Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our dedicated employees are focused on providing clients with exactly what they need to improve and expedite the discovery, early-stage development and safe manufacture of new therapies for the patients who need them.
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|Charles River Announces Third-Quarter 2010 Results|
WILMINGTON, Mass., Nov 03, 2010 (BUSINESS WIRE) -- Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the third quarter of 2010. For the quarter, net sales were $276.1 million, a decline of 7.2% from $297.5 million in the third quarter of 2009. Foreign currency translation reduced the reported sales by 1.6%. Sales declined in both the Preclinical Services (PCS) and Research Models and Services (RMS) segments.
On a GAAP basis, the net loss attributable to common shareholders for the third quarter of 2010 was $24.9 million, or $0.40 per diluted share, compared to net income of $37.3 million, or $0.57 per diluted share, for the third quarter of 2009. This quarter's GAAP results include the impact of the previously reported $30.0 million fee related to the termination of the acquisition agreement with WuXi PharmaTech (Cayman) Inc.
On a non-GAAP basis, net income was $28.4 million for the third quarter of 2010, compared to $42.6 million for the same period in 2009, a decrease of 33.4%. Third-quarter diluted earnings per share on a non-GAAP basis were $0.45, a decrease of 30.8% compared to $0.65 per share in the third quarter of 2009. Both the GAAP and non-GAAP results were impacted by lower sales volume and higher costs related to the Company's enterprise resource planning (ERP) initiative, partially offset by prior cost-savings actions.
James C. Foster, Chairman, President and Chief Executive Officer, said, "Our third-quarter results continue to reflect the challenges the global pharmaceutical industry is facing. The RMS segment has continued to perform relatively well in the current environment, as our clients invest in discovery of new therapeutic agents. However, the PCS segment has continued to feel the effects of constrained development spending as evidenced by lower volumes, a less robust study mix and continued pricing pressure."
"We are steadfast in our belief that global pharmaceutical companies will ultimately reinvigorate their early development pipelines and increasingly choose to outsource development services to market-leading contract research partners like Charles River. The actions we are taking to appropriately align our infrastructure to current demand will enable us to profitably meet the challenges we are facing, and position us for improved profitability when demand improves," Mr. Foster concluded.
In recognition of the continuing softness in demand from our global pharmaceutical clients, the Company is undertaking certain additional actions in the fourth quarter of 2010 to align its infrastructure to the current operating environment. The initiatives include a headcount reduction of approximately 4%, including personnel from RMS, PCS and Corporate functions; further reductions of discretionary spending; closure of a leased satellite PCS facility in Laval, Quebec; and consolidation of its Discovery and Imaging Services (DIS) operation in Michigan with its larger facility in North Carolina.
The fourth-quarter actions are expected to generate annual savings of approximately $40 million beginning in 2011. The Company anticipates that it will record a one-time charge associated with these actions of approximately $15 million, principally in the fourth-quarter of 2010. The Company has not completed its impairment analysis of intangibles related to the Michigan DIS operation at this time.
Third-Quarter Segment Results
Research Models and Services (RMS)
Sales for the RMS segment were $159.3 million in the third quarter of 2010, a decrease of 2.5% from $163.3 million in the third quarter of 2009. Foreign currency translation reduced the sales growth rate by 2.2%. Excluding the effect of foreign exchange, RMS sales were essentially flat in the third quarter. Higher research model services sales were offset by lower research model and other product sales.
In the third quarter of 2010, the RMS segment's GAAP operating margin was 26.9% compared to 28.2% for the third quarter of 2009. On a non-GAAP basis, the operating margin decreased to 28.1% from 30.2% in the third quarter of 2009. The margin decline was primarily attributable to lower sales of research models.
Preclinical Services (PCS)
Third-quarter 2010 net sales for the PCS segment were $116.8 million, a decrease of 12.9% from $134.2 million in the third quarter of 2009. The PCS sales decline was due primarily to slower demand for our services from our large pharmaceutical clients, as well as continued pricing pressure. Foreign currency translation reduced the sales growth rate by 0.9%.
The third-quarter 2010 GAAP operating margin declined to 3.3% from 7.5% in the third quarter of 2009. On a non-GAAP basis, the operating margin declined to 11.3% from 13.8% in the third quarter of 2009. Reduced study volume, a greater proportion of short-term studies in the sales mix and the continued impact of lower pricing resulted in lower operating margins for the PCS segment, partially offset by the benefit of prior cost-savings actions.
Stock Repurchase Update
Under the Accelerated Stock Repurchase (ASR) program, announced on August 27, 2010 to repurchase $300 million of common stock, the Company received 6.75 million shares from Morgan Stanley & Co. Incorporated in the third quarter of 2010. This includes the initial delivery of 6 million shares on August 27 and an additional 750,000 shares on September 23. Morgan Stanley is not obligated to deliver any additional shares until the ASR program has been completed, which is expected to extend to February 2011, but may conclude earlier at Morgan Stanley's option.
Prior to the implementation of the ASR program, the Company repurchased 1.8 million shares in August 2010 for $52.9 million through open-market purchases. On October 20, 2010, the Board of Directors increased the stock repurchase authorization, which was originally approved in July 2010 at $500 million, by an incremental $250 million, for an aggregate amount of $750 million. Upon completion of the ASR program, Charles River is expected to have $397.1 million remaining on the $750 million stock repurchase authorization.
In the third quarter, the Company repatriated $291.6 million, including $121.6 million of cash held by our foreign subsidiaries and $170.0 million of cash borrowed by our foreign subsidiaries under the new credit facility. As a result of the repatriation, the Company incurred a one-time tax charge of $12.1 million in the third quarter. The tax expense associated with this repatriation was excluded from non-GAAP results, as were $0.4 million of advisory fees associated with the repatriation effort. The cash was used to partially fund the ASR and the $30.0 million termination fee paid to WuXi PharmaTech.
For the first nine months of 2010, net sales decreased by 4.6% to $865.5 million from $907.2 million in the same period in 2009. Foreign currency translation benefited net sales growth by 0.6%.
On a GAAP basis, net income attributable to common shareholders was $6.9 million, or $0.11 per diluted share, for the first nine months of 2010, compared to $96.9 million, or $1.47 per diluted share, for the same period in 2009. The results for 2010 include the impact of the $30.0 million termination fee related to the acquisition agreement with WuXi PharmaTech.
On a non-GAAP basis, net income for the first nine months of 2010 was $89.9 million, or $1.38 per diluted share, compared to $123.9 million, or $1.89 per diluted share, for the same period in 2009.
Research Models and Services (RMS)
For the first nine months of 2010, RMS net sales were $498.6 million, an increase of 1.7% from net sales of $490.5 million in the same period in 2009. Foreign currency translation had a minimal impact on the year-to-date period. On a GAAP basis, the RMS segment operating margin was 28.1% in the first nine months of 2010, compared to 29.5% for the prior-year period. On a non-GAAP basis, the operating margin was 29.2% compared to 31.2% in the same period in 2009.
Preclinical Services (PCS)
For the first nine months of 2010, PCS net sales were $366.9 million, a decrease of 11.9% from net sales of $416.7 million in the same period in 2009. Foreign currency translation benefited net sales growth by 1.3%. On a GAAP basis, the PCS segment operating margin was 2.3% in the first nine months of 2010, compared to 8.9% in the prior-year period. On a non-GAAP basis, the operating margin was 10.9% in the first nine months of 2010 compared to 15.5% for the same period in 2009.
Items Excluded from Non-GAAP Results
Items excluded from non-GAAP results in the third quarter of 2010 and 2009 were as follows:
(1) In the third quarter of both periods, these items were related primarily to an asset impairment associated with the Company's planned disposition of its PCS facility in Arkansas.
Items excluded from non-GAAP results in the first nine months of 2010 and 2009 were as follows:
(1) In the first nine months of 2010, these items were related primarily to an asset impairment associated with the Company's planned disposition of its PCS facility in Arkansas. In the first nine months of 2009, these items were related primarily to an asset impairment and costs associated with the Company's planned disposition of its PCS facility in Arkansas and the divestiture of its clinical Phase I business in Scotland, as well as additional miscellaneous expenses.
The Company is reducing its forward-looking guidance for 2010, which was previously provided on August 2, 2010. This updated guidance assumes that fourth-quarter RMS and PCS sales remain relatively unchanged from third-quarter levels. Foreign currency translation is now expected to reduce 2010 sales growth by less than 1% compared to 2009. In addition, 2010 EPS guidance does not assume the delivery of any additional shares during the fourth quarter under the ongoing ASR program.
(1) These items include severance costs associated with our fourth-quarter actions as well as severance costs and operating losses primarily attributable to the suspension of operations at its PCS facility in Massachusetts.
(2) These items are primarily related to the fourth-quarter actions as well as an asset impairment associated with the Company's planned disposition of its PCS facility in Arkansas and the adjustment of contingent consideration related to acquisitions.
(3) This item is related to the advisory fees, termination fee and related deal costs primarily associated with the proposed acquisition of WuXi PharmaTech.
Charles River Laboratories has scheduled a live webcast on Thursday, November 4, at 8:00 a.m. ET to discuss matters relating to this press release. To participate, please go to ir.criver.com and select the webcast link. You can also find the associated slide presentation and reconciliations of non-GAAP financial measures to comparable GAAP financial measures on the website.
Use of Non-GAAP Financial Measures
This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, which exclude amortization of intangible assets and other charges related to our acquisitions, expenses associated with evaluating acquisitions (including costs related to the termination of the acquisition of WuXi PharmaTech), charges and operating losses attributable to our businesses we plan to close or divest, severance costs associated with our 2009 and 2010 cost-saving actions, tax expense (benefit) associated with the repatriation of cash into the United States, write-offs of deferred financing costs related to the extinguishment of debt, the additional interest recorded as a result of the adoption in 2009 of an accounting standard related to our convertible debt accounting which increased interest and depreciation expense, gains from the sale of U.K. real estate, and the positive impact of adjustments to contingent consideration payable for earlier acquisitions. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. There are limitations in using non-GAAP financial measures, as they are not prepared in accordance with generally accepted accounting principles, and may be different than non-GAAP financial measures used by other companies. In particular, we believe that the inclusion of supplementary non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of our core operating results and future prospects without the effect of these often-one-time charges, and is consistent with how management measures and forecasts the Company's performance, especially when comparing such results to prior periods or forecasts. We believe that the financial impact of our acquisitions (and in certain cases, the evaluation of such acquisitions, whether or not ultimately consummated) is often large relative to our overall financial performance, which can adversely affect the comparability of our results on a period-to-period basis. In addition, certain activities, such as business acquisitions, happen infrequently and the underlying costs associated with such activities do not recur on a regular basis. Non-GAAP results also allow investors to compare the Company's operations against the financial results of other companies in the industry who similarly provide non-GAAP results. The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules and regulations. Reconciliations of the non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures are set forth in the text of this press release, and can also be found on the Company's website at ir.criver.com.
Caution Concerning Forward-Looking Statements
This news release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "anticipate," "believe," "expect," "will," "may," "estimate," "plan," "outlook," and "project" and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These statements also include statements regarding our projected 2010 financial performance including sales and earnings; the future demand for drug discovery and development products and services (particularly in light of the challenging economic environment); our expectations regarding stock repurchases, which include our accelerated stock repurchase program, the number of shares to be repurchased, expected timing and duration, the amount of capital that may be expended and the treatment of repurchased shares; the development and performance of our services and products; market and industry conditions including the outsourcing of these services and present spending trends by our customers; the impact of specific actions intended to more accurately align our infrastructure to the current operating environment, and to improve overall operating efficiencies and profitability; and Charles River's future performance as delineated in our forward-looking guidance, and particularly our expectations with respect to sales and foreign exchange impact. Forward-looking statements are based on Charles River's current expectations and beliefs, and involve a number of risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking statements. Those risks and uncertainties include, but are not limited to: the ability to successfully integrate businesses we acquire; the ability to execute our fourth-quarter 2010 actions on an effective and timely basis; negative trends in research and development spending, negative trends in the level of outsourced services, or other cost reduction actions by our customers; the ability to convert backlog to sales; special interest groups; contaminations; industry trends; new displacement technologies; USDA and FDA regulations; changes in law; continued availability of products and supplies; loss of key personnel; interest rate and foreign currency exchange rate fluctuations; changes in tax regulation and laws; changes in generally accepted accounting principles; and any changes in business, political, or economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas. A further description of these risks, uncertainties, and other matters can be found in the Risk Factors detailed in Charles River's Annual Report on Form 10-K as filed on February 19, 2010, as well as other filings we make with the Securities and Exchange Commission. Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from results and events currently expected by Charles River, and Charles River assumes no obligation and expressly disclaims any duty to update information contained in this news release except as required by law.
About Charles River
Accelerating Drug Development. Exactly. Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our approximately 7,500 employees worldwide are focused on providing clients with exactly what they need to improve and expedite the discovery, development through first-in-human evaluation, and safe manufacture of new therapies for the patients who need them. To learn more about our unique portfolio and breadth of services, visit http://www.criver.com.
SOURCE: Charles River Laboratories International, Inc.
Charles River Laboratories International, Inc.