Piedmont Lithium Inc.
Q3 2012 Earnings Call Transcript

Published: 7 Jun 2012

[Operator:]

Welcome to Pall Corporation's conference call and webcast for the third quarter of fiscal 2012. Today's call is being recorded and simultaneously webcast. [Operator Instructions] We'd like to remind you that the company's third quarter press release is available at www.pall.com. Management's remarks this morning will include forward-looking statements. Please refer to Slide 2 or request a copy of the specific wording of this qualification of the company's remarks. Management also uses certain non-GAAP measures to assess the company's performance. Reconciliations of these measures to their GAAP counterparts are included in the slides at the end of the presentation. At this time, I will turn the call over to Mr. Larry Kingsley, Pall Corporation's President and CEO. Please go ahead, sir.

[Lawrence D. Kingsley:]

Good morning. Thank you for joining us. I'm here today with Lisa McDermott, our CFO; Frank Moschella, Corporate Controller; and Brent Jones, our new VP of Finance. As you've seen from our press release last night, it was a difficult third quarter as our results were impacted more than anticipated by the weak economy in the Eurozone and a self-inflicted disruption in our supply chain, which was caused by the previously announced global go-live of our new ERP system. This last phase was the big one, encompassing 2,800 users at 28 locations in the Americas, and it now links our systems worldwide. While the ERP system clearly will have significant long-term benefits for the company and our temporary transition issues are being resolved, the disruption in the quarter meant that shipments of consumables were delayed and we incurred substantial additional costs in what I'll call hyper care actions to mitigate the impact on our customers. While disappointing, we are fortunate that our customers have been understanding and supportive, and I believe we're making very good progress in filling the backorders. We expect to have caught up with the past due backlog by this August, which, as you know, is the beginning of our fiscal year. So most of the revenue we lost in Q3 will be made up in this fourth quarter. Unrelated to our ERP challenges, the macro environment is clearly softening. While the Americas order rate is showing signs of strengthening, we're highly cautious about the situation in Europe. We anticipate that the organic order rates in Europe will be better in Q4 and next year than what was reported in Q3 though. As we'll get into momentarily, we're taking appropriate cost actions that are already underway to mitigate the potential impact on our fiscal year '13 profitability. We'll walk through both the orders and the sales performance by market and by geography, and I'll assume that you'll have a number of questions. There's obviously a fair bit of noise in the Q3 results due to the enterprise system deployments, so it's important that we clearly distinguish the market versus self-inflicted performance to give you a sense as to how we see next year taking shape. And it's not all bad news. We have line of sight to the actions within our control to protect profitability even if the global economy stumbles hard. With that, as an overview, our remarks this morning will be on a continuing operations basis, which exclude the results of the Blood product line that we are divesting. So now to the quarter. We estimate that enterprise system challenges in the quarter cost us about 3 points of organic growth and about $0.10 per share in the quarter, both in terms of delayed sales and increased costs to mitigate the impact on customers. That's all on us, so-called self-inflicted, as I've said, temporary, not the economy or our end markets. Going to move on to Slide 6. Going into the third quarter, as we discussed on our last call, we expect that second half sales growth to slow compared with the strong first half, which we grew sales by 10%. That outlook reflected a number of anticipated headwinds, the softening economy in Europe and slower growth in emerging Asia, including China. We also said that we anticipate a tough mix in our Industrial segment for the remainder of the year, and all of this has proven to be the case. Third quarter sales from continuing operations were $658 million or 2.5% growth over last year in local currency. Again, our conversion cost us almost 3 points of organic growth. Consumables and BioPharm, Food & Bev, Aerospace, in particular, were most impacted. So within the 2.5% growth that we realized, while consumables were flat, system product sales increased 24%. So now I'm going to walk through a breakdown of both sales and orders by region and segment, get into a fair amount of detail. On Slide 7, on a geographic basis, sales in the Americas were down about 1.5%. Again the ERP conversion was centered here. Europe sales grew about 1%, with weakness in several key markets, which I'll cover in a moment. Asia had a good quarter overall, with sales growth of over 9%, with most major markets doing well and despite MicroE, which was down 8% organically. Relative to global segment performance, moving on to Slides 8 and 9, Life Sciences grew 4% while Industrial grew just over 1%. Consumable sales were up 1% in Life Sciences and down about 2% in Industrial. And if you look at Slide 8, in Life Sciences, Pharmaceutical consumable sales were up 9%, but we realized a double-digit decline in Lab instrumentation sales. The 3 issues contributed to the Lab decline

[Lisa McDermott:]

Okay, thanks, Larry. Good morning, everyone. As a reminder, the numbers I'll be discussing below are on a continuing operations basis. And additionally, both the Life Sciences and Industrial results have been restated for all periods to reflect the change in the allocation of certain shared costs on a continuing operations basis. So let's start on Slide 15. I am going to give a high-level overview of the performance of each segment in 3 key areas

[Lawrence D. Kingsley:]

Okay, thanks, Lisa. As we discussed earlier, we believe we'll recover the Q3 miss related to the ERP implementation. Most importantly, we are entirely focused on serving our customers and flexing to meet their needs. The missed Q3 revenue that pushed Q4, as well as the costs associated with the hyper care that we've talked about, equated to about $0.10 of EPS in the quarter. The slowing macro environment will impact Q4 sales, and it will be difficult for us to achieve the previously stated full year estimate. So the equation is roughly as follows

[Operator:]

[Operator Instructions] Your first question comes from Richard Eastman with Robert W. Baird.

[Richard C. Eastman:]

Larry, just in the context of the systems business and the orders number that we saw in the quarter, the orders declined 42% on a consolidated basis between segments. Can I just ask, within that orders number and within your outlook for '13, what's -- is there any self-inflicted -- are we passing on any business in the systems area? And are we attempting to maybe wean ourselves off of the low-profit sales growth that systems has contributed over the last couple years?

[Lawrence D. Kingsley:]

Rick, there is a little bit of that. But when you look at the performance and you're thinking about organic orders as it relates to systems, as referenced in the quarter, it's a fairly small contribution to that delta. We are making decisions around which unprofitable, frankly, in non-consumables generating systems opportunities, particularly on the Industrial side, that no longer makes sense for us to entertain. Against the numbers that we posted in the quarter, it's a fairly small contributor. I think there's a lot of noise in the numbers as we can all see. Now there is another self-inflicted element to this in terms of, frankly, sales folks holding customers’ hands through a go-live process. And I think some of the orders number that you see in the quarter really reflects some of the distraction. That's not lost, it's business that, I think, again, we'll see placed over the fourth quarter here and into the first. And in fact, in May we saw some of those systems projects come in already during the last month.

[Richard C. Eastman:]

Yes. So against the total low single-digit maybe thought process or assumption for fiscal '13, is it -- is this growth rate still going to be skewed around that consolidated number as systems would still be the bigger opportunity? And I think of housing as in the context of systems.

[Lawrence D. Kingsley:]

Okay. Well, look, I think that you got to take the perturbations of systems performance quarter-to-quarter out and talk about so-called base or consumables. And as we head into next year – now, and again, we're pre-planning process, but we've spent a fair amount of time given the nature of the situation at hand, it still supports a base growth opportunity next year in Asia of high single digit, if not double digit. The Americas, I think indicative of what we saw exiting the third quarter, nice acceleration in some of the segments. And as I mentioned in the prepared remarks, we're seeing MicroE tick up pretty nicely on a sequential basis and forward-looking indicators there are quite strong. Good news is when you think about mix as we head into next year, frankly, our 2 strongest and highest margin businesses, that being MicroE and BioPharm, basically have pretty decent forward-looking indicators at this point. So it is a very dynamic time, Rick. And I wouldn't want to steer you specifically to modeling systems organic orders performance as we head into 2013, but there is -- frankly, there's some sanity in how we've done our analysis in looking at both base and systems that still provides a fair amount of, I think, comfort in at least the low single-digit organic opportunity next year.

[Richard C. Eastman:]

Okay, and then just a real quick characterization. The $100 million of restructuring, and I know that's multi-year, would it be safe to apply the stranded overhead Blood percent of that $100 million savings, dollar amount, to the Life Sciences business? And then consequently the balance, is there more of a targeted effort on the Industrial P&L?

[Lawrence D. Kingsley:]

The answer is the Blood overhead savings are assumed within the $100 million. We're still working this. In terms of how we deal with the fixed costs absorption, it will be applied to both segments, because a good chunk of this is the corporate fixed costs that should be reconciled against both going forward. And we'll provide you with clear modeling as we give you the fiscal year '13 guidance by segment.

[Operator:]

Your next question comes from Jon Groberg with Macquarie Capital.

[Jonathan P. Groberg:]

So one, if I can, just clarify a little bit on the comments you're making about BioPharm outlook. I know in Europe, in particular, that's where you're struck and just trying to understand the comments around Europe and your comments around that business. So can you maybe just talk about -- I recognize that these products go around the world, but can you maybe talk about the BioPharm business in Europe and kind of what happened in the quarter and what you're expecting for the year?

[Lawrence D. Kingsley:]

Sure. Again, I wouldn't try and draw too much of a trend line off of the quarter given the noise that I just spoke to. If you look at BioPharm in Europe, it was actually more influenced by a particular customer year-over-year comp that represented essentially kind of all the delta between what has been fairly typical strong European BioPharm, both orders and sales performance, versus what we witnessed in the quarter. So one customer, who was divesting kind of their demand rates, I don't want to get too more specific than that, but it's a very large global customer that we do quite a bit of business with. We haven't lost any share with them by any means, it's just a matter of how they're thinking about adjusting their needs. When you level that out or when you smooth that out, your comments, just to emphasize them, because they're important, are that all of these European or American BioPharm customers are global. So regional macro issues, they have some impact on any of these folks. But it's really a global market that our customers are selling into and, frankly, some of their fastest growth will continue to be in the emerging countries around the world for obvious reason. So I think that, without speaking specifically to what we think Q3, 4 and next year look like for BioPharm, you get to a consumables assumption still pretty much in line with what we performed over the last couple of years, which is a very, very strong high-single, if not double-digit organic kind of pattern.

[Jonathan P. Groberg:]

That was going to kind of be my question because historically, I know that the long-term trend is good, but historically we've seen periods of time where there has been pretty big build-out, and you see really good growth in this business for a few years. And then actually it's going to be weak for like a year and then it can be a bit more cyclical. So I was just curious of what you're seeing out there. I was just trying to put in context what you’re saying about Europe versus your outlook for the year. So you're not seeing anything currently in terms of the customers that you deal with that would suggest that we're in kind of a broader slowdown for that -- for investment in that space right now?

[Lawrence D. Kingsley:]

Well, there's a couple of things to think about. So the majority of our business is in the actual processing, the manufacturing of the various drugs. And what we tend to drive most of our revenue from is the ongoing consumables associated with producing them. So that doesn't cycle so heavily. What can cycle, and is proving to cycle right now to a much larger degree, is the Lab instrumentation purchases. And you've seen and heard about some of that from some of the others that have reported on a calendar fiscal year basis as to how they're seeing, either by way of federal subsidy funding declines and/or research spending declines, the relatively slow sales right now from instrumentation purchases associated with research. We spoke to that a minute -- in our prepared remarks ago with respect to our instrumentation sales also, we're relatively slow in the quarter. Now again, we're seeing evidence of that improving as we look at May. But if I had to draw a comment relative to cyclicality in the Life Science space and where the more pronounced impact will be -- it's likely to be a research versus the production.

[Jonathan P. Groberg:]

Okay, I think that's a fair comment. And then if I can, I think there's a lot of expectation going into quarter around this restructuring and obviously, there wasn't much in the press -- there was nothing in the press release, you kind of talked about in the call. And can you maybe just provide more detail where that restructuring is occurring in that $50 million for '13? I mean, can we assume that’s a full year number so that we can just tax test adjust and get an EPS kind of impact for the year? I'm just trying to understand how -- kind of where that's current -- how we should think about it.

[Lawrence D. Kingsley:]

Yes, there's a couple of things. So I'll repeat what I said first. And that is we have a plan that has line of sight to $100 million of structural cost reductions. So this is not temporary T&E spend reductions, things of the sort. This is structural actions that we'll be taking over a multi-year period. And we have line of sight to more than half of that, so more than $50 million of P&L help [ph] that comes out pro forma in 2013. And again, we're already getting started with that. In terms of how it breaks out over the multi-year period, it's roughly 30% in operations, that's footprint-associated and about 70% SG&A, where we think we've got plenty of opportunity and that comes down to combinations of back office, IT, finance, HR, et cetera, but also other support functions where, you know, I think as we properly structure the company for the future, we can lean it out, we can delayer it, we are already doing so. And we think that, that kind of a restructuring opportunity is very realistic and very achievable.

[Jonathan P. Groberg:]

Okay, and if I -- sorry, if I could just, one clarification, Lisa, and then we can take about this offline as well, but trying to make sense of all the FX comments. Can you just distinctly kind of say again on a year-over-year basis what you expect the total FX impact to be in the fourth quarter? I just -- it was kind of unclear to me.

[Lawrence D. Kingsley:]

Yes, I'm not sure I can say it distinctly. You have to get to kind work through the components but...

[Lisa McDermott:]

In the fourth quarter...

[Jonathan P. Groberg:]

I mean just given where rates are today, what reason.

[Lisa McDermott:]

In the fourth quarter where rates are today year-over-year combined, so there’s what we call transactional, which is kind of the above the line P&L hit, as well as the translational piece, which results from consolidating our euro-dominated subsidiaries into our financial statements year-over-year about $0.11.

[Jonathan P. Groberg:]

Okay. That makes sense. I thought I’d heard a lower number, but that makes sense. Okay.

[Lawrence D. Kingsley:]

Yes, so it's $0.11 or better. And, let me just make one more comment with respect to FX, because it's not as though we're just rolling over and taken a beating here in FX. There's a number of things that we're looking at strategically, structurally and within our fiscal tool capability set here to make sure that we don't expose ourselves further. And that comes down to how we think about supply chain and how our cost of goods is denominated. Frankly there's no reason long term why we need to have the dislocation issue, that is the pound versus the euro, in terms of how it impacts our cost of goods, so that's underway. And we'll -- it's not an easy fix, but we'll get it fixed. I think a good chunk of it in 2013. We are looking at various things, and Lisa spoke to them briefly, around how we can basically hedge forecasted transactions. But also in some cases, we've got just the transactions themselves denominated in currencies i.e., we've got customer contracts in British pounds for customers that don't need to be sold in British pounds. So that's the stuff that we can fix either way to make sure that we end up with a more balanced and appropriately hedged exposure to the currency if it does continue to dislocate.

[Operator:]

Your next question comes from Jeff Zekauskas with JPMorgan.

[Jeffrey J. Zekauskas:]

Was there an asset sale in the quarter, and did you book a gain from it?

[Lisa McDermott:]

No. There's no asset sale on the quarter. Maybe what you're thinking of is what we reflected on our balance sheet as assets held for sale related to the Blood sale.

[Jeffrey J. Zekauskas:]

I was looking at the proceeds from sale of assets of $25.6 million. It seems to be a little bit higher than, I think, you booked $19 in change in the first quarter. And so I was wondering if there was an income statement from that?

[Lisa McDermott:]

No. No. That just relates to some non-qualified pension plan assets that are on our balance sheet, so it's kind of a flip and turn of maturity and reinvesting.

[Jeffrey J. Zekauskas:]

Okay, And I think the tax rate or the adjusted tax rate in the quarter was about 21%. Can you talk about that and can you talk about your ongoing tax rate?

[Lisa McDermott:]

Well, the ongoing tax rate, as I said, will be slightly lower for the fiscal year than we had anticipated. So slightly south of the 24.5% we had forecast. The lower rate in the quarter just represented a little bit of a different position on our foreign cash, especially as it relates now to the cash that we expect to receive in the U.S. related to the Blood transaction. So that really presents the full year lowering of the rate background.

[Jeffrey J. Zekauskas:]

And lastly, are there charges that will -- are there charges that you have to take to pull out your $100 million in costs? And if there are, what's the rough magnitude of that? And secondly, why did the SAP implementation go so poorly, that is, what happened that you didn't expect?

[Lisa McDermott:]

So I'll take your first question. And yes, there are charges related to pulling out the $100 million, and right now we're estimating that they're north of $60 million and that we will start to recognize significant portions of that consistent with Larry's remarks that we are already executing in this quarter, meaning the fourth quarter. I think Larry would like to answer the question on the SAP implementation.

[Lawrence D. Kingsley:]

Let me try and characterize it. Understand that in the brand or scheme of how major ERP implementations are handled and how radically wrong they can go, this is by no means a disaster. What we're talking about here is the equivalent of about 3 days of missed shipments. Now in reality, what it was is several weeks, and we're still kind of ramping up to full speed but almost there of missed signals to the supply chain. And we've got a very complex, vertically integrated supply chain internally and then also a very broad set of suppliers externally. Again, more complex than it needs to be that but not something that's going to get fixed easily overnight. So the question is

[Operator:]

Your next question comes from Jon Wood with Jefferies.

[Jon Davis Wood:]

So Larry or Lisa, did you give the FX impact in a vacuum? I realize you're looking at various things in sourcing, in finance. But what is the FX impact in 2013 at this point, just assuming a static model?

[Lawrence D. Kingsley:]

We didn't specifically quantify it. We think we gave you a fair amount of visibility as to how to think about the transactional impact given our exposure. So we talked about -- big picture, about 40% of our revenue is in total in Europe, 25% of that revenue -- of the company's revenue is euro-denominated. And of that, about 80% has a misalignment in terms of costs, principally cost of goods borne in a different currency, either the dollar or the pound.

[Lisa McDermott:]

And mostly the pound.

[Lawrence D. Kingsley:]

And mostly the pound. And so we gave you, I think, enough that you can kind of get a picture as to what that looks like on today's FX for those respective currencies going into next year. And then on the translational piece, it's -- again, you can kind of through the experience of what we've seen over the last couple of quarters model out 2013. We're not trying to make this difficult for you, but what we don't want to do is get ahead of ourselves and thinking about our available actions. So when we talk next quarter, we’ll include more specificity as to what 2013 looks like on a modeled basis where we've got operational initiatives in place and where we've got known capability from a financial hedging perspective in place. And then you can have, I think, an easier time at modeling it. But it's not doomsday by any means with the available tools that we have at this point, not bad at all.

[Jon Davis Wood:]

Okay, so I want to make sure I'm thinking about the pieces correctly. So your basis, $2.72, you've got, let's call it, $0.18 of organic contribution. You've got $0.30 of restructuring contributions. So you're basically starting at $3.20 or so without the impact of FX and without the impact of share buyback. Is that the right way to think about it?

[Lawrence D. Kingsley:]

I could do the math that way, too, exactly.

[Jon Davis Wood:]

Okay. So Larry, and totally understand your comments about share repurchases, but if you were to pursue that avenue with the proceeds, how would that play out over the next, let's call it, 2 quarters, meaning how fast could you do it with that kind of -- that $400-plus million of net proceeds in order to, first, to give us some sense of how the accretion impact would play out for '13?

[Lawrence D. Kingsley:]

I think it's been the company's policy to not really comment on the contemporaneously purchased or potentially purchased shares in the period, certainly not from a forward-looking perspective. But I don't know, Lisa?

[Lisa McDermott:]

Yes, I mean I can comment on how fast we could do it if we so chose. We could pretty quickly within, let's say, a month or less execute to that level of buyback given kind of the rules around our annual run rate. But again, to Larry's comment, as a matter of policy, we don't comment on current activity contemporaneously. We comment after the buybacks are completed.

[Jon Davis Wood:]

Okay, great. And then one last one. Can you give the -- what was the ForteBio contribution in the biotech piece for the quarter, if you're going to give revenue and also OP would be great?

[Lisa McDermott:]

Well, I'll say this. It added about a point of sales on an all-in basis for Pall. And it was about $0.01 dilutive in the quarter.

[Lawrence D. Kingsley:]

And we still have within our assumptions that -- we have talked about that in 2013 that becomes accretive, everything is going very well with the integration of the acquisition, the product lines are selling exceptionally well, and so we do see it as a nice kind of albeit small, a nice acquisition for the BioPharm group.

[Operator:]

Your next question comes from Hamzah Mazari with Crédit Suisse.

[Hamzah Mazari:]

Larry, maybe if you could just talk about the $100 million structural cost stakeout, how complicated is that process? What's your level of confidence in taking those costs out? I know you said most of that is SG&A. If you could give some color there.

[Lawrence D. Kingsley:]

My confidence is extremely high. It's not all that complicated. And it's something that this organization’s learning how to do, and we're already underway with, Hamzah. And again, it would come back to organizational structure in place, largely in place, that we put in place over the last couple of months. So management who now have action plans and who now need to execute to those agreed plans.

[Hamzah Mazari:]

And is it fair to say that this ERP issue is behind you now?

[Lawrence D. Kingsley:]

The only thing that's not behind us, so let me put it this way, is we're still catching up. We're demonstrating to ourselves that we are catching up nicely. We're reducing our past due backlog. The supply chain signaling is a very complex task given the nature of how we are structured. And that's still got bits and pieces associated with it, but 99% complete. And I think, again, we'll demonstrate that as we finish the year.

[Hamzah Mazari:]

And just to follow up on the cost stakeout. The $50 million is what you expect to benefit in 2013 fiscal year or is that a run rate number?

[Lawrence D. Kingsley:]

It's pro forma number. And it's -- I hope it's a little more than that.

[Hamzah Mazari:]

And just lastly -- sorry.

[Lisa McDermott:]

And yes, it is fiscal '13, Hamzah.

[Hamzah Mazari:]

Okay. And just lastly for me. With the use of proceeds from blood filtration, are you going to buy back stock? I just -- I don't think it was a very clear to me whether you guys are officially going to use those proceeds to buy back stock, or is that a decision that you're still going to make?

[Lawrence D. Kingsley:]

I think we've made the comments that we're going to make, Hamzah. The way -- let me come back to capital allocation strategy, let's forget about the Blood business proceeds, but we absolutely have a fantastic balance sheet, as you are well aware. We've got acquisition processes now that are coming into place. We've got people that are joining the company, that are great business development folks, so we're building a pipeline or a funnel. However, when we look at the very short term, particularly if the economic data continues to demonstrate volatility, what tends to happen is that particularly private sellers’ expectations, costs or prices, I should say, for their businesses, tend to lag the reality of what's happening in the economic environment. And what we're not going to do is pay top-of-market prices through acquisitions. Frankly, it doesn't make any sense. We've got plenty of balance sheet capability to do both. Both repurchase the shares if we decide to do that and aggressively acquire. So I think, I know for a fact that you'll see us be very thoughtful, very disciplined in our capital allocation thinking considering both the short term and the growth plans as we go forward.

[Operator:]

Your next question comes from Brian Drab with William Blair.

[Brian Drab:]

My question lasted all the way up until that last one. So it always goes that way. One thing I wanted to ask was, Larry, the $0.10 shortfall related to ERP implementation, would that break down maybe roughly $0.02 or $0.03 related to the revenue shortfall and about $0.07 related to the incremental hyper care expenses?

[Lawrence D. Kingsley:]

It's probably closer to the inverse of that.

[Brian Drab:]

Is that right? Okay.

[Lawrence D. Kingsley:]

Yes.

[Lisa McDermott:]

Yes.

[Brian Drab:]

Okay, that's helpful. And then Lisa, just one clarification point. Sorry to ask something further on the FX. But when you say $0.08 negative compared with forecast, I just want to know, is that your forecast compared to your forecast at the beginning of the year, or your forecast that you gave us at the end of the second quarter?

[Lisa McDermott:]

From the beginning of the year. So our original guidance of $3.07 to $3.32 and the rates that were assumed in that guidance.

[Brian Drab:]

Okay. And then can you just give a rough breakdown of Europe sales by end market in the period? Is BioPharma, or your Life Sciences still, the majority of that or was it in the most recent period?

[Lisa McDermott:]

Well, for Europe, I -- so do you -- are you talking about in terms of growth or are you talking about in terms of pie chart?

[Brian Drab:]

Just total revenue. How did that mix look in the quarter?

[Lisa McDermott:]

Well, total revenue was around $260 million in Europe. As we said, it was up about 1%. If you break it down by mix, as always the greater proportion is Life Sciences to Industrial. And within Europe, we did see a flat result for BioPharm. Food & Beverage, as Larry mentioned, had some challenges and was down double digit; while Process Technologies, mostly in the emerging markets, which we account for in Europe, were up mid-single digits. Aerospace performed very well, up low-double digits. And MicroE, which is very small in Europe, was down just like the Rest of the World pretty much, high single, low double digit. Does that answer your question?

[Brian Drab:]

Yes, that's great. And I'll follow up with you more later today.

[Operator:]

Your next question comes from Nick with BB&T Capital Markets.

[Nicholas V. Prendergast:]

So most of my questions have already been answered at this point. So I guess, I just got a couple upper-level queries for you guys. Regarding the ERP disruption, can you just maybe explain the mechanics of a typical transaction and how it got disrupted, just to make sure I'm understanding it properly?

[Lawrence D. Kingsley:]

There's lots of things that can go wrong in an ERP implementation. You tend to run into data migration issues. So when you're porting information from old system to new system, not all the information gets properly handheld through that and you can miss data, which, in fact, that did happen in this case to some degree. You tend to try and use old people process to manage new systems. And in our case, as I mentioned earlier, we've got a lot of -- or we had a lot of tribal knowledge-based workaround types of processes. And the new system frankly forces a rigor much more standard work process kind of mentality to how things get done. So a lot of the miss was people not understanding the system at very early stages and not acting appropriately or people thinking they had acted and frankly not having done so. Then you get into our vertically integrated supply chain and the signaling for purchasing and that's where it gets frankly pretty hairy and complicated, and that's where we went through several weeks or a few weeks, at least, of not having the right buy queues by way of the system and the people interface to the system, such that it takes a while for that kind of that deficit and material supply to work its way back through to the point of finished goods that are available for shipment. So again, we can quantify everything in the quarter right down to customer and product and site and past due total, and all that obviously has been done. And this hyper care [ph] thing that we spoke to is really a matter of making sure that our customers all over the world understand our position, our ability to respond to recover, and we're in the process of doing so. And we're making good, very good progress at this point.

[Nicholas V. Prendergast:]

Okay, thank you, that's helpful. And maybe to follow up on that hyper care, is that just the extra handholding, is that why the SG&A has gone up on that?

[Lawrence D. Kingsley:]

It's everything you can imagine in terms of double teaming people to get things done, experienced people with others, it's people that have been brought in who are systems experts for periods of time to help with training. It's everybody you can imagine, including yours truly, going to see customers and making sure that things are okay. It's a lot off transoceanic flights for Pall employees around the world. It's everything that's necessary to properly care for customer when you're going through something like this.

[Nicholas V. Prendergast:]

Understood. And I guess one more thing on the M&A front. It sounds like there's a couple of options on the table what to do with the proceeds of this sale to Haemonetics. You're talking about possibly seller expectations out there, and they're possibly high. Is it safe to assume that those -- the valuations out there are dramatically greater than what Pall is at currently?

[Lawrence D. Kingsley:]

In some cases.

[Operator:]

Thank you. I would now like to turn the conference back to Mr. Kingsley for closing remarks.

[Lawrence D. Kingsley:]

Well, let me just say that, obviously, this was a messy quarter, and I think I already described in one of the peer reports this morning as an ugly quarter. I would concur. Not proud of it in any way. But let's put it in perspective. What we did accomplish in the quarter was take a very major step forward in terms of preparing our company for the future and to grow, both organically and acquisitively. That's really the internal element of what we worked through in the quarter, and a little bit of work that we still got ahead of us in the fourth quarter. Now in terms of the environment, which is kind of unrelated but an important subject for us to consider, given the kind of where we report off calendar fiscal year, now we did see a fairly dynamic order pattern in the quarter. Again, I wouldn't draw trend lines out of the order pattern that we saw in the quarter. We do think that based on our May experience rate and what we have seen this last month, plus the history and how we think about how the breadth of the business plays against the cycle, and evidence of even sequential improvement in a couple of the businesses right now that are destined for that. That the assumptions that we provided in the call are fairly realistic. And beyond that, we've already got those action plans in place. We're prepared, we're underway with what the appropriate cost mitigation set of things to do, any good company should be doing, we're under way with that right now. So again, I think that we're in good shape for entering what will undoubtedly be a dynamic 2013. I'd like to thank you for joining. I'm sure we'll be speaking with many of you in the after calls and through the course of the quarter. And we'll look forward to seeing you -- many of you as well. With that, we'll wrap, operator.

[Operator:]

Thank you. This concludes the conference. You may now disconnect.