TORONTO, Dec. 17 /PRNewswire-FirstCall/ - Patheon Inc. (TSX: PTI), a leading provider of contract development and manufacturing services to the global pharmaceutical industry, announced today its results for the fourth quarter and full year ended October 31, 2010. Revenues for the fourth quarter were $177.7 million or 0.9 percent higher than the same period last year. Excluding currency fluctuations, current year fourth quarter revenues would have increased by approximately 5.0 percent versus the same period last year. Operating income for the period was $13.3 million, or 7.5 percent of revenues, down from operating income of $15.4 million, or 8.7 percent of revenues, in the same period last year. Fourth quarter adjusted EBITDA was $28.6 million, up from $27.6 million in the comparable period last year.
Revenues for the full year were $671.2 million, up 2.5 percent from the prior period. Excluding currency fluctuations, current year revenues would have been approximately 2.3 percent higher than the same period of 2009. Operating income for the year ended October 31, 2010 was $27.6 million, or 4.1 percent of revenues, down from operating income of $36.3 million, or 5.5 percent of revenues, in the same period last year. Full year adjusted EBITDA was $91.7 million, up from $74.0 million in 2009. All amounts are in U.S. dollars unless otherwise indicated.
In commenting on results, Peter T. Bigelow, Patheon's Interim Chief Executive Officer said, "Fiscal 2010 was a solid year that included a continuation of our quality track record, introduction of innovative new pharmaceutical development services, and development of broader strategic relationships with several customers that we believe will be a model for the business going forward. We reported increased financial results and have put in place a stable, long-term capital structure to support the business. We continue to absorb losses in our Puerto Rico business and, although we are continuing with our efforts to shut down Caguas and consolidate our operations into the Manati site, the consolidation is taking longer than expected due to customer regulatory filing time lines."
Mr. Bigelow added, "We continue to see encouraging customer activity in both our Commercial and PDS businesses. Quote backlogs continue at very high rates by historic standards, and we are now seeing the number of quotes converting to business awards starting to grow. This is expected to support revenue growth in the 12 to 18 month time frame."
Fourth Quarter 2010 Operating Results from Continuing Operations
Gross profit for the period increased 4.1 percent to $42.7 million. Gross profit margin increased to 24.0 percent in the fourth quarter 2010 from 23.3 percent in the fourth quarter of 2009. The increase in gross profit was primarily due to stronger revenues in Europe, favorable foreign exchange impact on costs and favorable mix. These were partially offset by higher depreciation, primarily due to the planned closure and associated accelerated depreciation of the company's Caguas, Puerto Rico facility, and higher supplies and maintenance costs.
Selling, general and administrative costs were $28.4 million, up $3.4 million or 13.6 percent from prior year. The increase is primarily due to higher employee costs and depreciation, partially offset by the non recurrence of $1.8 million of Special Committee costs recognized in the three months ended October 31, 2009, and favorable foreign exchange impact.
Repositioning expenses for the three months ended October 31, 2010 were $1.0 million for project costs related to the Caguas closure and consolidation in Puerto Rico. During the fourth quarter last year, the company incurred $0.6 million in connection with the ongoing shut down and transition of business out of the York Mills facility and manufacturing restructuring in Puerto Rico.
Operating income for the period decreased to $13.3 million or 7.5 percent of revenues from operating income of $15.4 million or 8.7 percent of revenues in the same period last year as a result of the factors discussed above.
The company reported a loss before discontinued operations for the three months ended October 31, 2010 of $0.9 million, compared to income of $5.8 million in the same period last year.
Fourth Quarter 2010 Highlights of Business Segment Results
Commercial Manufacturing - Revenues from commercial manufacturing operations for the three months ended October 31, 2010 increased by 0.4 percent, or $0.6 million, to $144.8 million from $144.2 million in the same period of 2009. Had local currencies remained constant to the rates of the prior year, commercial manufacturing revenues would have been approximately 5.0 percent higher than 2009.
North American commercial revenues decreased $5.0 million, or 7.2 percent. Had the Canadian dollar remained constant to the prior year rates, North American revenues would have 7.5 percent lower than 2009. Decreased revenues were primarily the result of lower production in the Canadian and Puerto Rican operations. Puerto Rican revenues in 2010 were lower than 2009 as a result of operational issues earlier in 2009 that pushed additional revenue into the fourth quarter of 2009.
European commercial revenues increased by $5.6 million or 7.5 percent. Had European currencies remained constant to the rates of the prior year, European revenues would have been approximately 16.6 percent higher than the same period of 2009. The increase is primarily due to higher revenue in Swindon from increased take-or-pay and deferred revenue recognition, partially offset by reduced volumes in Bourgoin.
Adjusted EBITDA from the commercial manufacturing operations for the three months ended October 31, 2010 increased by 9.4 percent, or $2.3 million, to $26.6 million from $24.3 million in the same period of 2009. This represents an Adjusted EBITDA margin of 18.4 percent compared with 16.9 percent in the same period last year. Had local currencies remained constant to prior year rates and after eliminating the impact of all foreign exchange gains and losses, commercial manufacturing Adjusted EBITDA would have been approximately $4.7 million higher than the reported number in the current period.
North American operations reported a decrease of $1.3 million, or 15.8 percent in Adjusted EBITDA. The decrease in Adjusted EBITDA was primarily driven by lower revenues in the Canadian and Puerto Rican operations, partially offset by lower production costs in Puerto Rico and stronger results in Cincinnati.
European Adjusted EBITDA increased by $3.6 million, or 22.5 percent for the three months ended October 31, 2010. The increase is primarily due to increased revenues and favorable revenue mix in Swindon, partially offset by unfavorable foreign exchange from the weakening of the Euro against the U.S. dollar.
Pharmaceutical Development Services ("PDS") - PDS revenues for the three months ended October 31, 2010 increased by 3.1 percent, or $1.0 million, to $32.9 million from $31.9 million in the same period of 2009. Had the local currency rates remained constant to the prior year, PDS revenues would have been approximately 5.3 percent higher than the same period of 2009.
Adjusted EBITDA from the PDS operations for the three months ended October 31, 2010 increased by 7.7 percent, or $0.8 million to $11.0 million from $10.2 million in the same period of 2009. Had local currencies remained constant to the rates of the prior year and after eliminating the impact of all foreign exchange gains and losses, PDS Adjusted EBITDA would have been the same as the reported amount. This increase was due to higher revenues and cost controls.
Full Year- to-Date 2010 Operating Results from Continuing Operations
Revenue for the period was $671.2 million, up 2.5 percent from the prior period. Excluding currency fluctuations, current year revenues would have been approximately 2.3 percent higher than the same period of 2009. Revenues from commercial manufacturing increased 2.9 percent to $545.3 million from $530.0 million in the prior period. PDS saw an increase in revenue of 0.6 percent to $125.9 million from $125.1 million in the prior period.
Gross profit for the period increased 0.8 percent to $145.0 million. Gross profit margin for the period decreased to 21.6 percent for the year ended October 31, 2010 from 22.0 percent in the same period last year. The increase in gross profit is primarily due to higher volume and the recognition of prior years' Canadian research and development investment tax credits, partially offset by unfavorable foreign exchange impact on cost of goods sold, higher depreciation and higher lease expense.
Selling, general and administrative costs were $110.6 million, up $5.1 million or 4.8 percent from the prior year. The increase is primarily due to higher stock option amortization and other compensation expenses, unfavorable foreign exchange, and higher depreciation, partially offset by Special Committee costs of $3.0 million for the year ended October 31, 2010 compared to $8.0 million in the same period last year. The year ended October 31, 2009, also included $2.0 million of transitional expenses for the opening of the new U.S. headquarters.
Repositioning expenses for the year ended October 31, 2010 were $6.8 million in connection with the Caguas closure and consolidation in Puerto Rico. During fiscal year 2009, the Company incurred $2.1 million in connection with the ongoing shut down and transition of business out of the York Mills facility, and manufacturing restructuring in Puerto Rico.
Operating income for the year ended October 31, 2010 decreased to $27.6 million or 4.1 percent of revenues from income of $36.3 million or 5.5 percent of revenues in the same period last year as a result of the factors discussed above.
The company recorded a loss before discontinued operations for the year ended October 31, 2010 of $3.3 million, compared to income of $1.0 million in the same period last year. The loss per share before discontinued operations was 2.6¢ compared to a loss of 10.0¢ a year earlier, after taking into account the dividends on the convertible preferred shares in 2009. Dividends were recorded until July 28, 2009, the date when the preferred shares were converted to restricted voting shares by JLL.
In December 2010, Patheon and a major customer amended a manufacturing and supply agreement, in which both parties agree to a contract termination date in February of 2011, approximately two and a half years earlier than was originally planned. The amendment reflects the customer's decision not to proceed with a product following receipt of a Complete Response letter from the FDA. As part of the amendment, the customer will pay Patheon a reservation fee of €21.6 million, and as a result of the shortened contract life, Patheon will accelerate the related deferred revenue recognition and will be relieved of its obligation to repay certain customer-funded capital related to the original manufacturing and supply agreement. Recognition of revenue from the amendment will be materially comparable during fiscal year 2011 to amounts that would have otherwise been payable under the take-or-pay arrangement.
Patheon's first quarter financial results are typically the weakest of its fiscal year for reasons outlined in its MD&A for the year ended October 31, 2010 which is available on SEDAR at www.sedar.com. In the first quarter of fiscal 2011, the company's results are expected to be favorably impacted by the amended customer contract noted above. This will be partially offset by severance expense related to the departure of the company's President and CEO.
Patheon will host a webcast conference call with financial analysts on Friday, December 17, 2010 at 10:00 a.m. (EST). The call will begin with a brief discussion, followed by a question-and-answer period with investment analysts. Interested parties are invited to access the live call, via telephone, in listen-only mode, toll free at 1-888-231-8191 (U.S., including Puerto Rico) and 1-647-427-7450 (Canada and International). Listeners are encouraged to dial in five to fifteen minutes in advance to avoid delays. A live audio will also be available via the web at http://www.patheon.com. (Please note that Windows Media Player or RealPlayer is required). An archived version of the third quarter audio webcast will be available at www.patheon.com.
Patheon Inc. (TSX: PTI) is a leading global provider of contract development and manufacturing services to the global pharmaceutical industry. Patheon provides the highest quality products and services to approximately 300 of the world's leading pharmaceutical and biotechnology companies. Patheon's services range from preclinical development through commercial manufacturing of a full array of dosage forms including parenteral, solid, semi-solid and liquid forms. Patheon uses many innovative technologies including single-use disposables, liquid-filled hard and soft capsules and a variety of modified release technologies. Patheon's comprehensive range of fully integrated Pharmaceutical Development Services includes pre-formulation, formulation, analytical development, clinical manufacturing, scale-up and commercialization. Patheon can take customers direct to clinic with global clinical packaging and distribution services and Patheon's Quick to Clinic™ programs can accelerate early phase development projects to clinical trials while minimizing the consumption of valuable API. Patheon's integrated development and manufacturing network of 11 facilities, and eight development centers across North America and Europe, ensures that customer products can be launched with confidence anywhere in the world.
Use of Non-GAAP Financial Measures
References in this press release to "Adjusted EBITDA" are to income (loss) from continuing operations before repositioning expenses, interest expense, foreign exchange losses reclassified from other comprehensive income, refinancing expenses, gains and losses on sale of fixed assets, gain on extinguishment of debt, income taxes, asset impairment charge, depreciation and amortization and other non-cash expenses. "Adjusted EBITDA margin" is Adjusted EBITDA as a percentage of revenues.
Since Adjusted EBITDA is a non-GAAP measure that does not have a standardized meaning, it may not be comparable to similar measures presented by other issuers. Readers are cautioned that these non-GAAP measures should not be construed as alternatives to net income (loss) determined in accordance with GAAP as indicators of performance. Adjusted EBITDA is used by management as an internal measure of profitability. The agreements that govern the terms of the company's debt have certain covenant calculations that are based on Adjusted EBITDA. The company has included these measures because it believes that this information is used by certain investors to assess its financial performance, before non-cash charges and certain costs that the company does not believe are reflective of its underlying business. An Adjusted EBITDA reconciliation of these amounts to the closest Canadian GAAP measure is located under "Selected Annual Financial Information" of the company's MD&A.
Caution Concerning Forward-Looking Statements
This press release contains forward-looking statements which reflect management's expectations regarding the company's future growth, results of operations, performance (both operational and financial) and business prospects and opportunities. All statements, other than statements of historical fact, are forward-looking statements. Wherever possible, words such as "plans", "expects" or "does not expect", "forecasts", "anticipates" or "does not anticipate", "believes", "intends" and similar expressions or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved have been used to identify these forward-looking statements. Although the forward-looking statements contained in this press release reflect management's current assumptions based upon information currently available to management and based upon what management believes to be reasonable assumptions, the company cannot be certain that actual results will be consistent with these forward-looking statements. Current material assumptions relate to customer volumes, regulatory compliance and foreign exchange rates. Forward-looking statements necessarily involve significant known and unknown risks, assumptions and uncertainties that may cause the company's actual results, performance, prospects and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: international operations and foreign currency fluctuations; customer demand for Patheon's services; regulatory matters affecting manufacturing and pharmaceutical development services; impacts of acquisitions, divestitures and restructurings; global economic environment; exposure to complex production issues; substantial financial leverage; interest rate risks; potential environmental, health and safety liabilities; credit and customer concentration; competition; rapid technological change; product liability claims; intellectual property; significant shareholder; supply arrangements; pension plans; derivative financial instruments; and dependence upon key management personnel and executives. For additional information regarding risks and uncertainties that could affect our business, please see the "Description of the Business - Risk Factors" section in our Annual Information Form, and the "Risk Factors" section in our MD&A for the year ended October 31, 2010, both of which are available on SEDAR at www.sedar.com. Although the company has attempted to identify important risks and factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors and risks that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. These forward-looking statements are made as of the date of this press release and, except as required by law, the company assumes no obligation to update or revise them to reflect new events or circumstances.
|CONSOLIDATED STATEMENTS OF (LOSS) INCOME|
|Three months ended October 31,||Year ended October 31,|
|(in millions of U.S. dollars, except loss per share)||$||$||$||$|
|Cost of goods sold||135.0||135.1||526.2||511.2|
|Selling, general and administrative expenses||28.4||25.0||110.6||105.5|
|Interest expense, net||6.3||3.7||19.5||15.4|
|Foreign exchange (gain) loss||2.0||0.4||(1.5)||7.0|
|Loss on sale of fixed assets||0.1||-||0.2||-|
|Income (loss) from continuing operations before income taxes||4.5||11.6||(6.3)||13.5|
|Provision for (benefit from) income taxes||5.4||5.8||(3.0)||12.5|
|(Loss) income before discontinued operations||(0.9)||5.8||(3.3)||1.0|
|Loss from discontinued operations||(0.9)||(1.2)||(1.7)||(7.8)|
|Net (loss) income for the period||(1.8)||4.6||(5.0)||(6.8)|
|Dividends on convertible preferred shares||-||-||-||11.1|
|Net (loss) income attributable to restricted voting shareholders||(1.8)||4.6||(5.0)||(17.9)|
|Basic and diluted loss per share|
|From continuing operations||($0.007)||$0.063||($0.026)||($0.100)|
|From discontinued operations||($0.007)||($0.013)||($0.013)||($0.077)|
|Average number of shares|
|outstanding during period - basic and diluted (in thousands)||129,168||92,389||129,168||100,964|
|CONSOLIDATED BALANCE SHEETS|
|As of October 31,|
|(in millions of U.S. dollars)||$||$|
|Cash and cash equivalents||53.5||22.3|
|Income taxes receivable||5.7||2.6|
|Prepaid expenses and other||9.5||11.8|
|Future tax assets - short term||9.0||10.5|
|Total current assets||290.9||277.0|
|Future tax assets||11.2||11.8|
|Long-term assets held for sale||-||0.7|
|Other long-term assets||18.4||-|
|Liabilities and shareholders' equity|
|Short term borrowings||2.0||14.0|
|Accounts payable and accrued liabilities||156.7||170.8|
|Income taxes payable||0.4||1.8|
|Deferred revenues - short term||26.7||4.6|
|Future tax liability - short term||-||1.7|
|Current portion of long-term debt||3.5||15.4|
|Total current liabilities||189.3||208.3|
|Future tax liabilities||29.7||31.5|
|Other long-term liabilities||22.9||21.5|
|Restricted voting shares||553.8||553.8|
|Accumulated other comprehensive income||39.9||35.5|
|Total shareholders' equity||273.0||271.3|
|Total liabilities and shareholders' equity||808.9||790.8|
|CONSOLIDATED STATEMENTS OF CASH FLOWS|
|Year ended October 31,|
|(in millions of U.S. dollars)||$||$|
|(Loss) income before discontinued operations||(3.3)||1.0|
|Add (deduct) charges to operations not requiring a current cash payment|
|Depreciation and amortization||55.8||42.6|
|Other non-cash interest||2.5||0.6|
|Change in other long-term assets and liabilities||(8.6)||(1.2)|
|Future income taxes||(8.9)||4.8|
|Amortization of deferred revenues||(37.4)||(1.0)|
|Loss on sale of fixed assets||0.2||-|
|Stock-based compensation expense||2.3||1.0|
|Net change in non-cash working capital balances related to continuing operations||(2.6)||(10.8)|
|Increase in deferred revenues||47.4||10.5|
|Cash provided by operating activities of continuing operations||50.7||48.0|
|Cash used in operating activities of discontinued operations||(0.7)||(8.9)|
|Cash provided by operating activities||50.0||39.1|
|Additions to capital assets||(48.7)||(49.1)|
|Proceeds on sale of capital assets||-||0.1|
|Net increase in investments||(1.1)||(0.3)|
|Investment in intangibles||(0.2)||(0.2)|
|Cash used in investing activities of continuing operations||(50.0)||(49.5)|
|Cash provided by investing activities of discontinued operations||-||0.2|
|Cash used in investing activities||(50.0)||(49.3)|
|(Decrease) increase in short-term borrowings||(10.7)||3.0|
|Increase in long-term debt||296.2||50.5|
|Increase in deferred financing costs||(7.3)||-|
|Repayment of long-term debt||(246.6)||(39.9)|
|Cash provided by financing activities of continuing operations||31.6||13.6|
|Cash used in financing activities of discontinued operations||-||-|
|Cash provided by financing activities||31.6||13.6|
|Effect of exchange rate changes on cash and cash equivalents||(0.4)||(1.3)|
|Net increase in cash and cash equivalents during the period||31.2||2.1|
|Cash and cash equivalents, beginning of period||22.3||20.2|
|Cash and cash equivalents, end of period||53.5||22.3|
|Supplemental cash flow information|
|Income taxes paid, net of refunds||9.1||10.2|
SOURCE Patheon Inc.