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| PLL > SEC Filings for PLL > Form 10-Q on 10-Dec-2008 | All Recent SEC Filings |
10-Dec-2008
Quarterly Report
Research and development ("R&D") expenses were $18,933 in the quarter
compared to $16,895 in the first quarter of fiscal year 2008, up about 12%
(approximately 14% in local currency). As a percentage of sales, R&D expenses
were 3.3% compared to 3% in the first quarter of fiscal year 2008.
In the first quarter of fiscal year 2009, the Company recorded restructuring
and other charges ("ROTC") of $8,175. ROTC in the quarter was primarily
comprised of a charge of $1,743 to write-off in-process research and development
acquired in the acquisition of GeneSystems, SA (refer to Note 3, Acquisitions,
for further discussion of purchase accounting), a charge of $1,977 for the
other-than-temporary diminution in value of certain equity and debt investments
held by its benefits protection trust, severance and other exit costs related to
the Company's on-going cost reduction initiatives of $2,590 and increases to
previously established environmental reserves of $1,279. Additionally, ROTC
includes legal fees of $586 related to matters that were under inquiry by the
audit committee (see Note 2, Audit Committee Inquiry and Restatement, to the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended July 31, 2007 ("2007 Form 10-K")).
In the first quarter of fiscal year 2008, the Company recorded ROTC of
$8,769. ROTC in the quarter was primarily comprised of severance liabilities
related to the Company's on-going cost reduction initiatives (including its
facilities rationalization, EuroPall and AmeriPall initiatives), and legal and
other professional fees related to the matters that were under inquiry by the
audit committee (see Note 2, Audit Committee Inquiry and Restatement, to the
consolidated financial statements included in the 2007 Form 10-K). Additionally,
the charges in the quarter included an increase to a previously established
environmental reserve. Such charges were partly offset by the reversal of excess
restructuring reserves previously recorded in the consolidated statements of
earnings in fiscal years 2005 and 2007.
The details of ROTC for the three months ended October 31, 2008 and
October 31, 2007 can be found in Note 8, Restructuring and Other Charges, Net,
to the accompanying condensed consolidated financial statements.
The following table summarizes the activity related to restructuring
liabilities that were recorded in the three months ended October 31, 2008 and in
fiscal years 2008, 2007 and 2006:
Lease
Termination
Liabilities &
Severance Other Total
2009
Original charge $ 1,647 $ 950 $ 2,597
Utilized (335 ) (530 ) (865 )
Other changes (a) (15 ) (16 ) (31 )
Balance at Oct. 31, 2008 $ 1,297 $ 404 $ 1,701
2008
Original charge $ 8,814 $ 3,110 $ 11,924
Utilized (8,059 ) (2,849 ) (10,908 )
Other changes (a) 220 6 226
Balance at Jul. 31, 2008 975 267 1,242
Utilized (105 ) (168 ) (273 )
Reversal of excess reserves (b) (3 ) (4 ) (7 )
Other changes (a) (129 ) (25 ) (154 )
Balance at Oct. 31, 2008 $ 738 $ 70 $ 808
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Lease
Termination
Liabilities &
Severance Other Total
2007
Original charge $ 22,083 $ 4,321 $ 26,404
Utilized (6,146 ) (3,573 ) (9,719 )
Other changes (a) 611 9 620
Balance at Jul. 31, 2007 16,548 757 17,305
Utilized (13,994 ) (727 ) (14,721 )
Reversal of excess
reserves (b) (297 ) (65 ) (362 )
Other changes (a) 1,281 57 1,338
Balance at Jul. 31, 2008 3,538 22 3,560
Utilized (579 ) -- (579 )
Other changes (a) (228 ) (5 ) (233 )
Balance at Oct. 31, 2008 $ 2,731 $ 17 $ 2,748
2006
Original charge $ 13,335 $ 3,043 $ 16,378
Utilized (7,221 ) (2,900 ) (10,121 )
Other changes (a) 182 9 191
Balance at Jul. 31, 2006 6,296 152 6,448
Utilized (2,712 ) (108 ) (2,820 )
Reversal of excess
reserves (b) (1,385 ) (40 ) (1,425 )
Other changes (a) 126 2 128
Balance at Jul. 31, 2007 2,325 6 2,331
Utilized (1,414 ) (6 ) (1,420 )
Reversal of excess
reserves (b) (56 ) -- (56 )
Other changes (a) (4 ) -- (4 )
Balance at Jul. 31, 2008 851 -- 851
Utilized (389 ) -- (389 )
Balance at Oct. 31, 2008 $ 462 $ -- $ 462
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(a) Other changes primarily reflect translation impact.
(b) Reflects the reversal of excess restructuring reserves originally recorded in fiscal years 2008, 2007 and 2006.
Earnings before interest and income taxes ("EBIT") were $71,777 in the
quarter compared to $64,665 in the first quarter of fiscal year 2008, reflecting
the factors discussed above. As a percentage of sales, EBIT was 12.4% compared
to 11.5% in the first quarter of fiscal year 2008.
Net interest expense in the quarter increased to $9,426 from $7,721 in the
first quarter of fiscal year 2008. The increase in net interest expense was
primarily related to a decrease in interest income related to reduced cash
balances compared to the same period last year, combined with the effect of
lower returns due to a decision to invest cash in more conservative investments.
In the first quarter of fiscal year 2009, the Company's effective tax rate
was 30.9% as compared to 36.6% in the first quarter of fiscal year 2008. For the
three months ended October 31, 2008, the effective tax rate varied from the U.S.
federal statutory rate primarily due to the benefits of foreign operations and
the retroactive extension of the federal research credit per the Emergency
Economic Stabilization Act of 2008 which was enacted in the quarter ended
October 31, 2008. For the three months ended October 31, 2007, the effective tax
rate varied from the U.S. federal statutory rate primarily due to the net impact
of foreign operations and a discrete tax charge resulting from new tax
legislation in Germany. The Company expects its effective tax rate to be 31.5%
for the full fiscal year 2009, exclusive of the impact of discrete items in
future periods. The actual effective tax rate for the full fiscal year 2009 may
differ materially based on several factors, including the geographical mix of
earnings in tax jurisdictions, enacted tax laws, the timing and amount of
foreign dividends, state and local taxes, the ratio of permanent items to pretax
book income, and the implementation of various global tax strategies, as well as
nonrecurring factors.
Net earnings in the quarter were $43,087, or 36 cents per share, compared
with net earnings of $36,102, or 29 cents per share in the first quarter of
fiscal year 2008. In summary, net earnings reflect the growth in EBIT and a
decrease in the effective tax rate, partly offset by an increase in net interest
expense. Company management estimates that foreign currency translation had no
material impact on earnings per share in the quarter. The acquisition of
GeneSystems was dilutive to earnings by 2 cents per share in the quarter.
Review of Operating Segments
The following table presents sales and operating profit by segment,
reconciled to earnings before income taxes, for the three months ended
October 31, 2008 and October 31, 2007.
% % %
Oct. 31, 2008 Margin Oct. 31, 2007 Margin Change
SALES:
Life Sciences $ 220,329 $ 214,614 2.7
Industrial 357,693 346,393 3.3
Total $ 578,022 $ 561,007 3.0
OPERATING PROFIT:
Life Sciences $ 41,868 19.0 $ 39,783 18.5 5.2
Industrial 55,106 15.4 45,077 13.0 22.2
Total operating profit 96,974 16.8 84,860 15.1 14.3
General corporate expenses 17,022 11,426 49.0
Earnings before ROTC, interest expense, 79,952 13.8 73,434 13.1 8.9
net and income taxes
ROTC 8,175 8,769
Interest expense, net 9,426 7,721
Earnings before income taxes $ 62,351 $ 56,944
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Life Sciences:
Presented below are Summary Statements of Operating Profit for the Life
Sciences segment for the three months ended October 31, 2008 and October 31,
2007:
Oct. 31, 2008 % of Sales Oct. 31, 2007 % of Sales
Sales $ 220,329 $ 214,614
Cost of sales 105,810 48.0 103,466 48.2
Gross margin 114,519 52.0 111,148 51.8
SG&A 62,384 28.3 61,747 28.8
Research and development 10,267 4.7 9,618 4.5
Operating profit $ 41,868 19.0 $ 39,783 18.5
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The tables below present sales by market and geography within the Life Sciences segment for the three months ended October 31, 2008 and October 31, 2007, including the effect of exchange rates for comparative purposes.
%
Exchange Change in
% Rate Local
Oct. 31, 2008 Oct. 31, 2007 Change Impact Currency
By Market
Medical (a) $ 92,406 $ 94,242 (1.9 ) $ (958 ) (0.9 )
BioPharmaceuticals (a) 127,923 120,372 6.3 (2,216 ) 8.1
Total Life Sciences $ 220,329 $ 214,614 2.7 $ (3,174 ) 4.1
By Geography
Western Hemisphere $ 81,316 $ 87,002 (6.5 ) $ (261 ) (6.2 )
Europe 109,458 101,022 8.4 (3,083 ) 11.4
Asia 29,555 26,590 11.2 170 10.5
Total Life Sciences $ 220,329 $ 214,614 2.7 $ (3,174 ) 4.1
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(a) The BioPharmaceuticals market includes the Laboratory market previously reported in Medical. Prior year amounts conform to the current classification.
The Life Sciences segment sales increased 4.1% in the quarter compared to the
first quarter of fiscal year 2008. Increased pricing in the BioPharmaceuticals
markets contributed 0.8% to the overall sales growth in the quarter. The overall
volume increase was 3.3%. Life Sciences represented approximately 38% of total
sales in the quarter, on par with the first quarter of fiscal year 2008.
Within Life Sciences, Medical market sales, which now excludes the Laboratory
market, represented approximately 42% of Life Sciences sales in the quarter,
decreased 0.9%. The decline in Medical sales was attributable to a decrease of
8.6% in Blood Filtration, the largest market served by Medical, with sales
growth in the Original Equipment Manufacturer ("OEM") (+7.5%), Hospital (+7%)
and Cell Therapy (over +100%) markets partly mitigating the impact. The decrease
in the Blood Filtration market primarily relates to decreased volume to several
large customers in the Western Hemisphere. The growth in Hospital sales was
primarily driven by increased Aquasafe filter sales related to a Legionella
outbreak in the United States, new tender awards in Europe and new market
opportunities in Asia. The growth in Cell Therapy sales was primarily driven by
increased cord blood products sales in the Western Hemisphere and Europe. The
growth in OEM sales was primarily driven by strong sales in Europe.
Sales in the BioPharmaceuticals market, which now includes the Laboratory
market previously reported in Medical, grew 8.1% compared to the first quarter
of fiscal year 2008. Systems sales increased about 13%, and consumables sales
grew 6.9%. By geography, growth was driven by Europe (+10.6%), the Company's
largest geographic BioPharmaceuticals market, accompanied by increases in Asia
of 9.8% and the Western Hemisphere of 2.5%. By market, the growth in the quarter
was attributable to an increase of 5.1% in the Pharmaceuticals market (formerly
named BioPharmaceuticals), accompanied by an increase of 27.9% in the Laboratory
market. The growth in Pharmaceuticals sales reflects an increase in systems
sales of 13% (driven by Europe), accompanied by growth in consumables sales of
3.6%. The growth in systems sales reflects ongoing investment in new
manufacturing capacity for biological drugs and may continue to fuel consumable
business growth in the medium term. The growth in consumables sales reflects
increases in all geographies. The Western Hemisphere growth was hampered by
manufacturing slowdowns at several large U.S. biotechnology customers. Key
products driving consumables growth are the Company's virus removal filters for
biotechnology and plasma derived therapeutics as well an increasing portfolio of
single-use processing technologies. The growth in Laboratory sales was spread
across all geographies, although the Western Hemisphere and Europe had the most
significant impact. Key growth drivers in the Laboratory market are products
used in pharmaceutical quality control and life sciences research such as
protein purification.
Life Sciences gross margins increased 20 basis points to 52% from 51.8% in
the first quarter of fiscal year 2008. The improvement in gross margins was
principally driven by improved pricing that contributed approximately 40 basis
points in margin. This was partly offset by a shift in product mix to a higher
percentage of systems sales (about 5.9% of total Life Sciences sales compared to
5.4% in the first quarter of fiscal year 2008).
SG&A expenses increased by $637, or 1% (2.7% in local currency), compared to
the first quarter of fiscal year 2008. The increase in SG&A primarily reflects
increases in selling costs in Europe and Asia. SG&A as a percentage of sales
decreased to 28.3% from 28.8% in the first quarter of fiscal year 2008. The
improvement in SG&A as a percentage of sales reflects the leveraging of growth
in sales and the impact of the Company's cost reduction initiatives, partly
offset by increases in selling costs in Europe and Asia.
R&D expenses were $10,267 compared to $9,618 in the first quarter of fiscal
year 2008, an increase of 6.7% (10.5% in local currency). As a percentage of
sales, R&D expenses were 4.7% compared to 4.5% in the first quarter of fiscal
year 2008. Increased spending primarily reflects investments in the
BioPharmaceuticals market, including spending at GeneSystems, which was acquired
on September 2, 2008.
As a result of the above factors, operating profit dollars increased about
5.2% to $41,868 and operating margin improved to 19% from 18.5% in the first
quarter of fiscal year 2008.
Industrial:
Presented below are summary Statements of Operating Profit for the Industrial
segment for the three months ended October 31, 2008 and October 31, 2007.
% of % of
Oct. 31, 2008 Sales Oct. 31, 2007 Sales
Sales $ 357,693 $ 346,393
Cost of sales 192,821 53.9 196,225 56.6
Gross margin 164,872 46.1 150,168 43.4
SG&A 101,100 28.3 97,814 28.2
R&D 8,666 2.4 7,277 2.1
Operating profit $ 55,106 15.4 $ 45,077 13.0
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The tables below present sales by market and geography within the Industrial segment for the three months ended October 31, 2008 and October 31, 2007, including the effect of exchange rates for comparative purposes.
%
Exchange Change in
% Rate Local
Oct. 31, 2008 Oct. 31, 2007 Change Impact Currency
By Market
Energy, Water & Process Technologies (a) $ 217,599 $ 208,689 4.3 $ (2,994 ) 5.7
Aerospace & Transportation 72,695 66,259 9.7 (1,552 ) 12.1
Microelectronics 67,399 71,445 (5.7 ) 720 (6.7 )
Total Industrial $ 357,693 $ 346,393 3.3 $ (3,826 ) 4.4
By Geography
Western Hemisphere $ 101,899 $ 96,933 5.1 $ (923 ) 6.1
Europe 132,097 132,459 (0.3 ) (3,353 ) 2.3
Asia 123,697 117,001 5.7 450 5.3
Total Industrial $ 357,693 $ 346,393 3.3 $ (3,826 ) 4.4
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(a) Formerly General Industrial.
Industrial segment sales grew 4.4% in the quarter, driven by growth in the
Energy, Water & Process Technologies ("EWPT") and Aerospace & Transportation
markets, while sales in the Microelectronics market were down. Overall,
increased pricing contributed about 0.5% to the sales growth in the quarter. The
overall volume growth was 3.9%. Industrial systems sales increased 4.7% compared
to the first quarter of fiscal year 2008. The Food & Beverage and Municipal
Water markets reported within EWPT were the key contributors to the growth in
systems sales in the quarter. Industrial consumables sales grew 3.6%, primarily
driven by Military sales within the Aerospace & Transportation market as well as
by all markets within EWPT, with the exception of Food & Beverage. Industrial
represented about 62% of total sales in the quarter, on par with the first
quarter of fiscal year 2008.
EWPT market sales, which account for about 61% of the Industrial segment,
were up 5.7%, with all markets contributing with the exception of Industrial
Manufacturing which were down slightly reflecting reduced systems sales.
Municipal Water sales, which are primarily comprised of systems, increased
9.9% compared to the first quarter of fiscal year 2008, reflecting growth in
both the Western Hemisphere and Asia. The sales growth in the Western Hemisphere
of 26.6% was primarily attributable to surface water treatment projects driven
by government regulations. In Asia, sales increased 48% driven by
drought-related projects in Australia. Sales in Europe were down 23.9% due to
lumpiness of system sales.
Sales in the energy-related market increased 4.3%, reflecting growth in
consumables in all geographies partly offset by a decline in systems sales. The
decrease in systems sales reflects a decline in the Western Hemisphere due to
tough comparables to the first quarter of fiscal year 2008 which had strong
sales growth in the fuels & chemicals market, partly offset by growth in Europe
. . .
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