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Charles River Announces Second-Quarter 2009 Results
Sales Decrease 12.5% to $308 Million
On a GAAP basis, net income for the second quarter of 2009 was
On a non-GAAP basis, net income was
As a result of the additional cost-saving actions implemented in the
second quarter, which included a reduction of performance-based
compensation and benefits, as well as selective headcount reductions,
the Company recorded a charge of
Mr. Foster continued, “In addition to reporting our second-quarter results today, we are also announcing two acquisitions and a partnership that we believe are strategic opportunities to drive our future growth. We have focused our efforts on identifying those assets and arrangements which we believe will position us to offer our clients novel solutions to the challenges of drug development. Each of these deals brings unique capabilities to Charles River, which we believe are a strategic advantage as we endeavor to offer value-added solutions.”
Second-Quarter Segment Results
Research Models and Services (RMS)
Sales for the RMS segment were
Primarily as a result of cost-savings actions and lower operating
expenses in
Preclinical Services (PCS)
Second-quarter 2009 net sales for the PCS segment were
As expected, lower capacity utilization, pricing pressure and costs
associated with the start-up of new facilities in
Six-Month Results
For the first six months of 2009, net sales decreased by 11.6% to
On a GAAP basis, net income was
On a non-GAAP basis, net income for the first six months of 2009 was
Research Models and Services (RMS)
For the first six months of 2009, RMS net sales were
Preclinical Services (PCS)
For the first six months of 2009, PCS net sales were
Items Excluded from Non-GAAP Results
Items excluded from non-GAAP results in the second quarter of 2009 and 2008 are as follows:
($ in millions) | 2Q09 | 2Q08 | ||
Amortization of intangible assets | $7.2 | $7.6 | ||
Severance related to cost-saving actions | 1.7 | -- | ||
Impairment and other charges (1) | 0.2 | 2.8 | ||
Operating losses for PCS Arkansas and clinical Phase I Scotland | 1.1 | -- | ||
SFAS No. 141(R) (Costs associated with evaluation of acquisitions) | 0.4 | -- | ||
U.S. pension curtailment | -- | (3.3) | ||
FSP No. APB 14-1 (Convertible debt accounting) | 2.7 | 2.0 |
(1) In the second quarter of 2009, these items were related primarily to
costs associated with the Company’s divestiture of its clinical Phase I
business in
Items excluded from non-GAAP results in the first half of 2009 and 2008 are as follows:
($ in millions) | 1H09 | 1H08 | ||
Amortization of intangible assets | $13.4 | $15.2 | ||
Severance related to cost-saving actions | 8.8 | -- | ||
Impairment and other charges (1) | 1.8 | 3.5 | ||
Operating losses for PCS Arkansas and clinical Phase I Scotland | 2.7 | -- | ||
SFAS No. 141(R) (Costs associated with evaluation of acquisitions) | 0.6 | -- | ||
U.S. pension curtailment | -- | (3.3) | ||
FSP No. APB 14-1 (Convertible debt accounting) | 5.1 | 3.7 |
(1) In the first half of 2009, these items were related primarily to an
asset impairment charge and costs associated with the Company’s
divestiture of its clinical Phase I business in
2009 Guidance
The Company is updating its forward-looking guidance for 2009, which was
originally provided on
2009 GUIDANCE | REVISED | PRIOR | ||
Net sales | (7)% - (9)% | (2)% - (7)% | ||
GAAP EPS estimate | $1.78 - $1.90 | $1.86 - $2.16 | ||
Amortization of intangible assets | $0.28 | $0.27 | ||
Severance related to cost-saving actions | $0.10 | $0.08 | ||
Impairment and other charges | $0.02 | $0.02 | ||
Operating losses for PCS Arkansas and clinical Phase I Scotland | $0.04 | $0.04 | ||
SFAS No. 141(R) (Costs associated with evaluation of acquisitions) | $0.01 | -- | ||
FSP No. APB 14-1 (Convertible debt accounting) | $0.12 | $0.11 | ||
Non-GAAP EPS estimate | $2.35 - $2.47 | $2.30 - $2.60 |
Announcing Acquisitions and Strategic Partnership
As our clients continue to change their drug discovery and development models, increasingly using outsourcing as a means by which to improve efficiency and throughput, Charles River is identifying opportunities to better support our clients through a broader portfolio of essential products and services. The following strategic acquisitions and partnership are expanding our ability to capitalize on market opportunities now and in the future, as we position the Company to increasingly add value to our clients’ drug development efforts.
Charles River today announced the closing of the acquisition of
Cerebricon will join Charles River Discovery and Imaging Services (DIS),
a business which has been strategically expanded through the
acquisitions of
Charles River announced today that it has signed an agreement to acquire
SPC will be acquired for an initial payment of approximately
Partnership with
Charles River announced today that it has partnered with
Partnering with MPM offers Charles River the opportunity to establish itself as a provider of choice for a unique client group which is emerging as biopharmaceutical companies are increasingly rationalizing and reprioritizing their development pipelines. This innovative initiative provides them an avenue to develop therapeutic compounds, employing a virtual infrastructure backed by Charles River’s extensive discovery and preclinical services capabilities, thereby accelerating the drug development process in a cost efficient manner.
Webcast
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, charges
related to the dispositions of our clinical Phase I business in
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 2009 sales
and earnings; the future demand for drug discovery and development
products and services (particularly in light of the challenging economic
environment), including the outsourcing of these services and present
spending trends by our customers; the impact of specific actions
intended to improve overall operating efficiencies and profitability;
the timing of the opening of new and expanded facilities by us and our
competitors; the intended acquisition of SPC; Charles River’s
expectations with respect to the impact of SPC and Cerebricon on the
Company, its service offerings, and earnings; Charles River’s
expectations with respect to the partnership with
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 8,500 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 www.criver.com.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | |||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | |||||||||||||
(dollars in thousands, except for per share data) | |||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||
June 27,
2009 |
June 28,
2008 |
June 27,
2009 |
June 28,
2008 |
||||||||||
Total net sales | $ | 308,159 | $ | 352,134 | $ | 609,685 | $ | 689,819 | |||||
Cost of products sold and services provided | 193,696 | 214,147 | 387,002 | 421,455 | |||||||||
Gross margin | 114,463 | 137,987 | 222,683 | 268,364 | |||||||||
Selling, general and administrative | 56,582 | 61,079 | 118,760 | 120,399 | |||||||||
Amortization of intangibles | 7,219 | 7,600 | 13,368 | 15,171 | |||||||||
Operating income | 50,662 | 69,308 | 90,555 | 132,794 | |||||||||
Interest income (expense) | (4,942 | ) | (3,145 | ) | (9,546 | ) | (5,555 | ) | |||||
Other income (expense) | 1,565 | (267 | ) | 1,303 | (1,104 | ) | |||||||
Income before income taxes and noncontrolling interests | 47,285 | 65,896 | 82,312 | 126,135 | |||||||||
Provision for income taxes | 13,630 | 17,088 | 23,788 | 33,271 | |||||||||
Net income | 33,655 | 48,808 | 58,524 | 92,864 | |||||||||
Noncontrolling interests | 499 | 258 | 1,035 | 341 | |||||||||
Net income attributable to common shareholders | $ | 34,154 | $ | 49,066 | $ | 59,559 | $ | 93,205 | |||||
Earnings per common share | |||||||||||||
Basic | $ | 0.53 | $ | 0.73 | $ | 0.91 | $ | 1.38 | |||||
Diluted | $ | 0.52 | $ | 0.70 | $ | 0.91 | $ | 1.32 | |||||
Weighted average number of common shares outstanding | |||||||||||||
Basic | 65,046,023 | 67,328,432 | 65,467,929 | 67,416,639 | |||||||||
Diluted | 65,222,498 | 70,363,643 | 65,615,498 | 70,464,092 | |||||||||
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | |||||
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||||
(dollars in thousands) | |||||
June 27, |
December 27, |
||||
Assets | |||||
Current assets | |||||
Cash and cash equivalents | $ | 154,806 | $ | 243,592 | |
Trade receivables, net | 209,888 | 210,214 | |||
Inventories | 96,403 | 96,882 | |||
Other current assets | 108,608 | 67,451 | |||
Total current assets | 569,705 | 618,139 | |||
Property, plant and equipment, net | 857,517 | 837,246 | |||
Goodwill, net | 478,814 | 457,578 | |||
Other intangibles, net | 153,368 | 136,100 | |||
Deferred tax asset | 33,277 | 37,348 | |||
Other assets | 60,937 | 55,002 | |||
Total assets | $ | 2,153,618 | $ | 2,141,413 | |
Liabilities and Shareholders’ Equity | |||||
Current liabilities | |||||
Current portion of long-term debt & capital leases | $ | 35,404 | $ | 35,452 | |
Accounts payable | 36,568 | 40,517 | |||
Accrued compensation | 51,393 | 54,870 | |||
Deferred revenue | 74,930 | 86,707 | |||
Accrued liabilities | 50,370 | 60,741 | |||
Other current liabilities | 20,980 | 22,711 | |||
Total current liabilities | 269,645 | 300,998 | |||
Long-term debt & capital leases | 486,487 | 479,880 | |||
Other long-term liabilities | 114,530 | 118,827 | |||
Total liabilities | 870,662 | 899,705 | |||
Total shareholders’ equity | 1,282,956 | 1,241,708 | |||
Total liabilities and shareholders’ equity | $ | 2,153,618 | $ | 2,141,413 | |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | ||||||||||||||||
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 27,
2009 |
June 28,
2008 |
June 27,
2009 |
June 28,
2008 |
|||||||||||||
Research Models and Services | ||||||||||||||||
Net sales | $ | 165,682 | $ | 172,848 | $ | 327,172 | $ | 341,444 | ||||||||
Gross margin | 71,206 | 76,429 | 139,519 | 152,685 | ||||||||||||
Gross margin as a % of net sales | 43.0 | % | 44.2 | % | 42.6 | % | 44.7 | % | ||||||||
Operating income | 50,894 | 52,199 | 98,338 | 108,012 | ||||||||||||
Operating income as a % of net sales | 30.7 | % | 30.2 | % | 30.1 | % | 31.6 | % | ||||||||
Depreciation and amortization | 8,049 | 7,024 | 15,722 | 13,690 | ||||||||||||
Capital expenditures | 6,307 | 23,898 | 13,931 | 34,507 | ||||||||||||
Preclinical Services | ||||||||||||||||
Net sales | $ | 142,477 | $ | 179,286 | $ | 282,513 | $ | 348,375 | ||||||||
Gross margin | 43,257 | 61,558 | 83,164 | 115,679 | ||||||||||||
Gross margin as a % of net sales | 30.4 | % | 34.3 | % | 29.4 | % | 33.2 | % | ||||||||
Operating income | 16,336 | 28,849 | 26,882 | 52,117 | ||||||||||||
Operating income as a % of net sales | 11.5 | % | 16.1 | % | 9.5 | % | 15.0 | % | ||||||||
Depreciation and amortization | 14,851 | 16,012 | 29,148 | 31,693 | ||||||||||||
Capital expenditures | 14,130 | 41,055 | 31,131 | 71,076 | ||||||||||||
Unallocated Corporate Overhead | $ | (16,568 | ) | $ | (11,740 | ) | $ | (34,665 | ) | $ | (27,335 | ) | ||||
Total | ||||||||||||||||
Net sales | $ | 308,159 | $ | 352,134 | $ | 609,685 | $ | 689,819 | ||||||||
Gross margin | 114,463 | 137,987 | 222,683 | 268,364 | ||||||||||||
Gross margin as a % of net sales | 37.1 | % | 39.2 | % | 36.5 | % | 38.9 | % | ||||||||
Operating income | 50,662 | 69,308 | 90,555 | 132,794 | ||||||||||||
Operating income as a % of net sales | 16.4 | % | 19.7 | % | 14.9 | % | 19.3 | % | ||||||||
Depreciation and amortization | 22,900 | 23,036 | 44,870 | 45,383 | ||||||||||||
Capital expenditures | 20,437 | 64,953 | 45,062 | 105,583 | ||||||||||||
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | |||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP | |||||||||||||||||
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (1) | |||||||||||||||||
(dollars in thousands) | |||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||
June 27,
2009 |
June 28,
2008 |
June 27,
2009 |
June 28,
2008 |
||||||||||||||
Research Models and Services | |||||||||||||||||
Net sales | $ | 165,682 | $ | 172,848 | $ | 327,172 | $ | 341,444 | |||||||||
Operating income | 50,894 | 52,199 | 98,338 | 108,012 | |||||||||||||
Operating income as a % of net sales | 30.7 | % | 30.2 | % | 30.1 | % | 31.6 | % | |||||||||
Add back: | |||||||||||||||||
Amortization related to acquisitions | 1,745 | 594 | 2,632 | 1,128 | |||||||||||||
Severance | 139 | - | 2,848 | - | |||||||||||||
Impairment and other charges (2) | - | 634 | - | 634 | |||||||||||||
Operating income, excluding specified charges (Non-GAAP) | $ | 52,778 | $ | 53,427 | $ | 103,818 | $ | 109,774 | |||||||||
Non-GAAP operating income as a % of net sales | 31.9 | % | 30.9 | % | 31.7 | % | 32.1 | % | |||||||||
Preclinical Services | |||||||||||||||||
Net sales | $ | 142,477 | $ | 179,286 | $ | 282,513 | $ | 348,375 | |||||||||
Operating income | 16,336 | 28,849 | 26,882 | 52,117 | |||||||||||||
Operating income as a % of net sales | 11.5 | % | 16.1 | % | 9.5 | % | 15.0 | % | |||||||||
Add back: | |||||||||||||||||
Amortization related to acquisitions | 5,474 | 7,006 | 10,735 | 14,043 | |||||||||||||
Severance | 1,535 | - | 4,311 | - | |||||||||||||
Impairment and other charges (2) | 85 | 2,187 | 1,612 | 2,873 | |||||||||||||
Operating losses for PCS Arkansas and Phase 1 Scotland | 1,139 | - | 2,682 | - | |||||||||||||
Operating income, excluding specified charges (Non-GAAP) | $ | 24,569 | $ | 38,042 | $ | 46,222 | $ | 69,033 | |||||||||
Non-GAAP operating income as a % of net sales | 17.2 | % | 21.2 | % | 16.4 | % | 19.8 | % | |||||||||
Unallocated Corporate Overhead | $ | (16,568 | ) | $ | (11,740 | ) | $ | (34,665 | ) | $ | (27,335 | ) | |||||
Add back: | |||||||||||||||||
Severance | 5 | - | 1,653 | - | |||||||||||||
Impairment and other charges (2) | 86 | - | 183 | - | |||||||||||||
SFAS No. 141(R) (costs associated with the evaluation of acquisitions) | 410 | - | 639 | - | |||||||||||||
U.S. pension curtailment | - | (3,276 | ) | - | (3,276 | ) | |||||||||||
FSP No. APB 14-1 (convertible debt accounting) (3) | 53 | 15 | 97 | 29 | |||||||||||||
Unallocated corporate overhead, excluding specified charges (Non-GAAP) | $ | (16,014 | ) | $ | (15,001 | ) | $ | (32,093 | ) | $ | (30,582 | ) | |||||
Total | |||||||||||||||||
Net sales | $ | 308,159 | $ | 352,134 | $ | 609,685 | $ | 689,819 | |||||||||
Operating income | 50,662 | 69,308 | 90,555 | 132,794 | |||||||||||||
Operating income as a % of net sales | 16.4 | % | 19.7 | % | 14.9 | % | 19.3 | % | |||||||||
Add back: | |||||||||||||||||
Amortization related to acquisitions | 7,219 | 7,600 | 13,367 | 15,171 | |||||||||||||
Severance | 1,679 | - | 8,812 | - | |||||||||||||
Impairment and other charges (2) | 171 | 2,821 | 1,795 | 3,507 | |||||||||||||
Operating losses for PCS Arkansas and Phase 1 Scotland | 1,139 | - | 2,682 | - | |||||||||||||
SFAS No. 141(R) (costs associated with the evaluation of acquisitions) | 410 | - | 639 | - | |||||||||||||
U.S. pension curtailment | - | (3,276 | ) | - | (3,276 | ) | |||||||||||
FSP No. APB 14-1 (convertible debt accounting) (3) | 53 | 15 | 97 | 29 | |||||||||||||
Operating income, excluding specified charges (Non-GAAP) | $ | 61,333 | $ | 76,468 | $ | 117,947 | $ | 148,225 | |||||||||
Non-GAAP operating income as a % of net sales | 19.9 | % | 21.7 | % | 19.3 | % | 21.5 | % | |||||||||
(1 | ) | Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of one-time charges, consistent with the manner in which management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included 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. | |||||||||||||||
(2 | ) | 2009 includes an asset impairment and costs due to the sale of our clinical Phase I business in Scotland, as well as additional miscellaneous costs. 2008 includes the disposition of the Company's Preclinical Services facility in Worcester, Massachusetts, as well as an asset impairment related to the divestiture of the Company's Vaccine business in Mexico. | |||||||||||||||
(3 | ) | 2009 and 2008 include the impact of FSP No. APB 14-1 for convertible debt accounting, which increased depreciation expense. | |||||||||||||||
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | |||||||||||||||||
RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS (1) | |||||||||||||||||
(dollars in thousands, except for per share data) | |||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||
June 27,
2009 |
June 28,
2008 |
June 27,
2009 |
June 28,
2008 |
||||||||||||||
Net income attributable to common shareholders | $ | 34,154 | $ | 49,066 | $ | 59,559 | $ | 93,205 | |||||||||
Add back: |
|
||||||||||||||||
Amortization related to acquisitions | 7,219 | 7,600 | 13,367 | 15,171 | |||||||||||||
Severance | 1,679 | - | 8,812 | - | |||||||||||||
Impairment and other charges (2) | 171 | 2,821 | 1,795 | 3,507 | |||||||||||||
Operating losses for PCS Arkansas and Phase 1 Scotland | 1,139 | - | 2,682 | - | |||||||||||||
SFAS No. 141(R) (costs associated with the evaluation of acquisitions) | 410 | - | 639 | - | |||||||||||||
U.S. pension curtailment | - | (3,276 | ) | - | (3,276 | ) | |||||||||||
FSP No. APB 14-1 (convertible debt accounting ), net (3) | 2,688 | 1,953 | 5,085 | 3,711 | |||||||||||||
Tax effect | (4,331 | ) | (2,794 | ) | (10,620 | ) | (6,142 | ) | |||||||||
Net income, excluding specified charges (Non-GAAP) | $ | 43,129 | $ | 55,370 | $ | 81,319 | $ | 106,176 | |||||||||
Weighted average shares outstanding - Basic | 65,046,023 | 67,328,432 | 65,467,929 | 67,416,639 | |||||||||||||
Effect of dilutive securities: | |||||||||||||||||
2.25% senior convertible debentures | - | 1,454,072 | - | 1,438,261 | |||||||||||||
Stock options and contingently issued restricted stock | 173,182 | 1,271,120 | 144,342 | 1,318,566 | |||||||||||||
Warrants | 3,293 | 310,019 | 3,227 | 290,626 | |||||||||||||
Weighted average shares outstanding - Diluted | 65,222,498 | 70,363,643 | 65,615,498 | 70,464,092 | |||||||||||||
Basic earnings per share | $ | 0.53 | $ | 0.73 | $ | 0.91 | $ | 1.38 | |||||||||
Diluted earnings per share | $ | 0.52 | $ | 0.70 | $ | 0.91 | $ | 1.32 | |||||||||
Basic earnings per share, excluding specified charges (Non-GAAP) | $ | 0.66 | $ | 0.82 | $ | 1.24 | $ | 1.57 | |||||||||
Diluted earnings per share, excluding specified charges (Non-GAAP) | $ | 0.66 | $ | 0.79 | $ | 1.24 | $ | 1.51 | |||||||||
(1 | ) | Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of one-time charges, consistent with the manner in which management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included 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. | |||||||||||||||
(2 | ) | 2009 includes an asset impairment and costs due to the sale of our clinical Phase I business in Scotland, as well as additional miscellaneous costs. 2008 includes the disposition of the Company's Preclinical Services facility in Worcester, Massachusetts, as well as an asset impairment related to the divestiture of the Company's Vaccine business in Mexico. | |||||||||||||||
(3 | ) | The three and six months ended June 27, 2009 include the impact of FSP No. APB 14-1 for convertible debt accounting, which increased interest expense by $2,906 and $5,766, capitalized interest by $271 and $778 and depreciation expense by $53 and $97, respectively. The three and six months ended June 28, 2008 have been restated to include the impact of FSP No. APB 14-1, which increased interest expense by $2,713 and $5,383, capitalized interest by $776 and $1,702 and depreciation expense by $15 and $29, respectively. |
Source:
Charles River Laboratories International, Inc.
Investor Contact:
Susan
E. Hardy, 781-222-6190
Corporate Vice President, Investor Relations
or
Media
Contact:
Amy Cianciaruso, 781-222-6168
Associate Director,
Public Relations