Serologicals (NASDAQ:SERO)
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Serologicals Corporation (NASDAQ:SERO) today announced
financial results for the fourth quarter of our fiscal year ended
January 1, 2006 (fiscal 2005). Revenues for the fourth quarter
increased 26.0%, to $87.1 million, compared to $69.2 million in the
same period last year, while revenues for fiscal 2005 increased 40.3%,
to $274.9 million, compared to $195.9 million in our fiscal year ended
January 2, 2005 (fiscal 2004). Diluted earnings (loss) per share from
continuing operations were $(0.39) and $0.02 per share for the fourth
quarter and fiscal 2005, respectively, compared to $0.12 and $0.59 per
share for the same periods in fiscal 2004. The fourth quarter and
fiscal 2005 results reflect one-time charges totaling $39.4 million,
comprised of $38.0 for impairment and exiting costs and $1.4 million
for inventory write-offs, arising primarily from our decision to close
manufacturing facilities in Toronto by mid-2006 and our decision not
to open a facility in Lawrence, Kansas. The fourth quarter and fiscal
2004 results reflect a one-time charge of $3.2 million for in process
research and development arising from the acquisition of Upstate
Group, Inc. in October 2004.
As the result of our numerous acquisitions and other strategic
corporate activities over the past five years, we provide pro forma
results that exclude acquisition amortization, other acquisition
related costs and other one-time costs. We also provide pro forma
information as an addition to, and not as a substitute for, financial
measures presented in accordance with GAAP. We believe the pro forma
presentation is a beneficial supplemental disclosure to investors in
analyzing and assessing our past and future performance.
Fourth quarter fiscal 2005 pro forma net income was $16.1 million,
or $0.40 per share on a fully diluted basis, compared with $9.2
million, or $0.26 per share on a fully diluted basis, in the fourth
quarter of fiscal 2004. Pro forma net income for the fourth quarter of
fiscal 2005 increased by 75.1% and fully diluted pro forma earnings
per share increased by 51.4% as compared to the fourth quarter of
fiscal 2004. Pro forma net income for fiscal 2005 was $38.1 million,
or $0.98 per share on a fully diluted basis, compared with $24.7
million, or $0.79 per share on a fully diluted basis, for the same
period in fiscal 2004. Pro forma net income for fiscal 2005 increased
by 54.3% and fully diluted pro forma earnings per share increased by
24.1% for fiscal 2005 compared to fiscal 2004. Reconciliations between
GAAP results and pro forma results are presented in the attached
tables and on our web site (www.serologicals.com) under the Investor
Relations tab.
President & CEO Perspectives
"We are extremely pleased with the strong finish for 2005 which
resulted in significant revenue and earnings growth for the fourth
quarter and full year," said David A. Dodd, President and CEO. "We saw
particular strength from our Bioprocessing segment where continued
market growth resulted in strong revenue performance particularly in
our cell culture products. Increased product demand, coupled with
improved manufacturing performance and favorable product mix due to
strong EX-CYTE(R) sales, enabled us to continue improvement in our
gross margins in our Bioprocessing segment resulting in sharp gains in
both operating income and net income."
Mr. Dodd added, "Revenue from our Research segment also increased
significantly during the quarter as we continued to strengthen our
commercial organization, particularly in the Asia/Pacific region, and
further expanded our product and service portfolio. Revenue growth for
the Research segment continued at more than twice the growth rate of
our markets and major competitors. In addition, we continue to make
good progress on the accelerated integration program for our Upstate
operations and expect to transfer all Lake Placid, N.Y. operations and
research activities to Temecula, CA. during the second quarter of
2006. The transfer is expected to result in annualized cost savings
for the Research segment of approximately $5.0 million beginning in
the second half of 2006.
As part of our ongoing plant rationalization and consolidation
process, we announced two actions in January, 2006. The first action
is closure of our facility in Toronto, Ontario, Canada. We will be
moving all manufacturing of cell culture products currently produced
in Toronto to Kankakee, Illinois. This action is expected to be
completed during 2006.
The Company continues to see increased demand for its patented
cell culture product, EX-CYTE(R). We successfully expanded production
capacity at our Kankakee facility by more than 50% during 2005 and
have developed plans for further capacity expansion in the future. As
a result, the second action we announced is that we will not open the
Lawrence facility as originally anticipated.
While these were very difficult decisions, we feel these actions
are necessary to enable the Company to be more competitive in our
marketplace and more profitable. Furthermore, we believe we will be
able to better serve our customers as a result of the actions. These
objectives continue to be a primary focus as we increase the value
delivered to our customers and shareowners," Mr. Dodd added.
Dodd concluded by saying, "Our remarkable performance during the
fourth quarter of 2005 has enabled us to exceed the revenue and
earnings guidance we provided in October, 2005 and to achieve the
original guidance we provided in January, 2005. This was truly an
outstanding achievement by the entire organization that positions the
Company extremely well as we begin 2006. I sincerely appreciate the
efforts and commitments of all those who made 2005 a very successful
year for Serologicals."
Significant accomplishments during 2005 included:
-- Our Research segment, consisting of Chemicon and Upstate,
introduced 248 new products during the fourth quarter and over
1,700 products during fiscal 2005. This equates to
approximately 7 products per business day during fiscal 2005.
We also continue to focus on increasing the revenue for each
new product introduced; in fiscal 2005, the average revenue
for new products on a rolling twelve-month basis increased to
over $8,000 per product compared to approximately $7,600 for
the prior year. The new products include Chemicon assays and
reagents focused in the areas of neuroscience and stem cell
research and a range of new Upstate kinases and multiplex
Beadlyte(R) assays. Upstate has expanded its industry leading
position in kinases by providing approximately 300 kinases and
it has an aggressive plan to further increase its kinase panel
and screening services in 2006.
-- During the quarter, Upstate continued to expand its portfolio
of products and services to support research and drug
discovery activities with such products as Catch &
Release(TM), a simplified immunoprecipitation kit, Spray and
Glow(TM), a spray format western blotting tool and the largest
portfolio of bead-based cytokine multiplex assays on the
market today. Pro forma revenues for drug discovery products
and services increased 45% during the fourth quarter of fiscal
2005 and 69% during all of fiscal 2005. Upstate continues its
commitment to support drug discovery research by continuing to
develop and introduce new products and services using
cell-signaling technologies.
-- Chemicon completed a number of significant co-development
opportunities during the fourth quarter. Chemicon entered into
an exclusive manufacturing and marketing agreement with Stem
Cell Sciences that has transferred patented technology and
expertise to Chemicon allowing it to manufacture a fully
formulated, serum-free embryonic stem cell media for the
research market. Chemicon and RheoGene, Inc. signed a license
to use RheoGene's RheoSwitch(R) System and related
technologies within Chemicon's research product lines focused
on specialty research markets, including Chemicon's growing
stem cell biology portfolio of products. Through this
agreement, Chemicon accesses the innovative RheoSwitch(R)
technology that regulates the timing and level of gene
expression in all types of eucaryotic cells through the
interaction of RheoGene's proprietary ecdysone-based receptors
and proprietary small molecule ligands, which will be supplied
under the agreement. Chemicon and MorphoSys AG signed a
three-year agreement for the distribution of HuCAL(R) -based
recombinant research antibodies through Chemicon's worldwide
sales network. MorphoSys' Antibodies by Design unit will
develop antibodies from its proprietary HuCAL GOLD(R) antibody
library against targets identified and supplied by Chemicon.
Chemicon may market the licensed HuCAL(R)- based research
antibodies for use in in-vitro research as stand-alone
products or as components of reagent kits and market the
antibodies for clinical diagnostic applications. The parties
are aiming to complete 100 research antibody projects per year
over the three-year lifetime of the agreement.
-- During the fourth quarter, Celliance acquired the UCOE
(ubiquitous chromatin opening element) gene expression
technology from Innovata plc. This technology, which is
encompassed by domestic and foreign patents, improves the
yield, consistency and stability of protein production in
cultured mammalian cells. We see an opportunity to utilize
this technology for internal development projects as well as
licensing this technology to our customers.
-- During the fourth quarter, we implemented an aggressive
expansion in the Asia/Pacific region with the previously
announced hiring of a Regional Director for that area. We have
begun assessing our strategic options available for expanded
business development and growth within this region and expect
to begin achieving the benefits in 2006.
-- In January 2006, we announced two actions related to our
ongoing plant consolidation and rationalization initiative.
First, we decided to close the Celliance facility in Toronto,
Ontario and to consolidate all manufacturing of our cell
culture products in Kankakee, Illinois. This action is
expected to occur during 2006. As a consequence of this
decision, the Toronto facility was written down to its
estimated fair value resulting in a one-time non-cash charge
of $14.8 million in the fourth quarter of fiscal 2005. We
expect that the Toronto site will be closed by the end of 2006
and subsequently prepared for sale. In connection with these
activities, we expect to incur $2.3 million in cash closure
costs for clean up, dismantling, severance and benefit costs.
Approximately $16.1 million of these costs were recorded in
the fourth quarter of fiscal 2005 with the balance expected to
be incurred during 2006. As previously discussed, we decided
that we will not open the Celliance facility in Lawrence,
Kansas. We expect to meet current and anticipated demand for
EX-CYTE(R) using the existing Kankakee facility. As a
consequence of this decision, the Lawrence facility was
written down to net realizable value resulting in a one-time
non-cash charge of $18.4 million in the fourth quarter of
fiscal 2005. This facility will also be prepared for sale and
we anticipate incurring $3.2 million in cash closure costs
related to severance and other costs to prepare the facility
for sale. We recorded substantially all of these costs in the
fourth quarter of fiscal 2005.
-- We announced early in 2005 the implementation of an
accelerated integration program for our Research segment. This
program initially included the consolidation of several core
functions, including Business Segment Management, R&D/Business
Development, Marketing, Technical Support, Scientific
Sourcing, Intellectual Property/Licensing and Finance and
Accounting. We incurred one-time costs of approximately $0.3
million and $2.1 million in connection with this program
resulting from severance costs, retention payments and
relocation costs recorded during the fourth quarter of fiscal
2005 and all of fiscal 2005, respectively. The majority of
these costs, $1.3 million, were recorded as adjustments during
the third quarter of fiscal 2005 to the acquisition purchase
price in connection with the purchase of Upstate, with the
balance included as period operating costs. Further, during
the fall of 2005, the Company made the decision to move the
manufacturing, distribution and development operations,
currently located in Lake Placid, N.Y. to our facility in
Temecula, CA. during the second quarter of 2006. We recorded
one-time costs of approximately $2.1 million in connection
with this program resulting from severance costs, retention
payments and relocation costs. All of this expense was
recorded as a one-time charge to earnings as part of its
integration efforts in the fourth quarter of fiscal 2005. It
is expected that the Lake Placid site will be closed in the
second quarter of 2006 and subsequently prepared for sale. We
expect to recover the carrying value of this facility and
accordingly, no impairment loss has been recorded. We expect
to achieve savings from this transfer of approximately $5.0
million on an annual basis beginning in the second half of
2006.
-- In January 2006, Celliance announced the opening of a new
state of the art 18,000 square foot Global Distribution Center
near its largest production facility in Kankakee, Illinois.
Celliance made the decision to relocate its distribution
center from its previous location in connection with the sale
of its production and distribution facility formerly located
in Milford, MA. The sale of the Milford facility, completed in
January 2006, is expected to result in a gain of approximately
$1.2 million during the first quarter of 2006.
-- In January 2006, we consolidated our European customer service
and distribution operations for the Research segment into one
facility in Southampton, UK. We believe that this
consolidation will allow us to improve service to our
customers and create additional cost efficiencies.
-- In June, we announced that our Board of Directors authorized a
stock repurchase program of up to 2.0 million shares of our
common stock during the three years ending in June 2008. The
program is being executed through purchases made from time to
time in the open market or through private transactions in
accordance with applicable securities laws. The timing,
pricing and size of purchases will depend on market
conditions, prevailing stock prices and other considerations.
As of February 22, 2006, we have completed the repurchase of
approximately 1,175,000 shares of common stock under this
program. Funds for the repurchase of these shares came from
cash generated from operations and available funds on hand.
Future purchases are expected to come from the same sources.
-- In October, we received a cash settlement arising from a
contractual claim against a customer of our former Therapeutic
plasma business. The settlement of approximately $1.9 million,
net of collection costs and income taxes, is reported as
Income from Discontinued Operations in the fourth quarter of
fiscal 2005.
Fourth Quarter Results Summary
The Research segment, which is focused on the research products
and services business, consists of products and services offered under
the brand names of Chemicon(R) and Upstate(R). The Bioprocessing
segment, Celliance(R), includes cell-culture supplement products along
with diagnostic related products.
Overall, revenues for the fourth quarter of fiscal 2005 grew 26.0%
when compared to the fourth quarter of fiscal 2004. Revenues for
fiscal 2005 totaled $274.9 million, compared to $195.9 million for
fiscal 2004, an increase of 40.3%. The increase was primarily due to
the acquisition of the Upstate Group in October 2004. After adding
actual Upstate revenues to the full year fiscal 2004 results, our
company-wide revenues in the year grew 16.2% compared to the prior
year. During the quarter, Research revenues increased 12.2% compared
to last year. Celliance revenues were $50.3 million and $137.0 million
for the quarter and fiscal 2005 versus $36.4 million and $117.4
million for the fourth quarter and fiscal 2004. This represents a
38.4% and 16.6% increase in revenues for the quarter and full year
fiscal 2005 compared to the fourth quarter and full year fiscal 2004.
Celliance achieved these increases as the result of strong growth in
cell culture products, primarily EX-CYTE(R) and Incelligent(TM).
The following table shows a breakdown of the revenue contribution
by segment for the fourth quarter and for the full fiscal years 2005
and 2004:
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*T
$ in Thousands Quarter Ended
---------------------------------
January 1, 2006 January 2, 2005
---------------- ----------------
% %
Actual Total Actual Total
---------------- ----------------
Revenue:
Research $ 36,790 42.2% $ 32,793 47.4%
Bioprocessing 50,343 57.8% 36,369 52.6%
--------- ------ --------- ------
$ 87,133 100% $ 69,162 100%
========= ====== ========= ======
$ in Thousands Year Ended
---------------------------------
January 1, 2006 January 2, 2005
---------------- ----------------
% %
Actual Total Actual Total
---------------- ----------------
Revenue:
Research $138,005 50.2% $ 78,506 40.1%
Bioprocessing 136,939 49.8% 117,417 59.9%
--------- ------ --------- ------
$274,945 100% $195,923 100%
========= ====== ========= ======
*T
The comments in this paragraph regarding gross margins refer to
pro forma gross margins, excluding acquisition and one-time
reorganization related costs that affected gross margins. Consolidated
pro forma gross margins remain strong. During the fourth quarter of
fiscal 2005, consolidated pro forma gross margins were 56.7% compared
to 57.1% for the same period in fiscal 2004. Consolidated pro forma
gross margins reached 57.0% for fiscal 2005 compared to 55.6% in
fiscal 2004. Pro forma Research gross margins for the fourth quarter
of fiscal 2005 decreased by 4.7 percentage points compared to the pro
forma gross margins for the fourth quarter of fiscal 2004, due
primarily to higher sales of bulk products and instruments. Pro forma
Research gross margins for fiscal 2005 decreased by 2.2 percentage
points when compared to the pro forma gross margins in fiscal 2004.
Pro forma gross margins in fiscal 2005 for the Research segment were
lower than fiscal 2004 due to product mix shifts from the prior year
and a second quarter 2004 one-time benefit related to the settlement
of a dispute over a licensing arrangement. This settlement increased
Research gross margins in fiscal 2004 by approximately two percentage
points. Pro forma Bioprocessing margins during the fourth quarter and
fiscal 2005 increased by approximately 4.4 and 1.7 percentage points,
respectively, compared to the same periods in fiscal 2004 primarily as
the result of higher EX-CYTE(R) sales and higher manufacturing
productivity which resulted in lower unit production costs.
The following table shows a breakdown of the gross margin
contribution by segment on a pro forma basis for the fourth quarter
and the full fiscal years 2005 and 2004:
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---------------------------------
$ in Thousands Quarter Ended
---------------------------------
January 1, 2006 January 2, 2005
---------------- ----------------
Pro Forma GM % Pro Forma GM %
---------------- ----------------
Gross Profit:
Research $ 22,754 61.8% $ 21,816 66.5%
Bioprocessing 26,664 53.0% 17,657 48.6%
--------- ---------
$ 49,418 56.7% $ 39,473 57.1%
========= =========
---------------------------------
$ in Thousands Year Ended
---------------------------------
January 1, 2006 January 2, 2005
---------------- ----------------
Pro Forma GM % Pro Forma GM %
---------------- ----------------
Gross Profit:
Research $ 87,071 63.1% $ 51,242 65.3%
Bioprocessing 69,539 50.8% 57,613 49.1%
--------- ---------
$156,610 57.0% $108,855 55.6%
========= =========
*T
Selling, general and administrative costs ("SG&A") for the fourth
quarter of fiscal 2005 were $22.9 million compared to $21.3 million
for the fourth quarter of fiscal 2004. On a pro forma basis, SG&A
costs for the quarter were $21.5 compared to $20.1 million in the same
quarter in fiscal 2004. The majority of this increase was due to
increased public company expense, sales commissions and other
incentive compensation arrangements.
We incurred an operating loss in the fourth quarter of fiscal 2005
totaling $(20.4) million compared to operating income of $8.8 million
in the fourth quarter of fiscal 2004. The operating loss in the fourth
quarter of fiscal 2005 resulted from a previously discussed one-time
charge totaling $39.4 million for impairment, exiting costs and
inventory write-offs arising from the decision to close the Toronto
facility and not to open the Lawrence facility. Pro forma operating
income for the fourth quarter of fiscal 2005 before impairment and
exiting costs, acquisition related amortization and other similar
acquisition and reorganization related costs was $24.1 million, or
27.7% of revenue, in fiscal 2005 compared to $15.3 million, or 22.1%
of revenue, in the fourth quarter of fiscal 2004. Operating income for
fiscal 2005 was $4.6 million, or 1.7% of revenue, compared to
operating income of $32 million, or 16.3% of revenue, for the same
period in fiscal 2004. Pro forma operating income for fiscal 2005
before impairment and exiting costs, acquisition related amortization
and other similar acquisition and reorganization related costs was
$59.4 million, or 21.6% of revenue, compared to $40.5 million, or
20.7% of revenue, in fiscal 2004.
Cash flows from operating activities were $14.4 million and $24.8
million in the fourth quarter and all of fiscal 2005, respectively.
This compares to cash flows from operating activities of $16.4 million
and $37.6 million in the fourth quarter and all of fiscal 2004. Cash
flows from operating activities were lower in fiscal 2005 than in
fiscal 2004 due primarily to lower net income as a result of
reorganization and integration expenses.
Performance Highlights: Research Products and Services
Research revenue in the fourth quarter and all of fiscal 2005
increased approximately $4.0 million and $59.5 million, respectively,
or 12.2% and 75.8%, respectively, over the prior year quarter and
fiscal 2004 results. While much of the annual increase in revenue was
the result of the Upstate acquisition, Chemicon achieved revenue of
$18.4 million which represents a growth of 6.0% for the quarter and
revenue of $70.3 million for all of fiscal 2005 which represents an
increase of 11.5% over the prior year. Chemicon's growth in the fourth
quarter was driven primarily by contributions in the areas of
neuroscience, stem cells, bulk reagents and diagnostic products.
Upstate revenue was $18.4 million in the fourth quarter of fiscal 2005
which represents an increase of 19.5% compared to the fourth quarter
of fiscal 2004. While not included in our operating results for the
full year in fiscal 2004, Upstate achieved $67.7 million in revenue in
fiscal 2005 compared to $56.2 million in fiscal 2004, an increase of
20.5%. Upstate growth for the fourth quarter was driven primarily by
strong growth in drug discovery services as well as product sales in
the areas of nuclear function and multiplex Beadlyte(R) assays and
instruments. Geographically, Research revenues increased 32% in Asia,
18% in Europe and 13% in North America in the fourth quarter of fiscal
2005.
Performance Highlights: Bioprocessing Products
Bioprocessing revenue was $50.3 million during the fourth quarter
of fiscal 2005 compared to $36.4 million in fiscal 2004, an increase
of 38.4%. Bioprocessing revenue increased $19.5 million, to $136.9
million over fiscal 2004, an increase of 16.6%. EX-CYTE(R) sales in
the fourth quarter and full year fiscal 2005 were $12.8 million and
$34.2 million, respectively, compared to $8.7 million and $29.6
million, respectively, for the same periods of fiscal 2004. Sales of
Incelligent(TM), Celliance's proprietary branded recombinant human
insulin, were $19.8 million and $39.0 million for the fourth quarter
and full fiscal 2005, respectively, compared with $11.2 million and
$26.6 million, respectively, for the same periods of fiscal 2004.
Incelligent(TM) sales increased significantly for the fourth quarter
and fiscal 2005 as the result of changes by our supplier to their
product specifications and supply expectations for 2006. Sales of
Probumin(TM) BSA, MonoSera(TM) antibodies and other Bioprocessing
products in the fourth quarter and full fiscal 2005 were $17.7 million
and $63.6 million, respectively, compared to $16.5 million and $61.2
million, respectively, for the same periods of fiscal 2004.
Other Q4 2005 Financial Information
-- Available cash and short-term investments at January 1, 2006
were $38.5 million, compared with $62.1 million at the end of
fiscal 2004. The decline in cash is primarily a result of the
previously described common stock repurchase program.
Currently our available cash and short-term investments are
$57.5 million.
-- Accounts receivable totaled $64.2 million at the end of fiscal
2005, compared with $46.9 million at the end of fiscal 2004.
Day's-sales-outstanding increased to 66 days compared to 61
days at the end of fiscal 2004 due to the higher fourth
quarter revenues in fiscal 2005.
-- Capital expenditures for the fourth quarter of fiscal 2005
were $6.3 million compared to $4.7 million for the fourth
quarter of fiscal 2004. Capital expenditures for fiscal 2005
were $14.3 million compared to $19.5 million for fiscal 2004.
-- Recognized losses on foreign exchange transactions were
negligible in the fourth quarter of fiscal 2005 versus a gain
of $0.2 million in the same quarter of fiscal 2004. We
recognized a loss on foreign exchange transactions of $(0.3)
million in fiscal 2005 and a gain of $0.1 million on such
transactions in fiscal 2004. In the Research segment, currency
rate fluctuations favorably affected gross margins by
negligible amounts in the fourth quarter and for all of fiscal
2005, compared to an adverse affect of less than a 1.0
percentage point reduction in gross margins in both the fourth
quarter and for all of fiscal 2004. Currency rate fluctuations
favorably affected gross margins in the Bioprocessing segment
by 1.1 and 0.3 percentage points in the fourth quarter and for
fiscal 2005, respectively, compared to an adverse affect of
1.0 percentage point in the fourth quarter of fiscal 2004 and
a negligible amount for all of fiscal 2004.
Q4 2005 Earnings Conference Call
We will hold our fourth quarter earnings conference call at 9:00
a.m. (Eastern Time) on Thursday, February 23, 2006. The conference
call dial in number is (866) 700-7477(domestic) and (617) 213-8840
(international), confirmation code 16643853. The live broadcast will
also be available online at our website at www.serologicals.com and at
www.StreetEvents.com.
If you are unable to participate in the call, a 14-day playback
will start on February 23, 2006 at 11:00 a.m. (Eastern Time). To
listen to the playback, please call (888) 286-8010 (domestic) or
(617) 801-6888 (international) and enter access code 71392296 or
access the archived web cast on our website at www.serologicals.com.
About Serologicals
Serologicals Corporation (NASDAQ: SERO), headquartered in Atlanta,
GA., is a global leader in developing and commercializing consumable
biological products, enabling technologies and services in support of
biological research, drug discovery, and the bioprocessing of
life-enhancing products. Serologicals' customers include researchers
at major life science companies and leading research institutions
involved in key disciplines, such as neurology, oncology, hematology,
immunology, cardiology, proteomics, infectious diseases, cell
signaling and stem cell research. In addition, Serologicals is the
world's leading provider of monoclonal antibodies for the blood typing
industry. Serologicals employs a total of approximately 1,000 people
worldwide in three Serologicals' companies: Chemicon International
Inc., headquartered in Temecula, CA., Upstate Group, LLC,
headquartered in Charlottesville, VA. and Celliance Corporation,
headquartered in Atlanta, GA.
For more information, please visit our website:
www.serologicals.com.
Statement Regarding Use of Non-GAAP Measures
The financial results that we report on the basis of GAAP include
substantial cash and non-cash charges and tax benefits related to
acquisitions, to the integration of acquired businesses with existing
businesses and to other one-time events. We present pro forma
financial information in this press release because we believe that
the information is a beneficial supplemental disclosure to investors
in analyzing and assessing our past and future performance. We believe
that the pro forma financial information is useful because, among
other things, by eliminating the effect of one-time acquisition and
integration costs and other one-time events and the related tax
benefits, it provides an indication of the profitability and cash
flows of the acquired businesses and our on-going operations.
The pro forma financial information, excluding acquisition related
amortization and other one-time costs, is limited because it does not
reflect the entirety of our business costs. Therefore, we encourage
investors to consider carefully our results under GAAP, as well as our
pro forma disclosures and the reconciliation between these
presentations to more fully understand our business. Reconciliations
between GAAP results and the pro forma information are presented in
the attached tables and also on our web site (www.serologicals.com)
under the Investor Relations tab.
Safe Harbor Statement
This release contains certain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995
about our subsidiaries and us. The forward-looking statements are
subject to risks and uncertainties, including, without limitation,
statements regarding the transfer of Upstate operations from Lake
Placid, NY to Temecula, CA and the impact that the transfer will have
on gross margins and operating income of the Research segment in 2006;
our expectations that the Research segment will continue to achieve
revenue growth in excess of its markets and major competitors; our
ability to achieve operating efficiencies from the accelerated
integration program for our Research segment; our estimates of the
amount of the closure and exiting costs associated with the
realignment of our manufacturing facilities; our timetable for closing
our manufacturing facilities in Toronto and transferring production of
the Toronto cell culture products to Kankakee, Illinois; our ability
to achieve manufacturing efficiencies by transferring production of
the Toronto cell culture products to Kankakee; our ability to induce
customers of the Toronto products to accept products manufactured
elsewhere; and the success of the commercial arrangements entered into
by Chemicon and Upstate with third parties. Additional information
concerning these and other risks and uncertainties is outlined in our
filings with the Securities and Exchange Commission, including our
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 18, 2005. This report is available online at
http://www.sec.gov. Forward-looking statements are only predictions
and are not guarantees of performance. Forward-looking statements are
based on current expectations of future events and are based on our
current views and assumptions regarding future events and operating
performance. You should not place undue reliance on forward-looking
statements, since the statements speak only as of the date that they
are made, and we undertake no obligation to publicly update these
statements based on events that may occur after the date of this press
release.
Serologicals(R) and EX-CYTE(R) are registered trademarks of
Serologicals Royalty Company. Incelligent(TM) and Probumin(TM) are
trademarks of Serologicals Royalty Company.
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*T
SEROLOGICALS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Fourth Quarter and Year Ended January 1, 2006 and January 2, 2005
(in thousands, except per share amounts)
(Unaudited)
Quarter Ended Year Ended
--------------------- ---------------------
January 1, January 2, January 1, January 2,
2006 2005 2006 2005
---------- ---------- ---------- ----------
Net revenues $ 87,133 $ 69,162 $ 274,945 $ 195,923
Cost of revenues 40,764 30,103 122,798 87,482
---------- ---------- ---------- ----------
Gross profit 46,369 39,059 152,147 108,441
Operating expenses:
Selling, general and
administrative expenses 22,928 21,264 85,141 59,293
Research and development 3,957 4,032 17,199 10,144
Amortization of
intangibles 1,877 1,707 7,206 3,771
Impairment charges and
exiting costs 38,025 - 38,025 -
Purchased in-process
research and development - 3,263 - 3,263
---------- ---------- ---------- ----------
Operating income (loss) (20,419) 8,793 4,576 31,970
Other (income) expense,
net 24 177 597 (54)
Interest expense 1,815 2,525 7,361 6,052
Interest income (370) (5) (1,782) (587)
Write-off of deferred
financing costs - 965 - 965
---------- ---------- ---------- ----------
Income (loss) before
income taxes (21,888) 5,131 (1,600) 25,594
Provision (benefit) for
income taxes (8,299) 1,590 (2,416) 7,933
---------- ---------- ---------- ----------
Income from
continuing
operations (13,589) 3,541 816 17,661
Income from discontinued
operations 1,883 - 1,883 -
---------- ---------- ---------- ----------
Net income (loss) (11,706) 3,541 2,699 17,661
Add back interest expense
on convertible debt,
net of taxes - 1,017 - 3,320
---------- ---------- ---------- ----------
Numerator for diluted
earnings (loss) per share $ (11,706) $ 4,558 $ 2,699 $ 20,981
========== ========== ========== ==========
Earnings (loss) per common
share:
Basic earnings (loss)
per share:
Income (loss) from
continuing operations $ (0.39) $ 0.12 $ 0.02 $ 0.68
Discontinued operations $ 0.05 - $ 0.05 -
---------- ---------- ---------- ----------
Net income (loss) $ (0.34) $ 0.12 $ 0.08 $ 0.68
========== ========== ========== ==========
Diluted earnings (loss)
per share:
Income (loss) from
continuing operations $ (0.39) $ 0.12 $ 0.02 $ 0.59
Discontinued operations $ 0.05 - $ 0.05 -
---------- ---------- ---------- ----------
Net income (loss) $ (0.34) $ 0.12 $ 0.08 $ 0.59
========== ========== ========== ==========
Weighted average shares used in per
share calculations:
Basic 34,634 29,495 34,729 26,148
========== ========== ========== ==========
Diluted 34,634 38,938 35,195 35,525
========== ========== ========== ==========
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SEROLOGICALS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
January 1, January 2,
2006 2005
----------- -----------
Assets
Current assets:
Cash and short-term investments $ 38,452 $ 62,054
Trade accounts receivable, net 64,173 46,899
Inventories 59,418 49,846
Other current assets 15,798 15,226
----------- -----------
Total current assets 177,840 174,025
Property and equipment, net 70,015 96,887
Goodwill 239,520 241,038
Other intangible assets, net 117,698 121,647
Other assets 18,545 6,210
----------- -----------
Total assets $ 623,619 $ 639,807
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 17,377 $ 11,827
Current maturities of capital lease
obligations 1,081 2,419
Accrued liabilities and other 41,758 37,336
----------- -----------
Total current liabilities 60,215 51,582
4.75% Convertible debentures 129,905 130,395
Capital lease obligations 476 2,194
Deferred income taxes 25,736 38,012
Other liabilities 909 1,093
Stockholders' equity 406,377 416,531
----------- -----------
Total liabilities and stockholders' equity $ 623,619 $ 639,807
=========== ===========
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SEROLOGICALS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Year Ended January 1, 2006 and January 2, 2005
(Unaudited)
(In thousands)
January 1, January 2,
2006 2005
----------- -----------
Continuing Operations:
Operating Activities:
Income from continuing operations $ 816 $ 17,661
Non-cash and working capital changes, net 24,002 19,951
----------- -----------
Net cash provided by operating activities 24,818 37,612
----------- -----------
Investing Activities:
Purchases of property and equipment and
intangibles (15,761) (19,482)
Purchase of businesses, net of cash acquired (6,752) (117,680)
Proceeds (purchases) of short-term
investments, net 11,805 (1,945)
Other, net (8,250) 254
----------- -----------
Net cash used in investing activities (18,958) (138,853)
----------- -----------
Financing Activities:
Repurchase of common stock (23,125) -
Proceeds from equity issued, net 7,786 109,795
Other (2,952) -
----------- -----------
Net cash (used in) provided by financing
activities (18,292) 109,795
----------- -----------
Discontinued Operations:
Net cash provided by discontinued operations 1,883 1,962
----------- -----------
Effect of foreign exchange on cash (1,249) 1,029
----------- -----------
Net (decrease) increase in cash and cash
equivalents (11,798) 11,545
Cash and cash equivalents, beginning of period 33,024 21,479
----------- -----------
Cash and cash equivalents, end of period $ 21,226 $ 33,024
=========== ===========
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SEROLOGICALS CORPORATION AND SUBSIDIARIES
RECONCILIATION FROM GAAP TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
For the Three Months
Ended January 1, 2006
----------------------- --------
Pro
GAAP Adjustments Forma
--------- --------- ---------
Net revenues $ 87,133 $ - 87,133
Cost of revenues 40,764 (3,049) (1) 37,714
--------- --------- ---------
Gross profit 46,369 3,049 49,418
Margin % 53.2% 56.7%
Selling, general and administrative 22,928 (1,427) (3) 21,501
Research and development 3,957 (128) (3) 3,829
Amortization of intangibles 1,877 (1,877) (4) -
Impairment charges and exiting costs 38,025 (38,025) (5) -
--------- --------- ---------
Operating income (loss) (20,419) 44,507 24,088
Operating margin % -23.4% 27.6%
Other expense 24 - 24
Interest income (370) - (370)
Interest expense 1,815 - 1,815
--------- --------- ---------
Income (loss) before income taxes (21,888) 44,507 22,619
Provision (benefit) for income
taxes (8,299) 14,859 (7) 6,559
--------- --------- ---------
Income (loss) from continuing
operations (13,589) 29,648 16,059
Add back interest expense on convertible debt,
net of taxes - 1,242 1,242
--------- --------- ---------
Numerator for diluted earnings (loss)
per share $(13,589) $ 30,890 $17,302
========= ========= ========
Income (loss) per share from continuing operations:
Basic $ (0.39) $ 0.46
========= ========
Diluted $ (0.39) $ 0.40
========= ========
Weighted average shares used in per share calculation:
Basic 34,634 34,634
Diluted 34,634 43,697
For the Year Ended
January 1, 2006
--------------------------------
GAAP Adjustments Pro Forma
--------- --------- ---------
Net revenues 274,945 $ - 274,945
Cost of revenues 122,798 (4,463) (2) 118,335
--------- --------- ---------
Gross profit 152,147 4,463 156,610
Margin % 55.3% 57.0%
Selling, general and administrative 85,141 (4,772) (3) 80,369
Research and development 17,199 (334) (3) 16,864
Amortization of intangibles 7,206 (7,206) (4) -
Impairment charges and exiting
costs 38,025 (38,025) (5) -
--------- --------- ---------
Operating income (loss) 4,576 54,801 59,376
Operating margin % 1.7% 21.6%
Other expense 597 (519) (6) 77
Interest income (1,782) - (1,782)
Interest expense 7,361 - 7,361
--------- --------- ---------
Income (loss) before income taxes (1,600) 55,320 53,720
Provision (benefit) for income
taxes (2,416) 17,994 (7) 15,579
--------- --------- ---------
Income (loss) from continuing
operations 816 37,325 38,141
Add back interest expense on
convertible debt, net of taxes - 4,940 4,940
--------- --------- ---------
Numerator for diluted earnings
(loss) per share $ 816 $ 42,266 $43,082
========= ========= =========
Income (loss) per share from
continuing operations:
Basic $ 0.02 $ 1.10
========= =========
Diluted $ 0.02 $ 0.98
========= =========
Weighted average shares used in per share
calculation:
Basic 34,729 34,729
Diluted 35,195 43,984
(1) Add back costs associated with reorganization in Bioprocessing
segment and inventory write off at Lawrence
(2) Add back YTD costs for purchase accounting inventory revaluations
related to acquisition of Upstate in the first quarter, other one time
charges for business integration and reorganization costs in both
segments and inventory writeoff at Lawrence in the fourth quarter
(3) Add back business integration and reorganization costs.
(4) Add back purchased intangible asset amortization.
(5) Add back impairment and exiting costs associated with
reorganization in Bioprocessing segment.
(6) Add back loss on collection and settlement of Note Receivable
arising from sale of Therapeutic segment
(7) The income tax effect at prevailing rate for period.
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SEROLOGICALS CORPORATION AND SUBSIDIARIES
RECONCILIATION FROM GAAP TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
For the Three Months
Ended January 2, 2005
--------------------------------
GAAP Adjustments Pro Forma
--------- --------- ---------
Net revenues $ 69,162 $ - $ 69,162
Cost of revenues 30,103 (414) (1) 29,689
--------- --------- ---------
Gross profit 39,059 414 39,473
Margin % 56.5% 57.1%
Selling, general and administrative 21,264 (1,126) (2) 20,138
Research and development 4,032 - 4,032
Amortization of intangibles 1,707 (1,707) (3) -
Purchased in-process research and
development 3,263 (3,263) (4) -
--------- --------- ---------
Operating income 8,793 6,510 15,303
Operating margin % 12.7% 22.1%
Other expense 177 (353) (5) (176)
Write-off of deferred financing
costs 965 (965) (6) -
Interest income (201) - (201)
Interest expense 2,721 (328) (7) 2,393
--------- --------- ---------
Income before income taxes 5,131 8,156 13,287
Provision for income taxes 1,590 2,528 (8) 4,118
--------- --------- ---------
Income from continuing operations 3,541 5,628 9,169
Add back interest expense on
convertible debt, net of taxes 1,017 - 1,017
--------- --------- ---------
Numerator for diluted earnings per
share $ 4,558 $ 5,628 $ 10,186
========= ========= =========
Income per share from continuing
operations:
Basic $ 0.12 $ 0.19 $ 0.31
Diluted $ 0.12 $ 0.14 $ 0.26
Weighted average shares used in per
share calculation:
Basic 29,495 29,495 29,495
Diluted 38,938 38,938 38,938
For the Year
Ended January 2, 2005
--------------------------------
GAAP Adjustments Pro Forma
--------- --------- ---------
Net revenues $195,923 $ - $195,923
Cost of revenues 87,482 (414) (1) 87,068
--------- --------- ---------
Gross profit 108,441 414 108,855
Margin % 55.3% 55.6%
Selling, general and administrative 59,293 (1,126) (2) 58,167
Research and development 10,144 - 10,144
Amortization of intangibles 3,771 (3,771) (3) -
Purchased in-process research and
development 3,263 (3,263) (4) -
--------- --------- ---------
Operating income 31,970 8,574 40,544
Operating margin % 16.3% 20.7%
Other expense (54) (353) (5) (407)
Write-off of deferred financing
costs 965 (965) (6) -
Interest income (783) - (783)
Interest expense 6,248 (328) (7) 5,920
--------- --------- ---------
Income before income taxes 25,594 10,220 35,814
Provision for income taxes 7,933 3,168 (8) 11,101
--------- --------- ---------
Income from continuing operations 17,661 7,052 24,713
Add back interest expense on
convertible debt, net of taxes 3,320 - 3,320
--------- --------- ---------
Numerator for diluted earnings per
share $ 20,981 $ 7,052 $ 28,033
========= ========= =========
Income per share from continuing
operations:
Basic $ 0.68 $ 0.27 $ 0.95
Diluted $ 0.59 $ 0.20 $ 0.79
Weighted average shares used in per
share calculation:
Basic 26,148 26,148 26,148
Diluted 35,525 35,525 35,525
(1) Add back costs for purchase accounting inventory revaluations
related to acquisition of Upstate.
(2) Add back business integration costs.
(3) Add back purchased intangible asset amortization.
(4) Add back purchased in-process research and development related to
acquisition of Upstate.
(5) Add back loss on renegotiation of terms of notes receivable from
sale of discontinued operations.
(6) Add back write-off of unamortized deferred costs related to debt
financings.
(7) Add back imputed interest expense on purchase price of acquisition
of Upstate.
(8) The income tax effect at prevailing rate for period.
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SEROLOGICALS CORPORATION AND SUBSIDIARIES
EBITDA and Adjusted EBITDA
(In thousands)
Three Months Ended Year Ended
--------------------- ---------------------
January 1, January 2, January 1, January 2,
2006 2005 2006 2005
---------- ---------- ---------- ----------
Income (loss) from
continuing operations $ (13,589) $ 5,739 $ 816 $ 14,120
Provision (benefit) for
income taxes (8,299) 2,579 (2,416) 6,344
Interest expense (income),
net 1,446 1,056 5,579 2,945
Depreciation 2,165 1,661 8,337 5,157
Amortization of
intangibles 1,877 655 7,206 2,064
---------- ---------- ---------- ----------
EBITDA (16,401) 11,690 19,522 30,630
Other Adjustments:
Impairment and
exiting costs 38,025 - 38,025 -
Write-offs of
unvalidated start-
up lots in inventory 1,336 1,336
Purchase accounting
revaluations and
business integration
costs 3,269 - 8,233 -
Loss on collection
and settlement of
Note Receivable
arising from sale of
Therapeutic segment - - 519 -
---------- ---------- ---------- ----------
Adjusted EBITDA $ 26,229 $ 11,690 $ 67,636 $ 30,630
========= ========= ========= ==========
Note: Income from continuing operations before net interest expense,
including amortization of debt issuance costs, provision for income
taxes, depreciation, amortization and other adjustments ("Adjusted
EBITDA") is not a measure of performance defined in accordance with
accounting principles generally accepted in the United States of
America. However, we believe that Adjusted EBITDA is useful to
investors in evaluating our performance because it is a commonly used
financial analysis tool for measuring and comparing life science
companies in areas of operating performance. Adjusted EBITDA should
not be considered as an alternative to net income as an indicator of
our performance or as an alternative to net cash provided by operating
activities as a measure of liquidity and may not be comparable to
similarly titled measures used by other companies. In addition, the
definition of Adjusted EBITDA as presented herein differs from the
definition of Consolidated EBITDA used in the Company's revolving
credit facility.
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