EAST RUTHERFORD, N.J., Oct. 30 /PRNewswire-FirstCall/ -- Cambrex Corporation reports third quarter 2006 results for the period ended September 30, 2006.
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Adjusted Diluted Earnings per Share were $0.06 in the third quarter 2006 compared to $0.05 Adjusted Diluted Earnings per Share reported in the third quarter 2005. Third quarter 2006 GAAP Diluted Earnings per Share were ($0.15) compared to break-even in the third quarter 2005.
Consistent with our prior earnings releases, Adjusted (Non-GAAP) results are used throughout this press release and the accompanying tables to better reflect the underlying results of operations for the periods presented. Third quarter 2006 Adjusted financial results exclude costs related to a Goodwill Impairment charge ($0.08 Diluted Earnings per Share), the evaluation of strategic alternatives ($0.06 Diluted Earnings per Share), a small amount of cost related to the Cutanogen acquisition, and increases in tax reserves related to prior years returns recently prepared or under audit ($0.06 Diluted Earnings per Share). The third quarter 2005 financial results exclude an increase in an environmental reserve for an idle property ($0.05 Diluted Earnings per Share). In addition to the aforementioned items, certain employee medical benefit expenses in the 2005 Non-GAAP results were reclassified from segment Cost of Sales and Operating Expenses to Corporate Administrative Expenses to better reflect actual costs incurred within the operating segments and are included in the GAAP/Non-GAAP reconciliation tables. A reconciliation of GAAP results to Adjusted (Non-GAAP) results can be found in the unaudited financial tables included in this press release.
Third quarter 2006 sales revenue increased 8.3% to $113.2 million from $104.5 million in the third quarter 2005 due to increases in all three segments (Bioproducts, Biopharma and Human Health). Foreign currency effects accounted for 2.2% of this increase.
Third quarter 2006 Adjusted Gross Profit increased 5.2% to $39.2 million from $37.3 million during the third quarter 2005, reflecting the increase in sales partially offset by a decline in Adjusted Gross Margin to 34.6% versus 35.6% last year. Foreign currency favorably impacted Gross Margin by 0.8 percentage point versus last year. Third quarter 2006 GAAP Gross Profit was $39.2 million, or 34.6% of sales, compared to $36.8 million, or 35.2% of sales, in the third quarter 2005.
Third quarter 2006 Adjusted Operating Profit decreased 5.6% to $7.0 million, or 6.2% of sales in the third quarter 2006, from $7.4 million, or 7.1% of sales in the third quarter 2005, due to increased Administrative Expenses partially offset by higher Gross Profit and lower Sales and Marketing Expense. Third quarter 2006 GAAP Operating Profit was $3.1 million, or 2.7% of sales in the third quarter 2006, compared to $6.1 million, or 5.9% of sales, in the third quarter 2005.
Third quarter 2006 Adjusted Income before Taxes decreased 3.7% to $4.5 million from $4.7 million in the third quarter 2005 due to lower Operating Profit partially offset by lower Interest Expense. Third quarter 2006 GAAP Income before Taxes was $0.5 million compared to $3.4 million in the third quarter 2005.
Strategic Alternatives
As part of its evaluation of strategic alternatives, Cambrex announced on October 24th that it had entered into a definitive stock purchase agreement to sell its Bioproducts and Biopharma businesses to Lonza Group AG for total cash consideration of $460 million. The Company expects to realize net proceeds, after paying taxes and transaction-related advisor fees, of approximately $450 million. Following the repayment of outstanding debt and assuming the arrangement of new lines of credit of $125 to $150 million on favorable terms, Cambrex plans to pay stockholders a special dividend of $13.50 to $14.50 per share. Additionally, Cambrex announced on October 20th that it had entered into an agreement to sell its subsidiaries based in Cork, Ireland and Landen, Belgium to International Chemical Investors II S.A. (ICIG), for nominal consideration.
James A. Mack, Chairman, President and Chief Executive Officer of Cambrex Corporation, said, "We are pleased to announce the successful completion of this important phase of our strategic review. After a thorough and deliberate process, our Board of Directors determined that the sale of Bioproducts and Biopharma to Lonza and the sale of Cork and Landen to ICIG represent the most compelling means for realizing value for Cambrex stockholders. In addition to receiving a substantial cash dividend, stockholders can look forward to additional benefits from their continuing investment in a streamlined Cambrex focused on pharmaceutical services. Consistent with our fiduciary duties, we will also continue to evaluate strategic opportunities for the Human Health business as they arise."
Business Segment Results
Bioproducts
The Bioproducts segment includes products and services for research and therapeutic applications. Bioproducts Sales in the third quarter 2006 increased 10.1% to $39.3 million from $35.7 million in the third quarter 2005 primarily due to higher sales in rapid microbial detection products and cell therapy services. Foreign currency effects accounted for 1.9% of the increase in Bioproducts sales.
Third quarter 2006 Bioproducts Adjusted Gross Margin was 49.2%, down from Adjusted Gross Margin of 52.2% in the third quarter 2005. The GAAP Gross Margin was 49.2% in the third quarter 2006 versus 51.7% during the previous year. The decline in Gross Margin was due to changes in product mix and increased production costs partially offset by the positive effect of foreign currency translation of 1.2%.
Third quarter 2006 Bioproducts Adjusted Operating Profit increased 23.1% to $6.5 million in the third quarter 2006 versus $5.3 million in the third quarter 2005 due to higher Gross Profit and lower Operating Expenses. Adjusted Operating Profit Margins increased to 16.6% of sales in the third quarter 2006 from 14.9% in the third quarter 2005. Foreign currency increased Adjusted Operating Profit Margins by 2.4% of Sales. Third quarter 2006 Bioproducts GAAP Operating Profit Margin was 16.3% versus 14.1% in the third quarter 2005.
Biopharma
The Biopharma segment consists of the Company's contract biopharmaceutical process development and manufacturing business. Biopharma Sales in the third quarter 2006 increased 38.5% to $11.6 million from $8.4 million in the third quarter 2005, reflecting an increase in both suite fees and process development work.
Third quarter 2006 Biopharma Adjusted Gross Margin improved to -1.4% from -23.6% in the third quarter 2005 due to increased suite fees and process development work. Third quarter 2006 Biopharma GAAP Gross Margin was -1.4% versus -25.5% in the third quarter 2005.
Third quarter 2006 Biopharma Adjusted Operating Loss narrowed to $2.4 million from $4.2 million in the third quarter 2005 primarily due to improved Gross Profit. On a GAAP basis, the Biopharma Operating Loss was $2.4 million compared with $4.4 million reported for the third quarter of the previous year. Foreign currency did not impact the Biopharma segment financial results.
Human Health
The Human Health segment consists of small molecule active pharmaceutical ingredients (APIs), advanced intermediates and other products derived from organic chemistry. Human Health Sales in the third quarter 2006 increased 3.1% to $62.3 million from $60.4 million in the third quarter 2005. This sales growth resulted from increased generic API volumes and a 2.7% positive impact of foreign currency partially offset by decreased demand for certain proprietary products, advanced intermediates and feed additives.
Third quarter 2006 Human Health Adjusted Gross Margin decreased to 32.1% from 34.1% in the third quarter 2005, principally due to shifts in product mix. Third quarter 2006 Human Health GAAP Gross Margin was 32.1% versus 33.9% in the third quarter 2005.
Third quarter 2006 Human Health Adjusted Operating Profit decreased to $9.9 million versus $11.5 million in the previous year due to lower Gross Profit and higher R&D and Administrative Expenses. Foreign currency effects increased Adjusted Operating Profit Margins by 0.6%. Third quarter 2006 Human Health GAAP Operating Profit was $7.8 million versus $11.3 million in the third quarter of 2005.
Third Quarter 2006 Adjusted and GAAP Consolidated Operating, Interest and Tax Expenses
Third quarter 2006 Adjusted Operating Expenses increased $2.4 million to $32.2 million, or 28.4% of sales, from $29.8 million, or 28.5% of sales, in the third quarter 2005 primarily due to higher Administrative Expenses partially offset by lower Sales and Marketing Expense. Third quarter 2006 GAAP Operating Expenses were $36.1 million, or 31.9% of sales, versus $30.7 million, or 29.3% of sales, in the third quarter 2005. Foreign currency had a nominal effect on Operating Expenses during the quarter.
Adjusted and GAAP Sales and Marketing Expense in the third quarter 2006 decreased to $7.7 million, or 6.8% of sales, from $8.5 million, or 8.1% of sales in the third quarter 2005, primarily due to lower spending in Bioproducts and Human Health.
Adjusted Research and Development Expense for the third quarter 2006 increased to $5.0 million, or 4.4% of sales compared to $4.8 million, or 4.6% of sales, in the third quarter 2005 due to increased spending in Human Health. On a GAAP basis, Research and Development Expense during the third quarter 2006 increased to $5.1 million from $4.9 million during the same period in the previous year.
Adjusted Administrative Expense in the third quarter 2006 increased to $19.0 million, or 16.8% of sales, from $16.0 million, or 15.3% of sales, in the third quarter 2005 principally due to higher legal and audit fees. Third quarter 2006 GAAP Administrative Expense was $20.8 million, or 18.4% of sales, versus $16.8 million, or 16.0% of sales, in the third quarter 2005.
During the third quarter 2006, a $2.1 million goodwill impairment charge ($0.08 Diluted Earnings per Share) was recorded within the Human Health segment related to its Landen, Belgium site, which, as discussed in the Strategic Alternatives section above, was sold during October 2006.
Adjusted and GAAP Net Interest Expense in the third quarter 2006 decreased to $2.5 million from $2.8 million in the third quarter 2005 due to lower borrowings partially offset by higher interest rates. The average interest rate in the third quarter 2006 was 6.1% versus 5.8% in the same period last year.
The Adjusted effective tax rate in the third quarter 2006 decreased to 66.2% of pre-tax income versus 73.1% in the third quarter 2005 due to the geographic mix of income in the quarter.
Capital Expenditures and Depreciation for the third quarter 2006 were $8.8 million and $8.4 million, respectively, compared to $9.9 million and $8.9 million in the third quarter 2005, respectively.
Guidance
Due to the recently announced divestitures, the company has discontinued guidance on Consolidated Cambrex, and is providing guidance on its Human Health segment excluding the Cork and Landen facilities that were recently sold. The Company is providing full year 2006 guidance for Human Health excluding Cork and Landen of Sales of $235 - 240 million, Operating Profit of $47 - 53 million, Depreciation and Amortization of $18 - 20 million, and Capital Expenditures of approximately $25 million. This guidance does not reflect Cambrex Corporate operating expenses.
The financial information contained in this press release is unaudited, subject to revision and should not be considered final until the third quarter 2006 Form 10-Q is filed with the U.S. Securities and Exchange Commission.
Proxy Statement
Cambrex Corporation plans to file with the SEC and mail to its stockholders a Proxy Statement in connection with a special meeting of stockholders to be called to approve the Bioproducts and Biopharma transaction. The Proxy Statement will contain important information about Cambrex Corporation, the transaction and related matters. Investors and security holders are urged to read the Proxy Statement carefully when it is available. Investors and security holders will be able to obtain free copies of the Proxy Statement and other documents filed with the SEC by Cambrex Corporation through the web site maintained by the SEC at www.sec.gov. In addition, investors and security holders will be able to obtain free copies of the Proxy Statement from Cambrex Corporation by contacting Peter Thauer, Senior Vice President, General Counsel and Secretary, Cambrex Corporation, One Meadowlands Plaza, 15th Floor, East Rutherford, NJ, Phone: 201-804-3005.
Participants in the Solicitation
Cambrex Corporation and its executive officers and directors may be deemed, under SEC rules, to be participants in the solicitation of proxies from Cambrex Corporation's stockholders with respect to the proposed Bioproducts and Biopharma transaction. Information regarding the executive officers and directors of Cambrex Corporation is included in its definitive Proxy Statement for its 2006 annual meeting filed with the SEC on June 9, 2006. More detailed information regarding the identity of potential participants, and their direct or indirect interests, by securities, holdings or otherwise, will be set forth in the Proxy Statement to be filed with the SEC in connection with the proposed Bioproducts and Biopharma transaction.
Conference Call and Webcast
The Conference Call to discuss third quarter 2006 earnings will begin at 8:30 a.m. Eastern Time on Tuesday, October 31, 2006 and last approximately 45 minutes. Those wishing to participate should call 1-888-634-4003 for domestic and +1-706-634-6653 for international. Please use the pass code 8114526 and call approximately 10 minutes prior to start time. A webcast is available from the Investor Relations section on the Cambrex website located at www.cambrex.com and can be accessed for approximately a month following the call. A telephone replay of the conference call will be available through Tuesday, November 7, 2006 by calling 1-800-642-1687 for domestic and +1-706- 645-9291 for international. Please use the pass code 8114526 to access the replay.
Forward Looking Statements
This news release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under The Securities Exchange Act of 1934, including, without limitation, statements regarding expected performance, especially expectations with respect to sales, research and development expenditures, earnings per share, capital expenditures, acquisitions, divestitures, collaborations, or other expansion opportunities. These statements may be identified by the fact that words such as "expects," "anticipates," "intends," "estimates," "believes" or similar expressions are used in connection with any discussion of future events and financial and operating performance. The forward-looking statements contained herein are based on current plans and expectations and involve risks and uncertainties that could cause actual outcomes and results to differ materially from current expectations including but not limited to, global economic trends, pharmaceutical outsourcing trends, competitive pricing or product developments, government legislation and/or regulations (particularly environmental issues), tax rate, interest rate, technology, manufacturing and legal issues, changes in foreign exchange rates, performance of minority investments, uncollectible receivables, loss on disposition of assets, cancellation or delays in renewal of contracts, and lack of suitable raw materials or packaging materials, the possibility that the value of the acquisition of PermaDerm(TM) cultured skin may not be realized or that our plans to obtain a Humanitarian Device Exemption, completion of clinical trials and commercialization of PermaDerm cultured skin in the United States may not be successful, the Company may not receive regulatory approval for its products, the outcome of the evaluation of strategic alternatives, the satisfaction of the conditions to closing set forth in the stock purchase agreement with Lonza and the availability of financing on favorable terms in order to fund the portion of the special dividend that is not being funded from proceeds of the sale.
For further details and a discussion of these and other risks and uncertainties, investors are cautioned to review the Cambrex 2005 Annual Report on Form 10-K, including the Forward-Looking Statement section therein, and other filings with the Securities and Exchange Commission, including the Current Report on Form 8-K filed on October 24, 2006. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.
About Cambrex
Cambrex is a global, diversified life sciences company dedicated to providing products and services to accelerate and improve the discovery and commercialization of human therapeutics. The Company employs approximately 1,800 worldwide. For more information, please visit http://www.cambrex.com.
CAMBREX CORPORATION Adjusted Statement of Profit and Loss - Non-GAAP* For the Quarters Ended September 30, 2006 and 2005 (in thousands) 2006 2005 % of % of Amount Sales Amount Sales Gross Sales $113,205 100.0% $104,500 100.0% Commissions and Allowances 459 0.4% 1,031 1.0% Net Sales 112,746 99.6% 103,469 99.0% Other Revenues 1,253 1.1% 1,116 1.1% Net Revenue 113,999 100.7% 104,585 100.1% Cost of Sales 74,797 66.1% 67,332 64.5% Gross Profit 39,202 34.6% 37,253 35.6% Operating Expenses Sales and Marketing Expense 7,662 6.8% 8,461 8.1% Research and Development Expense 4,988 4.4% 4,846 4.6% Administrative Expense 19,025 16.8% 16,000 15.3% Amortization 508 0.4% 511 0.5% Total Operating Expenses 32,183 28.4% 29,818 28.5% Operating Profit 7,019 6.2% 7,435 7.1% Other Expenses Interest - Other 2,540 2.2% 2,801 2.7% Other Income, net (9) 0.0% (25) 0.0% Total Other Expenses 2,531 2.2% 2,776 2.7% Income Before Taxes 4,488 4.0% 4,659 4.4% Income Tax Provision 2,970 2.7% 3,407 3.2% Net Income $1,518 1.3% $1,252 1.2% Basic Earnings per Share Net Income $0.06 $0.05 Diluted Earnings per Share Net Income $0.06 $0.05 Weighted Average Shares Outstanding Basic 26,752 26,418 Diluted 26,871 26,548 * Refer to the GAAP to Adjusted (Non-GAAP) Reconciliation. CAMBREX CORPORATION Statement of Profit and Loss - GAAP For the Quarters Ended September 30, 2006 and 2005 (in thousands) 2006 2005 % of % of Amount Sales Amount Sales Gross Sales $113,205 100.0% $104,500 100.0% Commissions and Allowances 459 0.4% 1,031 1.0% Net Sales 112,746 99.6% 103,469 99.0% Other Revenues 1,253 1.1% 1,116 1.1% Net Revenue 113,999 100.7% 104,585 100.1% Cost of Sales 74,797 66.1% 67,763 64.9% Gross Profit 39,202 34.6% 36,822 35.2% Operating Expenses Sales and Marketing Expense 7,662 6.8% 8,468 8.1% Research and Development Expense 5,115 4.5% 4,862 4.7% Administrative Expense 20,759 18.4% 16,846 16.0% Goodwill Impairment 2,092 1.8% - 0.0% Amortization 508 0.4% 511 0.5% Total Operating Expenses 36,136 31.9% 30,687 29.3% Operating Profit 3,066 2.7% 6,135 5.9% Other Expenses Interest - Other 2,540 2.2% 2,801 2.7% Other Income, net (9) 0.0% (25) 0.0% Total Other Expenses 2,531 2.2% 2,776 2.7% Income Before Taxes 535 0.5% 3,359 3.2% Income Tax Provision 4,666 4.1% 3,407 3.2% Net Loss $(4,131) -3.6% $(48) 0.0% Basic Earnings per Share Net Loss $(0.15) $(0.00) Diluted Earnings per Share Net Loss $(0.15) $(0.00) Weighted Average Shares Outstanding Basic 26,752 26,418 Diluted 26,752 26,418 CAMBREX CORPORATION Adjusted Statement of Profit and Loss - Non-GAAP* For the Nine Months Ended September 30, 2006 and 2005 (in thousands) 2006 2005 % of % of Amount Sales Amount Sales Gross Sales $356,389 100.0% $331,133 100.0% Commissions and Allowances 1,632 0.5% 3,696 1.1% Net Sales 354,757 99.5% 327,437 98.9% Other Revenues 3,398 1.0% 5,827 1.7% Net Revenue 358,155 100.5% 333,264 100.6% Cost of Sales 231,260 64.9% 211,633 63.9% Gross Profit 126,895 35.6% 121,631 36.7% Operating Expenses Sales and Marketing Expense 24,827 7.0% 25,211 7.6% Research and Development Expense 14,944 4.2% 16,555 5.0% Administrative Expense 55,834 15.6% 50,734 15.3% Amortization 1,482 0.4% 1,718 0.5% Total Operating Expenses 97,087 27.2% 94,218 28.4% Operating Profit 29,808 8.4% 27,413 8.3% Other Expenses Interest - Other 6,916 2.0% 8,282 2.5% Other Expense, net 107 0.0% 72 0.0% Total Other Expenses 7,023 2.0% 8,354 2.5% Income Before Taxes 22,785 6.4% 19,059 5.8% Income Tax Provision 12,302 3.5% 9,966 3.1% Net Income $10,483 2.9% $9,093 2.7% Basic Earnings per Share Net Income $0.39 $0.34 Diluted Earnings per Share Net Income $0.39 $0.34 Weighted Average Shares Outstanding Basic 26,718 26,389 Diluted 26,822 26,550 * Refer to the GAAP to Adjusted (Non-GAAP) Reconciliation. CAMBREX CORPORATION Statement of Profit and Loss - GAAP For the Nine Months Ended September 30, 2006 and 2005 (in thousands) 2006 2005 % of % of Amount Sales Amount Sales Gross Sales $356,389 100.0% $331,133 100.0% Commissions and Allowances 1,632 0.5% 3,696 1.1% Net Sales 354,757 99.5% 327,437 98.9% Other Revenues 3,398 1.0% 5,827 1.7% Net Revenue 358,155 100.5% 333,264 100.6% Cost of Sales 231,260 64.9% 212,910 64.3% Gross Profit 126,895 35.6% 120,354 36.3% Operating Expenses Sales and Marketing Expense 24,827 7.0% 25,233 7.6% Research and Development Expense 16,608 4.7% 16,601 5.0% Administrative Expense 59,925 16.7% 50,689 15.3% Goodwill Impairment 2,092 0.6% - 0.0% Amortization 1,482 0.4% 1,718 0.5% Total Operating Expenses 104,934 29.4% 94,241 28.4% Operating Profit 21,961 6.2% 26,113 7.9% Other Expenses Interest - Other 12,188 3.5% 8,282 2.5% Other Expense, net 107 0.0% 72 0.0% Total Other Expenses 12,295 3.5% 8,354 2.5% Income Before Taxes 9,666 2.7% 17,759 5.4% Income Tax Provision 13,998 3.9% 6,637 2.0% (Loss)/Earnings before Cumulative Effect of a Change in Accounting Principle $(4,332) -1.2% $11,122 3.4% Cumulative Effect of a Change in Accounting Principle (228) -0.1% - 0.0% Net (Loss)/Income $(4,560) -1.3% $11,122 3.4% Basic Earnings per Share (Loss)/Earnings before Cumulative Effect of a Change in Accounting Principle $(0.16) $0.42 Cumulative Effect of a Change in Accounting Principle $(0.01) $- Net (Loss)/Income $(0.17) $0.42 Diluted Earnings per Share (Loss)/Earnings before Cumulative Effect of a Change in Accounting Principle $(0.16) $0.42 Cumulative Effect of a Change in Accounting Principle $(0.01) $- Net (Loss)/Income $(0.17) $0.42 Weighted Average Shares Outstanding Basic 26,718 26,389 Diluted 26,718 26,550 CAMBREX CORPORATION Gross Sales, Gross Profit & Operating Profit by Segment For the Quarters Ended September 30, 2006 and 2005 (in thousands) Third Quarter 2006 Adjusted Adjusted Gross GP%- Gross Gross Profit - Non- Sales Profit GP% Non-GAAP* GAAP* Bioproducts $39,326 $19,363 49.2% $19,363 49.2% Biopharma 11,615 (165) -1.4% (165) -1.4% Human Health 62,264 20,004 32.1% 20,004 32.1% Corporate - - - Total $113,205 $39,202 34.6% $39,202 34.6% Adjusted Operating Operating Profit Adjusted Profit/ (loss) OP%- (loss) OP% Non- Non- GAAP GAAP GAAP* GAAP* Bioproducts $6,415 16.3% $6,542 16.6% Biopharma (2,422) -20.9% (2,422) -20.9% Human Health 7,804 12.5% 9,896 15.9% Corporate (8,731) (6,997) Total $3,066 2.7% $7,019 6.2% Third Quarter 2005 Adjusted Adjusted Gross GP%- Gross Gross Profit - Non- Sales Profit GP% Non-GAAP* GAAP* Bioproducts $35,729 $18,481 51.7% $18,663 52.2% Biopharma 8,385 (2,137) -25.5% (1,977) -23.6% Human Health 60,386 20,478 33.9% 20,567 34.1% Corporate - - Total $104,500 $36,822 35.2% $37,253 35.6% Adjusted Operating Operating Profit Adjusted Profit/ (loss) OP%- (loss) OP% Non- Non- GAAP GAAP GAAP* GAAP* Bioproducts $5,024 14.1% $5,313 14.9% Biopharma (4,368) -52.1% (4,193) -50.0% Human Health 11,343 18.8% 11,473 19.0% Corporate (5,864) (5,158) Total $6,135 5.9% $7,435 7.1% Gross Sales Comparison 3Q06 3Q05 Gross Gross Change Change Sales Sales $ % Bioproducts $39,326 $35,729 $3,597 10.1% Biopharma 11,615 8,3
