Document 06kJMRMGDp5mp7LO315zYVDLO

Reclaimed Wastes Used for Report Paper We have printed this annual report on paper with a substantial reclaimed waste content. 60% of the content of this paper is from such reclaimed materials as fibers recovered from waste water, wood chips left over from saw mill operations, and paper trimmings left over after cutting paper into sheets and rolls. Use of such substantially recycled paper is a reflection of Pall Corporation's concern with the problems of environment pollution. Annual Stockholders' Meeting Monday, November 20, 1972, 2:30 P.M. Harrison House of Glen Cove Glen Cove, L.I., N.Y. 4 Cover Story Our cover design symbolizes four major growth areas for Pall disposable, high performance filters. Two of these growth areas are in our present major markets: Process Industries and Aerospace. The other two are in newer markets: Fluid Power and Biomedical. Upper left--Hydraulic seismograph equipment protected by our 3 micron absolute Industrial Hydraulic filters. Upper right-- Ultipor bacteria removal filters in use in a pharmaceutical plant. Bottom--Aircraft engine with lube oil system protected by Ultipor Disposable Filters. Background-- Microemboli removed from stored blood by Ultipor Blood Filter. PALL CORPORATION Glen Cove, Long Island, NewYork 11542 1 Contents page Fiscal Highlights 2 Letter to Stockholders 3-15 / 972 Sum m arized 12 Outlook for 1973 14 Ten Year Financial Summary 16 Charts: Sales by M a rk e t a n d Product: Sales a n d Earnings; B ook V a lu e ; C ross Assets 16 Consolidated Statements of Earnings 18 Consolidated Statements of Capital in Excess of Par Value 18 Consolidated Statements of Retained Earnings 19 Consolidated Statements of Changes in Financial Position 19 Consolidated Balance Sheets 20 Notes to Consolidated Financial Statements 20 Auditor's Opinion 24 Directors and Officers Inside Back Cover $ 2 David B. Pall, Chairman Abraham Krasnoff, President Fiscal Highlights for the years ended July 31 1972 1971 Consolidated Net Sales Earnings before Taxes on Income and Extraordinary Charges Taxes on Income Earnings before Extraordinary Charges Per Average Share Outstanding Extraordinary Charges (1971--$0.31 per share) Earnings (Loss) Per Average Share Outstanding Depreciation and Amortization Deducted from Earnings Cash Provided from Operations Total Assets at End of Year Gross Investment in Plant and Equipment Working Capital Stockholders' Equity Average Shares Outstanding Equity per Share $ 2 6 ,270,979 $ 621,561 $ 266,600 $ 354,961 $ 0.32 -- $ 354,961 $ 0.32 $ 1,054,182 $ 1,409,143 $28,888,053 $ 15,462,634 $ 10,881,041 $ 12,504,432 1, 104,388 $ 11.32 $24,548,638 $ 558,553 $ 264,156 $ 294,397 $ 0.27 $ (342,544) $ (48,147) $ (0.04) $ 998,668 $ 1,293,065 $27,761,807 $13,941,271 $11,360,196 $12,069,821 1,100,958 $ 10.96 Note 1: The extraordinary charges in 1971 of $342,544 ($655,209 before taxes) consist of the cost of a plant relocation ($353,000), a gain on the sale of an investment ($49,353), and a loss on the sale of realty ($38,897). 'Dear Stockholder: Among our 1,100 employees and ap proximately 5,000 shareholders are many who have joined us during the past year. For them, as well as for other interested readers, a review of the background, nature and new growth prospects of our business is in order. Pall Corporation (originally named Micro M etallic C orporation) was formed in 1946 to manufacture Dr. David B. Pall's invention of a new filter medium-porous metals. The Corpo ration grew from a volume of $35,000 in its first year to about $3,000,000 in 1957, and became a public company that year. Subsequent to 1957, the Company grew very rapidly by a com bination of intensified sales effort ap plied to earlier products and by new product development. As the Company saw new oppor tunities, we formed new subsidiaries m and divisions, and made some small acquisitions. The most successful of these served to expand product lines or "geographic coverage in our basic field of fluid clarification. Others, which did not add to the Company's strength or basic thrust, were disposed of. We have now become, we believe, the most fully integrated of filter companies--from the development, design and produc tion of a very wide range of filter media and elements through to housings and control devices. Development Of Ultrafine Disposable Filters An important forward step was taken in the mid-sixties, when we moved vig orously into disposable ultrafine filtra tion. This found wide acceptance in many fields--ranging from purification of pharmaceuticals to protection of hy draulic components. As a result of this and similar developments applied to other aspects of fluid clarification, the Company became and is now gener ally acknowledged to be a technologi cal leader in fine and ultrafine filtration. Recognizing the dangers of exces sive dependence on U.S. Government military aircraft budgets, we have for some time sought diversification through new product development and through acquisitions. The acquisition program succeeded partially. It did expand our marketing capability and product lines for fluid clarification for the chemical, pharmaceutical, petro leum, petrochemical, electric power, electronic and other processing indus tries. However, diversification attempts into municipal packaged sewage treat ment plants and into areas other than Liquid sterilization in a West German Plant Pali's new, rugged bacteria grade filters are well suited for exacting sterilization processes. Shown in use on a bottle filling machine of a noted West German pharmaceutical plant, these filters offer a superior alternative to troublesome asbestos pads and expensive delicate membranes. 4 Blood filter removes harmful debris Shortly before the end of fiscal year 1972 we introduced our blood transfusion filter. The filter, shown in use during surgery at Memorial Hospital, New York City, protects patients from serious lung damage--even death--caused by microemboli (small particles) intro duced during massive transfusions. Riker Laboratories uses bacteria removal filters The pharmaceutical industry has major potential for Pall disposable, ultrafine filters. Riker Laboratories, Inc., a California drug producer, uses Pall Ultipor bacteria removal filters to permit sterile storage of a large volume of pharmaceutical grade distilled water (pictured above). This eliminates production shutdowns, and reduces costs. 5 7. fluid clarification did not succeed, and This effort was later broadened to in generated losses which, along with clude pneumatic filters for the so- very large market and product devel called "Fluid Power" market. opment expenditures, depressed earn Our first biomedical product was ings for a number of years. introduced in this year. 1971--Following the policies estab Aiming For Larger Markets lished in 1970, we disposed of our airborne air conditioning and heat ex Along with the development of dis change business (which had been posable filters, a most important man acquired in 1964) and our U.S. tem agement decision was made. This was perature sensing product line (v/hich to convert the Company from depend had been acquired in 1961). ence on the custom design of metal In a major move to enhance effi filters for limited special markets, to ciency and reduce costs, we stream development of broad-based distribu lined our principal U.S. aerospace tion of filters made of proprietary' dis filter operation, relocating it from Glen posable filter media designed into standard packages for large markets. Cove. New York, to St. Petersburg, Florida. Our transition to this new corporate design began in fiscal 1969 and was substantially completed in 1972, the In another decision of long-range importance, we decided to do our own introduction of certain biomedical year of this 1969-- more than report. For the 5097 of . first time in sales came afrdoemcade,dcpoirsomtdrpiubacuntstiie,osninsuaacrdhradanistgioJeonmhetnonstossnetw&tiintJhgohuonptshoeonrf other than the U.S. aircraft industry. For the first time in many years, less than 50% of sales came directly or indirectly from the U.S. Government. Also for the first time, 25% of sales was derived from disposable filters and their appurtenances. A number of new disposable filters were introduced. 1970-- The important decision and Airco's Ohio Medical Division. 1972 --Continuing our disposition program, we sold our Mexican opera tion (organized in 1964) to a group including its President. It became our representative-licensee. We also made important additions wasftoiltaenr dmimanpurofavcetmureinntgs in our disposable facilities in the made to dispose of operations with low growth records; also to dispose of those U.S. and Europe. which do not advance our major direc tion of corporate development in fluid clarification in general, and in fine dis posable filters in particular. Aerospace was further de-emphasized, and its overhead structure severely reduced, while its technological thrust was re directed to develop new growth pros pects in disposable filters. A major long-term investment was committed to the very large but diffi cult to penetrate market of hydraulic filters for mobile equipment, machine tools and other industrial equipment. 6 Concentration On Four Growth Areas Four major growth areas for our dis posable filters--in the smallest of which one million dollars of business was done in 1972--were scheduled for major marketing exploitation. Two of these areas are in our present major markets: Process Industries and Aero space. The other two are in our newer markets: Fluid Power and Biomedical. The Process Industry market in cludes the Chemical, Pharmaceutical, Electric Power ( both fossil and nu clear fuel). Electronic Components, Petrochemical, Beverage and Cosmetic Industries. Our distribution--constant ly being improved--is by direct sales in the major Middle Atlantic States area, in Southern California, in Canada and in Britain. Germany, Austria and Switzerland. Japan and Mexico are covered by representative-licensees, and the rest of the world (other than Eastern Europe) by distributors or manufacturers' representatives. Sales to Eastern Europe are direct--mainly through our German subsidiary. New Line Of Sterilizing Filters A promising area for growth is our new AB (Absolute Bacteria) line of sterilizing filters for liquids and gases. A key product in this line, for liquid filtration, is our absolute 0.2 micron cartridge. This is the first product other than a membrane or a filter made of asbestos which is capable of this level of filtration. Asbestos, historically used for ultrafine filtration, is now suspected to be a carcinogen and is falling into disfavor. Membranes are both costly and delicate, while our new product is rugged, more easily used and less costly than membranes. We expect it to substantially increase our 1972 $2.0 million share of an approximately $20.0 million market. The AB filter line was in early stages of production in the U.S. and Europe, with dozens of customers testing or waiting for deliv ery, at our fiscal year-end. Development Of Disposable Filters For Aircraft Our experience in aircraft hydraulic oil filtration dates to the early '50's, when we helped to get the F-101, F-l 04, 707 and other aircraft flying by inventing the fairly fine sintered metal filter which was mentioned earlier. These filters introduced the new con cept of absolute ratings tan absolute rating defines the maximum size of particle which can pass through a fil ter), to prevent jamming of hydraulic system components by metal "chips." We have since been the clear leader in this industry, which in the last five years has gone through a series of dis astrous market conditions. We sur vived--but with some w ounds--by careful cost control and by the intro duction of new technology to the in dustry, so as to retain a major share of the business. >*si Porous stainless steel filter for nuclear power station Pall cleanable metal filters are used to prevent radioactive contaminants * from escaping from atomic power systems. Pictured above is a large porous stainless steel filter produced by our Portsmouth, England -facility. Pall metal and disposable filters are used in many applications in the various types of atomic energy plants built in Britain, Canada and the United States. Automated air sterilizing plant This automated air sterilizing plant, designed for a customer in eastern Europe, is an example of Pali's advanced filtration technol ogy. Our ability to produce reliable, bacteria-free fluids at lowest cost is an area of great growth potential. This is particularly true since traditionally used asbestos, now suspect as a carcinogen, is falling into disuse as a filter medium. 8 The world aircraft industry is now substantially committed to using our kind of absolute 3 and 5 micron (40 microns is about the size of particle which can be seen with the unaided eye) disposable hydraulic oil filters. Our earlier absolute types of metal filters prevent catastrophic failure; the newer much liner disposable filters in addition cut operating costs or extend time between overhauls. By virtue of this development, and of our excellent marketing in this industry, we remain the leader in hydraulic oil filtration. During the last few' years we have also introduced disposable fine filters ( 3 to 30 microns absolute) to aircraft lubrication systems. We believe that these lube oil filters have created a new market potential of $8.0 to $10.0 mil lion per year and that the total poten tial market for disposable hydraulic, lube and other filters exceeds $20.0 million per year. A num ber of competitors have developed or arc de veloping similar disposable filter capa bility. Our share of the potential will be influenced by both the competitors and by the number of airplanes which are converted to the new product. Our 1072 sales volume in these products was about $2.5 million. The rate of bookings was considerably higher. We sell to this industry throughout most of the United States and Europe by our own sales organizations, sup plemented by long-standing excellent representatives in New' England, France, Canada, Scandinavia, Israel and Japan. Air cleaning applications and, to a lesser extent, sound suppression on gas turbine engines, contributed signifi cantly to our sales volume during 1972. As gas turbines may be widely applied to surface transportation, we have been working with a number of truck and engine manufacturers on similar applications. Entry Into The Industrial Fluid Power Market The two newer markets in which we have defined unusual growth opportu nities are each much larger in potential size, but they are in earlier stages of development. In the industrial fluid power market our hydraulic filters increase reliability and life by protecting servo valves, pumps, motors and hydraulic trans missions. Our pneumatic filters remove oil and dirt, and cut down on noise in pneumatic cylinders, valves and other devices. The market is big and amorphous, and difficult to penetrate. Our new concept--that our more expensive product will produce maintenance savings by reduction of wear--requires active selling. We have been at this missionary job for some years now, with increasing success. Our line was significantly broadened near the end of fiscal 1972 to include high pressure filters which are smaller and lighter than anything else on the market and are competitively priced. Our market ing is through distributors, except for direct sales to the British and German markets and to the automobile com panies in Detroit. Our major customers include Cin cinnati Milacron, Massey Ferguson, General Motors -Terex Division, CMI and many other original equipment manufacturers, and dozens of machine tool users, including a growing num ber in the automotive industry. In ad dition to our own distribution, we are entering into brand naming arrange ments with a limited number of out standing fluid power companies. Noteworthy among existing arrange ments is one with Moog, Inc., leader in hydraulic servo controls. Moog has doubled their warranty--from one year to two--if our filter is used. In a similar move, we entered into a brand naming arrangement on our pneumatic filters with C. A. Norgren Company, the world's leading sup pliers of Filter-Regulator-Lubricators. We sold about $1.5 million of fluid power filters in 1972 in a m arket which we estimate to have a potential of $75 million a year. Here, too, the rate of bookings was considerably higher than shipments for the year. Pratt & Whitney jet engine uses combination of Pall products Our work over the past several years in introducing the first high temperature, disposable, fine lubri cating oil filters and companion air cleaning devices for aircraft engine bearing protection, has created new aerospace growth potential. Pratt and Whitney's JT8D engine (shown above), power plant for the Boeing 727, 737, Douglas DC9 and Sud Caravelle Super B, uses this product combination. Pali filters protect CMI giant earth mover Among our customers for hydraulic filters is CMI Corporation, a leading manufacturer of off-theroad construction equipment. Shown here is their new giant ex cavator capable of moving chunks of earth up to 2Vi feet deep, 15 feet high, at the rate of 100 yards per minute. Pall filters, proven to produce substantial maintenance savings by reduction of wear, are standard equipment on these units. Expansion In The Biomedical Market The Biomedical market is the fourth in which we see substantial growth prospects. We have approached this market, from our beginnings in it a few years ago, with the idea that we would market our products through major hospital supply companies; but we have, during these years, also main tained our own biomedical marketing capability. We have looked for and investigated fluid clarification oppor tunities. as our key executives learned about the hospital supply business. As you may know, we now have two widely used products on the market--a bacteria removal filter used in Ohio Medical's Anaesthesia Breathing Cir cuit to protect patients from cross-con tamination, and an extracorporeal blood filter used to protect patients from brain damaging microemboli (microscopic gaseous or solid parti cles) during open-heart surgery. John son & Johnson has been distributing the latter product in the U.S. since February. 1972 and will soon be dis tributing it in most of the rest of the world. Principally with these two devices, but along with a number of others sold in relatively small quantities to such companies as Abbott and Technicon in the United States and Siemens in Germany, we shipped about $1.0 mil lion of biomedical products in 1972. We have had no extensive market sur veys or independent studies done but we estimate a long range $75.0 million per year potential for our biomedical products now in production or in vari ous stages of design or development. It should be noted, however, that most of this potential is based on products either recently introduced or to be in troduced over the next two years, and for this reason it is difficult to forecast with any degree of certainty. New Blood Transfusion Filter Our immediate aim is for a 5 0 0 in crease in 1972's one million dollars of biomedical sales in 1973. This can be achieved only if our expectations for our new' blood transfusion filter are realized. After extensive and success ful clinical testing, we began regional introduction of this filter on the East Coast of the U.S. at the end of June, 1972 and on the West Coast in midJuly. In order to assure proper intro duction of this excellent product by filtration experts available to answer technical questions, we started sales through a selected group of our own fil ter salesmen; but first they were given an orientation course by a physician who has used our filters extensively, and by our Manager of Biomedical Marketing and Director of Biomedical Engineering. Initial reaction from the hospitals has been excellent. The product, which is easy and economical to use, has been clinically demonstrated to save pa tients from serious lung damage and death from emboli introduced during massive transfusions. To give you some idea of relative market size--there are 80,000 to 100,000 open-heart proce dures per annum in the United States, but there are at least 5 million trans fusions. The potential for our filter in multiple bag transfusion is enhanced since its cost (about $4.50) is com pletely recovered in savings on other disposable items when five bags are given. One competing transfusion filter (over which we believe we have im portant technical advantages) has been on the market a short time. A second, similar in design concept to the other competitor, has recently come out. We expect to have quite good patent protection on ours. Biomedical Products In Development Or Testing Stage Wc have in the design stage a device for purification of fluids used for intra venous injection. Its potential is large, since there are about 60 million intra venous fluid administration sets used per year in the United States alone. Problems in the last year with bacterial contamination in fluids in the United States and Britain have pointed more clearly than ever to the need for such a product. We will sell our device to n large hospital supply company who will assemble it into an administration set of their manufacture, and package, sterilize and market it. The complex nature of this program is such that it ma} take as long as two years to reach the market, and it is always possible in such an extended length of time that technology in fluid packaging and ad ministration may change. Two new Pall air and gas filters, to protect patients from cross-contamina tion during inhalation therapy, are the subject of a distribution agreement in the United States and Canada with Ohio Medical. They are in the proto- 11 4 1 Biomedical filters distributed by major hospital supply companies The Biomedical market is one in which we see substantial growth opportunity. In addition to our blood transfusion filter and a growing list of products in develop ment, we have in production: 1. Sterile water filters for urological equipment built by Siemens of Germany; 2. Extra-corporeal blood filters for use in open-heart surgery, distributed by Johnson &Johnson; 3. Bacteria filter materials used in Abbott Laboratories' intravenous fluid bottles; 4. Bacteria removal filters used in Ohio Medical's dispos able anaesthesia breathing circuit. 1972 Summarized type stage and not completely out of development. They will probably reach the market in the second half of our fiscal 1973. After having acquired patent rights from a physician and a university hos pital, we are developing an autotransfusor--a device to collect a surgical patient's blood, remove emboli from it and return it to him, thus saving trans fusions. If successful, potential could be large. For example, if 5% of all United States operations in which a gas anaesthetic is given (there are more than 10 million of these a year) used an autotransfusor, the market in the United States alone, at expected prices to the hospital, would be about S 15 million a year. To our knowledge, there is one autotransfusor on the mar ket--but it involves expensive and complicated equipment. Ours is a sim ple disposable which will sell for just about the price of a single pint of blood. At this time we expect to be moving into clinical testing in six to nine months. Volume in 1972 grew about 7 % from 1971. In continuing lines the volume increase was a healthy 13%. Dispos able filters and their appurtenances grew to $1 1,100,000 or 42% of sales from $8,500,000 or 37% of sales in 1971. However, profits were still low as an operating loss was incurred dur ing the first full year of operation of our main aircraft filter operation in St. Petersburg, Florida, where it moved from Glen Cove, New' York, and as losses w;ere incurred on two military programs--one involving sew;age treat ment plants for Litton's LHA ship program and the other filters for Grumman's F I 4. No circumstance similar to any of these is expected in fiscal 1973. Other Fluid Clarification Markets Although we have defined only these four growth areas at length, it should be noted that in 1972 we did about S i6.5 million in our basic business in fluid clarification, of which about $6.0 million was in aerospace metal filters, air cleaners, sound suppression and other applications, and $10.5 million was in coarser disposable and metal filters and in gas dryers for such indus tries as fiber and film, nuclear and fossil fuel power, marine, chemicals, petrochemicals, pulp and paper and others, including a small amount for household water purification. We ex pect this portion of our business to grow at least at the rate of the GNP of the various countries in which we do business. Filter on American Motors' automatic welder The ability of Pall Ultipor filters to keep hydraulic systems clean and productive has attracted the attention of many companies in the far flung fluid power market. Experience with elimination of downtime on other equipment prompted American Motors to specify our 3 micron absolute filters for their big, new, million-dollar welder (pictured above). The machine, which has a contamina tion sensitive hydraulic system, automatically makes 284 spot welds in less than a minute. Japanese trade show exhibit features Pall dryers Pall products are in growing use in Japan. Strong advertising, aggres sive salesmanship and heavy trade show activity (pictured above) by Marusho Industrial Company Ltd., our representative-licensee, are building demand for our broad range of gas drying equipment used to remove moisture from com- pressed air, hydrogen, nitrogen, and other gases. Our filters for process and industrial use are also distributed by Marusho. ' !Vew 9600 sf ri.es fi,.ter 'n use 0,1 drilling r*8 0u r hydraulic filters, competitive 'n Pr'ce f r a'I ^ut the crudest applications, increase system reliability and life by protecting servo valves, pumps, motors and trans missions from wear-causing contaminants. This photo shows a British mobile equipment applica tion--the Dando drilling rig fitted with our new 9600 series hydraulic filters, the smallest and lightest high pressure filter available. Outlook For 1973 With reason to project that sales will reach $29.0 million as will be shown below, we hope for a significant earn ings increase in fiscal 1973. Reflecting vacation shutdowns in our plants and among many of our customers. 1st quarter operations will be seasonally low. We expect each succeeding quar ter to show an increase. The change in sales mix during the 1969-1972 transitional period can be seen in the table below. Incoming orders by mar ket for 1972. backlogs at July 31, 1972 and a forecast of fiscal 1973 sales are also shown: Sales for Fiscal Years ended July 31 (0 0 0 's om itted) ACTUAL SALES Forecasted Backlog at Sales Beginning Continuing Lines 1969 1970 1971 1972 1973 1973 Aerospace .. $11,100 $ 9,000 $ 7,900 $ 9,050 $ 9,700 $ 6,100 Process, Power & Marine Biomedical 10,600 11,900 12,800 13,600 100 600 400 1,000 14,400 1,500 4,100 400 Industrial Equipment 1,000 2,300 2,000 2,500 3,400 1,300 Total Continuing Lines 22,800 23,800 23,100 26,150 29,000 11,900 Discontinued Lines TOTAL 3,400 2,900 1,400 100 $26,200 $26,700 $24,500 $26,250 __ $29,000 $11,900 For comparison, backlogs at August 1, 1971 were: Aerospace Process, Power & Marine Biomedical Industrial Equipment TOTAL $ 5,200 3,900 100 500 $ 9,700 Incoming orders for the year ended July 31.1972 were: Aerospace Process. Power & Marine Biomedical Industrial Equipment $ 9.950 13.800 1,300 3.300 TOTAL $28.350 There is always more than usual risk in such a projection. In the Process. Power and Marine market about a 71/2 9c increase in orders over the 1972 rate is required. Part of this is depend ent on growth of the new AB filter line. It should also be noted that the Aero space market is very volatile, highly competitive and generally hard to predict. We have succeeded in shifting more of our sales to disposable filters for substantial markets and, on the whole, the prospects for 1973 are good. Thus, it can be seen that, overall, the adequate opening backlog and last year's rate of total orders, if main tained, should result in the achieve ment of our 1973 budget. As a note of caution, in the Bio medical market perhaps one-third of the projected sales must come from products just recently introduced. Very truly yours. 6 foJL $ David B. Pall, Chairman Abraham Krasnoff, President * New St. Petersburg plant now in full operation The move of our principal aircraft filter manufacturing facility to Florida from Glen Cove, N.Y. is now complete and we expect it to result in substantial production economies. The new plant, of which one assembly area is shown above, utilizes many of our proprietary types of filter production equipment. It totals 62,000 square feet on seven acres and is located in Pinellas Park, a St. Petersburg, Florida suburb. T e n Y e a r s i n R e v i e w for the fiscal years ended July 31 Sales and Income (000 omitted) Net Sales .. Earnings Before Taxes and Extraordinary Charges-Credits Earnings Before Extraordinary Charges-Credits* Financial Position (000 omitted) Depreciation and Amortization Cash Provided from Operations Working Capital Total Assets Gross Investment in Plant and Equipment Long-Term Debt Stockholders' Equity Per Share Data Average Shares Outstanding (000 omitted) Earnings Before Extraordinary Charges-Credits Per Share Dividends Per Class A Share Stockholders' Equity Per Share Gross Assets Per Share . 1972 $ 26,271 622 355 1,054 1,409 10,881 28,888 15,463 6,623 12,504 1,104 $ 0.32 11.32 26.16 1971 $24,549 559 294 999 1,293 11,360 27,762 13,941 6,674 12,070 1,101 $ 0.27 10.96 25.22 1970 $26,716 454 229 951 1,180 11,216 28,520 13,785 6,954 12,071 1,098 $ 0.21 0.24 10.99 25.96 ^Before extraordinary charges-credits: 1971, charge of $342,544; 1970, charge of $112,478; 1968, credit of $45,617; 1966, credit of $75,122; 1965, charge of $362,262; 1964, credit of $734,592. 1972 Sales By Product (continuing lines) 1969 $26,229 876 406 1968 $25,221 532 234 1967 $25,378 2,182 1,077 1966 $20,096 551 175 1965 $17,991 491 203 1964 $16,040 1,984 1,004 1963 $14,819 1,752 807 926 1,332 11,292 26,021 12,841 6,806 12,115 909 1,143 11,803 24,461 11,398 8,412 10,553 846 1,923 8,874 24,779 10,838 5,673 10,183 768 943 7,587 21,717 9,901 5,860 9,175 737 940 6,329 20,215 9,547 4,302 9,337 717 1,721 6,174 18,544 7,655 4,092 9,668 561 1,368 6,287 16,096 7,176 4,535 7,978 1,062 $ 0.38 0.32 11.41 24.51 1,014 $ 0.23 0.32 10.40 24.11 937 $ 1.15 0.32 10.86 26.43 936 $ 0.19 0.32 9.81 23.21 934 $ 0.22 0.32 10.00 21.65 933 $ 1.08 0.307 10.36 19.87 847 $ 0.95 0.267 9.42 19.00 Book Value Per Share $ 1 4 ----------------------------------12 1968 '69 '70 '71 '72 Gross Assets Per Share $ 2 8 ------------------------------------ 0 ------------------------------------------------------1963 '64 '65 '66 '67 '68 '69 '70 '71 '72 1968 '69 '70 '71 '72 17 for ihe years ended July 3 i Net sales :. . ... ................. Cost of sales............... .................. ........... Gross profit on s a le s ........ ................ .. ..... Selling, general and administrative expenses .......... Earnings from operations ................................ Miscellaneous income ................................. Earnings before provision for federal and state income ta x es................................................ ............ . Provision for federal and state income taxes ., Earnings before extraordinary charges .............. Extraordinary charges....................................................... , Earnings (lo s s )..................................... .. , 1972 $26*270,979 17,026,262 9,244,717 8,646,01$ 598,702 22,859 621,561 266,600 354,961 -- $ 354,961 1971 $24,548,638 15,757,375 8,791,263 8*260,083 531,180 27,373 558*553 264,156 294,397 (342,544) $ (48,147) Earnings (loss) per share*: Earnings before extraordinary charges . . . ......... . Extraordinary charges ............................................... . Earnings (loss) .............................................................. . $ $ 0,32 -- 0,32 $ $ 0,27 (0.31) (0.04) Depreciation and amortization charges included in Cost of sales and Selling, general and administrative expenses amounted to $1,054! 82 aasl $99S,668 for the years en<fed July 31* 1972 and 1971, respectively, Earnings per share are based oo the average aggregate number o f shares o f Ciass A Stock and Class B Stock outstanding during the period., Exercise o f outstanding options and conversion o f the Company's con vertible debt would not result in any material dilution. for the years ended July 31 1972' Balance, beginning of fiscal y e a r ............................ . $5,498,847 Add: Issuance of 150 shares of Ciass A Stock in 1972... and 2,150 shares in 1971 pursuant to stock.options- 1,500 Conversion of $78,000 and $19,000, respectively,; of 614 % convertible subordinated debentures into 3,900 and 950shares, respcfiw ly, of Class A Stock Capital in excess of par value at end of - 74,100 . $5,574,447 1971 $5,455,255 25,542 18,050 $5,498,847 The comments contained in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements and should be read in conjunction herewith. .. Filter Assemblies for Process Fluids Pail Corporation and snhsMiaiHes 0 Balance, beglMUfigof fiscal y e a r ........ . , ........ ... Add: Bantings (loss) for the year ended July 3 1 ... Retained earnings at end of fiscal y e a r . .,.............. for the vears ended July ? 1 1972 $5,467,696 354,96.1 $5,822,657 1971 $5,515,843 (48,147) $5,467,696 for the years-cnded July 31 - Sources of Working Capitols , . : ..... - : . .. Earnings before extraordinary charges ...:l^ p ^ ia flo n -a n d :a tn o rtfe sfi ,:ic....,. - Inferred ineonie taxes : ............... - - O'f exclusive clw w riinaiy charges .............. Bx t r t edi wa t y ef t ar ges v. v, . . . ..... Blsposgs of .fixed;insets 'BrnceeA 'leasesi,:4 ,........ .(Increase),mdnctionInotter assets, etc,.. ............... ' Issaanee:of7stoci fm m m n t.to' stock options ,, : eofipersion of debentures .... Working capital provided ........... ......... ... in: ; ^;AiO0iplS:'^^|pafefe:.. ..... . i tpj&erreteyaMe. and te n s e s...... ^ p a ld e k p a s igt-v.:^ lifep h iin d tefg w at^y .................. 'Decrease(imtmMfim- ' Notes payable ..'..... .... .. Accounts'payable . . . . . ..-a- . ; . ..... .. . :Accrued expenses, taxes ahst mMryjiaM Itim '.. Federal and taxes payaMi ::;........ Current portion of long-temdebt .................. f I > e c r w ) l n - W i r t i i i g .. ... 1972 1971 $ 354,961 1,054,182 57,656 $ 294,397 998,668 .. 27,212 1,466,799 -- -- 1,466,799 717,500 616,455 6,515 (52,509) 1,650 78,000 2,834,410 1,320,277 (342,544) 113,500 1,091,233 360,000 543,283 33,295 15,459 27,692 19,000 2,089,962 2,545,802 689,763 78,000 .3,313,565 .$..(479,155) 1,304,932 621,728 19,000 1,945,660 $ 144,302 $ (18*527) 916,017 ' ' (63,984) 61,242 -;C728t 4 5 ) $ 44,565 (542,014) 176,168 (47,745) (15,426) (398,246) (312,667) 319,883 (213,116) . (40,812) $ (479,155) 570,933 60,821 (267,335) (24,013) 188,348 $ 144,302 28 A ssets as of July 31 1972 . 1971 Current Assets; C ash ........................................................ Accounts receivable (net of estimated uncollectibles of $109,836 and $86*342, respectively) ..... . Other receivables and advances....................................... Prepaid expenses . . ................................................... . . Merchandise inventory ............................ ... Total Current Assets , .................... . .................. $ 718,251 6,664,106 245,673 230,414 10,939,731 18,798,175 $ 736,778 5*748,089 309,657 169,172 11,668,676 18,632,372 Fixed Assets--af Cost; Land ....................................................... , , ., , Buildings, machinery, equipment, etc. (less accumu lated depreciation of $6,073*574 and $5,436,940, respectively) ............................................................... ... Total Fixed A sse ts........................................................ 296,157 330,730 9,092,903 9,389,060 , 8,173,601 f 8,504,331 Other Assets; Investments and receivabies-longderm ......... .............. Deferred charges, deposits, e t c ,....... .......... .................... Intangibles (less accumulated amortization of $266,678'and $257,114, respectively)...................... Total Other A M , .................................. . ,, Total ............................. 138,368 222,769 339,681 700,818 $28,888,053 30,963 244,896 349,245 625,104 $27,761,807 The financial statements as at tad for the year ended July 3!, 1971 are included for com parative purposes only. Kefereae# should fee made to the Company's previously issued annual report for the Auditor's Opinia and notes pertaining to those.inanelli statements, Note t --Aeeotinrt^i Policies Basis of Consolidation: ' The statements of Fall Corporation are pre sented in consolidation with its subsidiaries* all wholly-owned. Intercompany transactions and unrealized profits in inventories have been eliminated,. . July 31,1972 . Translation of Foreign Currencies: The Consolidated Balance Sheet at July 31, 1972 includes the following United States dollar amounts in respect of the consolidated foreign subsidiaries: ; Current assets - ............................ $5386,876 N e t feed a s s e t s ............. , 2,760,948 Intangibles and other assets. , 140,225 Current liabilities . . '....... . 2,671,459 Long-term d eb t....,,.,................ , . 509,600 Caphaifesed lease oW tgattoos............. ,, 1364,90/ Unrealized tain on foreign exchange . 82,089 The accounts of subsidiaries located outside the United States have been translated into Automatic Continuous Air Dryer L la y litie sa n d S to c U d e r s ' E quity 1972 1973 Current Liabilities; Notes payable ................... ..................................' Accounts payable .......... ................................... .. . . Accrued expenses, taxes and sundry liabilities............. Federal and state income taxes payable .7........... Current portion of long-term d eb t. .. .................. , Total Correal Liabilities................... 7...................... $ 3 ,4 9 4 ,6 4 5 2,117,508 1,235,722 432,995 636,264 7,917,134 $ 3,096.399 1,804,84 i 1.555,605 219,879 595,452 7.272,3176 Long-Term Pebt ......................... . .................................... . . . 6,623,491 6,673,754 Other? ---ri- . Capitalized lease obligations . 7.. ;7 . ...... Deferred income taxes .................. ............. '7,7.7.,,.,,.,. ... Unrealized gain on foreign exchange.. ...... .................. 1,364,907 3966Q0 82,089 1,327,805 338,344 79,907 Stockholders- Equity: Class A Stock, par value $1.00 per share, 1,700,000 -' -shares authorized, 1,107,328: and ;f $2,180 shares, respectively, issued and outstanding :,7:.7777...7..... ' .. . . ... . 1,107,32$ . 982,180 Class B Stock, par value I fM .p ir s liir e ,7121,098 . '. . shares authorized, issued and outstanding at July ` r ' . : ' 31,1971 (none at duly 3^197212:7^.... ;;7.... . .- 121,098 Capital in excess of par value ,.:. 7;. ....................... . 5*574*447 5,498,847 Retained earnings ........ ................... ,. ........................ Total Stockholders1Equity ...//, .. :7 ........... . ....... ... Total .......................... 77...3;77i...:;::,:'.,.:............................ 5*$22*657 5,467,696 12,504,432 12,069,821 $28,8$8,653 , $27,761,807 .Tie comments contained mtte ws<mmmfka%Motes to Consolidated Statements afe an integral part of these statements mmk&A feerend la conjunction h e f w lit.- if 5, dollars using rates of exdmngC7as ;fob lows: .current assets, eurient::lW8tlties and long-term debt at current assets-at historical ex- - penseaccounts at the average mtm "fimWmg, during the year, except for depredator ex pense which has been translated at the exchange rates- previuing when the related assets were acquired, T ie resuiidng ^n .fip m translation of $82,089 has been- deferred in the accompanying balance sheet, '' Inventory Pricing: .. Inventory was generally priced at the lower of cost (on the first-in first-out basis) or market. Raw materials, including materials entering into work in process and finished goods, were priced on the basis of avenge cost. Charges for labor and overhead included in finished goods are based mainly on cost. BepremMmn Methods: The fixed assets are stated to- the Consli&tod Rsdanbe.Sheet represent cctr ^er,aceiilhtilated depimation, Provi sions Jo* of propfety have been caleulted:;h^tt|xiiiiate!y 'a follows: build- ta p --4ibf :I0 years, chiefly straight-line; machinery, equipment and furniture--8 to 10 years, chiefly straight-line; and transportation equipm ent-3 to 5 years, chiefly declining balance. Amortization of Intangibles: Intangible assets include imaraortized cost of investment in Die-Draul, Inc, o f $284,692 at July 31,1972. This represents the difference between the purchase price and the Com pany's equity in the underlying net tangible assets at the date of acquisition, and is not being amortized, since in the opinion of man agement there has been no diminution in its value. 1975, The note agreement requires the Company to maintain consolidated work ing capital (as defined) at not less than $10.350.000 ($10,750,000 after July 31, 1972), and places certain re strictions on the creation of additional indebtedness and on various other corporate actions, including the pay ment of dividends. At July 31, 1972 the amount o f con solidated retained earnings subject to restriction was $5,565,148 and consolidated working capital as defined was $16,771,935 ................... $ 66,500 $ 495,000 Patents are amortized by the straight-line method over their useful lives. Note 2--Inventory ' Closing and opening inventories used in the computation of cost of sales for the year ended July 31, 1972 are m follows: - -:- 514%- Promissory Note due in annual installm ents of $100,000 to N ovem ber I, 1977. The note agreement places certain restrictions on corporate actions identical with those imposed under the 696% note................... - 100,000 " - ' 500,080 July 31 M y 31 Wn M l:-' : Raw materials and ' '' components ...... . $ 5,699,704 5,916,141- Work in process ........... -2,6 16,$52 ` 2,780,265 Finished goods.............. 2,623,175 2,972,270 TOTAL ........... . ....$10,939,731 -fit,61,676 Note 3--Fixed Assets The fixed assets and respective accumulations of depreciation at July 31,1972 are as follows: : - . Accumulated Cost Depyaeiatton Her Machinery, equipment and improve- meats Office form- lure and fixtures ...... Transportation '' ' 8,449,183$4,389,758$4,059,425 818,798 433,009 385,789 .' equipment ... BwiMfegMI)-... Land ............... 246,934 90*910 156,044 5,651,542 I,II f,I f 7 , 4,491,645 .296,1571- *- 296,157 TOTAL...... .$13,462,634 $#,073(324 Cl) Includes real:tale with a hock value o f ap proximately $!,308$0&*f M y 31,1972 utilized pur suant to capitalized tease obligations <ee Note; 5), N ote 4 --Loag-TenaBtelKl. ' ' ' ' * ' . , - - - Wm Within, -After QmXmr .v0c-enir 636% Promissory Note due as follows: 166,51X1on May1,1973 and on May 1 ,1974 and $428,500 on May I, ' 614% CcmvertiWe Subordi- . - 'aated .'IMtentetes due June ...... " 1 ,19f3.Theiteittoreited - during 1068 requires the ' Company to redeem anna- ally on lan e 1 iireaeb of the - ' years 1976 to 1982 inefasive, - one-ninth of the- Debentures . . -- - outstanding on March 31, 1976, and places certain re- . sirictions on the creation of additional, indilifedness and- - - on various, other corporate -- actions, including the pay- , . . . . ,/ m eat of dividend!. At July \ . - ' ~ '\ - 31,1972the^amc^ntof'Cpt-. - - , * . ' ` solidaled retained earnings . . ;. - subject to restriction pum i- ' ', ant to the .indenture'w as .. .15,125,80#. The Debentures . - are convertibte into Class A - . .; ' ~ Stock.at a price-;of $20,00 ~ ' - per share. A ccordingly, .. - 121,200 shares of. Class .A- : :' Stock-were reserved' for this . purpose at July 3 1, 1972...., - ;- .. .> 514% S u b ord in ated 'Grit*- vertible M e edited- Mo- wemb e t 30, IM l . dm in.: remLannuai Mt&timtgmUof $50^000, T he unpaid balance ' w il be due on December I, 1976, IT ole is subordi- Bated to the #14% promts.. spry N ote and bears certain restrictions. The note agree- menit provides for the con version of the note in to Class A Stock at a price of $37.55 per shat, subject to , -- '-. 7 : : 7 .' ' : ":v-- - '' .. . ' -- - _. ' ' ' . -. ... . Ttih/Pwsare! Lightweight ? ln#|lri|il;Hyirtitifc Flit*: { ' Alb&r ' ? Disposable Filler Elements for Aircraft Disposable Fiber Elements for Process Fluids f ill f, I I- : sh at swlilwtnf *. :. 0 adjustment in certain circum stances. Accordingly, 11,985 shares of Class A Stock were reserved for this purpose at Inly 31, 1972 , , ; ` / -* 106,000 350,000 N ote payable (interest at % % above prime rate) in quarterly installm ents of $50,000 to January 1, 1975 with balance of $800,000 due April i, 1975. The note agreement places certain re strictions on corporate actions similar to those im posed under the note . ^ 200,600 ' 1,100,000 Mortgages payable at inter est rates from 3% to 8VS% are liens on land, buildings m equipment having a net book value o f $2,609,053 at July 31, 1972 ......... . ........ * 169,764 1 1386,991 Term loan t interest at Il % over First N ational City Bank, London base rate) due ' $183,750 on December 31, 1973 and $183,750 on Delber 31, 1974 ..... ... - ^ __-- TO TAl........... ........... $636,264 , ;. ' \ , 367,500 $6,623,491 Note 5 Capitalized Lease Obligations ' During the year ended July 31, 1967 the Company sold its plant at Portsmouth, Eng land, This property was then leased back from the purchaser for ninety-nine years. Under the provisions of the lease,- the Coim pany is to pay a basic annual rental of $47,000, and is to pay all expenses relating to the prop erty, The basic rent may be increased in the fourteenth year under certain conditions, . At July 31, 1972 the Company^ had com pleted construction of m extension, to the above mentioned, plant. T ie costs, incurred for this construction amounted tb$840,434. Under the terms of an agreement entered into for the purposes of financing-this construc tion, the Company had received $840,434 in construction loans.The basic annual rental for the plant addition is approximately $83,000. -For accounting purposes, the Compahy has treated these transactmm m financing''ar rangements and b M :.reflected The sates:price net o t the ataoriiEattott portion ^ p a y m e n ts made as a liability* ffeprepation on the Com pany's leasehold interest jn the property has been provided for based on. its estimated useful life, - .. Note 6--Class A Stock On February 15, 1972, all of the outstanding shares of Class B Stock ( 121,098 shares) ---- - -- -- f i M -- -- *-- ------ 23 were convertkl Jinro Clash A Stock, Class B Stock cannotjb4' re-issued and, therefore, its existence termirfated on that dat. No dividends Wire declared or paid during the year ended 1972, * i !; !' , Note 7 - Contingencies and Commitments Pall Corporafio^ and its subsidiaries may be subject to repe^xiation of government con tracts and sjoffcontracte performed since August 1, 1956j''With respect to all periods up to July 3i , 197 i tthe Renegotiation Board has stated its intention not td take any action in the absence of ttusua! circumstances-or sub sequent indications of excess profits. In view thereof, no provisions have been made for this contingency for any past years, nor for the current yearMbce no precedent is available, la the opinion of management, operating results reported upon woitld not be materially affected. j: ' : . ; i- ; , The Company jifd its subsidiaries lease cer tain facilities |o|her than facilities covered under capitalized leases! see note 5) under long-term legscfi Expiring up to 14 years after July 31, 1972 faijd annua! rentals under such leases amount! M approximately $87,000. Total rental feojmmitments under these leases aggregate approximately:$402,000. Pall C orporation has sold 311,591 at $2.4070 per pound for delivery on July 9, 1973. . M i ; j <5 !- - ; Pall Corporation is contingently liable on a series of #*1 iwith a total face value of $179,885, whiph have been discounted.. The notes, receiyecfiupon the sale of its Mexican subsidiary, ate!payable quarterly to February 1,1976, i M -= During the iydi ended: July 31, 1972, the Company ehtfkd into:employment agree ments. with pt^ eliaitmab, president and six vice-presMe|ttd The aggregates eamimitmmt for future MteHes at July 3:1, 1972 was $797,000. M i :; The Pall Cdriforatlon |9d6 Qualified Stock Option Plati wjfel approved by stockholders at the annual pMfmg held in November 1966 and provide^ iast the isstonce of a. maximum of 45,000 shapes of the Company's Class A Stock to certa% officers and employees of the .Company a id its subsidiaries. ' The balance of tiexercised optioned stock as at July 3 L 1972 was as follows: Date Granted Aug. 3ft, 1968July 21, 1972 No. of Shares 10,950 Option Price Per Share Total $9.69-$ 16.69 $145,889 All options expire five years from the date of grant and are exercisable in equal annual in crements over that period. Options exercis able at July 31, 1972 were for 3,150 shares, Options exercised during the year ended July 31, 1972 are summarized below; Number of sh ares..................... 15ft Option Price; Per Share . , . $t TOG T o t a l .................................... $ 1,650 The Company makes no charge against income with respect to options. Note 9--Peiislon and Profit Sharing Plans The total cost of Pension and Profit Sharing Plans in effect for the year ended July 31, 1972 was $228,649. Aggregate amounts in pension and retirement funds exceeded the actuarial! y computed value of vested benefits at July 31, 1972, The aggregate liability for unfunded past service costs under the Pension Plan is estimated to be $85,275 at July 31, 1972, Past service costs are being funded over a 30 year period. Note 10--Deferred Income Taxes Deferred income taxes result principally from the use, for tax purposes only, of an acceler ated depreciation method. Note 11--Interest Expense Interest expense amounted to $790,384 and $841,823 for the fiscal years ended July 31, 1972 and 1971, respectively. Hot Air CentrisepTM for le t Engine Board of Directors, PALL CORPORATION 30 Sea Cliff Avenue Glen Cove, New York ROBBINS, GREENE & CO. CERTIFIED PUBLIC ACCOUNTANTS 521 Fifth Avenue, New York, N.Y, 10017 We have examined the consolidated balance sheet of Pall Corporation and its subsidiaries as at July 3 1 ,1 9 7 2 and the related consolidated statements of earnings, retained earnings, capital in excess of par value, and changes in financial position, for the year then ended. Our examina tion was made in accordance:with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we con sidered necessary fit the circumstances. In our opinion, the tbove-mentianed financial statements present fairly the financial position of Pall Corporation and its subsidiaries as at July 31, 1972 and the results of operations and changes in financial position for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. New York, New York October 18,1972 Robbins, Greene & Co, Spin-On industrial Hydraulic Filter Sanitary Filter for Pharmaceuticals Officers Dr. David B. Pall Chairman of the Board Abraham Krasnoff President Chesterfield F. Seibert Senior Vice President Maurice Hardy Vice President Sidney Krakau er Vice President Nicholas Nickolaus Vice President Henry Petronis Vice President Stanley Wernick Vice President & Treasurer Peter Schwartzman Secretary Donald M. Harris Assistant Secretary Directors Dr. David B. Pall Chairman Abraham Appel Albert H. Haas Maurice G. Hardy Donald M. Harris Abraham Krasnoff Chesterfield F. Seibert Jerome S. Shulman Alan B. Slifka Corporate Headquarters Glen Cove, N ew York 11542 Tel. 516-671-4000 TWX 510-223-0606 Telex 01-26329 Principal Plants Glen Cove and Cortland, New York; St. Petersburg, Florida; South El Monte, California; Grand Rapids, Michigan; Putnam, Connecticut; Montreal, Canada; Portsmouth, England; Frankfurt, Germany General Counsel Carter, Ledyard & Milburn New York, N.Y. McKenna & Co. London, England Patent Counsel Janes & Chapman New York, N.Y. Government Contract Counsel Gilinsky, Stillman & Mishkin New York, N.Y. Auditors Robbins, Greene & Co. New York, N.Y. Registrar and Transfer Agent Franklin National Bank Corporate Trust Department 95 Wall St., N ew York, N.Y. Pall Corporation is an Equal Opportunity Employer. PALL CORPORATION gjlen Ce-ve, l...ony island, NevsYork OcMgn sin'-tiinte. Inv... N1