the
discharge of materials into the environment or otherwise relating to the protection of the
environment. To date, compliance with environmental matters has not had a material effect upon the
Companys capital expenditures or competitive position. For a further description of environmental
matters in this report, see Part I Item 3 Legal Proceedings, and Note 16, Contingencies and
Commitments, to the accompanying consolidated financial statements.
At July 31, 2007, the Company employed approximately 10,700 persons.
For financial information of the Company by operating segment and geography, please see Note
20, Segment Information and Geographies, to the accompanying consolidated financial statements and
the information under the caption Review of Operating Segments in Managements Discussion and
Analysis of Financial Condition and Results of Operations (Part II Item 7 of this report).
The Companys website address is www.pall.com. The Companys reports filed with the U.S.
Securities and Exchange Commission (SEC) are also available free of charge on its website as soon
as reasonably practicable after such material is electronically filed with, or furnished to, the
SEC. As discussed in the special note preceding Part I of this Form 10-K, on August 1, 2007, the
audit committee of the Companys board of directors, on the recommendation of management, concluded
that the Companys previously issued financial statements for each of the eight fiscal years in the
period ended July 31, 2006 (including the interim periods within those years), and for each of the
fiscal quarters ended October 31, 2006, January 31, 2007 and April 30, 2007, should no longer be
relied upon. Accordingly, the Company has restated its previously issued financial statements for
those periods in this Form 10-K. The Company has not amended its previously filed Annual Reports on
Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by this restatement.
OPERATIONS:
Pall Corporation is a broad-based filtration, separation and purification company. Its
proprietary products are used to discover, develop and produce biotechnology drugs, vaccines and
safe drinking water, protect hospital patients as in the case of the Companys blood filters,
bacterial detection systems and hospital water filters, enhance the quality and efficiency of
manufacturing processes, keep equipment such as manufacturing equipment and airplanes running
efficiently and to protect the environment. Requirements for product quality, purity,
environmental protection, health and safety apply to a wide range of industries and across
geographic borders. The Company has more than a 60-year history of commercializing successful
products and continues to develop new materials and technologies for its Life Sciences and
Industrial customers and their increasingly difficult fluid filtration, purification and separation
challenges. The Company has an array of core materials and technologies that can be combined and
manipulated in many ways to solve complex fluid separation challenges. These proprietary materials
and technologies, coupled with the Companys ability to engineer them into useful forms and place
them into fully integrated systems, are the cornerstone of the Companys capabilities. Proprietary
materials and technologies, customer process knowledge, and engineering know-how enable the Company
to provide customers with products that are well matched to their needs, to develop new products
and to enter new markets.
The global drivers for the filtration, separation and purification market include, water and
energy scarcity, emerging pathogens, environmental issues, industrial globalization and
consolidation, increasing government regulations and process innovation and optimization. These all
require more and ever finer levels of filtration, separation and purification. Opportunities to
filter water exist in every one of the Companys markets. The Company has a balanced portfolio of
products that are sold into diversified markets. The Companys strategy for growth includes
capitalizing on new markets for its products in high-growth geographies such as Asia and Eastern
Europe as well as focusing on high-growth markets such as biotechnology, cell therapy, vaccine
production, micro and macroelectronics, next-generation aircraft, energy and water. The Companys
products help to meet the evolving needs of markets worldwide.
The Company actively pursues applications in which Pall products can make a substantial
difference to its customers and especially targets projects, under the umbrella of its Total Fluid
ManagementSM (TFM) strategy, whereby it can engineer integrated filtration,
purification and separation system solutions to enhance performance and economics. The TFM strategy
leverages the Companys resources and capabilities to help its customers improve operating
efficiencies within their processes through the optimal selection and integrated use of filtration
and separation products. This approach makes use of Palls engineering and scientific expertise in
fluid management to create unique and cost-effective solutions for customers. Integrated systems
are an important part of this approach, and generally couple or automate filtration/separation
steps for greater efficiency and ease and economy of use. These systems typically include the
Companys proprietary consumable filtration products. When fully commissioned, Company management
expects these systems to provide an ongoing annuity stream for the Companys consumable filtration
products. Systems represent a growing portion of the Companys revenues.
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Consumable filtration products sold are principally filters made with proprietary Pall filter
media produced by chemical film casting, melt blowing of polymer fibers, papermaking and
metallurgical processes.
The Company is executing a full suite of initiatives aimed at strengthening its processes
while increasing efficiency and reducing costs. Such improvement initiatives include the facilities
rationalization program in which the Company is consolidating manufacturing, reducing its footprint
and realigning plants with its customers general locations. The Company is also executing major
initiatives to streamline processes and infrastructure.
Competition is intense in all of the Companys markets and includes numerous large companies
and many smaller regional competitors. In many cases, the Companys primary competition comes from
alternative, often older, technologies, such as in beer production from pasteurization, as opposed
to sophisticated filtration of the kind Pall provides. The Company believes that no one competitor
overlaps in more than 20% of its business. In many markets, there are significant barriers to entry
limiting the number of qualified suppliers. These barriers result from stringent product
performance standards, product qualification protocols and requirements for consistent levels of
global service and support. The Companys broad array of patented materials and product designs
coupled with its engineering and manufacturing expertise and global reach enable it to provide
customers with differentiated product performance and value.
During fiscal year 2005, the Company undertook to reorganize its global business structure
into three underlying vertically integrated businesses: Life Sciences, comprising Medical and
BioPharmaceuticals markets; Aeropower, comprising Aerospace and the Machinery & Equipment portion
of the General Industrial marketplace; and Process Technologies, comprising General Industrials
Food & Beverage, Fuels & Chemicals, Power Generation, Municipal Water and Microelectronics markets.
In fiscal year 2006, management began a further integration of the Industrial markets (Aeropower
and Process Technologies) to form one vertically integrated Industrial business. In conjunction
with the reorganization, in the first quarter of fiscal year 2007, the Industrial sales and
marketing group was reorganized such that a portion of the commercial original equipment
manufacturers (OEM) business previously tended to by, and reported in, the General Industrial
market was tended to by, and reported in, a realigned market called Aerospace & Transportation. At
the end of the first quarter of fiscal year 2007, the reorganization was completed. Each business
now has full responsibility for its global manufacturing, sales and marketing and research and
development functions, enabling the Company to better meet its customers needs in order to achieve
greater efficiencies and profit growth. This revised organizational structure is in contrast to the
former matrix organizational structure where, within each geography, these functions supported the
market-based part of the matrix on a shared basis (as opposed to being directly vertically
integrated into these businesses).
The Companys financial reporting systems have been converted to support the new
organizational structure, providing financial information consistent with how the businesses are
measured. Additionally, certain of the internal segment financial reporting principles utilized in
the measurement and evaluation of the profitability of the Companys businesses (such as the
allocation of shared overhead costs) have been revised for consistency with the underlying
reorganized structure of the Company. The chief executive officer manages the Company and makes
key decisions about the allocation of Company resources based on the two businesses. The Companys
sales subsidiaries sell both Life Sciences and Industrial products. As such, certain overhead costs
of these subsidiaries have been, and will continue to be, shared by the businesses.
Consistent with the new corporate structure, management has determined that the Companys
reportable segments, which are also its operating segments, consist of its two vertically
integrated businesses, Life Sciences and Industrial, in accordance with the provisions of Statement
of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and
Related Information.
LIFE SCIENCES SEGMENT:
The Companys Life Sciences technologies facilitate the process of drug discovery, development
and production. They are used extensively in the research laboratory, pharmaceutical and
biotechnology industries, in blood centers and in hospitals at the point of patient care. The
Companys broad capability in the life sciences industry is a competitive strength and an important
element of its strategy going forward. Sales in the Medical and BioPharmaceuticals markets are made
through direct sales and distributors.
Safety, quality, efficacy, ease of use, technical support, product delivery and price are all
important considerations among the Companys Life Sciences customers. Pricing for blood filtration
products has become a major consideration as the Companys customers have increasingly become large
centralized procurers, such as blood centers in the Western Hemisphere and nationalized blood
services in Europe and Asia. The backlog for the Life Sciences segment at July 31, 2007 was
approximately $115,095,000 (all of which is expected to be shipped in fiscal year 2008) compared
with $91,570,000 at July 31, 2006.
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MEDICAL MARKET:
The Companys medical products improve the safety of blood transfusions and help control the
spread of infections in hospitals. Its broad laboratory product line is used in drug discovery,
gene manipulation and proteomics applications. Palls cell therapy product portfolio provides
efficient enabling technologies for the emerging regenerative medicine market. The Company is in
the process of developing its second generation product to remove infectious prions from donor
blood and believes that prion reduction could be a large potential long-term market opportunity.
Products related to transfusion safety represent a significant portion of Life Sciences sales.
For example, the Companys blood filters remove unwanted white blood cells from donor blood. Its
AcrodoseTM PL System enables blood centers to tap into the abundant, but often
discarded, supply of whole blood platelets. Hospital acquired infections are a growing problem for
patients and the worlds health care systems. The Companys breathing-circuit, intravenous and
point-of-use water filters help protect patients from these infections.
The backlog for the Medical market at July 31, 2007 was approximately $29,158,000 (all of
which is expected to be shipped in fiscal year 2008) compared with $30,549,000 at July 31, 2006.
The Companys principal competitors in the Medical market include MacoPharma Group, Fresenius
Medical Care AG & Co., Millipore Corporation, General Electric Healthcare (a unit of General
Electric Company (GE)), Tyco International Ltd., Teleflex Incorporated, and Capital Health Inc.
BIOPHARMACEUTICALS MARKET:
The Company sells separation systems and disposable filtration and purification technologies
primarily to pharmaceutical and biotechnology companies for use by them in the development and
commercialization of chemically synthesized and biologically derived drugs and vaccines. The
Company provides a broad range of advanced filtration solutions for each critical stage of drug
development through drug production. Its filtration systems and validation services assist drug
manufacturers through the regulatory process and on to the market.
The fastest growing part of the market is the biotechnology industry. Biotechnology drugs and
biologically derived vaccines are very filtration and purification intensive. One of the factors
driving Palls growth is increasing adoption of single-use processing systems to produce drugs.
Pall has supplied single-use technologies for many years including self-contained filter capsules
as an alternative to stainless steel. There are many advantages to Palls AllegroTM
single-use disposable systems, including more flexible use of space to speed in setting up a new
production line. Critical to the industry, they also can greatly reduce or eliminate the need for
cleaning and cleaning validation and reduce the risk of cross-contamination between batches and
products.
Company management believes that the Companys established record of product performance and
innovation, as well as its ability to sell and globally support a complete range of products,
including its engineered systems, give it a strong competitive advantage among BioPharmaceutical
customers because of the high costs and safety risks associated with drug development and
production. The backlog for the BioPharmaceuticals market at July 31, 2007 was approximately
$85,937,000 (all of which is expected to be shipped in fiscal year 2008) compared with $61,021,000
at July 31, 2006. Principal competitors in the BioPharmaceuticals market include Millipore
Corporation, The Sartorius Group, CUNO (a 3M company) and GE Healthcare.
INDUSTRIAL SEGMENT:
The Company provides enabling and process enhancing technologies throughout the industrial
marketplace. This includes the aerospace, microelectronics and consumer electronics, municipal and
industrial water, fuels, chemicals, energy, and food and beverage markets. The Company has the
capability to provide customers with integrated solutions for their process fluids. The backlog for
the Industrial segment at July 31, 2007 was approximately $456,045,000 (of which approximately
$330,366,000 is expected to be shipped in fiscal year 2008) compared with $358,232,000 at July 31,
2006.
GENERAL INDUSTRIAL MARKET:
Included in this diverse market are sales of filters, coalescers and integrated separation
systems for hydraulic, fuel and lubrication systems on mechanical equipment across many industries,
as well as to producers of energy (i.e., oil, gas, renewable and alternative fuels, electricity and
chemicals), food and beverages, municipal and industrial water. Virtually all of the raw materials,
process fluids and waste streams that course through industry are candidates for multiple stages of
filtration, separation and purification. The growing demand for clean and green technology and
water and energy scarcity issues also create growth opportunities for the Company.
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Technologies that purify water for use and reuse represent an important opportunity.
Governments around the world are implementing stringent new regulations governing drinking water
standards and Company management believes that the Companys filters and systems provide a solution
for these requirements. These standards apply to municipal water supplies throughout the United
States and in a growing number of countries. Industry, which consumes enormous quantities of water,
also increasingly needs to filter water before, during and after use both to conserve it and to
ensure it meets discharge requirements.
Within the energy market, demand is strong as oil and gas producers, refineries and power
generating stations work to increase production, produce cleaner burning fuels, conserve water,
meet environmental regulations and develop alternative fuel sources. Each of these applications
provides opportunities for Pall.
Within the Food & Beverage market, filtration solutions are provided to the wine, beer, soft
drink, bottled water and food ingredient markets. A growing filtration opportunity in this market
is the need of wine and beer manufacturers to eliminate the use of diatomaceous earth, a known
carcinogen, in their processes.
The backlog at July 31, 2007 was approximately $279,044,000 (of which approximately
$212,966,000 is expected to be shipped in fiscal year 2008) compared with $201,869,000 at July 31,
2006. Sales to General Industrial customers are made through Company personnel, distributors and
manufacturers representatives. The Company believes that its TFM strategy and ability to engineer
fully integrated systems solutions, underscored by product performance and quality, service to the
customer, and price, are the principal competitive factors in this market. The Companys principal
competitors in the General Industrial market include CUNO (a 3M company), GE Infrastructure (a unit
of GE), U.S. Filter (a Siemens business), The Sartorius Group, Parker Hannifin Corporation and Rohm
and Haas Company.
AEROSPACE & TRANSPORTATION MARKET:
The Company sells filtration and fluid monitoring equipment to the aerospace industry for use
on commercial and military aircraft, ships and land-based military vehicles to help protect
critical systems and components. Commercial, Military and Industrial OEM sales represented 35%, 41%
and 24%, respectively, of total Aerospace & Transportation sales in fiscal year 2007. Key growth
drivers in this market include passenger air miles flown, military
budgets, new military and commercial aircraft, and
demand for new aircraft and mobile construction equipment in emerging geographic markets,
particularly in Asia. Increasing environmental regulation faced by the Companys customers as well
as customer requirements for improved equipment reliability and fuel
efficiency are also driving
growth.
The Companys products are sold to customers in this segment through a combination of direct
sales to airframe manufacturers and other customers, including the U.S. military, and through the
Companys distribution partner, Satair A/S (Satair), for the commercial aerospace aftermarket.
The backlog at July 31, 2007 was approximately $146,464,000 (of which approximately $96,200,000 is
expected to be shipped in fiscal year 2008) compared with $125,375,000 at July 31, 2006.
Competition varies by product. The Companys principal competitors in the Aerospace &
Transportation markets include Donaldson Company, Inc., ESCO Technologies Inc. and CLARCOR Inc.
Company management believes that efficacy, performance and quality of product and service, as
well as price, are determinative in most sales.
MICROELECTRONICS MARKET:
The Company sells highly sophisticated filtration and purification technologies for the
semiconductor, data storage, fiber optic, advanced display and materials markets. The Company
provides a comprehensive suite of contamination control solutions for chemical, gas, water,
chemical mechanical polishing and photolithography processes to meet the needs of this demanding
industry. Integrated circuits, which control almost every device or machine in use today, require
exceedingly high levels of filtration technologies, which Pall provides. While this part of the
market is cyclical, Pall has strategically diversified into the consumer electronics market to
lessen the impact of the industrys cycles. This strategic diversification into the
macroelectronics side of the market is enabling the Company to capitalize on demand for computer
gaming consoles, MP3 players, flat screen TVs and monitors, multimedia cell phones and ink jet
printers and cartridges. These markets are typically less cyclical and just as filtration
intensive. A newer application in Microelectronics is in the production of solar cells.
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The Companys products are sold to customers in this market through its own personnel,
distributors and manufacturers representatives. The backlog at July 31, 2007 was approximately
$30,537,000 (of which approximately $21,200,000 is expected to be shipped in fiscal year 2008)
compared with $30,988,000 at July 31, 2006. Company management believes that performance, product
quality, innovation and service are the most important factors in the majority of sales in this
market. The Companys principal competitors in the Microelectronics market include Entegris, Inc.
(formerly Mykrolis) and Mott Corporation.
The following comments relate to the two operating segments discussed above:
RAW MATERIALS:
Most raw materials used by the Company are available from multiple sources. A limited number
of materials are proprietary products of major chemical companies. Management believes that the
Company could obtain satisfactory substitutes for these materials should they become unavailable.
PATENTS:
The Company owns a broad range of patents covering its filter media, filter designs and other
products, but it considers these to be mainly defensive, and its operations rely principally on its
proprietary manufacturing methods and engineering skills.
ITEM 1A. RISK FACTORS.
The risk factors described below are not inclusive of all risk factors but highlight those that the
Company believes are the most significant and that could impact its performance and financial
results. These risk factors should be considered together with all other information presented in
this Form 10-K report.
The Company faces risks arising from potential material weaknesses in its internal control
environment.
As a result of the matters addressed in the recently completed audit committee inquiry, as
further described in Note 2, Audit Committee Inquiry and Restatement, to the accompanying
consolidated financial statements, as well as an internal review by Company management, management
identified a material weakness in internal control over financial reporting with respect to its
accounting for income taxes. While management believes that this material weakness was remediated
as of January 31, 2008, its remedial actions may prove to be ineffective or inadequate and expose
the Company to further risk of misstatements in its financial statements. In such circumstances,
investors and other users of the Companys financial statements may lose confidence in the
reliability of the Companys financial information and the Company could fail to comply with
certain representations, warranties and covenants in its debt and other financing-related
agreements or be obligated to incur additional costs to improve the internal controls. The
Companys failure or inability to remediate the material weakness in a timely and effective manner
could also adversely affect its reputation among customers and its operating prospects, if
customers perceive the Company as experiencing financial control or other financial difficulties.
See Part II Item 9A Controls and Procedures for further description of the material weakness
identified by management and related remediation actions.
Litigation and regulatory inquiries associated with the restatement of the Companys prior period
financial statements could result in substantial costs, penalties and other adverse effects.
Substantial costs may be incurred to defend and resolve regulatory proceedings and litigation
arising out of or relating to matters addressed in the recently completed audit committee inquiry.
These proceedings include the ongoing audits in process as well as audits expected to commence of
the Companys tax returns for some of the periods affected by the restatement. In September 2007,
the Company deposited $135 million with the U.S. Treasury, which reflected managements preliminary
assessment of additional taxes and interest that the Company might owe the Internal Revenue Service
(IRS) for prior years as a result of tax compliance matters identified at the time and did not
include any amount with respect to potential penalties. In completing the restatement, the Company
examined the appropriateness of the Companys accounting treatment of the tax consequences of each
type of intercompany transaction in the various taxing jurisdictions in which the Company operates.
As a result of this analysis, the Company determined that additional financial statement reserves
were required with respect to certain other lesser tax compliance matters. The Company cannot
predict when the ongoing IRS audit will be completed or the amount or timing of the final
resolution with the IRS or other relevant taxing authorities of the matters that gave rise to the
restatement, including the amount of any penalties that may be imposed, which could be substantial.
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The Company is also subject to other regulatory and litigation proceedings relating to, or
arising out of, the restatement, including pending investigations by the SEC and the Department of
Justice, purported securities class action lawsuits and derivative lawsuits seeking relief against
certain of the Companys officers and directors. These proceedings could also result in civil or
criminal fines and other non-monetary penalties. The Company has not reserved any amount in
respect of these matters in its consolidated financial statements.
The Company cannot predict whether any monetary losses it experiences in the proceedings will
be covered by insurance or whether insurance proceeds recovered will be sufficient to offset such
losses. Pending civil, regulatory and criminal proceedings may also divert the efforts and
attention of the Companys management from business operations, particularly if adverse
developments are experienced in any of them, such as an expansion of the investigations being
conducted by the SEC and the Department of Justice. See Part I Item 3 Legal Proceedings, for
further discussion of these pending matters.
Changes in the Companys effective tax rate may affect operating results.
The Companys effective tax rate is subject to fluctuation based on a variety of factors, such
as:
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the geographical mix of income derived from the countries in which it operates; |
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currently applicable tax rates, including particularly in the United States; |
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the nature, timing and impact of permanent or temporary changes in tax laws or
regulations, including the termination or extension of provisions under U.S. federal income
tax law that are or may become subject to sunset, such as research and development
credits and incentives related to U.S. domestic production; |
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the timing and amount of the Companys repatriation of foreign earnings; |
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the timing and nature of the Companys resolution of uncertain income tax positions; and |
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the Companys success in managing its effective tax rate through the implementation of
global tax and cash management strategies. |
Fluctuations in the Companys effective tax rate may affect operating results. In the near
term, the Company expects that its effective tax rate will be affected in particular by the repeal
of section 936 of the Internal Revenue Code, which allowed U.S. companies to operate in Puerto Rico
at a significantly reduced U.S. tax cost, and recent changes in the IRSs stance regarding
intercompany transfer pricing, which involve revised IRS audit practices for intercompany
transactions.
The Company operates in numerous countries and is subject to taxation in all of the countries
in which it operates. The tax rules and regulations in such countries can be complex and, in many
cases, uncertain in their application. In addition to challenges to the Companys tax positions
arising during routine audits, disputes can arise with the taxing authorities over the
interpretation or application of certain rules to the Companys business conducted within the
country involved and with respect to intercompany transactions when the parties are taxed in
different jurisdictions. Pending proceedings to which the Company is subject include ongoing
audits of the Companys tax returns for some of the periods affected by the restatement, and the
Company cannot predict the timing or outcome of the completion of that audit, which could result in
the imposition of additional taxes and substantial penalties. See Litigation and regulatory
inquiries associated with the restatement of the Companys prior period financial statements could
result in substantial costs, penalties and other adverse effects.
Changes in product mix and product pricing may affect the Companys operating results particularly
with the expansion of the systems business, in which the Company experiences significantly longer
sales cycles with less predictable revenue and no certainty of future revenue streams from related
consumable product offerings and services.
The Companys TFM strategy is partially reliant on sales of integrated systems. Because
systems are generally sold at lower gross margins than many other products, gross margins could
decline if systems sales continue to grow as a percentage of total sales and the anticipated future
revenue streams from related consumable product offerings and services are not realized.
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The Companys systems business generally also experiences significantly longer sales cycles
and involves less predictable revenue and less certainty of future revenue streams from related
consumable product offerings and services. In addition, the profitability of the Companys systems
sales depends substantially on the ability of management to estimate accurately the costs involved
in manufacturing and implementing the relevant system according to the customers specifications.
Company estimates can be adversely affected by disruptions in a customers plans or operations and
unforeseen events, such as manufacturing defects. Failure to accurately estimate the Companys
cost of system sales can adversely affect the profitability of those sales, and the Company may not
be able to recover lost profits through pricing or other actions.
Increases in costs of manufacturing and operating costs may affect operating results.
The Companys costs are subject to fluctuations, particularly due to changes in commodity
prices, raw materials, energy and related utilities and cost of labor. The achievement of the
Companys financial objectives is reliant on its ability to manage these fluctuations through cost
savings actions and efficiency initiatives.
The Company may not be able to achieve the savings anticipated from its cost reduction and margin
improvement initiatives, including the timing of completion of its facilities rationalization
initiative.
In fiscal year 2006, the Company began an extensive program to restructure manufacturing
operations, including the closing of up to 12 facilities around the globe. One of the purposes of
this initiative is to reduce manufacturing costs and improve gross margins. Unexpected delays or
other factors in the facilities rationalization initiative and other cost reduction initiatives
could impact the Companys ability to realize the anticipated savings and to improve or maintain
gross margins.
Fluctuations in foreign currency exchange rates and interest rates may affect operating results.
In fiscal year 2007, the Company derived 68% of sales from outside the United States. Sales
outside the United States are typically made in the local currencies of those countries. As a
result, fluctuations in currency exchange rates may affect operating results. Giving effect to
interest rate swaps, the Companys debt portfolio was approximately 42% variable rate at July 31,
2007. Fluctuations in interest rates may affect operating results.
The Company may not be able to obtain regulatory approval or market acceptance of new technologies.
Part of the Companys planned growth is dependent on new products and technologies. Some of
those new products may require regulatory approval. Growth from those new technologies may not be
realized if regulatory approval is not granted or customer demand for those products or
technologies does not materialize.
Changes in demand for the Companys products and business relationships with key customers and
suppliers, including delays or cancellations in shipments, may affect operating results.
To achieve its objectives, the Company must develop and sell products that are subject to the
demands of customers. This is dependent on many factors including, but not limited to, managing and
maintaining relationships with key customers, responding to the rapid pace of technological change
and obsolescence, which may require increased investment by or greater pressure to commercialize
developments rapidly or at prices that may not fully recover the associated investment, and the
effect on demand resulting from customers research, development and capital expenditure plans.
The manufacturing of the Companys products is dependent on an adequate supply of raw
materials. The Companys ability to maintain an adequate supply of raw materials could be impacted
by the availability and price of those raw materials and maintaining relationships with key
suppliers.
The Company may not successfully enforce patents and protect proprietary products and manufacturing
techniques.
Some of the Companys products, as well as some competitors products, are based on patented
technology and other intellectual property rights. Some of these patented technologies and
intellectual property require substantial resources to develop. Operating results may be affected
by the costs associated with the Companys defense of its intellectual property against
unauthorized use by others as well as third-party challenges to its intellectual property. The
Company could also experience disruptions in its business, including loss of revenues and adverse
effects on its prospects, if its patented or other proprietary technologies are successfully
challenged.
10
The Company may not be able to successfully complete or integrate acquisitions.
In so far as acquisition opportunities are identified, there is no assurance of the Companys
ability to complete any such transactions and successfully integrate the acquired business as
planned.
The Company is subject to domestic and international competition in all of its global markets.
The Company is subject to competition in all of the global markets in which it operates. The
Companys achievement of its objectives is reliant on its ability to successfully respond to many
competitive factors including, but not limited to, pricing, technological innovations, product
quality, customer service, manufacturing capabilities and hiring and retention of qualified
personnel.
The Company may be impacted by global and regional economic conditions and legislative, regulatory
and political developments.
The Company conducts operations around the globe. The Company expects to continue to derive a
substantial portion of sales and earnings from outside the United States. A recession in the United
States could have a negative impact on demand for the Companys products not only in the United
States, but also globally. Sales and earnings could also be affected by the Companys ability to
manage the risks and uncertainties associated with the application of local legal requirements or
the enforceability of laws and contractual obligations, trade protection measures, changes in tax
laws, regional political instability, war, terrorist activities, severe or prolonged adverse
weather conditions and natural disasters as well as health epidemics or pandemics.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
11
ITEM 2. PROPERTIES.
The following are the Companys principal facilities (i.e., facilities with square footage in
excess of 25,000 square feet), which in the opinion of management are suitable and adequate to meet
the Companys requirements:
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principally Supports |
|
|
|
|
|
|
|
|
the Following |
|
Fiscal Year 2007 |
Location |
|
PrincipalActivities (1) |
|
Business Groups (2) |
|
Square Footage |
OWNED: |
|
|
|
|
|
|
|
|
|
|
|
|
Western Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
Cortland, NY |
|
|
A |
|
|
PI |
|
|
338,000 |
|
DeLand, FL |
|
|
M |
|
|
PI |
|
|
279,000 |
|
Fajardo & Luquillo, Puerto Rico |
|
|
M,W |
|
|
PLS |
|
|
261,000 |
|
Pt. Washington, NY |
|
|
L,S |
|
|
A |
|
234,000 |
|
Ann Arbor, MI |
|
|
A |
|
|
PLS |
|
|
186,000 |
|
New Port Richey, FL |
|
|
M,S |
|
|
PI |
|
|
179,000 |
|
Timonium, MD |
|
|
M,W,S |
|
|
PI |
|
|
160,000 |
|
Ft. Myers, FL |
|
|
M,W |
|
|
PI |
|
|
111,000 |
|
Pensacola, FL |
|
|
A |
|
|
PLS |
|
|
98,000 |
|
Hauppauge, NY |
|
|
M |
|
|
PLS |
|
|
75,000 |
|
Putnam, CT |
|
|
M |
|
|
PI |
|
|
63,000 |
|
Covina, CA |
|
|
M,S |
|
|
PLS |
|
|
55,000 |
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
Bad Kreuznach, Germany |
|
|
A |
|
|
PI |
|
|
390,000 |
|
Portsmouth, U.K. |
|
|
A |
|
|
A |
|
270,000 |
|
Waldstetten, Germany |
|
|
A |
|
|
PI |
|
|
249,000 |
|
Crailsheim, Germany |
|
|
A |
|
|
PI |
|
|
215,000 |
|
Tipperary, Ireland |
|
|
M |
|
|
PI |
|
|
178,000 |
|
Redruth, U.K. |
|
|
M |
|
|
PI |
|
|
163,000 |
|
Ilfracombe, U.K. |
|
|
M |
|
|
PLS |
|
|
125,000 |
|
Newquay, U.K. |
|
|
M |
|
|
PLS |
|
|
110,000 |
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Bazet, France |
|
|
A |
|
|
PI |
|
|
96,000 |
|
Frankfurt, Germany |
|
|
W,S |
|
|
A |
|
75,000 |
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Saint Germain, France |
|
|
L,W,S |
|
|
A |
|
60,000 |
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Ascoli & Verona, Italy |
|
|
M,W,S |
|
|
A |
|
114,000 |
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Asia |
|
|
|
|
|
|
|
|
|
|
|
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Tsukuba, Japan |
|
|
M,L,W |
|
|
PI |
|
|
122,000 |
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Ahmedabad, India |
|
|
M |
|
|
PI |
|
|
175,000 |
|
LEASED: |
|
|
|
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|
|
|
|
|
|
|
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Western Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
East Hills, NY |
|
|
A |
|
|
A |
|
320,000 |
|
Cortland, NY |
|
|
M,W |
|
|
PI |
|
|
111,000 |
|
Covina, CA |
|
|
W |
|
|
PLS |
|
|
40,000 |
|
Timonium, MD |
|
|
M,W |
|
|
PI |
|
|
71,000 |
|
Baltimore, MD |
|
|
W |
|
|
PI |
|
|
41,000 |
|
San Diego, CA |
|
|
A |
|
|
PI |
|
|
26,000 |
|
Northborough, MA |
|
|
M,W |
|
|
A |
|
38,000 |
|
Humacao, Puerto Rico |
|
|
W |
|
|
PLS |
|
|
34,000 |
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
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Milan & Ascoli, Italy |
|
|
L,W,S |
|
|
A |
|
86,000 |
|
Johannesburg, South Africa |
|
|
W,S |
|
|
A |
|
96,000 |
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Madrid, Spain |
|
|
L,W,S |
|
|
A |
|
44,000 |
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Cergy, France |
|
|
A |
|
|
PLS |
|
|
43,000 |
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Saint Germain, France |
|
|
L,W,S |
|
|
A |
|
26,000 |
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Asia |
|
|
|
|
|
|
|
|
|
|
|
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Beijing, China |
|
|
M,W,S |
|
|
PI |
|
|
311,000 |
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Melbourne & Somersby, Australia |
|
|
A |
|
|
A |
|
102,000 |
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Tokyo, Osaka, Nagoya, Japan |
|
|
L,S |
|
|
A |
|
47,000 |
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Mumbai, Banglore, Pune,
Bhiwandi, India |
|
|
L,W,S |
|
|
A |
|
75,000 |
|
12
|
(1) Definition of Principal Activities
|
|
M: Manufacturing activities
|
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L: Laboratories for research & development and validation activities
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W: Warehousing activities
|
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S: Sales, marketing and administrative activities
|
|
A: All of the above |
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(2) Definition of Business Groups |
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PLS: Pall Life Sciences |
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PI: Pall Industrial |
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CS: Corporate and Shared Services |
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A: All of the above |
ITEM 3. LEGAL PROCEEDINGS.
Federal Securities Class Actions:
Four putative class action lawsuits have been filed against the Company and certain members of
its management team alleging violations of the federal securities laws relating to the Companys
understatement of certain of its U.S. income tax payments and of its provision for income taxes in
certain prior periods as described in Note 2, Audit Committee Inquiry and Restatement, to the
accompanying consolidated financial statements. These lawsuits were filed between August 14, 2007
and October 11, 2007 in the United States District Court for the Eastern District of New York. The
plaintiffs principally allege that the defendants violated the federal securities laws by issuing
materially false and misleading public statements about the Companys financial results, financial
statements, income tax liability, effective tax rate and internal controls. The plaintiffs seek
unspecified compensatory damages, costs and expenses. On October 15, 2007, various plaintiffs and
groups of plaintiffs filed motions seeking to consolidate the cases and to be appointed lead
plaintiff. These motions have not been decided.
Shareholder Derivative Lawsuits:
On October 5, 2007, two plaintiffs filed identical derivative lawsuits in New York Supreme
Court, Nassau County relating to the tax matter described above. These actions purport to bring
claims on behalf of the Company based on allegations that certain current and former directors and
officers of the Company breached their fiduciary duties by failing to evaluate and otherwise inform
themselves about the Companys internal controls and financial reporting systems and procedures.
In addition, plaintiffs allege that certain officers of the Company were unjustly enriched as a
result of the Companys inaccurate financial results over fiscal years 1999-2006. The complaints
seek unspecified compensatory damages on behalf of Pall Corporation, disgorgement of defendants
salaries, bonuses, stock grants and stock options, equitable relief and costs and expenses. The
Company, acting in its capacity as nominal defendant, moved to dismiss the complaints on December
17, 2007 for failure to make a demand upon the Companys board of directors prior to filing the
lawsuits, which motion is pending.
Another shareholder derivative lawsuit relating to the tax matter described above was filed in
the United States District Court for the Eastern District of New York on January 10, 2008. This
action purports to bring claims on behalf of the Company based on allegations that certain of the
current directors of the Company breached their fiduciary duties and were unjustly enriched in
connection with the tax matter. The complaint seeks unspecified compensatory damages on behalf of
Pall Corporation, disgorgement of defendants profits, benefits and other compensation, equitable
and non-monetary relief, and costs and expenses. The Company, acting in its capacity as nominal
defendant, moved to dismiss the complaint on March 10, 2008, for lack of subject matter
jurisdiction over the complaint, which motion is pending.
Other Proceedings:
The SEC and U.S. Attorneys Office for the Eastern District of New York are conducting
investigations in connection with the tax matter described above. The Company is cooperating with
these investigations.
Environmental Matters:
The Company has environmental matters, discussed below, at the following four U.S. sites: Ann
Arbor, Michigan; Pinellas Park, Florida; Glen Cove, New York and Hauppauge, New York.
The Companys balance sheet at July 31, 2007 contains environmental liabilities of
$18,127,000, which relate to the items discussed below. In the opinion of Company management, the
Company is in substantial compliance with applicable environmental laws and regulatory orders and
its accruals for environmental remediation are adequate at this time.
Reference is also made to Note 16, Contingencies and Commitments, to the accompanying
consolidated financial statements.
13
Ann Arbor, Michigan:
In February 1988, an action was filed in the Circuit Court for Washtenaw County, Michigan (the
Court) by the State of Michigan (the State) against Gelman Sciences Inc. (Gelman), a
subsidiary acquired by the Company in February 1997. The action sought to compel Gelman to
investigate and remediate contamination near Gelmans Ann Arbor facility and requested
reimbursement of costs the State had expended in investigating the contamination, which the State
alleged was caused by Gelmans disposal of waste water from its manufacturing process. Pursuant to
a consent judgment entered into by Gelman and the State in October 1992 (amended September 1996 and
October 1999) (the Consent Judgment), which resolved that litigation, Gelman is remediating the
contamination without admitting wrongdoing. In February 2000, the State Assistant Attorney General
filed a Motion to Enforce Consent Judgment in the Court seeking approximately $4,900,000 in
stipulated penalties for the alleged violations of the Consent Judgment and additional injunctive
relief. Gelman disputed these assertions. Following an evidentiary hearing in July 2000, the Court
took the matter of penalties under advisement. The Court issued a Remediation Enforcement Order
(the REO) requiring Gelman to submit and implement a detailed plan that will reduce the
contamination to acceptable levels within five years. Gelmans plan has been approved by both the
Court and the State. Although groundwater concentrations remain above acceptable levels in much of
the affected area, the Court has expressed its satisfaction with Gelmans progress during hearings
both before and after the five-year period expired. Neither the State nor the Court has sought or
suggested that Gelman should be penalized based on the continued presence of groundwater
contamination at the site.
In February 2004, the Court instructed Gelman to submit its Final Feasibility Study describing
how it intends to address an area of groundwater contamination not addressed by the previously
approved plan. Gelman has submitted its Feasibility Study as instructed. The State also submitted
its plan for remediating this area of contamination to the Court. On December 17, 2004, the Court
issued its Order and Opinion Regarding Remediation and Contamination of the Unit E Aquifer (the
Order) to address an area of groundwater contamination not addressed in the previously approved
plan. Gelman is now in the process of implementing the requirements of the Order.
In correspondence dated June 5, 2001, the State asserted that stipulated penalties in the
amount of $142,000 were owed for a separate alleged violation of the Consent Judgment. The Court
found that a substantial basis for Gelmans position existed and again took the States request
under advisement pending the results of certain groundwater monitoring data. That data has been
submitted to the Court, but no ruling has been issued.
On August 9, 2001, the State made a written demand for reimbursement of $227,000 it has
allegedly incurred for groundwater monitoring. On October 23, 2006, the State made another written
demand for reimbursement of these costs, which now total $494,000, with interest. In February
2007, the Company met with the State to discuss whether the State would be interested in a proposal
for a global settlement to include, among other matters, the claim for past monitoring costs
($494,000). Gelman is engaged in discussion with the State with regard to this demand, however,
Gelman considers this claim barred by the Consent Judgment.
By letter dated June 15, 2007, the Michigan Department of Environmental Quality (DEQ)
claimed Gelman was in violation of the Consent Judgment and related work plans due to its failure
to operate a groundwater extraction well in the Evergreen Subdivision at the approved minimum purge
rate. The DEQ sought to assess stipulated penalties. Gelman filed a Petition for Dispute
Resolution with the court on July 6, 2007 contesting these penalties. Prior to the hearing on
Gelmans petition, the parties met and the DEQ agreed to waive these penalties in exchange for
Gelmans agreement to perform additional investigations in the area. The Court entered a
Stipulated Order to this effect on August 7, 2007. Since then, Gelman has installed several
monitoring wells requested by the State. Representatives of Gelman and the State met on December
10, 2007 to discuss the data obtained from these wells and to plan further investigative
activities. These discussions are ongoing.
On May 12, 2004, the City of Ann Arbor (the City) filed a lawsuit against Gelman in
Washtenaw County Circuit Court. The Citys suit sought damages, including the cost of replacing a
municipal water supply well allegedly affected by the 1,4-dioxane groundwater contamination, as
well as injunctive relief in the form of an order requiring Gelman to remediate the soil and
groundwater beneath the City. In February 2006, the Court ordered the parties into a global
settlement facilitation, which also included the Citys federal court lawsuit (see below) and its
administrative challenge to Gelmans discharge permit (see below). The facilitation process
resulted in a settlement, which the parties have memorialized in a Settlement Agreement dated
November 20, 2006 (the Agreement). Under the Agreement, Gelman will pay the City $285,000.
Gelman will also implement additional surface water and groundwater monitoring programs. If this
monitoring indicates that the Citys well must be replaced (based upon agreed trigger levels of
contaminants), Gelman would be required to pay the City $4,000,000, plus an adjustment factor to
reflect any increase (or decrease) in the construction costs associated with this type of project.
The Company believes that it is unlikely that such trigger levels will be reached.
14
As part of the Agreement, the City has committed to cooperate with continuing Gelmans cleanup
efforts and exchange relevant information and documents. The cooperation framework established
under the Agreement should facilitate a better working relationship with the City and a more cost
efficient cleanup program. The state court entered a Stipulated Order of Dismissal on December 4,
2006.
On August 10, 2005, the City filed a lawsuit against Gelman under the Federal Superfund
Statute (CERCLA) seeking in this matter essentially the same relief it is seeking in the
above-described state court action. As noted above, this lawsuit was resolved as part of the
Agreement. The Federal District Court entered a Stipulated Order of Dismissal on December 5, 2006.
A local resident and the City filed petitions for a contested case on November 26, 2005 and
November 30, 2005, respectively. The petitions challenged various aspects of the discharge permit
issued to Gelman by the State on September 30, 2005. The petitions commenced an administrative
adjudicative hearing, which can result in changes to the discharge permit. Company management does
not believe there is substantive merit to the claims made in either petition. The Citys petition
was resolved under the Settlement Agreement. The local residents petition was resolved under a
separate Settlement Agreement dated February 2, 2007. Pursuant to those Agreements, the presiding
judge entered an Order of Dismissal regarding these matters on February 21, 2007, dismissing both
petitions with prejudice. Neither settlement included any changes to the discharge permit.
Pinellas Park, Florida:
In 1995, as part of a facility closure, an environmental site assessment was conducted to
evaluate potential soil and groundwater impacts from chemicals that may have been used at the
Companys Pinellas Park facility during the previous 24-year period of manufacturing and testing
operations. Methyl Isobutyl Ketone (MIBK) concentrations in groundwater were found to be higher
than regulatory levels. Soil excavation was conducted in 1998 and subsequent groundwater sampling
showed MIBK concentrations below the regulatory level.
In October 2000, environmental consultants for a prospective buyer of the property found
groundwater contamination at the Companys property. In October 2001, a Site Assessment Report
conducted by the Companys consultants, which detailed contamination concentrations and
distributions, was submitted to the Florida Department of Environmental Protection (FDEP).
In July 2002, a Supplemental Contamination Assessment Plan and an Interim Remedial Action Plan
(IRAP) were prepared by the Companys consultants and submitted to the FDEP. A revised IRAP was
submitted by the Company in December 2003, and it was accepted by the FDEP in January 2004. A
Remedial Action Plan (RAP) was submitted by the Company to the FDEP in June 2004. Final approval
by the FDEP of the Companys RAP was received by the Company on August 26, 2006. Pursuant to the
approved RAP, the Company began active remediation on the property.
On March 31, 2006, the FDEP requested that the Company investigate potential off-site
migration of contaminants. Off-site contamination was identified and the FDEP was notified. On
April 13, 2007 the FDEP reclassified the previously approved RAP as an Interim Source Removal Plan
because a RAP can only be submitted after all contamination is defined. Pursuant to the FDEPs
request in January 2007, the Company installed additional monitoring wells, both on- and off-site.
Upon completion of the monitoring activities, the Company will prepare a Site Assessment Report
Addendum, delineating the soil and groundwater contamination for FDEP review. The report will also
present the scope of all remediation tasks.
Glen Cove, New York:
A March 1994 report indicated groundwater contamination consisting of chlorinated solvents at
a neighboring site to the Companys Glen Cove facility, and later reports found groundwater
contamination in both the shallow and intermediate zones at the facility. In 1999, the Company
entered into an Order on Consent with the New York State Department of Environmental Conservation
(NYSDEC), and completed a Phase II Remedial Investigation at the Glen Cove facility.
The NYSDEC has designated two operable units (OUs) associated with the Glen Cove facility.
In March 2004, the NYSDEC finalized the Record of Decision (ROD) for the shallow and intermediate
groundwater zones, termed OU-1. The Company signed an Order on Consent for OU-1 effective July 5,
2004, which requires the Company to prepare a Remedial Design/Remedial Action (RD/RA) Work Plan
to address groundwater conditions at the Glen Cove facility.
15
The Company completed a pilot test involving the injection of a chemical oxidant into on-site
groundwater and, on May 31, 2006, submitted a report to NYSDEC entitled In-Situ Chemical Oxidation
Phase II Pilot Test and Source Evaluation Report (the Report). The Report contained data which
demonstrated that (1) in general, the pilot test successfully reduced contaminant levels and (2)
the hydraulic controls installed on the upgradient Photocircuits Corporation (Photocircuits) site
are not effective and contaminated groundwater continues to migrate from that site. On July 31,
2006, the Company received comments from NYSDEC on the Report. On September 27, 2006, the Company
submitted responses to the NYSDEC comments. On November 16, 2006, the Company met with the NYSDEC
representatives to discuss the Report and the impact of the continued migration of contaminated
groundwater from the upgradient Photocircuits site onto the Glen Cove facility. On January 26,
2007, the Company submitted a draft conceptual remedial design document for the Glen Cove facility
to NYSDEC for its technical review.
The Company met with NYSDEC representatives on April 12, 2007 to discuss a possible settlement
of liability for OU-1 and for the contamination in the deep groundwater zone, termed OU-2. NYSDEC
would not agree to settle OU-2 because a remedial investigation has not been completed. On October
23, 2007, NYSDEC requested submittal of a RD/RA Work Plan, which the Company submitted on December
20, 2007. The Company has pursued possible settlement of liability for OU-1 and met with NYSDEC
again on November 30, 2007 to present a settlement framework. On December 20, 2007, the Company
submitted a description of the settlement framework for NYSDECs further review.
The ROD for OU-2 has been deferred by NYSDEC until additional data is available to delineate
contamination and select an appropriate remedy. NYSDEC requested that the Company and
Photocircuits enter into a joint Order on Consent for the remedial investigation. Photocircuits
was not willing to enter into an Order and the Company was informed by NYSDEC that it would
undertake the OU-2 investigation at the Photocircuits property. Photocircuits is now in Chapter 11
bankruptcy and, in or about March 2006, the assets of Photocircuits Glen Cove facility were sold
to American Pacific Financial Corporation (AMPAC). AMPAC operated the facility under the
Photocircuits name, but closed it on or about April 15, 2007.
In July 2007, NYSDEC commenced the OU-2 investigation at both the Photocircuits and Pall
sites. The Company has retained an engineering consultant to oversee NYSDECs OU-2 work.
Hauppauge, New York:
On December 3, 2004, a third-party action was commenced against the Company in the United
States District Court for the Eastern District of New York in connection with groundwater
contamination. In the primary action, plaintiff Anwar Chitayat (Chitayat or the plaintiff)
seeks recovery against defendants Vanderbilt Associates and Walter Gross for environmental costs
allegedly incurred, and to be incurred, in connection with the disposal of hazardous substances
from property located in Hauppauge, New York (the Site). The Site is a property located in the
same industrial park as a Company facility. Vanderbilt Associates is the prior owner of the site
and Walter Gross was a partner in Vanderbilt Associates. Walter Gross died in May 2005, and in
August 2005, following the issuance of letters testamentary, Barbara Gross was substituted as a
third-party plaintiff. Barbara Gross claims that the Company is responsible for releasing
hazardous substances into the soil and groundwater at its property, which then migrated to the
Site. Barbara Gross seeks indemnification and contribution under Section 113 of CERCLA from
third-party defendants, including the Company, in the event she is liable to Chitayat.
Chitayat alleges that prior to 1985, Vanderbilt Associates leased the Site to Sands Textiles
Finishers, Inc. for textile manufacturing and dry cleaning. Chitayat alleges that hazardous
substances were disposed at the Site during the time period that Walter Gross and Vanderbilt
Associates owned and/or operated the Site, which migrated from the Site to surrounding areas.
Chitayat alleges that in August 1998, he entered into a Consent Order with the NYSDEC which
resulted in NYSDEC investigating the Site and developing a remediation plan, and required Chitayat
to reimburse the State via a periodic payment plan. Chitayat alleges that the total response costs
will exceed $3,000,000, and that he has incurred more than $500,000 in costs to date.
In 2005, the plaintiff moved to amend his complaint to add a claim for contribution under
Section 113 of CERCLA against the Company, and the Company opposed the proposed amendment. In
March 2006, the Court terminated the plaintiffs motion to amend, and plaintiff has not renewed his
motion. As a result, the only claim asserted against the Company is by Barbara Gross.
16
The NYSDEC has designated two OUs associated with the Site. OU-1 relates to the on-site
contamination at 90, 100 and 110 Oser Avenue, and represents the geographic area which Chitayat
alleges will result in response costs in excess of $3,000,000. OU-2 relates to off-site groundwater
contamination migrating away from the Site. In January 2006, the NYSDEC issued a ROD selecting a
remedial program for OU-2 which is projected to cost approximately $4,500,000 to implement.
Fact discovery in the case was completed in January 2006. Experts for plaintiff, Barbara
Gross, Vanderbilt Associates and the Company served expert reports in March and April 2006, and
expert discovery was concluded in May 2006. There is a dispute among the experts as to whether
contaminants from the Companys facility have contributed to cleanup costs at the Site and, if so,
to what extent. In September 2006, the Court established a briefing schedule for all parties to
submit summary judgment motions, and for Barbara Gross and the Company to make motions to strike
certain expert testimony. Third-party defendants, including the Company, filed motions for
summary judgment on October 6, 2006. The Company also filed motions to strike certain expert
testimony. Plaintiff filed opposition papers with the Court on November 6, 2006, and the moving
third-party defendants, including the Company, filed reply papers on November 20, 2006.
While the motions were pending, the parties enlisted the aid of a mediator to negotiate a
settlement of the case. The parties met with the mediator on July 30 through August 1, 2007, which
resulted in a tentative settlement agreement, subject to drafting of definitive settlement
documents. During the process of negotiating the settlement documents, a disagreement developed
between the plaintiff and the primary defendants as to the terms of establishment of the settlement
fund that had been agreed upon at the mediation. This dispute has not been resolved and the
proposed settlement has not yet been achieved.
The summary judgment motions remains pending without a decision. On September 27, 2007, the
Court issued a decision on the Companys motions in limine to preclude testimony by the experts for
plaintiff and third-party plaintiff Barbara Gross, granting the motions in part and denying them in
part.
If the settlement is completed as contemplated, the Companys responsibility will be fixed and
it will be released from further liability to the plaintiff or third-party plaintiffs. If it is
not completed and the Companys motion for summary judgment is denied, the case will continue. If
that happens, the Company will remain subject to potential liability and an allocation of some
portion of the response costs paid by plaintiff to the State of New York.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the Companys shareholders during the fourth
quarter of fiscal year 2007.
17
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The Companys common stock is listed on the New York Stock Exchange (NYSE) under the symbol
PLL. The table below sets forth quarterly data relating to the Companys common stock prices and
cash dividends declared per share for the past two fiscal years.
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends |
|
|
|
2007 |
|
|
2006 |
|
|
Declared Per Share |
|
Price per share |
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
2007 |
|
|
2006 |
|
Quarter: First |
|
$ |
32.20 |
|
|
|
25.26 |
|
|
$ |
31.20 |
|
|
$ |
25.21 |
|
|
$ |
0.11 |
|
|
$ |
0.10 |
|
Second |
|
|
35.57 |
|
|
|
30.58 |
|
|
|
29.12 |
|
|
|
25.85 |
|
|
|
0.12 |
|
|
|
0.11 |
|
Third |
|
|
42.15 |
|
|
|
33.70 |
|
|
|
31.61 |
|
|
|
27.66 |
|
|
|
0.12 |
|
|
|
0.11 |
|
Fourth |
|
|
49.00 |
|
|
|
38.43 |
|
|
|
32.44 |
|
|
|
25.61 |
|
|
|
|
|
|
|
0.11 |
|
As of March 21, 2008 there were approximately 3,631 holders of record of the Companys common
stock. Dividends are paid when, as and if declared by the board of directors of the Company. There
were no dividends declared during the fourth quarter of fiscal year 2007 due to the commencement of
the audit committee inquiry as more fully described in Note 2, Audit Committee Inquiry and
Restatement, to the accompanying consolidated financial statements. Subsequent to July 31, 2007,
the board of directors declared dividends of $0.12, $0.12, $0.12 and $0.13 per share in September
2007, October 2007, January 2008, and March 2008, respectively.
18
PERFORMANCE GRAPH
The following graph compares the annual change in the cumulative total return on the Companys
common stock during the Companys last five fiscal years with the annual change in the cumulative
total return of the Standard & Poors Composite-500 Index and the Standard & Poors Industrial
Machinery Index (which includes the Company). The graph assumes an investment of $100 on August 2,
2002 (the last trading day of the Companys fiscal year 2002) and the reinvestment of all dividends
paid during the last five fiscal years.
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|
|
|
|
2-Aug-02 |
|
|
1-Aug-03 |
|
|
30-Jul-04 |
|
|
29-Jul-05 |
|
|
31-Jul-06 |
|
|
31-Jul-07 |
|
|
Pall Corp. |
|
|
$ |
100 |
|
|
|
$ |
140 |
|
|
|
$ |
145 |
|
|
|
$ |
197 |
|
|
|
$ |
169 |
|
|
|
$ |
271 |
|
|
|
S&P 500 |
|
|
$ |
100 |
|
|
|
$ |
115 |
|
|
|
$ |
132 |
|
|
|
$ |
151 |
|
|
|
$ |
159 |
|
|
|
$ |
184 |
|
|
|
S&P Industrial Machinery |
|
|
$ |
100 |
|
|
|
$ |
125 |
|
|
|
$ |
162 |
|
|
|
$ |
175 |
|
|
|
$ |
184 |
|
|
|
$ |
237 |
|
|
|
Copyright © 2007, Standard & Poors, a division of The McGraw-Hill Companies, Inc. All rights reserved.
19
The following table provides information with respect to purchases made by or on behalf of the
Company or any affiliated purchaser of the Companys common stock during the quarter ended July
31, 2007.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
Dollar Value of Shares |
|
|
|
Total Number |
|
|
|
|
|
|
Part of Publicly |
|
|
that May Yet Be |
|
|
|
of Shares |
|
|
Average Price |
|
|
Announced Plans or |
|
|
Purchased Under the |
|
Period |
|
Purchased |
|
|
Paid Per Share |
|
|
Programs (1) |
|
|
Plans or Programs (1) |
|
May 1, 2007 to
May 31, 2007 |
|
|
19 |
|
|
$ |
41.46 |
|
|
|
19 |
|
|
|
358,232 |
|
June 1, 2007 to
June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
358,232 |
|
July 1, 2007 to
July 31, 2007 |
|
|
211 |
|
|
|
47.38 |
|
|
|
211 |
|
|
|
348,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
230 |
|
|
$ |
46.90 |
|
|
|
230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On October 14, 2004, the Companys board of directors authorized the expenditure of up
to $200,000 for the repurchase of the Companys common stock. On November 15, 2006, the
board authorized an additional expenditure of $250,000 to repurchase shares. The Companys
shares may be purchased over time, as market and business conditions warrant. There is no
time restriction on this authorization. During the fourth quarter of fiscal year 2007, the
Company purchased 230 shares in open-market transactions at an aggregate cost of $10,779,
with an average price per share of $46.90. Total repurchases in fiscal year 2007 were
1,586 shares at an aggregate cost of $61,795, with an average price per share of $38.98.
The aggregate cost of repurchases in fiscal years 2006 and 2005 was $100,727 (3,556 shares
at an average price of $28.33) and $64,246 (2,435 shares at an average price of $26.38),
respectively. As of July 31, 2007, $348,232 remains to be expended under the current board
repurchase authorizations. Repurchased shares are held in treasury for use in connection
with the Companys stock plans and for general corporate purposes. |
|
|
|
During the fourth quarter of fiscal year 2007, there were no previously issued shares
tendered in partial payment of employee stock option exercises. In fiscal year 2007, 4
shares were traded in by employees in payment of stock option exercises at an average
price of $36.98 per share and an aggregate cost of $134. |
20
ITEM 6. SELECTED FINANCIAL DATA.
The financial information presented below for the years prior to fiscal year 2007 has been
restated as set forth in this Form 10-K as more fully described in Note 2, Audit Committee Inquiry
and Restatement, to the accompanying consolidated financial statements. The Company has not amended
its previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods
affected by this restatement.
The following table sets forth selected financial data for the last five fiscal years. This
selected financial data is not necessarily indicative of results of future operations and should be
read in conjunction with Item 7, Managements Discussion and Analysis of Financial Condition and
Results of Operations, and the accompanying consolidated financial statements and related notes
included elsewhere in this Form 10-K.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
As |
|
|
As |
|
|
As |
|
|
As |
|
|
As |
|
|
As |
|
|
As |
|
|
As |
|
(In millions, except per share data) |
|
|
|
|
Reported |
|
|
Restated |
|
|
Reported |
|
|
Restated |
|
|
Reported |
|
|
Restated |
|
|
Reported |
|
|
Restated |
|
RESULTS FOR THE YEAR: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
2,249.9 |
|
|
$ |
2,016.8 |
|
|
$ |
2,016.8 |
|
|
$ |
1,902.3 |
|
|
$ |
1,902.3 |
|
|
$ |
1,770.7 |
|
|
$ |
1,770.7 |
|
|
$ |
1,613.6 |
|
|
$ |
1,613.6 |
|
Cost of sales |
|
|
1,190.5 |
(a) |
|
|
1,072.8 |
(a) |
|
|
1,072.8 |
(a) |
|
|
978.9 |
(a) |
|
|
978.9 |
(a) |
|
|
899.1 |
|
|
|
899.1 |
|
|
|
810.0 |
|
|
|
810.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,059.4 |
|
|
|
944.0 |
|
|
|
944.0 |
|
|
|
923.4 |
|
|
|
923.4 |
|
|
|
871.6 |
|
|
|
871.6 |
|
|
|
803.6 |
|
|
|
803.6 |
|
Selling, general and administrative
expenses |
|
|
675.0 |
|
|
|
641.0 |
|
|
|
641.0 |
|
|
|
621.4 |
|
|
|
621.4 |
|
|
|
583.5 |
|
|
|
583.5 |
|
|
|
536.2 |
|
|
|
536.2 |
|
Research and development |
|
|
62.4 |
|
|
|
57.3 |
|
|
|
57.3 |
|
|
|
56.2 |
|
|
|
56.2 |
|
|
|
57.3 |
|
|
|
57.3 |
|
|
|
52.2 |
|
|
|
52.2 |
|
Restructuring and other charges, net |
|
|
22.4 |
|
|
|
12.3 |
|
|
|
12.3 |
|
|
|
38.8 |
|
|
|
38.8 |
|
|
|
12.5 |
|
|
|
12.5 |
|
|
|
47.5 |
|
|
|
47.5 |
|
Interest expense, net |
|
|
39.1 |
|
|
|
23.0 |
|
|
|
30.2 |
|
|
|
25.9 |
|
|
|
30.0 |
|
|
|
20.5 |
|
|
|
23.6 |
|
|
|
24.5 |
|
|
|
27.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
260.5 |
|
|
|
210.4 |
|
|
|
203.2 |
|
|
|
181.1 |
|
|
|
177.0 |
|
|
|
197.8 |
|
|
|
194.7 |
|
|
|
143.2 |
|
|
|
139.9 |
|
Provision for income taxes |
|
|
133.0 |
|
|
|
64.9 |
|
|
|
151.1 |
|
|
|
40.3 |
|
|
|
63.3 |
|
|
|
46.2 |
|
|
|
71.0 |
|
|
|
40.0 |
|
|
|
56.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
127.5 |
(b) |
|
$ |
145.5 |
(b) |
|
$ |
52.1 |
(b) |
|
$ |
140.8 |
|
|
$ |
113.7 |
|
|
$ |
151.6 |
|
|
$ |
123.7 |
|
|
$ |
103.2 |
|
|
$ |
83.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
1.04 |
|
|
|
1.16 |
|
|
|
0.42 |
|
|
|
1.13 |
|
|
|
0.91 |
|
|
|
1.21 |
|
|
|
0.98 |
|
|
|
0.84 |
|
|
|
0.67 |
|
Diluted |
|
|
1.02 |
|
|
|
1.16 |
|
|
|
0.41 |
|
|
|
1.12 |
|
|
|
0.91 |
|
|
|
1.20 |
|
|
|
0.98 |
|
|
|
0.83 |
|
|
|
0.67 |
|
Dividends declared per share |
|
|
0.35 |
|
|
|
0.43 |
|
|
|
0.43 |
|
|
|
0.39 |
|
|
|
0.39 |
|
|
|
0.36 |
|
|
|
0.36 |
|
|
|
0.36 |
|
|
|
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
97.8 |
|
|
|
96.0 |
|
|
|
96.0 |
|
|
|
86.2 |
|
|
|
86.2 |
|
|
|
61.3 |
|
|
|
61.3 |
|
|
|
62.2 |
|
|
|
62.2 |
|
Depreciation and amortization of
long-lived assets |
|
|
94.0 |
|
|
|
95.7 |
|
|
|
95.7 |
|
|
|
90.9 |
|
|
|
90.9 |
|
|
|
88.9 |
|
|
|
88.9 |
|
|
|
83.9 |
|
|
|
83.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR-END POSITION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
774.2 |
|
|
$ |
846.2 |
|
|
$ |
653.3 |
|
|
$ |
703.3 |
|
|
$ |
598.1 |
|
|
$ |
629.3 |
|
|
$ |
542.7 |
|
|
$ |
516.9 |
|
|
$ |
458.3 |
|
Property, plant and equipment, net |
|
|
607.9 |
|
|
|
621.0 |
|
|
|
621.0 |
|
|
|
608.8 |
|
|
|
608.8 |
|
|
|
600.4 |
|
|
|
600.4 |
|
|
|
600.2 |
|
|
|
600.2 |
|
Total assets |
|
|
2,708.8 |
|
|
|
2,552.9 |
|
|
|
2,461.3 |
|
|
|
2,265.3 |
|
|
|
2,185.3 |
|
|
|
2,182.7 |
|
|
|
2,112.7 |
|
|
|
2,016.7 |
|
|
|
1,983.9 |
|
Long-term debt, net of current
portion |
|
|
591.6 |
|
|
|
640.0 |
|
|
|
640.0 |
|
|
|
510.2 |
|
|
|
510.2 |
|
|
|
488.7 |
|
|
|
488.7 |
|
|
|
489.9 |
|
|
|
489.9 |
|
Total liabilities |
|
|
1,648.2 |
|
|
|
1,374.2 |
|
|
|
1,524.2 |
|
|
|
1,125.3 |
|
|
|
1,193.2 |
|
|
|
1,128.3 |
|
|
|
1,179.2 |
|
|
|
1,082.2 |
|
|
|
1,142.2 |
|
Stockholders equity |
|
|
1,060.6 |
|
|
|
1,178.7 |
|
|
|
937.1 |
|
|
|
1,140.0 |
|
|
|
992.1 |
|
|
|
1,054.4 |
|
|
|
933.5 |
|
|
|
934.5 |
|
|
|
841.6 |
|
|
|
|
a) |
|
Includes $2.8, $1.7 and $0.8 of adjustments recorded in cost of sales in fiscal years
2007, 2006 and 2005, respectively. The adjustments include a one-time purchase accounting
adjustment to record, at market value, inventory acquired from the BioSepra® Process
Division (BioSepra) of Ciphergen Biosystems, Inc. This resulted in a $2.4 increase in
acquired inventories in fiscal year 2005, in accordance with SFAS No. 141, Business
Combinations (SFAS No. 141), in the opening balance sheet and an increase in cost of
sales of $0.6, $0.9 and $0.8 in fiscal years 2007, 2006 and 2005, respectively, concurrent
with the sale of a portion of the underlying inventory. The adjustment is considered
non-recurring in nature because, although the Company acquired the manufacturing operations
of BioSepra, this adjustment was required by SFAS No. 141 as an elimination of the
manufacturing profit in inventory acquired from BioSepra and subsequently sold in the
period. The adjustments recorded in cost of sales also reflect $2.2 and $0.8 in fiscal
years 2007 and 2006, respectively, primarily comprised of incremental depreciation from the
planned early retirement of certain fixed assets recorded in conjunction with the Companys
facilities rationalization initiatives in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144). |
|
b) |
|
Effective August 1, 2005, the Company adopted SFAS 123(R), Share Based Payment (SFAS
No. 123(R)). The years ended July 31, 2007 and July 31, 2006 include stock-based
compensation expense related to stock options and the employee stock purchase plan of $4.7
and $7.2, respectively, after pro forma tax effect (4 and 6 cents per share, respectively). |
|
c) |
|
In addition, the following tables set forth the effects of the restatement on the
provision for income taxes, interest expense, net, and net earnings line items in the
Companys consolidated statements of earnings for each of the fiscal years impacted not
presented above: |
21
In thousands, except per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net, as |
|
Adjustment to interest |
|
Interest expense, net, as |
|
|
previously reported |
|
expense, net |
|
restated |
Year ended July 31, 1999 |
|
$ |
13,015 |
|
|
$ |
3 |
|
|
$ |
13,018 |
|
Year ended July 29, 2000 |
|
|
14,077 |
|
|
|
1,088 |
|
|
|
15,165 |
|
Year ended July 28, 2001 |
|
|
16,643 |
|
|
|
2,046 |
|
|
|
18,689 |
|
Year ended August 3, 2002 |
|
|
14,331 |
|
|
|
2,515 |
|
|
|
16,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes, |
|
Adjustment to provision |
|
Provision for income |
|
|
as previously reported |
|
for income taxes |
|
taxes, as restated |
Year ended July 31, 1999 |
|
$ |
7,397 |
|
|
$ |
5,961 |
|
|
$ |
13,358 |
|
Year ended July 29, 2000 |
|
|
41,768 |
|
|
|
18,452 |
|
|
|
60,220 |
|
Year ended July 28, 2001 |
|
|
32,310 |
|
|
|
16,734 |
|
|
|
49,044 |
|
Year ended August 3, 2002 |
|
|
26,741 |
|
|
|
25,880 |
|
|
|
52,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, as previously |
|
Adjustment to |
|
Net earnings, |
|
|
reported |
|
net earnings |
|
as restated |
Year ended July 31, 1999 |
|
$ |
51,507 |
|
|
$ |
(5,964 |
) |
|
$ |
45,543 |
|
Year ended July 29, 2000 |
|
|
146,636 |
|
|
|
(19,540 |
) |
|
|
127,096 |
|
Year ended July 28, 2001 |
|
|
118,010 |
|
|
|
(18,780 |
) |
|
|
99,230 |
|
Year ended August 3, 2002 |
|
|
73,234 |
|
|
|
(28,395 |
) |
|
|
44,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share, as |
|
Adjustment to basic |
|
Basic earnings per share, |
|
|
previously reported |
|
earnings per share |
|
as restated |
Year ended July 31, 1999 |
|
$ |
0.41 |
|
|
$ |
(0.04 |
) |
|
$ |
0.37 |
|
Year ended July 29, 2000 |
|
|
1.18 |
|
|
|
(0.15 |
) |
|
|
1.03 |
|
Year ended July 28, 2001 |
|
|
0.96 |
|
|
|
(0.15 |
) |
|
|
0.81 |
|
Year ended August 3, 2002 |
|
|
0.60 |
|
|
|
(0.23 |
) |
|
|
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share, |
|
Adjustment to diluted |
|
Diluted earnings per |
|
|
as previously reported |
|
earnings per share, |
|
share, as restated |
Year ended July 31, 1999 |
|
$ |
0.41 |
|
|
$ |
(0.04 |
) |
|
$ |
0.37 |
|
Year ended July 29, 2000 |
|
|
1.18 |
|
|
|
(0.16 |
) |
|
|
1.02 |
|
Year ended July 28, 2001 |
|
|
0.95 |
|
|
|
(0.15 |
) |
|
|
0.80 |
|
Year ended August 3, 2002 |
|
|
0.59 |
|
|
|
(0.23 |
) |
|
|
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency |
|
Net impact to |
|
|
Retained earnings |
|
translation |
|
stockholders equity |
Year ended July 31, 1999 |
|
$ |
(5,964 |
) |
|
$ |
|
|
|
$ |
(5,964 |
) |
Year ended July 29, 2000 |
|
|
(25,504 |
) |
|
|
|
|
|
|
(25,504 |
) |
Year ended July 28, 2001 |
|
|
(44,284 |
) |
|
|
|
|
|
|
(44,284 |
) |
Year ended August 3, 2002 |
|
|
(72,679 |
) |
|
|
|
|
|
|
(72,679 |
) |
Year ended August 2, 2003 |
|
|
(92,877 |
) |
|
|
(49 |
) |
|
|
(92,926 |
) |
Year ended July 31, 2004 |
|
|
(120,768 |
) |
|
|
(157 |
) |
|
|
(120,925 |
) |
Year ended July 31, 2005 |
|
|
(147,881 |
) |
|
|
(13 |
) |
|
|
(147,894 |
) |
22
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Forward-Looking Statements and Risk Factors
You should read the following discussion together with the accompanying consolidated financial
statements and notes thereto and other financial information in this Form 10-K. The discussions
under the subheadings Review of Operating Segments below are in local currency unless indicated
otherwise. Company management considers local currency growth an important measure because by
excluding the volatility of exchange rates, underlying volume change is clearer. Dollar amounts
discussed below are in thousands, unless otherwise indicated, except per share dollar amounts. In
addition, per share dollar amounts are discussed on a diluted basis.
The matters discussed in this Annual Report on Form 10-K contain forward-looking statements
as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements
contained in this and other written and oral reports are based on current Company expectations and
are subject to risks and uncertainties, which could cause actual results to differ materially. All
statements regarding future performance, earnings projections, earnings guidance, managements
expectations about its future cash needs and effective tax rate, and other future events or
developments are forward-looking statements. Such risks and uncertainties include, but are not
limited to: risks relating to the Companys restatement of prior period financial statements,
including the risks associated with the pending IRS audit and pending SEC and Department of Justice
investigations and litigation proceedings; risks associated with the Companys planned cash
management initiatives, which may result in changes in the Companys effective tax rate; changes in
product mix and product pricing may affect the Companys operating results particularly as the
systems business expands in which significantly longer sales cycles are experienced with less
predictable revenue and profitability and less certainty of future revenue streams from related
consumable product offerings and services; increases in costs of manufacturing and operating costs,
including energy and raw materials; the Companys ability to achieve the savings anticipated from
its cost reduction and margin improvement initiatives including the timing of completion of its
facilities rationalization initiative; fluctuations in foreign currency exchange rates and interest
rates; regulatory approval or market acceptance of new technologies; changes in demand for the
Companys products and business relationships with key customers and suppliers including delays or
cancellations in shipments; success in enforcing patents and protecting proprietary products and
manufacturing techniques; risks associated with the completion or integration of acquisitions;
domestic and international competition; and global and regional economic conditions, including
particularly the impact of current challenging conditions in the United States that may also have
global implications; and legislative, regulatory and political developments. The Company makes
these statements as of the date of this disclosure and undertakes no obligation to update them.
Audit Committee Inquiry and Restatement
As previously discussed in this Form 10-K, an inquiry was conducted by the Companys audit
committee into the Companys understatement of its U.S. federal income tax payments and its
provision for income taxes. The audit committee completed its inquiry in January 2008. On August 1,
2007, the audit committee, on the recommendation of management, concluded that the Companys
previously issued financial statements for each of the eight fiscal years in the period ended July
31, 2006 (including the interim periods within those years), and for each of the fiscal quarters
ended October 31, 2006, January 31, 2007 and April 30, 2007, should no longer be relied upon.
Accordingly, the Company has restated its previously issued financial statements for those
periods. The Company has not amended its previously filed Annual Reports on Form 10-K or Quarterly
Reports on Form 10-Q for the periods affected by this restatement. The discussion of financial
information related to fiscal years prior to fiscal year 2007 has been restated as set forth in
this Form 10-K as more fully described in Note 2, Audit Committee Inquiry and Restatement, to the
accompanying consolidated financial statements. Restated amounts have been identified with the
wording as restated.
23
Business Reorganization
During fiscal year 2005, the Company undertook to reorganize its global business structure
into three underlying vertically integrated businesses: Life Sciences, comprising Medical and
BioPharmaceuticals markets; Aeropower, comprising Aerospace and the Machinery & Equipment portion
of the General Industrial marketplace; and Process Technologies, comprising General Industrials
Food & Beverage, Fuels & Chemicals, Power Generation, Municipal Water and Microelectronics markets.
In fiscal year 2006, management began a further integration of the Industrial markets (Aeropower
and Process Technologies) to form one vertically integrated Industrial business. In conjunction
with the reorganization, in the first quarter of fiscal year 2007, the Industrial sales and
marketing group was reorganized such that a portion of the commercial OEM business previously
tended to by, and reported in, the General Industrial market was tended to by, and reported in, a
realigned market called Aerospace & Transportation. At the end of the first quarter of fiscal year
2007, the reorganization was completed. Each business now has full responsibility for its global
manufacturing, sales and marketing, and research and development functions, enabling the Company to
better meet its customers needs and achieve greater efficiencies and profit growth. This revised
organizational structure is in contrast to the former matrix organizational structure where, within
each geography, these functions supported the market-based part of the matrix on a shared basis (as
opposed to being directly vertically integrated into these businesses).
The Companys financial reporting systems have been converted to support the new
organizational structure, providing financial information consistent with how the financial results
of the businesses will be measured. Additionally, certain of the internal segment financial
reporting principles utilized in the measurement and evaluation of the profitability of the
Companys businesses (such as the allocation of shared overhead costs) have been revised for
consistency with the underlying reorganized structure of the Company. The chief executive officer
manages the Company and makes key decisions about the allocation of Company resources based on the
two businesses. The Companys sales subsidiaries sell both Life Sciences and Industrial products.
As such, certain overhead costs of these subsidiaries have been, and will continue to be, shared by
the businesses.
Consistent with the new corporate structure, management has determined that the Companys
reportable segments, which are also its operating segments, consist of its two vertically
integrated businesses, Life Sciences and Industrial, in accordance with the provisions of SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information.
Critical Accounting Policies and Estimates
The Companys accompanying consolidated financial statements are prepared in accordance with
U.S. generally accepted accounting principles. These accounting principles require the Company to
make certain estimates and assumptions that affect the reported amounts of assets and liabilities
at the date of the accompanying consolidated financial statements, as well as the reported amounts
of revenues and expenses during the periods presented. Although these estimates are based on
Company managements knowledge of current events and actions it may undertake in the future, actual
results may differ from estimates. The following discussion addresses the Companys most critical
accounting policies, which are those that are most important to the portrayal of the Companys
financial condition and results, and that require judgment. See also the notes to the accompanying
consolidated financial statements, which contain additional information regarding the Companys
accounting policies.
Income Taxes
Significant judgment is required in determining the worldwide provision for income taxes. In
the ordinary course of a global business, there are many transactions and calculations where the
ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue
sharing and cost reimbursement arrangements among related entities, the process of identifying
items of revenue and expense that qualify for preferential tax treatment and appropriate
segregation of foreign and domestic income and expense to avoid double taxation. No assurance can
be given that the final tax outcome of these matters will not be different than that which is
reflected in the Companys historical income tax provisions and accruals. Such differences could
have a material effect on the Companys income tax provision and net earnings in the period in
which a final determination is made.
24
The Company records a valuation allowance to reduce deferred tax assets to the amount of the future
tax benefit that is more likely than not to be realized. While Company management has considered
future taxable income and ongoing prudent and feasible tax planning strategies in assessing the
need for the valuation allowance, there is no assurance that the valuation allowance would not need
to be increased to cover additional deferred tax assets that may not be realizable. Any increase in
the valuation allowance could have a material adverse impact on the Companys income tax provision
and net earnings in the period in which such determination is made.
Purchase Accounting and Goodwill
Determining the fair value of certain assets and liabilities acquired in a business
combination in accordance with SFAS No. 141 is judgmental in nature and often involves the use of
significant estimates and assumptions. There are various methods used to estimate the value of
tangible and intangible assets acquired, such as discounted cash flow and market multiple
approaches. Some of the more significant estimates and assumptions inherent in the two approaches
include: projected future cash flows (including timing); discount rates reflecting the risk
inherent in the future cash flows; perpetual growth rate; determination of appropriate market
comparables; and the determination of whether a premium or a discount should be applied to
comparables. There are also judgments made to determine the expected useful lives assigned to each
class of assets and liabilities acquired.
Goodwill is measured as the excess of the cost of acquisition over the sum of the amounts
assigned to identifiable assets acquired less liabilities assumed. The Company performs goodwill
impairment tests at least annually, including whenever events or circumstances indicate impairment
might have occurred. In response to changes in industry and market conditions, the Company may
strategically realign its resources and consider restructuring, disposing of, or otherwise exiting
businesses, which could result in an impairment of goodwill. Based on impairment tests performed,
there was no impairment of goodwill in fiscal years 2007, 2006 and 2005.
Revenue Recognition
Revenue is recognized when title and risk of loss have transferred to the customer and when
contractual terms have been fulfilled. Transfer of title and risk of loss occurs when the product
is delivered in accordance with the contractual shipping terms. In instances where contractual
terms include a provision for customer acceptance, revenue is recognized when either (i) the
Company has previously demonstrated that the product meets the specified criteria for contracts
with acceptance provisions based on either seller or customer-specified objective criteria or (ii)
upon formal acceptance received from the customer for contracts with acceptance provisions where
the product has not been previously demonstrated to meet customer-specified objective criteria.
Revenue for contracts which are accounted for under the percentage of completion method is based
upon the ratio of costs incurred to date compared with estimated total costs to complete. The
cumulative impact of revisions to total estimated costs is reflected in the period of the change,
including anticipated losses.
Allowance for Doubtful Accounts
Company management evaluates its ability to collect outstanding receivables and provide
allowances when collection becomes doubtful. In performing this evaluation, significant estimates
are involved, including an analysis of specific risks on a customer-by-customer basis. Based upon
this information, Company management records in earnings an amount believed to be uncollectible. If
the historical data used to calculate the allowance provided for doubtful accounts does not reflect
the future ability to collect outstanding receivables, additional provisions for doubtful accounts
may be needed and the future results of operations could be materially affected.
Inventories
Inventories are valued at the lower of cost (principally on the first-in, first-out method) or
market. The Company records adjustments to the carrying value of inventory based upon assumptions
about historic usage, future demand and market conditions. These adjustments are estimates which
could vary significantly, either favorably or unfavorably, from actual requirements if future
conditions, customer inventory levels or competitive conditions differ from the Companys
expectations.
25
Recoverability of Available-for-Sale Investments
Other than temporary losses relating to available-for-sale investments are recognized in
earnings when Company management determines that the recoverability of the cost of the investment
is unlikely. Such losses could result in a material adjustment in the period of the change. Company
management considers numerous factors, on a case-by-case basis, in evaluating whether the decline
in market value of an available-for-sale security below cost is other than temporary. Such factors
include, but are not limited to, (i) the length of time and the extent to which the market value
has been less than cost; (ii) the financial condition and the near-term prospects of the issuer of
the investment; and (iii) whether Company management intends to retain the investment for a period
of time that is sufficient to allow for any anticipated recovery in market value.
Defined Benefit Retirement Plans
The Company sponsors defined benefit retirement plans in various forms covering substantially
all employees who meet eligibility requirements. Several statistical and other factors that attempt
to anticipate future events are used in calculating the expense and liabilities related to those
plans for which the benefit is actuarially determined (i.e., defined benefit plans). These factors
include assumptions about the discount rate, expected return on plan assets and rate of future
compensation increases as determined by the Company, within certain guidelines. In addition, the
Companys actuarial consultants also use subjective factors, such as withdrawal and mortality
rates, to calculate the liabilities and expense. The actuarial assumptions used by the Company are
long-term assumptions and may differ materially from actual experience in the short-term due to
changing market and economic conditions and changing participant demographics. These differences
may have a significant effect on the amount of pension expense recorded by the Company.
Pension expense associated with the Companys defined benefit plans was $30,314 in fiscal year
2007, which was based on a weighted average discount rate of 5.34% (calculated using the projected
benefit obligation) and a weighted average expected long-term rate of return on plan assets of
6.66% (calculated using the fair value of plan assets).
The expected rates of return on the various defined benefit pension plans assets are based on
the asset allocation of each plan and the long-term projected return of those assets. If the
expected long-term rate of return on plan assets was reduced by 50 basis points, projected pension
expense in fiscal year 2007 would have increased approximately $1,500.
The objective of the discount rate assumption is to reflect the rate at which the pension
benefits could be effectively settled. The Companys methodology for selecting the discount rate
for the U.S. plans as of July 31, 2007 was to match the plans cash flows to that of a yield curve
that provides the equivalent yields on zero-coupon corporate bonds for each maturity. Benefit cash
flows due in a particular year can be settled theoretically by investing them in the
zero-coupon bond that matures in the same year. The discount rate is the single rate that produces
the same present value of cash flows. The discount rate assumption for non-U.S. plans reflects the
market rate for high-quality, fixed-income debt instruments. Both discount rate assumptions are
based on the expected duration of benefit payments for each of the Companys pension plans as of
the annual measurement date and is subject to change each year. If the weighted average discount
rate was reduced by 50 basis points, pension expense in fiscal year 2007 would have increased by
approximately $3,800.
Accrued Expenses and Contingencies
Company management estimates certain material expenses in an effort to record those expenses
in the period incurred. When no estimate in a given range is deemed to be better than any other,
the low end of the range is accrued.
The accrual requiring the most judgmental estimation relates to environmental proceedings.
Environmental accruals are recorded based upon historical costs incurred and estimates for future
costs of remediation and on-going legal expenses which have a high degree of uncertainty.
Self-insured workers compensation insurance accruals are recorded based on insurance claims
processed, including applied loss development factors as well as historical claims experience for
claims incurred but not yet reported. Self-insured employee medical insurance accruals are recorded
based on medical claims processed as well as historical medical claims experience for claims
incurred but not yet reported. Differences between estimates and assumptions and actual results
could result in an accrual requirement materially different from the calculated accrual.
26
Results of Operations 2007 Compared with 2006
Review of Consolidated Results
Sales for the fiscal year 2007 increased 11.6% to $2.2 billion from $2 billion in fiscal year
2006. Exchange rates increased reported sales by $71,804, primarily due to the weakening of the
U.S. dollar against the Euro, the British Pound and various Asian currencies, partly offset by the
strengthening of the U.S. dollar against the Japanese Yen. In local currency (i.e., had exchange
rates not changed year over year), sales increased 8%. Increased pricing, primarily in the Life
Sciences segment, contributed about 0.5% to overall sales growth in the year.
Life Sciences segment sales increased 7% (in local currency) attributable to growth in both
the BioPharmaceuticals and Medical markets. Industrial segment sales increased 8.7% (in local
currency) with all markets contributing to the growth. Overall systems sales increased 25.8%,
representing 10.4% of total sales in fiscal year 2007 compared to 8.9% in fiscal year 2006,
primarily attributable to strong sales in the General Industrial market. Company management expects
overall sales in local currency to increase in the mid-single digit range in fiscal year 2008, with
growth in Industrial outpacing Life Sciences. For a detailed discussion of sales, refer to the
section Review of Operating Segments below.
Gross margin, as a percentage of sales, was 47.1% in fiscal year 2007 compared to 46.8% in
fiscal year 2006. The improvement in gross margin reflects an overall increase in pricing of about
0.5%, driven by both segments which contributed approximately 14 basis points to gross margin, and
savings generated from the Companys facilities rationalization initiatives. In fiscal year 2007,
the Company completed the outsourcing and closure of plants in Hamburg and Rostock, Germany and a
plant in Ternay, France and has also announced the closure of a plant in Waldstetten, Germany.
Additionally, gross margin has been favorably impacted by the Companys many manufacturing
continuous improvement initiatives, including lean initiatives to improve labor productivity (and,
therefore, reduce labor cost), and cost reduction initiatives focused on procurement improvements
to reduce direct material and freight costs and movement of certain activities to lower cost
countries to also reduce labor costs. In addition, initiatives to improve the profitability of
systems sales included product rationalization of less profitable systems. These factors are partly
offset by the impact of the significant growth in systems sales, which typically have lower margins
than consumables, and incremental costs related to the facilities rationalization initiative that
include incremental depreciation (on assets to be retired earlier than originally estimated) and
training. The incremental costs related to the facilities rationalization initiative are expected
to continue into fiscal year 2008 as the Company makes progress on this initiative. Company
management expects gross margin to be flat to slightly improved in fiscal year 2008 as the impact
of pricing initiatives and the various cost reduction initiatives described above is offset by the
impact of the expected growth in systems sales.
Selling, general and administrative (SG&A) expenses in fiscal year 2007 increased by
$33,975, or about 5% (approximately 2% in local currency). As a percentage of sales, SG&A expenses
decreased to 30% from 31.8% in fiscal year 2006 reflecting cost controls combined with increasing
sales. The Company continued a major initiative, begun in fiscal year 2006, to optimize its
European operations (EuroPall) with the objective of delivering improvements in profitability,
with much of the benefit showing through in fiscal year 2007. In fiscal year 2007, the Company
launched the equivalent of this program in the Western Hemisphere (AmeriPall). The objectives of
these initiatives are to revamp the Companys shared service and corporate infrastructure to create
more efficient operations at a reduced cost. Company management is expecting SG&A expenses, as a
percentage of sales, in fiscal year 2008 to decrease approximately 100 basis points compared to
fiscal year 2007 as the various cost savings initiatives, particularly AmeriPall, progress.
Research and development (R&D) expenses were $62,414 in fiscal year 2007 compared to $57,371
in fiscal year 2006, up just under 9% year over year (approximately 7% in local currency). As a
percentage of sales, R&D expenses were 2.8%, on par with fiscal year 2006. In fiscal year 2008,
Company management expects R&D expenses in fiscal year 2008 to increase approximately 15% compared
to fiscal year 2007.
In fiscal year 2007, the Company recorded restructuring and other charges (ROTC) of $22,352,
primarily related to the Companys on-going cost reduction initiatives (including its facilities
rationalization, EuroPall and AmeriPall initiatives). The ROTC recorded in fiscal year 2007 was
primarily comprised of severance liabilities, impairment charges related to the planned disposal of
buildings and early retirement of certain long-lived assets, and other costs in connection with
such initiatives. Additionally, the charges in fiscal year 2007 include an increase to previously
established environmental reserves. Such charges were partly offset by the gain on the sale of the
Companys corporate headquarters, an insurance settlement related to an environmental matter, and
the reversal of excess restructuring reserves recorded in the accompanying consolidated statements
of earnings in fiscal years 2005 and 2006.
27
In fiscal year 2006, the Company recorded ROTC of $12,326, primarily comprised of severance
and other costs in connection with the Companys divisional realignment and on-going cost reduction
initiatives (including its facilities rationalization and EuroPall initiatives), partly offset by
the reversal of excess restructuring reserves recorded in fiscal year 2005. In addition, the
charges include an increase to previously established environmental reserves. ROTC also includes a
gain on the sale of the Companys stock rights in Satair A/S (Satair), which was recorded in the
second quarter, as well as a gain on the sale of the Companys investment in Panacos
Pharmaceuticals, Inc., formerly known as V.I. Technologies, Inc. (VITEX), that was recorded in
the first quarter.
The details of ROTC for the years ended July 31, 2007, July 31, 2006 and July 31, 2005 can be
found in Note 5, Restructuring and Other Charges, Net, to the accompanying consolidated financial
statements. The following table summarizes the activity related to restructuring liabilities that
were recorded in fiscal years 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease |
|
|
|
|
|
|
|
|
|
|
Termination |
|
|
|
|
|
|
|
|
|
|
Liabilities & |
|
|
|
|
|
|
Severance |
|
|
Other |
|
|
Total |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Original charge (a) |
|
$ |
22,083 |
|
|
$ |
4,321 |
|
|
$ |
26,404 |
|
Utilized |
|
|
(6,146 |
) |
|
|
(3,573 |
) |
|
|
(9,719 |
) |
Other changes (b) |
|
|
611 |
|
|
|
9 |
|
|
|
620 |
|
|
|
|
|
|
|
|
|
|
|
Balance at Jul. 31, 2007 |
|
$ |
16,548 |
|
|
$ |
757 |
|
|
$ |
17,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Original charge |
|
$ |
13,335 |
|
|
$ |
3,043 |
|
|
$ |
16,378 |
|
Utilized |
|
|
(7,221 |
) |
|
|
(2,900 |
) |
|
|
(10,121 |
) |
Other changes (b) |
|
|
182 |
|
|
|
9 |
|
|
|
191 |
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2006 |
|
|
6,296 |
|
|
|
152 |
|
|
|
6,448 |
|
Utilized |
|
|
(2,712 |
) |
|
|
(108 |
) |
|
|
(2,820 |
) |
Reversal of excess reserves
(c) |
|
|
(1,385 |
) |
|
|
(40 |
) |
|
|
(1,425 |
) |
Other changes (b) |
|
|
126 |
|
|
|
2 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
Balance at Jul. 31, 2007 |
|
$ |
2,325 |
|
|
$ |
6 |
|
|
$ |
2,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Original charge |
|
$ |
17,496 |
|
|
$ |
2,928 |
|
|
$ |
20,424 |
|
Utilized |
|
|
(8,404 |
) |
|
|
(2,739 |
) |
|
|
(11,143 |
) |
Other changes (b) |
|
|
(86 |
) |
|
|
4 |
|
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2005 |
|
|
9,006 |
|
|
|
193 |
|
|
|
9,199 |
|
Utilized |
|
|
(3,243 |
) |
|
|
(87 |
) |
|
|
(3,330 |
) |
Reversal of excess reserves (c) |
|
|
(1,905 |
) |
|
|
(96 |
) |
|
|
(2,001 |
) |
Other changes (b) |
|
|
57 |
|
|
|
3 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2006 |
|
|
3,915 |
|
|
|
13 |
|
|
|
3,928 |
|
Utilized |
|
|
(2,531 |
) |
|
|
|
|
|
|
(2,531 |
) |
Reversal of excess reserves (c) |
|
|
(811 |
) |
|
|
(15 |
) |
|
|
(826 |
) |
Other changes (b) |
|
|
31 |
|
|
|
2 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
Balance at Jul. 31, 2007 |
|
$ |
604 |
|
|
$ |
|
|
|
$ |
604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes $757 related to pension liabilities. |
|
(b) |
|
Other changes primarily reflect translation impact. |
|
(c) |
|
Reflects the reversal of excess restructuring reserves originally recorded in fiscal
years 2005 and 2006. |
Earnings before interest and income taxes (EBIT) in fiscal year 2007 increased about 28% to
$299,585 from $233,353 in fiscal year 2006. The increase in EBIT reflects the impact of sales
growth, including increased pricing and an improvement in cost of sales and SG&A as a percentage of
sales. These factors were partly offset by an increase in ROTC that was primarily related to the
Companys cost reduction initiatives.
28
Net interest expense in fiscal year 2007 increased to $39,056 from $30,123 in fiscal year 2006
(as restated). The comparison of net interest expense compared to fiscal year 2006 reflects an
increase in interest expense of approximately $14,600 related to the tax matter as discussed in
Note 2, Audit Committee Inquiry and Restatement, to the accompanying consolidated financial
statements. The impact of a reduction in average net debt levels as compared to fiscal year 2006
and a slight decrease in interest rates, due to the movement of debt to lower interest rate
countries in the fourth quarter of fiscal year 2006, partly offset the above. Company management
expects net interest expense in fiscal year 2008 to increase compared to fiscal year 2007.
In fiscal year 2007, the Companys effective tax rate was 51.1% as compared to 74.3% (as
restated) in fiscal year 2006. The decrease in the effective tax rate was primarily due to an
incremental provision for income taxes in fiscal year 2006 related to $398,000 of foreign earnings
intended to qualify for repatriation under the Homeland Investment Act (see Note 2, Audit Committee
Inquiry and Restatement, to the accompanying consolidated financial statements for further details)
and unpaid intercompany balances that resulted from sales of products by a foreign subsidiary of
the Company to a U.S. subsidiary of the Company that gave rise to deemed dividend income (see Note
2, Audit Committee Inquiry and Restatement, to the accompanying consolidated financial statements
for further details). These decreases were partially offset by a charge taken in fiscal year 2007
for the net tax cost of the anticipated repatriation of approximately $160,000 of foreign earnings
which had previously been asserted to be indefinitely reinvested (see Note 13, Income Taxes, to the
accompanying consolidated financial statements for further details) and a change in estimate in
fiscal year 2007 of the amount of profit the Company expects to derive in Puerto Rico in light of
the repeal of benefits previously realized by the Company under Section 936 of the Internal Revenue
Code and attendant revisions by the IRS of audit practices. See Note 13, Income Taxes, to the
accompanying consolidated financial statements for further details on the components of the
Companys effective tax rate. The Company expects its effective
tax rate to be approximately 33%
in fiscal year 2008, however, the actual effective tax rate may materially differ based on
non-recurring, discrete items.
Net earnings in fiscal year 2007 were $127,497, or $1.02 per share, compared with net earnings
of $52,140, or 41 cents per share in fiscal year 2006 (as restated). In summary, the increase in
net earnings reflects the increase in EBIT and a decrease in income taxes as discussed above. These
factors were partly offset by an increase in net interest expense as discussed above. Company
management estimates that foreign currency translation increased net earnings by approximately 4
cents per share.
Review of Operating Segments
The following table presents sales and operating profit by segment for the fiscal years ended
July 31, 2007 and July 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
|
% |
|
|
|
2007 |
|
|
Margin |
|
|
2006 |
|
|
Margin |
|
|
Change |
|
SALES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences |
|
$ |
880,187 |
|
|
|
|
|
|
$ |
796,305 |
|
|
|
|
|
|
|
10.5 |
|
Industrial |
|
|
1,369,718 |
|
|
|
|
|
|
|
1,220,525 |
|
|
|
|
|
|
|
12.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,249,905 |
|
|
|
|
|
|
$ |
2,016,830 |
|
|
|
|
|
|
|
11.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING PROFIT (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences |
|
$ |
165,286 |
|
|
|
18.8 |
|
|
$ |
138,439 |
|
|
|
17.4 |
|
|
|
19.4 |
|
Industrial |
|
|
204,114 |
|
|
|
14.9 |
|
|
|
150,596 |
|
|
|
12.3 |
|
|
|
35.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit |
|
|
369,400 |
|
|
|
16.4 |
|
|
|
289,035 |
|
|
|
14.3 |
|
|
|
27.8 |
|
General corporate expenses |
|
|
44,718 |
|
|
|
|
|
|
|
41,689 |
|
|
|
|
|
|
|
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before ROTC, interest
expense, net and income taxes
(b) |
|
|
324,682 |
|
|
|
14.4 |
|
|
|
247,346 |
|
|
|
12.3 |
|
|
|
31.3 |
|
ROTC (b) |
|
|
25,097 |
|
|
|
|
|
|
|
13,993 |
|
|
|
|
|
|
|
|
|
Interest expense, net (c) |
|
|
39,056 |
|
|
|
|
|
|
|
30,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes (c) |
|
$ |
260,529 |
|
|
|
|
|
|
$ |
203,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Operating profit for the year ended July 31, 2006 has been restated in accordance with
the Companys new organizational structure, including the aforementioned changes in certain
internal segment financial reporting principles. |
29
|
|
|
(b) |
|
Included in ROTC, for the purposes of evaluation of segment profitability, are other
adjustments recorded in cost of sales. Such adjustments include incremental depreciation and
other adjustments of $2,179 and $769 for the years ended July 31, 2007 and July 31, 2006,
respectively, recorded in conjunction with the Companys facilities rationalization
initiative. Furthermore, such adjustments include a charge of $566 and $898 for the years
ended July 31, 2007 and July 31, 2006, respectively, related to a one-time purchase
accounting adjustment to record, at market value, inventory acquired from BioSepra Process
Division (BioSepra). This resulted in a $2,431 increase in acquired inventories in
accordance with SFAS No. 141 and a charge to cost of sales in the periods when the sale of a
portion of the underlying inventory occurred. The adjustment is excluded from operating
profit as management considers it non-recurring in nature because, although the Company
acquired the manufacturing operations of BioSepra, this adjustment was required by SFAS No.
141 as an elimination of the manufacturing profit in inventory acquired from BioSepra and
subsequently sold. |
|
(c) |
|
Interest expense, net and Earnings before income taxes have been restated for fiscal
year 2006 as more fully described in Note 2, Audit Committee Inquiry and Restatement, to
the accompanying consolidated financial statements. |
Life Sciences:
Presented below are Summary Statements of Operating Profit for the Life Sciences segment for
the fiscal years ended July 31, 2007 and July 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
2007 |
|
|
Sales |
|
|
2006 |
|
|
Sales |
|
Sales |
|
$ |
880,187 |
|
|
|
|
|
|
$ |
796,305 |
|
|
|
|
|
Cost of sales |
|
|
432,190 |
|
|
|
49.1 |
|
|
|
401,224 |
|
|
|
50.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
447,997 |
|
|
|
50.9 |
|
|
|
395,081 |
|
|
|
49.6 |
|
SG&A |
|
|
248,851 |
|
|
|
28.3 |
|
|
|
225,054 |
|
|
|
28.3 |
|
Research and development |
|
|
33,860 |
|
|
|
3.8 |
|
|
|
31,588 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
165,286 |
|
|
|
18.8 |
|
|
$ |
138,439 |
|
|
|
17.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below present sales by market and geography within the Life Sciences segment for
the fiscal years ended July 31, 2007 and July 31, 2006, including the effect of exchange rates for
comparative purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange |
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
Rate |
|
|
Local |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
Impact |
|
|
Currency |
|
By Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical |
|
$ |
475,369 |
|
|
$ |
444,033 |
|
|
|
7.1 |
|
|
$ |
12,900 |
|
|
|
4.2 |
|
BioPharmaceuticals |
|
|
404,818 |
|
|
|
352,272 |
|
|
|
14.9 |
|
|
|
15,466 |
|
|
|
10.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Life Sciences |
|
$ |
880,187 |
|
|
$ |
796,305 |
|
|
|
10.5 |
|
|
$ |
28,366 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Geography |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Hemisphere |
|
$ |
377,301 |
|
|
$ |
352,027 |
|
|
|
7.2 |
|
|
$ |
243 |
|
|
|
7.1 |
|
Europe |
|
|
391,500 |
|
|
|
335,089 |
|
|
|
16.8 |
|
|
|
26,593 |
|
|
|
8.9 |
|
Asia |
|
|
111,386 |
|
|
|
109,189 |
|
|
|
2.0 |
|
|
|
1,530 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Life Sciences |
|
$ |
880,187 |
|
|
$ |
796,305 |
|
|
|
10.5 |
|
|
$ |
28,366 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences segment sales increased 7% in fiscal year 2007 compared to fiscal year 2006.
Overall, increased pricing, related to the BioPharmaceuticals market, contributed about 0.5% to
sales growth year over year. Life Sciences represented approximately 39% of total sales in fiscal
year 2007 on par with fiscal year 2006.
30
Within Life Sciences, Medical market sales, which represented approximately one-half of Life
Sciences sales, increased 4.2%, driven by growth in the Blood Filtration, Hospital and BioSciences
markets. The increase in Blood Filtration sales was driven by the Western Hemisphere, reflecting
vented whole blood filter and Acrodose product sales to independent blood centers in the United
States, as well as increased sales in Canada, and by Europe, primarily reflecting increased sales
to the U.K. blood markets. This increase was partly offset by decreased blood draws in Japan, as
they transition from bedside filtration to blood centers. At this point the decrease in the
Companys sales to hospitals more than offsets increases in
sales to blood centers. The Company is in the
process of qualifying more of its blood filter models with blood centers. Blood Filtration sales
may also fluctuate over time due to increased or reduced volume on contract renewals. Certain of
the Companys significant Western Hemisphere based blood center contracts are due to expire in the
second half of fiscal year 2008. If such contracts are not renewed, or are renewed at lower
pricing or volume levels, it may have an adverse impact on the Companys Blood Filtration sales.
The growth in the Hospital market primarily reflects high demand for critical care products in
Europe. The increase in the BioSciences market was driven by growth in Laboratory sales in all
geographies as well as growth in Cell Therapy sales in the Western Hemisphere and Europe. Company
management expects overall Medical sales to be down slightly in fiscal year 2008 compared to fiscal
year 2007.
BioPharmaceuticals sales increased 10.5%, driven by growth in consumables in all geographies
and in systems sales in the Western Hemisphere, somewhat offset by a decline in systems sales in
Europe and Asia. The growth in consumables (+10%) was driven by the vaccine and large-scale
biotechnology sectors, particularly capsules and single-use processing technologies. The growth in
systems sales in the Western Hemisphere reflects the continuing investment by the biotechnology and
vaccine sectors. Systems sales in Europe and Asia were down reflecting the timing of major
projects. In fiscal year 2008, Company management expects double-digit sales growth in the
BioPharmaceuticals market compared to fiscal year 2007.
Life Sciences gross margins increased to 50.9% in fiscal year 2007 from 49.6% in fiscal year
2006. The improvement in gross margins was principally driven by savings generated from cost
reduction initiatives, primarily the benefits of reduced labor costs from plant automation and
utilization of labor in lower cost countries (primarily reflecting the significant movement of
blood-bank related manufacturing operations to Mexico), as well as procurement initiatives, quality
initiatives aimed at reducing scrap levels, and increased pricing which contributed approximately
18 basis points to gross margin. Furthermore, gross margins also benefited from a change in product
mix, as a larger percentage of sales in fiscal year 2007 were in the higher margin
BioPharmaceuticals market (comprising 46% of total Life Sciences sales compared to 44% in fiscal
year 2006).
SG&A expenses in fiscal year 2007 increased by $23,797, or about 11%. SG&A expenses were 28.3%
as a percentage of sales on par with fiscal year 2006.
R&D expenses were up about 7% year over year; coming in at $33,860 in fiscal year 2007
compared to $31,588 in fiscal year 2006. As a percentage of sales, R&D expenses were 3.8% compared
to 4% in fiscal year 2006.
As a result of the above factors, operating profit dollars increased approximately 19% to
$165,286 in fiscal year 2007 compared to $138,439 in fiscal year 2006 and operating margin improved
to 18.8% from 17.4%.
Industrial:
Presented below are summary Statements of Operating Profit for the Industrial segment for the
fiscal years ended July 31, 2007 and July 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
2007 |
|
|
Sales |
|
|
2006 |
|
|
Sales |
|
Sales |
|
$ |
1,369,718 |
|
|
|
|
|
|
$ |
1,220,525 |
|
|
|
|
|
Cost of sales |
|
|
755,614 |
|
|
|
55.2 |
|
|
|
669,859 |
|
|
|
54.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
614,104 |
|
|
|
44.8 |
|
|
|
550,666 |
|
|
|
45.1 |
|
SG&A |
|
|
381,436 |
|
|
|
27.8 |
|
|
|
374,287 |
|
|
|
30.7 |
|
Research and development |
|
|
28,554 |
|
|
|
2.1 |
|
|
|
25,783 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
204,114 |
|
|
|
14.9 |
|
|
$ |
150,596 |
|
|
|
12.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
The tables below present sales by market and geography within the Industrial segment for the
fiscal years ended July 31, 2007 and July 31, 2006, including the effect of exchange rates for
comparative purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange |
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
Rate |
|
|
Local |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
Impact |
|
|
Currency |
|
By Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Industrial (a) |
|
$ |
821,957 |
|
|
$ |
719,605 |
|
|
|
14.2 |
|
|
$ |
31,605 |
|
|
|
9.8 |
|
Aerospace and
Transportation (a) |
|
|
254,675 |
|
|
|
242,624 |
|
|
|
5.0 |
|
|
|
8,453 |
|
|
|
1.5 |
|
Microelectronics |
|
|
293,086 |
|
|
|
258,296 |
|
|
|
13.5 |
|
|
|
3,380 |
|
|
|
12.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Industrial |
|
$ |
1,369,718 |
|
|
$ |
1,220,525 |
|
|
|
12.2 |
|
|
$ |
43,438 |
|
|
|
8.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Geography |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Hemisphere |
|
$ |
398,428 |
|
|
$ |
375,488 |
|
|
|
6.1 |
|
|
$ |
663 |
|
|
|
5.9 |
|
Europe |
|
|
536,094 |
|
|
|
470,941 |
|
|
|
13.8 |
|
|
|
36,808 |
|
|
|
6.0 |
|
Asia |
|
|
435,196 |
|
|
|
374,096 |
|
|
|
16.3 |
|
|
|
5,967 |
|
|
|
14.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Industrial |
|
$ |
1,369,718 |
|
|
$ |
1,220,525 |
|
|
|
12.2 |
|
|
$ |
43,438 |
|
|
|
8.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In conjunction with the reorganization, in the first quarter of fiscal year 2007, the
Industrial sales and marketing group was reorganized such that a portion of the commercial
OEM business (approximately $50,000 in annual sales) previously tended to by, and reported
in, the General Industrial market is now tended to by, and reported in, a realigned market
called Aerospace & Transportation. Sales for fiscal year 2006 have been restated to reflect
this change. |
Industrial segment sales grew 8.7% with all markets contributing to this gain. Overall,
pricing was up slightly as improved pricing in the General Industrial market was largely offset by
decreased pricing in large volume-based agreements in the Microelectronics market and decreased
pricing in the Aerospace and Transportation market. Industrial systems sales increased 27.6%
primarily driven by the General Industrial market. Industrial consumables sales grew 6%. Industrial
represented approximately 61% of total sales in fiscal year 2007, on par with fiscal year 2006.
Within the Industrial segment, General Industrial market sales, which account for about 60% of
the Industrial segment, were up 9.8% driven by increased consumables in all markets and increased
systems sales in all markets with the exception of Food & Beverage. Sales in the energy-related
marketplace increased in the double-digit range, reflecting growth in consumables and systems
sales. All geographies contributed to the growth in systems sales to the energy-related
marketplace, while the growth in consumable sales was driven by Europe and Asia (consumable sales
in the Western Hemisphere were down due to a large sale in fiscal year 2006 which did not recur in
fiscal year 2007). The growth in systems sales to the energy-related marketplace reflects continued
investment by customers in additional capacity via new plants, as well as the need to address
environmental issues and rising energy costs (via alternative energy sources). Municipal Water
sales increased in the double-digit range, driven by growth in all geographies. Key drivers in
Municipal Water sales growth include water scarcity, government regulations and growing consumer
awareness of drinking water safety. Food and Beverage sales were flat as growth in consumables was
offset by a decline in systems sales, partly related to the product rationalization of less
profitable systems in Europe and the Western Hemisphere. Sales in the Industrial Manufacturing
market were up in the mid-single digit range driven by growth in the Western Hemisphere and Asia.
The increase in the Western Hemisphere reflects growth in the pulp and paper and lube oil
industries, while the increase in Asia reflects growth in the pulp and paper, automotive and steel
industries. Company management is expecting growth in the high-single digit range in General
Industrial in fiscal year 2008, with the largest growth expected in the Municipal Water and
Industrial Manufacturing markets.
Aerospace and Transportation sales increased 1.5%, primarily attributable to growth in
Military sales in the Western Hemisphere and Asia related to CH-47 helicopters as well as increased
OEM sales (all geographies). The growth in military and OEM sales was partly offset by a
double-digit decline in commercial sales related to the sale of the Companys Western Hemisphere
commercial aerospace distribution arm to Satair in December 2005. This transaction included the
one-time sale of substantial inventory and sales going forward at reduced pricing under the
distributor model. In the fourth quarter of fiscal year 2007, this trend reversed as Satair
restocked their depleted inventory and, as a result, commercial aerospace sales in the Western
Hemisphere increased in the double-digit range. Company management is expecting high-single digit
growth in the Aerospace and Transportation market in fiscal year 2008.
32
Microelectronics sales were up 12.2% with all geographies contributing to this gain. Growth in
this market was driven by the strength in the OEM consumer electronics market, particularly in the
flat panel display area, as well as integrated circuit production for the launch of wireless gaming
consoles. Furthermore, sales growth has also benefited from increased demand in the hard disk
storage and ink jet printer markets. Based upon various market indicators, Company management is
expecting low-single digit growth in fiscal year 2008.
Industrial gross margins decreased to 44.8% in fiscal year 2007 from 45.1% in fiscal year
2006. The decrease in gross margins reflects the significant growth in systems sales, which are
typically at lower margins, partly offset by the impact of improved profitability of systems sales,
and the product rationalization of less profitable systems as discussed in the consolidated cost of
sales review above. Furthermore, the Companys manufacturing cost reduction programs, such as
procurement, facilities rationalization and lean initiatives, have favorably impacted gross
margins.
SG&A expenses in fiscal year 2007 increased by $7,149, or about 2%. As a percentage of sales,
SG&A expenses improved to 27.8% in fiscal year 2007 from 30.7% in fiscal year 2006. The improvement
in SG&A as a percentage of sales reflects the impact of cost reduction programs, particularly
EuroPall, and the benefit of increased sales.
R&D expenses were up about 11% year over year; coming in at $28,554 in fiscal year 2007
compared to $25,783 in fiscal year 2006. As a percentage of sales, R&D expenses were 2.1% in fiscal
year 2007, on par with fiscal year 2006.
As a result of the above factors, operating profit dollars increased approximately 35% to
$204,114 in fiscal year 2007 from $150,596 in fiscal year 2006 and operating margin improved to
14.9% from 12.3%.
Results of Operations 2006 Compared with 2005
Review of Consolidated Results
Sales for the fiscal year 2006 increased 6% to $2 billion from $1.9 billion in fiscal year
2005. Exchange rates reduced reported sales by $35,412, primarily due to the strengthening of the
U.S. dollar against the Euro, British Pound and Japanese Yen during the first nine months of the
year, partly offset by the weakening of the U.S. dollar against certain other Asian currencies. In
local currency (i.e., had exchange rates not changed year over year), sales increased 8%. Overall,
pricing was flat for the full year, as decreased pricing in the Life Sciences segment related to
long-term contracts in the Medical market in the Western Hemisphere was offset by increases
achieved in the Companys other markets.
Life Sciences segment sales increased 6.0% (in local currency) largely driven by double-digit
growth in the BioPharmaceuticals market. Industrial segment sales increased 9.1% (in local
currency) with all markets contributing to the growth. For a detailed discussion of sales, refer to
the section Review of Operating Segments below.
Gross margin, as a percentage of sales, decreased to 46.8% in fiscal year 2006 from 48.5% in
fiscal year 2005. This reflects pricing reductions in Medical sales in the Western Hemisphere as
well as a movement toward in-line blood filtration (in Europe and Asia), which carry higher prices
and profit in dollars but at a reduced margin. In addition, the reduction reflects a mix change
within consumables to lower margin sales, such as Microelectronics markets increased sales to OEM
customers and Aerospace and Transportation markets sales to Satair at lower distributor margins.
Gross margin was also impacted by systems sales increases in the Energy market at lower margins. In
addition, cost of sales reflects transitional costs, such as training and incremental depreciation
on assets to be retired earlier than originally estimated, related to the Companys facilities
rationalization initiative, increases in energy costs; including costs of utilities in the
Companys manufacturing plants as well as increases in fuel related commodities, such as plastics
and steel which are used to manufacture consumable filters and systems. Furthermore, cost of sales
was negatively impacted by stock-based compensation and the adoption of SFAS No. 123(R) and a
one-time purchase accounting adjustment related to inventory acquired as part of the BioSepra
acquisition. These factors were partly offset by savings generated from the Companys cost
reduction initiatives.
SG&A expenses in fiscal year 2006 increased by $19,629, or about 3% (approximately 5% in local
currency). SG&A expenses, as a percentage of sales, decreased to 31.8% from 32.7% in fiscal year
2005. The decrease reflects savings realized from the Companys cost reduction initiatives, partly
offset by the impact of stock-based compensation and the adoption of SFAS No. 123(R), which
negatively impacted SG&A expenses by 42 basis points.
33
R&D expenses were $57,371 in fiscal year 2006 compared to $56,183 in fiscal year 2005, up
about 2% year over year (approximately 3% in local currency). As a percentage of sales, R&D
expenses were 2.8% as compared with 3% in fiscal year 2005.
In fiscal year 2006, the Company recorded ROTC of $12,326 primarily comprised of severance and
other costs in connection with the Companys divisional realignment and on-going cost reduction
initiatives (including its facilities rationalization and EuroPall initiatives), partly offset by
the reversal of excess restructuring reserves recorded in fiscal year 2005. In addition, the
charges include an increase in previously established environmental reserves. ROTC also includes a
gain on the sale of the Companys stock rights in Satair, which was recorded in the second quarter,
as well as a gain on the sale of the Companys investment in VITEX, that was recorded in the first
quarter.
In fiscal year 2005, the Company recorded ROTC of $38,763, primarily related to the Companys
cost reduction initiatives, including its divisional realignment plans. In addition, ROTC includes
the write-down of the investment in VITEX that was deemed other-than-temporarily impaired and an
increase to previously established environmental reserves. Furthermore, ROTC includes a charge of
$11,953 related to the early extinguishment of the Companys $100,000 private placement 7.83%
unsecured senior notes. The charge represented the payment to the note holders under the make-whole
provision of the notes reduced by the carrying value of the notes.
The details of the charges for the years ended July 31, 2006 and July 31, 2005 can be found in
Note 5, Restructuring and Other Charges, Net, to the accompanying consolidated financial
statements.
EBIT in fiscal year 2006 increased about 13% to $233,353 from $207,021 in fiscal year 2005.
The increase in EBIT reflects the impact of sales growth, an improvement in SG&A as a percentage of
sales and a reduction in ROTC. These factors were partly offset by the impact of lower gross
margins, and stock-based compensation and the adoption of SFAS No. 123(R).
Net interest expense in fiscal year 2006 increased to $30,123 (as restated) from $29,997 in
fiscal year 2005 (as restated). The comparison of net interest expense compared to fiscal year 2005
reflects an increase in interest expense of approximately $3,000 related to the tax matter as
discussed in Note 2, Audit Committee Inquiry and Restatement, to the accompanying consolidated
financial statements. The impact of a reduction in average net debt levels throughout the year
largely offset the above.
In fiscal year 2006, the Companys effective tax rate was 74.3% (as restated) as compared to
35.8% (as restated) in fiscal year 2005. The increase in the effective tax rate is mainly
attributable to an increase in certain unpaid intercompany payable balances that resulted from
sales of products by a foreign subsidiary of the Company to a U.S. subsidiary of the Company that
gave rise to deemed dividend income (see Note 2, Audit Committee Inquiry and Restatement, to the
accompanying consolidated financial statements for further details) and an incremental provision
for income taxes in fiscal year 2006 related to $398,000 of foreign earnings intended to qualify
for repatriation under the Homeland Investment Act (see Note 2, Audit Committee Inquiry and
Restatement, to the accompanying consolidated financial statements for further details). See Note
13, Income Taxes, to the accompanying consolidated financial statements for further details on the
components of the Companys effective tax rate.
Net earnings in fiscal year 2006 were $52,140, or 41 cents per share (as restated), compared
with net earnings of $113,703, or 91 cents per share, in fiscal year 2005 (as restated). In
summary, the decrease in net earnings reflects the increase in EBIT offset by an increase in
provision for income taxes as discussed above. Company management estimates that foreign currency
translation reduced net earnings by approximately 1 cent per share.
On December 16, 2005, the Company and Satair signed an agreement whereby Satair acquired the
exclusive rights to the Western Hemisphere commercial aerospace aftermarket distribution channel
for the Companys products for a ten-year period. The transaction was valued at $22,000, of which
$19,000 was paid to the Company in cash on the closing date, and $3,000 in a five-year non-interest
bearing note receivable, payable in equal installments. In addition, the agreement required Satair
to purchase certain finished goods inventory from the Company valued at $5,683. The $22,000 in
cash and notes receivable received for the distribution rights were recorded as deferred revenue
and are being amortized as an increase to sales over the life of the distribution agreement. The
transaction was accretive to earnings in fiscal year 2006.
34
Review of Operating Segments
The following table presents sales and operating profit by segment for the fiscal years ended
July 31, 2006 and July 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
|
% |
|
|
|
2006 |
|
|
Margin |
|
|
2005 |
|
|
Margin |
|
|
Change |
|
SALES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences |
|
$ |
796,305 |
|
|
|
|
|
|
$ |
764,736 |
|
|
|
|
|
|
|
4.1 |
|
Industrial |
|
|
1,220,525 |
|
|
|
|
|
|
|
1,137,548 |
|
|
|
|
|
|
|
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,016,830 |
|
|
|
|
|
|
$ |
1,902,284 |
|
|
|
|
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING PROFIT (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences |
|
$ |
138,439 |
|
|
|
17.4 |
|
|
$ |
124,037 |
|
|
|
16.2 |
|
|
|
11.6 |
|
Industrial |
|
|
150,596 |
|
|
|
12.3 |
|
|
|
156,824 |
|
|
|
13.8 |
|
|
|
(4.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit |
|
|
289,035 |
|
|
|
14.3 |
|
|
|
280,861 |
|
|
|
14.8 |
|
|
|
2.9 |
|
General corporate expenses |
|
|
41,689 |
|
|
|
|
|
|
|
34,240 |
|
|
|
|
|
|
|
21.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before ROTC, interest
expense, net and income taxes
(b) |
|
|
247,346 |
|
|
|
12.3 |
|
|
|
246,621 |
|
|
|
13.0 |
|
|
|
0.3 |
|
ROTC (b) |
|
|
13,993 |
|
|
|
|
|
|
|
39,600 |
|
|
|
|
|
|
|
|
|
Interest expense, net (c) |
|
|
30,123 |
|
|
|
|
|
|
|
29,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes (c) |
|
$ |
203,230 |
|
|
|
|
|
|
$ |
177,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Operating profit for the fiscal years ended July 31, 2006 and July 31, 2005 has been
restated in accordance with the Companys new organizational structure, including the
aforementioned changes in certain internal segment financial reporting principles. |
|
(b) |
|
Included in ROTC for the purposes of evaluation of segment profitability are other
adjustments recorded in cost of sales. Such adjustments include incremental depreciation
and other adjustments of $769 for the fiscal year ended July 31, 2006, recorded in
conjunction with the Companys facilities rationalization initiative. Furthermore, such
adjustments include a charge of $898 and $837 for the years ended July 31, 2006 and July
31, 2005, respectively, related to a one-time purchase accounting adjustment to record, at
market value, inventory acquired from BioSepra. This resulted in a $2,431 increase in
acquired inventories in accordance with SFAS No. 141 and a charge to cost of sales in the
periods when the sale of a portion of the underlying inventory occurred. The adjustment is
excluded from operating profit as management considers it non-recurring in nature because,
although the Company acquired the manufacturing operations of BioSepra, this adjustment was
required by SFAS No. 141 as an elimination of the manufacturing profit in inventory
acquired from BioSepra and subsequently sold. |
|
(c) |
|
Interest expense, net and Earnings before income taxes have been restated for fiscal
years 2006 and 2005 as more fully described in Note 2, Audit Committee Inquiry and
Restatement, to the accompanying consolidated financial statements. |
Life Sciences:
Presented below are Summary Statements of Operating Profit for the Life Sciences segment for
the fiscal years ended July 31, 2006 and July 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
2006 |
|
|
Sales |
|
|
2005 |
|
|
Sales |
|
Sales |
|
$ |
796,305 |
|
|
|
|
|
|
$ |
764,736 |
|
|
|
|
|
Cost of sales |
|
|
401,224 |
|
|
|
50.4 |
|
|
|
386,202 |
|
|
|
50.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
395,081 |
|
|
|
49.6 |
|
|
|
378,534 |
|
|
|
49.5 |
|
SG&A |
|
|
225,054 |
|
|
|
28.3 |
|
|
|
220,700 |
|
|
|
28.9 |
|
Research and development |
|
|
31,588 |
|
|
|
4.0 |
|
|
|
33,797 |
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
138,439 |
|
|
|
17.4 |
|
|
$ |
124,037 |
|
|
|
16.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below present sales by market and geography within the Life Sciences segment for
the fiscal years ended July 31, 2006 and July 31, 2005, including the effect of exchange rates for
comparative purposes.
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange |
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
Rate |
|
|
Local |
|
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Impact |
|
|
Currency |
|
By Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical |
|
$ |
444,033 |
|
|
$ |
443,256 |
|
|
|
0.2 |
|
|
$ |
(6,930 |
) |
|
|
1.7 |
|
BioPharmaceuticals |
|
|
352,272 |
|
|
|
321,480 |
|
|
|
9.6 |
|
|
|
(7,668 |
) |
|
|
12.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Life Sciences |
|
$ |
796,305 |
|
|
$ |
764,736 |
|
|
|
4.1 |
|
|
$ |
(14,598 |
) |
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Geography |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Hemisphere |
|
$ |
352,027 |
|
|
$ |
343,045 |
|
|
|
2.6 |
|
|
$ |
665 |
|
|
|
2.4 |
|
Europe |
|
|
335,089 |
|
|
|
319,192 |
|
|
|
5.0 |
|
|
|
(11,694 |
) |
|
|
8.6 |
|
Asia |
|
|
109,189 |
|
|
|
102,499 |
|
|
|
6.5 |
|
|
|
(3,569 |
) |
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Life Sciences |
|
$ |
796,305 |
|
|
$ |
764,736 |
|
|
|
4.1 |
|
|
$ |
(14,598 |
) |
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences segment sales increased 6.0% in fiscal year 2006 compared to fiscal year 2005.
Life Sciences represented approximately 39% of total sales in fiscal year 2006 compared to 40% in
fiscal year 2005.
Within Life Sciences, Medical market sales, which represented approximately 55% of Life
Sciences sales, increased 1.7%, driven primarily by growth in the Blood Filtration and BioSciences
markets. Sales in Blood Filtration increased in the low single-digit range as growth in Europe
(related to new tender wins) and Asia (sales related to the transition from bedside to blood center
leukoreduction) was offset by a decline in the Western Hemisphere, reflecting reduced pricing
related to long-term contracts put in place at the end of fiscal year 2005. The BioSciences sales
increase was driven by an increase in Laboratory sales in all geographies, growth in OEM sales
(primarily Europe) as well as increased Cell Therapy sales in the Western Hemisphere and Europe.
The overall growth in Laboratory sales was driven by increased sales of core products and the
continued success of the Companys disposable sample preparation products. Growth in Cell Therapy
was driven by strong demand for the Companys Cord Blood mononuclear cell collection, processing
and storage systems.
BioPharmaceuticals market sales increased 12.0%, driven by strong growth in consumables in all
geographies. The growth in consumables was driven by the biotechnology and vaccine market sectors.
The Chromatography market sector opportunities are developing with BioSepra sorbents now
established in a number of new applications at production scale. Euroflow columns and associated
systems also contributed to growth in fiscal year 2006. Throughout the year, the Company saw
increasing demand for single-use processing technologies and systems.
Life Sciences gross margins increased slightly to 49.6% in fiscal year 2006 from 49.5% in
fiscal year 2005. Gross margins reflect savings generated from the Companys cost reduction
initiatives, largely offset by pricing reductions in Medical sales in the Western Hemisphere as
well as a movement toward in-line blood filtration (in Europe and Asia), which carry higher prices
and profit in dollars but at a reduced margin. Furthermore, gross margins were also negatively
impacted by increases in energy costs as discussed in the Review of Consolidated Results section
above.
SG&A expenses in fiscal year 2006 increased by $4,354, or about 2%. As a percentage of sales,
SG&A expenses were 28.3% in fiscal year 2006 compared with 28.9% in fiscal year 2005. The decrease
in SG&A as a percentage of sales reflects the benefit of the Companys cost reduction programs and
the impact of the growth in sales, partly offset by the impact of stock compensation and the
adoption of SFAS No. 123(R).
R&D expenses decreased about 7% year over year; coming in at $31,588 in fiscal year 2006
compared to $33,797 in fiscal year 2005. As a percentage of sales, R&D expenses were 4% in fiscal
year 2006 compared to 4.4% in fiscal year 2005.
As a result of the above factors, operating profit dollars increased approximately 12% to
$138,439 in fiscal year 2006 from $124,037 in fiscal year 2005 and operating margin improved to
17.4% from 16.2%.
36
Industrial:
Presented below are Summary Statements of Operating Profit for the Industrial segment for the
fiscal years ended July 31, 2006 and July 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
2006 |
|
|
Sales |
|
|
2005 |
|
|
Sales |
|
Sales |
|
$ |
1,220,525 |
|
|
|
|
|
|
$ |
1,137,548 |
|
|
|
|
|
Cost of sales |
|
|
669,859 |
|
|
|
54.9 |
|
|
|
591,877 |
|
|
|
52.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
550,666 |
|
|
|
45.1 |
|
|
|
545,671 |
|
|
|
48.0 |
|
SG&A |
|
|
374,287 |
|
|
|
30.7 |
|
|
|
366,461 |
|
|
|
32.2 |
|
Research and development |
|
|
25,783 |
|
|
|
2.1 |
|
|
|
22,386 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
150,596 |
|
|
|
12.3 |
|
|
$ |
156,824 |
|
|
|
13.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below present sales by market and geography within the Industrial segment for the
fiscal years ended July 31, 2006 and July 31, 2005, including the effect of exchange rates for
comparative purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange |
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
Rate |
|
|
Local |
|
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Impact |
|
|
Currency |
|
By Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Industrial (a) |
|
$ |
719,605 |
|
|
$ |
692,265 |
|
|
|
4.0 |
|
|
$ |
(11,715 |
) |
|
|
5.6 |
|
Aerospace and
Transportation (a) |
|
|
242,624 |
|
|
|
225,824 |
|
|
|
7.4 |
|
|
|
(3,371 |
) |
|
|
8.9 |
|
Microelectronics |
|
|
258,296 |
|
|
|
219,459 |
|
|
|
17.7 |
|
|
|
(5,728 |
) |
|
|
20.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Industrial |
|
$ |
1,220,525 |
|
|
$ |
1,137,548 |
|
|
|
7.3 |
|
|
$ |
(20,814 |
) |
|
|
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Geography |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Hemisphere |
|
$ |
375,488 |
|
|
$ |
346,127 |
|
|
|
8.5 |
|
|
$ |
1,300 |
|
|
|
8.1 |
|
Europe |
|
|
470,941 |
|
|
|
463,289 |
|
|
|
1.7 |
|
|
|
(15,602 |
) |
|
|
5.0 |
|
Asia |
|
|
374,096 |
|
|
|
328,132 |
|
|
|
14.0 |
|
|
|
(6,512 |
) |
|
|
16.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Industrial |
|
$ |
1,220,525 |
|
|
$ |
1,137,548 |
|
|
|
7.3 |
|
|
$ |
(20,814 |
) |
|
|
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In conjunction with the reorganization, in the first quarter of fiscal year 2007, the
Industrial sales and marketing group was reorganized such that a portion of the commercial
OEM business (approximately $50,000 in annual sales) previously tended to by, and reported
in, the General Industrial market is now tended to by, and reported in, a realigned market
called Aerospace & Transportation. Sales for fiscal years 2006 and 2005 have been restated
to reflect this change. |
Industrial segment sales grew 9.1% with all markets contributing to this gain. Overall,
Industrial systems sales were flat, while consumables sales grew 10.7%. Industrial represented
approximately 61% of total sales in fiscal year 2006 compared with 60% in fiscal year 2005.
Within the Industrial segment, General Industrial market sales, which account for about 60% of
the Industrial segment, were up 5.6% compared to fiscal year 2005, with all markets contributing
with the exception of Municipal Water. General Industrial systems sales increased 1.8% as strong
sales in the Energy-related and Food & Beverage markets were partly offset by timing of sales in
Municipal Water.
Within General Industrial, Energy-related sales increased in the double-digit range driven by
increases in both consumables and systems sales. All geographies contributed to this gain. Customer
investment in new plant capacity and upgrading of existing plants drove growth. In light of rising
energy costs, the Companys customers in the energy markets were striving to increase production,
protect and extend the life of expensive equipment and develop alternative fuel sources. These
trends were key growth drivers in the year. Food and Beverage sales increased in the mid-single
digit range driven by growth in the Western Hemisphere (systems and consumables) and Asia
(consumables). A decrease in Europe (the Companys largest Food & Beverage market), related to a
weakness in the wine markets, partly offset the above. Municipal Water sales were down in the
double-digit range reflecting delays in contract rollouts. Sales in the Industrial Manufacturing
market increased in the mid-single digit range as growth in Europe and Asia was offset by a
decrease in the Western Hemisphere related to pressure in the pulp and paper markets.
37
Aerospace and Transportation sales increased 8.9%, primarily attributable to growth in
military sales in all geographies and incremental, but discounted, commercial sales in the Western
Hemisphere attributable to the Companys expanded agreement/relationship with Satair.
Microelectronics sales were up 20.3%, as the Company continued to benefit from new fabrication
construction and strength in the consumer electronics markets, such as gaming consoles, MP3
players, multimedia cell phones, flat panel screen displays and televisions, and ink jet printers
and cartridges. The Companys strategic diversification of its Microelectronics business into
consumer electronics and its OEM sales strategy has enabled it to take advantage of this strong
consumer market trend. All geographies achieved double-digit growth compared with fiscal year 2005.
Industrial gross margins decreased to 45.1% in fiscal year 2006 from 48% in fiscal year 2005.
The decrease in gross margins reflects a mix change within consumables to lower margin sales, such
as Microelectronics increased sales to OEM customers and Aeropower sales to Satair at lower
distributor margins. Gross margins were also impacted by systems sales increases in Energy
markets, with lower margins as well as by increases in energy costs as discussed in the Review of
Consolidated Results section above. These factors were partly offset by savings generated from the
Companys cost reduction initiatives.
SG&A expenses in fiscal year 2006 increased by $7,826, or about 2%. As a percentage of sales,
SG&A expenses improved to 30.7% in fiscal year 2006 from 32.2% in fiscal year 2005. The improvement
in SG&A as a percentage of sales reflects the benefit of cost reduction programs and the growth in
sales, partly offset by the impact of stock-based compensation and the adoption of SFAS No. 123(R).
R&D expenses increased about 15% year over year; coming in at $25,783 in fiscal year 2006
compared to $22,386 in fiscal year 2005. As a percentage of sales, R&D expenses were 2.1% in fiscal
year 2006 compared to 2% in fiscal year 2005.
Operating profit dollars decreased approximately 4% to $150,596 in fiscal year 2006 compared
to $156,824 in fiscal year 2005, and operating margin decreased to 12.3% from 13.8%, reflecting the
factors discussed above.
Liquidity and Capital Resources
Non-cash working capital, which is defined as working capital excluding cash and cash
equivalents, notes receivable, notes payable and the current portion of long-term debt, was
approximately $372,400, a turnover ratio of 5.9 at July 31, 2007 as compared with $398,500, a
turnover ratio of 4.6 at July 31, 2006. Accounts receivable days sales outstanding (DSO) was 74
days as compared to 75 days in fiscal year 2006. Inventory turns were 2.7 for the year ended July
31, 2007 as compared to 2.6 for the year ended July 31, 2006.
The Companys balance sheet is affected by spot exchange rates used to translate local
currency amounts into U.S. dollars. In comparing spot exchange rates at July 31, 2007 to those at
July 31, 2006, the British Pound and the Euro have strengthened against the U.S. dollar, while the
Japanese Yen has weakened against the U.S. dollar. The effect of foreign exchange increased
non-cash working capital by $23,138, including net inventory, net accounts receivable and other
current assets by $16,199, $20,505 and $3,657, respectively, as compared to July 31, 2006.
Additionally, foreign exchange increased accounts payable and other current liabilities by $16,107
and income tax payable by $1,116.
Net cash provided by operating activities in fiscal year 2007 was $332,928, an increase of
$114,100, or approximately 52%, as compared with fiscal year 2006. The increase in cash flow
reflects increased net earnings as well as changes in working capital items, particularly income
taxes, and accounts payable and accrued expenses, partly offset by the impact of the Satair
transaction, which positively impacted cash flow in fiscal year 2006.
Free cash flow, which is defined as net cash provided by operating activities less capital
expenditures, was $235,165 in fiscal year 2007, as compared with $122,861 in fiscal year 2006. The
increase in free cash flow reflects the increase in cash provided by operating activities as
discussed above partly offset by an increase in capital expenditures. Company management believes
this measure is important because it is a key element of its planning. The Company utilizes free
cash flow, which is a non-GAAP measure, as one way to measure its current and future financial
performance. The following table reconciles free cash flow to net cash provided by operating
activities.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Net cash provided by operating activities |
|
$ |
332,928 |
|
|
$ |
218,828 |
|
|
$ |
161,608 |
|
Less capital expenditures |
|
|
97,763 |
|
|
|
95,967 |
|
|
|
86,153 |
|
|
|
|
|
|
|
|
|
|
|
Free cash flow |
|
$ |
235,165 |
|
|
$ |
122,861 |
|
|
$ |
75,455 |
|
|
|
|
|
|
|
|
|
|
|
Overall, net debt (debt net of cash and cash equivalents), as a percentage of total
capitalization (net debt plus equity), was 15.2% at July 31, 2007 as compared to 29.2% at July 31,
2006. Net debt decreased by approximately $195,400 compared with July 31, 2006 primarily reflecting
an increase in cash and cash equivalents of $114,300 and a reduction in gross debt of $89,300. The
impact of foreign exchange rates increased net debt by about $8,200.
As more fully described in Note 2, Audit Committee Inquiry and Restatement, and Note 11, Notes
Payable and Long-Term Debt, to the accompanying consolidated financial statements, as a result of
the matters underlying the restatement, the Company failed to comply with certain representations,
warranties and covenants in its debt agreements, including its inability to timely file its
periodic reports with the SEC. The Company entered into amendments and/or waivers of those
agreements. Under the terms of those amendments and waivers, the Company was obligated to return to
compliance with its reporting obligations under the federal securities laws by March 31, 2008. As
of the date hereof, the Company is in compliance with its covenants under the foregoing agreements,
as amended by such instruments. Such matters did not affect the Companys compliance with the
financial covenants contained in its five-year revolving credit facility with a syndicate of
financial institutions, which provide that the Company may not have a consolidated net interest
coverage ratio, based upon trailing four quarter results, that is less than 3.50 to 1.00, nor a
consolidated leverage ratio, based upon trailing four quarter results, that is greater
than 3.50 to 1.00. The Company is in compliance with these financial covenants.
In September 2007, the Company deposited $135,000 with the Internal Revenue Service based on
the estimated understatement of U.S. income tax payments including estimated interest, but not
including potential penalties as more fully described in Note 2, Audit Committee Inquiry and
Restatement, to the accompanying consolidated financial statements. This deposit was partially
financed with approximately $90,000 of additional indebtedness.
The Company utilizes cash flow generated from operations and its revolving credit facility
referred to above to meet its short-term liquidity needs. For further discussion of the Companys
revolving credit facility, refer to Note 11, Notes Payable and Long-Term Debt, to the accompanying
consolidated financial statements. Company management considers its existing lines of credit, along
with the cash generated from operations, to be sufficient to meet its short-term liquidity needs.
Capital expenditures were $97,763 in fiscal year 2007. Depreciation and amortization expense
were $85,517 and $8,460, respectively. In fiscal year 2008, capital expenditures are expected to be
no more than $130,000. Depreciation and amortization expense are expected to total approximately
$95,000 in fiscal year 2008.
On October 14, 2004, the Companys board of directors authorized the expenditure of up to
$200,000 for the repurchase of the Companys common stock. On November 15, 2006, the board
authorized an additional expenditure of $250,000 to repurchase shares. The Company repurchased
stock of $64,246 and $100,727 in fiscal years 2005 and 2006, respectively. At July 31, 2005 and
July 31, 2006, there was $260,754 and $160,027, respectively available to be expended under the
current stock repurchase authorizations. In fiscal year 2007, the Company repurchased stock of
$61,795 leaving $348,232 remaining at July 31, 2007 to be expended under the current stock
repurchase authorizations. Net proceeds from stock plans were $39,611 in fiscal year 2007.
The Company increased its quarterly dividend by 9%, from 11 cents to 12 cents per share,
effective with the dividend declared on January 11, 2007, following an increase to 11 cents from 10
cents per share, effective with the dividend declared on January 19, 2006. In fiscal year 2007, the
Company paid dividends of $56,228, an increase of 7% compared to fiscal year 2006, reflecting the
increases in the quarterly dividends as discussed above partly offset by a reduction in shares
outstanding due to the repurchase of shares of the Companys common stock. There were no dividends
declared during the fourth quarter of fiscal year 2007 due to the commencement of the audit
committee inquiry as more fully described in Note 2, Audit Committee Inquiry and Restatement, to
the accompanying consolidated financial statements. Subsequent to July 31, 2007, the board of
directors declared two dividends of $0.12 per share in the first quarter of fiscal year 2008 in
September 2007 and October 2007. The board of directors declared a third $0.12 per share dividend
in January 2008. In addition, the board of directors raised the dividend to $0.13 per share when it
declared a dividend in March 2008.
39
The following is a summary of the Companys contractual commitments as of July 31, 2007
(Interest on long-term debt includes the amount of interest due to be paid during the respective
fiscal year based upon the amount of debt outstanding as of July 31, 2007):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
Thereafter |
|
|
Total |
|
Long-term debt |
|
$ |
1,771 |
|
|
$ |
2,260 |
|
|
$ |
78,234 |
|
|
$ |
219,522 |
|
|
$ |
1,814 |
|
|
$ |
289,761 |
|
|
$ |
593,362 |
|
Interest on long-term debt |
|
|
30,063 |
|
|
|
30,117 |
|
|
|
29,872 |
|
|
|
27,731 |
|
|
|
17,702 |
|
|
|
11,222 |
|
|
|
146,707 |
|
Operating leases |
|
|
21,224 |
|
|
|
13,572 |
|
|
|
9,073 |
|
|
|
4,569 |
|
|
|
2,405 |
|
|
|
1,876 |
|
|
|
52,719 |
|
Purchase commitments |
|
|
91,550 |
|
|
|
20,423 |
|
|
|
6,795 |
|
|
|
472 |
|
|
|
356 |
|
|
|
2,903 |
|
|
|
122,499 |
|
Employment contracts |
|
|
7,529 |
|
|
|
4,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,689 |
|
Other commitments |
|
|
3,686 |
|
|
|
1,074 |
|
|
|
305 |
|
|
|
220 |
|
|
|
220 |
|
|
|
2,522 |
|
|
|
8,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments |
|
$ |
155,823 |
|
|
$ |
71,606 |
|
|
$ |
124,279 |
|
|
$ |
252,514 |
|
|
$ |
22,497 |
|
|
$ |
308,284 |
|
|
$ |
935,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of New Accounting Pronouncements
In June 2006, the Emerging Issues Task Force (EITF) reached a consensus on EITF No. 06-3,
How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in
the Income Statement (EITF No. 06-3). EITF No. 06-3 provides that taxes imposed by a governmental
authority on a revenue producing transaction between a seller and a customer should be shown in the
income statement on either a gross or a net basis, based on the entitys accounting policy, which
should be disclosed pursuant to APB Opinion No. 22, Disclosure of Accounting Policies. The
Company adopted EITF No. 06-3 in the third quarter of fiscal year 2007. The Company will continue
to present taxes within the scope of EITF No. 06-3 on a net basis. As such, the adoption of EITF
No. 06-3 did not have any effect on the Companys consolidated financial statements.
As of July 31, 2007, the Company adopted the provisions of SFAS No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87,
88, 106, and 132(R) (SFAS No. 158). In accordance with SFAS No. 158, the Company is required to
record the difference between its benefit obligations and any plan assets of its defined benefit
plans. Upon adoption, SFAS No. 158 requires the recognition of previously unrecognized actuarial
gains and losses, prior service costs or credits and net transition amounts within accumulated
other comprehensive income (expense), net of tax. Additionally, SFAS No. 158 requires companies to
measure plan assets and benefit obligations as of the date of the Companys fiscal year-end
statement of financial position, which is July 31. The Companys defined benefit pension plans are
already measured as of July 31; therefore, the measurement date provisions of SFAS No. 158 did not
affect the Companys existing valuation practices. The initial impact of adopting the provisions of
SFAS No. 158 was a charge to accumulated other comprehensive income of $20,277, an increase to
noncurrent deferred tax assets of $11,580 and an increase to other non-current liabilities of
$31,857.
On September 13, 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements (SAB No. 108). SAB No. 108 provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in quantifying a current
year misstatement. Under the transition provisions of SAB No. 108, if the effect of the initial
adoption is determined to be material, the cumulative effect may be reported as an adjustment to
retained earnings as of the beginning of the year with disclosure of the nature and amount of each
individual error being corrected in the cumulative adjustment. The Company adopted the provisions
of SAB No. 108 in the fourth quarter of fiscal year 2007 and recorded a cumulative effect
adjustment to the opening balance of retained earnings of $5,957, an increase to noncurrent
deferred tax assets of $2,982 and an increase to other non-current liabilities of $8,939,
substantially all of which relates to periods prior to fiscal 2005.
The uncorrected misstatement for consideration under SAB No. 108, which was considered
immaterial to the Companys financial position and results of operations in prior reporting periods
under the income statement approach, related to an understatement of pension liabilities in a
foreign subsidiary and the related understatement of pension expense which had not been recognized
in accordance with SFAS No. 87, Employers Accounting for Pensions.
For more details regarding the adoption of SFAS No. 158 and SAB No. 108, refer to Note 1,
Accounting Policies and Related Matters, Note 3, Impact of Staff Accounting Bulletin No. 108 and
Note 15, Pension and Profit Sharing Plans and Arrangements, to the accompanying consolidated
financial statements.
40
Recently Issued Accounting Pronouncements
In June 2006, the FASB issued Financial Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN No. 48). FIN No. 48 establishes a recognition threshold and measurement
process for recording income tax positions in an enterprises financial statements in accordance
with SFAS No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a two-step evaluation
process for income tax positions. The first step is recognition and, if the recognition threshold
is met, a second step, measurement, is applied. For recognition, an enterprise judgmentally
determines whether it is more-likely-than-not that an income tax position will be sustained upon
examination, including resolution of related appeals or litigation processes, based on the
technical merits of the position. If the income tax position meets the more-likely-than-not
recognition threshold it is measured and the appropriate amount is recognized in the financial
statements as the largest amount of income tax benefit that is greater than 50% likely of being
realized. If an income tax position does not meet the more-likely-than-not recognition threshold,
no benefit for that position is recognized in the financial statements.
Income tax positions that meet the more-likely-than-not recognition threshold at the effective
date of FIN No. 48 may be recognized or, continue to be recognized, upon adoption of FIN No. 48.
The cumulative effect of applying the provisions of FIN No. 48 shall be reported as an adjustment
to the opening balance of retained earnings for that fiscal year. FIN No. 48 is effective for the
Company beginning in fiscal year 2008, with earlier adoption permitted. The Company has completed
the process of assessing the effect of adopting FIN No. 48 and will record an increase in the
opening balance of retained earnings as of August 1, 2007 in the amount of $5,583.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157).
SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 is effective for the Company beginning
with fiscal year 2009, except as revised by FASB Staff Position (FSP)
No. 157-2, issued in February 2008. This FSP delays the
effective date of SFAS No. 157 for non-financial assets and
non-financial liabilities, except for items that are reorganized or
disclosed at fair value in the financial statements on a periodic
basis (at least annually). The Company is in the process of assessing the effect SFAS No. 157 may have
on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No. 159). SFAS No. 159 permits entities to elect to measure
specified financial instruments and certain other items at fair value with changes in fair value
recognized in earnings each reporting period. SFAS No. 159 is effective for the Company beginning
with fiscal year 2009. The Company is in the process of assessing the effect SFAS No. 159 may have
on its consolidated financial statements.
In June 2007, the FASB ratified EITF No. 07-3, Accounting for Nonrefundable Advance Payments
for Goods or Services Received for Use in Future Research and Development Activities (EITF No.
07-3). EITF No. 07-3 requires that nonrefundable advance payments for goods or services that will
be used or rendered for future research and development activities be deferred and capitalized and
recognized as an expense as the related goods are delivered or the related services are performed.
If an entity does not expect the goods to be delivered or services to be rendered, the capitalized
advance payment should be charged to expense. EITF No. 07-3 is effective, on a prospective basis,
for the Company beginning with fiscal year 2009. The Company is in the process of assessing the
effect EITF No. 07-3 may have on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
No. 141(R)). SFAS No. 141(R) establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree, recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase, and determines
what information to disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS No. 141(R) is effective for the Company
beginning with fiscal year 2010.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statementsan amendment of Accounting Research Bulletin No. 51 (SFAS No. 160). SFAS No.
160 establishes accounting and reporting standards for ownership interests in subsidiaries held by
parties other than the parent, the amount of consolidated net income attributable to the parent and
to the noncontrolling interest, changes in a parents ownership interest, and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also
establishes disclosure requirements that clearly identify and distinguish between the interests of
the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for the
Company beginning with fiscal year 2010.
41
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Companys primary market risks relate to adverse changes in foreign currency exchange
rates and interest rates. The sensitivity analyses presented below assume simultaneous shifts in
each respective rate, and quantify the impact on the Companys earnings and cash flows. The changes
used for these analyses reflect the Companys view of changes that are reasonably possible over a
one-year period. Actual changes that differ from the changes used for these analyses could yield
materially different results.
Foreign Currency
The Companys reporting currency is the U.S. dollar. Because the Company operates through
subsidiaries or branches in over thirty countries around the world, its earnings are exposed to
translation risk when the financial statements of the subsidiaries or branches, as stated in their
functional currencies, are translated into the U.S. dollar. Company management estimates that
foreign exchange translation reduced earnings per share by 4 cents in fiscal year 2007.
Most of the Companys products are manufactured in the United States, Puerto Rico, Germany and
the United Kingdom, and then sold into many countries. The primary foreign currency exposures
relate to adverse changes in the relationships of the U.S. dollar to the British Pound (the
Pound), the Euro, the Japanese Yen (the Yen), Swiss Franc, the Australian Dollar and the
Singapore Dollar, as well as adverse changes in the relationship of the Pound to the Euro. Exposure
exists when the functional currency of the buying subsidiaries weakens against the U.S. dollar, the
Pound or the Euro, thus causing an increase of the product cost to the buying subsidiary or a
reduction in the sales price from the selling subsidiary, which adversely affects the Companys
consolidated gross margin and net earnings. The effect of foreign exchange is partially mitigated
because of the significant level of manufacturing done in Europe. In fiscal year 2007, the Pound,
Euro, Swiss Franc, Australian Dollar and Singapore Dollar strengthened by approximately 9.2%, 7.5%,
3.6%, 6.8% and 5.9%, respectively, against the U.S. dollar compared with the average exchange rates
in effect in fiscal year 2006. The Yen weakened against the U.S. dollar by approximately 3.1%.
Additionally, the Euro weakened against the Pound by approximately 1.6%. Due to the difficulty in
estimating the economic effect of foreign currency rates, particularly in periods of high
volatility of such rates, Company management does not provide such estimated effects and reports
only the translation effect to earnings per share disclosed above.
The Company is also exposed to transaction risk from adverse changes in exchange rates. These
short-term transaction exposures are primarily Yen, Euro, Pound, Singapore dollar and Australian
dollar denominated receivables and payables. These short-term exposures to changing foreign
currency exchange rates are managed by opening forward foreign exchange contracts (forwards) to
offset the earnings and cash flow impact of non-functional currency denominated receivables and
payables as well as the expeditious payment of balances. In addition, the Company enters into loans
denominated in foreign currencies to offset the earnings and cash flow impact of nonfunctional
currency-denominated receivables. The Company does not enter into forwards for trading purposes. At
July 31, 2007, these exposures amounted to approximately $71,199 and were offset by forwards with a
notional principal amount of $8,253. If a hypothetical 10% simultaneous adverse change had occurred
in exchange rates, net earnings would have decreased by approximately $3,326, or approximately 3
cents per share.
Interest Rates
The Company is exposed to changes in interest rates, primarily due to its financing and cash
management activities, which include long and short-term debt as well as cash and certain
short-term, highly liquid investments considered to be cash equivalents.
The Companys debt portfolio is comprised of both fixed and variable rate borrowings. The
Company manages the composition of the portfolio, and concurrently interest rate exposure by
employing interest rate swaps. Including the effect of interest rate swaps, the Companys debt
portfolio was approximately 42% variable rate at July 31, 2007, compared to 55% variable rate at
July 31, 2006. As of July 31, 2007, the Company had cash flow interest rate swaps (i.e., variable
to fixed rate swaps) with notional amounts aggregating $75,969 outstanding. The fair value of the
interest rate swaps at July 31, 2007 was a liability of $197. The cash flows on the above mentioned
interest rate swaps mirror the cash flows of the hedged underlying debt instruments. The Company
does not enter into interest rate swaps for trading purposes.
For the year ended July 31, 2007, interest expense, net of interest income, was $39,056. A
hypothetical 10% shift in market interest rates for fiscal year 2007 could have an adverse affect
on interest of approximately $244.
42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this item are located immediately following the signature
pages of this Form 10-K. See Item 15 (a)(1) for a listing of financial statements provided.
The financial information presented below for the quarters prior to the fourth quarter of
fiscal year 2007 have been restated as set forth in this Form 10-K as more fully described in Note
2, Audit Committee Inquiry and Restatement, to the accompanying consolidated financial statements.
The Company has not amended its previously filed Annual Reports on Form 10-K or Quarterly Reports
on Form 10-Q for the periods affected by this restatement.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, |
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
Full |
|
except per share data) |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Year |
|
2007 (As Reported): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
499,288 |
|
|
$ |
544,930 |
|
|
$ |
559,347 |
|
|
|
|
(b) |
|
|
|
(b) |
Gross profit |
|
|
223,672 |
|
|
|
256,470 |
|
|
|
277,120 |
|
|
|
|
(b) |
|
|
|
(b) |
Restructuring and other
charges (gains), net (a) |
|
|
17,088 |
|
|
|
(3,648 |
) |
|
|
8,620 |
|
|
|
|
(b) |
|
|
|
(b) |
Earnings before income taxes |
|
|
29,189 |
|
|
|
71,790 |
|
|
|
80,907 |
|
|
|
|
(b) |
|
|
|
(b) |
Net earnings |
|
|
24,434 |
|
|
|
55,803 |
|
|
|
67,074 |
|
|
|
|
(b) |
|
|
|
(b) |
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.20 |
|
|
|
0.45 |
|
|
|
0.54 |
|
|
|
|
(b) |
|
|
|
(b) |
Diluted |
|
|
0.20 |
|
|
|
0.45 |
|
|
|
0.54 |
|
|
|
|
(b) |
|
|
|
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (As Restated): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
499,288 |
|
|
$ |
544,930 |
|
|
$ |
559,347 |
|
|
$ |
646,340 |
|
|
$ |
2,249,905 |
|
Gross profit |
|
|
223,672 |
|
|
|
256,470 |
|
|
|
277,120 |
|
|
|
302,094 |
|
|
|
1,059,356 |
|
Restructuring and other
charges (gains), net (a) |
|
|
17,088 |
|
|
|
(3,648 |
) |
|
|
8,620 |
|
|
|
292 |
|
|
|
22,352 |
|
Earnings before income taxes |
|
|
24,279 |
|
|
|
66,879 |
|
|
|
75,996 |
|
|
|
93,375 |
|
|
|
260,529 |
|
Net earnings |
|
|
16,001 |
|
|
|
44,347 |
|
|
|
50,371 |
|
|
|
16,778 |
|
|
|
127,497 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.13 |
|
|
|
0.36 |
|
|
|
0.41 |
|
|
|
0.14 |
|
|
|
1.04 |
|
Diluted |
|
|
0.13 |
|
|
|
0.36 |
|
|
|
0.40 |
|
|
|
0.13 |
|
|
|
1.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 (As Reported): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
431,162 |
|
|
$ |
478,436 |
|
|
$ |
509,981 |
|
|
$ |
597,251 |
|
|
$ |
2,016,830 |
|
Gross profit |
|
|
201,677 |
|
|
|
225,818 |
|
|
|
238,593 |
|
|
|
277,992 |
|
|
|
944,080 |
|
Restructuring and other
(gains) charges, net (a) |
|
|
(50 |
) |
|
|
3,736 |
|
|
|
7,313 |
|
|
|
1,327 |
|
|
|
12,326 |
|
Earnings before income taxes |
|
|
33,215 |
|
|
|
42,906 |
|
|
|
54,271 |
|
|
|
79,984 |
|
|
|
210,376 |
|
Net earnings |
|
|
25,110 |
|
|
|
32,436 |
|
|
|
25,189 |
|
|
|
62,758 |
|
|
|
145,493 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.20 |
|
|
|
0.26 |
|
|
|
0.20 |
|
|
|
0.50 |
|
|
|
1.16 |
|
Diluted |
|
|
0.20 |
|
|
|
0.26 |
|
|
|
0.20 |
|
|
|
0.50 |
|
|
|
1.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 (As Restated): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
431,162 |
|
|
$ |
478,436 |
|
|
$ |
509,981 |
|
|
$ |
597,251 |
|
|
$ |
2,016,830 |
|
Gross profit |
|
|
201,677 |
|
|
|
225,818 |
|
|
|
238,593 |
|
|
|
277,992 |
|
|
|
944,080 |
|
Restructuring and other
(gains) charges, net (a) |
|
|
(50 |
) |
|
|
3,736 |
|
|
|
7,313 |
|
|
|
1,327 |
|
|
|
12,326 |
|
Earnings before income taxes |
|
|
31,429 |
|
|
|
41,119 |
|
|
|
52,484 |
|
|
|
78,198 |
|
|
|
203,230 |
|
Net earnings (loss) |
|
|
19,842 |
|
|
|
26,074 |
|
|
|
(47,041 |
) |
|
|
53,265 |
|
|
|
52,140 |
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.16 |
|
|
|
0.21 |
|
|
|
(0.37 |
) |
|
|
0.43 |
|
|
|
0.42 |
|
Diluted |
|
|
0.16 |
|
|
|
0.21 |
|
|
|
(0.37 |
) |
|
|
0.43 |
|
|
|
0.41 |
|
|
|
|
(a) |
|
Refer to Note 5, Restructuring and Other Charges, Net, to the accompanying consolidated
financial statements. |
|
(b) |
|
No financial information for the fourth quarter or full year had been reported prior to
the aforementioned restatement; as such, this information is not applicable. |
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the participation of the
Companys management, including the Companys chief executive officer and chief financial officer,
of the effectiveness of the Companys disclosure controls and procedures as of July 31, 2007. Based
on this evaluation and considering the material weakness in internal control over financial
reporting described below relating to the Companys accounting for income taxes, the chief
executive officer and chief financial officer concluded that the Companys disclosure controls and
procedures were not effective as of such date to ensure that information required to be disclosed
in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the
Exchange Act), is recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms.
The Company has taken remedial action with respect to such material weakness and is continuing
to consider the appropriateness of other measures as more fully described below. In addition, in
January 2008, the Company terminated the employment of four employees who previously had been
placed on administrative leave as a result of the matter that gave rise to the restatement and who
had principal responsibility for tax and treasury matters.
INTERNAL CONTROL OVER FINANCIAL REPORTING
(a) Managements annual report on internal control over financial reporting.
The management of the Company is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities and Exchange Act of 1934. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles. The Companys internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the Companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of internal control over financial
reporting based on the framework in Internal ControlIntegrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management
concluded that the Companys internal control over financial reporting was not effective as of July
31, 2007.
A material weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement
of the Companys annual or interim financial statements will not be prevented or detected on a
timely basis. The following material weakness was identified as of July 31, 2007: the Company
lacked a periodic review to ensure that the income tax impact of certain intercompany transactions
were properly considered in the Companys provision for income taxes. The Company has restated its
previously issued consolidated financial statements for each of the eight fiscal years in the
period ended July 31, 2006 and for each of the fiscal quarters ended October 31, 2006, January 31,
2007, and April 30, 2007 to correct reported provision for income taxes, interest expense, net,
income taxes payable, and deferred income taxes in such consolidated financial statements.
Managements assessment of the effectiveness of the Companys internal control over financial
reporting as of July 31, 2007 has been audited by KPMG LLP, an independent registered public
accounting firm.
44
(b) Attestation report of the registered public accounting firm.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Pall Corporation:
We have audited Pall Corporation and subsidiaries internal control over financial reporting as
of July 31, 2007, based on criteria established in Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Pall Corporations
management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Managements report on internal control over financial reporting (Item 9A(a)). Our
responsibility is to express an opinion on the effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement
of the companys annual or interim financial statements will not be prevented or detected on a
timely basis. A material weakness related to the Companys accounting for income taxes has been
identified and included in managements assessment.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Pall Corporation and
subsidiaries as of July 31, 2007 and 2006, and the related consolidated statements of earnings,
stockholders equity, and cash flows for each of the years in the three-year period ended July 31,
2007. This material weakness was considered in determining the nature, timing, and extent of audit
tests applied in our audit of the July 31, 2007 consolidated financial statements, and this report
does not affect our report dated March 28, 2008, which expressed an unqualified opinion on those
consolidated financial statements.
In our opinion, because of the effect of the aforementioned material weakness on the
achievement of the objectives of the control criteria, Pall Corporation and subsidiaries has not
maintained effective internal control over financial reporting as of July 31, 2007, based on
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Melville, New York
March 28, 2008
45
(c) Changes in internal control over financial reporting.
There was no change in the Companys internal control over financial reporting during the
fourth quarter of fiscal year 2007 that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
During the quarter ended October 31, 2007, the Company implemented additional controls and
procedures as listed below:
|
|
|
Changes in the resources and technical expertise of the Tax and Treasury
functions, including the termination of the employment of four employees discussed
above. |
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Additional processes requiring the monthly review of intercompany transactions
to determine if balances are being settled in accordance with applicable
intercompany settlement policies and to ensure that exceptions are given
appropriate income tax consideration. In addition, a quarterly review of income in
foreign subsidiaries that may be subject to U.S. income tax for inclusion in the
Companys forecasted effective tax rate to be applied in its interim periods was
implemented. |
The Company is planning training initiatives for all employees affected by revisions to its
policies and procedures, as well as specialized training with respect to tax considerations for
relevant employees.
The above listed remediation actions were tested and deemed to be effective as of January 31,
2008, therefore, the Company has remediated its material weakness in internal control over
financial reporting.
The Company believes that as a result of the actions it has taken to date, including the
implementation of the additional controls and procedures outlined above, the information contained
in this annual report fairly presents, in all material respects, the financial condition and
results of operations of the Company for the periods presented.
ITEM 9B. OTHER INFORMATION.
On March 25, 2008, the Company entered into the Third Amendment and Waiver to the Five-Year
Credit Agreement, dated as of June 21, 2006, among Pall Corporation, the subsidiaries of the
Company named on the signature pages thereto, the lenders from time to time party thereto, JPMorgan
Chase Bank, N.A., as facility agent for the Lenders, and J.P. Morgan Europe Limited, as London
agent for the Lenders. The Third Amendment and Waiver clarified certain matters with respect to
the conditions applicable to the continued effectiveness of the amendments and waivers effected
thereunder, which were originally necessitated by the Companys failure to comply with certain of
its representations, warranties and covenants under its Five-Year Credit Agreement as a result of
the matters that gave rise to the restatement. A copy of the Third Amendment and Waiver is filed
as an exhibit to this report.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
(a) Identification of directors:
MEMBERS OF THE BOARD OF DIRECTORS OF THE REGISTRANT
Daniel J. Carroll, Jr., age 63, was the CEO of Telcordia Technologies from September 2005
until May 2007. He continues to serve on the Telcordia board. Telcordia is a global
provider of telecommunications network software and services for internet protocol, wireline,
wireless and cable customers. Mr. Carroll held a number of executive positions with AT&T Corp.
until its spin-off of Lucent Technologies Inc. He retired from his employment as an officer of
Lucent in 2000. He has been a director of the Company since 1999.
46
Cheryl W. Grisé, age 55, was executive vice president of Northeast Utilities, a public utility
holding company, from December 2005 until her retirement in July 2007. Prior to that time, Ms.
Grisé had served in various senior management positions at Northeast Utilities since 1998. Ms.
Grisé was a director of Dana Corporation until February 1, 2008 and currently serves on the board
of MetLife, Inc. She also serves as chairperson of the board of the University of Connecticut
Foundation and as a member of the board of Kingswood-Oxford School. Ms. Grisé has been a director
of the Company since August 2007.
John H. F. Haskell, Jr., age 76, was for more than the past five years, until his retirement
on March 31, 2004, an investment banker and advisor with the investment banking firm of UBS
Securities LLC, New York, New York, and its predecessors. From March 31, 2004 until May 31, 2005,
he was a non-employee advisor for UBS. Mr. Haskell is co-chair of the board of the French
Institute Alliance Française and serves as a board director of other not-for-profit organizations.
Mr. Haskell has been a director of the Company since 1998.
Ulric S. Haynes, Jr., age 76, was the U.S. Ambassador to Algeria from 1977 to 1981. He was
executive dean for university international relations at Hofstra University, Hempstead, New York,
from September 1996 until his retirement in 2003. Prior to September 1996, Mr. Haynes was dean of
the Business School at Hofstra University. He serves as a director of the Council of American
Ambassadors. He has been a director of the Company since 1994.
Eric Krasnoff, age 56, has been chairman and chief executive officer of the Company since July
1994. He has also been a director of the Company since 1994. He serves on the board of three
not-for-profit organizations.
Dennis N. Longstreet, age 62, was from 1998 until his retirement in late 2005 company group
chairman of Johnson & Johnson Medical Devices, culminating a 36-year career in operational and
sales management roles with Johnson & Johnson, a manufacturer of health care products and provider
of related services for the consumer, pharmaceutical and medical devices and diagnostic markets.
He is a former chairman of the AdvaMed Industry Foundation and serves on the board of trustees, the
board of governors and the board of other not-for-profit organizations. Mr. Longstreet also serves
on the board of Avalign Technologies, Inc. He has been a director of the Company since 2006.
Edwin W. Martin, Jr., age 76, was associate and deputy U.S. commissioner of education from
1969 to 1979 and assistant secretary of education from 1979 to 1981. Dr. Martin was president and
chief executive officer of the National Center for Disability Services until November 1994 and
since then has been president-emeritus and a trustee. Dr. Martin is a member of the Roslyn Bank
Divisional Advisory Board to the New York Community Bank. In 2007, Dr. Martin was also elected
mayor of Venice, Florida for a term lasting until 2010. He has been a director of the Company
since 1993.
Katharine L. Plourde, age 56, was a principal and analyst at the investment banking firm of
Donaldson, Lufkin & Jenrette, Inc., New York, New York, until November 1997. Since that time, she
has engaged in private investing and is currently serving on the board of one not-for-profit
organization. Since February 2002, she has also served on the board of OM Group Inc.
Ms. Plourde has been a director of the Company since 1995.
Heywood Shelley, age 80, has been a practicing attorney with the firm of Carter Ledyard &
Milburn LLP, New York, New York since 1951. This firm has in the past acted and may in the future
act as legal counsel to the Company in some matters. Mr. Shelley has been a director of the
Company since 1990.
Edward L. Snyder, age 61, is professor of laboratory medicine and associate chair for clinical
affairs of the Department of Laboratory Medicine at Yale University School of Medicine. He is also
director of Blood Bank/Apheresis Service and assistant chief/associate chair for clinical affairs
at the Department of Laboratory Medicine at Yale-New Haven Hospital.
Dr. Snyder has appointed
consultant status with the Food and Drug Administration Medical Devices Advisory
CommitteeHematology and Pathology Devices Panel, and is a past president of the American
Association of Blood Banks. He is the chair-elect of the volunteer
board, National Marrow
Donor Program. Dr. Snyder also serves on the Companys Medical Advisory Board and has been a
director of the Company since 2000.
47
Edward Travaglianti, age 59, has been since February 2004 the president of Commerce Bank, Long
Island, which is part of Commerce Bancorp. Mr. Travaglianti was president of Commercial Markets at
Citibank, N.A. from July 2001, when Citibank acquired European American Bank (EAB), until his
retirement in October 2002. Prior to that acquisition, Mr. Travaglianti was, from July 1995,
chairman and chief executive officer of EAB. Mr. Travaglianti serves as the chairman of the board
and a director of several not-for-profit and health-related organizations. He has been a director
of the Company since 2001.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act and the rules thereunder require the Companys
directors and executive officers to file reports of their ownership and changes in ownership of
common stock with the SEC. Personnel of the Company generally prepare these reports on the basis
of information obtained from each director and executive officer. Based on such information, the
Company believes that all reports that were required by Section 16(a) of the Exchange Act to be
filed by directors and executive officers of the Company during the fiscal year ended July 31,
2007, were filed on time.
(b) Identification of executive officers:
EXECUTIVE OFFICERS OF THE REGISTRANT
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First Appointed an |
Name |
|
Age(1) |
|
Current Positions Held |
|
Executive Officer |
Eric Krasnoff(2)
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|
56 |
|
|
Chairman and Chief Executive Officer
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1986 |
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Lisa McDermott
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42 |
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|
Chief Financial Officer and Treasurer
|
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2006 |
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Donald B. Stevens
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62 |
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Chief Operating Officer
and President, Industrial
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1994 |
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Roberto Perez
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58 |
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|
Group Vice President and
President, Life Sciences
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2003 |
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Mary Ann Bartlett
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62 |
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Senior Vice President and General Counsel
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1997 |
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|
(1) |
|
Age as of March 21, 2008. |
|
(2) |
|
Mr. Krasnoff is a director of the Company and member of the boards executive
committee. |
None of the persons listed above is related.
For more than the past five years, the principal occupation of persons listed above has been
their employ by the registrant.
None of the above persons has been involved in those legal proceedings required to be
disclosed by Item 401(f) of Regulation S-K during the past five years.
* * *
The Company has adopted a code of ethics applicable to its chief executive officer, chief
financial officer, controller and other employees with important roles in the financial reporting
process, which code was adopted by the audit committee of the board of directors during its meeting
in July 2003, in accordance with the requirements of the Sarbanes-Oxley Act of 2002. The code of
ethics has been filed as exhibit 14 to this report and is also available on the Companys website
located at www.pall.com/policies. In addition, the Company will provide to any person, without
charge, upon request, a copy of the code of ethics, by addressing your request in writing to the
Corporate Compliance and Ethics Officer, Pall Corporation, 2200 Northern Boulevard, East Hills, New
York 11548.
The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K
regarding an amendment to, or waiver from, a provision of this code of ethics by posting such
information on the website specified above.
The board of directors has an audit committee, a compensation committee, an executive
committee and a nominating/governance committee. The board of directors has adopted a written
charter for each of these committees and a corporate governance policy. In addition, the Company
has codes of conduct that apply to every employee and its directors. The charters, corporate
governance policy, and codes of conduct are available, without charge, on the Companys website
located at www.pall.com or by sending your request in writing to the Corporate Secretary, Pall
Corporation, 2200 Northern Boulevard, East Hills, New York 11548.
48
The Audit Committee
Daniel J.
Carroll, Jr., John H.F. Haskell, Jr. and Katharine L. Plourde are members and Edward
Travaglianti is the chair of the Companys audit committee.
The
audit committee assists the board in fulfilling its oversight responsibility relating to
the integrity of the Companys financial statements and the financial reporting process, the
systems of internal accounting and financial controls, the adequecy of the Companys
information technology and systems, the performance of the Companys internal audit function, the
annual independent audit of the Companys financial statements, the performance, qualifications and
independence of its independent registered public accounting firm, and the Companys compliance and
ethics program.
Each member of the audit committee meets the independence requirements of the NYSE, Rule 10A-3
under the Exchange Act and the Companys corporate governance policy. The board of directors has
determined that each member of the audit committee is an audit committee financial expert as
defined in the rules of the SEC.
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Compensation Philosophy
The Companys compensation philosophy has been driven by its goals:
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to reward its executive officers for sustained individual and Company performance |
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to provide for a stable group of highly qualified executive officers |
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to provide a compensation package that is competitive with its peer companies in order
to promote the first two goals |
Given the rapidly changing technological landscape and marketplace relevant to the filtration
business, the Company values stability in its senior management as it provides for continuity of
experience and vision. Through its approach to compensation, the Company encourages its executive
officers to dedicate themselves to improving the Companys long-term prospects and financial
results. The Companys compensation program also encourages increased focus on performance among
its executive officers by relating a significant portion of their total compensation to Company
performance. In order to satisfy these goals, the Company has developed a systematic approach to
implementation of its executive compensation philosophy. The Company periodically reviews and
revises its approach to align its compensation program with the evolution of compensation practices
generally and to reflect changes in its management structure.
The following discussion describes the Companys executive compensation program principally as
it relates to the named executive officers or NEOs. The named executive officers are the chief
executive officer, the chief financial officer and three other most highly compensated executive
officers for fiscal year 2007. As required by SEC rules, the named executive officers also include
one individual who would have been one of the three most highly compensated executive officers had
he remained an executive officer at fiscal year-end. The named executive officers have been with
the Company from eight to 39 years.
Focus on Performance
Cash Compensation
Peer Group Review. To aid the Company in ensuring that its executive compensation program is
in step with its peers and competitors in respect of both types and amounts of compensation, the
Company has relied upon Watson Wyatt. The compensation committee is responsible for Watson Wyatts
engagement and its reports regarding compensation of our executive officers are submitted to the
compensation committee and to the chief executive officer at the same time. Management has engaged
Watson Wyatt separately from time to time to produce market studies regarding compensation for
employees other than the executive officers of the Company.
Since 1994, Watson Wyatt has been asked to evaluate on a biennial basis the cash compensation
levels of the Companys executive officers. Watson Wyatt uses published compensation survey data to
assess competitiveness of the Companys compensation program relative to identified companies and
to determine whether actual
compensation paid fairly reflects the goals of the Companys compensation philosophy.
49
Watson Wyatts most recent cash compensation report covered cash compensation as of July 2006
(the Cash Compensation Report). In keeping with the compensation philosophy and in consultation
with the chief executive officer, Watson Wyatt developed a report methodology that allowed the
compensation committee to evaluate, based on the report, the Companys compensation of its named
executive officers relative to the following targets:
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base salaries at the peer group median (50th percentile) |
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|
total cash compensation (base salary plus annual bonus) at the 75th percentile of the
peer group when maximum bonuses are earned |
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|
total cash compensation (base salary plus annual bonus) at the 50th percentile of the
peer group when midpoint bonuses (50% of maximum) are earned. |
In producing the Cash Compensation Report, Watson Wyatt used data from Watson Wyatt Data
Services, Mercer Human Resources Consulting and two proprietary surveys. The Cash Compensation
Report compared the cash compensation of the named executive officers to the cash compensation paid
to officers with comparable positions and responsibilities at manufacturing and general industrial
companies of similar scope and complexity to the Company with corporate revenues of approximately
$2 billion (or, for positions tied to business segments, companies with revenues of approximately
$1.2 billion for Industrial and $800 million for Life Sciences) (the peer group).
The Cash Compensation Report disclosed that base salaries were slightly above (4.2%) the peer
group median with the base salary of one of the named executive officers (Mr. Stevens) exceeding
the peer group median for his position by more than 15% and the base salary of another named
executive officer (Ms. Bartlett) being more than 15% below the peer group median for her position.
Watson Wyatt advised the compensation committee that it considers compensation within plus or minus
15% of the peer group median to approximate competitive norms for base salaries. Targeted total
cash compensation (base salary plus bonus) assuming a 50% bonus was slightly below (2%) peer group
median and targeted total cash compensation assuming a 100% bonus was within 1% of the 75%
percentile of the peer group.
Individual Performance. While looking to peer group practices, the compensation committee is
also mindful of the Companys position as a unique and highly complicated business demanding
specialized knowledge and experience of its executive officers. In addition, in its overall
assessment of compensation, the compensation committee takes into account each named executive
officers individual performance. However, no one element of compensation is determined directly by
reference to individual performance (although the compensation committee has the discretion to
raise base salaries by taking into account individual performance). The chief executive officer
reports to the compensation committee the results of his performance assessments of the other named
executive officers. With respect to Mr. Krasnoff, the compensation committee sets, and the board
approves, specific personal goals. For fiscal year 2007, Mr. Krasnoffs goals were as follows:
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complete integrated business structure |
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meet goals for facilities rationalization program |
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improve and broaden analyst coverage of the Company |
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achieve business plan results within the model |
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present updated five-year strategy plan for board approval |
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achieve the infrastructure rationalization program for EuroPall and institute a
comparable program for the Western Hemisphere. |
The compensation committee determined that Mr. Krasnoff had substantially achieved the
personal goals outlined above in fiscal year 2007.
2007 Annual Base Salaries. The Company has an employment contract with each of the named
executive officers. Each of the employment contracts contains provisions with respect to base
salary (including a mandatory increase for annual changes in the U.S. consumer price index).
The compensation committee has the discretion to raise base salaries above the mandatory
minimum and in evaluating any increases generally takes into account recommendations made by the
chief executive officer for all officers other than himself, internal relationships and peer group
practices as shown in the data supplied by Watson Wyatt in its reports.
50
For fiscal year 2007, after a review by the chief executive officer of the performance of the
other named executive officers and review of the performance of the chief executive officer by the
compensation committee and in light of the chief executive officers recommendations for the other
named executive officers, the compensation committee increased the base salary for all but one of
its named executive officers by the minimum mandatory increase based on the consumer price index
required under their employment contracts (5.6%) and increased Ms. Bartletts base salary by 26% in
order to align her salary with the 50th percentile for her comparable officer position as shown in
the Cash Compensation Report. Details regarding base salary paid in 2007 may be found in the
Summary Compensation Table.
2007 Annual Incentive Bonuses. Each named executive officers employment contract contains
provisions with respect to annual bonus, primarily payable under the 2004 Executive Incentive Bonus
Plan (the Bonus Plan). The Bonus Plan is the Companys short-term incentive vehicle and was
approved by the Companys shareholders at the 2004 Annual Meeting of Shareholders. In fiscal year
2007, it was the principal means by which total cash compensation of the Companys named executive
officers was tied to the Companys financial performance.
Under the Bonus Plan, the first element used to determine the annual bonus payable to an
executive under the Bonus Plan is the executives target bonus percentage, which is the maximum
bonus payable to that executive for the year, expressed as a percentage of his or her base salary.
This percentage is specified in the executives employment contract, although the compensation
committee has the ability to increase it. Based upon the recommendation of the chief executive
officer, the compensation committee did not change the target bonus percentages for the named
executive officers for fiscal year 2007 from those of fiscal year 2006:
|
|
|
Eric Krasnoff
|
|
150% |
Lisa McDermott
|
|
105% |
Donald Stevens
|
|
105% |
Mary Ann Bartlett
|
|
105% |
Roberto Perez
|
|
105% (42% under the Bonus Plan based on Company
performance and 63% based upon performance of Pall Life
Sciences (of which he is president)) |
Marcus Wilson
|
|
112.5% |
While Mr. Stevens is president of Pall Industrial, his entire annual bonus is tied to Company
performance because he is also the Companys chief operating officer.
Under the Bonus Plan, the second element used to determine the annual bonus payable to an
executive is the minimum R.O.E. target, maximum R.O.E. target and, in some fiscal years,
appropriate intermediate R.O.E. targets. These targets are set annually by the compensation
committee for the succeeding fiscal year. The minimum R.O.E. target is the return on equity that
must be exceeded in order for any bonus to be paid to an executive for that year. The maximum
R.O.E. target is the return on equity that must be achieved in order for an executive to receive a
maximum bonus equal to his or her target bonus percentage. In September 2006, the compensation
committee fixed the targets for fiscal 2007 as follows:
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|
|
|
|
Minimum R.O.E. target |
|
|
12.1 |
% |
Maximum R.O.E. target |
|
|
16.1 |
% |
Return on equity means the percentage determined by dividing net earnings for a fiscal
year by average equity for that year, using the following definitions:
51
|
|
|
Net earnings for any fiscal year is the after-tax consolidated net earnings of the Company,
either (i) as certified by the Companys independent auditors or (ii) as reported to such
auditors by our chief financial officer at a meeting of the audit committee held prior to
the date on which the Companys annual report is filed with the SEC, and accepted by the
independent auditors at such meeting, subject to events occurring after that meeting and
prior to the date of the auditors certification of the financial statements. In either
case, net earnings are adjusted to eliminate the effects of foreign currency translation,
any acquisitions, divestitures, discontinuance of business operations, restructuring or any
other special charges, the cumulative effect of accounting changes, and extraordinary
items as determined under U.S. generally accepted accounting principles insofar as these
items are separately disclosed in the Companys annual report. |
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|
Average equity for any fiscal year means the average of shareholders equity as shown in
the consolidated balance sheets of the Company for each of the two most recently completed
fiscal years, excluding amounts recorded as accumulated other comprehensive income or
loss and adjusted by items eliminated in the calculation of net earnings. |
The compensation committee chose return on equity as the financial performance measure under
the Bonus Plan in order to reward Company performance that is directly tied to shareholder
interests. The committee determined the maximum R.O.E. target for fiscal year 2007 based upon a
year over year increase in net earnings, as defined by the Plan, of 15.9% over fiscal year 2006
that equated to earnings per share for fiscal year 2007 of $1.59, reflecting a demanding and
realistic objective for earnings growth for fiscal year 2007 over fiscal year 2006. (This
determination was made in September 2006 and therefore was based upon the Companys consolidated
financial statements for fiscal year 2006 prior to restatement. See Audit Committee Report.)
Details regarding the minimum, target and maximum awards produced under the Bonus Plan formula may
be found in Grants of Plan-Based Awards for Fiscal Year 2007.
All of the named executive officers receive their annual bonus solely pursuant to the Bonus
Plan except for Mr. Perez. As president of Pall Life Sciences, 42% of Mr. Perezs annual bonus is
determined under the Bonus Plan and 63% is determined by reference to targets specific to the
performance of Pall Life Sciences. In December 2006, the chief executive officer set the targets
for the Pall Life Sciences portion of Mr. Perezs annual bonus based upon:
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Operating Profit* of Life Sciences Line of Business for Fiscal Year 2007 |
|
Minimum target |
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$141 million |
Maximum target |
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$154 million |
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* |
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Operating Profit set by reference to spot rates of exchange as of July 31, 2005. |
The compensation committee approved these targets prior to the calculation of the amount of
Mr. Perezs bonus for fiscal year 2007. The chief executive officer calculated the payout under the
formula in accordance with the performance of Pall Life Sciences, which exceeded its maximum
operating profit target for fiscal year 2007, and determined that 100% of the maximum bonus amount
should be paid (63% of base salary, or $211,663). While the chief executive officer has the
discretion to reduce (but not increase) the amount calculated pursuant to the formula, he exercised
no discretion with respect to the resulting bonus amount. The compensation committee ratified the
amount and payment of Mr. Perezs bonus.
The compensation committee has the ability to exercise discretion to reduce (but not increase)
any bonus amount otherwise payable to any named executive officer as calculated in accordance with
the Bonus Plan formula:
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to reflect any decreases in or charges to earnings that were eliminated in determining
net earnings |
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to reflect any credits to earnings for extraordinary items of income or gain that were
taken into account in determining net earnings |
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to reflect the committees evaluation of the executives individual performance |
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to reflect any other events, circumstances or factors that the committee believes to be
appropriate in determining the amount of the bonus to be paid to the executive for the
year. |
The compensation committee has no discretion to increase the amount of the bonus amount
otherwise payable to any named executive officer as calculated in accordance with the Bonus Plan
formula described above.
52
Although bonuses under the Bonus Plan are typically determined in early October following the
end of the Companys fiscal year, the Bonus Plan formula for calculation of the bonuses relies upon
audited financial information. As a result, fiscal year 2007 bonuses for the named executive
officers were not calculated until March 2008 upon the completion of the Companys restatement.
As described above, under the Bonus Plan formula, in determining return on equity (and in
particular the net earnings component), the after-tax consolidated net earnings of the Company
are adjusted to eliminate the effect of certain decreases in or charges to earnings, including
restructuring charges and any other special charges as well as any positive or negative effect of
foreign currency translation. Also as described above, the committee has the ability to override
any such adjustments in determining final bonuses under the Bonus Plan. For purposes of fiscal year
2007, the committee adjusted the Companys results to eliminate the impact of restructuring
charges, net of pro forma tax effect, and foreign currency translation, consistent with prior
practice; however, the committee determined not to make an adjustment to eliminate the impact of a
special tax-related charge recorded in 2007 unrelated to the matters underlying the Companys
restatement of prior period financial statements. As a result, based on the Bonus Plan formula, the
Companys R.O.E. for fiscal year 2007 was 14.7%. As the minimum R.O.E. target and maximum R.O.E.
target for fiscal year 2007 fixed by the committee in September 2006 was 12.1% and 16.1%,
respectively, under the Bonus Plan formula, the named executive officers would receive 64.7% of
their respective target bonus percentages. The committee approved final bonuses for fiscal year
2007 to the named executive officers under the Bonus Plan in accordance with the formula as
follows:
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|
Named Executive Officer |
|
Percentage of Base Salary |
|
Bonus Amount |
Eric Krasnoff |
|
97.05% |
|
|
|
$ |
836,676 |
|
Lisa McDermott |
|
67.94% |
|
|
|
$ |
236,863 |
|
Donald Stevens |
|
67.94% |
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|
$ |
344,537 |
|
Roberto Perez |
|
27.17% (the remainder of Mr. Perezs annual bonus is paid outside of the Bonus Plan based upon performance of Pall Life Sciences) |
|
$ |
91,298 |
|
Mary Ann Bartlett |
|
67.94% |
|
|
|
$ |
197,202 |
|
Marcus Wilson |
|
72.79% |
|
|
|
$ |
372,212 |
|
In determining the bonus awards to be paid to the named executive officers, the committee
solicited the views of the non-management directors and took into account a variety of
considerations. The principal considerations were the Companys performance in fiscal year 2007
relative to restated prior period results, including compensation paid to the named executive
officers in those periods, and senior managements implementation of major business initiatives,
notably the completion in the first quarter of fiscal year 2007 of Palls business reorganization
into two operating segments and the continued success throughout fiscal year 2007 of the Companys
cost reduction initiatives (especially its EuroPall program). The final bonus awards also reflected
the committees recognition of the significant individual and group efforts involved in completing
the restatement by March 31 (as required by waivers and amendments the Company obtained under its
debt and other agreements) and the importance to the Company and its shareholders of retaining the
named executive officers.
Equity-Based Compensation
The 2005 Stock Compensation Plan (the Stock Plan) and the Management Stock Purchase Plan
(the Management Plan) were designed to complement the Bonus Plan and to provide long-term
equity-based incentive compensation to the Companys executive officers. These Plans reflect the
compensation committees view that equity-based compensation provides executive officers with
opportunities for capital accumulation at favorable tax rates, promotes long-term executive
retention and, by fostering a proprietary interest in the Company, further aligns the interests of
our executive officers with those of the Companys shareholders.
2007 Grants under the Stock Plan. The purpose of the Stock Plan is to attract and retain
individuals of outstanding ability to serve in positions of responsibility by providing an
opportunity to acquire or increase their proprietary interest in the Company and by providing
incentives and awards to motivate their efforts towards the growth and success of the Company.
53
Since January 2004, the Company has used a mix of nonqualified stock options and restricted
stock units (generally, weighted 55% options and 45% units, although reviewed annually to determine
the most appropriate split) in its annual equity grants to executive officers. In January 2007,
with the approval of the chairman of the compensation committee, the Company requested Watson Wyatt
to produce a report regarding the market competitiveness of total direct compensation (base salary,
annual bonus, stock options and restricted stock units) of the named executive officers. For this
report, Watson Wyatt revised the companies comprising the peer group against which it benchmarked
the Companys compensation program in light of the Companys growth, especially in the global
market, to include a more closely matched set of companies and competitors. Watson Wyatts
methodology and selection were reviewed with the chief executive officer and the chairman of the
compensation committee. The revised peer group was determined based on:
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similar revenue (greater than $1 billion and less than $4 billion) |
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historical precedent (companies included in the peer group in the past) |
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considerations relating to business strategy and model (companies with product lines and
target markets significantly overlapping with those of the Companys). |
The peer group companies were:
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Bio-Rad |
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Ametek Inc.
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Bard (C.R.)
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Beckman Coulter
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Laboratories
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Donaldson Co. |
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Flowserve Corp.
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Millipore Corp.
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Mueller Industries
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Pentair Inc.
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PerkinElmer Inc. |
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SPX Corp.
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Steris Corp.
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Teleflex Inc.
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Waters Corp.
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Zimmer Holdings |
Watson Wyatt based its findings upon public proxy statement data of the peer group companies
and compared long-term equity grants made to the named executive officers in 2006 against the
three-year average equity grants of the peer group companies. According to Watson Wyatts report
(the Total Direct Compensation Report), the target and actual total direct compensation of the
named executive officers for 2006 were both below the peer group median. One of the reasons for
this result stated in the Total Direct Compensation Report was that the long-term equity
compensation of the named executive officers awarded in 2006 was below the median for comparable
officer positions, ranging in peer group percentile rank from 1% to 31%. Watson Wyatt recommended
to the compensation committee an increase in the number of stock options and restricted stock units
granted to the named executive officers and indicated in the Total Direct Compensation Report the
award sizes that would place the named executive officers in the 25th, median and
75th percentile of its peer group with respect to target total direct compensation. (In
determining these award sizes, Watson Wyatt assumed that annual bonuses would be paid at a
percentage of maximum based on a seven-year historic average.)
Based on the information in the Total Direct Compensation Report, the compensation committee
granted stock options and restricted stock units to the named executive officers in the amounts
recommended by Watson Wyatt to bring target total direct compensation up to the peer group median.
Details about the stock option and restricted stock unit grants made in 2007 may be found in
Grants of Plan-Based Awards for Fiscal Year 2007.
Each of the stock options granted under the Stock Plan vests and becomes exercisable in four
equal cumulative installments on each of the first, second, third and fourth anniversaries of the
date of grant and expires on the seventh anniversary of its grant date. Any unexercised and
unvested stock options are forfeited on termination of employment under the Stock Plan unless the
instrument evidencing the grant provides otherwise. Each of the restricted stock units granted
under the Stock Plan vests and is settled on the fourth anniversary of the date of grant. Under the
Stock Plan, the restricted stock units are forfeited on termination of employment prior to the
expiration of the restricted period, unless the instrument evidencing the grant provides otherwise,
and the termination of the participants employment was not for cause. Pending the vesting of
restricted stock units, participants also receive dividend equivalent units. Pursuant to their
terms, the stock options and restricted stock units may vest earlier under certain circumstances.
Details regarding early vesting may be found in Potential Termination or Change in Control
Payments.
Management Plan. The purpose of the Management Plan is to encourage key employees of the
Company to increase their ownership of the Companys common stock. Under the Management Plan, key
employees:
54
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may allocate portions of their cash compensation, using both pretax and after-tax
dollars, to purchase restricted stock units, each representing the right to receive one
share of common stock upon vesting or later delivery if deferred |
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|
receive additional units from the Company to match on a one-for-one basis the units they
purchase under the Plan (such match is subject to vesting) |
|
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receive additional units equal to the dollar amount of dividends paid on common stock
during the vesting period (or deferral period, if any) with respect to units credited to
their accounts (dividend equivalent units). |
The restricted stock units are not taxed until they are settled in shares of common stock,
permitting U.S. taxpayer participants to defer taxation on compensation earned in a given year
(base salary and annual bonus) and on compensation received in the form of the matching units.
The Company believes that the following substantial benefits accrue to the Company from the
Management Plan:
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The Management Plan encourages management to elect to receive all or part of their
annual bonuses in the form of restricted stock units, and to acquire additional units
through either pretax payroll deductions from base salary (up to 50%) or after-tax lump sum
payments. In this way, senior management invests in the future performance of the Company
and their interests in the Company are aligned more closely with those of shareholders. |
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|
The Management Plan encourages the retention of talented management personnel through
its vesting provisions. Upon a voluntary termination of employment by a participant (other
than retirement) or termination by the Company for cause, in either case prior to the
fourth anniversary of the date the units were credited to the participants account, any
units granted by the Company will be forfeited and any units purchased by the participant
will be settled by delivery of a number of shares of common stock based upon the lower of
the value of common stock on the date the units were credited or the date of settlement. By
participating in the Management Plan, an executive officer has skin in the game, risking
earned money on a belief in a rising stock price and continued employment. |
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The Management Plan assists management in reaching their target ownership levels set
under the Companys common stock ownership guidelines described below. |
Details about grants of restricted stock units (including Company matching units) in 2007
under the Management Plan may be found in Grants of Plan-Based Awards for Fiscal Year 2007.
Focus on Stability
The Company achieves stability among its executive officers and promotes executive
concentration on developing the Companys business and building long-term shareholder value
primarily through its equity-based compensation, employment contracts and the provision of
supplemental retirement benefits. The employment contracts and supplemental retirement arrangements
also provide protection with respect to the Companys intellectual property through a variety of
restrictive covenants applicable to the executives. Mr. Krasnoffs employment contract contains
additional benefits to him and additional protections for the Company, reflecting the importance of
his leadership to the growth and prospects of the Company.
Employment Contracts
Each of the employment contracts provides for notice of termination from the named executive
officer or the Company to be given either one or two years in advance of the specified termination
date. During the period following a notice of termination, the executive will continue to be fully
compensated under his or her contract until the specified termination date, although, if it is the
party giving notice, the Company may require the individual not to perform any further services.
Mr. Krasnoffs contract also provides him with severance payments in the event of his voluntary
termination following a demotion or change in control of the Company or upon involuntary
termination by the Company. Mr. Krasnoff is also entitled to accelerated vesting of his stock
options at the start of the 30-day period preceding the end of his employment (other than as a
result of death) and may exercise those options in full any time during that period or thereafter
until they expire by their terms. The employment contracts also provide for termination upon death,
disability, upon the executive reaching age 65 (unless the parties agree otherwise) and upon less
than one years notice by the executive following a change in control.
55
Details regarding the possible payments under the employment contracts discussed above upon
termination of employment or change in control of the Company may be found in Potential Payments
upon Termination or Change in Control.
The Companys business is highly dependent on proprietary intellectual property, including
patents, trademarks, copyrights and trade secrets. The Company uses its employment contracts to
reinforce limitations on inappropriate sharing of its intellectual property and to ensure that
executives who have access to such proprietary intellectual property do not compete with the
Companys businesses either during or after employment with the Company. Each employment contract
provides that during employment (including any period following notice of termination whether or
not services are being performed) and for 12 to 18 months after termination of employment (other
than following a change in control of the Company and with the length depending upon the
circumstances of the termination), executive officers may not engage in any activity that is
competitive to any material extent with the business of the Company. The employment contracts also
contain trade secret, confidentiality and invention and patent covenants that apply during and
subsequent to employment.
Supplemental Retirement Benefits
Krasnoff Contract Pension. Mr. Krasnoffs employment contract provides for an annual pension
payment beginning at the termination of his employment contract and continuing for ten years,
conditioned, while Mr. Krasnoff is alive, upon his being available for advisory services to the
Company upon request of the board for up to 15 hours a month and not engaging in any activity
competitive to any material extent with Company business without prior Company consent (other than
upon a termination of employment by the Company following a change in control).
Supplementary Pension Plan. In addition to providing a tax-qualified profit-sharing plan and
cash balance pension plan for all of its employees, including its named executive officers, the
Company maintains supplementary plans for its executive officers that are not tax-qualified. The
Companys Supplementary Pension Plan is available to certain key officers, including the named
executive officers, and provides lifetime pension payments that will, when added to primary Social
Security benefits and payments from the Companys tax-qualified Cash Balance Pension Plan, on an
annual basis equal 50% of a participants average of the three highest of the participants last
five years cash compensation (salary and bonus) prior to termination. Payments under the
Supplementary Pension Plan are conditioned upon the participants, both before and after termination
of employment, abiding by secrecy and invention agreements and certain non-compete provisions set
forth in the plan. Payments under the plan are forfeited if the participant is fired by the Company
for gross negligence or willful misconduct. Details regarding pension benefits under Mr. Krasnoffs
contract and the Supplementary Pension Plan may be found in Pension Benefits for Fiscal Year
2007.
Supplementary Profit-Sharing Plan. The Companys Supplementary Profit-Sharing Plan provides a
benefit to U.S.-based executives to make up for contributions that cannot be made to the
executives accounts by law under the tax-qualified Pall
Corporation 401(k) Plan (the 401(k) Plan, formerly known as the
Pall Corporation Profit-Sharing Plan) and for earnings that could have been earned on such
contributions. In fiscal year 2007, no contributions were made to the Supplementary Profit-Sharing
Plan on behalf of any participants, including the named executive officers.
Benefits Protection Trust. The Company has established a Benefits Protection Trust to which it
makes voluntary contributions to help meet its obligations under the Supplementary Pension Plan and
the Supplementary Profit-Sharing Plan, as well as any severance payable to Mr. Krasnoff under his
employment contract described above and the Companys obligation to pay Mr. Krasnoffs contract
pension. In the event of a change in control of the Company (as defined in the trust agreement),
the trust fund must thereafter be used to satisfy these obligations other than in the event of an
insolvency of the Company when such amounts will be available to its general creditors. The balance
in the Benefits Protection Trust at the end of fiscal year 2007 was
$57,693,354.
Perquisites and Welfare Benefits
Generally, the Company does not provide many perquisites to its named executive officers. Each
named executive officer receives a car allowance (the amount of which is determined by Mr.
Krasnoff) and certain executives have received tax and estate planning, sporting and concert
tickets, home office equipment and airline club memberships. In the case of executives who relocate
on behalf of the Company, such as Mr. Wilson, relocation and housing costs are also provided. Mr.
Perez has an interest free loan from the Company that was made in connection with his purchase of a
home upon his relocation on behalf of the Company. Mr. Stevens has an interest free loan from the
Company that was made in connection with his exercise of Company stock options. Both loans were
made prior to the adoption of the Sarbanes-Oxley Act. See Summary Compensation Table. Named
executive officers receive the same welfare benefits, consisting of medical, dental, life and
disability insurance, on the same terms as all other employees of the Company. The named executive
officers are not entitled to receive any welfare benefits as a retiree, other than Mr. Krasnoff
whose contract provides for lifetime medical coverage for him and his spouse and minor children,
consisting of the same coverage and benefits as are provided under the hospitalization,
medical and dental plans maintained by the Company for its nonunionized U.S. employees.
56
Equity-Based Compensation Grant Policy
On January 10, 2007, the compensation committee adopted a written policy for the issuance of
grants of equity-based compensation to officers and employees. Under the policy, the committee will
make all grants to individuals who may be covered employees for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended, (the Code) and to all board-elected officers of the
Company. At its regularly scheduled committee meeting held in July of each year, the committee will
approve the total aggregate amount of shares available for the following fiscal years annual grant
to all employees, including named executive officers. In addition, at that meeting, based upon
recommendations of the Companys chief executive officer and any other relevant factors, the
committee will approve the total annual equity grants for each non-executive employee based on a
schedule listing the name and position of the employee and the type and amount of the applicable
award. At its regularly scheduled committee meeting held in January of each year occurring during
an open trading window, based upon recommendations of the Companys chief executive officer and any
other relevant factors, the committee will approve the total annual equity grants for each covered
employee and elected officer. The committee also will approve at a regular or special meeting held
on or prior to the contemplated grant date all equity-based grants to newly hired or promoted
employees or similar special grants not made at these meetings. All stock options will be granted
at fair market value on the grant date as defined under the relevant plan (i.e., the NYSE closing
price for the Stock Plan). The director of employee benefits (or, if such position does not exist,
the chief financial officer) is charged with ensuring compliance with the grant policy.
Common Stock Ownership Guidelines
The compensation committee has established common stock ownership guidelines for the Companys
officers and other key employees. The current target ownership levels are 500% of annual base
salary for the Companys chief executive officer, 300% of base salary for any executive officer
whose annual base salary exceeds $300,000, and 150% of base salary for any other executive officer
whose annual base salary exceeds $150,000. Target ownership levels of common stock for other
officers and key employees have been established based on annual base salary ranges. For these
purposes, a persons base salary includes the amount of salary that he or she elects to receive in
the form of restricted stock units under the Management Plan. Those persons who began participating
in the Management Plan after its inception have six years from the dates of their participation to
reach 100% of their target ownership levels. Participants with increased target ownership levels
due to promotion are entitled to an additional two years to satisfy the new requirement. In
calculating shares owned, each restricted stock unit (whether vested or unvested) held for the
account of an employee under the Management Plan or the Stock Plan is counted as one share.
The compensation committee has determined that, barring mitigating circumstances, any
participant in the Management Plan who does not meet the target stock ownership level will not be
eligible to receive further grants of stock options until the target is met.
Each of the named executive officers still in office has met his or her target level or is in
a grace period due to promotion. Total stock ownership as a percentage of the target ownership goal
by each of the named executive officers who has met his or her target level ranges from 143% to
361%.
Taxes
The Code limits the deductibility for federal income tax purposes of executive compensation
paid by public companies to certain of their executive officers. Under Section 162(m) of the Code,
the Company is not permitted to deduct compensation of the chief executive officer and the three
other most highly paid executive officers (other than the chief financial officer) in excess of
$1,000,000 for any fiscal year except to the extent that the compensation in excess of that amount
meets the statutory definition of performance-based compensation.
The Company intends that cash bonuses and certain equity grants (including stock options)
granted under the Bonus Plan and the Stock Plan meet the statutory definition of performance-based
compensation. However, the Company may from time to time award certain bonuses and equity grants
that are not deductible under Section 162(m). For example, restricted stock units granted under the
Stock Plan and matching units credited under the Management Plan and any dividend equivalents on
such units do not qualify as performance-based compensation. Nonetheless, the Company believes that
the potential loss of a tax deduction is justified by the rationale for these awards.
57
The Company is reviewing its compensation agreements and plans to ensure compliance with
Section 409A of the Code. One result of Section 409A will be the delay of any payments made upon an
executive officers separation from service to the date six months after the end of employment, in
which event any such payments that would otherwise have been made during such period will be paid
at the end of the six-month period in a lump sum with interest.
Post-Fiscal Year End Events
Wilson Departure. As of November 14, 2006, the Company notified Marcus Wilson, the Companys
former President and board member, of its intention to exercise its right to terminate his
employment in accordance with his employment contract. The Company entered into a separate letter
agreement with Mr. Wilson dated on December 11, 2006, which amended his employment contract and
provided certain additional termination benefits to him in exchange for a general release and
waiver of claims against the Company. Pursuant to his contract and the letter agreement, Mr. Wilson
will continue to be compensated as an employee of the Company through November 14, 2008 whether or
not the Company requires him to provide further services. To date, the Company has not required any
services from Mr. Wilson. Details about Mr. Wilsons post-termination compensation may be found in
and following the Summary Compensation Table. As of November 14, 2006, Mr. Krasnoff assumed Mr. Wilsons position as president. The Company
did not increase Mr. Krasnoffs compensation as a result of his assumption of this additional role.
COMPENSATION COMMITTEE REPORT
The compensation committee reviewed and discussed the Companys Compensation Discussion and
Analysis with management. Based on this review and discussion, the compensation committee
recommended to the Board of Directors that the Compensation Discussion and Analysis be included in
this Annual Report and the Companys Proxy Statement.
This report by the compensation committee is not to be deemed filed under the Securities Act
of 1933 or the Securities Exchange Act of 1934, both as amended, and is not to be incorporated by
reference into any other filing of the Company under those statutes except to the extent that the
Company may expressly refer to this report for incorporation by reference in a particular instance.
The undersigned, being all the members of the compensation committee, submit this report to
the Companys shareholders.
Compensation Committee
Daniel J. Carroll, Jr. (Chair)
Ulric S. Haynes, Jr.
Edwin W. Martin, Jr.
Edward L. Snyder
Cheryl W. Grisé (appointed to the
committee on January 17, 2008)
Compensation Committee Interlocks and Insider Participation
During fiscal year 2007, Mr. Daniel J. Carroll, Jr. (Chair), Mr. Ulric S. Haynes, Jr., Edwin
W. Martin, Ph.D. and Edward L. Snyder, M.D. served on the compensation committee of the board. None
of the persons who served on the compensation committee are, or have been, an employee or officer
of the Company or had any relationship requiring disclosure under Item 404 of Regulation S-K under
the Exchange Act. In addition, none of the Companys executive officers serves, or has
served during the last completed fiscal year, as a member of the board or compensation committee of
any other entity that has or has had one or more of its executive officers serving as a member of
the Companys board.
58
Summary Compensation Table
The
following table sets forth the compensation of each of the named
executive officers for the fiscal year ended July 31, 2007.
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Change in |
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Pension Value |
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and Nonqualified |
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Non-Equity |
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Deferred |
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Stock |
|
Option |
|
Incentive Plan |
|
Compensation |
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All Other |
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Name and |
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Salary |
|
Awards |
|
Awards |
|
Compensation |
|
Earnings |
|
Compensation |
|
|
Principal Position |
|
Year |
|
(1) |
|
(2) |
|
(3) |
|
(4) |
|
(5) |
|
(6) |
|
Total |
Eric Krasnoff
(Chairman, Chief
Executive Officer &
President) |
|
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2007 |
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$ |
862,108 |
|
|
$ |
685,658 |
|
|
$ |
574,616 |
|
|
$ |
836,676 |
|
|
$ |
1,215,057 |
|
|
$ |
48,977 |
|
|
$ |
4,223,092 |
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Lisa McDermott
(Chief Financial
Officer &
Treasurer) |
|
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2007 |
|
|
$ |
348,660 |
|
|
$ |
119,270 |
|
|
$ |
97,396 |
|
|
$ |
236,863 |
|
|
$ |
291,335 |
|
|
$ |
24,936 |
|
|
$ |
1,118,460 |
|
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Donald Stevens
(Chief Operating
Officer &
President-Industrial) |
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2007 |
|
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$ |
507,156 |
|
|
$ |
381,150 |
|
|
$ |
212,394 |
|
|
$ |
344,537 |
|
|
$ |
216,234 |
|
|
$ |
35,321 |
|
|
$ |
1,696,792 |
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Roberto Perez
(President-Life
Sciences) |
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2007 |
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$ |
335,972 |
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$ |
221,451 |
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$ |
164,633 |
|
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$ |
302,961 |
|
|
$ |
525,498 |
|
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$ |
33,661 |
|
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$ |
1,584,176 |
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Mary Ann Bartlett
(Senior Vice
President & General
Counsel) |
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2007 |
|
|
$ |
290,279 |
|
|
$ |
103,799 |
|
|
$ |
59,955 |
|
|
$ |
197,202 |
|
|
$ |
399,554 |
|
|
$ |
22,806 |
|
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$ |
1,073,595 |
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Marcus Wilson
(Former President)
(7) |
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2007 |
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$ |
137,676 |
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$ |
877,097 |
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$ |
373,002 |
|
|
|
|
|
|
$ |
246,730 |
|
|
$ |
905,977 |
|
|
$ |
2,540,482 |
|
59
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(1) |
|
Base salary is paid in accordance with each named executive officers employment contract.
Includes amounts deferred into restricted stock units under the Companys Management Plan by
Ms. Bartlett ($22,507) and Mr. Perez ($82,103). See Grants of Plan-Based Awards for further
information. |
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(2) |
|
Reflects the expense recognized for financial statement reporting purposes under SFAS
123R for each NEO for the Companys fiscal year ended July 31, 2007 for restricted stock units
granted to the NEO both in fiscal year 2007 and in prior years under the Stock Plan and
Management Plan. Pursuant to SEC rules, the amounts shown exclude the impact of estimated
forfeitures related to service-based conditions. For additional information regarding the
assumptions made in calculating these amounts, see Note 17,
Common Stock, to the accompanying consolidated
financial statements with respect to the grants made in fiscal year 2007 and the corresponding note to
consolidated financial statements for prior fiscal years for grants
made in such years. The amount shown for Mr. Wilson reflects
additional expense recognized as a result of the terms of Mr.
Wilsons separation. These
amounts reflect the Companys accounting expense for these awards and do not correspond to the actual
value, if any, that may be realized by the NEO. |
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(3) |
|
Reflects the expense recognized for financial statement reporting purposes under SFAS 123R
for each NEO for the Companys fiscal year ended July 31, 2007 for stock options granted to
the NEO both in fiscal year 2007 and in prior years under the Stock Plan and prior Company
stock option plans. Pursuant to SEC rules, the amounts shown exclude the impact of estimated
forfeitures related to service-based conditions. For additional information regarding the
assumptions made in calculating these amounts, see Note 17,
Common Stock, to the accompanying consolidated
financial statements with respect to the grants made in fiscal year 2007 and the corresponding note to
consolidated financial statements for prior fiscal years for grants
made in such years. The amount shown for Mr. Wilson reflects
additional expense recognized as a result of the terms of Mr.
Wilsons separation. These
amounts reflect the Companys accounting expense for these awards and do not correspond to the actual
value, if any, that may be realized by the NEO. |
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(4) |
|
Reflects annual bonus paid to the NEO under the Companys Bonus Plan for fiscal year 2007.
Includes amounts deferred into restricted stock units under the Companys Management Plan by
Ms. McDermott ($207,000) and Mr. Perez ($75,740) in fiscal year 2008. See the description of
the Executive Incentive Bonus Plan and the Management Plan in Compensation Discussion and
Analysis for further information about these awards. |
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(5) |
|
Represents the aggregate increase in the actuarial present value of accumulated benefits
under the Companys tax-qualified Cash Balance Pension Plan, nonqualified Supplementary
Pension Plan and, in the case of Mr. Krasnoff, his contract pension and, in the case of Mr.
Wilson, the Pall U.K. Pension Fund, from the plan
measurement date used for financial statement reporting purposes with respect to fiscal year
2006 to the plan measurement date used for financial statement reporting purposes with respect
to fiscal year 2007. See Pension Benefits for Fiscal Year 2007 for further information. |
|
(6) |
|
The amounts reported in All Other Compensation represent the aggregate incremental cost to
the Company in fiscal year 2007 of the following: |
|
|
|
Eric Krasnoff
|
|
Company contributions to the 401(k) Plan |
|
|
Company car allowance |
|
|
Fees for estate planning |
|
|
Sporting and concert tickets |
|
|
Fees for tax return preparation |
|
|
Club memberships |
|
|
Home office expenses |
|
|
|
Lisa McDermott
|
|
Company contributions to the 401(k) Plan |
|
|
Company car allowance |
|
|
Sporting and concert tickets |
|
|
Home office expenses |
|
|
|
Donald Stevens
|
|
Company contributions to the 401(k) Plan |
|
|
Company car allowance |
|
|
Imputed interest for outstanding loan to the Company |
|
|
Fees for estate planning |
|
|
Home office expenses |
60
|
|
|
Roberto Perez
|
|
Company contributions to 401(k) Plan |
|
|
Company car allowance |
|
|
Imputed interest for outstanding loan to the Company |
|
|
Sporting and concert tickets |
|
|
Home office expenses |
|
|
|
Mary Ann Bartlett
|
|
Company contributions to 401(k) Plan |
|
|
Company car allowance |
|
|
Sporting and concert tickets |
|
|
|
Marcus Wilson
|
|
Company contributions to 401(k) Plan |
|
|
Company car allowance (while still employed) |
|
|
Housing allowance (while still employed) |
|
|
Fees for tax return preparation |
|
|
Payments under separation agreement (See Wilson Separation Agreement for more information) |
|
|
°
Eight months car allowance ($12,480) |
|
|
° Salary continuation ($373,692) |
|
|
° Housing allowance ($12,968) |
|
|
° Equivalent of 401(k) Plan contributions ($6,750) |
|
|
°
Annual bonus ($372,212) |
|
|
° Legal and broker fees in connection with house sale ($98,925) |
|
|
° Reimbursement for legal fees in connection with separation agreement ($12,242) |
|
|
|
|
(7) |
|
Mr. Wilson resigned as an officer and director of the Company effective as of November 14,
2006. |
For further information regarding the compensation set forth in the Summary Compensation Table, see
Compensation Discussion and Analysis and Pension Benefits for Fiscal Year 2007.
Wilson Separation Agreement
Marcus Wilson resigned as an officer and director of the Company effective as of November 14,
2006. In connection with his resignation, the Company entered into a letter agreement with Mr.
Wilson that sets forth the Companys severance obligations. Pursuant to the letter agreement, and
conditioned on Mr. Wilsons execution of a general release and waiver of claims, for a period of
two years following November 14, 2006 (the Notice Period), Mr. Wilson is entitled to receive
continued base salary of $511,368 per annum, an annual bonus under the Bonus Plan (with a target
bonus of 112.5% of his base salary), continued coverage under the Companys group medical
insurance, a car allowance of $18,720 per year, a housing allowance of $17,700 per year for as long
as Mr. Wilson remains in his U.S. residence, reimbursement for tax advice and reimbursement up to
$15,000 for legal advice in connection with his resignation, outplacement services of up to
$15,000, continued participation in the Supplementary Profit-Sharing Plan and the Supplementary
Pension Plan and immediate pro rata vesting in a portion of his Management Plan account. As of
November 14, 2006, Mr. Wilson ceased participation in the 401(k) Plan and the Cash Balance Plan,
and, in lieu of such continued participation, Mr. Wilson will be entitled to a cash payment equal
to the amount of Company contributions that would have otherwise been made to his accounts under
such plans.
Upon Mr. Wilsons repatriation to the United Kingdom, he will become entitled to repatriation
costs of up to $30,000, and payment of a broker commission of up to 5% and attorney fees of up to
0.5% of the sale price of his U.S. residence. In addition, stock options and restricted stock
units granted pursuant to Stock Plan or the 1998 Employee Stock Option Plan not vested as of
November 14, 2006 will continue to vest and be exercisable or settled, respectively, in accordance
with their terms until the expiration of the Notice Period. At the end of the Notice Period, any
unvested stock options under such plans will vest in full at such time and will remain outstanding
until expiration in accordance with their terms and any unvested restricted stock units will
continue to vest and be settled in accordance with their terms.
61
In consideration for the foregoing arrangements, Mr. Wilson is not permitted to accept
employment with another employer until the expiration of the Notice Period without written
confirmation from the Company that such employment will not compete with Company. If Mr. Wilson
does accept employment during the Notice Period, provided he has received confirmation from the
Company that his new employment will not compete with the Company, from the date of his new
employment until the end of the Notice Period, Mr. Wilson will receive monthly payments equivalent
to 50% of his base salary and bonus compensation, continued vesting in his restricted stock units,
and acceleration of his stock options.
Grants of Plan-based Awards for Fiscal Year 2007
The following table provides information concerning equity and non-equity incentive awards
granted to the named executive officers under the Bonus Plan, the Stock Plan and the Management
Plan during fiscal year 2007. There can be no assurance that the grant date fair value of stock
and option awards reported below will ever be realized by the named executive officers.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
Awards: |
|
Option |
|
|
|
|
|
|
|
|
|
|
|
|
Future Payouts |
|
Number |
|
Awards: |
|
Exercise |
|
Grant Date Fair |
|
|
|
|
|
|
Under Non-Equity |
|
of Shares |
|
Number of |
|
or Base |
|
Value of Stock and |
|
|
|
|
|
|
Incentive Plan Awards |
|
of Stock |
|
Securities |
|
Price of |
|
Option Awards (8) |
|
|
|
|
|
|
|
Threshold |
|
Target |
|
Maximum |
|
or Units |
|
Underlying |
|
Option |
|
($) |
|
|
|
|
|
|
|
(1) |
|
(2) |
|
(2) |
|
(5) |
|
Options (6) |
|
Awards (7) |
|
Option |
|
Stock |
Name |
|
Grant Date |
|
($) |
|
($) |
|
($) |
|
(#) |
|
(#) |
|
($/Sh) |
|
Awards |
|
Awards |
Eric Krasnoff |
|
|
1/10/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,000 |
(3) |
|
|
121,000 |
|
|
$ |
34.07 |
|
|
$ |
1,073,270 |
|
|
$ |
988,030 |
|
|
|
|
1/31/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,631 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
|
|
|
|
$ |
32,329 |
|
|
$ |
1,293,162 |
|
|
$ |
1,293,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lisa McDermott |
|
|
1/10/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
(3) |
|
|
44,000 |
|
|
|
34.07 |
|
|
|
390,280 |
|
|
|
340,700 |
|
|
|
|
|
|
|
|
9,152 |
|
|
|
366,093 |
|
|
|
366,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald Stevens |
|
|
10/3/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,586 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
356,169 |
|
|
|
|
1/10/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
(3) |
|
|
42,000 |
|
|
|
34.07 |
|
|
|
372,540 |
|
|
|
340,700 |
|
|
|
|
1/31/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,472 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364,000 |
|
|
|
|
|
|
|
|
13,313 |
|
|
|
532,514 |
|
|
|
532,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roberto Perez |
|
|
10/3/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,362 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,361 |
|
|
|
|
1/10/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
(3) |
|
|
35,000 |
|
|
|
34.07 |
|
|
|
310,450 |
|
|
|
272,560 |
|
|
|
|
1/31/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,307 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,200 |
|
|
|
|
7/31/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,023 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,006 |
|
|
|
|
|
|
|
|
8,819 |
|
|
|
352,771 |
|
|
|
352,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mary Ann Bartlett |
|
|
9/29/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,178 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159,545 |
|
|
|
|
1/10/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
(3) |
|
|
35,000 |
|
|
|
34.07 |
|
|
|
310,450 |
|
|
|
272,560 |
|
|
|
|
1/31/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
626 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,770 |
|
|
|
|
7/31/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
560 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,244 |
|
|
|
|
|
|
|
|
7,620 |
|
|
|
304,793 |
|
|
|
304,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcus Wilson |
|
|
10/3/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,510 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230,876 |
|
|
|
|
|
|
|
|
14,382 |
|
|
|
575,289 |
|
|
|
575,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the bonus payable to the named executive officer under the Bonus Plan if the
threshold, or lowest possible achievement that would yield a bonus payment, is obtained. |
|
(2) |
|
Represents the bonus payable to the NEO under the Bonus Plan if the performance target is
obtained. The amounts disclosed under target and maximum are identical as full bonus is paid
if the performance target is achieved. |
62
|
|
|
(3) |
|
Represents the number of restricted stock units granted to the NEO under the Stock Plan on
January 10, 2007. These restricted stock units will vest in full and be settled in stock on
the fourth anniversary of the date of grant or, if occurring prior to that date, upon
termination of employment as a result of death or disability or upon a change in control of
the Company. A pro rated portion of any unvested restricted stock units will vest upon a
termination of employment for eligible retirement (at or over age 65). Upon a termination of
employment for any reason other than death, disability or eligible retirement, all unvested
restricted stock units will be forfeited. |
|
(4) |
|
Represents the number of restricted stock units granted to the NEO under the Management Plan.
The number of restricted stock units shown as granted on September 29, 2006, and October 3,
2006 resulted from pretax deferrals of bonus paid for fiscal year 2006 and the number of
restricted stock units shown as granted on January 31, 2007 and July 31, 2007 resulted from
pretax base salary deferrals by the named executive officer ($22,507 for Ms. Bartlett and
$82,103 for Mr. Perez), as well as employer matching units granted with respect to units
acquired by the named executive officer with all pretax and after-tax contributions. These
restricted stock units will vest in full on the fourth anniversary of the date of grant or, if
occurring prior to that date, upon termination of employment as a result of death or
disability or upon a change in control of the Company. Upon a termination of employment for
eligible retirement (at or over age 62) or upon a termination by the Company without cause, a
pro rated portion of any unvested employer matching units will vest and all unvested units
acquired by the named executive officer through pretax and after-tax contributions will vest.
Upon a termination of employment for any reason other than death, disability, eligible
retirement or by the Company without cause, all unvested employer matching units will be
forfeited and all unvested units acquired by the named executive officer through pretax and
after-tax contributions will vest but will be settled by delivery of a number of shares based
upon the lower of the value of common stock on the date the units were credited to the NEOs
account or the date of settlement. |
|
(5) |
|
Dividend equivalent units are earned on all restricted stock units outstanding at the time
the Companys quarterly dividend is paid, based on the closing stock price on the dividend
payment date, and vest at the same time as the restricted stock units to which they relate. |
|
(6) |
|
Represents the number of non-qualified stock options granted to the NEO on January 10, 2007
under the Stock Plan. The options granted vest 25% on each of the first four anniversaries of
the date of grant while employed by the Company and after a termination for disability or
retirement at or after age 65. Upon a termination for any reason other than disability or
retirement, all unvested stock options will be forfeited on the date of termination, except in
the case of Mr. Krasnoff whose options will vest 30 days prior to any termination of
employment (other than as a result of death) pursuant to his employment contract. All stock
options will vest in full upon a change in control of the Company. All stock options will
expire on the seventh anniversary of the date of grant. |
|
(7) |
|
Exercise price is based upon the closing price of a share of common stock as reported in the
NYSE Composite Transactions on the date of grant. |
|
(8) |
|
Represents the grant date fair value under SFAS 123R of the restricted stock units and stock
option awards granted to the named executive officer. |
For a description of the material terms of the Companys Bonus Plan, Stock Plan and Management
Plan, see Compensation Discussion and Analysis and Potential Payments upon Termination or Change
in Control.
63
Outstanding Equity Awards at end of Fiscal Year 2007
The following table provides information regarding unexercised options and unvested restricted
stock units outstanding for each named executive officer as of the end of fiscal year 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards (1) |
|
Stock Awards (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
Value of |
|
|
|
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
Shares |
|
|
|
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
or Units of |
|
or Units of |
|
|
|
|
Underlying |
|
Underlying |
|
|
|
Option |
|
|
|
|
|
Stock That |
|
Stock That |
|
|
|
|
Unexercised |
|
Unexercised |
|
Option |
|
Exercise |
|
Option |
|
Have Not |
|
Have Not |
|
Schedule |
|
|
Options |
|
Options |
|
Grant |
|
Price |
|
Expiration |
|
Vested |
|
Vested (3) |
|
Vesting |
Name |
|
(#) Exercisable |
|
(#) Unexercisable |
|
Date (2) |
|
($) |
|
Date |
|
(#) |
|
($) |
|
Date |
Eric Krasnoff |
|
|
170,948 |
|
|
|
|
|
|
|
|
|
|
$ |
22.09 |
|
|
|
3/18/2011 |
|
|
|
25,898 |
(4) |
|
$ |
1,075,285 |
|
|
|
1/19/2009 |
|
|
|
|
83,000 |
|
|
|
|
|
|
|
|
|
|
|
16.13 |
|
|
|
10/2/2012 |
|
|
|
25,529 |
(4) |
|
|
1,059,964 |
|
|
|
1/19/2010 |
|
|
|
|
47,500 |
|
|
|
47,500 |
|
|
|
1/19/2005 |
|
|
|
27.00 |
|
|
|
1/19/2012 |
|
|
|
29,181 |
(4) |
|
|
1,211,595 |
|
|
|
1/10/2011 |
|
|
|
|
23,750 |
|
|
|
71,250 |
|
|
|
1/19/2006 |
|
|
|
28.68 |
|
|
|
1/19/2013 |
|
|
|
47,149 |
(5) |
|
|
1,957,626 |
|
|
|
9/30/2009 |
|
|
|
|
|
|
|
|
121,000 |
|
|
|
1/10/2007 |
|
|
|
34.07 |
|
|
|
1/10/2014 |
|
|
|
8,685 |
(5) |
|
|
360,601 |
|
|
|
1/31/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lisa McDermott |
|
|
3,850 |
|
|
|
|
|
|
|
|
|
|
$ |
16.13 |
|
|
|
10/2/2012 |
|
|
|
1,645 |
(4) |
|
$ |
68,300 |
|
|
|
7/27/2009 |
|
|
|
|
1,200 |
|
|
|
1,200 |
|
|
|
7/27/2005 |
|
|
|
30.83 |
|
|
|
7/27/2012 |
|
|
|
5,106 |
(4) |
|
|
212,001 |
|
|
|
1/19/2010 |
|
|
|
|
4,500 |
|
|
|
13,500 |
|
|
|
1/19/2006 |
|
|
|
28.68 |
|
|
|
1/19/2013 |
|
|
|
10,062 |
(4) |
|
|
417,774 |
|
|
|
1/10/2011 |
|
|
|
|
|
|
|
|
44,000 |
|
|
|
1/10/2007 |
|
|
|
34.07 |
|
|
|
1/10/2014 |
|
|
|
1,738 |
(5) |
|
|
72,162 |
|
|
|
9/11/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600 |
(5) |
|
|
66,432 |
|
|
|
9/17/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,317 |
(5) |
|
|
220,762 |
|
|
|
9/30/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald Stevens |
|
|
35,051 |
|
|
|
|
|
|
|
|
|
|
$ |
16.13 |
|
|
|
10/2/2012 |
|
|
|
7,251 |
(4) |
|
$ |
301,062 |
|
|
|
1/19/2009 |
|
|
|
|
12,500 |
|
|
|
6,250 |
|
|
|
8/4/2003 |
|
|
|
22.74 |
|
|
|
8/3/2013 |
|
|
|
7,148 |
(4) |
|
|
296,785 |
|
|
|
1/19/2010 |
|
|
|
|
13,500 |
|
|
|
13,500 |
|
|
|
1/19/2005 |
|
|
|
27.00 |
|
|
|
1/19/2012 |
|
|
|
10,062 |
(4) |
|
|
417,774 |
|
|
|
1/10/2011 |
|
|
|
|
6,750 |
|
|
|
20,250 |
|
|
|
1/19/2006 |
|
|
|
28.68 |
|
|
|
1/19/2013 |
|
|
|
14,482 |
(5) |
|
|
601,293 |
|
|
|
9/11/2007 |
|
|
|
|
|
|
|
|
42,000 |
|
|
|
1/10/2007 |
|
|
|
34.07 |
|
|
|
1/10/2014 |
|
|
|
1,585 |
(5) |
|
|
65,809 |
|
|
|
1/31/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,754 |
(5) |
|
|
72,826 |
|
|
|
7/31/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,014 |
(5) |
|
|
664,901 |
|
|
|
9/17/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,457 |
(5) |
|
|
766,335 |
|
|
|
9/30/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,844 |
(5) |
|
|
76,563 |
|
|
|
1/31/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,177 |
(5) |
|
|
90,389 |
|
|
|
7/31/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,699 |
(5) |
|
|
485,742 |
|
|
|
10/3/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,537 |
(5) |
|
|
437,496 |
|
|
|
1/31/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roberto Perez |
|
|
|
|
|
|
5,250 |
|
|
|
8/1/2003 |
|
|
$ |
22.65 |
|
|
|
7/31/2013 |
|
|
|
5,698 |
(4) |
|
$ |
236,581 |
|
|
|
1/19/2009 |
|
|
|
|
|
|
|
|
3,750 |
|
|
|
1/19/2005 |
|
|
|
27.00 |
|
|
|
1/19/2012 |
|
|
|
512 |
(4) |
|
|
21,258 |
|
|
|
8/29/2009 |
|
|
|
|
|
|
|
|
9,375 |
|
|
|
8/29/2005 |
|
|
|
28.33 |
|
|
|
8/29/2012 |
|
|
|
7,148 |
(4) |
|
|
296,785 |
|
|
|
1/19/2010 |
|
|
|
|
|
|
|
|
20,250 |
|
|
|
1/19/2006 |
|
|
|
28.68 |
|
|
|
1/19/2013 |
|
|
|
8,050 |
(4) |
|
|
334,236 |
|
|
|
1/10/2011 |
|
|
|
|
|
|
|
|
35,000 |
|
|
|
1/10/2007 |
|
|
|
34.07 |
|
|
|
1/10/2014 |
|
|
|
3,810 |
(5) |
|
|
158,191 |
|
|
|
1/31/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,555 |
(5) |
|
|
189,124 |
|
|
|
7/31/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,064 |
(5) |
|
|
85,697 |
|
|
|
1/31/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,101 |
(5) |
|
|
87,234 |
|
|
|
7/31/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,734 |
(5) |
|
|
362,636 |
|
|
|
9/30/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,364 |
(5) |
|
|
139,673 |
|
|
|
1/31/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,263 |
(5) |
|
|
93,960 |
|
|
|
7/31/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,395 |
(5) |
|
|
140,960 |
|
|
|
10/3/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,322 |
(5) |
|
|
96,409 |
|
|
|
1/31/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,023 |
(5) |
|
|
83,995 |
|
|
|
7/31/2011 |
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards (1) |
|
Stock Awards (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
Value of |
|
|
|
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
Shares |
|
|
|
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
or Units of |
|
or Units of |
|
|
|
|
Underlying |
|
Underlying |
|
|
|
Option |
|
|
|
|
|
Stock That |
|
Stock That |
|
|
|
|
Unexercised |
|
Unexercised |
|
Option |
|
Exercise |
|
Option |
|
Have Not |
|
Have Not |
|
Schedule |
|
|
Options |
|
Options |
|
Grant |
|
Price |
|
Expiration |
|
Vested |
|
Vested (3) |
|
Vesting |
Name |
|
(#) Exercisable |
|
(#) Unexercisable |
|
Date (2) |
|
($) |
|
Date |
|
(#) |
|
($) |
|
Date |
Mary Ann Bartlett |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
$ |
22.09 |
|
|
|
3/18/2011 |
|
|
|
1,450 |
(4) |
|
$ |
60,204 |
|
|
|
1/19/2009 |
|
|
|
|
3,250 |
|
|
|
|
|
|
|
|
|
|
|
16.13 |
|
|
|
10/2/2012 |
|
|
|
1,025 |
(4) |
|
|
42,558 |
|
|
|
8/29/2009 |
|
|
|
|
1,000 |
|
|
|
1,000 |
|
|
|
1/19/2005 |
|
|
|
27.00 |
|
|
|
1/19/2012 |
|
|
|
2,553 |
(4) |
|
|
106,001 |
|
|
|
1/19/2010 |
|
|
|
|
300 |
|
|
|
900 |
|
|
|
8/29/2005 |
|
|
|
28.33 |
|
|
|
8/29/2012 |
|
|
|
8,050 |
(4) |
|
|
334,236 |
|
|
|
1/10/2011 |
|
|
|
|
800 |
|
|
|
2,400 |
|
|
|
1/19/2006 |
|
|
|
28.68 |
|
|
|
1/19/2013 |
|
|
|
471 |
(5) |
|
|
19,556 |
|
|
|
9/11/2007 |
|
|
|
|
|
|
|
|
35,000 |
|
|
|
1/10/2007 |
|
|
|
34.07 |
|
|
|
1/10/2014 |
|
|
|
261 |
(5) |
|
|
10,837 |
|
|
|
1/31/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288 |
(5) |
|
|
11,958 |
|
|
|
7/31/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129 |
(5) |
|
|
5,356 |
|
|
|
1/31/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
384 |
(5) |
|
|
15,944 |
|
|
|
1/31/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132 |
(5) |
|
|
5,481 |
|
|
|
7/31/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
559 |
(5) |
|
|
23,210 |
|
|
|
9/30/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82 |
(5) |
|
|
3,405 |
|
|
|
1/31/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
630 |
(5) |
|
|
26,158 |
|
|
|
7/31/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,229 |
(5) |
|
|
217,108 |
|
|
|
9/29/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
630 |
(5) |
|
|
26,158 |
|
|
|
1/31/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
560 |
(5) |
|
|
23,251 |
|
|
|
7/31/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcus Wilson |
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
$ |
16.13 |
|
|
|
10/2/2012 |
|
|
|
8,287 |
(4) |
|
$ |
344,076 |
|
|
|
1/19/2009 |
|
|
|
|
20,625 |
|
|
|
6,875 |
|
|
|
8/4/2003 |
|
|
|
22.74 |
|
|
|
8/3/2013 |
|
|
|
8,169 |
(4) |
|
|
339,177 |
|
|
|
1/19/2010 |
|
|
|
|
15,000 |
|
|
|
15,000 |
|
|
|
1/19/2005 |
|
|
|
27.00 |
|
|
|
1/19/2012 |
|
|
|
12,157 |
(5) |
|
|
504,759 |
|
|
|
9/11/2007 |
|
|
|
|
7,500 |
|
|
|
22,500 |
|
|
|
1/19/2006 |
|
|
|
28.68 |
|
|
|
1/19/2013 |
|
|
|
12,717 |
(5) |
|
|
528,010 |
|
|
|
9/17/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,770 |
(5) |
|
|
239,570 |
|
|
|
1/31/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,752 |
(5) |
|
|
695,543 |
|
|
|
9/30/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,584 |
(5) |
|
|
314,888 |
|
|
|
10/3/2010 |
|
|
|
|
(1) |
|
Stock options were granted under the Stock Plan, the 1998 Employee Stock Option Plan, and the
1995 Employee Stock Option Plan. Restricted stock units were granted under the Stock Plan and
the Management Plan and include any associated dividend equivalent units. |
|
(2) |
|
Stock options are scheduled to vest 25% on each of the first four anniversaries of the date
of grant. |
|
(3) |
|
Represents the number of shares multiplied by the closing price of Pall stock on July 31,
2007 ($41.52) (with rounding of fractional restricted stock units). |
|
(4) |
|
Represents restricted stock units (including associated dividend equivalent units) granted to
the NEO pursuant to the Stock Plan. |
|
(5) |
|
Represents restricted stock units (including associated dividend equivalent units) granted to
the NEO under the Management Plan as a result of pretax base salary and bonus deferrals and
employer matching units granted with respect to restricted stock units acquired by the named
executive officer with pretax and after-tax contributions. |
65
Option Exercises And Stock Vested For Fiscal Year 2007
The following table sets forth information regarding the shares acquired upon the exercise of
stock options and the value realized from these option exercises by the named executive officers
during fiscal year 2007. None of the named executive officers had any restricted stock units vest
during fiscal year 2007.
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Number of Shares |
|
Value Realized |
|
|
Acquired on |
|
on Exercise |
Name |
|
Exercise (#) |
|
($) (1) |
Eric Krasnoff |
|
|
124,052 |
|
|
$ |
2,279,436 |
|
Lisa McDermott |
|
|
|
|
|
|
|
|
Donald Stevens |
|
|
38,397 |
|
|
|
526,823 |
|
Roberto Perez |
|
|
23,000 |
|
|
|
307,783 |
|
Mary Ann Bartlett |
|
|
2,250 |
|
|
|
48,897 |
|
Marcus Wilson |
|
|
85,000 |
|
|
|
1,925,173 |
|
|
|
|
(1) |
|
Value based on per share sale price if shares were sold at the time of exercise; otherwise,
value based on the average of high and low stock price as reported in the NYSE Consolidated
Transactions on the date of exercise. |
Pension Benefits For Fiscal Year 2007
The following table sets forth the present value as of July 31, 2007 of accumulated benefits
under each plan that provides for pension benefits to the named executive officers at, following,
or in connection with retirement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Present |
|
|
|
|
Years |
|
Value of |
|
|
|
|
Credited |
|
Accumulated |
|
|
|
|
Service (1) |
|
Benefit (2) |
Name |
|
Plan Name |
|
(#) |
|
($) |
Eric Krasnoff |
|
Employment Contract Pension |
|
|
32 |
|
|
$ |
7,264,940 |
|
|
|
Supplementary Pension |
|
|
32 |
|
|
|
7,411,300 |
|
|
|
Cash Balance Pension |
|
|
32 |
|
|
|
106,643 |
|
Lisa McDermott |
|
Supplementary Pension |
|
|
8 |
|
|
$ |
853,219 |
|
|
|
Cash Balance Pension |
|
|
8 |
|
|
|
29,729 |
|
Donald Stevens |
|
Supplementary Pension |
|
|
39 |
|
|
$ |
4,372,807 |
|
|
|
Cash Balance Pension |
|
|
39 |
|
|
|
284,434 |
|
Roberto Perez |
|
Supplementary Pension |
|
|
8 |
|
|
$ |
2,944,981 |
|
|
|
Cash Balance Pension |
|
|
8 |
|
|
|
52,808 |
|
Mary Ann Bartlett |
|
Supplementary Pension |
|
|
22 |
|
|
$ |
2,002,090 |
|
|
|
Cash Balance Pension |
|
|
22 |
|
|
|
209,031 |
|
Marcus Wilson |
|
Supplementary Pension |
|
|
29 |
|
|
$ |
1,574,333 |
|
|
|
Cash Balance Pension |
|
|
29 |
|
|
|
39,480 |
|
|
|
U.K. Pension Fund |
|
|
25 |
|
|
|
1,421,766 |
|
|
|
|
|
|
|
(1) |
|
The number of years of credited service and actual service do not differ for any NEO for any
plan. |
66
|
|
|
(2) |
|
Present value of accumulated benefit is a calculation that estimates the cash value as of
July 31, 2007 of the pension benefit that has been earned by each named executive officer. It
is based on various assumptions, including assumptions about future interest rates, inflation, mortality
and retirement dates as follows: |
|
|
|
Discount rate: 6.25% |
|
|
|
|
Mortality: Combined healthy white collar RP2000 generational table for males and females |
|
|
|
|
Assumed retirement/commencement of benefits date: |
|
° |
|
Supplementary Pension Plan: 60 |
|
|
° |
|
Cash Balance Pension Plan: 65 |
|
|
° |
|
Mr. Krasnoffs employment contract pension: July 31, 2007 |
|
|
° |
|
U.K. Pension Fund: 65 |
|
|
|
Inflation: 2.5% (applicable to U.K. Pension Fund only). |
U.S. Pension Benefits
Cash Balance Pension Plan
Eligible employees may participate in the Pall Corporation Cash Balance Pension Plan on August
1st after completing 6 months of service and attaining age
201/2. Eligible compensation under this
plan includes the total compensation received by a participant for the plan year, including
overtime pay and bonuses, subject to a limit under Section 401(a)(17) of the Code (which limit was
$220,000 for fiscal year 2007).
Under the cash balance plan formula, pension benefits are based on a participants
hypothetical account balance. Each year the account balance is increased by compensation credits
and interest credits. The compensation credit is added to the cash balance account on the last day
of the plan year (or end of month of termination, if earlier) and is calculated by multiplying
eligible compensation by a percentage. This percentage is determined by points which are equal to
the sum of age and years of service as of the first day of each plan year. For less than 45 points,
the credit is 2.5%; for 45-54 points, it is 3%; for 55-64 points, it is 4%; and for 65 or more
points, it is 5%. In addition, the balance for those participants who were participants as of
August 1, 1999 and who were age 50 with at least 10 years of service, will receive an additional
compensation credit of 2% for each plan year that the participant remains an employee. Interest
credits are added to the cash balance account on the last day of each plan year based on the
average of the constant maturity one-year Treasury Bill rate for the month of June preceding the
plan year in which the account is to be credited. In addition, interest credits on one half of the
compensation credit earned during the plan year are also added to the account balance at the end of
the plan year. Interest credits continue to be added to the account balance until the benefit is
paid.
If the participant is married, the normal form of payment is a joint and 50% survivor annuity.
If the participant is not married, the normal form is a life annuity. The annuity is determined by
converting the cash balance account to the actuarial equivalent monthly retirement benefit. In
addition to the normal forms of payment described above, there are other optional forms of payment
(lump sum and annuity) all of which are actuarially equivalent to the life annuity. A participant
who terminates prior to age 55 may elect to receive a lump sum distribution equal to the
participants account balance at his or her benefit commencement date or the normal form of payment
described above.
A participant becomes 100% vested in his or her benefits after five years of service.
Supplementary Pension Plan
The Company maintains the Supplementary Pension Plan which provides a retirement pension
benefit, payable monthly commencing on the first day of the month following the normal retirement
date (the last day of the month coinciding with or immediately following attainment of age 65)
equal to 1/12 of 50% of the members final average compensation, reduced by the sum of the total
annual pension payable under all other Company pension programs and the participants primary
social security benefit. Final average compensation means one third of the participants aggregate
compensation for the three years in which his or her compensation was the highest out of the last
five years in which he or she participated in the plan. Compensation includes salary and bonus
payments but does not include fringe benefits, equity awards or Company contributions to any
retirement plans, including the 401(k) Plan and Supplementary Profit-Sharing Plan.
67
A participant is vested in his or her benefit under the plan if (i) he or she is employed by
the Company on either his or her 60th birthday or, if later, the fifth anniversary of his or her
participation in the plan, or (ii) he or she has been employed by the Company for a period of at
least 25 years, or (iii) he or she holds the position of Executive Vice President of the Company.
Payments under the Supplementary Pension Plan are conditioned upon the participant, both before and
after termination of employment, abiding by secrecy and invention agreements and certain
non-compete provisions set forth in the plan. Payments under the plan are also forfeited if the
participant is fired by the Company for gross negligence or willful misconduct.
Upon a change in control (see note 4 to Potential Payments Upon Termination or Change in
Control), each plan participant whose employment with the Company terminates for any reason (other
than death) and who was a member of the Companys Operating Committee at any time during the 30-day
period immediately preceding the change in control, shall be fully vested in his or her account.
All of the named executive officers other than Ms. McDermott and Mr. Perez were already fully
vested in his or her account on July 31, 2007.
A participant will receive his or her benefit payments under the plan upon retirement at or
after age 60 with no reduction in benefits. A participant who retires as a result of disability
will receive his or her benefit payments beginning six months after such disability (regardless of
the participants age) and continuing only during the period of such disability; provided that if a
participant ceases to suffer a disability after he or she has attained age 65, his or her benefit
payments will continue during his or her lifetime with no reduction in benefits. If a participant
retires after age 65, his or her benefit payments will be calculated using the higher of (i) the
amount under the plans regular formula or (ii) the amount under the formula using the
participants final average compensation based upon the year in which the participant turned 65
(and looking back over his or her four years prior to that year) and multiplying the result by the
percentage increase in the consumer price index for the month immediately preceding the
commencement of benefit payments over the month in which the participant turned 65.
Although the benefit under the plan is calculated in terms of lifetime monthly payments, a
participant may elect to take the actuarial equivalent in any form of payment offered under the
Cash Balance Plan (or other retirement plan) other than a single lump sum.
The purpose of the Supplementary Pension Plan is to assure executives a specified level of
retirement benefit over and above what would be payable under the Companys tax-qualified Cash
Balance Pension Plan.
U.K. Pension Fund
U.K. employees hired prior to August 1, 1997 are entitled to a pension payable at age 65 in
the amount of one-sixtieth of Pensionable Salary for each year of service as a contributory member.
Pensionable salary is the average of the highest three consecutive years of salary out of the
last ten years prior to the date of retirement. Members of the plan currently pay contributions to
the plan at the rate of 7.75% of annual salary (excluding bonus, commissions and overtime). Pension
payments accrued after April 5, 1997 are increased for cost of living up to a maximum of 5% per
year.
Each participant may elect to commence receiving a reduced pension benefit prior to the normal
retirement date of age 65. Benefit reductions are based on when service was provided to the
Company.
68
Krasnoff Contract Pension
Mr. Krasnoffs employment contract provides for a pension amount to be paid to him, or his
estate, for each of the ten years following the termination of his employment. Such annual amount
will be determined by taking the average of the total cash compensation (salary and bonus) paid to
him for the three full fiscal years out of the last five fiscal years prior to his termination in
which he received the highest total cash compensation, adjusting it for changes in the consumer
price index (for years other than the first year of payment), multiplying the result by 60% and
subtracting the amount which is the maximum annual benefit payable under Section 415(b)(1)(A) of
the Code as of the date of termination. The payment of the contract pension is conditioned upon Mr.
Krasnoff being available for advisory services to the Company upon request of the board for up to
15 hours a month and Mr. Krasnoffs not engaging in any activity competitive to any material extent
with Company business without prior Company consent (other than upon a termination of employment by
the Company following a change in control).
Nonqualified Deferred Compensation For Fiscal Year 2007
The following table summarizes transactions and balances with respect to each NEOs account
under the Companys nonqualified deferred compensation plans, other than defined benefit
arrangements, for the fiscal year ended July 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
Aggregate |
|
|
|
|
Executive |
|
Registrant |
|
Earnings in |
|
Aggregate |
|
Balance at |
|
|
|
|
Contributions |
|
Contributions |
|
Last FY |
|
Withdrawals/ |
|
Last FYE |
|
|
|
|
in Last FY |
|
in Last FY |
|
(1)(2) |
|
Distributions |
|
(3)(4) |
Name |
|
Plan Name |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
Eric Krasnoff |
|
Supplementary
Profit-Sharing |
|
|
|
|
|
|
|
|
|
$ |
72,913 |
|
|
|
|
|
|
$ |
687,883 |
|
|
|
Management Stock
Purchase |
|
|
|
|
|
|
|
|
|
|
964,474 |
|
|
|
|
|
|
|
2,535,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lisa McDermott |
|
Supplementary
Profit-Sharing |
|
|
|
|
|
|
|
|
|
$ |
273 |
|
|
|
|
|
|
$ |
2,913 |
|
|
|
Management Stock
Purchase |
|
|
|
|
|
|
|
|
|
|
22,647 |
|
|
|
|
|
|
|
59,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald Stevens |
|
Supplementary
Profit-Sharing |
|
|
|
|
|
|
|
|
|
$ |
12,421 |
|
|
|
|
|
|
$ |
108,942 |
|
|
|
Management Stock
Purchase |
|
|
|
|
|
|
|
|
|
|
142,400 |
|
|
|
|
|
|
|
374,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roberto Perez |
|
Supplementary
Profit-Sharing |
|
|
|
|
|
|
|
|
|
$ |
3,055 |
|
|
|
|
|
|
$ |
28,817 |
|
|
|
Management Stock
Purchase |
|
|
|
|
|
|
|
|
|
|
-0- |
|
|
|
|
|
|
|
-0- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mary Ann Bartlett |
|
Supplementary
Profit-Sharing |
|
|
|
|
|
|
|
|
|
$ |
775 |
|
|
|
|
|
|
$ |
9,857 |
|
|
|
Management Stock
Purchase |
|
|
|
|
|
|
|
|
|
|
111,325 |
|
|
|
|
|
|
|
292,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcus Wilson |
|
Supplementary
Profit-Sharing |
|
|
|
|
|
|
|
|
|
$ |
5,248 |
|
|
|
|
|
|
$ |
39,678 |
|
|
|
Management Stock
Purchase |
|
|
|
|
|
|
|
|
|
|
42,329 |
|
|
|
|
|
|
|
111,232 |
|
|
|
|
(1) |
|
Includes (i) interest, dividend, and unrealized gain income earned on the named executive
officers account balance under the Supplementary Profit-Sharing Plan; and (ii) dividend
equivalent units and appreciation earned on deferred vested restricted stock units under the
Management Plan. With regard to the Management Plan, when dividend
equivalent units are first earned and allocated, they are calculated based on the closing price of Pall common stock on the
dividend payment date. |
|
(2) |
|
The amounts listed in this column are not included in the Summary Compensation Table. |
|
(3) |
|
Includes (i) the value of the NEOs account balance under the Supplementary Profit-Sharing
Plan and (ii) the
dollar value of the NEOs deferred vested restricted stock units under the Management Plan
(including associated dividend equivalent units), based on the closing price of Pall common
stock on July 31, 2007 ($41.52). |
|
(4) |
|
Certain contributions by the Company under the Supplementary Profit-Sharing Plan may have
been included in the Summary Compensation Table in proxy statements for prior years. |
69
Supplementary Profit-Sharing Plan
Each named executive officer participates in the Supplementary Profit-Sharing Plan, pursuant
to which the Company may contribute an additional amount equal to the sum of the base salary and
bonus of the named executive officer for the taxable year that is in excess of the limitations on
compensation provided in Section 401(a)(17) of the Code, multiplied by the ratio, for the year, of
the Companys aggregate profit-sharing contributions under the 401(k) Plan to the aggregate of all
compensation of all tax-qualified 401(k) Plan participants (as limited by the Code). As there was
no profit-sharing contribution made under the 401(k) Plan for fiscal year 2007, the Company did not
make a contribution to the Supplementary Profit-Sharing Plan for fiscal year 2007. No employee
contributions are permitted under the Supplementary Profit-Sharing Plan. The plan credits
participants with earnings on their account balances based on participant-directed hypothetical
investments in the range of Fidelity mutual funds offered under the 401(k) Plan. Participants vest
in the Companys contributions to their account as follows: 0%, 20%, 40%, 60%, for less than two,
three, four and five years of service, and become 100% vested following five years of service. If a
participants employment with the Company is terminated prior to 100% vesting in the Company
contributions, the unvested portion of the individuals account will be forfeited. All named
executive officers are 100% vested in their accounts. The purpose of the Supplementary
Profit-Sharing Plan is to provide to executive officers affected by the limitations under the
tax-qualified 401(k) Plan a capital accumulation, on a percentage of compensation basis, equal to
that provided to other employees of the Company. Based upon their hypothetical investments, the
named executive officers were credited with the following annual rate of return with respect to
their Supplementary Profit-Sharing Plan accounts for fiscal year 2007:
|
|
|
|
|
Eric Krasnoff |
|
|
11.9 |
% |
Lisa McDermott |
|
|
10.3 |
|
Donald Stevens |
|
|
12.9 |
|
Roberto Perez |
|
|
11.9 |
|
Mary Ann Bartlett |
|
|
8.5 |
|
Marcus Wilson |
|
|
15.2 |
|
Management Plan
For information regarding the Management Plan, see Compensation Discussion and Analysis and Grants of Plan-based Awards for Fiscal Year 2007.
Potential Payments Upon Termination or Change in Control
The following table sets forth the payments and benefits that would be received by each named
executive officer in the event a termination of employment or a change in control of the Company
had occurred on July 31, 2007, over and above any payments or benefits he or she otherwise would
already have been entitled to or vested in on such date under any employment contract or other plan
of the Company. The named executive officers would receive other payments and benefits as well upon
termination of employment to which they were already entitled or vested in on such date, including
amounts under the Companys retirement programs and nonqualified deferred compensation plans in
accordance with their terms. In addition, Mr. Krasnoff would receive his annual contract pension
amount as set forth in Pension Benefits for Fiscal Year 2007 and lifetime medical coverage for
him and his dependents (estimated at a cost of $521,301 if terminated as of July 31, 2007) upon his
termination of employment.
Mr. Wilson was not serving as an executive officer as of July 31, 2007 and so is not included
below. For more information regarding the terms of Mr. Wilsons separation, see Summary Compensation Table and Wilson Separation
Agreement.
70
Eric Krasnoff
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notice of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Employment |
|
|
Good Reason |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
Given by |
|
|
Termination |
|
|
|
|
|
|
|
Disability |
|
|
Retirement |
|
|
Control |
|
|
Company |
|
|
by Executive |
|
Benefit (1) |
|
Death |
|
|
(2) |
|
|
(3) |
|
|
(4) |
|
|
(5) |
|
|
(6) |
|
Salary Continuation |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
$ |
1,648,153 |
|
|
|
-0- |
|
Annual Bonus |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
1,565,478 |
|
|
|
-0- |
|
401(k) Plan (7) |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
12,465 |
|
|
|
-0- |
|
Supplementary Profit-Sharing Plan |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
80,778 |
|
|
|
-0- |
|
Supplementary Pension Plan |
|
|
-0- |
|
|
$ |
3,137,852 |
(8) |
|
|
N/A |
|
|
|
-0- |
|
|
|
270,623 |
|
|
|
-0- |
|
Annual Contract Pension |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Management Plan Restricted Stock
Units |
|
$ |
1,339,435 |
|
|
|
1,339,435 |
|
|
|
N/A |
|
|
$ |
1,339,435 |
|
|
|
1,183,817 |
|
|
|
-0- |
|
Stock Options |
|
|
-0- |
|
|
|
2,506,000 |
|
|
|
N/A |
|
|
|
2,506,000 |
|
|
|
2,506,000 |
|
|
$ |
2,506,000 |
|
Restricted Stock Units |
|
|
3,346,844 |
|
|
|
3,346,844 |
|
|
|
N/A |
|
|
|
3,346,844 |
|
|
|
1,075,285 |
|
|
|
-0- |
|
Severance |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
4,067,747 |
(9) |
|
|
4,067,747 |
|
|
|
4,067,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,686,279 |
|
|
$ |
10,330,131 |
|
|
|
N/A |
|
|
$ |
11,260,026 |
|
|
$ |
12,410,346 |
|
|
$ |
6,573,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lisa McDermott
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notice of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
Given by |
|
|
|
|
|
|
|
Disability |
|
|
Retirement |
|
|
Control |
|
|
Company |
|
Benefit (1) |
|
Death |
|
|
(2) |
|
|
(3) |
|
|
(4) |
|
|
(5) |
|
Salary Continuation |
|
$ |
174,330 |
|
|
$ |
174,330 |
|
|
|
N/A |
|
|
|
-0- |
|
|
$ |
340,708 |
|
Annual Bonus |
|
|
183,047 |
|
|
|
183,047 |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
226,533 |
|
401(k) Plan (7) |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
6,353 |
|
Supplementary
Profit-Sharing Plan |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
10,179 |
|
Supplementary Pension Plan |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
-0- |
|
Management Plan |
|
|
156,530 |
|
|
|
156,530 |
|
|
|
N/A |
|
|
$ |
156,530 |
|
|
|
126,180 |
|
Options |
|
|
-0- |
|
|
|
513,968 |
|
|
|
N/A |
|
|
|
513,968 |
|
|
|
146,144 |
|
Restricted Stock Units |
|
|
698,076 |
|
|
|
698,076 |
|
|
|
N/A |
|
|
|
698,076 |
|
|
|
-0- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,211,983 |
|
|
$ |
1,725,951 |
|
|
|
N/A |
|
|
$ |
1,368,574 |
|
|
$ |
856,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
Donald Stevens
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notice of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
Given by |
|
|
|
|
|
|
|
Disability |
|
|
Retirement |
|
|
Control |
|
|
Company |
|
Benefit (1) |
|
Death |
|
|
(2) |
|
|
(3) |
|
|
(4) |
|
|
(5) |
|
Salary Continuation |
|
$ |
253,578 |
|
|
$ |
253,578 |
|
|
|
N/A |
|
|
|
-0- |
|
|
$ |
969,566 |
|
Annual Bonus |
|
|
266,257 |
|
|
|
266,257 |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
644,652 |
|
401(k) Plan (7) |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
12,465 |
|
Supplementary
Profit-Sharing Plan |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
34,349 |
|
Supplementary Pension Plan |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
-0- |
|
Management Plan |
|
|
1,615,294 |
|
|
|
1,615,294 |
|
|
$ |
709,805 |
|
|
$ |
1,615,294 |
|
|
|
1,356,330 |
|
Options |
|
|
-0- |
|
|
|
886,336 |
|
|
|
N/A |
|
|
|
886,336 |
|
|
|
643,216 |
|
Restricted Stock Units |
|
|
1,015,621 |
|
|
|
1,015,621 |
|
|
|
N/A |
|
|
|
1,015,621 |
|
|
|
301,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,150,750 |
|
|
$ |
4,037,086 |
|
|
$ |
709,805 |
|
|
$ |
3,517,251 |
|
|
$ |
3,961,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roberto Perez
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notice of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
Employment |
|
|
|
|
|
|
|
Disability |
|
|
Retirement |
|
|
Control |
|
|
Given by Company |
|
Benefit (1) |
|
Death |
|
|
(2) |
|
|
(3) |
|
|
(4) |
|
|
(5) |
|
Salary Continuation |
|
$ |
167,986 |
|
|
$ |
167,986 |
|
|
|
N/A |
|
|
|
-0- |
|
|
$ |
642,302 |
|
Annual Bonus |
|
|
176,386 |
|
|
|
176,386 |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
566,861 |
|
401K Plan (7) |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
12,465 |
|
Supplementary
Profit-Sharing Plan |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
22,688 |
|
Supplementary Pension Plan |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
400,301 |
|
Management Plan |
|
|
632,184 |
|
|
|
632,184 |
|
|
|
N/A |
|
|
$ |
632,184 |
|
|
|
548,300 |
|
Options |
|
|
-0- |
|
|
|
797,960 |
|
|
|
N/A |
|
|
|
797,960 |
|
|
|
539,696 |
|
Restricted Stock Units |
|
|
888,860 |
|
|
|
888,860 |
|
|
|
N/A |
|
|
|
888,860 |
|
|
|
236,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,865,416 |
|
|
$ |
2,663,376 |
|
|
|
N/A |
|
|
$ |
2,319,004 |
|
|
$ |
2,969,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
Mary Ann Bartlett
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notice of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
Employment |
|
|
|
|
|
|
|
Disability |
|
|
Retirement |
|
|
Control |
|
|
Given by Company |
|
Benefit (1) |
|
Death |
|
|
(2) |
|
|
(3) |
|
|
(4) |
|
|
(5) |
|
Salary Continuation |
|
$ |
145,140 |
|
|
$ |
145,140 |
|
|
|
N/A |
|
|
|
-0- |
|
|
$ |
554,947 |
|
Annual Bonus |
|
|
152,397 |
|
|
|
152,397 |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
368,978 |
|
401(k) Plan (7) |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
12,465 |
|
Supplementary
Profit-Sharing Plan |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
14,387 |
|
Supplementary Pension Plan |
|
|
-0- |
|
|
|
-0- |
|
|
|
N/A |
|
|
|
-0- |
|
|
|
270,111 |
|
Management Plan |
|
|
204,901 |
|
|
|
204,901 |
|
|
|
N/A |
|
|
$ |
204,901 |
|
|
|
160,823 |
|
Options |
|
|
-0- |
|
|
|
317,957 |
|
|
|
N/A |
|
|
|
317,957 |
|
|
|
173,353 |
|
Restricted Stock Units |
|
|
542,999 |
|
|
|
542,999 |
|
|
|
N/A |
|
|
|
542,999 |
|
|
|
60,204 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,045,437 |
|
|
$ |
1,363,394 |
|
|
|
N/A |
|
|
$ |
1,065,857 |
|
|
$ |
1,615,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For purposes of the calculations in the table, payments that would be made over time have
been presented as a present value lump sum using certain assumptions (salary continuation and
annual bonus 4.56% discount rate; 401(k) Plan 6.25%; Supplementary Profit-Sharing Plan
3% contribution and 6.25% discount rate; Supplementary Pension Plan 6.25% discount rate;
Krasnoff annual contract pension 6.25% discount rate). For purposes of the annual bonus,
2007 bonus amounts were assumed, although actual bonus would depend upon performance of the
Company in the relevant year. In addition, the closing price on July 31, 2007 ($41.52) was
used for all equity-based compensation calculations. The amounts shown relating to stock
options were calculated by multiplying each stock option whose vesting would be accelerated or
that would vest during the notice period, as the case may be, by the excess of $41.52 over the
exercise price of such stock option. The amounts shown related to restricted stock units were
calculated by multiplying each restricted stock unit whose vesting would be accelerated or
that would vest during the notice period, as the case may be, by $41.52. |
|
(2) |
|
Each of the employment contracts defines disability as the executives inability, by reason
of physical or mental disability, to perform his or her principal duties under his or her
employment contract for an aggregate of 130 working days out of any period of 12 consecutive
months. |
|
(3) |
|
None of the NEOs is currently eligible for retirement under their employment contracts or
other plans of the Company other than Mr. Stevens with respect to the Management Plan. |
|
(4) |
|
Each of the employment contracts, the Stock Plan, the
Management Plan and the Supplementary Pension Plan defines
change in control as the occurrence of any of the following: |
|
|
|
the earlier to occur of (i) 10 days after a person or group of affiliated or
associated persons (other than the Company or any subsidiary or employee benefit plan of
the Company or subsidiary) has acquired beneficial ownership of 20% or more of the
outstanding common stock (together, an Acquiring Person) or (ii) 10 business days (or
such later date as may be determined by the board) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the consummation of
which would result in the beneficial ownership by an Acquiring Person of 20% or more of
the outstanding common stock |
|
|
|
|
during such time as there is an Acquiring Person, any reclassification of securities
or reincorporation or reorganization or other transaction which, directly or indirectly,
increases by more than 1% the proportionate share of common stock beneficially owned by
any Acquiring Person |
73
|
|
|
any direct or indirect (i) consolidation or merger of the Company into another
person, (ii) consolidation or merger of another company into the Company in which the
Company survives and all or part of the common stock is changed into or exchanged for
securities of another person (or the Company) or cash or any other property or (iii) sale
or transfer of assets or earning power aggregating 50% or more of the assets or earning
power of the Company as a whole (other than to the Company or a subsidiary) |
|
|
|
|
any date on which the number of duly elected and qualified directors of the Company
who were not either elected by the board or nominated by the board or its nominating
committee for election by the shareholders shall equal or exceed one-third of the total
number of directors of the Company as fixed by its by-laws |
|
|
|
|
provided, however, that no change in control will be deemed to have occurred to the
extent that the board so determines by resolution adopted prior to the event. |
|
|
|
(5) |
|
For purposes of these tables, we have assumed that, upon a notice of termination of
employment given by the Company under an employment contract, the Company would continue to
pay salary and bonus and provide for additional accruals under retirement plans, vesting of
equity awards and continuation in the Companys medical plans during the two-year (or, in the
case of Ms. McDermott, one-year) notice period even if the Company required the NEO not to
perform any further services. In light of this assumption, the amounts set forth represent the
value on July 31, 2007 of such future payments and benefits assuming that notice was given by
the Company on such date. (As the NEO would still be paying premiums for medical plans, no
amount has been included in the tables for continued coverage.) However, in the case of a
notice of termination of employment under an employment contract given by the named executive
officer, we have assumed that the Company would not continue to make such payments or provide
such benefits during the notice period unless the NEO continued to perform services. In light
of this assumption, a named executive officer would not be entitled to any additional payments
or benefits solely as a result of giving notice of termination of employment and so we have
not included a column with respect to such terminations in these tables. The one exception
relates to Mr. Krasnoff who is entitled to have all unvested stock options vest 30 days prior
to any termination of employment (other than as a result of death). The value of unvested
stock options held by Mr. Krasnoff as of July 31, 2007 is set forth in the table above. |
|
(6) |
|
Mr. Krasnoffs employment contract permits him to terminate his employment with the Company
upon 30 days notice upon the occurrence of the following events (i) failure of the board to
elect Mr. Krasnoff as, or his removal from, office as chief executive officer of the Company
or (ii) amendment of the by-laws of the Company in such a way that, or action by the board
such that, Mr. Krasnoff no longer has the title, authority and duties which are customarily
possessed by and assigned to a chief executive officer (Good Reason). |
|
(7) |
|
Represents the equivalent of the Company match under the 401(k) Plan assuming that the named
executive officer would have contributed at least 3% of pay on a pretax basis under the plan
for each year in the notice period. |
|
(8) |
|
Represents the increase in the accumulated present value as of July 31, 2007 over the amount
disclosed in the Pension Benefits for Fiscal Year 2007 (calculated in the same manner)
resulting from the acceleration of payment as a result of disability. |
|
(9) |
|
Mr. Krasnoff may terminate his employment for any reason following a change in control of the
Company and receive the severance payment under his employment contract. |
Employment Contracts
As noted in Compensation Discussion and Analysis, the Company has entered into employment
contracts with each of the NEOs. The following describes each NEOs entitlement under his or her
employment contract to the payments and benefits upon termination of employment reported in the
tables.
Death/Disability
Upon her death or disability, Ms. McDermott or her estate, as applicable, will be entitled to
an amount equal to her base salary and prorated bonus compensation to the end of the month in which
death or disability occurs, and for each month during the period from the end of month in which
death or disability occurs until the earliest of (i) first anniversary of the date of termination
and (ii) date on which the term of employment would have ended but for her death or disability, Ms.
McDermott or her estate will be entitled to monthly payments equal to 1/12 of 102.5% of base salary
(i.e., 50% of base salary and 50% of target bonus percentage of 105% of base salary).
74
Upon his death or disability, Mr. Stevens or his estate, as applicable, will be entitled to
his base salary and prorated bonus compensation to the end of the month in which death or
disability occurs, and for each month during the period from the end of month in which death or
disability occurs until the earliest of (i) first anniversary of the date of termination and (ii)
date on which the term of employment would have ended but for his death or disability, Mr. Stevens
or his estate will be entitled to monthly payments equal to 1/12 of 102.5% of base salary (i.e.,
50% of base salary and 50% of target bonus percentage of 105% of base salary).
Upon his death or disability, Mr. Perez or his estate, as applicable, will be entitled to his
base salary and prorated bonus compensation to the end of the month in which death or disability
occurs, and for each month during the period from the end of month in which death or disability
occurs until the earliest of (i) first anniversary of the date of termination and (ii) date on
which the term of employment would have ended but for his death or disability, monthly payments
equal to 1/12 of 102.5% of base salary (i.e., 50% of base salary and 50% of his aggregate target
bonus percentage of 105% of base salary).
Upon her death or disability, Ms. Bartlett will be entitled to her base salary and prorated
bonus compensation to the end of the month in which death or disability occurs, and for each month
during the period from the end of month in which death or disability occurs until the earliest of
(i) first anniversary of the date of termination and (ii) date on which the term of employment
would have ended but for her death or disability, Ms. Bartlett or her estate will be entitled to
monthly payments equal to 1/12 of 102.5% of base salary (i.e., 50% of base salary and 50% of target
bonus percentage of 105% of base salary).
Resignation Following Change in Control
Under their contracts, after a change in control of the Company, the NEOs may give less than
one years notice of termination of employment.
Upon his resignation following a change in control, Mr. Krasnoff will be entitled to
acceleration of all of his stock options 30 days prior to the date of termination and a severance
amount, payable in a single lump sum equal to the present value, as of his date of termination, of
(i) his base salary that would have been paid for 24 months following termination (the base salary
severance component) and (ii) 150% of the base salary severance component (together, the
Severance Amount). For the purpose of present value calculations, it will be assumed that the
base salary severance component is payable in equal period installments in accordance with the
normal payroll, and the 150% of the base salary severance component is payable in two equal
installments at the end of the 12th month and the 24th month. If any amounts payable to Mr.
Krasnoff upon his termination of employment would be subject to excise tax under Section 4999 of
the Code, then such payment will be reduced or deferred to the extent required to avoid application
of Section 4999 only if such reduction or deferral would result in Mr. Krasnoff being in a better
after-tax economic position (the Excise Tax Cutback). For purposes of the table above, no such
Excise Tax Cutback has been calculated or effected.
Notice of Termination of Employment Given by Executive
According to the terms of the contract, NEOs must give one years (in the case of Ms.
McDermott) or two years (in the case of Messrs. Krasnoff, Stevens and Perez and Ms. Bartlett)
notice to the Company (each, a Notice Period) if he or she wishes not to terminate employment.
Messrs. Stevens and Perez and Mss. McDermott and Bartlett would not be entitled to any compensation
upon voluntary termination of employment, whether or not they gave the required notice under their
employment contracts.
Upon Mr. Krasnoffs voluntary separation from service, under his employment contract, Mr.
Krasnoff would be entitled to acceleration of his stock options 30 days prior to the conclusion of
the Notice Period.
Notice of Termination of Employment Given by Company
The Company may terminate employment of an NEO under his or her employment contract by giving
one years (in the case of Ms. McDermott) or two years (in the case of Messrs. Krasnoff, Stevens
and Perez and Ms. Bartlett) notice to the NEO. During the applicable Notice Period, each of Messrs.
Krasnoff, Stevens and Perez and Mss. McDermott and Bartlett will be entitled to continued salary
continuation, bonus compensation, continued participation in the Companys benefit plans, and
continued vesting of equity. In addition, Mr. Krasnoff will be entitled to the Severance Amount and
the acceleration of his stock options 30 days prior to the conclusion of his Notice Period.
Good Reason Termination by Mr. Krasnoff
Following the occurrence of events constituting Good Reason, Mr. Krasnoff may terminate his
employment upon 30 days notice to the Company. Upon such termination, Mr. Krasnoff will be
entitled to the Severance Amount and immediate acceleration of his stock options. None of the
employment contracts with our other named
executive officers provide any additional payments or benefits upon a termination for good
reason.
75
Equity Plans
The following describes each NEOs entitlement under the Companys equity plans upon
termination of employment or change in control reported in the tables.
Under the Stock Plan and all prior equity plans under which stock options have been granted
(the Stock Option Plans) and under the Management Plan, all outstanding unvested stock options
and restricted stock units will vest in full upon a change in control of the Company.
Under the Stock Option Plans, upon a termination of employment, all stock options (vested and
unvested) are forfeited except that upon a termination by reason of disability or retirement under
an approved retirement program of the Company or a subsidiary, all options will remain in full
force and effect and may be exercised in accordance with their terms until they expire by their
terms. Retirement under an approved retirement program of the Company or a subsidiary thereof
means retirement at or after age 65 unless the compensation committee determines, for reasons
satisfactory to it, that retirement at an earlier age shall be deemed an approved retirement for
purposes of a participants options. Upon termination by reason of death, all unvested stock
options will be forfeited but the participants estate or heir may continue to exercise any options
that had vested prior to death for one year.
Under the Stock Plan, upon a termination of employment for any reason other than death,
disability or eligible retirement, all restricted stock units will be forfeited, except to the
extent otherwise determined by the compensation committee. Upon termination of employment by reason
of death or disability, all restricted stock units will vest and become payable in full. Upon
termination of employment by reason of eligible retirement, a pro rata portion of unvested
restricted stock units will vest and the remainder will be forfeited. The portion of the restricted
stock units that will vest is equal to the percentage of the total number of restricted stock units
held on the date of termination determined by dividing the number of days in the period beginning
on the grant date and ending on date of termination by 1460. Eligible retirement means retirement
upon age 65 with eligibility to receive a retirement benefit under the Pall Corporation Cash
Balance Pension Plan or, for non-U.S. residents, eligibility to receive a similar type of benefit
under any pension plan or program maintained by the Company or any of its affiliated companies.
Under the Management Plan, upon a voluntary termination of employment by a named executive
officer (other than retirement) or termination by the Company for cause, any units granted by the
Company will be forfeited and any units purchased by the named executive officer will be settled by
delivery of a number of shares of common stock based upon the lower of the value of common stock on
the date the units were credited or the date of settlement. Upon a termination of employment by the
Company without cause or upon retirement (at or after age 62), any units purchased by the named
executive officer will vest in full and a pro rata portion of unvested matching restricted stock
units granted by the Company will vest and the remainder will be forfeited. The portion of the
restricted stock units that will vest is equal to the percentage of the total number of restricted
stock units held on the date of termination determined by dividing
the number of months in the period
beginning on the grant date and ending on date of termination by the number of months in the
vesting period (either 36 or 48, depending upon the grant).
Supplementary Pension Plan
Under the Supplementary Pension Plan, a participant will receive his or her benefit payments
under the plan upon retirement at or after age 60 with no reduction in benefits. A participant who
retires as a result of disability will receive his or her benefit payments beginning six months
after such disability (regardless of the participants age) and continuing only during the period
of such disability; provided that if a participant ceases to suffer a disability after he or she
has attained age 65, his or her benefit payments will continue during his or her lifetime with no
reduction in benefits.
Under the Supplementary Pension Plan, each plan participant whose employment with the Company
terminates for any reason (other than death) and who was a member of the Companys Operating
Committee at any time during the 30-day period immediately preceding the change in control, shall
be fully vested in his or her account. All of the named executive officers other than Ms. McDermott
and Mr. Perez were already fully vested in their accounts on July 31, 2007.
76
DIRECTOR COMPENSATION FOR FISCAL YEAR 2007
The following table sets forth the compensation of the Companys non-employee directors for
the fiscal year ended July 31, 2007 (fiscal year 2007). Neither Mr. Krasnoff nor Mr. Wilson
received any additional compensation for service as a director in fiscal year 2007. Ms. Grisé was
not a director during fiscal year 2007 and so is not included in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
|
|
|
|
|
|
|
|
|
|
or Paid in |
|
|
|
|
|
Option |
|
All Other |
|
|
|
|
Cash |
|
Stock Awards |
|
Awards |
|
Compensation |
|
Total |
Name |
|
($) |
|
($)(1)(2) |
|
($)(3)(4) |
|
($) |
|
($) |
Daniel J. Carroll |
|
$ |
91,000 |
|
|
$ |
79,400 |
|
|
$ |
85,998 |
|
|
|
|
|
|
$ |
256,398 |
|
John H.F. Haskell |
|
|
62,500 |
|
|
|
79,400 |
|
|
|
60,251 |
|
|
|
|
|
|
|
202,151 |
|
Ulric S. Haynes |
|
|
63,500 |
|
|
|
79,400 |
|
|
|
60,251 |
|
|
|
|
|
|
|
203,151 |
|
Dennis Longstreet |
|
|
50,000 |
|
|
|
90,923 |
|
|
|
8,100 |
|
|
|
|
|
|
|
149,023 |
|
Edwin W. Martin, Jr. |
|
|
70,250 |
|
|
|
79,400 |
|
|
|
60,251 |
|
|
|
|
|
|
|
209,901 |
|
Katharine L. Plourde |
|
|
78,500 |
|
|
|
79,400 |
|
|
|
85,998 |
|
|
|
|
|
|
|
243,898 |
|
Heywood Shelley |
|
|
50,500 |
|
|
|
79,400 |
|
|
|
60,251 |
|
|
$ |
636 |
(5) |
|
|
190,787 |
|
Edward L. Snyder |
|
|
63,500 |
|
|
|
59,063 |
|
|
|
26,430 |
|
|
|
1,750 |
(6) |
|
|
150,743 |
|
Edward Travaglianti |
|
|
67,500 |
|
|
|
79,400 |
|
|
|
63,964 |
|
|
|
|
|
|
|
210,864 |
|
James D. Watson(7) |
|
|
36,500 |
|
|
|
79,400 |
|
|
|
85,998 |
|
|
|
|
|
|
|
201,898 |
|
|
|
|
(1) |
|
Reflects the expense recognized for financial statement reporting purposes under Statement of
Financial Accounting Standards 123R (SFAS 123R) for each non-employee director for the
Companys fiscal year ended July 31, 2007 for annual awards of restricted stock units granted
both in fiscal year 2007 and in prior years by the Company under its 2005 Stock Compensation Plan (the Stock
Plan). For additional information
regarding the assumptions made in calculating these amounts, see Note 17, Common Stock, to the
accompanying consolidated financial statements. These amounts reflect our accounting expense for these awards and do
not correspond to the actual value, if any, that may be realized by the non-employee director. |
|
|
|
The grant date fair value
of restricted stock units granted to each non-employee director in
fiscal year 2007 was $59,063 other than Mr. Longstreet whose awards
had an agregate grant date fair value of $90,923. |
|
(2) |
|
The following table reflects the number of restricted stock units held by each non-employee director at
the end of fiscal year 2007: |
|
|
|
|
|
Daniel J. Carroll |
|
|
4,584 |
|
John H.F. Haskell |
|
|
4,584 |
|
Ulric S. Haynes |
|
|
4,584 |
|
Dennis Longstreet |
|
|
2,771 |
|
Edwin W. Martin, Jr. |
|
|
4,584 |
|
Katharine L. Plourde |
|
|
4,584 |
|
Heywood Shelley |
|
|
4,584 |
|
Edward L. Snyder |
|
|
1,761 |
|
Edward Travaglianti |
|
|
4,584 |
|
James D. Watson |
|
|
4,584 |
|
77
|
|
|
|
(3) |
|
Reflects the expense recognized for financial statement reporting purposes under SFAS 123R
for each non-employee director for the Companys fiscal year ended July 31, 2007 for stock
options granted both in fiscal year 2007 and in prior years by the Company under its 2001 Stock Option Plan for
Non-Employee Directors. For additional
information regarding the assumptions made in calculating these amounts, see Note 17, Common
Stock, to the accompanying consolidated financial statements. These amounts reflect our accounting expense for these
awards and do not correspond to the actual value, if any, that may be realized by the
non-employee director. Each stock option was granted with an exercise
price of $39.07 per share. |
|
|
|
The grant date fair value of stock options granted to each
non-employee director in fiscal year 2007 was $26,430 other than Mr.
Longstreet whose awards had an aggregate grant date fair value of
$51,060. |
|
(4) |
|
The following table reflects the number of stock options held by each non-employee director at the end
of fiscal year 2007. |
|
|
|
|
|
Daniel J. Carroll |
|
|
24,000 |
|
John H.F. Haskell |
|
|
24,000 |
|
Ulric S. Haynes |
|
|
24,000 |
|
Dennis Longstreet |
|
|
6,000 |
|
Edwin W. Martin, Jr. |
|
|
10,875 |
|
Katharine L. Plourde |
|
|
24,000 |
|
Heywood Shelley |
|
|
24,000 |
|
Edward L. Snyder |
|
|
3,000 |
|
Edward Travaglianti |
|
|
28,500 |
|
James D. Watson |
|
|
24,000 |
|
|
|
|
|
(5) |
|
Represents compensation imputed to Mr. Shelley that is equivalent to a per annum interest
rate of 4.53% on his $120,400 loan from the Company. On September 11, 2006, Mr. Shelley repaid
his loan in full to the Company. |
|
(6) |
|
Represents a meeting fee Dr. Snyder received as a member of the Pall Corporation Medical
Advisory Board. |
|
(7) |
|
James D. Watson resigned from the board on November 3, 2007. |
Cash Fees
Non-employee directors of the Company were paid the following in cash for their services on
the board in fiscal year 2007:
|
° |
|
Each member of the audit committee received an additional $500 per month |
|
|
° |
|
Mr. Shelley and Dr. Martin were each paid an additional $750 per month
for service on the executive committee |
|
|
|
$2,500 for each meeting of the board and board committees personally attended |
|
|
|
|
$2,500 for telephone participation in one regularly scheduled board meeting per year |
|
|
|
|
$2,500 for telephone participation in one regularly scheduled committee meeting per
year |
|
|
|
|
$1,000 for participation in each meeting of the board or a board committee held by
telephone conference call |
|
|
|
|
$10,000 annual retainer for presiding independent director |
|
|
|
|
$5,000 annual retainer for the chairpersons of the audit, compensation and
nominating/governance committees. |
78
Equity Awards
The non-employee directors received restricted stock unit grants pursuant to the Stock Plan
and stock option grants pursuant to the 2001 Stock Option Plan for Non-Employee Directors.
Under the 2001 Stock Option Plan for Non-Employee Directors, on January 5th of each year, each
director who is not an employee of the Company automatically receives:
|
|
|
3,000 options with an exercise price equal to the arithmetic mean of the highest and
lowest sales price as reported in the NYSE Consolidated Transactions of a share of common
stock on the grant date |
|
° |
|
Options become exercisable in four equal installments on each of the
first four anniversaries of the grant date and expire on the seventh anniversary. |
|
° |
|
Upon leaving the board (other than a removal for cause), a
director may exercise any options vested as of the date of departure
for up to one year after such date and any unvested options will be
forfeited; provided, however, that if a director had served two full
three-year terms prior to his or her departure, all of the
directors options will continue to vest and be exercisable in
accordance with their terms as if the director still served on the
board. |
A new non-employee director, on the date on which he or she is elected at an annual meeting of
shareholders for the first time, is granted an option for 3,000 shares, in addition to and on the
same terms as outlined above.
Under the Stock Plan, on January 5th of each year, each director who is not an employee of the
Company automatically receives:
|
|
|
1,750 restricted stock units |
|
° |
|
Restricted stock units are converted into 1,750 shares of common stock promptly
following the date on which the director leaves the board (for any reason
except removal for cause) |
|
|
° |
|
On each date on which dividends are paid to shareholders, the account
of each
non-employee director is credited with dividend equivalent units. The
Company calculates these dividend equivalent units by taking the number of
restricted stock units outstanding on the day prior to the dividend payment date,
multiplying this number by the amount of the cash dividend per share to arrive at
the total cash dividend. The Company then divides the total cash dividend by the
closing stock price on the dividend payment date to arrive at the number of
dividend equivalent units. |
A new non-employee director, on the date on which he or she is elected at an annual meeting of
shareholders for the first time, receives 1,000 restricted stock units, in addition to and on the
same terms as outlined above.
All restricted stock units and stock options granted to non-employee directors vest in full
upon a change in control of the Company (as defined in note 4 to Potential Payments Upon
Termination or Change in Control).
D&O Insurance
The Company and its officers and directors are insured under four insurance policies with
respect to liabilities arising from their service as officers and directors. These four policies,
all effective August 1, 2007, are written by Vigilant Insurance Company, Federal Insurance Company
(Chubb), Illinois National Insurance Company and Allied World Assurance Company. The Company pays
the annual premium for each of these policies, which totaled $865,889 for fiscal year 2007 and
totals $1,339,000 for fiscal year 2008.
79
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The following table sets forth information regarding the Companys equity compensation plans
as of July 31, 2007, the end of the Companys most recently completed fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities remaining |
|
|
|
Number of securities to |
|
|
Weighted-average |
|
|
available for future issuance |
|
|
|
be issued upon exercise |
|
|
exercise price of |
|
|
under equity compensation plans |
|
|
|
of outstanding options, |
|
|
outstanding options, |
|
|
(excluding securities reflected in |
|
|
|
warrants and rights |
|
|
warrants and rights |
|
|
column (a)) |
|
Plan category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity compensation
plans approved by
security holders |
|
|
4,392,906 |
(1) |
|
$ |
25.29 |
|
|
|
4,068,975 |
(2) |
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,392,906 |
|
|
$ |
25.29 |
|
|
|
4,068,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of 2,828,756 shares of common stock issuable upon exercise of outstanding
options, and 1,564,150 shares issuable upon conversion of outstanding restricted or deferred
units under the Management Stock Purchase Plan and the 2005 Stock Compensation Plan. Since the
aforementioned outstanding restricted and deferred units have no exercise price, they are not
included in the weighted average exercise price calculation in column (b). |
|
(2) |
|
Consists of 3,493,105 shares of common stock available for future grants of options
and/or restricted stock units under the Management Stock Purchase Plan, the 2005 Stock
Compensation Plan and the 2001 Stock Option Plan for Non-Employee Directors, and 575,870
shares remaining available for issuance under the Employee Stock Purchase Plan, a plan
intended to qualify under section 423 of the Code (of the 4,068,975 shares of
common stock available for future grants, 200,278 shares of common stock were issued under the
Employee Stock Purchase Plan on October 31, 2007). |
BENEFICIAL OWNERSHIP OF COMMON STOCK
AND RESTRICTED STOCK UNITS.
The following table sets forth information as of March 3, 2008 with respect to the beneficial
ownership of common stock, and restricted stock units acquired under the Management Stock Purchase
Plan (the Management Plan) and the Stock Plan, by (a) each shareholder who, to the Companys
knowledge, is the beneficial owner of more than 5% of the outstanding
shares of common stock, (b) each
current director of the Company, (c) each current and former executive officer included in the
Summary Compensation Table, and (d) all current directors and executive officers of the Company as
a group as of March 3, 2008. The percentages in the third column are based on the 122,872,069
shares outstanding on March 3, 2008. In each case, (1) except as otherwise indicated in the
notes to the table, the shares shown in the second column are owned directly by the individuals
or members of the group named in the first column, with sole voting and dispositive power, and (2)
the restricted stock units shown in the fourth column are owned directly by the individuals or
members of the group named in the first column, but cannot be voted or disposed of by them. For
purposes of this table, beneficial ownership is determined in accordance with the federal
securities laws and regulations; inclusion in the table of shares not owned directly by the named
director or executive officer does not constitute an admission that such shares are beneficially
owned by the director or executive officer for any other purpose.
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
Name of |
|
No. of |
|
Percent |
|
Restricted |
beneficial owner |
|
shares(1) |
|
of class(2) |
|
stock units(3) |
ClearBridge Advisors, LLC |
|
|
15,285,210 |
(a) |
|
|
12.44 |
% |
|
|
|
|
Smith Barney Fund Management LLC
Batterymarch Financial Management, Inc.
399 Park Avenue
New York, NY 10022 |
|
|
|
|
|
|
|
|
|
|
|
|
Mary Ann Bartlett |
|
|
18,370 |
|
|
|
|
|
|
|
30,452 |
|
Daniel J. Carroll, Jr. |
|
|
25,500 |
|
|
|
|
|
|
|
6,383 |
|
Cheryl W. Grisé |
|
|
|
|
|
|
|
|
|
|
1,755 |
|
John H.F. Haskell, Jr. |
|
|
26,500 |
|
|
|
|
|
|
|
6,383 |
|
Ulric S. Haynes, Jr. |
|
|
19,500 |
|
|
|
|
|
|
|
6,383 |
|
Eric Krasnoff |
|
|
489,887 |
(b) |
|
|
0.40 |
% |
|
|
208,148 |
|
Dennis Longstreet |
|
|
1,500 |
|
|
|
|
|
|
|
4,552 |
|
Edwin W. Martin, Jr. |
|
|
12,207 |
|
|
|
|
|
|
|
6,383 |
|
Lisa McDermott |
|
|
25,050 |
|
|
|
|
|
|
|
27,381 |
|
Roberto Perez |
|
|
28,235 |
|
|
|
|
|
|
|
52,725 |
|
Katharine L. Plourde |
|
|
20,500 |
|
|
|
|
|
|
|
6,383 |
|
Heywood Shelley |
|
|
29,500 |
(c) |
|
|
|
|
|
|
6,383 |
|
Edward L. Snyder |
|
|
750 |
|
|
|
|
|
|
|
3,533 |
|
Donald Stevens |
|
|
143,078 |
|
|
|
0.12 |
% |
|
|
108,161 |
|
Edward Travaglianti |
|
|
35,520 |
|
|
|
|
|
|
|
6,383 |
|
Marcus Wilson |
|
|
80,133 |
|
|
|
|
|
|
|
66,905 |
|
15 current directors and executive officers of
the Company as a group |
|
|
876,097 |
|
|
|
0.71 |
% |
|
|
481,388 |
|
|
|
|
(1) |
|
Includes shares covered by stock options currently exercisable or becoming
exercisable within 60 days of March 3, 2008, as follows: Ms. Bartlett18,200 shares; Mr. Carroll19,500
shares; Mr. Haskell19,500 shares; Mr. Haynes19,500 shares; Mr. Krasnoff402,948 shares; Mr.
Longstreet1,500 shares; Dr. Martin6,375 shares; Ms. McDermott25,050 shares; Mr.
Perez25,750 shares; Ms. Plourde19,500 shares; Mr. Shelley19,500 shares; Dr. Snyder750
shares; Mr. Stevens98,051 shares;
Mr. Travaglianti24,000 shares; Mr. Wilson 80,000; and the
15 current directors and executive officers of the Company as a group700,124 shares. |
|
(2) |
|
Percentages are shown only for shareholders owning at least one-tenth of one percent
of the class. |
|
(3) |
|
With respect to executives, each restricted stock unit is converted, when it vests,
into one share of common stock unless the holder elects to defer conversion, as permitted by
the Management Plan and the Stock Plan. With respect to each non-employee director, each
restricted unit is converted into one share of common stock upon the directors termination of
board membership for any reason other than removal for cause. |
|
(a) |
|
In an amended Schedule 13G filed with the Commission on February 14, 2008, ClearBridge
Advisors, LLC (ClearBridge Advisors), Smith Barney Fund Management LLC (Smith Barney) and
Batterymarch Financial Management LLC (Batterymarch) filing as a group (the ClearBridge
Group) in accordance with Rule 13d-1(b)(1)(ii)(J) of the Exchange Act, pursuant to a joint
filing agreement, reported beneficial ownership of such 15,285,210 shares. The ClearBridge
Group, as a group, reported shared power to vote or direct the voting of 12,099,736 shares and
shared power to dispose or to direct the disposition of 12,099,736 shares. ClearBridge
Advisors reported shared power to vote or direct the voting of 11,777,775 shares and shared
power to dispose or to direct the disposition of 14,879,339 shares. Smith Barney reported
shared power to vote or direct the voting of 124,300 shares and shared power to dispose or to
direct the disposition of 124,300 shares. Batterymarch reported shared power to vote or
direct the voting of 197,661 shares and shared power to dispose or to direct the disposition
of 281,571 shares. |
81
|
|
|
(b) |
|
Includes 12,966 shares owned by trusts established for the benefit of Mr. Krasnoffs
children. Mr. Krasnoff is trustee of these trusts and as such has sole voting and dispositive
power with respect to the shares owned by the trusts. Also includes 1,436 shares owned by Mr.
Krasnoffs wife and as to which Mr. Krasnoff disclaims voting or dispositive power. Does not
include 10,000 shares beneficially owned by a trust of which Mr. Krasnoff is one of the three
trustees, along with Mr. Shelley. The trustees of this trust have sole voting power, but no
dispositive power, with respect to these shares. U.S. Trust, now part of Bank of America, is
the investment manager for the trusts investment account and has complete investment
discretion with respect to the trust. The trustees have limited the investment power of the
trust by instructing U.S. Trust not to engage in any transaction with respect to Company stock during any period in which Company officials are prohibited by Company
policy to engage in transactions in the Companys common stock. |
|
(c) |
|
Does not include 10,000 shares beneficially owned by a trust
of which Mr. Shelley is one of the three trustees, along with
Mr. Krasnoff. The trustees of this trust have sole voting power, but no
dispositive power, with respect to these shares. U.S. Trust, now part of Bank of America, is
the investment manager for the trusts investment account and has complete investment
discretion with respect to the trust. The trustees have limited the investment power of the
trust by instructing U.S. Trust not to engage in any transaction with respect to Company stock during any period in which Company officials are prohibited by Company
policy to engage in transactions in the Companys common stock. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Policies and Procedures for Related Person Transactions
The board is responsible for the oversight and approval (or ratification) of any transaction,
relationship or arrangement in which the Company is a participant and that involves board members,
Company executive officers, beneficial owners of more than 5% of Company common stock, their
immediate family members, any individual (other than tenants and employees) who shares that
persons home and companies they control or in which they have a substantial beneficial ownership
interest. We refer to these as related person transactions and to the persons or entities involved
as related persons.
The board has adopted a written policy that sets out procedures for the reporting, review and
ratification of related person transactions. The policy operates in conjunction with other aspects
of the Companys compliance program, such as its codes of ethics, which require directors and
employees to report any circumstances that may create or appear to create a conflict between the
interests of the related person and those of the Company, regardless of the amount involved. The
Companys directors and executive officers must also periodically confirm information about related
person transactions, and management reviews its books and records and makes other inquiries as
appropriate to confirm the existence, scope and terms of related person transactions.
Under the boards policy, the audit committee evaluates related person transactions for
purposes of recommending to the disinterested members of the board that the transactions are fair,
reasonable and within Company policies and practices and should be approved or ratified.
The board has considered certain types of potential related person transactions and
pre-approved them as not presenting material conflicts of interest. Those transactions include
(a) compensation paid to directors and executive officers that has been approved by the board or
the compensation committee, as applicable, (b) certain Company contributions made in limited
amounts to charitable or not-for-profit organizations and otherwise in accordance with the
Companys Policy on Charitable Contributions and (c) transactions in which the related persons
interest arises solely from ownership of the Companys common stock and all holders of the common
stock receive the same benefit on a pro rata basis. The audit committee considers the
appropriateness of any related person transaction not within these pre-approved classes in light of
all relevant factors and the controls implemented to protect the interests of the Company and its
shareholders, including:
82
|
|
|
the benefits of the transaction to the Company; |
|
|
|
|
the terms of the transaction and whether they are on arms-length and in the ordinary
course of the Companys business; |
|
|
|
|
the direct or indirect nature of the related persons interest in the transaction; |
|
|
|
|
the size and expected term of the transaction; and |
|
|
|
|
other facts and circumstances that bear on the materiality of the related person
transaction under applicable law and listing standards. |
Related person transactions involving directors are also subject to board approval or
ratification when so required under New York law.
Related Person Transactions
Mr. Shelley, a director of the Company, is counsel to Carter Ledyard & Milburn LLP. The
Company paid $101,811 to Carter Ledyard for legal services performed in fiscal year 2007 and paid
Carter Ledyard $131,303 in fiscal year 2007 for services performed in the fourth quarter of fiscal
year 2006. A material part of Mr. Shelleys compensation during fiscal year 2007 from Carter
Ledyard was attributable to these fees. The Company may employ Carter Ledyard as legal counsel in
the future.
Under certain of the Companys stock option plans, employees and directors had the right to defer
payment of a portion of the exercise price, thereby becoming indebted to the Company. By the terms
of the option plans, this indebtedness did not bear interest; however, under the Code, taxable
interest is imputed to the optionee at interest rates determined by law and the amount of such
imputed interest is deemed compensation to the optionee and is deductible by the Company. Both
Heywood Shelley and Donald Stevens had outstanding indebtedness to the Company pursuant to these
option plan provisions. As of August 1, 2006 (the start of fiscal year 2007), Heywood Shelley had
outstanding indebtedness to the Company of $120,400, which he repaid in full on September 11, 2006.
During fiscal year 2007, Donald Stevens had outstanding indebtedness to the Company in the amount
of $131,389. No principal was repaid on Mr. Stevens indebtedness during fiscal year 2007 (by
the terms of the option plans, no payment was required). Pursuant to law, interest was imputed to
each of Messrs. Shelley and Stevens in an amount equivalent to a per annum rate of 4.53% and 4.71%,
respectively, and deemed compensation to them. These loans were grandfathered pursuant to Section
402 of the Sarbanes-Oxley Act. Executive officers and directors are no longer permitted to utilize
the deferred payment provisions of the plans.
During fiscal year 2007, Roberto Perez had outstanding indebtedness to the Company in the amount of
$207,000 in connection with his relocation. No principal has been repaid on Mr. Perezs
indebtedness subsequent to July 31, 2006. Pursuant to law, interest was imputed to Mr. Perez in an
amount equivalent to a per annum rate of 4.71% and deemed compensation to him. This loan was
incurred prior to the enactment of the Sarbanes-Oxley Act.
Corporate Governance Policy
The board has adopted a corporate governance policy that provides the framework
for the governance of the Company. The governance rules for companies listed on the NYSE and those
contained in the Sarbanes-Oxley Act of 2002 and related regulations are reflected in the policy.
The board reviews these principles and other aspects of governance periodically.
Director Independence
The Companys corporate governance policy provides for director independence standards
consistent with those of the NYSE. These standards require the board to affirmatively determine
that each director has no material relationship with the Company (either directly or as a partner,
shareholder or officer of an organization that has a relationship with the Company) other than as a
director. The board has adopted director independence standards for its evaluation of the
materiality of director relationships with the Company. The board considers relationships
involving directors and their immediate family members that may implicate any of these standards or
the listing standards of the NYSE and relies on information derived from Company records,
questionnaires completed by directors and inquiries of other relevant parties.
The relationships reviewed by the board as part of its most recent independence determination
consisted principally of donations made by the Company to not-for-profit organizations, including
educational and health organizations (such as hospitals, laboratories and blood centers), with
which board members were affiliated by service as employees, directors or trustees. The board also
reviewed commercial relationships between the Company and the directors of organizations with which
directors were affiliated by service as outside directors (Mss. Grisé and Plourde) or trustees (Mr.
Travaglianti), or from which they received compensation (Mr. Shelley). The relationships with
these organizations involved the Companys sale or purchase of products or services in the ordinary
course of business that were made on arms-length terms in amounts and under other circumstances
that did not affect the relevant directors independence (other than in the case of Mr. Shelley)
under the Companys director independence standards or under applicable law and listing standards.
The board has determined that the following directors are independent as required by the
NYSE listing standards and the Companys corporate governance policy: Daniel J. Carroll, Jr.,
Cheryl W. Grisé, John H. F. Haskell, Jr., Ulric S. Haynes, Jr., Dennis N. Longstreet, Edwin W.
Martin, Jr., Katharine L. Plourde, Edward L. Snyder, Edward Travaglianti and James D. Watson.
Dr. Watson resigned from the board of directors on November 3, 2007.
83
All
members of the audit committee, the compensation committee and the nominating/governance
committee are independent directors under applicable listing standards and the Companys director
independence standards. The Companys director independence standards are available on the
Companys website at www.pall.com under the Investor Information tab.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit and Non-Audit Fees
The following table presents fees billed or expected to be billed for professional audit
services rendered by KPMG LLP for the audit of the Companys annual consolidated financial
statements for its 2007 and 2006 fiscal years, and fees billed or expected to be billed for other
services rendered to the Company by KPMG LLP:
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
2007 |
|
|
2006 |
|
Audit fees (1) |
|
$ |
8,594,000 |
|
|
$ |
6,670,000 |
|
Audit-related fees (2) |
|
|
226,000 |
|
|
|
170,000 |
|
Tax fees (3) |
|
|
937,000 |
|
|
|
1,000,000 |
|
All other fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,757,000 |
|
|
$ |
7,840,000 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Audit fees include fees for the audit of managements assessment of the effectiveness of its
internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley
Act, review of the consolidated financial statements in the Companys quarterly reports on
Form 10-Q, and fees for services that are normally provided by an independent registered
public accounting firm in connection with a statutory audit. |
|
(2) |
|
Audit-related fees consisted principally of fees for audits of financial statements of
certain employee benefit plans that are not included in audit fees above. |
|
(3) |
|
Tax fees consisted of fees for tax compliance and related services. |
Policy on Audit Committee Pre-Approval of Audit and Permitted Non-Audit Services
The audit committee has implemented a policy for the pre-approval of all audit and permitted
non-audit services proposed to be provided to the Company by KPMG LLP, the Companys independent
registered public accounting firm. Under the policy, each engagement to provide audit or non-audit
services must be documented in writing and the scope and terms of the engagement, including any
fees payable, are subject to pre-approval by the audit committee. Services are generally subject
to budgets, and fee overages in excess of $5,000 require specific audit committee approval.
All audit and permitted non-audit services provided by KPMG LLP during fiscal year 2007 were
pre-approved in accordance with the Companys policy.
For purposes of the policy, services are categorized as either recurring or non-recurring.
Recurring services are reviewed periodically by the audit committee at regularly scheduled
meetings and include services such as the annual audit of the Companys financial statements and
the financial statements of certain employee benefit plans, statutory audits for certain
subsidiaries and services relating to the Companys tax returns. Non-recurring non-audit services
must be pre-approved on a case-by-case basis. Non-recurring services for which fees are expected
to be less than $100,000 may be pre-approved by the chairperson of the audit committee and must be
ratified by the full audit committee at its next regularly scheduled meeting. Services for which
fees are expected to be at least $100,000 must be pre-approved by the full audit committee.
The Companys chief financial officer is responsible for confirming that individual proposals
for audit and non-audit services comply with the Companys policy.
84
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) Documents filed as part of the Form 10-K:
(1) The following items are filed as part of this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets July 31, 2007 and July 31, 2006
Consolidated Statements of Earnings years ended July 31, 2007, July 31, 2006 and July 31, 2005
Consolidated Statements of Stockholders Equity years ended July 31, 2007, July 31, 2006 and July 31, 2005
Consolidated Statements of Cash Flows years ended July 31, 2007, July 31, 2006 and July 31, 2005
Notes to consolidated financial statements
(2) The following financial statement schedule is filed as part of this report:
Schedule II
Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the required information is
shown in the financial statements or in the notes thereto.
(3) Exhibits:
The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference
as part of this report.
Exhibit Index
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
3.1(i)*
|
|
Restated Certificate of Incorporation of the Registrant as amended through November 23,
1993, filed as Exhibit 3(i) to the Registrants 1994 Form 10-K. |
|
|
|
3.1(ii)*
|
|
By-Laws of the Registrant as amended effective January 17, 2008, filed as Exhibit 3(ii) to
the Registrants Form 8-K filed on January 18, 2008. |
|
|
|
4.1(i)*
|
|
Indenture dated as of August 1, 2002, by and among the Registrant, as Issuer, the
Guarantors named therein, as Guarantors, and The Bank of New York, as Trustee, relating to the
Registrants 6% Senior Notes due August 1, 2012 filed as Exhibit 4(iii) to the Registrants
2002 Form 10-K. |
|
|
|
4.1(ii)*
|
|
First Supplemental Indenture, dated as of October 9, 2007, to the Indenture, dated as of
August 1, 2002, by and among the Registrant, the guarantors named therein and The Bank of New
York, as trustee, filed as Exhibit 4.1 to the Registrants Form 8-K filed on October 11, 2007. |
|
|
|
4.2(i)*
|
|
Rights Agreement dated as of November 17, 1989, between the Registrant and United States
Trust Company of New York, as Rights Agent, filed as an Exhibit to the Registrants Form 8-A
filed on September 10, 1992. |
|
|
|
4.2(ii)*
|
|
Amendment No. 1, dated as of April 20, 1999, to the Rights Agreement dated as of November
17, 1989, between the Registrant and United States Trust Company of New York, as Rights Agent,
filed as Exhibit II to the Registrants Form 8-A/A filed on April 22, 1999. |
|
|
|
|
|
The exhibits filed herewith do not include other instruments with respect to
long-term debt of the Registrant and its subsidiaries, inasmuch as the total amount
of debt authorized under any such instrument does not exceed 10% of the total assets
of the Registrant and its subsidiaries on a consolidated basis. The Registrant
agrees, pursuant to Item 601(b) (4) (iii) of Regulation S-K, that it will furnish a
copy of any such instrument to the Securities and Exchange Commission upon request. |
|
|
|
10.1(i)*
|
|
Credit Agreement dated June 21, 2006, between the Registrant and JPMorgan Chase Bank and
the Other Lenders Party Thereto, filed as Exhibit 4(ii) to the Registrants Form 8-K filed on
June 27, 2006. |
85
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
10.1(ii)*
|
|
First Amendment and Waiver, dated as of August 16, 2007 to the Five-Year Credit
Agreement, dated as of June 21, 2006, among Pall Corporation, the subsidiaries of the Company
named on the signature pages thereto, the lenders from time to time party thereto, JPMorgan
Chase Bank, N.A., as facility agent for the Lenders, and J.P. Morgan Europe Limited, as London
agent for the Lenders, filed as Exhibit 10 to the Registrants Form 8-K filed on August 20,
2007. |
|
|
|
10.1(iii)*
|
|
Second Amendment and Waiver, dated as of December 7, 2007 to the Five-Year Credit
Agreement, dated as of June 21, 2006, among the Registrant, the subsidiaries of the Registrant
named on the signature pages thereto, the lenders from time to time party thereto, JPMorgan
Chase Bank, N.A., as facility agent for the Lenders, and J.P. Morgan Europe Limited, as London
agent for the Lenders, filed as Exhibit 10 to the Registrants Form 8-K filed on December 11,
2007. |
|
|
|
10.1(iv)
|
|
Third Amendment and Waiver, dated as of March 25, 2008 to the Five-Year Credit Agreement,
dated as of June 21, 2006, among the Registrant, the subsidiaries of the Registrant named on
the signature pages thereto, the lenders from time to time party thereto, JPMorgan Chase Bank,
N.A., as facility agent for the Lenders, and J.P. Morgan Europe Limited, as London agent for
the Lenders. |
|
|
|
10.2*
|
|
Employment Agreement dated January 21, 2004, as amended and restated effective July 20,
2005, between the Registrant and Eric Krasnoff, filed as Exhibit 10.5 to the Registrants Form
8-K filed on July 25, 2005. |
|
|
|
10.3*
|
|
Employment Agreement dated May 1, 2003 between the Registrant and Marcus Wilson, filed as
Exhibit 10.2 to the Registrants 2003 Form 10-K. |
|
|
|
10.4*
|
|
Amendment dated August 30, 2005 to Employment Agreement dated May 1, 2003 between the
Registrant and Marcus Wilson, filed as Exhibit 10.2 to the Registrants Form 8-K filed on
September 2, 2005. |
|
|
|
10.5*
|
|
Employment Agreement dated November 15, 2001, between the Registrant and Donald B. Stevens,
filed as Exhibit 10.3 to the Registrants Quarterly Report on Form 10-Q for the quarterly
period ended January 26, 2002. |
|
|
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10.6*
|
|
Employment Agreement dated September 12, 2005 between the Registrant and Roberto Perez,
filed as Exhibit 10.7 to the 2006 Form 10-K. |
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|
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10.7*
|
|
Employment Agreement dated June 1, 2004 between the Registrant and Lisa McDermott, filed as
Exhibit 10.11 to the Registrants 2005 Form 10-K. |
|
|
|
10.8
|
|
Employment Agreement dated August 1, 2005 between the Registrant and Mary Ann Bartlett. |
|
|
|
10.9*
|
|
Pall Corporation Supplementary Profit-Sharing Plan as amended effective July 19, 2005, filed
as Exhibit 10.3 to the Registrants Form 8-K filed on July 25, 2005. |
|
|
|
10.10*
|
|
Pall Corporation Profit-Sharing Plan as amended and restated as of July 1, 1998, filed as
Exhibit 10.15 to the Registrants 2002 Form 10-K. |
|
|
|
10.11*
|
|
Pall Corporation Profit-Sharing Plan amended pursuant to provisions of the Economic Growth
and Tax Relief Reconciliation Act of 2001, filed as Exhibit 10.17 to the Registrants 2003
Form 10-K. |
|
|
|
10.12*
|
|
Pall Corporation Supplementary Pension Plan as amended effective August 29, 2005, filed as
Exhibit 10.1 to the Registrants Form 8-K filed on September 2, 2005. |
|
|
|
10.13*
|
|
Pall Corporation 2004 Executive Incentive Bonus Plan, as amended effective January 18,
2006, filed as Exhibit 10.15 to the Registrants 2006 Form 10-K. |
|
|
|
10.14*
|
|
Pall Corporation 1991 Stock Option Plan, as amended effective April 17, 2002, filed as
Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the quarterly period ended
April 27, 2002. |
|
|
|
10.15*
|
|
Pall Corporation 1993 Stock Option Plan, as amended effective April 17, 2002, filed as
Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q for the quarterly period ended
April 27, 2002. |
|
|
|
10.16*
|
|
Pall Corporation 1995 Stock Option Plan, as amended effective April 17, 2002, filed as
Exhibit 10.3 to the Registrants Quarterly Report on Form 10-Q for the quarterly period ended
April 27, 2002. |
86
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
10.17*
|
|
Pall Corporation 1998 Stock Option Plan, as amended effective April 17, 2002, filed as
Exhibit 10.4 to the Registrants Quarterly Report on Form 10-Q for the quarterly period ended
April 27, 2002. |
|
|
|
10.18*
|
|
Form of Notice of Grant of Restricted Stock Units Under Pall Corporation 2005 Stock
Compensation Plan, filed as Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q for
the quarterly period ended January 31, 2005. |
|
|
|
10.19*
|
|
Form of Notice of Grant of Annual Award Units Under Pall Corporation 2005 Stock
Compensation Plan, filed as Exhibit 10.3 to the Registrants Quarterly Report on Form 10-Q for
the quarterly period ended January 31, 2005. |
|
|
|
10.20
|
|
Form of Notice of Grant of Stock option Grant Agreement Under Pall Corporation 2005 Stock
Compensation Plan. |
|
|
|
10.21*
|
|
Pall Corporation 2005 Stock Compensation Plan, as amended effective January 19, 2006, filed
as Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the quarterly period
ended January 31, 2006. |
|
|
|
10.22*
|
|
Pall Corporation Stock Option Plan for Non-Employee Directors, as amended effective
November 19, 1998, filed as Exhibit 10.5 to the Registrants Quarterly Report on Form 10-Q for
the quarterly period ended October 31, 1998. |
|
|
|
10.23*
|
|
Pall Corporation 2001 Stock Option Plan for Non-Employee Directors, as amended September
17, 2004, filed as Exhibit 10.25 to the Registrants 2004 Form 10-K. |
|
|
|
10.24*
|
|
Pall Corporation Management Stock Purchase Plan as amended effective July 19, 2005, filed
as Exhibit 10.4 to the Registrants Form 8-K filed on July 25, 2005. |
|
|
|
10.25*
|
|
Pall Corporation Employee Stock Purchase Plan as amended effective October 17, 2003, filed
as Exhibit 10.27 to the Registrants 2003 Form 10-K. |
|
|
|
10.26*
|
|
Principal Rules of the Pall Supplementary Pension Scheme, filed as Exhibit 10.25 to the
Registrants 1995 Form 10-K. |
|
|
|
10.27*
|
|
Amendment dated May 3, 2006 to Employment Agreement dated January 21, 2004, as amended and
restated effective July 20, 2005, between the Registrant and Eric Krasnoff, filed as Exhibit
10.28 to the Registrants 2006 Form 10-K. |
|
|
|
10.28*
|
|
Amendment dated July 18, 2006 to Employment Agreement dated January 21, 2004, as amended
and restated effective July 20, 2005, between the Registrant and Eric Krasnoff, filed as
Exhibit 10.29 to the Registrants 2006 Form 10-K. |
|
|
|
10.29*
|
|
Amendment dated May 3, 2006 to Employment Agreement dated May 1, 2003 between the
Registrant and Marcus Wilson, filed as Exhibit 10.30 to the Registrants 2006 Form 10-K. |
|
|
|
10.30*
|
|
Amendment dated July 18, 2006 to Employment Agreement dated May 1, 2003 between the
Registrant and Marcus Wilson, filed as Exhibit 10.31 to the 2006 Form 10-K. |
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|
|
10.31*
|
|
Amendment dated May 3, 2006 to Employment Agreement dated November 15, 2001, between the
Registrant and Donald B. Stevens, filed as Exhibit 10.32 to the Registrants 2006 Form 10-K. |
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|
|
10.32*
|
|
Amendment dated July 18, 2006 to Employment Agreement dated November 15, 2001, between the
Registrant and Donald B. Stevens, filed as Exhibit 10.33 to the Registrants 2006 Form 10-K. |
|
|
|
10.33*
|
|
Amendment dated May 3, 2006 to Employment Agreement dated September 12, 2005, between the
Registrant and Roberto Perez, filed as Exhibit 10.36 to the Registrants 2006 Form 10-K. |
|
|
|
10.34*
|
|
Amendment dated July 18, 2006 to Employment Agreement dated September 12, 2005, between the
Registrant and Roberto Perez, filed as Exhibit 10.37 to the Registrants 2006 Form 10-K. |
|
|
|
10.35*
|
|
Amendment dated May 3, 2006 to Employment Agreement dated June 1, 2004 between the
Registrant and Lisa McDermott, filed as Exhibit 10.38 to the Registrants 2006 Form 10-K. |
|
|
|
10.36*
|
|
Amendment dated July 18, 2006 to Employment Agreement dated June 1, 2004 between the
Registrant and Lisa McDermott, filed as Exhibit 10.39 to the Registrants 2006 Form 10-K. |
|
|
|
10.37
|
|
Amendment dated May 3, 2006 to Employment Agreement dated August 1, 2005 between the
Registrant and Mary Ann Bartlett. |
87
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
10.38*
|
|
Letter Agreement, as amended, dated December 11, 2006 between the Registrant and Marcus
Wilson summarizing the terms of the termination of employment of Mr. Wilson, filed as Exhibit
10 to the Registrants Quarterly Report on Form 10-Q for the quarterly period ended October
31, 2006. |
|
|
|
10.39
|
|
Amendment dated July 18, 2006 to Employment Agreement dated August 1, 2005 between the Registrant and Mary Ann Bartlett. |
|
|
|
14*
|
|
Pall Corporation Code of Ethics applicable to its Chief Executive Officer, Chief Financial
Officer, Controller and other employees with important roles in the financial reporting
process, filed as Exhibit 99.1 to the Registrants 2004 Form 10-K. |
|
|
|
21
|
|
Subsidiaries of the Registrant. |
|
|
|
23
|
|
Consent of Independent Registered Public Accounting Firm. |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Incorporated herein by reference. The Registrants SEC file number is 001- 04311. |
|
|
|
Filed herewith. |
|
|
|
Denotes management contract or compensatory plan or arrangement. |
88
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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Pall Corporation |
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March 28, 2008
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By:
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/s/
|
|
LISA MCDERMOTT
Lisa McDermott,
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|
Chief Financial Officer and Treasurer |
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/s/
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FRANCIS MOSCHELLA |
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Francis Moschella, |
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Vice President Corporate Controller |
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Chief Accounting Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
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/s/
|
|
ERIC KRASNOFF
Eric Krasnoff
|
|
Chairman of the Board,
Chief Executive Officer and President
|
|
March 28, 2008 |
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/s/
|
|
LISA MCDERMOTT
Lisa McDermott
|
|
Chief Financial Officer and Treasurer
|
|
March 28, 2008 |
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/s/
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FRANCIS MOSCHELLA
Francis Moschella
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|
Vice President Corporate Controller
Chief Accounting Officer
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|
March 28, 2008 |
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/s/
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DANIEL J. CARROLL, JR.
Daniel J. Carroll, Jr.
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Director
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March 28, 2008 |
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/s/
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CHERYL W. GRISÉ
Cheryl W. Grisé
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Director
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March 28, 2008 |
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/s/
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JOHN H. F. HASKELL, JR.
John H. F. Haskell, Jr.
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Director
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March 28, 2008 |
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/s/
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ULRIC S. HAYNES, JR.
Ulric S. Haynes, Jr.
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Director
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March 28, 2008 |
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/s/
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DENNIS N. LONGSTREET
Dennis N. Longstreet
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Director
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March 28, 2008 |
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/s/
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EDWIN W. MARTIN
Edwin W. Martin
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Director
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March 28, 2008 |
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/s/
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KATHARINE L. PLOURDE
Katharine L. Plourde
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Director
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March 28, 2008 |
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/s/
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HEYWOOD SHELLEY
Heywood Shelley
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Director
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March 28, 2008 |
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/s/
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EDWARD L. SNYDER
Edward L. Snyder
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Director
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March 28, 2008 |
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/s/
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EDWARD TRAVAGLIANTI
Edward Travaglianti
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Director
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March 28, 2008 |
89
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Pall Corporation:
We have audited the accompanying consolidated balance sheets of Pall Corporation and
subsidiaries as of July 31, 2007 and 2006, and the related consolidated statements of earnings,
stockholders equity, and cash flows for each of the years in the three-year period ended July 31,
2007. In connection with our audits of the consolidated financial statements, we also have audited
the accompanying financial statement schedule. These consolidated financial statements and the
financial statement schedule are the responsibility of the Companys management. Our responsibility
is to express an opinion on these consolidated financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Pall Corporation and subsidiaries as of July 31, 2007
and 2006, and the results of their operations and their cash flows for each of the years in the
three-year period ended July 31, 2007, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Note 2, the consolidated financial statements as of July 31, 2006 and for each
of the years ended July 31, 2006 and 2005 have been restated.
As discussed in the notes to the consolidated financial statements, the Company adopted
Statement of Financial Accounting Standards No. 123(R), Share-Based Payment as of August 1, 2005,
Statement of Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans as of July 31, 2007, and Securities and Exchange Commission
Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When
Quantifying Misstatements in Current Year Financial Statements as of July 31, 2007.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Pall Corporation and subsidiaries internal
control over financial reporting as of July 31, 2007, based on
criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 28, 2008 expressed an adverse opinion on the
effective operation of internal control over financial reporting.
Melville, New York
March 28, 2008
90
PALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
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July 31, 2007 |
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July 31, 2006 |
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(As Restated) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
443,036 |
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$ |
317,657 |
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Accounts receivable |
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551,393 |
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517,632 |
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Inventories |
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471,467 |
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408,273 |
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Other current assets |
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140,481 |
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90,553 |
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Total current assets |
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1,606,377 |
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1,334,115 |
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Property, plant and equipment, net |
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607,900 |
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620,979 |
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Goodwill |
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260,205 |
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246,476 |
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Intangible assets |
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47,933 |
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51,477 |
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Other non-current assets |
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186,431 |
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208,239 |
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Total assets |
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$ |
2,708,846 |
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$ |
2,461,286 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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