PLL-4/30/2012-Q3


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
R
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended April 30, 2012
or
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to

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

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

(516) 484-5400
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer þ
Accelerated filer o
 
 
 
 
 
Non-accelerated filer o
Smaller reporting company o
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The number of shares of the registrant’s common stock outstanding as of June 1, 2012 was 116,202,448.





Table of Contents

 
 
Page No.
 
 
 
 
 
 
 
 


2



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

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

 
Apr 30, 2012
 
July 31, 2011
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
535,891

 
$
557,766

Accounts receivable
614,900

 
646,769

Inventories
402,292

 
444,842

Prepaid expenses
48,201

 
39,322

Other current assets
159,371

 
120,509

Assets held for sale
126,737

 

Total current assets
1,887,392

 
1,809,208

Property, plant and equipment
772,293

 
794,599

Goodwill
341,731

 
290,606

Intangible assets
158,310

 
61,735

Other non-current assets
235,128

 
276,268

Total assets
$
3,394,854

 
$
3,232,416

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Notes payable
$
199,953

 
$
214,957

Accounts payable
171,666

 
225,398

Accrued liabilities
364,222

 
294,485

Income taxes payable
63,280

 
34,531

Current portion of long-term debt
482

 
511

Dividends payable
24,402

 
20,125

Total current liabilities
824,005

 
790,007

Long-term debt, net of current portion
487,936

 
491,954

Income taxes payable – non-current
149,555

 
175,040

Deferred taxes and other non-current liabilities
269,564

 
285,594

Total liabilities
1,731,060

 
1,742,595

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

 
12,796

Capital in excess of par value
272,020

 
246,665

Retained earnings
1,780,468

 
1,619,051

Treasury stock, at cost
(442,149
)
 
(483,705
)
Stock option loans
(54
)
 
(133
)
Accumulated other comprehensive income/(loss):
 
 
 
Foreign currency translation
150,492

 
207,478

Pension liability adjustment
(113,141
)
 
(121,831
)
Unrealized investment gains
3,362

 
9,500

 
40,713

 
95,147

Total stockholders’ equity
1,663,794

 
1,489,821

Total liabilities and stockholders’ equity
$
3,394,854

 
$
3,232,416


See accompanying notes to condensed consolidated financial statements.


3



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

 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2012
 
Apr 30, 2011
 
Apr 30, 2012
 
Apr 30, 2011
Net sales
$
657,976

 
$
653,792

 
$
1,949,285

 
$
1,798,479

Cost of sales
323,550

 
321,526

 
941,342

 
867,087

Gross profit
334,426

 
332,266

 
1,007,943

 
931,392

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
215,226

 
203,327

 
632,982

 
572,026

Research and development
20,780

 
19,308

 
60,351

 
57,198

Restructuring and other charges, net
2,861

 
7,723

 
31,001

 
13,921

Interest expense, net
6,351

 
6,068

 
17,682

 
19,176

Earnings from continuing operations before income taxes
89,208

 
95,840

 
265,927

 
269,071

Provision for income taxes
18,270

 
34,082

 
60,691

 
80,021

Net earnings from continuing operations
$
70,938

 
$
61,758

 
$
205,236

 
$
189,050

Earnings from discontinued operations, net of income taxes
$
7,980

 
$
9,311

 
$
27,866

 
$
29,092

Net earnings
$
78,918

 
$
71,069

 
$
233,102

 
$
218,142

 
 
 
 
 
 
 
 
Earnings per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.61

 
$
0.53

 
$
1.77

 
$
1.62

Diluted
$
0.60

 
$
0.52

 
$
1.74

 
$
1.60

Earnings per share from discontinued operations:
 
 
 
 
 
 
 
Basic
$
0.07

 
$
0.08

 
$
0.24

 
$
0.25

Diluted
$
0.07

 
$
0.08

 
$
0.24

 
$
0.25

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.68

 
$
0.61

 
$
2.01

 
$
1.87

Diluted
$
0.67

 
$
0.60

 
$
1.98

 
$
1.84

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.210

 
$
0.175

 
$
0.595

 
$
0.510

 
 
 
 
 
 
 
 
Average shares outstanding:
 
 
 
 
 
 
 
Basic
116,567

 
116,899

 
116,190

 
116,565

Diluted
118,358

 
118,723

 
117,817

 
118,296


See accompanying notes to condensed consolidated financial statements.


4



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

 
Nine Months Ended
 
Apr 30, 2012
 
Apr 30, 2011
Operating activities:
 
 
 
Net cash provided by operating activities
$
326,417

 
$
280,956

 
 
 
 
Investing activities:
 
 
 
Capital expenditures
(126,923
)
 
(103,142
)
Acquisition of businesses
(167,638
)
 

Purchases of retirement benefit assets
(33,805
)
 
(62,439
)
Proceeds from retirement benefit assets
33,422

 
51,307

Proceeds from sale of assets
25,604

 
530

Other
(9,666
)
 
(5,099
)
Net cash used by investing activities
(279,006
)
 
(118,843
)
 
 
 
 
Financing activities:
 
 
 
Notes payable
(15,004
)
 
109,682

Dividends paid
(64,554
)
 
(57,287
)
Long-term borrowings
104

 
35,145

Repayments of long-term debt
(390
)
 
(298,405
)
Net proceeds from stock plans
34,845

 
54,487

Purchase of treasury stock

 
(64,524
)
Excess tax benefits from stock-based compensation
arrangements
4,177

 
10,799

Net cash used by financing activities
(40,822
)
 
(210,103
)
Cash flow for period
6,589

 
(47,990
)
Cash and cash equivalents at beginning of year
557,766

 
498,563

Effect of exchange rate changes on cash and cash
equivalents
(28,464
)
 
40,923

Cash and cash equivalents at end of period
$
535,891

 
$
491,496

Supplemental disclosures:
 
 
 
Interest paid
$
13,274

 
$
13,589

Income taxes paid (net of refunds)
75,401

 
79,850


See accompanying notes to condensed consolidated financial statements.


5

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

NOTE 1 – BASIS OF PRESENTATION
The condensed consolidated financial information of Pall Corporation and its subsidiaries (hereinafter collectively called the “Company”) included herein is unaudited. Such information reflects all adjustments of a normal recurring nature, which are, in the opinion of Company management, necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows as of the dates and for the periods presented herein. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2011 (“2011 Form 10-K”). Certain prior year amounts have been reclassified to conform to the current year presentation.
As discussed in Note 16, Discontinued Operations, the Company has entered into an agreement to sell certain assets of its blood collection, filtration and processing product line, which was a component of the Company’s Life Sciences segment, and met both the component and held for sale criteria during the third quarter of fiscal year 2012. As such, it has been reported as a discontinued operation in the Company’s condensed consolidated financial statements.
NOTE 2 – BALANCE SHEET DETAILS
The following tables provide details of selected balance sheet items:
 
Apr 30, 2012
 
July 31, 2011
Accounts receivable:
 
 
 
Billed
$
546,916

 
$
553,500

Unbilled
77,290

 
101,652

Total
624,206

 
655,152

Less: Allowances for doubtful accounts
(9,306
)
 
(8,383
)
 
$
614,900

 
$
646,769

Unbilled receivables principally relate to long-term contracts recorded under the percentage-of-completion method of accounting.
 
Apr 30, 2012 (a)
 
July 31, 2011
Inventories:
 
 
 
Raw materials and components
$
88,266

 
$
102,745

Work-in-process
100,503

 
96,601

Finished goods
213,523

 
245,496

 
$
402,292

 
$
444,842

Property, plant and equipment:
 
 
 
Property, plant and equipment
$
1,639,568

 
$
1,705,559

Less: Accumulated depreciation and amortization
(867,275
)
 
(910,960
)
 
$
772,293

 
$
794,599

(a) The amounts for inventory and property, plant and equipment as of April 30, 2012 exclude those assets that are classified as held for sale, which are $40,651 and $61,623, respectively. See Note 16, Discontinued Operations, for further details.


6

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

NOTE 3 – GOODWILL AND INTANGIBLE ASSETS
The following table presents goodwill, allocated by reportable segment.
 
Apr 30, 2012 (a)
 
July 31, 2011
Life Sciences
$
179,490

 
$
131,852

Industrial
162,241

 
158,754

 
$
341,731

 
$
290,606

(a) The amount for goodwill allocated to the Life Sciences reportable segment as of April 30, 2012 excludes goodwill that is classified as held for sale of $22,018 . See Note 16, Discontinued Operations, for further details.
Intangible assets, net, consist of the following:
 
Apr 30, 2012 (b)
 
Gross
 
Accumulated
Amortization
 
Net
Patents and unpatented technology
$
133,333

 
$
69,406

 
$
63,927

Customer-related intangibles
95,371

 
11,414

 
83,957

Trademarks
13,207

 
5,104

 
8,103

Other
5,063

 
2,740

 
2,323

 
$
246,974

 
$
88,664

 
$
158,310

 
July 31, 2011
 
Gross
 
Accumulated
Amortization
 
Net
Patents and unpatented technology
$
102,372

 
$
64,921

 
$
37,451

Customer-related intangibles
26,478

 
6,598

 
19,880

Trademarks
6,802

 
4,684

 
2,118

Other
4,685

 
2,399

 
2,286

 
$
140,337

 
$
78,602

 
$
61,735

(b) The amount for intangible assets as of April 30, 2012 excludes intangible assets, net, that is classified as held for sale of $567. See Note 16, Discontinued Operations, for further details.
The changes in both goodwill and intangible assets relate to the preliminary valuation of the acquisition of ForteBio®, Inc. in the third quarter of fiscal year 2012, discussed in further detail in Note 17, Acquisition, as well as an acquisition in Brazil in the first quarter of fiscal year 2012. During the third quarter, the Company completed its valuation of its acquisition in Brazil. In connection with the acquisition in Brazil, the Company recorded the fair value of the intangible assets acquired (approximately $22,250, with the majority recorded as customer-related intangibles), which were valued using the income approach. The amount of goodwill recorded in connection with this acquisition was approximately $9,000. In addition, the carrying amounts were also impacted by changes in foreign exchange rates used to translate the goodwill and intangible assets contained in the financial statements of foreign subsidiaries using the rates at each respective balance sheet date.
Amortization expense for intangible assets for the three and nine months ended April 30, 2012 was $5,956 and $14,746, respectively. Amortization expense for intangible assets for the three and nine months ended April 30, 2011 was $3,432 and $9,941, respectively. Amortization expense is estimated to be approximately $6,539 for the remainder of fiscal year 2012, $21,098 in fiscal year 2013, $18,758 in fiscal year 2014, $17,162 in fiscal year 2015, $15,950 in fiscal year 2016 and $15,891 in fiscal year 2017.
NOTE 4 – TREASURY STOCK
On October 16, 2008, the board authorized an expenditure of $350,000 to repurchase shares. On September 26, 2011, the board authorized an additional $250,000. The Company’s shares may be purchased over time, as market and business conditions warrant. There is no time restriction on these authorizations. There were no share repurchases during the nine months ended April 30, 2012. As of April 30, 2012, $453,037 remains to be expended under the current board repurchase authorizations. Repurchased shares are held in treasury for use in connection with the Company’s stock plans and for general corporate purposes.

7

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

During the nine months ended April 30, 2012, 1,156 shares were issued under the Company’s stock-based compensation plans. At April 30, 2012, the Company held 11,807 treasury shares.
NOTE 5 – CONTINGENCIES AND COMMITMENTS
With respect to the matters described in Note 14, Contingencies and Commitments, to the Company’s consolidated financial statements included in the 2011 Form 10-K, under the heading Federal Securities Class Actions, Shareholder Derivative Lawsuits and Other Proceedings, the Company has reached an agreement with the lead plaintiff to settle the consolidated putative securities class-action lawsuit originally filed in August 2007 in the United States District Court for the Eastern District of New York. Under the terms of the proposed settlement, the lawsuit will be dismissed with prejudice, without any admission of liability by the Company or the individual defendants. Both the Company and the individual defendants will receive a full and complete release of all claims asserted against them in the litigation, in exchange for the payment of an aggregate of $22,500, substantially all of which will be funded with insurance proceeds. The proposed settlement was submitted to the United States District Court for the Eastern District of New York for preliminary approval on May 16, 2012. The agreement is subject to the execution of definitive settlement documents and court approval after the class has been notified of its terms. The Company has reflected appropriate costs, contingent liabilities and related insurance recoveries in the condensed consolidated financial statements as of April 30, 2012 and July 31, 2011.
The Company and its subsidiaries are subject to certain other legal actions that arise in the normal course of business. Other than those legal proceedings and claims discussed above and in the 2011 Form 10-K, the Company did not have any current other legal proceedings and claims that would individually or in the aggregate have a reasonably possible materially adverse affect on its financial condition or operating results. As such, any reasonably possible loss or range of loss, other than those legal proceedings discussed in this note and in the 2011 Form 10-K, is immaterial. However, the results of legal proceedings cannot be predicted with certainty. If the Company failed to prevail in several of these legal matters in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.
Environmental Matters:
The Company’s condensed consolidated balance sheet at April 30, 2012 includes liabilities for environmental matters of approximately $12,632, which relate primarily to the environmental proceedings discussed in the 2011 Form 10-K. In the opinion of management, the Company is in substantial compliance with applicable environmental laws and its current accruals for environmental remediation are adequate. However, as regulatory standards under environmental laws are becoming increasingly stringent, there can be no assurance that future developments, additional information and experience gained will not cause the Company to incur material environmental liabilities or costs beyond those accrued in its condensed consolidated financial statements.
NOTE 6 – RESTRUCTURING AND OTHER CHARGES, NET
The following tables summarize the restructuring and other charges (“ROTC”) recorded for the three and nine months ended April 30, 2012 and April 30, 2011:
 
Three Months Ended Apr 30, 2012
 
Nine Months Ended Apr 30, 2012
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
Severance benefits and other employment contract obligations
$
953

 
$
2,604

 
$
3,557

 
$
29,255

 
$
11,436

 
$
40,691

Gain on sale of assets

 
(2,168
)
 
(2,168
)
 
(1,515
)
 
(11,364
)
 
(12,879
)
Professional fees, legal settlements and other costs, net of receipt of insurance claim payments
1,755

 
(252
)
 
1,503

 
3,121

 
145

 
3,266

Reversal of excess restructuring reserves
(31
)
 

 
(31
)
 
(77
)
 

 
(77
)
 
$
2,677

 
$
184

 
$
2,861

 
$
30,784

 
$
217

 
$
31,001

 
 
 
 
 
 
 
 
 
 
 
 
Cash
$
2,677

 
$
(942
)
 
$
1,735

 
$
30,784

 
$
(3,446
)
 
$
27,338

Non-cash(a)

 
1,126

 
1,126

 

 
3,663

 
3,663

 
$
2,677

 
$
184

 
$
2,861

 
$
30,784

 
$
217

 
$
31,001


8

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

 
Three Months Ended Apr 30, 2011
 
Nine Months Ended Apr 30, 2011
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
Severance benefits and other employment contract obligations
$
716

 
$
4,631

 
$
5,347

 
$
4,169

 
$
4,631

 
$
8,800

Professional fees and other costs, net of receipt of insurance claim payments
1,431

 
891

 
2,322

 
4,151

 
272

 
4,423

Environmental matters

 
59

 
59

 

 
709

 
709

Reversal of excess restructuring reserves
(5
)
 

 
(5
)
 
(11
)
 

 
(11
)
 
$
2,142

 
$
5,581

 
$
7,723

 
$
8,309

 
$
5,612

 
$
13,921

 
 
 
 
 
 
 
 
 
 
 
 
Cash
$
2,142

 
$
3,241

 
$
5,383

 
$
8,309

 
$
3,272

 
$
11,581

Non-cash

 
2,340

 
2,340

 

 
2,340

 
2,340

 
$
2,142

 
$
5,581

 
$
7,723

 
$
8,309

 
$
5,612

 
$
13,921

(a) Reflects non-cash stock based compensation expense.
(1) Restructuring:
Restructuring charges recorded in the three and nine months ended April 30, 2012 and April 30, 2011 reflect the expenses incurred in connection with the Company’s cost reduction initiatives.
Severance benefits recorded in the three and nine months ended April 30, 2012 primarily relate to global restructuring activities in the Industrial segment. The most significant restructuring activities include:
the realignment of sales and marketing management of certain of the Company’s markets,
the reorganization of the global management structure that supports the Company’s systems product line, and
shifting resources from mature country markets to emerging regions.
Restructuring charges/(income) in the nine months ended April 30, 2012 also includes a gain on the divestiture of a non-strategic asset group.
Severance benefits recorded in the three and nine months ended April 30, 2011 primarily relate to the closure of an Industrial manufacturing facility in Europe.
(2) Other (Gains) / Charges:
Employment contract obligations and other severance benefits:
In the three and nine months ended April 30, 2012, the Company recorded charges related to certain employment contract obligations.
Gain on sale of assets:
In the three months ended April 30, 2012 the Company recored a gain on sale of assets related to the sale of a building in Europe. The nine months ended April 30, 2012 also includes a gain of $9,196 on the sale of the Company’s investment in Satair A/S.
Professional fees and other costs:
In the three and nine months ended April 30, 2012 and April 30, 2011, the Company recorded legal and other professional fees related to the Federal Securities Class Actions, Shareholder Derivative Lawsuits and Other Proceedings (see Note 5, Contingencies and Commitments) which pertain to matters that had been under audit committee inquiry as discussed in Note 2, Audit Committee Inquiry and Restatement, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2007 (“2007 Form 10-K”). Furthermore, in the nine months ended April 30, 2012, the Company

9

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

recorded costs related to the settlement of the Federal Securities Class Actions (see Note 5, Contingencies and Commitments). The receipt of insurance claim payments more than offset the costs discussed above in the three months ended April 30, 2012 and offset the majority of such costs in the nine months ended April 30, 2012 and April 30, 2011.
The following table summarizes the activity related to restructuring liabilities that were recorded in the nine months ended April 30, 2012 and in fiscal years 2011, 2010 and 2009.
 
Severance
 
Other
 
Total
2012
 
 
 
 
 
Original charge
$
29,255

 
$
3,121

 
$
32,376

Utilized
(23,151
)
 
(2,121
)
 
(25,272
)
Translation
271

 
12

 
283

Balance at Apr 30, 2012
$
6,375

 
$
1,012

 
$
7,387

 
Severance
 
Other
 
Total
2011
 
 
 
 
 
Original charge
$
4,863

 
$
5,507

 
$
10,370

Utilized
(1,817
)
 
(5,225
)
 
(7,042
)
Translation
272

 
68

 
340

Balance at Jul 31, 2011
$
3,318

 
$
350

 
$
3,668

Utilized
(3,199
)
 
(350
)
 
(3,549
)
Translation
(119
)
 

 
(119
)
Balance at Apr 30, 2012
$

 
$

 
$

 
Severance
 
Other
 
Total
2010
 
 
 
 
 
Original charge (a)
$
6,034

 
$
5,581

 
$
11,615

Utilized
(2,031
)
 
(5,441
)
 
(7,472
)
Translation
1

 
(9
)
 
(8
)
Balance at Jul 31, 2010
$
4,004

 
$
131

 
$
4,135

Utilized
(1,356
)
 
(135
)
 
(1,491
)
Translation
2

 
4

 
6

Balance at Jul 31, 2011
$
2,650

 
$

 
$
2,650

Utilized
(1,608
)
 

 
(1,608
)
Translation

 

 

Balance at Apr 30, 2012
$
1,042

 
$

 
$
1,042



10

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

 
Severance
 
Other
 
Total
2009
 
 
 
 
 
Original charge
$
18,938

 
$
4,734

 
$
23,672

Utilized
(12,757
)
 
(4,133
)
 
(16,890
)
Translation
412

 
20

 
432

Balance at Jul 31, 2009
6,593

 
621

 
7,214

Utilized
(4,902
)
 
(588
)
 
(5,490
)
Reversal of excess reserves
(143
)
 

 
(143
)
Translation
(86
)
 
(27
)
 
(113
)
Balance at Jul 31, 2010
$
1,462

 
$
6

 
$
1,468

Utilized
(845
)
 
(6
)
 
(851
)
Reversal of excess reserves
(6
)
 

 
(6
)
Translation
120

 

 
120

Balance at Jul 31, 2011
$
731

 
$

 
$
731

Utilized
(317
)
 

 
(317
)
Reversal of excess reserves
(46
)
 

 
(46
)
Translation
(48
)
 

 
(48
)
Balance at Apr 30, 2012
$
320

 
$

 
$
320

(a) Excludes stock-based compensation expense of $603
NOTE 7 – INCOME TAXES
The Company’s effective tax rate on continuing operations for the nine months ended April 30, 2012 and April 30, 2011 was 22.8% and 29.7%, respectively. For the nine months ended April 30, 2012 and April 30, 2011, the effective tax rate on continuing operations varied from the U.S. federal statutory rate primarily due to the benefits of foreign operations, offset by tax costs of $8,409 associated with the establishment of the Company’s Asian headquarters recorded in the third quarter of fiscal year 2011.
At April 30, 2012 and July 31, 2011, the Company had gross unrecognized income tax benefits of $215,798 and $188,380, respectively. During the nine months ended April 30, 2012, the amount of gross unrecognized tax benefits increased by $27,418, primarily due to tax positions taken during the fiscal year, partially offset by the impact of foreign currency translation and the expiration of various statutes of limitations. As of April 30, 2012, the amount of net unrecognized income tax benefits that, if recognized, would impact the effective tax rate was $144,360.
At April 30, 2012 and July 31, 2011, the Company had liabilities of $33,557 and $29,652, respectively, for potential payment of interest and penalties.
Based on recent discussion with various tax authorities and due to the expiration of various statutes of limitations, the Company believes that it is reasonably possible that the gross amount of unrecognized tax benefits may decrease within the next twelve months by a range of zero to $61,633. As a result, the Company has reclassified $57,126 of income taxes payable and $17,870 of interest payable from non-current liabilities to current liabilities, respectively.

11

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


NOTE 8 – COMPONENTS OF NET PERIODIC PENSION COST
Net periodic pension benefit cost for the Company’s defined benefit pension plans includes the following components (included in the table below is net periodic benefit cost included in discontinued operations for the three months ended April 30, 2012 and April 30, 2011 of $185 and $177, respectively, and $552 and $536 for the nine months ended April 30, 2012 and April 30, 2011, respectively):
 
Three Months Ended
 
U.S. Plans
 
Foreign Plans
 
Total
 
Apr 30, 2012
 
Apr 30, 2011
 
Apr 30, 2012
 
Apr 30, 2011
 
Apr 30, 2012
 
Apr 30, 2011
Service cost
$
2,231

 
$
2,014

 
$
1,157

 
$
1,304

 
$
3,388

 
$
3,318

Interest cost
3,052

 
3,100

 
4,527

 
4,578

 
7,579

 
7,678

Expected return on plan assets
(2,303
)
 
(2,202
)
 
(3,908
)
 
(3,554
)
 
(6,211
)
 
(5,756
)
Amortization of prior service cost
374

 
615

 
(31
)
 
71

 
343

 
686

Recognized actuarial loss
1,546

 
1,946

 
1,312

 
1,415

 
2,858

 
3,361

Gain due to curtailments and
settlements

 

 

 
(23
)
 

 
(23
)
Net periodic benefit cost
$
4,900

 
$
5,473

 
$
3,057

 
$
3,791

 
$
7,957

 
$
9,264

 
Nine Months Ended
 
U.S. Plans
 
Foreign Plans
 
Total
 
Apr 30, 2012
 
Apr 30, 2011
 
Apr 30, 2012
 
Apr 30, 2011
 
Apr 30, 2012
 
Apr 30, 2011
Service cost
$
6,693

 
$
6,044

 
$
3,548

 
$
3,912

 
$
10,241

 
$
9,956

Interest cost
9,699

 
9,164

 
13,643

 
13,735

 
23,342

 
22,899

Expected return on plan assets
(6,909
)
 
(6,608
)
 
(11,727
)
 
(10,661
)
 
(18,636
)
 
(17,269
)
Amortization of prior service cost
1,405

 
1,527

 
(98
)
 
215

 
1,307

 
1,742

Recognized actuarial loss
6,546

 
3,880

 
3,944

 
4,245

 
10,490

 
8,125

Gain due to curtailments and
settlements

 

 

 
(71
)
 

 
(71
)
Net periodic benefit cost
$
17,434

 
$
14,007

 
$
9,310

 
$
11,375

 
$
26,744

 
$
25,382

NOTE 9 – STOCK–BASED PAYMENT
The Company currently has four stock-based employee and director compensation award types (Restricted Stock Unit, Stock Option Plans, Management Stock Purchase Plan (“MSPP”), and Employee Stock Purchase Plan (“ESPP”)), which are more fully described in Note 15, Common Stock, to the consolidated financial statements included in the 2011 Form 10-K.
On December 14, 2011, the Company’s shareholders approved the Pall Corporation 2012 Stock Compensation Plan (the “2012 Stock Plan”). The Board adopted the 2012 Stock Plan on September 26, 2011, subject to shareholder approval. The 2012 Stock Plan replaced the Pall Corporation 2005 Stock Compensation Plan (the “2005 Stock Plan”).
Similar to the 2005 Stock Plan, the 2012 Stock Plan permits the Company to grant to its employees, including the Company’s “named executive officers”, a variety of equity compensation (that is, stock options, restricted shares, restricted units, performance shares and performance units). In addition, the 2012 Stock Plan provides that (i) in January of each calendar year, each member of the board of directors who is not on such grant date an employee of the Company will be granted a number of annual award units as determined by the board of directors, (ii) each person who is elected a director of the Company for the first time at an annual meeting and who is not an employee of the Company on the date of such annual meeting will receive a number of annual award units as determined by the board of directors, and (iii) at the discretion of a non-employee director, 100% of the cash fees paid to such director in a calendar year may be deferred in additional units which will be paid out either in one lump sum or in five equal annual installments upon the director ceasing to be a member of the board. Up to 7,100 shares are issuable under the 2012 Stock Plan. The number of shares available for awards under the 2012 Stock Plan will be reduced by one share for every

12

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

one share subject to a stock option granted under the 2012 Stock Plan and will be reduced by 2.31 shares for every one share subject to a Full Value Award (i.e., restricted shares, restricted units, performance shares and performance units).
The fair value of stock options is estimated using a Black-Scholes-Merton option pricing formula and are charged to earnings over the service periods during which the options are deemed to be earned; which is generally four years. The forms of options currently approved for use in awarding options provide that the options may not be exercised within one year from the date of grant, and expire if not fully exercised within seven years from the date of grant. Generally, in any year after the first year, the options can be exercised with respect to only up to 25% of the shares subject to the option, computed cumulatively.
The fair value of the restricted unit awards is determined by reference to the closing price of the Company’s common stock on the date of the award, and are charged to earnings over the service periods during which the awards are deemed to be earned; four years, in the case of units awarded to employees and upon grant, in the case of the annual award units to non-employee directors. The annual award units granted to non-employee directors of the Company (and any related dividends paid in the form of additional units) are converted to shares once the director ceases to be a member of the board of directors, other than removal for cause. Restricted stock units granted to employees vest after the fourth anniversary of the date of grant. Dividends on unvested restricted stock units vest at the same time as the restricted units for which the dividends were recorded and are forfeitable if the participant does not vest in the original award.
The detailed components of stock-based compensation expense recorded in the condensed consolidated statements of earnings for the three and nine months ended April 30, 2012 and April 30, 2011 are reflected in the table below (excluded from the table below is stock-based compensation expense included in discontinued operations for the three months ended April 30, 2012 and April 30, 2011 of $165 and $125, respectively, and $496 and $367 for the nine months ended April 30, 2012 and April 30, 2011, respectively):
 
Three Months Ended
 
Nine Months Ended
 
Apr 30,
2012
 
Apr 30,
2011
 
Apr 30,
2012
 
Apr 30,
2011
Restricted stock units
$
4,541

 
$
4,145

 
$
13,880

 
$
10,177

Stock options
2,013

 
2,100

 
5,208

 
4,078

ESPP
1,415

 
1,118

 
3,980

 
3,180

MSPP
1,027

 
997

 
3,131

 
2,943

      Total
$
8,996

 
$
8,360

 
$
26,199

 
$
20,378

NOTE 10 – EARNINGS PER SHARE
The condensed consolidated statements of earnings present basic and diluted earnings per share. Basic earnings per share is determined by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share considers the potential effect of dilution on basic earnings per share assuming potentially dilutive shares that meet certain criteria, such as those issuable upon exercise of stock options, were outstanding. The treasury stock method reduces the dilutive effect of potentially dilutive securities as it assumes that cash proceeds (from the issuance of potentially dilutive securities) are used to buy back shares at the average share price during the period. Employee stock options and restricted stock units aggregating 575 and 98 shares were not included in the computation of diluted shares for the three months ended April 30, 2012 and April 30, 2011, respectively, because their effect would have been antidilutive. For the nine months ended April 30, 2012 and April 30, 2011, 862 and 180 antidilutive shares, respectively, were excluded. The following is a reconciliation between basic shares outstanding and diluted shares outstanding:
 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2012
 
Apr 30, 2011
 
Apr 30, 2012
 
Apr 30, 2011
Basic shares outstanding
116,567

 
116,899

 
116,190

 
116,565

Effect of stock plans
1,791

 
1,824

 
1,627

 
1,731

Diluted shares outstanding
118,358

 
118,723

 
117,817

 
118,296


13

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


NOTE 11 – FAIR VALUE MEASUREMENTS
The Company records certain of its financial assets and liabilities at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
The current authoritative guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). Authoritative guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
Level 1: Use of observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Use of inputs other than quoted prices included in Level 1, which are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3: Use of inputs that are unobservable.
The following table presents, for each of these hierarchy levels, the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of April 30, 2012:
 
Fair Value Measurements
 
As of
 
 
 
 
 
 
 
Apr 30, 2012
 
Level 1
 
Level 2
 
Level 3
Financial assets carried at fair value
 
 
 
 
 
 
 
Money market funds
$
2,568

 
$
2,568

 
$

 
$

Available-for-sale securities:
 
 
 
 
 
 
 
Equity securities
1,017

 
1,017

 

 

Debt securities:
 
 
 
 
 
 
 
Corporate
35,641

 

 
35,641

 

U.S. Treasury
5,787

 

 
5,787

 

Federal agency
29,340

 

 
29,340

 

Mortgage-backed
6,363

 

 
6,363

 

Municipal government
1,004

 

 
1,004

 

Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
2,679

 

 
2,679

 

Financial liabilities carried at fair value
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
567

 

 
567

 



14

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

The following table presents, for each of these hierarchy levels, the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of July 31, 2011:
 
Fair Value Measurements
 
As of
 
 
 
 
 
 
 
Jul 31, 2011
 
Level 1
 
Level 2
 
Level 3
Financial assets carried at fair value
 
 
 
 
 
 
 
Money market funds
$
4,575

 
$
4,575

 
$

 
$

Available-for-sale securities:
 
 
 
 
 
 
 

Equity securities
12,064

 
12,064

 

 

Debt securities:
 
 
 
 
 
 
 
Corporate
32,020

 

 
32,020

 

U.S. Treasury
10,210

 

 
10,210

 

Federal agency
29,404

 

 
29,404

 

Mortgage-backed
6,356

 

 
6,356

 

Municipal government
1,002

 

 
1,002

 

Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
1,456

 

 
1,456

 

Financial liabilities carried at fair value
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
478

 

 
478

 


The Company’s money market funds and equity securities are valued using quoted market prices and, as such, are classified within Level 1 of the fair value hierarchy.
The fair value of the Company’s investments in debt securities are valued utilizing third party pricing services and verified by management. The pricing services use inputs to determine fair value which are derived from observable market sources including reportable trades, benchmark curves, credit spreads, broker/dealer quotes, bids, offers, and other industry and economic events. These investments are included in Level 2 of the fair value hierarchy.
The fair values of the Company’s foreign currency forward contracts are valued using pricing models, with all significant inputs derived from or corroborated by observable market data such as yield curves, currency spot and forward rates and currency volatilities. These investments are included in Level 2 of the fair value hierarchy.
The Company completed its annual goodwill impairment test for all reporting units in the third quarter of fiscal year 2012 and determined that no impairment existed. In addition, the Company had no impairment of goodwill in the prior year. In connection with the annual goodwill impairment test, the Company estimates the fair value of its reporting units using a market approach employing level 3 inputs as defined in the fair value hierarchy.
In connection with the acquisitions in the first and third quarters of fiscal year 2012, the Company recorded the fair value of the intangible assets acquired, which were valued using the income approach. The valuation employed level 3 inputs, as defined in the fair value hierarchy.
NOTE 12 – INVESTMENT SECURITIES
The following is a summary of the Company’s available-for-sale investment securities by category which are classified within other non-current assets in the Company’s condensed consolidated balance sheets. Contractual maturity dates of debt securities held by the trust at April 30, 2012 range from 2012 to 2044.

15

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

 
Cost/
Amortized
Cost Basis
 
Fair Value
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Net
Unrealized
Holding
Gains
April 30, 2012
 
 
 
 
 
 
 
 
 
Equity securities
$
1,022

 
$
1,017

 
$

 
$
(5
)
 
$
(5
)
Debt securities:
 
 
 
 
 
 
 
 
 
Corporate
33,903

 
35,641

 
1,789

 
(51
)
 
1,738

U.S. Treasury
5,363

 
5,787

 
424

 

 
424

Federal agency
27,669

 
29,340

 
1,674

 
(3
)
 
1,671

Mortgage-backed
6,144

 
6,363

 
244

 
(25
)
 
219

Municipal government
1,000

 
1,004

 
4

 

 
4

 
$
75,101

 
$
79,152

 
$
4,135

 
$
(84
)
 
$
4,051

 
 
 
 
 
 
 
 
 
 
July 31, 2011
 
 
 
 
 
 
 
 
 
Equity securities
$
2,381

 
$
12,064

 
$
9,683

 
$

 
$
9,683

Debt securities:
 
 
 
 
 
 
 
 
 
Corporate
30,239

 
32,020

 
1,814

 
(33
)
 
1,781

U.S. Treasury
9,544

 
10,210

 
666

 

 
666

Federal agency
28,042

 
29,404

 
1,362

 

 
1,362

Mortgage-backed
6,242

 
6,356

 
144

 
(30
)
 
114

Municipal government
1,000

 
1,002

 
2

 

 
2

 
$
77,448

 
$
91,056

 
$
13,671

 
$
(63
)
 
$
13,608

The following table shows the gross unrealized losses and fair value of the Company’s available-for-sale investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
 
Less than 12 months
 
12 months or greater
 
Total
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
April 30, 2012
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Corporate
$
5,013

 
$
51

 
$

 
$

 
$
5,013

 
$
51

Mortgage-backed

 

 
1,506

 
25

 
$
1,506

 
$
25

Federal agency
386

 
3

 

 

 
386

 
3

Equity securities
28

 
5

 

 

 
28

 
5

 
$
5,427

 
$
59

 
$
1,506

 
$
25

 
$
6,933

 
$
84

 
Less than 12 months
 
12 months or greater
 
Total
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
July 31, 2011
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed
$
1,502

 
$
30

 
$

 
$

 
$
1,502

 
$
30

Corporate
1,985

 
33

 

 

 
1,985

 
33

 
$
3,487

 
$
63

 
$

 
$

 
$
3,487

 
$
63


16

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

The following table shows the proceeds and gross gains and losses from the sale of available-for-sale investments for the three and nine months ended April 30, 2012 and April 30, 2011:
 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2012
 
Apr 30, 2011
 
Apr 30, 2012
 
Apr 30, 2011
Proceeds from sales
$
5,473

 
$
4,891

 
$
26,700

 
$
19,103

Realized gross gains on sales
176

 
72

 
9,654

 
766

Realized gross losses on sales
12

 
8

 
28

 
20

NOTE 13 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company manages certain financial exposures through a risk management program that includes the use of foreign exchange and interest rate derivative financial instruments. Derivatives are executed with counterparties with a minimum credit rating of “A” by Standard & Poors and Moody’s Investor Services, in accordance with the Company’s policies. The Company does not utilize derivative instruments for trading or speculative purposes.
Foreign Exchange Related:
a. Derivatives Not Designated as Hedging Instruments
The risk management objective of holding foreign exchange derivatives is to mitigate volatility to earnings and cash flows due to changes in foreign exchange rates. The Company and its subsidiaries conduct transactions in currencies other than their functional currencies. These transactions include non-functional intercompany and external sales as well as intercompany and external purchases. The Company uses foreign exchange forward contracts, matching the notional amounts and durations of the receivables and payables resulting from the aforementioned underlying foreign currency transactions, to mitigate the exposure to earnings and cash flows caused by the changes in fair value of these receivables and payables from fluctuating foreign exchange rates. The notional amount of foreign currency forward contracts entered into during the three and nine months ended April 30, 2012 was $522,774 and $1,894,385, respectively. The notional amount of foreign currency forward contracts outstanding as of April 30, 2012 was $244,047.
b. Net Investment Hedges
The risk management objective of designating the Company’s foreign currency loan as a hedge of a portion of its net investment in a wholly owned Japanese subsidiary is to mitigate the change in the fair value of the Company’s net investment due to changes in foreign exchange rates. The Company uses a JPY loan outstanding to hedge its equity of the same amount in the Japanese wholly owned subsidiary. The hedge of net investment consists of a JPY 9 billion loan.
Interest Rate Related:
As of April 30, 2012, there are no existing interest rate related derivatives.
The fair values of the Company’s derivative financial instruments included in the condensed consolidated balance sheets are presented as follows:
 
Asset Derivatives
 
Liability Derivatives
April 30, 2012
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
Not applicable (N/A)
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
2,679

 
Other current liabilities
 
$
567

Total derivatives
 
 
$
2,679

 
 
 
$
567

Nonderivative instruments designated as hedging instruments
 
 
 
 
 
 
 
Net investment hedge
 
 
 
 
Long-term debt, net of current portion
 
$
112,128


17

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

 
Asset Derivatives
 
Liability Derivatives
July 31, 2011
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
N/A
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
1,456

 
Other current liabilities
 
$
478

Total derivatives
 
 
$
1,456

 
 
 
$
478

Nonderivative instruments designated as hedging instruments
 
 
 
 
 
 
 
Net investment hedge
 
 
 
 
Long-term debt, net of current portion
 
$
115,803

For the three months ended April 30, 2012 and April 30, 2011, the Company had no derivative financial instruments outstanding that were designated as hedging instruments.
The amounts of the gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments for the three and nine months ended April 30, 2012 and April 30, 2011 are presented as follows:
 
 
 
Amount of Gain or (Loss) Recognized in
Earnings on Derivatives
 
 
 
Three Months Ended
 
Nine Months Ended
 
Location of Gain or (Loss) Recognized in
Earnings on Derivatives
 
Apr 30, 2012
 
Apr 30, 2011
 
Apr 30, 2012
 
Apr 30, 2011
Derivatives not designated as
hedging relationships
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
Selling, general and administrative expenses
 
$
1,836

 
$
(7,527
)
 
$
7,998

 
$
(11,877
)
The amounts of the gains and losses related to the Company’s nonderivative financial instruments designated as hedging instruments for the three and nine months ended April 30, 2012 and April 30, 2011 are presented as follows:
 
Amount of Gain or (Loss)
Recognized in OCI on Derivatives
(Effective Portion)
 
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Earnings
(Effective Portion)
 
Amount of Gain or (Loss) Reclassified from
Accumulated OCI into Earnings
(Effective Portion) (a)
 
Three Months Ended
 
 
 
Three Months Ended
 
Apr 30, 2012
 
Apr 30, 2011
 
 
 
Apr 30, 2012
 
Apr 30, 2011
Nonderivatives designated as hedging relationships
 
 
 
 
 
 
 
 
 
Net investment hedge
$
3,688

 
$
(506
)
 
N/A
 
$

 
$

(a)
There were no gains or losses recognized in earnings related to the ineffective portion of the hedging relationship or related to the amount excluded from the assessment of hedge effectiveness for the three months ended April 30, 2012 and April 30, 2011.
 
Amount of Gain or (Loss)
Recognized in OCI on Derivatives
(Effective Portion)
 
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Earnings
(Effective Portion)
 
Amount of Gain or (Loss) Reclassified from
Accumulated OCI into Earnings
(Effective Portion) (a)
 
Nine Months Ended
 
 
 
Nine Months Ended
 
Apr 30, 2012
 
Apr 30, 2011
 
 
 
Apr 30, 2012
 
Apr 30, 2011
Nonderivatives designated as hedging relationships
 
 
 
 
 
 
 
 
 
Net investment hedge
$
2,352

 
$
(3,974
)
 
N/A
 
$

 
$

(a)
There were no gains or losses recognized in earnings related to the ineffective portion of the hedging relationship or related to the amount excluded from the assessment of hedge effectiveness for the nine months ended April 30, 2012 and April 30, 2011.

18

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

NOTE 14 – COMPREHENSIVE INCOME
 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2012
 
Apr 30, 2011
 
Apr 30, 2012
 
Apr 30, 2011
Net earnings
$
78,918

 
$
71,069

 
$
233,102

 
$
218,142

Unrealized translation adjustment
11,557

 
62,204

 
(54,113
)
 
100,481

Income taxes
(2,563
)
 
3,008

 
(2,873
)
 
6,941

Unrealized translation adjustment, net
8,994

 
65,212

 
(56,986
)
 
107,422

Pension liability adjustment
(477
)
 
424

 
12,890

 
4,956

Income taxes
1,382

 
(347
)
 
(4,200
)
 
(1,823
)
Pension liability adjustment, net
905

 
77

 
8,690

 
3,133

Change in unrealized investment (losses)/gains
(763
)
 
1,699

 
(9,557
)
 
2,259

Income taxes
215

 
(611
)
 
3,419

 
(812
)
Change in unrealized investment (losses)/gains, net
(548
)
 
1,088

 
(6,138
)
 
1,447

Total comprehensive income
$
88,269

 
$
137,446

 
$
178,668

 
$
330,144

Unrealized investment gains on available-for-sale securities, net of related income taxes, consist of the following:
 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2012
 
Apr 30, 2011
 
Apr 30, 2012
 
Apr 30, 2011
Unrealized (losses)/gains arising during the period
$
(506
)
 
$
1,699

 
$
(103
)
 
$
2,259

Income taxes
161

 
(611
)
 
(109
)
 
(812
)
Net unrealized (losses)/gains arising during the period
(345
)
 
1,088

 
(212
)
 
1,447

Reclassification adjustment for gains included in net earnings
(203
)
 

 
(5,926
)
 

Change in unrealized investment (losses)/gains, net
$
(548
)
 
$
1,088

 
$
(6,138
)
 
$
1,447



19

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

NOTE 15 – SEGMENT INFORMATION
The Company’s reportable segments, which are also its operating segments, consist of the Company’s Life Sciences and Industrial businesses.
The following table presents sales and segment profit from continuing operations by business segment reconciled to earnings from continuing operations before income taxes, for the three and nine months ended April 30, 2012 and April 30, 2011. The Life Sciences and Industrial results have been restated to reflect the change in allocation of certain shared expenses on a continuing operations basis.
 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2012
 
Apr 30, 2011
 
Apr 30, 2012
 
Apr 30, 2011
SALES:
 
 
 
 
 
 
 
Life Sciences
$
317,969

 
$
312,691

 
$
918,954

 
$
852,463

Industrial
340,007

 
341,101

 
1,030,331

 
946,016

Total<