<PAGE>
PROSPECTUS SUPPLEMENT
To Prospectus dated August 31, 2000
Filed Pursuant to Rule 424 (b) (3) of the Rules and Regulations
Under the Securities Act of 1933
Registration Statement No. 333-91845
CHARLES RIVER LABORATORIES, INC.
[Name of Issuer]
Charles River Laboratories, Inc.
$97,500,000 13 1/2% Series B Senior Subordinated Notes Due 2009
[Title of Security]
RECENT DEVELOPMENTS
We have attached to the prospectus supplement, and incorporated by reference
into it, the Form 10-Q Quarterly Report of Charles River Laboratories, Inc. for
the Quarter Ending September 23, 2000 filed with the Securities and Exchange
Commission on November 7, 2000.
------------------------------------------------
November 14, 2000
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 23, 2000
</TABLE>
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
COMMISSION FILE NUMBER 333-91845
------------------------
CHARLES RIVER LABORATORIES, INC.
(Exact Name of Registrant as specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 76-0509980
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
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 September 23, 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 SEPTEMBER 23, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C> <C>
Part I. Financial Information
Item 1. Financial Statements........................................ 3
Condensed Consolidated Statements of Income (Unaudited) for
the nine months ended September 23, 2000 and September 25,
1999...................................................... 3
Condensed Consolidated Statements of Income (Unaudited) for
the three months ended September 23, 2000 and September
25, 1999.................................................. 4
Condensed Consolidated Balance Sheets as of September 23,
2000 (Unaudited) and December 25, 1999.................... 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
as of September 23, 2000 and September 25, 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
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K............................ 18
Signature................................................... 19
</TABLE>
2
<PAGE>
CHARLES RIVER LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 25, SEPTEMBER 23,
1999 2000
------------- -------------
<S> <C> <C>
Net sales related to products............................... $139,269 $160,177
Net sales related to services............................... 21,827 55,595
-------- --------
Total net sales............................................. $161,096 $215,772
Costs and Expenses
Cost of products sold..................................... 84,557 89,636
Cost of services provided................................. 12,673 36,743
Selling, general and administrative....................... 29,414 35,366
Amortization of goodwill and intangibles.................. 1,114 2,734
-------- --------
Operating income............................................ 33,338 51,293
Other income (expense)
Interest income........................................... 496 1,251
Interest expense.......................................... (207) (26,956)
Loss from foreign currency, net........................... (143) (561)
Other income (expenses)................................... 1,441 385
-------- --------
Income before income taxes, minority interests, earnings
from equity investments and extraordinary item............ 34,925 25,412
Provision for income taxes.................................. 16,903 6,877
-------- --------
Income before minority interests, earnings from equity
investments and extraordinary item........................ 18,022 18,535
Minority interests.......................................... (10) (1,130)
Earnings from equity investments............................ 1,940 881
-------- --------
Income before extraordinary item............................ 19,952 18,286
Extraordinary loss, net of tax benefit of $4,547............ -- (8,445)
-------- --------
Net Income.................................................. $ 19,952 $ 9,841
======== ========
</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
-----------------------------
SEPTEMBER 25, SEPTEMBER 23,
1999 2000
------------- -------------
<S> <C> <C>
Net sales related to products............................... $46,116 $53,207
Net sales related to services............................... 6,814 19,166
------- -------
Total net sales............................................. $52,930 $72,373
Costs and Expenses
Cost of products sold..................................... 29,444 30,125
Cost of services provided................................. 3,464 12,342
Selling, general and administrative....................... 9,503 11,126
Amortization of goodwill and intangibles.................. 350 932
------- -------
Operating income............................................ 10,169 17,848
Other income (expense)
Interest income........................................... 137 960
Interest expense.......................................... (36) (7,794)
Gain/(loss) from foreign currency, net.................... 10 (401)
Other income (expenses)................................... 1,441 (5)
------- -------
Income before income taxes, minority interests, earnings
from equity investments and extraordinary item............ 11,721 10,608
Provision for income taxes.................................. 6,892 4,726
------- -------
Income before minority interests, earnings from equity
investments and extraordinary item........................ 4,829 5,882
Minority interests.......................................... (8) (451)
Earnings from equity investments............................ 823 133
------- -------
Income before extraordinary item............................ 5,644 5,564
Extraordinary loss, net of tax benefit of $4,547............ -- (8,445)
------- -------
Net Income/(Loss)........................................... $ 5,644 $(2,881)
======= =======
</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, SEPTEMBER 23,
1999 2000
------------ -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 15,010 $ 28,008
Trade receivables, less allowances of $978 and $876
respectively............................................ 36,293 48,294
Inventories............................................... 30,534 31,544
Deferred income taxes..................................... 632 632
Due from affiliates....................................... 1,233 83
Other current assets...................................... 5,293 5,714
--------- ---------
Total current assets.................................... 88,995 114,275
Property, plant and equipment, net.......................... 85,413 114,684
Goodwill and other intangibles, less accumulated
amortization of $6,073 and $9,872 respectively............ 36,958 40,508
Investments in affiliates................................... 21,722 2,377
Deferred tax asset.......................................... 100,907 100,022
Deferred financing costs.................................... 14,015 8,163
Other assets................................................ 14,393 15,238
--------- ---------
Total assets............................................ $ 362,403 $ 395,267
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Current portion of long-term debt......................... $ 3,290 $ 130
Current portion of capital lease obligation............... 253 183
Accounts payable.......................................... 9,291 7,968
Accrued compensation...................................... 10,792 13,818
Deferred income........................................... 7,643 5,738
Accrued interest.......................................... 8,935 7,060
Accrued liabilities....................................... 18,479 21,236
Accrued income taxes...................................... 2,738 4,419
--------- ---------
Total current liabilities............................... 61,421 60,552
Long-term debt.............................................. 306,725 202,222
Deferred tax liability...................................... 4,990 6,826
Capital lease obligations................................... 795 558
Accrued ESLIRP.............................................. 8,315 8,990
Other long-term liabilities................................. 2,469 3,261
--------- ---------
Total liabilities....................................... 384,715 282,409
--------- ---------
Commitments and contingencies (Note 3)
Minority interests.......................................... 304 13,620
Shareholder's equity
Common stock, $1 par value, 1000 shares authorized and
outstanding............................................. 1 1
Capital in excess of par value............................ 119,470 237,220
Retained earnings......................................... (132,158) (122,317)
Loans to officers......................................... (920) (920)
Accumulated other comprehensive income.................... (9,009) (14,746)
--------- ---------
Total shareholders' equity.............................. (22,616) 99,238
--------- ---------
Total liabilities and shareholders' equity.............. $ 362,403 $ 395,267
========= =========
</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>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 25, SEPTEMBER 23,
1999 2000
------------- -------------
<S> <C> <C>
CASH FLOWS RELATING TO OPERATING ACTIVITIES
Net income/(loss)......................................... $ 19,952 $ 9,841
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 8,701 12,274
Amortization of debt issuance costs and discounts....... -- 1,368
Provision for doubtful accounts......................... 13 (13)
Gain from sale of facilities............................ (1,441) --
Extraordinary loss, net of tax.......................... -- 8,445
Earnings from equity investments........................ (1,940) (881)
Minority interests...................................... 10 1,131
Deferred income taxes................................... -- 208
Stock compensation expense.............................. 124 --
Property, plant, and equipment write-downs and
disposals.............................................. 325 568
Other non-cash items.................................... -- 12
Changes in assets and liabilities
Trade receivables....................................... (3,022) (3,635)
Inventories............................................. 1,232 (115)
Due from affiliates..................................... (264) 176
Deferred financing costs................................ -- (588)
Other current assets.................................... (1,332) (474)
Other assets............................................ (1,482) (3,562)
Accounts payable........................................ (4,767) (3,795)
Accrued compensation.................................... (605) 3,835
Deferred income......................................... 1,130 (1,905)
Accrued interest........................................ (4) (1,895)
Accrued liabilities..................................... 324 (1,167)
Accrued income taxes.................................... 2,211 819
Accrued ESLIRP.......................................... 688 675
Other long-term liabilities............................. (50) (473)
-------- ---------
Net cash provided by operating activities............. $ 19,803 $ 20,849
-------- ---------
CASH FLOWS RELATING TO INVESTING ACTIVITIES
Capital expenditures...................................... (7,426) (8,529)
Dividends from equity investments......................... 815 --
Contingent payments for prior year acquisitions........... (251) --
Acquisition of business, net of cash acquired of $3,163... -- (6,011)
Proceeds from sale of facilities.......................... 1,860 --
Proceeds from sale of animal colony....................... -- 7,000
-------- ---------
Net cash used in investing activities................. $ (5,002) $ (7,540)
-------- ---------
CASH FLOWS RELATING TO FINANCING ACTIVITIES
Payments on long-term debt................................ (312) (113,400)
Capital contribution from parent.......................... -- 122,288
Premium paid for early retirement of debt................. -- (7,088)
Payments on capital lease obligations..................... (90) (307)
Net activity with Bausch & Lomb........................... (34,152) --
-------- ---------
Net cash provided by/(used in) financing activities... $(34,554) $ 1,493
-------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (1,601) (1,804)
-------- ---------
Net change in cash and cash equivalents..................... (21,354) 12,998
Cash and cash equivalents, beginning of period.............. 24,811 15,010
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 3,457 $ 28,008
======== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.................................... $ 207 $ 27,520
Cash paid for taxes....................................... 3,316 5,183
</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. CHARLES RIVER LABORATORIES INTERNATIONAL, INC.'S INITIAL PUBLIC OFFERING
On June 28, 2000 the Company's 100% shareholder, Charles River Laboratories
International, Inc. closed an initial public offering ("the Offering") of
16,100,000 shares of common stock at $16 per share. Net proceeds from the
Offering were $235,964. Charles River Laboratories International, Inc. used part
of the proceeds to make a capital contribution to the Company of $122,288. The
Company used the contribution plus cash on hand of $300 to repay a portion of
its existing debt as described below.
During the third quarter of 2000, a total of $115,500 of the Company's
existing debt, including issurance discounts was repaid. Premiums totaling
$7,088 were paid as a result of the early repayment of a portion of the senior
subordinated notes.
The sources and uses of cash from the Offering are as follows:
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Capital contribution from parent............................ $122,288
Cash on hand................................................ 300
USES OF FUNDS:
Redemption of senior subordinated notes..................... (52,500)*
Premium on redemption of principal amount of senior
subordinated
notes..................................................... (7,088)
Repayment of term loan A.................................... (14,500)
Repayment of term loan B.................................... (43,500)
Repayment of revolver....................................... (5,000)
--------
Net adjustment to cash.................................... $ --
</TABLE>
------------------------
* Includes issuance discount.
An extraordinary loss before tax of $12,993 was recorded due to the payment
of premiums relating to the early extinguishment of a portion of the senior
subordinated notes ($7,088); and the write-off of issuance discounts ($679)
and deferred financing costs ($5,226). This extraordinary loss has been
recorded net of a tax benefit of $4,548.
7
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. SUPPLEMENTAL BALANCE SHEET INFORMATION
The composition of inventories is as follows:
<TABLE>
<CAPTION>
DECEMBER 25, SEPTEMBER 23,
1999 2000
------------ -------------
<S> <C> <C>
Raw materials and supplies.......................... $ 4,196 $ 3,938
Work in process..................................... 1,608 1,003
Finished products................................... 24,730 26,603
------- -------
Inventories......................................... $30,534 $31,544
======= =======
</TABLE>
The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 25, SEPTEMBER 23,
1999 2000
------------ -------------
<S> <C> <C>
Land................................................ $ 7,022 $ 9,172
Buildings........................................... 90,730 141,793
Machinery and equipment............................. 82,131 91,812
Leasehold improvements.............................. 4,668 5,277
Furniture and fixtures.............................. 1,826 1,930
Vehicles............................................ 2,689 2,442
Construction in progress............................ 4,679 5,083
--------- ---------
193,745 257,509
Less accumulated depreciation....................... (108,332) (142,825)
--------- ---------
Net property, plant and equipment................... $ 85,413 $ 114,684
========= =========
</TABLE>
4. INCOME TAXES
EFFECT OF THE OFFERING
An effective tax rate of approximately 45.8%, which includes the impact of
Charles River Laboratories International, Inc., the Company's 100% shareholder,
has been reflected in the accompanying condensed consolidated statements of
income for the three and nine-month periods ended September 23, 2000.
As discussed in Note 2, an extraordinary loss before tax of $12,993 was
recorded on the repayment of debt. A tax benefit, net of valuation allowance of
$4,548 was recorded with respect to this loss. A valuation allowance of $910 was
recorded with respect to the state tax benefit on the extraordinary loss, as
realization of such benefit is not probable, due to certain states having
carryforward periods of five years or less.
During the second quarter, the Company 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. In the second quarter, the
valuation allowance associated with the deferred tax asset described below was
reduced by $4,762, to $750. The reduction of the valuation allowance was
recorded as a tax benefit in the second quarter
8
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. INCOME TAXES (CONTINUED)
of 2000. The net deferred tax asset of $100,654 as of September 23, 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. In the second quarter, an
adjustment of $4,537 was 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.
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 $3,022
on December 25, 1999 and September 23, 2000, respectively. Separately, the
Company has provided a letter of credit in favor of the insurance carriers in
the amount of $350.
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 has 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.
9
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
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 additional 16% of
shares. The note bears interest at the long-term prime rate in Japan, 2.4% at
September 23, 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.
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 terms 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 nine-month period ended
September 25, 1999 and September 23, 2000. Sales
10
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. BUSINESS SEGMENT INFORMATION (CONTINUED)
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 NINE MONTH PERIOD ENDED
----------------------------- -----------------------------
SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 25, SEPTEMBER 23,
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Research Models
Net sales............................... $35,395 $44,486 $109,177 $131,662
Operating income........................ 7,671 10,632 27,977 35,782
Depreciation and amortization........... 2,053 2,526 6,044 7,122
Capital expenditures.................... 1,770 1,343 4,282 4,624
Biomedical Products and Services
Net sales............................... 17,535 27,887 51,919 84,110
Operating income........................ 4,136 5,987 11,553 17,043
Depreciation and amortization........... 832 1,736 2,657 5,152
Capital expenditures.................... 1,019 1,087 3,144 3,913
</TABLE>
Total assets attributable to the research models segment as of December 25,
1999 and September 23, 2000 were $268,381 and $304,539 respectively. Total
assets attributable to the biomedical products and services segment as of
December 25, 1999 and September 23, 2000 were $94,022 and $91,836 respectively.
A reconciliation of segment operating income to consolidated operating
income is as follows:
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED NINE MONTH PERIOD ENDED
----------------------------- -----------------------------
SEPTEMBER 25, SEPTEMBER 23, SEPTEMBER 25, SEPTEMBER 23,
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total segment operating income............ $11,807 $16,619 $39,530 $52,825
Unallocated corporate overhead............ (1,638) 1,229 (6,192) (1,532)
------- ------- ------- -------
Consolidated operating income............. 10,169 17,848 33,338 51,293
======= ======= ======= =======
</TABLE>
8. COMPREHENSIVE INCOME/(LOSS)
The components of comprehensive income/(loss) for the three- and nine-month
periods ended September 25, 1999 and September 23, 2000 are set forth below:
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED NINE MONTH PERIOD ENDED
----------------------------- -----------------------------
SEPTEMBER 25, SEPTEMBER 23, SEPTEMBER 25, SEPTEMBER 23,
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income/(loss)......................... $5,644 $(4,377) $19,952 $ 8,345
Foreign currency translation.............. (172) (3,143) (4,940) (5,737)
------ ------- ------- -------
Comprehensive income/(loss)............... 5,472 (7,520) 15,012 2,603
====== ======= ======= =======
</TABLE>
11
<PAGE>
NINE MONTHS ENDED SEPTEMBER 23, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 25, 1999
NET SALES. Net sales for the first nine months of 2000 were
$215.8 million, an increase of $54.7 million, or 34.0%, from $161.1 million for
the first nine months of 1999. Excluding the strategic transactions, which
include the acquisition of SBI Holdings Inc. ("Sierra") last September and the
acquisition of control of our 50/50 Japanese joint venture in February, on a pro
forma basis sales increased 9.0% in the first nine months of this year, and
10.0% excluding the impact of foreign currencies.
RESEARCH MODELS. Net sales of research models for the first nine months of
2000 were $131.7 million, an increase of $22.5 million, or 20.6%, from
$109.2 million for the first nine months of 1999. Small animal research model
sales increased in North America by 11.0% due to continued improved pricing, a
shift to higher priced specialty units and an increase in unit volume. Excluding
negative currency translation of $4.9 million, and the reduction in lab
equipment sales of $1.4 million, small animal research model sales in Europe
increased 2.0%. Small animal research model sales in Japan, which we started
consolidating in the first quarter of 2000, were $25.6 million for the first
nine months of 2000. We also experienced a decrease in the large animal
breeding, import and conditioning business of 1.0% principally due to closure of
a facility in the U.K., partially offset by increased North American sales. Our
large animal breeding colony, which was sold in the first quarter of 2000,
accounted for $2.5 million of sales for the nine months ended September 25,
1999.
BIOMEDICAL PRODUCTS AND SERVICES. Net sales of biomedical products and
services for the first nine months in 2000 were $84.1 million, an increase of
$32.2 million, or 62.0%, from $51.9 million for the first nine months of 1999.
At the beginning of the fourth quarter in 1999 we acquired Sierra. On a pro
forma basis Sierra sales increased by $7.6 million or 47.5%. Sierra sales were
$23.6 million for the first nine months of 2000. Sales increased 33.9% in our
transgenic and research support services, endotoxin detection systems, biosafety
testing and contract site management services, 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 nine months of 2000 was $126.4 million, an
increase of $29.2 million, or 30.0%, from $97.2 million for the first nine
months of 1999.
RESEARCH MODELS. Cost of products sold and services provided for research
models for the first nine months of 2000 was $77.2 million, an increase of
$11.8 million, or 18.0%, compared to $65.4 million for the first nine months of
1999. Cost of products sold and services provided for the first nine months of
2000 was 58.6% of net sales compared to 59.9% of net sales for the first nine
months in 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 nine months of 2000
was $53.1 million, an increase of $21.3 million, or 67.0%, compared to
$31.8 million for the first nine months of 1999. Cost of products sold and
services provided as a percentage of net sales increased from 61.3% for the
first nine months in 1999 compared to 63.1% for the first nine months in 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 nine months of 2000 were $35.4 million, an
increase of $6.0 million, or 20.4%, from $29.4 million for the first nine months
of 1999. Selling, general and administrative expenses for the first nine months
of 2000 were 16.4% of net sales compared to 18.2% of net sales for the first
nine months of 1999.
RESEARCH MODELS. Selling, general and administrative expenses for research
models for the first nine months of 2000 were $18.3 million, an increase of
$2.6 million, or 16.6%, compared to
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$15.7 million for the first nine months of 1999. The $2.6 million increase is
mainly due to consolidation of Charles River Japan, following our additional
equity investment in the first quarter of 2000. Selling, general and
administrative expenses for the first nine months in 2000 were 13.9% of net
sales, compared to 14.4% for the first nine months of 1999 due to improved cost
control.
BIOMEDICAL PRODUCTS AND SERVICES. Selling, general and administrative
expenses for biomedical products and services for the first nine months in 2000
were $11.6 million, an increase of $4.1 million, or 54.7%, compared to
$7.5 million for the first nine months in 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 nine months in 2000 decreased
to 13.8% of net sales, compared to 14.5% of net sales for the first nine months
in 1999, due to greater economies of scale.
UNALLOCATED CORPORATE OVERHEAD. Unallocated corporate overhead, which
consists of various corporate expenses, was $1.5 million for the first nine
months in 2000 compared to $6.2 million for the first nine months in 1999.
Unallocated corporate overhead has decreased mainly due to pension income from
favorable investment returns.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles for the first nine months in 2000 was $2.7 million, an
increase of $1.6 million from $1.1 million for the first nine 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 nine months in 2000 was
$51.3 million, an increase of $18.0 million, or 54.1%, from $33.3 million for
the first nine months of 1999. Operating income for the first nine months in
2000 was 23.8% of net sales, compared to 20.7% of net sales for the first nine
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 nine months of 2000 was $35.8 million, an increase of $7.8 million, or
27.9%, from $28.0 million for the first nine months of 1999. Operating income
from sales of research models for the first nine months of 2000 was 27.2% of net
sales, compared to 25.6% for the first nine 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 nine months of 2000 was $17.0 million, an
increase of $5.4 million, or 46.6%, from $11.6 million for the first nine months
of 1999. Operating income from sales of biomedical products and services for the
first nine months of 2000 decreased to 20.2% of net sales, compared to 22.4% of
net sales for the first nine months of 1999. The decrease is attributable to
sales growing at a higher rate than operating expenses.
INCOME TAXES. The effective tax rate for the first nine months of 2000
excluding the reversal of the deferred tax valuation allowance of $4.8 million
was 48.5% as compared to 48.4%. The $4.8 million reversal of the valuation
allowance associated with the deferred tax asset, was recorded as a tax benefit
in the second quarter of 2000 due to a reassessment of the need for a valuation
allowance following the company's initial public offering of 16,100,000 shares
of its common stock.
INTEREST EXPENSE. Interest expense for the first nine months of 2000 was
$27.0 million compared to $0.2 million for the first nine months of 1999. The
$26.8 million increase from the first nine months of 1999 was primarily due to
the additional debt incurred as a result of the recapitalization which occurred
on September 29, 1999.
INCOME BEFORE THE EXTRAORDINARY LOSS. Income before the extraordinary loss
for the first nine months of 2000 was $18.3 million, a decrease of $1.7 million
from $20.0 million for the first nine months of
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1999. The decrease is driven by the increase in interest expense, which is
partially offset by the increase in operating income and the reversal of the
deferred tax valuation allowance.
EXTRAORDINARY LOSS. The Company recorded an extraordinary loss of
$8.4 million during the third quarter of 2000. The pre-tax loss of
$13.0 million is the result of premiums related to the early repayment of debt
and the write off of deferred financing costs and issuance discounts associated
with the debt repayments net of tax benefits of $4.5 million.
NET INCOME. Net income for the first nine months of 2000 was $9.8 million,
a decrease of $10.2 million from net income of $20.0 million for the first nine
months of 1999. The decrease was attributable to the extraordinary loss
associated with the debt repayment and the increased interest expense, which is
partially offset by the increase in operating income from operations and the
reversal of the deferred tax valuation allowance.
THREE MONTHS ENDED SEPTEMBER 23, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 25, 1999
NET SALES. Net sales for the three months ended September 23, 2000 were
$72.4 million, an increase of $19.5 million, or 36.9%, from $52.9 million for
the three months ended September 25, 1999.
RESEARCH MODELS. Net sales of research models for the three months ended
September 23, 2000 were $44.5 million, an increase of $9.1 million, or 25.7%,
from $35.4 million for the three months ended September 25, 1999. Small animal
research model sales increased in North America by 13.0% due to improved
pricing, a shift to higher priced specialty units and an increase in unit
volume. Excluding negative currency translation of $1.6 million, and the
reduction in lab equipment sales of $1.0 million, small animal research model
sales in Europe were essentially unchanged. Small animal research model sales in
Japan, which we started consolidating in the first quarter of 2000 were $10.8
million for the three months ended September 23, 2000. We also experienced an
increase of 12.0% in our large animal breeding and import and conditioning
business during the third quarter of 2000. Our large animal breeding colony,
which was sold in the first quarter of 2000, accounted for $0.9 million of sales
for the three-month period ended September 25, 1999.
BIOMEDICAL PRODUCTS AND SERVICES. Net sales of biomedical products and
services for the three months ended September 23, 2000 were $27.9 million, an
increase of $10.4 million, or 59.4%, from $17.5 million for the three months
ended September 25, 1999. At the beginning of the fourth quarter in 1999 we
acquired Sierra. On a pro forma basis Sierra sales increased by $3.2 million or
64.0%. Sierra sales for the three months ended September 23, 2000 were $8.2
million. Sales increased by 26.7% in our transgenic and research support
services, endotoxin detection systems, biosafety testing and contract site
management services, 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 September 23, 2000 was
$42.5 million, an increase of $9.6 million, or 29.2%, from $32.9 million for the
three months ended September 25, 1999.
RESEARCH MODELS. Cost of products sold and services provided for research
models for the three months ended September 23, 2000 was $27.2 million, an
increase of $5.2 million, or 23.6%, compared to $22.0 million for the three
months ended September 25, 1999. Cost of products sold and services provided for
the three months ended September 23, 2000 improved to 61.1% of net sales
compared to 61.9% of net sales for the three months ended September 25, 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 three months ended
September 23, 2000 was $17.3 million, an increase of $6.4 million, or 58.7%,
compared to $10.9 million for the three months ended September 25, 1999.
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Cost of products sold and services provided as a percentage of net sales
decreased to 62.0% for the three months ended September 23, 2000 from 62.3% for
the three months ended September 25, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended September 23, 2000 were
$11.1 million, an increase of $1.6 million, or 16.8%, from $9.5 million for the
three months ended September 25, 1999. The consolidation of Charles River Japan
following our acquisition of additional equity in this entity during the first
quarter of 2000 and the acquisition of Sierra are the main reasons for the
dollar increase. Selling, general and administrative expenses for the three
months ended September 23, 2000 were 15.3% of net sales compared to 18.0% of net
sales for the three months ended September 25, 1999.
RESEARCH MODELS. Selling, general and administrative expenses for research
models for the three months ended September 23, 2000 were $6.5 million, an
increase of $0.3 million, or 4.8%, compared to $6.2 million for the three months
ended September 25, 1999. The increase is mainly attributable to the
consolidation of Charles River Japan as mentioned above. Selling, general and
administrative expenses for the three months ended September 23, 2000 were 14.6%
of net sales, compared to 17.5% for the three months ended September 25, 1999.
BIOMEDICAL PRODUCTS AND SERVICES. Selling, general and administrative
expenses for biomedical products and services for the three months ended
September 23, 2000 were $3.8 million, an increase of $2.2 million compared to
$1.6 million for the three months ended September 25, 1999. The acquisition of
Sierra in the fourth quarter of 1999 along with an increased selling effort
during the third quarter of 2000 account for this increase. Selling, general and
administrative expenses for the three months ended September 23, 2000 increased
to 13.6% of net sales, compared to 9.1% of net sales for the three months ended
September 25, 1999.
UNALLOCATED CORPORATE OVERHEAD. Unallocated corporate overhead, which
consists of various corporate expenses, was $1.2 million of income for the three
months ended September 23, 2000, compared to $1.6 million expense for the three
months ended September 25, 1999 due mainly to pension income from favorable
investment returns.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles for the three months ended September 23, 2000 was
$0.9 million, an increase of $0.5 million from $0.4 million for the three months
ended September 25, 1999. The increase was due to the effect of additional
amortization of intangibles resulting from our Sierra acquisition and the
consolidation of Charles River Japan.
OPERATING INCOME. Operating income for the three months ended September 23,
2000 was $17.8 million, an increase of $7.6 million, or 74.5%, from
$10.2 million for the three months ended September 25, 1999. Operating income
for the three months ended September 23, 2000 was 24.6% of net sales, compared
to 19.3% of net sales for the three months ended September 25, 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 September 23, 2000 was $10.6 million, an increase of
$2.8 million, or 35.9%, from $7.8 million for the three months ended
September 25, 1999. Operating income from sales of research models for the three
months ended September 23, 2000 was 23.8% of net sales, compared to 22.0% for
the three months ended September 25, 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 three months ended September 23, 2000 was
$6.0 million, an increase of $1.9 million, or 46.3%, from $4.1 million for the
three months ended September 25, 1999. Operating income from sales of biomedical
products and services for the three months ended September 23, 2000 decreased to
21.5% of net sales, compared to 23.4% of net sales for the three months ended
September 25, 1999.
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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
September 23, 2000 of 44.6% compares favorably to the effective tax rate of
58.8% for the three months ended September 25, 1999.
INTEREST EXPENSE. Interest expense for the three months ended
September 23, 2000 was $7.8 million, compared to essentially no interest expense
for the three months ended September 25, 1999. The $7.8 million increase for the
third quarter was primarily due to the additional debt incurred as a result of
the recapitalization which occurred on September 29, 1999. During the third
quarter of 2000 we paid down a portion of our existing debt which resulted in
lower interest expense.
INCOME BEFORE THE EXTRAORDINARY LOSS. Income before the extraordinary loss
for the three months ended September 23, 2000 was $5.6 million, essentially
unchanged from income of $5.6 million for the three months ended September 25,
1999.
EXTRAORDINARY LOSS. The Company recorded an extraordinary loss of
$8.4 million during the third quarter of 2000. The pre-tax loss of
$13.0 million is the result of premiums related to the early repayment of debt
and the write off of deferred financing costs and issuance discounts associated
with the debt repayments, net of tax benefits of $4.5 million.
NET INCOME/LOSS. The loss for the three months ended September 23, 2000 was
$2.9 million, a decrease of $8.5 million from net income of $5.6 million for the
three months ended September 25, 1999. The decrease was attributable to the
extraordinary loss recognized with the repayment of the debt, along with the
increased interest expense, which is partially offset by increased operating
income from operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of Charles River totaled $28.0 million at
September 23, 2000 compared with $15.0 million at December 25, 1999. Our
principal sources of liquidity are cash flow from operations along with cash
provided by our initial public offering.
Net cash provided by operating activities for the nine months ended
September 23, 2000 was $20.8 million compared to net cash provided of
$19.8 million for the nine months ended September 25, 1999. The improved cash
flows from operating activities are due to our performance during the first nine
months of 2000.
Net cash used in investing activities during the nine months ending
September 23, 2000 was $7.5 million compared to $5.0 million for the nine months
ending September 25, 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. In
addition, we acquired $3.2 million in cash. In January we sold our primate
colony in Florida for $7.0 million. Capital expenditures for the first nine
months ending September 23, 2000 were $8.5 million compared to $7.4 million for
the nine months ending September 25, 1999. We also received dividends from
equity investments of $0.8 million and proceeds from the sale of a large animal
facility of $1.9 million during the nine month period ending September 25, 1999.
Net cash provided by financing activities during the nine months ending
September 23, 2000 was $1.5 million compared to cash used of $34.6 million for
the first nine months in 1999. We received $122.3 million from Charles River
Laboratories International, Inc., our 100% shareholder, of which we used
$115.5 million to pay down our existing debt and $7.1 million to pay premiums
associated with the early repayment of the debt. Net activity with Bausch &
Lomb, our 100% shareholder up until the
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reacapitalization for the first nine months of 1999 was $34.2 million in net
payments to Bausch and Lomb.
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.
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 100
basis points in the interest rate on all of our variable rate obligations would
be approximately $1.3 million. Fluctuations in interest rates will not affect
the interest payable on the senior subordinated notes, 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 SEPTEMBER 23, 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
September 23, 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.
<TABLE>
<S> <C> <C>
CHARLES RIVER LABORATORIES, INC.
November 7, 2000 /s/ THOMAS F. ACKERMAN
---------------------------------------------
Thomas F. Ackerman
SR. VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
</TABLE>
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