Charles River Laboratories International, Inc. (NYSE: CRL) today
reported its results for the first-quarter of 2009. For the
quarter, net sales decreased 10.7% to $301.5 million from $337.7
million in the first quarter of 2008. Sales declined in both the
Research Models and Services (RMS) and Preclinical Services (PCS)
segments, driven by the negative impact of foreign exchange and
softer market demand for the Company�s broad portfolio of products
and services, as pharmaceutical and biotechnology clients
reprioritize their drug development pipelines and restructure their
operations. Foreign currency translation reduced net sales by
5.8%.
On a GAAP basis, net income for the first quarter of 2009 was
$25.4 million, or $0.38 per diluted share, compared to net income
of $44.1 million, or $0.63 per diluted share, for the first quarter
of 2008.
On a non-GAAP basis, net income was $38.2 million for the first
quarter of 2009, compared to $50.8 million for the same period in
2008, a decrease of 24.8%. First-quarter diluted earnings per share
on a non-GAAP basis were $0.58, a decrease of 19.4% compared to
$0.72 per share in the first quarter of 2008. Both the GAAP and
non-GAAP results were impacted primarily by lower sales volume.
James C. Foster, Chairman, President and Chief Executive
Officer, said, �Our financial performance in the first quarter of
2009 was consistent with our expectations, which assumed softness
in demand for both RMS and PCS and a negative impact from foreign
currency exchange. While visibility in the preclinical market
remains limited, we are pleased to report that pricing, inquiry
levels and bookings appear to have stabilized, although at lower
levels than in the prior year. Based on these trends combined with
our disciplined focus on expenses, we believe we will achieve the
sales and earnings guidance that we previously provided for
2009.�
First-Quarter Segment
Results
Research Models and Services (RMS)
Sales for the RMS segment were $161.5 million in the first
quarter of 2009, a decrease of 4.2% from $168.6 million in the
first quarter of 2008. Foreign currency translation reduced sales
by 4.2%. Excluding the effect of foreign exchange, RMS sales were
flat as growth of academic accounts offset softer demand from
pharmaceutical and biotechnology clients. Higher sales of Endotoxin
and Microbial Detection products (formerly In Vitro) and the
addition of MIR Preclinical Services (acquired in September 2008)
were offset by lower sales for the Consulting & Staffing
Services business and the September 2008 divestiture of the Vaccine
business in Mexico.
Lower sales volume and higher operating costs related to new
capacity brought on line in California and Maryland in 2008
resulted in lower operating margins for the RMS segment. The 2009
first-quarter GAAP operating margin was 29.4% compared to 33.1% in
the first quarter of 2008. On a non-GAAP basis, the operating
margin was 31.6% compared to 33.4% for the first quarter of
2008.
Preclinical Services (PCS)
First-quarter 2009 net sales for the PCS segment were $140.0
million, a decrease of 17.2% from $169.1 million in the first
quarter of 2008. The PCS sales decline was due primarily to slower
market demand from both pharmaceutical and biotechnology companies,
and the negative effect of foreign currency translation, which
reduced sales by 7.4%. The sales decline was partially offset by
the addition of NewLab BioQuality AG, which was acquired in
September 2008.
As expected, lower capacity utilization, pricing pressure and
costs associated with the start-up of new facilities in China and
Canada resulted in lower operating margins for the PCS segment. The
2009 first-quarter GAAP operating margin declined to 7.5% from
13.8% in the first quarter of 2008. On a non-GAAP basis, the
operating margin declined to 15.5% from 18.3% in the first quarter
of 2008.
Items Excluded from Non-GAAP
Results
Items excluded from non-GAAP results in the first quarter of
2009 and 2008 are as follows:
($ in millions) �
1Q09 �
1Q08 Amortization of
intangible assets � $ 6.1 � $ 7.6 Severance related to cost-saving
actions � � 7.1 � � -- Impairment and other charges (1) � � 1.6 � �
0.7 Operating losses for PCS Arkansas and clinical Phase I Scotland
� � 1.5 � � -- SFAS No. 141(R) (Costs associated with evaluation of
acquisitions) � � 0.2 � � -- FSP No. APB 14-1 (Convertible debt
accounting) � � 2.4 � � 1.8
(1) In the first quarter of 2009, these items were related
primarily to an asset impairment charge associated with the
Company�s planned divestiture of its clinical Phase I business in
Scotland and additional miscellaneous expenses. In the first
quarter of 2008, these items were related primarily to Company�s
disposition of its legacy PCS facility in Worcester,
Massachusetts.
2009 Guidance
The Company reaffirms its forward-looking guidance for 2009,
which was originally provided on February 9, 2009. The sales
guidance includes the negative impact of foreign exchange, which is
expected to reduce sales by approximately 5.5-6.0%.
2009 GUIDANCE � � Net sales � (2)% - (7)% GAAP EPS estimate
$1.86 - $2.16 Amortization of intangible assets $0.27 Severance
related to cost-saving actions $0.08 Impairment and other charges
$0.02 Operating losses for PCS Arkansas and clinical Phase I
Scotland $0.04 FSP No. APB 14-1 (Convertible debt accounting) $0.11
Non-GAAP EPS estimate � $2.30 - $2.60
Acquisition of Piedmont
Research Center
On May 1, 2009, the Company completed the acquisition of the
business and assets of Piedmont Research Center, LLC, a provider of
preclinical discovery services focused on efficacy studies
primarily in oncology and other therapeutic areas for
pharmaceutical and biotechnology clients, for approximately $46
million. Piedmont�s addition expands Charles River�s Discovery and
Imaging Services business, and makes us one of the largest
providers of non-GLP efficacy studies.
Webcast
Charles River Laboratories has scheduled a live webcast on
Wednesday, May 6, at 8:30 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,
charges related to the dispositions of our clinical Phase I
business in Scotland and our legacy preclinical facility in
Worcester, Massachusetts, expenses associated with evaluating
acquisitions, operating losses attributable to our businesses we
plan to close or divest, severance costs associated with our 2009
first-quarter cost-saving actions, and the additional interest
recorded as a result of the adoption of FSP No. APB 14-1. 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 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; our future stock purchase
activities; future cost reduction activities by our customers; and
Charles River�s future performance as delineated in our
forward-looking guidance, and particularly our expectations with
respect to sales growth and foreign exchange impact. In addition,
these statements include the availability of funding for our
customers and the impact of economic and market conditions on them
generally, and the anticipated strength of our balance sheet, the
effects of our first-quarter 2009 cost-saving actions and other
actions designed to manage expenses, operating costs and capital
spending, and to streamline efficiency, and the ability of the
Company to withstand the current market conditions. 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 the acquisition
of the business and assets of Piedmont Research Center, LLC; a
decrease in research and development spending, a decrease 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 23, 2009, 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 8,700 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 March 28, March 29, 2009
2008 � Total net sales $ 301,526 $ 337,685 Cost of products
sold and services provided �
193,306 � �
207,308 � Gross margin 108,220 130,377 Selling,
general and administrative 62,178 59,320 Amortization of
intangibles �
6,149 � �
7,571 � Operating
income 39,893 63,486 Interest income (expense) (4,604 ) (2,410 )
Other income (expense) �
(262 ) �
(837 ) Income before income taxes and
noncontrolling interests 35,027 60,239 Provision for income taxes �
10,158 � �
16,183 � Income before
noncontrolling interests 24,869 44,056 Noncontrolling interests �
536 � �
83 � Net income
$
25,405 �
$ 44,139 � �
Earnings per common share Basic $ 0.39 $ 0.65 Diluted $ 0.38 $ 0.63
� Weighted average number of common shares outstanding Basic
65,889,835 67,504,848 Diluted 66,020,082 70,559,456
CHARLES
RIVER LABORATORIES INTERNATIONAL, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in
thousands) � �
March 28, December 27, 2009
2008 Assets Current assets Cash and cash equivalents
$ 170,233 $ 243,592 Trade receivables, net 211,095 210,214
Inventories 97,560 96,882 Other current assets 102,576 67,218
Current assets of discontinued businesses �
256 �
233 Total current assets 581,720 618,139 Property,
plant and equipment, net 834,545 837,246 Goodwill, net 454,770
457,578 Other intangibles, net 126,914 136,100 Deferred tax asset
34,617 37,348 Other assets 50,835 50,815 Long-term assets of
discontinued businesses �
4,187 �
4,187
Total assets
$ 2,087,588 $
2,141,413 �
Liabilities and Shareholders�
Equity Current liabilities Current portion of long-term debt
& capital leases $ 35,376 $ 35,452 Accounts payable 37,280
40,517 Accrued compensation 41,425 54,870 Deferred revenue 83,689
86,707 Accrued liabilities 55,167 60,741 Other current liabilities
26,889 22,676 Current liabilities of discontinued businesses �
47 �
35 Total current liabilities 279,873
300,998 Long-term debt & capital leases 474,152 479,880 Other
long-term liabilities �
115,525 �
118,827
Total liabilities �
869,550 �
899,705
Total shareholders� equity �
1,218,038 �
1,241,708 Total liabilities and shareholders� equity
$ 2,087,588 $
2,141,413 CHARLES RIVER LABORATORIES INTERNATIONAL,
INC. SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(dollars in thousands) � �
Three Months
Ended March 28, March 29, 2009
2008 Research Models and Services Net sales $ 161,490
$ 168,596 Gross margin 68,313 76,256 Gross margin as a % of net
sales 42.3 % 45.2 % Operating income 47,444 55,813 Operating income
as a % of net sales 29.4 % 33.1 % Depreciation and amortization
7,673 6,666 Capital expenditures 7,624 10,609 �
Preclinical
Services Net sales $ 140,036 $ 169,089 Gross margin 39,907
54,121 Gross margin as a % of net sales 28.5 % 32.0 % Operating
income 10,546 23,268 Operating income as a % of net sales 7.5 %
13.8 % Depreciation and amortization 14,297 15,681 Capital
expenditures 17,001 30,021 �
Unallocated Corporate Overhead
$ (18,097 ) $ (15,595 ) �
Total Net sales $ 301,526 $
337,685 Gross margin 108,220 130,377 Gross margin as a % of net
sales 35.9 % 38.6 % Operating income 39,893 63,486 Operating income
as a % of net sales 13.2 % 18.8 % Depreciation and amortization
21,970 22,347 Capital expenditures 24,625 40,630
CHARLES RIVER
LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP TO
NON-GAAP SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(1) (dollars in thousands) � �
Three Months
Ended March 28, March 29, 2009
2008 Research Models and Services Net sales $ 161,490
$ 168,596 Operating income 47,444 55,813 Operating income as a % of
net sales 29.4 % 33.1 % Add back: Amortization related to
acquisitions 887 534 Severance �
2,709 � �
- � Operating income, excluding specified charges
(Non-GAAP) $ 51,040 $ 56,347 Non-GAAP operating income as a % of
net sales 31.6 % 33.4 % �
Preclinical Services Net sales $
140,036 $ 169,089 Operating income 10,546 23,268 Operating income
as a % of net sales 7.5 % 13.8 % Add back: Amortization related to
acquisitions 5,261 7,037 Severance 2,776 - Impairment and other
charges
(2) 1,527 686 Operating losses for PCS Arkansas and
Phase I Scotland �
1,543 � �
- �
Operating income, excluding specified charges (Non-GAAP) $ 21,653 $
30,991 Non-GAAP operating income as a % of net sales 15.5 % 18.3 %
�
Unallocated Corporate Overhead $ (18,097 ) $ (15,595 ) Add
back: Severance 1,648 - Impairment and other charges
(2) 97
- SFAS No. 141(R) (costs associated with the evaluation of
acquisitions) 229 - FSP No. APB 14-1 (convertible debt accounting)
(3) �
44 � �
14 � Unallocated
corporate overhead, excluding specified charges (Non-GAAP) $
(16,079 ) $ (15,581 ) �
Total Net sales $ 301,526 $ 337,685
Operating income 39,893 63,486 Operating income as a % of net sales
13.2 % 18.8 % Add back: Amortization related to acquisitions 6,148
7,571 Severance 7,133 - Impairment and other charges
(2)
1,624 686 Operating losses for PCS Arkansas and Phase I Scotland
1,543 - SFAS No. 141(R) (costs associated with the evaluation of
acquisitions) 229 - FSP No. APB 14-1 (convertible debt accounting)
(3) �
44 � �
14 � Operating
income, excluding specified charges (Non-GAAP) $ 56,614 $ 71,757
Non-GAAP operating income as a % of net sales 18.8 % 21.2 % � �
(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 due to the anticipated 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.
(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 March 28, March 29, 2009
2008 � Net income $ 25,405 $ 44,139 Add back: Amortization
related to acquisitions 6,148 7,571 Severance 7,133 - Impairment
and other charges
(2) 1,624 686 Operating losses for PCS
Arkansas and Phase I Scotland 1,543 - SFAS No. 141(R) (costs
associated with the evaluation of acquisitions) 229 - FSP No. APB
14-1 (convertible debt accounting), net
(3) 2,397 1,758 Tax
effect
(6,289) (3,348) Net income,
excluding specified charges (Non-GAAP)
$ 38,190
$ 50,806 � Weighted average shares outstanding - Basic
65,889,835 67,504,848 Effect of dilutive securities: 2.25% senior
convertible debentures - 1,421,424 Stock options and contingently
issued restricted stock 126,896 1,363,212 Warrants
3,351 269,972 Weighted average shares
outstanding - Diluted
66,020,082
70,559,456 � Basic earnings per share $ 0.39 $ 0.65
Diluted earnings per share $ 0.38 $ 0.63 � Basic earnings per
share, excluding specified charges (Non-GAAP) $ 0.58 $ 0.75 Diluted
earnings per share, excluding specified charges (Non-GAAP) $ 0.58 $
0.72 � �
(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 due to the anticipated
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.
(3) 2009 includes the impact of FSP No. APB
14-1 for convertible debt accounting, which increased interest
expense by $2,860, capitalized interest by $507 and depreciation
expense by $44. 2008 has been restated to include the impact of FSP
No. APB 14-1, which increased interest expense by $2,670,
capitalized interest by $926 and depreciation expense by $14.
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