Welcome to Pall Corporation's Conference Call and Webcast for the Third Quarter of Fiscal 2014. Today's call is being recorded and simultaneously webcast. Instructions for the question-and-answer session will be provided at the end of management's prepared remarks. Right now, all lines are in listen-only mode. We would like to remind you that the company's press release is available at www.pall.com. Management's prepared 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 slides at the end of the presentation. At this time, I would turn the call over to Mr. Larry Kingsley, Pall Corporation's Chairman and CEO. Please go ahead sir.

Thank you, Laurie. Good morning. All of our remarks this morning will be made on a continuing operations basis. I'm here today with Akhil Johri, our CFO; and Brent Jones, our SVP of Corporate Development and Treasurer. We'll begin our assessment of the global markets that we serve, followed by a recap of the quarter, a quick update on our recently closed acquisition of Filter Specialists, and some concluding remarks before Q&A. As you probably summarized from our press release we delivered a good but mixed quarter. We performed well in the top-line up 7% ex-FX including the impact of acquisitions and had our second consecutive quarter of double-digit quarter's growth. As such we remain firmly on track to deliver our plan of the year of mid-single-digit top-line growth and pro forma EPS in the range of $3.35 to $3.45, which would represent a 10% to 13% growth over fiscal 2013. I would also add that our strategic plan and improved business processes are enabling us to focus on smart and targeted investments, plus good fixed expense leverage generally which is now resulting in much stronger cash flow generation. And as you can see we did well for the quarter yet again. At first glance it appears that we didn't convert well for the bottom-line given the sales performance for the quarter, with incremental operating profit contribution of only 21%. However on an organic basis, excluding the anticipated dilution from our recent Life Sciences acquisitions, our incremental operating profit that is our organic incremental operating income on our organic sales growth was over 50%. And that's impressive by just about any measure. We saw the more encouraging considering the headwinds that we encountered in the quarter. We had higher than expected transactional FX. That is the adverse impact from the mismatch between the currencies we produce in versus the currencies we sell our products in. We also saw higher systems component in the sales mix, which always is dilutive on a margin basis. Before we get into the details of the quarter, let me briefly address our macro environment. The summary of themes that apply to the quarter are similar to what you heard year-to-date. Our Life Sciences segment continued to show strength globally with Biopharm being the standout. The Biopharm team is executing well in our recent acquisitions in the single-use technology market have further improved our position in this attractive space. Medical and Food & Beverage continued to perform in line with expectations. Food & Bev was particularly strong this quarter though and for the near term we expect both Medical and Food & Beverage to grow at somewhat better than GDP rates. On the Industrial side, the picture remains mixed, despite slightly improving trends in our Process business overall clear that we haven’t seen the material uptick in capital spending based on customer capacity expansion that we have been looking for. Now, that being said, for the first time since the fourth quarter of fiscal 2012, we achieved organic orders growth in Process Technologies. Again, Process Technologies is comprised of Machinery & Equipment, water, fuels and chemicals, and other energy applications. In our other Industrial businesses microelectronics continues to perform really well. While the MicroE end markets are strong, our new products and recent technical innovations are playing out well with our customers, beginning to see a nice return on our R&D investment here. Our Aerospace business though had a tough top-line quarter in large part due to some difficult year-over-year comparisons for both the commercial and military progress. However we continue to like our strategy and have high expectations of the team to deliver better sales and operating and profit performance for the fourth quarter. So back to the two primary headwinds in the quarter that’s transaction FX and the impact of the recent acquisitions. The adverse impact from a weaker Yen was lower than it has been in recent quarters, but the relative strengthening of the British Pound compared to the Euro and the general weakening of the U.S. Dollar compared to the European currencies impacted our margins significantly. We have taken a number of measures to try to mitigate the transactional FX impact. As you know; in fiscal 2013, we began a cash flow hedging program. Also where feasible, we changed suppliers to better align our currency cost structure to our revenues. We recently completed construction of a new manufacturing facility in Slovakia, which will provide us with more euro denominated content to reduce some of our exposure to the Sterling Euro exchange rate in particular. But with the supply chain that continues to be a very global one and leverages a global footprint, it isn't always possible to have a good match in manufacturing and sales currencies. So FX will continue to be an important variable that can somewhat erode our true productivity gains. And finally with respect to M&A, our recent Life Sciences acquisitions negatively impacted gross margin by about 80 basis points. About 50 basis points was due to the new single-use medical products, the other 30 basis points related to an inventory step-up that we were required to take in connection with the ATMI acquisition. The step-up is a requirement of M&A accounting that doesn't affect pro forma EPS but does affect margin. Together these represent much of the year-over-year margin decline that we experienced. And these acquisitions are an important investment for our future though, and our acquisition strategy continue to be two pronged, high growth, Life Science properties on one hand, and opportunistic and accretive industrial bolt-ons on the other. As long as we stick with this strategy and once we accept a modest amount of gross margin dilution in the short-term. So with that, let’s dive into the quarter, I'm on Slide 5. The Life Sciences top-line performed very well augmented by the recent acquisitions. Industrial performance was impacted by weakness in Process Technologies, the Fuels & Chemicals end markets in particular, top comps in Aerospace as I mentioned. Gross margin declined 110 basis points; principally due to the M&A impact of the transactional FX that I just mentioned. Our focus on fixed cost leverage continued to improve as SG&A as percent of sales was down a 160 basis points in the quarter. R&D spend was up 30 basis points. All-in, operating margin was 17.6%, up 20 basis points from a year ago. Pro forma earnings per share in the quarter were $0.81, an increase of $0.07 or 9% compared to last year. Bridging this increase, operating profit contributed $0.08, the impact of share count reduction and other items were neutral to the aggregate EPS. And translational FX or the impact associated with the consolidation was $0.01 headwind. And so now, I'm going to hand it over to Akhil, who will go through the results in more detail. Akhil?

Thanks, Larry. I am on Slide 6. As noted, I will talk to the year-over-year changes, excluding translational FX. Life Sciences sales grew by 12% in the quarter, while Industrial sales were up slightly. Consumables, which were about 88% of sales in the quarter, grew 6% overall. Life Sciences consumables grew 10% and Industrial consumables were up 1%. System sales were up about 13% overall with Life Sciences up 48%, while Industrial which comprises a larger share of our systems business declined 2%. Turning to Slide 7, with some details on our Life Sciences segment. BioPharm consumables sales grew 12% on overall market strength and the benefit of acquisitions. Medical consumables increased 3%. This reflects the benefits from Medistad, our recent acquisition in this phase, partly offset by lower blood media sales. Finally, Consumables sales in Food & Beverage were up 8% driven by strong growth in Americas and in Asia. Life Sciences Systems sales increased 48% in the quarter as I said from the timing of both BioPharm and Food & Beverage projects. On the orders side, Consumables increased 16% with all market strong, particularly BioPharm. Systems orders were down 21% in the quarter. Q3 segment gross margin decreased 260 basis points to 54.9%, largely due to a higher proportion of systems versus consumable sales in the quarter; the impact of lower systems margins on certain projects, the dilutive impact of ATMI and Medistad acquisitions including the purchase accounting related inventory step-up adjustment that Larry alluded to earlier. Transactional FX also had a negative impact. Segment reported SG&A decreased 180 basis points, while R&D spend was up about 10 basis points. The combination of these factors resulted in segment margin of 24.0%, a 90 basis point decline from a year ago. Turning to the Industrial segment on Slide 8. Process Consumables sales were flat in the quarter, with growth in Power Generation and Machinery & Equipment offsetting a decline in Fuels & Chemicals. Aerospace Consumables sales decreased 13%, with Commercial and Military down similarly. This is largely the result of timing of shipments as well as difficult year-over-year comps as Q3 of last year included large aftermarket sales and helicopter program shipments that did not repeat. MicroE Consumables sales grew 18% on continued market strength and new business wins. Systems sales decreased 2% in the quarter, mainly due to fewer Fuels & Chemicals projects. Encouragingly, Consumables orders were up 10% in the quarter on broad based strength across Process and MicroE. Systems orders were up 4%. Q3 Industrial segment gross margin decreased 10 basis points to 46.4%. This primarily reflects adverse transactional FX, largely offset by better customer mix, and the impact of improved pricing. Segment reported SG&A declined 180 basis points as well, while R&D spend increased 60 basis points. All-in, segment margin for the quarter improved by 110 basis points to 15.7%. Turning to Slide 9, operating cash flow in the nine months was $342 million compared to $207 million last year, an increase of 65%. This increase was driven by both improved working capital management in fiscal 2014, particularly on the receivables side, and one-time tax payments that reduced fiscal 2013s cash flow. CapEx was $50 million. Free cash flow was $292 million or 120% of reported net income for the nine months well above our goal of 100% free cash flow conversion for the full year. Significant uses of cash during the nine months included $195 million of acquisitions, $89 million of dividend payments, and $250 million of share repurchase. Finally on the liquidity front, our cash position stood at about $871 million as of April 30. Our cash position, net of debt, was $102 million compared to $299 million as of the end of fiscal 2013. We have shown tremendous improvement in cash generation for three quarters in a row, a good story. Meanwhile we continue to work on basis processes that will enable consistent free cash flow generation of greater than 100% of net income and are making them work at Pall. With that, let me turn the call back to Larry.

Thanks, Akhil. Before we conclude our prepared remarks a quick update on our most recent acquisition if you would turn to Slide 10. On May 1, we acquired Filter Specialists, as I mentioned or FSI as is commonly known. FSI is a leader in specialty bag filtration, operating primarily in the industrial coding, chemical, the petrochem, oil & gas, and Food & Beverage markets. FSI’s offerings are very complementary to ours covering markets that we didn’t have complete solution for, so we welcome the FSI team to the family. We expect that FSI will contribute to about $50 million of revenue to Q4, will be breakeven on pro forma EPS basis, including the impact of the intangible amortization. FSI meets our bolt-on deal profile very well, its opportunistic accretive and sure to achieve double-digit ROIC well within three years, which is again our set of metrics that we are using in the current M&A environment. So it’s exactly the type of acquisition that can contribute to short-term performance while we continue to invest in longer payback, very high growth Life Sciences acquisitions. And in conclusion, to summarize the quarter, we are performing well in the current growth lower growth economic environment despite the lack of major CapEx catalysts particularly on the industrial side, the current landscape is one that we can continue to grow and thrive in. And even outrun that current FX dynamic. The good news is that most of our business is fundamentally driven by throughput while the capacity driven CapEx would provide a nice tailwind, our business does not depend on it for reasonable growth and bottom-line performance. The ATMI integration is going very well. As I told you last quarter, the know-how leadership of ATMI Life Sciences team has been a pleasant and very welcome upside of the deal. And bottom-line where there is no substitute for robust economic growth I believe we have significant ability to create our own lock for as Akhil says self-help. We have a big Q4 to deliver but to-date fiscal 2014 has progressed largely the way we expected and with our current order rates and business momentum I feel confident that our outlook for double-digit earnings growth is appropriate. So what does that mean for our prospects for fiscal 2015, we are still early in our planning process, so I don’t have anything official to report. However, from what we are seeing out there and hearing from our customers we expect a pretty similar economic backdrop, low growth in the developed world and slowing growth profiles in some of the emerging world, in each case though with geographic or sector specific pockets of strong growth. And so what does it mean specifically or more specifically I should say probably a similar profile as to fiscal 2014 in terms of top-line with continued operational and SG&A improvement leading to solid earnings conversion and further opportunities for strategic balance sheet deployment. So with that we are going to open the line for questions.

(Operator Instructions). Your first question comes from the line of Richard Eastman of Robert W. Baird.

Hi. Yes. Good morning. Just a couple of questions, first of all, on the Pall, on the PI business, I could have thought that given the mix of business there that the -- with MicroE as strong as it was that may be the gross margin might have been a little bit better. Is that -- you could -- Akhil maybe just kind of run through the gross margin on PI for a second?

Let me just tee it up and then Akhil can jump in, if he could, Rick. So remember there is really two things that pertain as we have talked in the prior quarter, two quarter calls that relates to transactional impact, the FX impact Yen, Dollar. That certainly impacts gross margin for which we have got a large percentage of the MicroE business that’s in Japan where the cost of goods for the most part is in U.S. So that’s point number one. And we will have Akhil come back and quantify that more specifically both organically and sequentially. But the other piece here is that as the cycle typically provides for its initial upturn, we see more of our sales content go to the capital equipment suppliers and then that tends to lead into direct sales opportunities with the end users, the fabs and otherwise. And the customer mix typically improves as we go from cap good guys to the end users. We have seen that historically and we are seeing that again right now. Also as I alluded to in my prepared remarks with the new products that we have introduced which have gotten very nice traction frankly. We are still working our way towards the best possible cost position and we are amortizing some of our manufacturing investment in that cost position at the same time. So we are going to see gross margin at a slightly lower rate for some time to come with some of those newer products as they bleed into the line. But overall, it’s still a -- its obviously, a great return on capital segment and it will still be accretive as time goes as we move to both better customer mix and good product mix.

Rick, just to give you some numbers, the gross margin for PI was down 10 basis points year-over-year.

Yes.

Actually the transaction FX impact, our estimate is roughly 80 basis points to 90 basis points and that’s a combination of yen which as Larry talked about also U.S. dollar pound impacted us and the euro-pound equation. So several of these currencies impacted the transaction FX element. The mix was better about 30 basis points came from mix, the point that you were mentioning, little bit from productivity and pricing. So that’s sort of mixed into the 10 basis points down.

And that seems to be the -- the price commentary seems to be may be a new wrinkle on the PI side of the business, is that a function of the consumables or the type of systems or the end market or just kind of all the above?

I think what we are seeing is also some conscious effort by the PI team particularly in Asia to drive a little bit of this exchange related negative impacts on the cost side through better pricing. We are starting to see a little bit of that the pricing in the quarter was slightly better than what we have seen in the prior quarters in PI as also in Life Sciences. So I think, yes, that is moving in the right direction.

And then just one more question, the muni water business within process, what’s the status there, is there -- is that still a negative number year-over-year and what’s the thought process on the muni water business within process, grow it, not grow it, be choosy or?

Yes. It's basically reverse order. So it’s be choosy, grow it opportunistically, there really wasn't a big contributor in any fashion to the quarter.

Okay. All right. And then last, just the GAAP. The GAAP EBIT going forward on the FSI acquisition, I presume in the fourth quarter we'll see a little bit of inventory step there too. But is there a GAAP EBIT that you could share with us after amortization on a annualized basis?

So on a pro forma basis Rick, I think the -- we expect FSI on an annualized basis to be positive, slightly positive for fiscal 2015. We will give you more precise guidance when we get there. Again, the step-up amortization impact will be there for one or two quarters, depending on the inventory turns and the way it all gets finalized.

Our next question comes from the line of Brian Drab of William Blair.

Just wanted to make sure first of all that I’m calculating this correctly. If I exclude FX and impact from acquisitions I’m getting organic revenue growth of 5% in the third quarter, is that in line with your thinking?

About 4% Brian, yes.

4% Brian, yes.

Okay. I’m using $5 million for Medistad and $10 million ATMI in the quarter, which one of those is off?

ATMI was slightly higher because we got 10 extra days. I think your 10 number was right for two months of activity, but we closed on February 20, which gave us 10 extra days. So ATMI was slightly higher.

Okay. I did use 70 days and I’m assuming a $50 million revenue run rate. So maybe I’m --

Yes, slightly --

A little low on that?

Yes, just a little.

Okay. Got it.

Yes.

Okay, thanks. And then within Industrial, in the second quarter, we saw some strong order growth right. Second quarter Consumable orders were up 11% year-over-year. Systems orders were down year-over-year but up 40% sequentially. And I wonder if you can reconcile that order growth with the sequential decline that we saw on the Industrial business from 2Q to 3Q on the revenue line?

So a large part of the orders growth Brian, as we talked about I think in previous call was on the Aerospace side which saw very strong orders with multiyear deliveries, right. So these are very large blanket orders if you will that drove it. The other part of the orders growth in second quarter was MicroE, which converts very quickly into sales, most of it actually within the current quarter. And you saw good growth in MicroE this year. The process orders were not up very much last quarter. Actually, this quarter is where we have seen the process orders up for the first time in several quarters. So you should expect to see improvement in the process, Consumables, in sales in fourth quarter that's what is baked into our forecast. But this third quarter did not actually have a big benefit from the orders in Q2, which were largely Aerospace and MicroE. Not on process.

Okay. So then looking ahead to the fourth quarter, we should see the typical seasonal substantial pickup in sales and industrial?

You’ve got a few things going on. Brian, as you know, we typically have a very strong fourth quarter. But just from a work days perspective, we pickup three work days versus the third quarter. And not to go back and mince some of the math on the order side to the same degree we did on the sales side, but organic orders across the board in the quarter were very strong, particularly consumables. As we typically look at the business, we try to focus on the Consumables as a better representation, of kind of how book and turn looks over the short and midterm and that would illustrate a pretty strong capability to see sequential lift. And backlog in total is very strong too. We're back to backlog positions across the board that we feel very good about.

Just to clarify, one point. All those comments are absolutely correct on the Consumables side. Just one correction is on the Systems side, given the decline in backlog that we have seen and the weaker orders through the year. Fourth quarter last year was exceptionally strong. And I think we expect systems to be down mid-teens to 20% for fourth quarter by itself, just to make sure you calibrate your sales expense --

Okay. Right.

Year-over-year. They will be up sequentially but year-over-year they will be down compared to a very, very strong fourth quarter last year in Systems.

Right. Okay. Thanks. And then if I -- if we could may be just dig into the MicroE segment a little bit. On the second quarter call, Larry you talked little bit about new products in that market. I'm wondering, first of all, if you can give a little more detail around what some of those new products are and the opportunity in that market? And then also, I don't think that on this call you commented on the MicroE facility that came online in Japan in the third quarter? And could you comment just on the strategic importance of that and may be the impact it will have on your overall exposure to fluctuations in the end?

Sure. Well, there is a number of points to be made there. We're not going to get too specific regard to product and share win, although we're seeing frankly quite a bit of it. Specific to where we're playing more effectively it’s on the new applications, which in simple terms come down to the finer pitch, the line pitch applications which is what the world of course semiconductor is essentially all about. But also on the higher density storage devices we are doing quite well. So now if you look at, as I said, in the prior call or prior question excuse me with respect to where we see the early wins is largely in the capital goods suppliers, but already translating nicely to the end users. The investments that we made that you’re referring is to open up a new state-of-the-art clean room facility, manufacturing site in scuba in Japan. And overtime that does help with our local cost content, but you still see a fair amount of product that's produced in the U.S. that is sold to Japan. So we won't see a huge, a very short-term change in the transactional FX exposure associated with that. What is enabling for us is, frankly, the ability to go win the newest in most difficult applications out there that are largely in Asia, not just in Japan, but across Asia. All going quite well. So now we feel good about the where the new products are. We think the vitality rate will grow nicely as a function of that. We are seeing good payback on the return or excuse me on the R&D investment made their brand so I think it's a good place to be.

Your next question comes from the line of Derik de Bruin of Bank of America.

So I'm just curious it’s like is there any sort of metric on looking at how the system order sort of translate for Consumable pull-through. I'm just trying to think about how we sort of think about the average use of the systems and sort of how that metric sort of holds together? Do you see what I am talking about?

Yes. There is this two things that I think over the very long history of the company we talked about one which you probably kind of dispute historically. One is how you look at a system on a case-by-case basis and understand what the annuity value for that particular system is because some frankly have never had much annuity value either in the form of consumables or aftermarket service revenue. And the other is how does system performance year-over-year sequentially whatever bouncing up and down as it always has indicated Consumables growth. And I would tell you virtually no correlation.

Okay. On the ATMI deal so could you share anything about are you getting into some new customers which you hadn't been before? Is it offering just a plenty of product lines thinking of how that sort of fitting into the business?

Yes. Now, the ATMI deal is bringing all that we assumed in the way of single-use capability to allow us to continue to effectively transition people from what were classic purification, centric applications that Pall’s always served well to more complete single-use base, turnkey kinds of solutions of the future. And that is in combination with what we have been developing organically, plus the other smaller acquisitions we've done giving us a lot more credibility with both existing and new customers. ATMI specifically brought with it a couple very nice global opportunities, right out of the shoes that we didn't have as much direct exposure to and I would say that as I’ve alluded to in the terms of technical altitude and the leadership capability with the ATMI team, they are also in combination with our home team so to speak pre-acquisition team bringing a lot in the way of credibility to some other customers that knew of ATMI, but may be didn't necessarily trust an ATMI as a smaller standalone entity in their former self. So I think it's all good, frankly, from how we are now presenting ourselves to the marketplace with the combinations of call them incumbent Pall customers, plus what were the incumbent ATMI customers.

And just one final one on, I know you just sort of gave a brief overview on sort of how you are thinking about FY 2015. But the sort of -- just to clarify you’re looking at mid-single digit total revenue growth for FY 2014 and that's something similar in for 2015 and I guess any initial comment on how you see Life Sciences, Industrial breaking out in that?

Yes. It's not radically different. As I said we are building backlog nicely on the Industrial side now. We need to see that continue for the Industrial organic performance to pickup, FSI as nicely and we'll see that 2015 contribution in FSI’s organic growth profile is as nice as well. So beyond the M&A contribution that we'll see in 2015, we see a nice little organic profile contribution there. Life Sciences as I said, and if you are kind of piecing the number apart from an organic perspective looking at Consumable orders in the third quarter and the head esteem that we’re currently seen as we kind of head into the end of the year, should put in for a very nice 2015 still. So good strong organic performance out of Life Sciences generally, with BioPharm still leading the pack obviously.

Your next question comes from the line of Hamzah Mazari of Credit Suisse.

Hey. Was wondering, if you could briefly provide an update regionally of what you are seeing? But specifically, within Asia, if you could comment on how much of your exposure was infrastructure and how much is consumer? I know you have been trying to shift from infrastructure markets into the consumer segment. And just wondering what that exposure currently stands versus history?

Yes. We didn't say anything obviously in the prepared remarks Hamzah, but it's a great question. First, I will tell you, I’m really pleased with how we have been able to pivot from infrastructure to more consumer focused end markets on the Industrial side within Asia. And now a big chunk to that is obviously is what you see in the way MicroE growth and its contribution. But also across PI, the team has done a nice job. If you remember where we were just over a year ago in Asia, we were especially completely restructuring a good chunk of Asia, putting a lot of new people in place, including sales folks, that's kind of over and done, behind us, going quite well. Asia contributed very, very positively to our growth rate in the quarter, very positively. So just listening to some of the peers talk on kind of a calendar quarter basis, where they have got major concerns for Asia, we're watchful for sure. The backdrop in Asia isn’t super robust across the board, but what we do think is that we're executing quite well.

Okay. And then on the translational FX side, you pointed to some steps that you're taking in fixing that volatility. Is there a timeline when we can expect FX transactional headwinds to be much lower relative to history? I know you mentioned some of the factory investment. Is there a certain timeline we should be looking at or will volatility always be a part of the P&L at the company?

Well, if you kind of consider the profile of our company, we've got a larger than most I would say chunk of our revenue outside of the U.S. And so whenever you have that, plus the fact that in our case we've got particular production in UK in Sterling versus the sales in Euro denominated currencies for the most part, that's going to be a more exaggerated impact than most. What we have done to mitigate that as I mentioned is, both -- some things on the balance sheet side but also what we have done operationally to get to more content sourced and produced, principally in Europe. We got to continue to work and it’s going to take time to answer your question. The Slovakian site by itself is a nice first step but it doesn't have a huge impact as it’s a -- cost of good basis, it's still fairly small percentage of what we have currently manufactured in UK for sale in Europe. Really comes down to how the currency peers move in the four or five, I guess to watch in our case are certainly the Pound Euro, Dollar Euro, the Euro Yen, and the Dollar Yen. Those are ones that can move around the most in kind of sensitivity – on a sensitivity basis have the most potential impact. I think we're working it from every angle, doing a pretty good job. And I don't think that there is a real short-term solution to that.

Yes. Just if I may add Hamzah, I think to protect against short-term volatility, we have instituted a cash flow hedging program which takes care of a couple of quarters, if you will or three quarters or so to a part extent. We don't -- we can never hedge 100% of the pair mismatch, but we are attempting to hedge 50% of the big ones, particularly Euro Pound. All that does, as you know, is just to mitigate the impact in the next couple of quarters but the fundamental changes would ultimately show up in the P&L at a later date, right. So it does prevent surprises or reduces the surprise element, but it doesn't completely takeaway the volatility.

Got it. Very helpful. And just last question on the balance sheet. Should investors be looking at the balance sheet and looking at it that you're may be preparing for a larger acquisition down the line and are waiting to use the balance sheet and are keeping dry powder? Because FSI, ATMI they are pretty small deals in terms of size even though they are good deals. You’ve already run through your buyback of $250 million. And so how should we be thinking about the current state of the balance sheet?

Well, I think we all believe that it's not been deployed to the degree it can be and certainly it's more looking than waiting to your question. We definitely are interested in acquisitions, both for Life Science and for Industrial as we have talked I think pretty consistently with you and others about. And at the same time we are disciplined. And when you look at the current scenario where you have pretty frothy M&A multiples, we're not going to do deals that don't make sense given our fairly clearly stated return metrics. So that coupled with the capital structure of the company, where we have the majority of our cash offshore, basically represent the dynamic that we need to deal with we think through the next group of acquisitions, and those that put the balance sheet to work a little harder than what we have.

The next question comes from the line of Isaac Ro of Goldman Sachs.

Hi. I just wanted to ask you about the vaccine business, we are at a very high level of vaccine I think some of the very largest franchise in the industry is potentially changing hands over the next few quarters. So wondering if you could comment on the opportunities that you might get to increase your share of wallet and conversely how you are trying to manage any potential risk disruptions if some of the deal closes as excepted?

Yes, that’s a good question. As you know, first, when we think about our Biopharm business, biotech is by far the most important element. Certainly we serve the vaccine market. I’m not going to quantify exactly how much of that is out of what we would call the end market group or customer group that pertains to our Biopharm business. As you do see consolidation in the user base and we expect that there will be ongoing consolidation in the user base. It can impact I would say the number of new systems opportunities but not so much the consumption. So that translates to us. There may be some low number of systems in the future but the Consumables content probably doesn’t move around a lot. And that’s really pretty tightly correlated with the reasons for why these guys are consolidating. They are still fundamentally making the same number of drugs, the same volume of drug; it’s just not as many sites making it. And one of the things that we are watchful for sure out of that is, is how the price dynamic plays out as those entities consolidate. And there may be a slow but continuous push toward more pricing power out of the larger customer population. As it relates to things like step function down in terms of volume, no. We don’t worry about that a bit. That’s not a concern and I think the dynamics in the industry are still very, very positive. We still see the same number of scaling opportunities with existing customers, new products coming online out of our customer base that represent the same kind of continuous growth opportunity for quite some time to come.

Okay. That’s interesting. Actually, just as a follow-up, I would have thought that what we have seen in past I have seen kind of operate for where there were sudden spike in demand and you actually had a call for more disaggregated production runs in big concentrated facilities. So given that trend, it might be another positive offset to consolidating customers, because their actually facilities might be more spread out globally. Is it fair to say that you don’t think that dynamic is enough or a net positive in fact the consolidation of customers at a higher level might be an offset? I just want to understand how those two dynamics might interplay?

I think your observations are good. And it depends on how the consolidating entities decide they want to produce and how much risk they want to mitigate by having more sites versus large sites. And again, it would pertain more to Systems sales opportunities than what we would see in a way of Consumable sales.

Your next question comes from the line of Jeff Zekauskas of J.P. Morgan.

Hi. Was there an earnings per share benefit from asset sales in the quarter and if there was what was the magnitude of it?

Not in pro forma EPS. There was a small sale of a property in UK, which we have pro forma out as part of our EPS adjustments.

Okay, great. In your European Industrial business, I think your local currency sales were down about 12.5%, was much impact due to the downturn in Aerospace or are there other factors that are going on in Europe. And in your overall commentary about what next year might be like, you have a very static view of the economies of the world. Are you seeing any pick up in Europe or in general are you seeing any meaningful acceleration in your global industrial demand base?

Let me give you an overview and then Akhil can jump in and bridge some numbers for you, Jeff. So I think you are right, we are right now at least as we are calling out our fiscal 2015 assuming a somewhat static environment, but static is in the terms of current growth rate, it’s not static and certainly answers in a shortcut.

Yes.

And I would say geographically that pertains as well. So we see Industrial Europe as being certainly slower than we would like. Aerospace in the quarter was very negative down substantially, I won’t quantify it. But it was down substantially. We do see that some of that is again tough comps and specific programs stuff and one particular program that was kind of ready to ship but didn’t ship in the quarter for just logistics reasons. If you look at Industrial Europe more broadly there is really kind of two things that pertain, one is that, the kind of the run rate Process Technologies expectations as we exit 2014 and go into 2015, and we don’t have huge assumptions built into our 2015 kind of bottom built math yet for that. And two, as we have seen projects time deferrals on some of the emerging aspects of Europe or we just haven’t seen Fuels & Chemicals projects kind of materialize at the pace frankly that we would have liked. And again, as we exit 2014 and look into 2015, we have got I think a pretty sober assumptions set built in for that. Now, if they improve that’s upside, but that's kind of the Industrial side of Europe. Conversely or differently, I would tell you that Life Science Europe continues to chuck along at a nice pace to the assumptions there, I mean quarters may be up or down slightly, but the assumptions there as we exit 2014 and go into 2015 are for good robust growth, both in Europe by way of the Life Science customers but also those that are specified by the European Biopharm customers, the global opportunities that essentially start Europe. And then Akhil, you want to jump in with some.

Yes. Just one data point which might help, Jeff, I think the industrial orders for the business was actually up year-over-year in Europe, even though our sales were down 12% as you pointed out. So sales were impacted largely by the Aerospace phenomenon that Larry mentioned and you latched on to as well. Also there were some tough compares in the Fuels & Chemicals space. Last year Q3 was pretty strong in Europe and Fuels & Chemical in that was -- that hurt the sales side. But the good news is that the orders were at least up slightly year-over-year in Q3 on Europe Industrial.

So lastly is the weakness in Fuels & Chemicals that you cite in your script, is that mostly a European event and not really an Asian or a U.S. event?

You can aggregate it to a global event to answer your question. And again, I would say that if you look at again Process Technologies because we tend to be pretty granular in our description.

Sure.

Contains the bigger components of Fuels & Chemicals and then Machinery & Equipment. We are seeing nice progress in Machinery & Equipment both in terms of the mobile applications, but also good content coming in on the implant I mean the manufacturing plant side and some share gain there. And frankly, we're going to introduce more new products in Machinery & Equipment over the next several months than we have over the last several years. So we'll talk about that in future calls here. But we've lot of new product content coming to market. The beta side work has already begun and it looks to be frankly like a very nice contributor to our organic capability so essentially share gain. The Fuels & Chemicals, I would tell you is the piece that we're still not seeing fantastic growth from and that's either in the form of projects which tends to be more system, so it's Industrial Systems. Consumables, has shown signs of life, but I think it's too early to call success. So I wouldn't want to make any proclamations now that we would have to take back as we enter into 2015.

Your next question comes from line of Brandon Couillard of Jefferies.

Good morning. This is Sachin filling in for Brandon.

Hi.

With respect to the Aerospace segment, how of that you unit is directly tied to U.S. DOD or Military spending or OEM contract demand? Have you seen any pressure from budget release delays?

It's not helping to answer your question. But the bigger issue for us really comes down on the military side of flight hour correlation. We see more filters consumed those that are aftermarket repaired and better content for sure as a function of flight hours than anything else. So that's really what one needs to track as they look at our military sub segment within our Aerospace business.

Got it. Thanks. And Akhil, would you quantify the anticipated EPS impact from FX expected in 4Q? And second, at current rates, what currency -- would currency be a modest tailwind to EPS next year, in FY 2015?

There is two things to think about, right. Translation FX you could do the math. I think translation, we do expect a slight tailwind in Q4 because the Euro and Pound starts to help on translation and offset the Yen issue. Transaction will still be a headwind. I am not going to quantify not because it's changing and it depends on the volume and things like that. But transaction impact would be negative, translation may be slightly positive.

Your next question comes from line of Paul Knight of Janney Montgomery.

Great. Just on Consumable order number of plus 16%, is it from the biotechnology money that's been raised, is it the monoclonal antibody pipeline, what's causing that large number?

Well, some of its acquisition.

Yes.

But organic orders growth is very strong too, I mean to give you sense it’s double-digit. And it's all of what you mentioned in further commentary that I had to the question that was raised by Isaac. The reality is this is a very attractive space. If you look at the components of our growth, the single-use technologies are growing very quickly. We get a couple things out of that. One, share of wallet goes up. And so we see very nice dynamic there that play out for some time to come. The acquisition we made a couple years ago in Fortebio is panning out very nicely, going very well and that's represented in our consumables numbers. But even the base, I'll call it traditional system content that is filtration, separation science at its heart, where Pall plays whether it's stainless system so to speak and or one that has involved in some form of single-use technology that's growing consistently as well. So the only offset to that in the quarter and what we don't see in terms of quite as robust growth is in our kind of lab instrumentation otherwise in lab consumable products but just fairly small piece of the total. So those market dynamics that are so called downstream in the BioPharm business continue to look quite good for some time to come as I mentioned earlier.

And then, in the quarter could you say the weather was a little more cooperative and that you had some weather help finally in this quarter versus the January end quarter or can you split it apart that finely?

I don’t think weather really had a huge impact to us. I hear others talking about weather and I think for some business models obviously if you’re in retail or something the sort of matters, but in our world weather on the East Coast of the U.S. doesn't really have a material impact in any large way. We did see stronger orders in the back half of our third quarter than the first half. So maybe we will clean that excuse too but to some degree I don't believe that it's really an issue for us.

Yes. And then the weakest business has been on the Aerospace side. Could you kind of tell me what that backlog change was in Aerospace it improved right?

The backlog is very strong in Aerospace and we do expect a very strong fourth quarter out of the Aerospace team. So I think you will see some good numbers in Q4 that's the expectation and timing of Aerospace business is a little lumpy depending on the program and the shipments that happen.

Yes, but I guess the world was -- I guess the Aerospace market has been hurt by sequestration do you think we will pass that kind of budget impact and budget cutting at this juncture or can you tell?

Well, again we in the military piece within our overall aerospace business we sell certainly to those programs that are funded by way of those mechanisms in sequestration didn't have any tailwind out for us this year and it did certainly adverse the impact the numbers a bit but the bigger issue for us is whether or not helicopters are flying but have our filter zone. And that's the function of activity.

Your next question comes from the line of Jon Groberg of Macquarie.

Hi, good morning. So maybe just few clarifications or just more details. Would you mind saying exactly how much you paid for FSI and I don't know if there is any seasonality to the revenues and I know you mentioned $15 million in Q4, $15 million that’s what you kind of expect on an annual basis and I think you already discussed accretion to some degree, but?

Yes, I guess so. Yes we said $15 million for Q4 that's a business it's growing so $15 million out of -- more than $15 million a quarter obviously. In terms of what we paid for it the gross number there's a 388 election that applies but the gross number was $124 million on a net basis but the discount rate that we apply is about $100 million in terms of how we think about the return calculation.

Okay. And then on China specifically I know you kind of talked about Asia more broadly but if you kind of may be describe what you saw in China specifically I know may be a little easier comps but just kind of and what you are expecting for that over the next 12 months?

Yes, and you are right we did have these year comps in China specifically but we are seeing some pretty nice momentum in China right now so we will kind of keep our fingers crossed but the team seems to be shaping up well and I'm pleased with how we are seeing both Life Science and Industrial activity pickup. The key changes in talent and personnel that we made I think are really starting to show nicely. And I was always over there in the quarter and I spent some time with some of them and I think that frankly we can say we feel quite a bit better about where we are and how we are positioned in China. Now that the conversation that pertains to how much of our business still relies on infrastructure associated spending essentially the government project spending versus consumer market spending is really the hidden real positive surprise because we have pivoted pretty nicely in China to much more a consumer market driven activity at the same time we have restructured our business. So being that nimble frankly is a good thing and certainly in our situation I think we have got a good growth opportunity in China and an economy that's probably not going to grow with more than 6% or 7% for some time to come.

Okay. And then just really quick ones there if I could on your $100 million savings program may be I have got a $25 million slated for this year $25 million for next year just wondering those are on track or if you’re planning any other opportunities. And then on your Fuels & Chemical business I know that I was recently down kind of in the Texas Louisiana area obviously there is a huge expected Cape boom going on in terms of natural gas processing build out in those areas. I'm curious kind of how exposed you are to those particular end markets. Thanks.

Sure. With regard to the Louisiana Texas dynamic we do expect to see the opportunity in petrochem and some of the fine chemical applications and I think that ought to be a tailwind or help to our current Fuels & Chemicals performance. We have invested with people there -- geographically there and I think you got to kind of be in Houston to do well on Houston. So that should work well for us. With regard to the $100 million program so to speak and where we are there, we are executing well. I will just say this we are going to at least achieve the components and the aggregate of that to the timeframe that we initially set will deliver a little more this year than what we had stakes and yes we are considering opportunities beyond that. The teams gotten into a great continuous improvement mindset I would say and so we do think that both on the fixed cost component within our cost of goods which again is pretty high about 45% of our cost of goods is relatively a fixed cost component which is a pretty high piece. But also continuous improvement on SG&A side as we get better at what we do and hopefully we scale more effectively. This gives more opportunity beyond the initial program that we slated.

Your next question comes from the line of David Rose of Wedbush Securities.

Good morning. Thank you for taking my question. I had a follow-up on some of the comments on the R&D side. Given the step-up in R&D for Industrials is this a signal for us that the house is in order on the PI side and is this a run rate which we should expect and may be you can provide a little bit more color apart from Machinery & Equipment where this is going. Obviously you made some gains on M&E but I think there are some other pockets you may be targeting and then lastly if you can put us provide some buckets in terms of where you got the incremental margins in terms of cost of quality sourcing, on-time delivery as well?

Okay. I will give you some answers to some of that. So with regard to R&D yes now we have got R&D up in the aggregate or in total around 4% of sales which is a good healthy spend for a company of our profile arguably more robust than most of all our peers at this point. The question is how effectively is it being put to use and I think we are seeing good evidence of that in some cases but still a lot of work to do in others and that's something that the team focused on right now. And in Industrial in the quarter you had two things going on. One is the kind of the reflection of the MicroE spend that we see and with that we are certainly, we have been disproportionately spending on a corporate wide basis into MicroE to initially frankly catch-up and then get ahead. And that's kind of where we are now doing quite well. And then to the M&E comment I made earlier and to your question I think I will reserve more specific commentary just given market dynamics on the M&E products that we are introducing until at least the next quarter call may be even a call beyond that. But we are bringing a quite a bit of new product for Machinery & Equipment applications that we think will do will for us against some of our very traditional kind of direct Industrial peers. In terms of housing order for Industrial and how that relates to -- how we are thinking about what we are doing across the board to get Industrial to the point of growth, I would say you can check the box on Aerospace. We've got new products, we've got a great strategy, certainly some market headwinds, but we feel good about what we're doing. Microelectronics clearly check the box, things going extremely well. If you look at the components within that Process Technologies, pretty big group of end applications and we are taking more opportunistic approach towards water and that's not other -- for any reason other than the fact that we just -- we see it is a crowded and less attractive opportunity for the short-term but we do have good technology what will selectively, geographically apply so not like we are exiting. And then on the energy content, we're taking a selective approach on some of the Power Gen applications where we've got differentiated products; we will continue to apply that. That's in the form of a classic fossil fuels but also winds and otherwise. And on Fuels & Chemicals, I'd say that's a piece of within PI, that we still got work to do. And we've got work to do to make sure that we've got great strategy, great product and everything is clicking along at the right pace. But you look at how we work through the PI segment, first recovery now to the point of differentiation in terms of product channel, how we're getting at the market, I think we are certainly underway.

Great. Thank you. And then just lastly if you can provide us some sort of color in terms of the metrics or in terms of your dashboard where you broke away and where you made the most progress or traction on an operating basis, cost of quality sourcing, on-time delivery?

Sure. Well -- and frankly, I am not pleased with our progress in the quarter in terms of on-time delivery. I think we're doing our best to manage the situation, but internally a lot of focus right now on making sure that we're delighting our customers. In some cases, we're not. And I don't think our industry is particularly well known for its customer service metrics, but we can be doing a lot better than we are. Cost and quality for us wasn't terrible in the quarter, it wasn't one of our best quarters. I'm not going quantify just for precedence setting sake. But we don't really have a quality issue per se. And more of it would come down to yield specifically in some of our lines that we can still do better with. But we see that in a way of continuous improvement on a gross margin line not in any one big bank. Productivity was a good number that Akhil alluded to earlier, without dicing it to any large degree, essentially productivity and customer mix offset the 90 bids of transactional FX impact that we saw in the quarter. So we did see a nice dose of core productivity as a function of just more efficient labor application across the globe.

At this time there are no further questions. I'll now turn the call to Larry Kingsley for any additional or closing remarks.

Okay. Just very briefly would like to thank you. We look forward to speaking you throughout the quarter. And we'll talk to again at next quarters call. Operator, thanks for attending and facilitating today's call.

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