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| PLL > SEC Filings for PLL > Form 10-Q on 9-Jun-2009 | All Recent SEC Filings |
9-Jun-2009
Quarterly Report
Gross margin, as a percentage of sales, was 47.5% in the quarter compared to
48.8% in the third quarter of fiscal year 2008. Gross margins were negatively
impacted by a shift in product mix to a higher percentage of systems sales
(about 13% of total sales in the quarter compared to about 12% in the third
quarter of fiscal year 2008) and a change in market mix within the Industrial
segment resulting from decreased sales in higher margin markets such as
Microelectronics and Industrial Manufacturing as well as within the Life
Sciences segment (a higher percentage of sales in Medical than in the higher
margin BioPharmaceuticals market). Reduced absorption of manufacturing overhead,
related to lower volumes, also negatively impacted gross margins in the quarter.
These negative impacts were partly offset by improved pricing, which contributed
about 100 basis points in margin, and the effects of the ongoing cost reduction
and lean manufacturing initiatives, which offset inflation of manufacturing
costs. For the nine months, gross margin, as a percentage of sales, was 47.7%
compared to 47.2% in the nine months of fiscal year 2008. The increase in gross
margin reflects improved pricing in both segments which contributed
approximately 70 basis points in margin and effects of the ongoing cost
reduction and lean manufacturing initiatives, which offset inflation of
manufacturing costs. These positive impacts were partly offset by a change in
market mix within Industrial and Life Sciences and reduced absorption of
manufacturing overhead related to lower volumes as discussed above. 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 $26,738, or 13.7% (4.4% in local currency). As a percentage of
sales, SG&A expenses were 30.4% compared to 29.5% in the third 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 partly offset by the impact of
the Company's cost reduction initiatives. For the nine months, SG&A expenses
decreased by $28,980, or about 5% (flat in local currency). As a percentage of
sales, SG&A expenses were 30.8% compared to 29.5% in the nine 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, including those related to the expansion into Latin
American and other geographies, as well as consulting costs, mainly related to
the Company's Pricing Excellence and Enterprise Risk Management initiatives,
partly offset by the impact of the Company's cost reduction initiatives
described below.
In fiscal year 2007, the Company launched the equivalent of its European cost
reduction initiative ("EuroPall") in the Western Hemisphere ("AmeriPall"). In
fiscal year 2009, the Company also began implementing the second phase of its
European cost reduction initiative ("EuroPall II"). Furthermore, in the second
and third quarters of fiscal year 2009, the Company commenced plans to reduce
its workforce globally in response to current economic conditions. Savings
related to these cost reduction plans have impacted the third quarter and nine
month results.
Research and development ("R&D") expenses were $16,218 in the quarter
compared to $18,537 in the third quarter of fiscal year 2008, a decrease of
about 12.5% (7.3% in local currency). As a percentage of sales, R&D expenses
were 2.9% compared to 2.8% in the third quarter of fiscal year 2008. For the
nine months, R&D expenses were $52,570 compared to $53,524 in the nine months of
fiscal year 2008, a decrease of about 2% (an increase of 2% in local currency).
As a percentage of sales, R&D expenses were 3.1% compared to 2.9% for the nine
months of fiscal years 2009 and 2008, respectively.
In the third quarter of fiscal year 2009, the Company recorded restructuring
and other charges ("ROTC") of $8,369. ROTC in the quarter was primarily
comprised of severance and other costs related to the Company's cost reduction
initiatives and an increase to a previously established environmental reserve.
Such charges were partly offset by the reversal of excess restructuring reserves
that were previously recorded in the Company's consolidated statements of
earnings in fiscal years 2008 and 2007. In the nine months of fiscal year 2009,
the Company recorded ROTC of $25,291, which was primarily comprised of severance
and other costs related to the Company's on-going cost reduction initiatives, a
charge to write-off in-process R&D acquired in the acquisition of GeneSystems,
SA ("GeneSystems") (refer to Note 3, Acquisitions, to the accompanying condensed
consolidated financial statements for further discussion of purchase
accounting), a charge for the other-than-temporary diminution in value of
certain equity and debt investment securities held by its benefits protection
trust, a charge for the impairment of capitalized software, increases to
previously established environmental reserves, net of an insurance settlement
and legal fees related to matters that were under inquiry by the audit
committee, net of an insurance settlement (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 the reversal of excess
restructuring reserves that were previously recorded in the Company's
consolidated statements of earnings in fiscal years 2008 and 2007.
In the third quarter of fiscal year 2008, the Company recorded ROTC of
$5,495. ROTC in the quarter was primarily comprised of legal and other
professional fees related to matters that were under inquiry by the audit
committee. Additionally, ROTC includes severance and other exit costs related to
the Company's on-going cost reduction initiatives. Such charges were partly
offset by the reversal of excess restructuring reserves previously recorded in
the Company's consolidated statements of earnings in fiscal years 2007 and 2006.
In the nine months of fiscal year 2008, the Company recorded ROTC of $28,123.
ROTC in the nine months was primarily comprised of legal and other professional
fees related to matters that were under inquiry by the audit committee, as
discussed above. Additionally, ROTC in the nine months includes severance and
other exit 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 Company's consolidated statements of earnings in
fiscal years 2007, 2006 and 2005.
The details of ROTC for the three and nine months ended April 30, 2009 and
April 30, 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 nine months ended April 30, 2009 and in
fiscal years 2008, 2007 and 2006:
Lease
Termination
Liabilities &
Severance Other Total
2009
Original charge $ 14,667 $ 3,581 $ 18,248
Utilized (7,587 ) (3,420 ) (11,007 )
Other changes (a) (6 ) 12 6
Balance at Apr. 30, 2009 $ 7,074 $ 173 $ 7,247
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 (607 ) (201 ) (808 )
Reversal of excess reserves (b) (24 ) (4 ) (28 )
Other changes (a) (100 ) (22 ) (122 )
Balance at Apr. 30, 2009 $ 244 $ 40 $ 284
|
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 (1,275 ) (13 ) (1,288 )
Reversal of excess reserves (b) (136 ) - (136 )
Other changes (a) (181 ) (4 ) (185 )
Balance at Apr. 30, 2009 $ 1,946 $ 5 $ 1,951
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 (678 ) - (678 )
Other changes (a) - - -
Balance at Apr. 30, 2009 $ 173 $ - $ 173
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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 $70,896 in the
quarter compared to $103,449 in the third quarter of fiscal year 2008,
reflecting the factors discussed above. The impact of foreign currency
translation reduced EBIT by $12,159 in the quarter. As a percentage of sales,
EBIT was 12.8% compared to 15.6% in the third quarter of fiscal year 2008. EBIT
were $205,772 in the nine months compared to $245,594 in the nine months of
fiscal year 2008, reflecting the factors discussed above. The impact of foreign
currency translation reduced EBIT by $17,773 in the nine months. As a percentage
of sales, EBIT was 12.3% compared to 13.3% in the nine months of fiscal year
2008.
Net interest expense in the quarter decreased to $6,576 from $9,944 in the
third 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 nine months, net interest
expense decreased to $22,555 from $25,728 in the nine months of fiscal year 2008
reflecting the same factors evident in the quarter.
In the third quarter of fiscal year 2009, the Company's effective tax rate
was 31.3% as compared to 32.3% in the third quarter of fiscal year 2008. For the
first nine months of fiscal year 2009, the Company's effective tax rate was
31.2% as compared to 33.0% in the same period of fiscal year 2008. For the three
months ended April 30, 2009 and 2008, the effective tax rate varied from the
U.S. federal statutory rate primarily due to the net impact of foreign
operations. For the nine months ended April 30, 2009, the effective tax rate
varied from the U.S. federal statutory rate primarily due to the net impact of
foreign operations and the retroactive extension of the federal research credit
provided for in the Emergency Economic Stabilization Act of 2008. For the nine
months ended April 30, 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 approximately 31.2% 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 other nonrecurring
factors.
Net earnings in the quarter were $44,162, or 37 cents per share, compared
with net earnings of $63,274, or 51 cents per share in the third quarter of
fiscal year 2008. In summary, the decline in net earnings dollars in the quarter
reflects the decrease in EBIT partly offset by a decline in net interest expense
and a decrease in the effective tax rate. 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 nine
months were $126,120, or $1.05 per share, compared with net earnings of
$147,364, or $1.19 per share in the nine months of fiscal year 2008. In summary,
the decline in net earnings dollars in the nine months primarily reflects the
decrease in EBIT partly offset by a decline in net interest expense and a
decrease in the effective tax rate. 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. Company management estimates
that foreign currency translation reduced net earnings per share by 7 cents in
the quarter and 10 cents in the nine months. The acquisition of GeneSystems was
dilutive to earnings by 1 cent and 4 cents per share in the quarter and nine
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 nine months ended
April 30, 2009 and April 30, 2008.
Apr. 30, % Apr. 30, % %
Three Months Ended 2009 Margin 2008 Margin Change
SALES:
Life Sciences $ 236,320 $ 252,996 (6.6 )
Industrial 319,563 408,684 (21.8 )
Total $ 555,883 $ 661,680 (16.0 )
OPERATING PROFIT:
Life Sciences 52,459 22.2 $ 55,928 22.1 (6.2 )
Industrial 40,569 12.7 66,181 16.2 (38.7 )
Total operating profit 93,028 16.7 122,109 18.5 (23.8 )
General corporate expenses 13,763 13,165 4.5
Earnings before ROTC, interest
expense, net and income taxes 79,265 14.3 108,944 16.5 (27.2 )
ROTC 8,369 5,495
Interest expense, net 6,576 9,944
Earnings before income taxes $ 64,320 $ 93,505
|
Apr. 30, % Apr. 30, % %
Nine Months Ended 2009 Margin 2008 Margin Change
SALES:
Life Sciences $ 681,671 $ 712,090 (4.3 )
Industrial 995,530 1,136,344 (12.4 )
Total $ 1,677,201 $ 1,848,434 (9.3 )
OPERATING PROFIT:
Life Sciences $ 142,929 21.0 $ 143,864 20.2 (0.6 )
Industrial 131,557 13.2 166,701 14.7 (21.1 )
Total operating profit 274,486 16.4 310,565 16.8 (11.6 )
General corporate expenses 43,423 36,848 17.8
Earnings before ROTC, interest
expense, net and income taxes 231,063 13.8 273,717 14.8 (15.6 )
ROTC 25,291 28,123
Interest expense, net 22,555 25,728
Earnings before income taxes $ 183,217 $ 219,866
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Life Sciences: Presented below are Summary Statements of Operating Profit for the Life Sciences segment for the three and nine months ended April 30, 2009 and April 30, 2008: Three Months Ended Apr. 30, 2009 % of Sales Apr. 30, 2008 % of Sales Sales $ 236,320 $ 252,996 Cost of sales 111,662 47.3 119,169 47.1 Gross margin 124,658 52.7 133,827 52.9 SG&A 62,454 26.4 67,763 26.8 Research and development 9,745 4.1 10,136 4.0 Operating profit $ 52,459 22.2 $ 55,928 22.1 Nine Months Ended Apr. 30, 2009 % of Sales Apr. 30, 2008 % of Sales Sales $ 681,671 $ 712,090 Cost of sales 327,192 48.0 345,772 48.6 Gross margin 354,479 52.0 366,318 51.4 SG&A 181,924 26.7 192,492 27.0 Research and development 29,626 4.3 29,962 4.2 Operating profit $ 142,929 21.0 $ 143,864 20.2 |
The tables below present sales by market and geography within the Life Sciences segment for the three and nine months ended April 30, 2009 and April 30, 2008, including the effect of exchange rates for comparative purposes.
Exchange %
% Rate Change in
Three Months Ended Apr. 30, 2009 Apr. 30, 2008 Change Impact Local Currency
By Market
Medical (a) $ 98,051 $ 102,245 (4.1 ) $ (9,560 ) 5.2
BioPharmaceuticals (a) 138,269 150,751 (8.3 ) (17,374 ) 3.2
Total Life Sciences $ 236,320 $ 252,996 (6.6 ) $ (26,934 ) 4.1
By Geography
Western Hemisphere $ 92,170 $ 95,387 (3.4 ) $ (704 ) (2.6 )
Europe 107,663 125,068 (13.9 ) (23,854 ) 5.2
Asia 36,487 32,541 12.1 (2,376 ) 19.4
. . .
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