BAX » Topics » Gross Margin

This excerpt taken from the BAX 10-Q filed Aug 9, 2005.

Gross Margin

 

The improvement in gross margin in both the second quarter and first half of 2005 was principally driven by increased sales of higher-margin recombinant products, cost savings related to the company’s restructuring initiatives (as further discussed below), and improvements in the plasma proteins business. These increases were partially offset by increased costs associated with the company’s pension plans in both the quarter and six-month period (as further discussed below). Refer to the discussion below regarding a $77 million charge recorded in the second quarter of 2005 relating to the Medication Delivery segment’s COLLEAGUE infusion pumps. This charge is included as a separate line item in the consolidated statements of income. In addition, refer to Note 2 regarding certain charges recorded during the second quarter of 2004 which reduced the company’s gross margin in the prior year quarter and year-to-date period.

 

This excerpt taken from the BAX 10-Q filed May 6, 2005.

Gross Margin

 

The improvement in gross margin in the first quarter of 2005 was principally driven by increased sales of higher-margin recombinant products and cost savings related to the company’s restructuring initiatives (as further discussed below). These increases were partially offset by an unfavorable mix in the Medication Delivery segment, which was partially due to lower sales in the Anesthesia product line. In addition, costs associated with the company’s pension and other postemployment benefit (OPEB) plans increased as compared to the prior year quarter (as further discussed below).

 

This excerpt taken from the BAX 10-K filed Mar 16, 2005.

Gross Margin

2004 vs. 2003    The decline in gross margin in 2004 was primarily driven by changes in product mix, pricing pressures, hedging losses and increased costs relating to the company’s employee benefit plans. In the BioScience segment, the gross margin declined in 2004 primarily due to lower margins in the segment’s plasma-based products and vaccines businesses, partially offset by stronger sales of higher-margin recombinant products. In the Medication Delivery segment, the pricing declines associated with the renegotiated contracts with Premier and other GPOs impacted the margin decline. In the Renal segment, the margin declined in 2004 due to higher sales of lower-margin hemodialysis products, and a change in geographic mix. In addition, while 2004 sales benefited from foreign exchange, principally the strengthened Euro, the gross margin rate was unfavorably impacted by the company’s foreign currency hedging activities. Increased inventory reserves (relating to the BioScience segment) and foreign currency hedge adjustments, together totaling $45 million (included in the second quarter 2004 special charges, discussed in Note 4), accounted for almost 1 point of the decline during 2004. Also, costs associated with the company’s employee pension and other postemployment benefit (OPEB) plans increased in 2004. These factors were partially offset by cost savings relating to the company’s 2003 and 2004 restructuring programs, which are further discussed below.

 

2003 vs. 2002    The decline in the gross margin during 2003 was primarily related to the BioScience segment, partially offset by increases in the Medication Delivery segment. Sales of the BioScience segment’s plasma-based products were impacted by increased competition and related pricing pressures, which unfavorably affected the gross margin. Also, sales of higher-margin smallpox vaccines were lower in 2003 as compared to 2002, as 2002 sales benefited from the sale of crude bulk vaccine to Acambis in conjunction with its contract with the United States Government. The increase in the gross margin in the Medication Delivery segment in 2003 was principally due to strong sales of higher-margin anesthesia and drug delivery products, as well as incremental higher-margin sales related to the December 2002 acquisition of ESI. The product mix within Medication Delivery was also favorably impacted by reduced sales in certain lower-margin distribution businesses in countries outside the United States, as a result of management’s decision to slowly withdraw from these businesses. As in 2004, while 2003 sales benefited from the strengthened Euro, the gross margin rate was unfavorably impacted by the company’s foreign currency hedging activities. Also, employee pension and OPEB plan costs increased in 2003.

 

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