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Hill-Rom Reports Second Quarter Financial Results
- Revenue of
- Adjusted earnings per fully diluted share from continuing operations was
- GAAP loss per fully diluted share from continuing operations of
- Adjusted operating expenses exclusive of Liko declined
- Liko performance and integration progressing as expected
- Cash flow and liquidity improved versus prior year and sequentially
- Management updates adjusted annual financial guidance for fiscal year 2009 to
Management Comments
"Consistent with our previous outlook, U.S. hospital and extended care customers continued to take a very cautious view toward capital spending as a result of recessionary concerns, yet our International and Post Acute businesses held steady. Our sales results also suggest that Hill-Rom is faring about the same as other capital equipment-intensive medical technology companies," commented
Soderberg continued, "As a result of our manufacturing, service, and operating expense cost control initiatives, gross profit and operating profit margins, as adjusted, expanded both sequentially and year-over-year. We limited the decline in adjusted operating income to 2.2 percent, while only slightly reducing our investments in selling and R&D. While we cannot predict the timing of when hospitals and other providers will return to more normalized capital acquisition behavior, we should be well positioned to resume our predicted long term growth rates in sales and profitability once the underlying fundamentals of demand for our products are restored. In the meantime, we will continue to focus on actions to improve our cost structure and increase our customer value proposition."
As a result of the decline in our market capitalization as measured on
Soderberg concluded, "In spite of unprecedented pressures on the enterprise, Hill-Rom's financial position remains strong. We are diversifying our business, and delivering growth at or above market in most of our units. Our balance sheet is healthy, cash flow increased both sequentially and year-over-year and the cadence of new product introduction continues to improve."
Other second quarter revenue highlights regarding Hill-Rom business segments include:
--
-- International and Surgical. Revenue increased
--
Other Second Quarter Financial and Operational Highlights
-- Gross profit declined
-- Operating expenses declined by
-- Hill-Rom cash flow from operations was
-- The income tax rate for the quarter is unusual in light of the significance of the non-cash intangible charge and the lack of deductibility of this charge for income tax purposes. On an as adjusted basis, the effective tax rate was 35.2 percent for the quarter compared to 40.9 percent in the prior year. Discrete tax expense was recognized in each period in the amounts of
-- During the quarter we announced a plan to aggressively manage our cost structure through: Consolidation of certain manufacturing and selected back office operations; redeployment of U.S. sales and service resources to increase our customer presence and support; reduction in non-sales, non-research and development expenses; a voluntary early retirement program, and involuntary job eliminations. We also wrote-off certain operating assets associated with these initiatives. In conjunction with these actions we recognized a special charge of nearly
-- During the quarter, the company successfully resolved an outstanding Food and Drug Administration (FDA) Warning Letter.
On
Please see the attached schedules for additional information, including reconciliations of earnings in accordance with U.S. generally accepted accounting principles ("GAAP") to as adjusted income and earnings per share, condensed financial information, summary balance sheet information and segment sales summaries.
For a more complete review of Hill-Rom's results, please refer to our Quarterly Report on Form 10-Q for the quarter ended
Financial Guidance Summary For 2009
Management is updating full year 2009 adjusted financial guidance. Soderberg stated, "In spite of unprecedented economic turmoil affecting customer demand, we are in a position to update our guidance because of year to date performance and expense management actions that have improved cash flow and profitability versus our earlier outlook."
Hill-Rom's consolidated revenue guidance range for fiscal 2009 is expected to be
Hill-Rom Holdings, Inc. provides earnings per share guidance on an adjusted basis from continuing operations because the company's management believes that the presentation provides useful information to investors. This measure excludes strategic developments, special charges, the impact of significant litigation and impairment charges. Such items may be highly variable, difficult to predict and of a size that sometimes have substantial impact on the company's reported operations for a period. Often, quantification of such items is not feasible. Management uses these measures internally for planning, forecasting and evaluating the performance of the business, including evaluating results relative to employee performance compensation targets. Investors should consider non-GAAP measures in addition to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP.
Conference Call Replay and Webcast
The company will sponsor a conference call and webcast for the investing public at
About Hill-Rom Holdings, Inc.
Hill-Rom is a leading worldwide manufacturer and provider of medical technologies and related services for the health care industry, including patient support systems, safe mobility and handling solutions, non-invasive therapeutic products for a variety of acute and chronic medical conditions, medical equipment rentals and information technology solutions. Hill-Rom's comprehensive product and service offerings are used by health care providers across the health care continuum and around the world in hospitals, extended care facilities and home care settings to enhance the safety and quality of patient care.
Hill-Rom...enhancing outcomes for patients and their caregivers.
Disclosure Regarding Forward-Looking Statements
Certain statements in this press release contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the Company's future plans, objectives, beliefs, expectations, representations and projections. The Company has tried, wherever possible, to identify these forward-looking statements using words such as "intend," "anticipate," "believe," "plan," "encourage," "expect," "may," "goal," "become," "pursue," "estimate," "strategy," "will," "should," "projection," "forecast," "continue," "accelerate," "promise," "increase," "higher," "lower," "reduce," "improve," "expand," "progress," "potential," "maintain," "fare" or the negative of those terms or other variations of them or by comparable terminology. The absence of such terms, however, does not mean that the statement is not forward-looking. It is important to note that forward-looking statements are not guarantees of future performance, and the Company's actual results could differ materially from those set forth in any forward-looking statements. Factors that could cause actual results to differ from forward-looking statements include but are not limited to: the Company's dependence on its relationships with several large group purchasing organizations, whether the Company's new products are successful in the marketplace, changes in customers' Medicare reimbursements, collections of accounts receivable, compliance with FDA regulations, antitrust litigation, potential exposure to product liability or other claims, failure of the Company's announced or future strategic initiatives and restructuring and realignment activities to achieve expected growth, efficiencies or cost reductions, disruptions in the Company's business or other adverse consequences resulting from the recent spin-off of the funeral service business, failure to realize the anticipated benefits of the spin-off, failure of the Company to execute its acquisition and business alliance strategy through the consummation and successful integration of acquisitions or entry into joint ventures or other business alliances, increased costs or unavailability of raw materials, adverse changes in global economic conditions or disruptions of credit markets, labor disruptions, the ability to retain executive officers and other key personnel, and certain tax-related matters. For a more in depth discussion of these and other factors that could cause actual results to differ from those contained in forward-looking statements, see the discussions under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the period ended
Hill-Rom Holdings, Inc.
Condensed Financial Information
Unaudited
(Dollars in millions except per share data)
Condensed Statement of
Earnings 2Q09 1Q09 4Q08 3Q08 2Q08
----------------------- ------ ------ ------ ------ ------
Net revenues
Capital sales $219.6 $236.0 $309.3 $249.9 $255.3
Rental revenues 117.7 115.6 115.0 116.9 119.9
----- ----- ----- ----- -----
Total revenues 337.3 351.6 424.3 366.8 375.2
Cost of revenues
Cost of goods sold 133.2 146.5 181.3 150.5 150.3
Rental expenses 50.7 52.6 53.4 55.7 57.6
---- ---- ---- ---- ----
Total cost of revenues 183.9 199.1 234.7 206.2 207.9
Gross profit
Capital sales 86.4 89.5 128.0 99.4 105.0
Rental revenues 67.0 63.0 61.6 61.2 62.3
---- ---- ---- ---- ----
Total gross profit 153.4 152.5 189.6 160.6 167.3
As a percentage of sales 45.5% 43.4% 44.7% 43.8% 44.6%
Operating expense 128.1 129.5 133.4 137.3 146.9
As a percentage of sales 38.0% 36.8% 31.4% 37.4% 39.2%
Impairment of goodwill and
other intangibles (470.0) - - - -
Special charges (17.8) - (20.5) - -
----- ----- ----- ----- -----
Operating (loss) profit (462.5) 23.0 35.7 23.3 20.4
Other income/(expense), net (1.5) (2.0) (2.9) (1.3) (3.5)
Income tax expense (1) 1.8 6.8 9.0 0.5 7.5
------- ----- ----- ----- ----
(Loss) Income from
continuing operations $(465.8) $14.2 $23.8 $21.5 $9.4
------- ----- ----- ----- ----
Diluted (loss) earnings
per share:
(Loss) Earnings per share
from continuing
operations $(7.44) $0.23 $0.38 $0.34 $0.15
Average common shares
outstanding - diluted
(thousands) 62,578 62,808 62,734 62,655 62,566
Dividends per common share $0.1025 $0.1025 $0.1025 $0.1025 $0.2850
Consolidated Cash Flows
from Operations (2)
Cash flow from operations $55.1 $34.9 $43.3 $23.0 $84.1
Less: capital expenditures (16.0) (13.6) (25.3) (20.6) (30.7)
----- ----- ----- ----- -----
Consolidated free cash flow $39.1 $21.3 $18.0 $2.4 $53.4
----- ----- ----- ---- -----
Cash and cash equivalents $84.6 $49.5 $221.7 $131.2 $145.9
Investments and
investment securities (3) $44.8 $43.0 $45.6 $47.0 $49.4
Hill-Rom Capital Expenditures $16.0 $13.6 $25.3 $20.6 $28.7
Hill-Rom Depreciation &
Amortization $24.8 $26.1 $28.1 $25.5 $25.5
(1) For fiscal year 2008, discrete tax benefits totaled $8.3 million
($0.13 per share), $7.8 million ($0.12 per share) of which was
recognized in the third fiscal quarter, principally associated with
the release of valuation allowances on foreign tax credit
carryforwards and the recognition of certain previously unrecognized
tax benefits associated with recently completed tax audits. For the
three- and six-month periods ended March 31, 2009, we recognized
discrete tax expense of $0.8 million and discrete tax benefits of $0.5
million, respectively, compared to discrete tax expense of $1.8
million and $1.1 million in the prior period comparable periods.
(2) Consolidated cash flow amounts are "as reported" and thus include cash
flows from the funeral services business through March 31, 2008.
(3) Beginning June 30, 2008, investment securities were classified as long
term assets on the balance sheet.
Consolidated Results - Highlights
Revenues - Constant Currency
($ In Millions) Q2 2009 Y/Y Foreign Q2 2009 Q2 2008 Adj/Actual
Actual Exchange Adjusted Actual % Change
------ -------- -------- ------ --------
Acute Care $188.6 $4.3 $192.9 $230.9 -16.5%
Post Acute Care 48.9 - 48.9 48.0 1.9%
International and
Surgical 100.8 12.2 113.0 97.0 16.5%
Eliminations (1.0) - (1.0) (0.7) 42.9%
---- ----- ---- ---- ----
Total $337.3 $16.5 $353.8 $375.2 -5.7%
====== ===== ====== ====== ====
YTD 2009 Y/Y Foreign YTD 2009 YTD 2008 Adj/Actual
Actual Exchange Adjusted Actual % Change
------ -------- -------- ------ --------
Acute Care $392.1 $6.4 $398.5 $442.2 -9.9%
Post Acute Care 99.3 - 99.3 96.1 3.3%
International and
Surgical 199.7 20.2 219.9 180.5 21.8%
Eliminations (2.2) - (2.2) (2.2) 0.0%
---- ----- ---- ---- ---
Total $688.9 $26.6 $715.5 $716.6 -0.2%
====== ===== ====== ====== ====
Non-GAAP Financial Disclosures and Reconciliations
While Hill-Rom reports financial results in accordance with U.S. GAAP,
this press release includes non-GAAP measures. These non-GAAP measures are
not in accordance with, nor are they a substitute for, GAAP measures.
Hill-Rom uses the non-GAAP measures to evaluate and manage its operations
and provides the information to assist investors in performing financial
analysis that is consistent with financial models developed by research
analysts. Investors should consider non-GAAP measures in addition to, not
as a substitute for, or as superior to, measures of financial performance
prepared in accordance with GAAP.
Income from
Loss from Continuing Continuing Operations
Second Quarter Operations - 2009 - 2008
-------------------- ----------------------
Income Diluted Income Diluted
Pre-tax Taxes EPS Pre-tax Taxes EPS
------- ----- --- ------- ----- ---
(Loss) Income from
continuing
operations - GAAP $(464.0) $1.8 $(7.44) $16.9 $7.5 $0.15
Adjustments:
Impairment of
goodwill and
other intangibles 470.0 - 7.51 - - -
Effect of Liko
inventory valuation 1.0 0.3 0.01 - - -
Acquisition
integration charges 0.8 0.3 0.01 - - -
Special charges 17.8 6.6 0.18 - - -
Stock modification
charge - - - 5.8 2.1 0.06
Loss on
extinguishment of
debt - - - 3.2 1.2 0.03
Separation costs - - - 1.5 0.4 0.02
--- --- --- --- --- ----
Income from continuing
operations - Adjusted $25.6 $9.0 $0.27 $27.4 $11.2 $0.26
===== ==== ===== ===== ===== =====
Income from
Loss from Continuing Continuing Operations
Year-to-Date Operations - 2009 - 2008
-------------------- ----------------------
Income Diluted Income Diluted
Pre-tax Taxes EPS Pre-tax Taxes EPS
------- ----- --- ------- ----- ---
(Loss) Income from
continuing
operations - GAAP $(443.0) $8.6 $(7.22) $37.5 $15.7 $0.35
Adjustments:
Impairment of
goodwill and
other intangibles 470.0 - 7.51 - - -
Effect of Liko
inventory valuation 2.9 0.8 0.03 - - -
Acquisition
integration charges 1.1 0.4 0.01 - - -
Special charges 17.8 6.6 0.18 2.3 0.9 0.02
Stock modification
charge - - - 5.8 2.1 0.06
Loss on
extinguishment of
debt - - - 3.2 1.2 0.03
Separation costs - - - 1.6 0.4 0.02
--- --- --- --- --- ----
Income from continuing
operations - Adjusted $48.8 $16.4 $0.52 $50.4 $20.3 $0.48
===== ===== ===== ===== ===== =====
Note: Certain per share amounts may not accurately add due to rounding.
Note: Earnings in the above presentation of adjusted income from
continuing operations have not been adjusted to remove the effects of
discrete period tax adjustments recognized in any of the periods
presented. Discrete period tax adjustments are routinely recognized
throughout any given year under a variety of circumstances and are highly
subjective in nature. For the three- and six-month periods ended March
31, 2009, we recognized discrete tax expense of $0.8 million and discrete
tax benefits of $0.5 million, respectively, compared to discrete tax
expense of $1.8 million and $1.1 million in the prior period comparable
periods.
Selected Summary Balance Sheet Schedule
3/31/2009 12/31/2008
--------- ----------
Assets
Current Assets
Cash and cash equivalents $84.6 $49.5
Trade accounts receivable, net of allowances 326.3 348.8
Inventories 120.3 127.3
Other current assets 66.7 50.1
---- ----
Total current assets 597.9 575.7
Equipment leased to others, net 163.3 164.3
Property, net 119.5 124.9
Goodwill 80.9 539.1
Other assets 210.1 221.4
----- -----
Total Assets $1,171.7 $1,625.4
======== ========
Liabilities
Current Liabilities
Trade accounts payable $72.4 $80.7
Short-term borrowings 125.9 122.0
Other current liabilities 157.3 144.3
----- -----
Total current liabilities 355.6 347.0
Long-term debt 99.5 100.8
Other long-term liabilities 136.6 115.4
----- -----
Total Liabilities 591.7 563.2
----- -----
Shareholders' Equity 580.0 1,062.2
----- -------
Total Liabilities and
Shareholders' Equity $1,171.7 $1,625.4
======== ========
Financial Guidance for Fiscal Year 2009
Actual 2009 Range
($ in millions, except EPS) 2008 Low High
---- ----- ------
Net Revenues
Capital sales $1,044 $895 $946
Rental revenues 464 470 477
--- --- ---
Total revenues 1,508 1,365 1,423
YoY % Change 11.1% -9.5% -5.6%
Capital sales gross margin % 40.7% 39.0% 40.0%
Rental revenues gross margin % 52.6% 54.3% 55.0%
Total gross margin % 44.4% 44.2% 45.1%
Other operating expenses 544 518 527
Special charges and other
items (see below) 23 492 492
Operating Profit (Loss) 103 (406) (377)
Other income / (expense) (11) (8) (8)
--- -- --
Income (Loss) from Continuing Operations
before Income Taxes 92 (414) (385)
Income (Loss) from Continuing
Operations - GAAP (1) $67 $(433) $(414)
Impairment of goodwill and other
intangibles (2) - 470 470
Liko acquisition inventory step-up - 2 2
Liko acquisition integration charges - 1 1
Special charges (3) 14 13 13
Stock modification charge 4 - -
Loss on extinguishment of debt 2 - -
Separation costs 1 - -
--- --- ---
Income from Continuing Operations -
Adjusted (4) $88 $53 $72
=== === ===
Earnings (Loss) per share - GAAP (1) $1.07 $(6.91) $(6.61)
Impairment of goodwill and other
intangibles (2) - 7.51 7.51
Liko acquisition inventory step-up - 0.03 0.03
Liko acquisition integration charges - 0.02 0.02
Special charges (3) 0.22 0.20 0.20
Stock modification charge 0.06 - -
Loss on extinguishment of debt 0.03 - -
Separation costs 0.02 - -
---- --- ---
Earnings per share - Adjusted (4) $1.40 $0.85 $1.15
===== ===== =====
(1) Effective tax rate for last half of fiscal 2009 estimated to be in
range of 32 to 34 percent, excluding any future discrete tax items.
(2) Does not reflect any true-up of estimated impairment charge in Q3 as
amount of any such adjustment is unknown at this time.
(3) Special charges in fiscal 2009 includes year-to-date charge of $17.8
million and an estimated additional charge of $2 million related to
the finalization of the actions previously announced in January.
(4) Adjusted earnings in the above presentation have not been adjusted
to remove the effects of discrete period tax adjustments recognized in
any of the periods presented. Discrete period tax adjustments are
routinely recognized throughout any given year under a variety of
circumstances and are highly subjective in nature. For fiscal year
2008, discrete tax benefits totaled $8.3 million ($0.13 per share),
while year-to-date discrete tax benefits in fiscal 2009 totaled $0.5
million ($0.01 per share).
SOURCE Hill-Rom Holdings, Inc.