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| PLL > SEC Filings for PLL > Form 10-Q on 12-Mar-2009 | All Recent SEC Filings |
12-Mar-2009
Quarterly Report
Gross margin, as a percentage of sales, was 47.2% in the quarter compared to
46.1% in the second quarter of fiscal year 2008. For the first six months, gross
margin, as a percentage of sales, was 47.8% compared to 46.3% in the first six
months of fiscal year 2008. Improved pricing in both segments contributed
approximately 70 and 50 basis points in margin in the quarter and first six
months, respectively. The improvement in gross margin in the quarter and first
six months also reflects the effects of the ongoing cost reduction and lean
manufacturing initiatives. For a detailed discussion of gross margin by segment,
refer to the section "Review of Operating Segments" below.
Selling, general and administrative ("SG&A") expenses in the quarter
decreased by $11,761, or about 6.5% (flat in local currency). As a percentage of
sales, SG&A expenses were 30.8% compared to 28.6% in the second quarter of
fiscal year 2008. The increase in SG&A as a percentage of sales primarily
reflects the impact of decreased sales quarter over quarter. For the first six
months, SG&A expenses decreased by $2,242 (an increase of approximately 3% in
local currency). As a percentage of sales, SG&A expenses were 31% compared to
29.5% in the first six months of fiscal year 2008. The increase in SG&A as a
percentage of sales primarily reflects the impact of decreased sales period over
period, increased selling and marketing personnel-related costs as well as
consulting costs, mainly related to the Company's Pricing Excellence initiative,
partly offset by the impact of the Company's cost reduction initiatives. In
fiscal year 2007, the Company launched the equivalent of its European cost
reduction initiative ("EuroPall") in the Western Hemisphere ("AmeriPall"). The
majority of the savings related to AmeriPall are expected to have an impact
later in fiscal year 2009 and beyond. In fiscal year 2009, the Company also
began implementing the second phase of EuroPall ("EuroPall II"). Furthermore, in
the second quarter of fiscal year 2009, the Company commenced plans to reduce
its workforce globally in response to current economic conditions. Expected
savings related to these workforce reduction plans will be realized in the
second half of fiscal year 2009.
Research and development ("R&D") expenses were $17,419 in the quarter
compared to $18,092 in the second quarter of fiscal year 2008, a decrease of
about 4% (an increase of approximately 1% in local currency). As a percentage of
sales, R&D expenses were 3.2% compared to 2.9% in the second quarter of fiscal
year 2008. For the first six months, R&D expenses were $36,352 compared to
$34,987 in the first six months of fiscal year 2008, up about 4% (approximately
7% in local currency). As a percentage of sales, R&D expenses were 3.2% compared
to 2.9% in the first six months of fiscal year 2008.
In the second quarter of fiscal year 2009, the Company recorded restructuring
and other charges ("ROTC") of $8,747. ROTC in the quarter was primarily
comprised of severance and other costs related to the Company's on-going cost
reduction initiatives of $7,384 and a charge of $1,500 for the impairment of
capitalized software development costs related to discontinued projects.
Additionally, ROTC includes legal fees of $234 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")). Such charges were partly offset by an insurance settlement of $371
related to an environmental matter. In the first six months of fiscal year 2009,
the Company recorded ROTC of $16,922, which was primarily comprised of severance
and other costs related to the Company's on-going cost reduction initiatives of
$9,974, a charge of $1,743 to write-off in-process R&D 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 investment
securities held by its benefits protection trust, a charge of $1,500 for the
impairment of capitalized software, and increases to previously established
environmental reserves of $1,279. Additionally, ROTC includes legal fees of $820
related to matters that were under inquiry by the audit committee, as discussed
above. Such charges were partly offset by an insurance settlement of $371
related to an environmental matter.
In the second quarter of fiscal year 2008, the Company recorded ROTC of
$13,859. ROTC in the quarter was primarily comprised of legal and other
professional fees 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 2007 Form 10-K").
Additionally, ROTC includes severance liabilities and other costs related to the
Company's on-going cost reduction initiatives as well as 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, 2006 and 2007. In the
first six months of fiscal year 2008, the Company recorded ROTC of $22,628. ROTC
in the six months was primarily comprised of legal and other professional fees
related to matters under inquiry by the audit committee, as discussed above.
Additionally, ROTC in the six months includes severance liabilities and other
costs related to the Company's on-going cost reduction initiatives as well as 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, 2006
and 2007.
The details of ROTC for the three and six months ended January 31, 2009 and
January 31, 2008 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 six months ended January 31, 2009 and in
fiscal years 2008, 2007 and 2006:
The following table summarizes the activity related to restructuring
liabilities that were recorded in the six months ended January 31, 2009 and in
fiscal years 2008, 2007 and 2006:
Lease
Termination
Liabilities &
Severance Other Total
2009
Original charge $ 7,721 $ 2,291 $ 10,012
Utilized (2,575 ) (537 ) (3,112 )
Other changes (a) (148 ) (19 ) (167 )
Balance at Jan. 31, 2009 $ 4,998 $ 1,735 $ 6,733
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 (369 ) (201 ) (570 )
Reversal of excess reserves (b) (3 ) (4 ) (7 )
Other changes (a) (114 ) (23 ) (137 )
Balance at Jan. 31, 2009 $ 489 $ 39 $ 528
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 (1,277 ) - (1,277 )
Reversal of excess reserves (b) (35 ) - (35 )
Other changes (a) (203 ) (6 ) (209 )
Balance at Jan. 31, 2009 $ 2,023 $ 16 $ 2,039
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Lease
Termination
Liabilities &
Severance Other Total
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 (518 ) - (518 )
Other changes (a) - - -
Balance at Jan. 31, 2009 $ 333 $ - $ 333
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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 $63,099 in the
quarter compared to $77,480 in the second quarter of fiscal year 2008,
reflecting the factors discussed above. As a percentage of sales, EBIT was 11.6%
compared to 12.4% in the second quarter of fiscal year 2008. EBIT were $134,876
in the first six months compared to $142,145 in the first six months of fiscal
year 2008, reflecting the factors discussed above. As a percentage of sales,
EBIT was 12%, on par with the first six months of fiscal year 2008.
Net interest expense in the quarter decreased to $6,553 from $8,063 in the
second quarter of fiscal year 2008. The reduction in net interest expense was
primarily attributable to a decrease in interest expense, which was related to
lower interest rates in the United States, and a reduced level of debt due to
the repayment of higher interest bearing European debt. A decrease in interest
income related to reduced cash balances and lower returns compared to the same
period last year partly offset the above. For the first six months, net interest
expense increased slightly to $15,979 from $15,784 in the first six months of
fiscal year 2008 as a reduction in interest income was partially offset by a
decrease in interest expense.
In the second quarter of fiscal year 2009, the Company's effective tax rate
was 31.3% as compared to 30.9% in the second quarter of fiscal year 2008. For
the first six months of fiscal year 2009, the Company's effective tax rate was
31.1% as compared to 33.5% in the same period of fiscal year 2008. For the three
months ended January 31, 2009 and 2008, the effective tax rate varied from the
U.S. federal statutory rate primarily due to the benefits of foreign operations.
For the six months ended January 31, 2009, 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. For the six months ended
January 31, 2008, the effective tax rate varied from the U.S. federal statutory
rate primarily due to the net impact of foreign operations and a tax charge
resulting from new tax legislation in Germany. The Company expects its effective
tax rate to be 31.3% 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 $38,871, or 33 cents per share, compared
with net earnings of $47,988, or 39 cents per share in the second quarter of
fiscal year 2008. In summary, the decline in net earnings dollars in the quarter
reflects the decrease in EBIT and an increase in the effective tax rate partly
offset by a decline in net interest expense. The decline in earnings per share
in the quarter reflects the decrease in net earnings partly offset by the impact
of reduced shares outstanding due to stock buybacks. Net earnings in the first
six months were $81,958, or 68 cents per share, compared with net earnings of
$84,090, or 68 cents per share in the first six months of fiscal year 2008. In
summary, the decline in net earnings dollars in the first six months primarily
reflects the decrease in EBIT partly offset by a decrease in the effective tax
rate. Earnings per share in the first six months was flat compared to last year
as a decrease in net earnings was offset by the impact of reduced shares
outstanding due to stock buybacks. Company management estimates that foreign
currency translation reduced net earnings by 3 cents per share in both the
quarter and first six months. The acquisition of GeneSystems was dilutive to
earnings by 1 cent and 3 cents per share in the quarter and first six months,
respectively.
Review of Operating Segments
The following table presents sales and operating profit by segment,
reconciled to earnings before income taxes, for the three and six months ended
January 31, 2009 and January 31, 2008.
% % %
Three Months Ended Jan. 31, 2009 Margin Jan. 31, 2008 Margin Change
SALES:
Life Sciences $ 225,022 $ 244,480 (8.0 )
Industrial 318,274 381,267 (16.5 )
Total $ 543,296 $ 625,747 (13.2 )
OPERATING PROFIT:
Life Sciences $ 48,602 21.6 $ 48,153 19.7 0.9
Industrial 35,882 11.3 55,443 14.5 (35.3 )
Total operating profit 84,484 15.6 103,596 16.6 (18.4 )
General corporate expenses 12,638 12,257 3.1
Earnings before ROTC, interest
expense, net and income taxes 71,846 13.2 91,339 14.6 (21.3 )
ROTC 8,747 13,859
Interest expense, net 6,553 8,063
Earnings before income taxes $ 56,546 $ 69,417
% % %
Six Months Ended Jan. 31, 2009 Margin Jan. 31, 2008 Margin Change
SALES:
Life Sciences $ 445,351 $ 459,094 (3.0 )
Industrial 675,967 727,660 (7.1 )
Total $ 1,121,318 $ 1,186,754 (5.5 )
OPERATING PROFIT:
Life Sciences $ 90,470 20.3 $ 87,936 19.2 2.9
Industrial 90,988 13.5 100,520 13.8 (9.5 )
Total operating profit 181,458 16.2 188,456 15.9 (3.7 )
General corporate expenses 29,660 23,683 25.2
Earnings before ROTC, interest
expense, net and income taxes 151,798 13.5 164,773 13.9 (7.9 )
ROTC 16,922 22,628
Interest expense, net 15,979 15,784
Earnings before income taxes $ 118,897 $ 126,361
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Life Sciences: Presented below are Summary Statements of Operating Profit for the Life Sciences segment for the three and six months ended January 31, 2009 and January 31, 2008: Three Months Ended Jan. 31, 2009 % of Sales Jan. 31, 2008 % of Sales Sales $ 225,022 $ 244,480 Cost of sales 109,720 48.8 123,137 50.4 Gross margin 115,302 51.2 121,343 49.6 SG&A 57,086 25.4 62,982 25.8 Research and development 9,614 4.2 10,208 4.2 Operating profit $ 48,602 21.6 $ 48,153 19.7 Six Months Ended Jan. 31, 2009 % of Sales Jan. 31, 2008 % of Sales Sales $ 445,351 $ 459,094 Cost of sales 215,530 48.4 226,603 49.4 Gross margin 229,821 51.6 232,491 50.6 SG&A 119,470 26.8 124,729 27.2 Research and development 19,881 4.5 19,826 4.3 Operating profit $ 90,470 20.3 $ 87,936 19.2 |
The tables below present sales by market and geography within the Life Sciences segment for the three and six months ended January 31, 2009 and January 31, 2008, including the effect of exchange rates for comparative purposes.
%
Exchange Change in
% Rate Local
Three Months Ended Jan. 31, 2009 Jan. 31, 2008 Change Impact Currency
By Market
Medical (a) $ 96,887 $ 106,432 (9.0 ) $ (5,948 ) (3.4 )
BioPharmaceuticals (a) 128,135 138,048 (7.2 ) (9,843 ) (0.1 )
Total Life Sciences $ 225,022 $ 244,480 (8.0 ) $ (15,791 ) (1.5 )
By Geography
Western Hemisphere $ 84,867 $ 95,897 (11.5 ) $ (705 ) (10.8 )
Europe 107,676 117,471 (8.3 ) (15,163 ) 4.6
Asia 32,479 31,112 4.4 77 4.1
Total Life Sciences $ 225,022 $ 244,480 (8.0 ) $ (15,791 ) (1.5 )
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(a) The BioPharmaceuticals market includes the Laboratory market previously reported in Medical. Prior year amounts conform to the current classification.
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