<PAGE>
UNITED STATES
SECURITES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------------
FORM 10-Q
------------------------
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 24, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 333-91845
CHARLES RIVER LABORATORIES, INC.
(Exact Name of Registrant as specified in its Charter)
DELAWARE 76-0509980
(State of Incorporation) (I.R.S. Employer Identification No.)
251 BALLARDVALE STREET, WILMINGTON, MASSACHUSETTS 01887
(Address of Principal Executive Offices) (Zip Code)
978-658-6000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of June 24, 2000 there were 1,000 shares of the registrant's
common stock outstanding
<PAGE>
Charles River Laboratories, Inc.
Form 10-Q
For the Quarterly Period Ended June 24, 2000
Table of Contents
<TABLE>
<CAPTION>
Part I. Financial Information Page
----
<S> <C> <C>
Item 1. Financial Statements............................................................... 3
Condensed Consolidated Statements of Income (Unaudited) for the six months ended 3
June 24, 2000 and June 26, 1999...........................
Condensed Consolidated Statements of Income (Unaudited) for the three months ended 4
June 24, 2000 and June 26, 1999.....................
Condensed Consolidated Balance Sheets (Unaudited) as of June 24, 2000 and
December 25, 1999.................................................................. 5
Condensed Consolidated Statements of Cash Flows (Unaudited) ) as of June 24, 2000
and June 26, 1999................................................................. 6
Notes to Unaudited Condensed Consolidated Interim Financial
Statements........................................................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
Item 3. Qualitative and Quantitative Disclosure About Market Risk......................... 16
</TABLE>
<TABLE>
<CAPTION>
Part II Other Information
<S> <C>
Item 6. Exhibits............................................................................ 17
Signatures.......................................................................... 18
</TABLE>
2
<PAGE>
CHARLES RIVER LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------------------
JUNE 26, JUNE 24,
1999 2000
-------------------- -------------------
<S> <C> <C>
Net sales related to products................................................ $ 93,153 $ 106,970
Net sales related to services................................................ 15,013 36,429
----------- ------------
Total net sales.............................................................. $ 108,166 $ 143,399
Costs and Expenses
Cost of products sold..................................................... 55,113 59,511
Cost of services provided................................................. 9,209 24,401
Selling, general and administrative....................................... 19,911 24,240
Amortization of goodwill and intangibles.................................. 764 1,802
----------- ------------
Operating income............................................................. 23,169 33,445
Other income (expense)
Interest income........................................................... 359 291
Interest expense.......................................................... (171) (19,162)
Loss from foreign currency, net........................................... (153) (160)
Other income (expenses)................................................... - 390
----------- ------------
Income before income taxes, minority interests and earnings from
equity investments........................................................ 23,204 14,804
Provision for income taxes................................................... 10,011 2,151
----------- ------------
Income before minority interests and earnings from equity
investments............................................................... 13,193 12,653
Minority interests........................................................... (2) (679)
Earnings from equity investments............................................. 1,117 748
----------- ------------
Net Income................................................................... $ 14,308 $ 12,722
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
CHARLES RIVER LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
JUNE 26, JUNE 24,
1999 2000
-------------------- -------------------
<S> <C> <C>
Net sales related to products.................................................. $ 47,996 $ 56,154
Net sales related to services.................................................. 7,890 17,943
----------- ------------
Total net sales................................................................ $ 55,886 $ 74,097
Costs and Expenses
Cost of products sold....................................................... 27,367 30,518
Cost of services provided................................................... 4,795 12,002
Selling, general and administrative......................................... 11,092 12,427
Amortization of goodwill and intangibles................................... 353 937
----------- ------------
Operating income............................................................... 12,279 18,213
Other income (expense)
Interest income............................................................. 134 149
Interest expense............................................................ (94) (9,861)
Loss from foreign currency, net............................................. (100) (130)
Other income (expenses)..................................................... - 390
----------- ------------
Income before income taxes, minority interests and earnings from
equity investments.......................................................... 12,219 8,761
Provision for income taxes..................................................... 5,485 (1,190)
----------- ------------
Income before minority interests and earnings from equity
investments................................................................. 6,734 9,951
Minority interests............................................................. (9) (462)
Earnings from equity investments............................................. 510 107
----------- ------------
Net Income......................................................................$ 7,235 $ 9,596
=========== ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
CHARLES RIVER LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 25, JUNE 24,
1999 2000
------------------ ------------------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents.................................................... $ 15,010 $ 18,993
Trade receivables, less allowances of $978 and $976, respectively............ 36,293 50,930
Inventories.................................................................. 30,534 32,192
Deferred income taxes........................................................ 632 632
Due from affiliates.......................................................... 1,233 99
Other current assets......................................................... 5,293 5,492
----------- ----------
Total current assets....................................................... 88,995 108,338
Property, plant and equipment, net.............................................. 85,413 117,741
Goodwill and other intangibles, less accumulated amortization of $6,073 and
$8,971, respectively........................................................ 36,958 41,658
Investments in affiliates....................................................... 21,722 2,166
Deferred tax asset.............................................................. 100,907 101,130
Deferred financing costs........................................................ 14,015 13,747
Other assets.................................................................... 14,393 13,467
----------- ----------
Total assets............................................................... $ 362,403 $ 398,247
=========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Current portion of long-term debt............................................ $ 3,290 $ 6,442
Current portion of capital lease obligation.................................. 253 211
Accounts payable............................................................. 9,291 8,693
Accrued compensation......................................................... 10,792 13,540
Deferred income.............................................................. 7,643 5,808
Accrued interest............................................................. 8,935 8,363
Accrued liabilities.......................................................... 18,479 20,443
Accrued income taxes......................................................... 2,738 6,124
----------- ----------
Total current liabilities.................................................. 61,421 69,625
Long-term debt.................................................................. 306,725 311,102
Deferred tax liability.......................................................... 4,990 6,964
Capital lease obligations....................................................... 795 621
Accrued ESLIRP.................................................................. 8,315 8,638
Other long-term liabilities..................................................... 2,469 3,851
----------- ----------
Total liabilities.......................................................... 384,715 400,801
----------- ----------
Commitments and contingencies (Note 3)
Minority interests.............................................................. 304 14,471
Shareholder's equity
Common stock................................................................. 1 1
Capital in excess of par value............................................... 119,470 114,933
Retained earnings............................................................ (132,158) (119,436)
Loans to officers............................................................ (920) (920)
Accumulated other comprehensive income....................................... (9,009) (11,603)
----------- ----------
Total shareholder's equity................................................. (22,616) (17,025)
----------- ----------
Total liabilities and shareholder's equity................................. 362,403 $ 398,247
=========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
CHARLES RIVER LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------------
JUNE 26, JUNE 24,
1999 2000
---------------- ---------------
CASH FLOWS RELATING TO OPERATING ACTIVITIES
<S> <C> <C>
Net income......................................................................... $ 14,308 $ 12,722
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 5,816 8,012
Amortization of debt issuance costs and discounts................................ - 962
Provision for doubtful accounts.................................................. (13) 35
Earnings from equity investments................................................. (1,117) (748)
Minority interests............................................................... 2 679
Deferred income taxes............................................................ 309 (5,147)
Stock compensation expense....................................................... 91 -
Property, plant, and equipment write-downs and disposals......................... - 528
Other non-cash items............................................................. - 11
Changes in assets and liabilities
Trade receivables................................................................ (4,707) (4,832)
Inventories...................................................................... 589 (61)
Due from affiliates.............................................................. (779) 156
Deferred financing costs......................................................... - (588)
Other current assets............................................................. (694) (122)
Other assets..................................................................... (481) (1,740)
Accounts payable................................................................. (1,210) (3,532)
Accrued compensation............................................................. 368 3,050
Deferred income.................................................................. 2,607 (1,835)
Accrued interest................................................................. - (601)
Accrued liabilities.............................................................. (2,499) (2,339)
Accrued income taxes............................................................. (4,569) 2,099
Accrued ESLIRP................................................................... 801 323
Other long-term liabilities...................................................... (125) 10
---------- --------
Net cash provided by operating activities.................................... $ 8,697 $ 7,042
---------- --------
CASH FLOWS RELATING TO INVESTING ACTIVITIES
Capital expenditures............................................................... (4,637) (6,107)
Contingent payments for prior year acquisitions.................................... (251) -
Acquisition of business, net of cash acquired of $3,163............................ - (6,011)
Proceeds from sale of animal colony................................................ - 7,000
---------- --------
Net cash used in investing activities........................................ $ (4,888) $ (5,118)
---------- --------
CASH FLOWS RELATING TO FINANCING ACTIVITIES
Proceeds from long-term debt....................................................... - 3,000
Payments on long-term debt......................................................... (35) (600)
Payments on capital lease obligations.............................................. (124) (216)
Net activity with Bausch & Lomb.................................................... (6,147) -
---------- --------
Net cash provided by/used in financing activities............................ $ (6,306) $ 2,184
---------- --------
Effect of exchange rate changes on cash and cash equivalents.......................... (745) (125)
---------- --------
Net change in cash and cash equivalents............................................... (3,242) 3,983
Cash and cash equivalents, beginning of period........................................ 24,811 15,010
---------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................................. $ 21,569 $ 18,993
========== ========
SUPPLEMENTAL CASH FLOW INFORMATION....................................................
Cash paid for interest.............................................................$ 172 $ 18,773
Cash paid for taxes................................................................ 2,978 4,539
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The condensed consolidated interim financial statements are unaudited, and
certain information and footnote disclosure related thereto normally included in
financial statements prepared in accordance with generally accepted accounting
principles in the United States, have been omitted in accordance with Rule 10-01
of Regulation S-X. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements were prepared following the same
policies and procedures used in the preparation of the audited financial
statements and reflect all adjustments (consisting of normal recurring
adjustments) considered necessary to present fairly the financial position of
Charles River Laboratories, Inc. ("the Company"). The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year. These condensed consolidated financial statements should be read in
conjunction with the Company's annual report on Form 10K for the year ended
December 25, 1999.
2. INITIAL PUBLIC OFFERING
The Company's 100% shareholder, Charles River Laboratories International,
Inc. consummated an initial public offering ("the Offering") of 16,100,000
shares of its common stock at a price of $16 subsequent to June 24, 2000.
Charles River Laboratories International, Inc. plans to use a portion of the
net proceeds from the Offering of $236,068 to redeem a portion of the
company's outstanding senior subordinated notes and a portion of the
company's bank debt. The Offering was declared effective and trading opened
on the New York Stock Exchange on June 23, 2000, however the closing did not
occur until the third quarter of 2000. For this reason, the net proceeds of
the Offering, and the previously described use of these proceeds, has not
been recorded in the accompanying unaudited condensed consolidated financial
statements. See Note 4 for a discussion of the impact of the Offering on the
provision for income taxes.
The following pro forma presentation of selected unaudited balance sheet
information for the company gives effect to the Offering as if it had occurred
on June 24, 2000.
<TABLE>
<CAPTION>
PRO FORMA AS OF
JUNE 24, 2000
---------------
<S> <C>
Total assets.......................................................................... $397,553
Total liabilities..................................................................... 285,989
Shareholders' Equity.................................................................. 97,093
</TABLE>
The Company will record an extraordinary loss, net of tax, of approximately $8
million in the third quarter of 2000. This extraordinary loss will be
attributable to premiums relating to the early repayment of a portion of the
senior subordinated notes, and the write-off of deferred financing costs and
discounts associated with the debt repayment.
3. SUPPLEMENTAL BALANCE SHEET INFORMATION
The composition of inventories is as follows:
<TABLE>
<CAPTION>
DECEMBER 25, JUNE 24,
1999 2000
------------------ ------------------
<S> <C> <C>
Raw materials and supplies........................................................ $ 4,196 $ 3,793
Work in process................................................................... 1,608 1,374
Finished products................................................................. 24,730 27,025
------------ ------
Inventories....................................................................... $ 30,534 $ 32,192
=========== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
7
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 25, JUNE 24,
1999 2000
------------------ ------------------
<S> <C> <C>
Land............................................................................ $ 7,022 $ 9,411
Buildings....................................................................... 90,730 143,809
Machinery and equipment......................................................... 82,131 93,340
Leasehold improvements.......................................................... 4,668 5,145
Furniture and fixtures.......................................................... 1,826 1,931
Vehicles........................................................................ 2,689 2,585
Construction in progress........................................................ 4,679 4,569
---------- ---------
193,745 260,790
Less accumulated depreciation................................................... (108,332) (143,049)
---------- ---------
Net property, plant and equipment............................................... $ 85,413 $ 117,741
========== =========
</TABLE>
4. INCOME TAXES
EFFECT OF THE OFFERING
As further described in Note 2, Charles River Laboratories International, Inc.
the Company's 100% shareholder, closed its initial public offering in the third
quarter of 2000. Some of the net proceeds from the Offering of $236,068 will be
used to repay a portion of the Company's indebtedness. Although the net sources
and uses of the proceeds are not reflected in the accompanying condensed
consolidated financial statements, the Company has given effect to the impact of
the Offering on its estimated annual effective tax rate and reduced such rate to
46.7%. The 46.7% effective tax rate has been reflected in the accompanying
condensed consolidated statements of income for the three and six month periods
ended June 24, 2000.
In addition, the Company has reassessed the need for a valuation allowance
associated with the deferred tax asset balance discussed below. As a result
of the Offering, the Company expects to be significantly more profitable in
the future, due to reduced interest costs. The valuation allowance associated
with the deferred tax asset described below has been reduced by $4,762, to
$750. The reduction of the valuation allowance has been recorded as a tax
benefit in the second quarter of 2000. The net deferred tax asset of $101,752
as of June 24, 2000 has been recorded at its estimated realizable value as
determined by management after considering all available evidence, including
historical operating results, projections of taxable income and tax planning
strategies.
FINALIZATION OF TAX PURCHASE PRICE ALLOCATION
In connection with the leveraged recapitalization transaction which occurred
effective September 29, 1999, CRL Acquisition LLC and Bausch & Lomb
Incorporated, Charles River Laboratories International, Inc's shareholders, made
a joint election under Internal Revenue Code 338(h)(10) to treat the transaction
as an asset purchase resulting in a step-up in the tax basis of the underlying
net assets. The election resulted in the recording of a deferred tax asset, net
of valuation allowance, of $99,506 and a corresponding increase to capital in
excess of par value. The Company was, however, still in the process of
finalizing the tax purchase price allocation at December 25, 1999.
During the second quarter of 2000, the tax purchase price allocation related to
the election described above was finalized. An adjustment of $4,537 has been
recorded to reduce the net deferred tax asset balance and capital in excess of
par value in accordance with the final tax purchase price allocation.
See Notes to Condensed Consolidated Financial Statements
8
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. COMMITMENTS AND CONTINGENCIES
INSURANCE
The Company maintains insurance for workers' compensation, auto liability,
employee medical and general liability. The per claim loss limits are $250, with
annual aggregate loss limits of $1,500. Related accruals were $2,813 and $2,861
on December 25, 1999 and June 24, 2000, respectively. Separately, the Company
has provided a letter of credit in favor of the insurance carriers in the amount
of $350.
SUPPLY AGREEMENT
The Company is currently engaged in distributing certain products under a
supply agreement. In the event certain minimum sales of $500 in 2000 and $1,000
in 2001 are not achieved, the Company at its option can pay the difference in
cash or terminate the agreement. In the event of such termination the Company
will not be required to make any payments.
LITIGATION
Various lawsuits, claims and proceedings of a nature considered normal to
its business are pending against the Company. In the opinion of management, the
outcome of such proceedings and litigation currently pending will not materially
affect the Company's condensed consolidated financial statements.
The Company is currently under a court order issued in June 1997 to
remove its large animal operations from two islands located in the Florida
Keys and to refoliate the islands. The Company removed its large animal
operations from the island in the First Quarter of 2000. The Company
continues to hold discussions with the state of Florida and federal authorities
regarding the extent of refoliation required on the islands and believes the
reserves recorded in the accompanying condensed consolidated financial
statements are sufficient to provide for the estimated exposure in connection
with the refoliation. The Company has provided a letter of credit in regards
to the completion of the refoliation on the island for $350.
6. ACQUISITIONS AND DISPOSALS
On February 28, 2000, the Company acquired an additional 16% of the
equity (340,840 common shares) of its 50% equity joint venture company,
Charles River Japan, from Ajinomoto Co., Inc. The purchase price for the
equity was 1.4 billion yen, or $12,844. One billion yen, or $9,174, was paid
at closing, and the balance of 400 million yen, or $3,670, was deferred
pursuant to a three-year balloon promissory note secured by a pledge of the
16% shares. The note bears interest at the long-term prime rate in Japan,
2.15% at June 24, 2000. Effective with the acquisition of this additional
interest, the Company has control of, and is consolidating the operations, of
Charles River Japan. The estimated fair value of the incremental net assets
acquired is $6,207. Goodwill of $6,637 has been recorded in the accompanying
condensed consolidated interim financial statements and is being amortized
over its estimated useful life of 15 years.
On March 10, 2000, the Company announced the closure of its Shamrock
primate import and conditioning business in Small Dole, England. This closure
was completed during the second quarter of 2000. The Company does not expect
that the animal sales previously made by Shamrock will be significantly
affected. A restructuring change of $751 related to the closure was recorded in
selling, general and administrative expenses in the first quarter of 2000. This
reserve was fully utilized in the second quarter of 2000.
See Notes to Condensed Consolidated Financial Statements
9
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
During January 2000, the Company sold a product line within its research
model business segment. The selling price of $7,000 approximated the net book
value of the underlying assets at the time of the sales. In addition the Company
had approximately $900 of deferred revenue which related to cash payments
received in advance of shipping the research models. Under the term of the sales
agreement, the Company is no longer obligated to ship research models and,
accordingly, has recorded this amount as income in the first quarter of 2000.
Fiscal 1999 sales associated with this product line approximated $2,800.
7. BUSINESS SEGMENT INFORMATION
The following table presents sales and other financial information by
product line segment for the three months ended and six month period ended June
26, 1999 and June 24, 2000. Sales to unaffiliated customers represent net sales
originating in entities primarily engaged in either animal services or
biomedical products and services.
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED
JUNE 26, 1999 JUNE 24, 2000 JUNE 26, 1999 JUNE 24, 2000
---------------- ---------------- ----------------- ------------------
Research Models
<S> <C> <C> <C> <C>
Net sales $ 37,520 $ 46,129 $ 73,782 $ 87,176
Operating income 10,812 12,455 20,306 25,150
Depreciation and amortization 1,974 2,506 3,991 4,596
Capital expenditures 1,070 1,796 2,512 3,281
Biomedical Products and Services
Net sales 18,366 27,968 34,384 56,223
Operating income 4,104 5,793 7,417 11,056
Depreciation and amortization 915 1,742 1,825 3,416
Capital expenditures 1,604 1,525 2,125 2,826
</TABLE>
Total assets attributable to the research models segment as of December 25, 1999
and June 24, 2000 were $268,381 and $305,489 respectively. Total assets
attributable to the biomedical products and services segment as of December 25,
1999 and June 24, 2000 were $94,022 and $92,758 respectively.
A reconciliation of segment operating income to consolidated operating income is
as follows:
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED
JUNE 26, 1999 JUNE 24, 2000 JUNE 26, 1999 JUNE 24, 2000
---------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Total segment operating income $ 14,916 $ 18,248 $ 27,723 $ 36,206
Unallocated corporate overhead (2,637) (35) (4,554) (2,761)
---------- -------- ---------- -----------
Consolidated operating income 12,279 18,213 23,169 33,445
======== ========== ======== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
10
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
8. COMPREHENSIVE INCOME
The components of comprehensive income for the six-month periods ended June
26, 1999 and June 26, 2000 are set forth below:
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED SIX MONTH PEROID ENDED
JUNE 26, 1999 JUNE 24, 2000 JUNE 26, 1999 JUNE 24, 2000
---------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Net income $ 7,235 $ 9,596 $ 14,308 $ 12,722
Foreign currency translation (2,203) (721) (4,768) (2,594)
---------- --------- ----------- -----------
Comprehensive income 5,032 8,875 9,540 10,128
======= ========= ========= ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 24, 2000 COMPARED TO SIX MONTHS ENDED JUNE 26, 1999
NET SALES. Net sales for the first six months of 2000 were $143.4 million,
an increase of $35.2 million, or 32.5%, from $108.2 million for the first six
months of 1999.
RESEARCH MODELS. Net sales of research models in the first six months of
2000 were $87.2 million, an increase of $13.4 million, or 18.2%, from $73.8
million for the first six months of 1999. The consolidation of Charles River
Japan in the first six months of 2000 increased sales by $14.8 million. Small
animal research model sales increased in North America by $3.0 million or 9.5%
due to continued improved pricing, a shift to higher priced specialty units and
an increase in unit volume. Small animal research model sales decreased in
Europe by $3.1 million principally from the negative impact of $3.4 million
due to foreign currency translations. We also experienced a decrease in the
large animal breeding, import and conditioning area of $1.3 million principally
due to the closure of a facility in the U.K. and the sale of our large animal
colony in the first quarter of 2000.
BIOMEDICAL PRODUCTS AND SERVICES. Net sales of biomedical products and
services for the first six months in 2000 were $56.2 million, an increase of
$21.8 million, or 63.4%, from $34.4 million for the first six months of 1999. At
the beginning of the fourth quarter in 1999 we acquired SBI Holding Inc.
("Sierra") which had sales of $15.4 million for the first six months of 2000.
The remaining increase was due to significant sales increases of transgenic and
research support services of $2.0 million, endotoxin detection systems of $0.9
million, biosafety testing of $1.5 million and sales from our contract site
management contracts of $2.1 million, primarily due to better customer awareness
of our outsourcing solutions.
COST OF PRODUCTS SOLD AND SERVICES PROVIDED. Cost of products sold and
services provided for the first six months of 2000 was $83.9 million, an
increase of $19.6 million, or 30.5%, from $64.3 million for the first six months
of 1999.
RESEARCH MODELS. Cost of products sold and services provided for research
models for the first six months of 2000 was $50.0 million, an increase of $6.5
million, or 14.9%, compared to $43.5 million for the first six months of 1999.
Cost of products sold and services provided for the first six months of 2000 was
57.3% of net sales compared to 58.9% of net sales for the first six months of
1999. Cost of products sold and services provided increased at a lower rate than
net sales due to the more favorable product mix and better pricing, as well as
improved capacity utilization.
BIOMEDICAL PRODUCTS AND SERVICES. Cost of products sold and services
provided for biomedical products and services for the first six months of 2000
was $35.8 million, an increase of $14.9 million, or 71.3%, compared to $20.9
million for the first six months of 1999. Cost of products sold and services
provided as a percentage of net sales increased from 60.8% for the first six
months of 1999 compared to 63.7% for the first six months of 2000 due mainly to
the acquisition of Sierra which has slightly lower margins.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the first six months of 2000 were $24.2 million, an
increase of $4.3 million, or 21.6%, from $19.9 million for the first six months
of 1999. Selling, general and administrative expenses for the first six months
of 2000 were 16.7% of net sales compared to 18.4% of net sales for the first six
months of 1999.
RESEARCH MODELS. Selling, general and administrative expenses for
research models for the first six months of 2000 were $12.0 million, an
increase of $2.0 million, or 20.0%, compared to $10.0 million for the first
six months of 1999. The $2.0 million increase is mainly due to the
consolidation of Charles River Japan. Selling, general and administrative
expenses for the first six months in 2000 were 13.8% of net sales, compared
to 13.6% for the first six months in 1999.
BIOMEDICAL PRODUCTS AND SERVICES. Selling, general and administrative
expenses for biomedical products and services for the first six months of 2000
were $9.4 million, an increase of $3.3 million, or 54.1%, compared to $6.1
million for the first six months of 1999. The acquisition of Sierra in the
fourth quarter of 1999 accounts for $2.9 million of the increase. Selling,
general and administrative expenses for the first six months of 2000 decreased
to 16.7% of net sales, compared to 17.7% of net sales for the first six months
of 1999, due to greater economies of scale.
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UNALLOCATED CORPORATE OVERHEAD. Unallocated corporate overhead, which
consists of various corporate expenses, was $2.8 million for the first six
months of 2000, a decrease of $1.7 million compared to $4.5 million for the
first six months of 1999. Pension income of $1.4 million due to favorable
investment returns primarily accounts for this favorable decrease.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles for the first six months in 2000 was $1.8 million, an
increase of $1.0 million from $0.8 million for the first six months in 1999. The
increase was due to the effect of additional amortization of intangibles
resulting from our Sierra acquisition.
OPERATING INCOME. Operating income for the first six months of 2000 was
$33.4 million, an increase of $10.2 million, or 44.0%, from $23.2 million for
the first six months of 1999. Operating income for the first six months of 2000
was 23.3% of net sales, compared to 21.4% of net sales for the first six months
of 1999. Operating income increased in total and as a percentage of net sales
for the reasons described above.
RESEARCH MODELS. Operating income from sales of research models for the
first six months of 2000 was $25.2 million, an increase of $4.9 million, or
24.1%, from $20.3 million for the first six months of 1999. Operating income
from sales of research models for the first six months of 2000 was 28.9% of net
sales, compared to 27.5% for the first six months of 1999. The increase was
attributable to the factors described above.
BIOMEDICAL PRODUCTS AND SERVICES. Operating income from sales of biomedical
products and services for the first six months of 2000 was $11.0 million, an
increase of $3.6 million, or 48.6%, from $7.4 million for the first six months
of 1999. Operating income from sales of biomedical products and services for the
first six months of 2000 decreased to 19.6% of net sales, compared to 21.5% of
net sales for the first six months of 1999. This was primarily due to the
acquisition of Sierra, and the impact of the additional amortization of
intangibles.
INCOME TAXES. The effective tax rate for the first six months of 2000
excluding the reversal of the deferred tax valuation allowance of $4.8
million was 46.9% as compared to 44.9% for the first six months in 1999. The
$4.8 million reversal of the valuation allowance was recorded as a tax
benefit in the second quarter of 2000 due to a reassessment of the need for a
deferred tax valuation allowance following Charles River Laboratories
International, Inc.'s initial public offering of 16,100,000 shares of its
common stock subsequent to the second quarter of 2000.
INTEREST EXPENSE. Interest expense for the first six months of 2000 was
$19.2 million. The $19.0 million increase from the first six months of 1999 was
primarily due to the additional debt incurred as a result of the
recapitalization which occurred on September 29, 1999. The interest rate of the
senior subordinated notes as a result of meeting a financial ratio will remain
at 13.5%.
NET INCOME. Net income for the first six months of 2000 was $12.7 million,
a decrease of $1.6 million from $14.3 million for the first six months of 1999.
The decrease was attributable to the increased interest expense partially offset
by operating income from operations and the reversal of the deferred tax
valuation allowance.
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THREE MONTHS ENDED JUNE 24, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 26,
1999
NET SALES. Net sales for the three months ended June 24, 2000 were $74.1
million, an increase of $18.2 million, or 32.6%, from $55.9 million for the
three months ended June 26, 1999.
RESEARCH MODELS. Net sales of research models for the three months ended
June 24, 2000 were $46.1 million, an increase of $8.6 million, or 22.9%, from
$37.5 million for the three months ended June 26,1999. The consolidation of
Charles River Japan for the second quarter of 2000 increased sales by $10.6
million. Small animal research model sales increased in North America by $1.7
million or 10.6% due to improved pricing, a shift to higher priced specialty
units and an increase in unit volume. Small animal research model sales in
Europe decreased $1.5 million due to the negative impact of $1.7 million from
foreign currency translations. We also experienced a decrease in the large
animal breeding, import and conditioning of $2.7 million due to the closure
of a large animal facility in the U.K. and the sale in the first quarter of
our large animal breeding colony in the first quarter of 2000.
BIOMEDICAL PRODUCTS AND SERVICES. Net sales of biomedical products and
services for the three months ended June 24, 2000 were $28.0 million, an
increase of $9.6 million, or 52.2%, from $18.4 million for the three months
ended June 26, 1999. At the beginning of the fourth quarter in 1999 we acquired
Sierra which had sales of $7.3 million in the second quarter of 2000. The
remaining increase was due to significant sales increases of transgenic and
research support services of $0.9 million, endotoxin detection systems of $0.4
million, biosafety testing of $0.6 million and sales from our contract site
management contracts of $1.0 million, primarily due to better customer awareness
of our outsourcing solutions.
COST OF PRODUCTS SOLD AND SERVICES PROVIDED. Cost of products sold and
services provided for the three months ended June 24, 2000 was $42.5 million, an
increase of $10.3 million, or 32.0%, from $32.2 million for the three months
ended June 26, 1999.
RESEARCH MODELS. Cost of products sold and services provided for research
models for the three months ended June 24, 2000 was $26.9 million, an increase
of $5.2 million, or 24.0%, compared to $21.7 million for the three months ended
June 26, 1999. Cost of products sold and services provided for the three months
ended June 24, 2000 was 58.2% of net sales compared to 57.9% of net sales for
the three months ended June 26, 1999. Cost of products sold and services
provided increased at a rate slightly higher than net sales due to the
closure of the large animal facility in the U.K. which completed in the second
quarter of 2000.
BIOMEDICAL PRODUCTS AND SERVICES. Cost of products sold and services
provided for biomedical products and services for the three months ended June
24, 2000 was $17.6 million, an increase of $6.6 million, or 60.0%, compared to
$11.0 million for the three months ended June 26, 1999. Cost of products sold
and services provided as a percentage of net sales increased to 63.1% for the
three months ended June 24, 2000 from 59.8% for the three months ended June 26,
1999 due mainly to the impact of the acquisition of Sierra which has slightly
lower margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended June 24, 2000 were $12.4
million, an increase of $1.3 million, or 11.7%, from $11.1 million for the three
months ended June 26, 1999. Selling, general and administrative
expenses for the three months ended June 24, 2000 were 16.8% of net sales
compared to 19.8% of net sales for the three months ended June 26, 1999.
RESEARCH MODELS. Selling, general and administrative expenses for
research models for the three months ended June 24, 2000 were $6.8 million,
an increase of $1.8 million, or 36.0%, compared to $5.0 million for the three
months ended June 26, 1999. The consolidation of Charles River Japan
following our acquisition of additional equity in this entity during the
first quarter of 2000 is the main reason for the increase. Selling, general
and administrative expenses for the three months ended June 24, 2000 were
14.8% of net sales, compared to 13.3% for the three months ended June 26,
1999.
BIOMEDICAL PRODUCTS AND SERVICES. Selling, general and administrative
expenses for biomedical products and services for the three months ended June
24, 2000 were $4.6 million, an increase of $1.3 million, or 39.4%, compared to
$3.3 million for the three months ended June 26, 1999. The acquisition of Sierra
in the fourth quarter of 1999 is the major factor in the increase. Selling,
general and administrative expenses for the three months ended June 24, 2000
decreased to 16.5% of net sales, compared to 17.9% of net sales for the three
months ended June 26, 1999, due to greater economies of scale.
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UNALLOCATED CORPORATE OVERHEAD. Unallocated corporate overhead, which
consists of various corporate expenses, was $0.1 million for the three months
ended June 24, 2000, a decrease of $2.5 million, compared to $2.6 million for
the three months ended June 26, 1999 due mainly to pension income of $1.4
million from favorable investment results.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles for the three months ended June 24, 2000 was $0.9 million,
an increase of $0.5 million from $0.4 million for the three months ended June
26, 1999. The increase was due to the effect of additional amortization of
intangibles resulting from our Sierra acquisition.
OPERATING INCOME. Operating income for the three months ended June 24,
2000 was $18.2 million, an increase of $5.9 million, or 48.0%, from $12.3
million for the three months ended June 26, 1999. Operating income for the
three months ended June 24, 2000 was 24.6% of net sales, compared to 22.0% of
net sales for the three months ended June 26, 1999.Operating income increased
in total and as a percentage of net sales for the reasons described above.
RESEARCH MODELS. Operating income from sales of research models for the
three months ended June 24, 2000 was $12.5 million, an increase of $1.7 million,
or 15.7%, from $10.8 million for the three months ended June 26, 1999. Operating
income from sales of research models for the three months ended June 24, 2000
was 27.1% of net sales, compared to 28.8% for the three months ended June 26,
1999. The decrease was attributable to the factors described above.
BIOMEDICAL PRODUCTS AND SERVICES. Operating income from sales of biomedical
products and services for the three months ended June 24, 2000 was $5.7 million,
an increase of $1.6 million, or 39.0%, from $4.1 million for the three months
ended June 26, 1999. Operating income from sales of biomedical products and
services for the three months ended June 24, 2000 decreased to 20.4% of net
sales, compared to 22.3% of net sales for the three months ended June 26, 1999.
This was primarily due to the acquisition of Sierra, and the impact of
additional amortization of intangibles.
INCOME TAXES. The effective tax rate for the three months ended June 24,
2000 excluding the reversal of the deferred tax valuation allowance of 41.2%
compares favorably to the effective tax rate of 44.9% for the three months ended
June 26, 1999.
INTEREST EXPENSE. Interest expense for the three months ended June 24, 2000
was $9.9 million. The $9.8 million increase for the second quarter was primarily
due to the additional debt incurred as a result of the recapitalization which
occurred on September 29, 1999.
NET INCOME. Net income for the three months ended June 24, 2000 was $9.6
million, an increase of $2.4 million from $7.2 million for the three months
ended June 26, 1999. The increase was attributable to increased operating
income from operations and the reversal of the deferred tax valuation allowance
which was partially offset by the increased interest expense.
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $19.0 million at June 24, 2000
compared with $15.0 million at December 25, 1999. Our principal sources of
liquidity are cash flow from operations and borrowings under our credit
facility.
Net cash provided by operating activities during the six months ending June
24, 2000 was $7.0 million compared to $8.7 million for the six months ending
June 26, 1999. Net income for the six month period ending June 24, 2000 was
$12.7 million compared to $14.3 for the first six months of 1999. Cash flow
provided by operating activities was reduced by the decrease in the deferred tax
valuation allowance of $4.8 million.
Net cash used in investing activities during the six months ending June 24,
2000 was $5.1 million compared to $4.9 million for the six months ending June
26, 1999. On February 28, 2000, the company acquired an additional 16% of the
equity ( 340,840 common shares ) of its 50% equity joint venture company,
Charles River Japan, from Ajinomoto Co., Inc. The purchase price for the equity
was 1.4 billion yen or $12.8 million. One billion yen, or $9.2 million was paid
at closing and the balance of 400 million yen, or $3.7 million was deferred
pursuant to a three year balloon promissory note. We acquired $3.2 million in
cash as a result of the acquisition. In January we sold an operation in Florida
for $7.0 million. Capital expenditures for the first six months ending June 24,
2000 were $6.1 million compared to $4.6 million for the six months ending June
26, 1999.
Net cash provided from financing activities during the six months ending
June 24, 2000 was $2.2 million compared to cash used of $6.3 for the first
six months in 1999. We increased our borrowings under the revolving loan by
an additional $3.0 million during the first six months of 2000. During the
first six months of 1999 we had net outflow activity with Bausch & Lomb, our
100% shareholder prior to the recapitalization, of $6.1 million.
We anticipate that our operating cash flow, together with borrowings under our
credit facility, will be sufficient to meet our anticipated future operating
expenses, capital expenditures and debt service obligations as they become due.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are subject to market risks arising from changes in interest rates and
foreign currency exchange rates. Our primary interest rate exposure results from
changes in LIBOR or the base rate which are used to determine the applicable
interest rates under our term loans and revolving credit facility. We have
entered into an interest rate protection agreement designed to protect us
against fluctuations in interest rates with respect to at least 50% of the
aggregate principal amount of the term loans and the senior subordinated notes.
Interest rate swaps have the effect of converting variable rate obligations to
fixed or other interest rate obligations. Our potential loss over one year that
would result from a hypothetical, instantaneous and unfavorable change of 10
basis points in the interest rate on all of our variable rate obligations would
be approximately $1.7 million. Fluctuations in interest rates will not affect
the interest payable on the senior subordinated notes, senior discount
debentures or subordinated discount note, which is fixed.
We do not use financial instruments for trading or other speculative
purposes.
We also have exposure to some foreign currency exchange-rate fluctuations
for the cash flows received from our foreign affiliates. This risk is mitigated
by the fact that their operations are conducted in their respective local
currencies, and it is not our intention to repatriate earnings prospectively.
Currently, we do not engage in any foreign currency hedging activities as we do
not believe that our foreign currency exchange-rate risk is material.
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Charles River Laboratories, Inc.
Form 10-Q
For the Quarterly Period Ended June 24, 2000
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed during the quarter
27.1 Financial Data Schedule
(b) No Reports on Form 8-K were filed during the quarter ended
March 25, 2000
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARLES RIVER LABORATORIES, INC.
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August 4, 2000 /s/ Thomas F. Ackerman
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Thomas F. Ackerman
Sr. Vice President and Chief Financial Officer
