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| MIL > SEC Filings for MIL > Form 10-Q on 5-Nov-2008 | All Recent SEC Filings |
5-Nov-2008
Quarterly Report
Basis of Presentation
The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes thereto and other financial information included elsewhere in this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2007. Our interim fiscal quarters end on the thirteenth Saturday of each quarter. Since our fiscal year-end is December 31, the first and fourth fiscal quarters may not consist of precisely thirteen weeks. The third fiscal quarters of 2008 and 2007 ended on September 27, 2008 and September 29, 2007, respectively.
General Overview
We are a global leader in life science providing innovative products, services, and solutions so our customers can advance their research, development, and production. Our academic, biotechnology, and pharmaceutical customers use our products and services to increase their speed and to improve their consistency while saving costs in laboratory applications and in biopharmaceutical manufacturing. With our extensive technical expertise and applications knowledge, we have the unique ability to engage in peer-to-peer discussions with scientists to help them confront challenging scientific and human health issues.
We are organized around two operating divisions. Our Bioscience Division improves laboratory productivity and workflows by providing innovative products and technologies for life science research. Our Bioprocess Division helps pharmaceutical and biotechnology companies develop their manufacturing processes, optimize their manufacturing productivity, and ensure the quality of drugs.
We provide a wide range of products and services to a range of customers across a range of geographies. The breadth of our business portfolio allows us to target growth on a number of dimensions, rather than relying on any single business, market, or economy.
The following table sets forth revenues derived from the Bioprocess and Bioscience divisions as a percentage of our total revenues.
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
2008 2007 2008 2007
Bioprocess 56 % 57 % 55 % 58%
Bioscience 44 % 43 % 45 % 42%
Total 100 % 100 % 100 % 100%
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16 MILLIPORE FORM 10-Q
PART I
The composition of our geographic revenues is as follows:
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
2008 2007 2008 2007
Americas 41 % 41 % 38 % 43%
Europe 42 % 42 % 44 % 40%
Asia/Pacific 17 % 17 % 18 % 17%
Total 100 % 100 % 100 % 100%
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The balance in our business portfolio between Bioprocess and Bioscience products and services as well as our global market reach allowed us to mitigate some of the sales weakness experienced by our Bioprocess Division during 2008.
Reported and organic growth rates by division, as compared with the prior year, are summarized in the tables below.
Bioprocess Bioscience Consolidated
Three Months Ended Three Months Ended Three Months Ended
September 27, September 29, September 27, September 29, September 27, September 29,
2008 2007 2008 2007 2008 2007
Reported growth 5 % 8 % 8 % 19 % 6 % 12%
Less: Foreign
currency
translation 5 % 4 % 4 % 4 % 4 % 4%
Organic growth 0 % 4 % 4 % 15 % 2 % 8%
Bioprocess Bioscience Consolidated
Nine Months Ended Nine Months Ended Nine Months Ended
September 27, September 29, September 27, September 29, September 27, September 29,
2008 2007 2008 2007 2008 2007
Reported growth 2 % 24 % 13 % 37 % 7 % 29%
Less: Foreign
currency
translation 6 % 4 % 7 % 4 % 7 % 4%
Acquisitions - 11 % - 24 % - 16%
Organic growth (4 )% 9 % 6 % 9 % 0 % 9%
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Consolidated revenues of $395.0 million for the three months ended September 27, 2008 increased $23.8 million, or 6 percent, versus the prior year comparable period. The increase included a favorable foreign currency translation effect of 4 percent. Excluding the effect of foreign currency translation, consolidated revenues increased 2 percent during the three months ended September 27, 2008 versus the prior year comparable period as a result of improved business dynamics. Higher Bioscience revenues were attributable to growth of our profitable laboratory water and drug discovery products. This growth was offset by Bioprocess sales softness to some of our large biotechnology customers and weakening global economic conditions. Although we were encouraged by year-over-year sales growth in our North American Bioprocess business following four quarters of sales declines, we anticipate a full year sales decline primarily attributable to the North American softness earlier this year. Changes in product pricing did not have a significant effect on the year-over-year comparison.
Operating income for the three months ended September 27, 2008 of $59.8 million, representing 15 percent of revenue, increased $2.4 million, or 4 percent, versus the prior year comparable period and was primarily caused by our revenue growth. The favorable effect of continued discretionary spending control was offset by additional costs associated with our efforts to reorganize and streamline our operations.
Diluted earnings per share ("EPS") of $0.71 in the three months ended September 27, 2008 increased $0.05 from the prior year comparable period primarily attributable to lower interest expense as we continue to pay down our debt with the improved level of operating cash flow we generated and higher operating income.
We generated $188.8 million of operating cash flows for the nine months ended September 27, 2008, which was an increase of $44.5 million, or 31 percent, versus the prior year comparable period. Operating cash flow generation in the nine months ended September 27, 2008 was driven by our higher operating results. During the nine months ended September 27, 2008, we repaid $127.2 million of our debt. We will continue to focus on operating cash flow generation, which we expect to use to further reduce our debt.
On September 10, 2008, we announced the second phase of our global supply chain initiative. The first phase of this program was announced in 2004 and will be completed by the end of 2009. We expect the second phase will enable us to further optimize the performance of our global supply chain and reduce our cost structure to improve operational efficiency. This program was partly in response to market conditions that caused revenue declines in our Bioprocess Division. This program was also part of our long term strategy to further improve the efficiency of our global supply chain, primarily through consolidation of our manufacturing locations. We expect to incur total charges of approximately $29 million related to these activities. These charges include approximately $13 million for employee separation and retention costs, approximately $3 million in lease termination costs at the date we cease to use affected facilities, approximately $8 million of consulting and facility transition costs, and approximately $5 million of non-cash charges for accelerated depreciation. We anticipate future annual savings of approximately $11 to $15 million related to this initiative and expect to complete these activities by the end of 2010.
Results of Operations
REVENUES
Net sales and the percent of sales growth by division, as compared with the
prior year, is summarized in the table below.
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
($ in millions): 2008 2007 Growth 2008 2007 Growth
Bioprocess $ 220.9 $ 210.5 5 % $ 667.3 $ 651.6 2%
Bioscience 174.1 160.7 8 % 538.1 474.7 13%
Total $ 395.0 $ 371.2 6 % $ 1,205.4 $ 1,126.3 7%
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Net sales and the percent of sales growth by geography, as compared with the prior year, is summarized in the table below.
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
($ in millions): 2008 2007 Growth 2008 2007 Growth
Americas $ 159.9 $ 151.4 6 % $ 459.5 $ 484.7 (5)%
Europe 166.7 157.4 6 % 527.3 453.2 16%
Asia/Pacific 68.4 62.4 10 % 218.6 188.4 16%
Total $ 395.0 $ 371.2 6 % $ 1,205.4 $ 1,126.3 7%
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18 MILLIPORE FORM 10-Q
Bioprocess Division
Bioprocess revenues of $220.9 million for the three months ended September 27, 2008 increased $10.4 million, or 5 percent, versus the prior year comparable period. All of the increase was attributable to a favorable foreign currency translation effect of 5 percent. Adjusting for this item, Bioprocess revenues were flat in the three months ended September 27, 2008. Increased sales of our process monitoring tools products and upstream bioprocessing products were offset by lower sales of our downstream bioprocessing products. Our process monitoring tools products are sold to a diverse customer base, some of which have not been adversely affected by the sales softness we are experiencing with our large biotechnology customers. The growth in our upstream bioprocessing products was primarily attributable to higher sales of our Ex-Cyte product, which was the result of production campaigns of certain monoclonal antibodies. Higher Ex-Cyte sales were offset by declines in other cell culture supplement products. Lower sales of our downstream bioprocessing products were caused by continued lower spending by some of our largest biotechnology customers and weakening global economic conditions.
From a geographic perspective, revenues for the three months ended September 27, 2008 in the Americas, Europe and Asia/Pacific were $90.2 million, $102.6 million, and $28.1 million, respectively, and revenues for the three months ended September 29, 2007 for the Americas, Europe and Asia/Pacific were $84.5 million, $99.1 million, and $26.9 million, respectively. Excluding the favorable foreign currency translation effect, revenues in the Americas, Europe and Asia/Pacific increased $5.2 million, decreased $3.8 million, and decreased $0.4 million, respectively, in the three months ended September 27, 2008 over the prior year comparable period. The increase in Americas was primarily the result of resumed demand for our downstream bioprocessing products. The decrease in Europe was primarily driven by a decrease in downstream bioprocessing products as some large customers delayed their expansion plans and reduced their purchases in response to the slowing economy in the region. The decrease in Asia/Pacific was primarily driven by the decline of product sales in India, also attributable to weakening economic conditions.
Bioprocess revenues of $667.3 million for the nine months ended September 27, 2008 increased $15.7 million, or 2 percent, from the prior year comparable period. The increase included a favorable foreign currency translation effect of 6 percent. Adjusting for this item, Bioprocess revenues declined 4 percent in the nine months ended September 27, 2008. The nine month revenue decrease was primarily attributable to lower sales of certain downstream bioprocessing products used in biopharmaceutical manufacturing. These decreases were primarily the result of a decline in sales to a handful of our largest North American biotechnology customers that began in the second half of 2007. We have experienced significantly lower sales of our downstream bioprocessing products to these customers, which was caused by their reduced rate of monoclonal antibody production and the reduction of their inventories since the third quarter of 2007. Bioprocess revenues were also adversely affected by fewer approvals of new biologic drugs in recent quarters. New biologic drug approvals are a significant driver of our Bioprocess revenue growth. Despite the recent lower demand, we believe the overall biotechnology industry remains healthy. This is evidenced by the growth in a number of new biologic drugs and vaccines and continued investments in new biologic facilities and biotechnology companies.
From a geographic perspective, revenues for the nine months ended September 27, 2008 in the Americas, Europe and Asia/Pacific were $253.4 million, $324.0 million, and $89.9 million, respectively, and revenues for the nine months ended September 29, 2007 in the Americas, Europe and Asia/Pacific were $288.8 million, $283.0 million, and $79.8 million, respectively. Excluding the favorable foreign currency translation effect, revenues in the Americas, Europe and Asia/Pacific decreased $36.9 million, increased $6.9 million, and increased $1.9 million, respectively, in the nine months ended September 27, 2008 over the prior year comparable period. The decrease in the Americas was primarily attributable to the lower sales to a handful of our largest biotechnology customers in the first half of 2008 over the prior year comparable period. The increase in Europe was primarily driven by sales of our process monitoring tools products and our
upstream bioprocessing products. The increase in Asia/Pacific was primarily driven by strong sales of downstream bioprocessing products in Japan earlier in the year.
Bioscience Division
Bioscience revenues of $174.1 million for the three months ended September 27, 2008 increased $13.4 million, or 8 percent, versus the prior year comparable period. The increase included a favorable foreign currency translation effect of 4 percent. Adjusting for this item, Bioscience revenues grew 4 percent. This growth was led by strong sales of laboratory water and drug discovery products and services. Successful new product introductions, execution of our sales and marketing initiatives, and continued expansion of our new e-commerce business platform all contributed to the revenue growth. The successful launch of the Milli-Q platform in the past two years by our laboratory water business unit continued to contribute to strong performance and we expect this product platform to continue to drive growth through the remainder of the year. We also continued to expand our laboratory water customer base in the clinical market and to expand our service offering. Our drug discovery products grew primarily through sales of our biomarker and immunoassay products and services as well as our biopharmaceutical services. Sales of our life science business unit's biotools products also contributed to the revenue growth, which was driven by higher sales of analytical sample preparation, cell biology and molecular biology products. We expect these trends to continue for the remainder of 2008.
From a geographic perspective, revenues for the three months ended September 27, 2008 in the Americas, Europe, and Asia/Pacific were $69.7 million, $64.1 million, and $40.3 million, respectively, and revenues for the three months ended September 29, 2007 in the Americas, Europe, and Asia/Pacific were $66.9 million, $58.3 million, and $35.5 million, respectively. Excluding the favorable foreign currency translation effect, revenues in the Americas, Europe, and Asia/Pacific increased $2.2 million, $1.3 million, and $2.5 million, respectively, in the three months ended September 27, 2008 over the prior year comparable period. The increase in the Americas was primarily the result of the increased sales of our laboratory water and drug discovery products. The increase in Europe was primarily the result of stronger sales of laboratory water products. The growth in Asia/Pacific was primarily attributable to strong sales of laboratory water and life science products.
Bioscience revenues for the nine months ended September 27, 2008 increased $63.4 million, or 13 percent. The revenue increase for the nine months ended September 27, 2008 included a 7 percent favorable effect from changes in foreign currency rates, versus the prior year comparable period. Adjusting for this item, Bioscience revenues grew 6 percent, which was primarily driven by continued strong demand for our laboratory water and drug discovery products and services. Successful product introductions in the past three years also contributed to this growth.
From a geographic perspective, revenues for the nine months ended September 27, 2008 in the Americas, Europe, and Asia/Pacific were $206.1 million, $203.3 million, and $128.7 million, respectively, and revenues for the nine months ended September 29, 2007 in the Americas, Europe, and Asia/Pacific were $195.9 million, $170.2 million, and $108.6 million, respectively. Excluding the favorable foreign currency translation effect, revenues in the Americas, Europe, and Asia/Pacific increased $8.1 million, $12.3 million, and $8.9 million, respectively, in the nine months ended September 27, 2008 over the prior year comparable period. The increases in the Americas were primarily attributable to the strength of our laboratory water and our drug discovery products. The increases in Europe and Asia/Pacific were primarily the result of strong sales of our laboratory water products while life science and drug discovery products also contributed to the growth in these geographies.
20 MILLIPORE FORM 10-Q
PART I
GROSS PROFIT MARGIN
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
($ in millions): 2008 2007 2008 2007
Gross profit $ 209.2 $ 202.0 $ 647.5 $ 592.3
Gross profit margin 53 % 54 % 54 % 53 %
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Gross profit increased $7.2 million, or 4 percent, and $55.2 million, or 9 percent, in the three and nine months ended September 27, 2008, respectively, versus the prior year comparable periods. Gross profit margin for the three months ended September 27, 2008 decreased slightly to 53% from 54% for the prior year comparable period. This decrease was primarily attributable to costs associated with our global supply chain initiative. The primary drivers of the increase in gross profit margin in the nine months ended September 27, 2008 were an improved business mix as a result of higher Bioscience revenues with higher gross profit margins, lower sales of large Bioprocess systems and chromatography media products with lower gross profit margins, and the absence of Serologicals business acquisition inventory fair value adjustments.
Amortization of acquired intangible assets remained consistent at $2.4 million and $7.1 million, in the three and nine months ended September 27, 2008, respectively, versus the prior year comparable periods. We expect 2008 full year amortization affecting gross profit to be approximately $9.5 million.
We exited the last manufacturing facility pursuant to our 2005 manufacturing consolidation strategy earlier this year which represented the first phase of our global supply chain initiative. In September 2008, we announced the second phase of our global supply chain initiative, which is part of our long term strategy to further improve the efficiency of our global supply chain. We incurred charges associated with this initiative of $5.8 million and $9.7 million (primarily employee separation costs, facility closure costs, and accelerated depreciation) for the three and nine months ended September 27, 2008, respectively, and $2.5 million and $9.7 million, for the three and nine months ended September 29, 2007, respectively. We expect to incur an additional $9.0 million of costs related to this initiative in 2008.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
($ in millions): 2008 2007 2008 2007
Selling, general and
administrative expenses $ 124.0 $ 118.1 $ 384.0 $ 364.0
Percentage of net sales 31 % 32 % 32 % 32 %
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Selling, general and administrative ("SG&A") expenses increased $5.9 million, or 5 percent, and $20.0 million, or 5 percent, in the three and nine months ended September 27, 2008, respectively, versus the prior year comparable periods. The primary drivers of the higher SG&A expenses were employee separations associated with our ongoing efforts to streamline operations and increased employee related costs in the three and nine months ended September 27, 2008. These costs were partially offset by a curtailment gain of $2.7 million related to amendments to our U.S. postretirement benefits plan. Amortization expense related to acquired intangible assets affecting SG&A was $13.5 million and $40.4 million in the three and nine months ended September 27, 2008, respectively, versus $12.2 million and $36.6 million in the prior year comparable periods. We expect 2008 full year amortization of intangible assets affecting SG&A to be approximately $53.9 million as compared with $48.9 million in 2007.
PART I
RESEARCH AND DEVELOPMENT EXPENSES
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
($ in millions): 2008 2007 2008 2007
Research and development
expenses $ 25.4 $ 26.5 $ 76.6 $ 79.9
Percentage of net sales 6 % 7 % 6 % 7 %
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Research and Development ("R&D") expenses decreased $1.1 million, or 4 percent, and decreased $3.3 million, or 4 percent, in the three and nine months ended September 27, 2008, respectively, versus the prior year comparable periods. The decreases were primarily the result of the timing of project spending. Our strategy is to enhance our internal R&D capabilities through technology collaborations and license arrangements with third parties. We expect R&D expenses to remain approximately at 6 to 7 percent of net sales for the remainder of 2008.
INTEREST INCOME/EXPENSE
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
($ in millions): 2008 2007 2008 2007
Interest income $ 0.2 $ 0.4 $ 0.6 $ 1.2
Interest expense $ 13.9 $ 16.5 $ 43.6 $ 49.6
Weighted average
interest rate on debt
during the period 4.65 % 4.75 % 4.60 % 4.63 %
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Interest expense decreased $2.6 million, or 16 percent, and $6.0 million, or 12 percent, for the three and nine months ended September 27, 2008, respectively, . . .
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