As filed with the Securities and Exchange Commission on August 31, 2000
Registration No. 333-92383
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________
CHARLES RIVER LABORATORIES
INTERNATIONAL, INC.
(Formerly Charles River Laboratories Holdings, Inc.)
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 6770 06-139-7316
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification number)
</TABLE>
251 Ballardvale Street
Wilmington, Massachusetts 01887
(978) 658-6000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
______________
Thomas F. Ackerman
Chief Financial Officer
Charles River Laboratories
International, Inc.
251 Ballardvale Street
Wilmington, Massachusetts 01887
(978) 658-6000, Ext. 1225
______________
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
______________
Copies to:
Richard D. Truesdell, Jr.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
Approximate date of commencement of proposed sale to the public: from time
to time after the effective date
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
______________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the SEC, acting pursuant to said Section 8(a), may
determine.
================================================================================
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Prospectus
, 2000
Charles River Laboratories International, Inc.
Common Stock
Warrants To Purchase Common Stock
--------------------------------------------------------------------------------
This prospectus relates to the resale of 150,000 warrants and shares of
our common stock acquired on exercise of the warrants by holders named on page
53 of this prospectus or in an accompanying supplement to this prospectus. The
named holders may offer and sell all of the common stock and warrants being
registered from time to time. This prospectus also relates to the issuance and
sale by us of 1,140,000 shares of our common stock upon the exercise of the
warrants.
Each warrant entitles the holder to purchase 7.60 shares of our common
stock at an exercise price of $5.19 per share, subject to adjustment in some
circumstances. Upon exercise, the holders of warrants will be entitled, in the
aggregate, to purchase 1,140,000 shares of common stock, representing
approximately 2.8% of the outstanding shares of our common stock on a fully
diluted basis as of July 15, 2000. The warrants will be exercisable at any time
on or after October 21, 2001. Unless exercised, the warrants will automatically
expire at 5:00 p.m., New York City time, on October 1, 2009.
Our common stock is listed on the New York Stock Exchange under the symbol
"CRL."
We will not receive any proceeds from the sale of the common stock or
warrants by the holders, other than payment of the exercise price of the
warrants.
This investment involves risks. See "Risk Factors" beginning on page 10.
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
Page
----
Prospectus Summary...................................................... 4
Risk Factors............................................................ 10
Forward-Looking Statements.............................................. 16
Use of Proceeds......................................................... 17
Dividend Policy......................................................... 17
Capitalization.......................................................... 18
Selected Consolidated Financial Data.................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................................................... 21
Business................................................................ 33
Management.............................................................. 43
Security Ownership of Certain Beneficial
Owners and Management.............................................. 49
Relationships and Transactions with Related
Parties............................................................ 51
Holders of the Warrants................................................. 53
Description of the Warrants............................................. 57
Description of Capital Stock............................................ 60
Certain United States Federal Tax Consequences.......................... 63
Plan of Distribution.................................................... 67
Legal Matters........................................................... 67
Experts................................................................. 67
Where You Can Find More Information..................................... 68
Index to Unaudited Pro Forma Condensed
Consolidated Financial Data........................................ P-1
Index To Consolidated Financial Statements.............................. F-1
______________
Charles River is a registered trademark of Charles River Laboratories, Inc.
This prospectus also includes trademarks and tradenames of other parties.
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PROSPECTUS SUMMARY
This summary highlights important information regarding our business,
warrants to purchase common stock and our common stock. Because this is only a
summary, it does not contain all the information that may be important to you.
You should read the entire prospectus carefully, including "Risk Factors" and
our financial statements and related notes, before deciding to invest in our
warrants or common stock.
CHARLES RIVER LABORATORIES
Charles River Laboratories International, Inc. is a holding company and
does not have any material operations or assets other than its ownership of all
of the capital stock of Charles River Laboratories, Inc.
Overview
We are a leading provider of critical research tools and integrated
support services that enable innovative and efficient drug discovery and
development. We are the global leader in providing the animal research models
required in research and development for new drugs, devices and therapies and
have been in this business for more than 50 years. Since 1992, we have built
upon our research model technologies to develop a broad and growing portfolio
of biomedical products and services. Our wide array of services enables our
customers to reduce costs, increase speed and enhance their productivity and
effectiveness in drug discovery and development. Our customer base, spanning
over 50 countries, includes all of the major pharmaceutical and biotechnology
companies, as well as many leading hospitals and academic institutions. We
currently operate 53 facilities in 15 countries worldwide. Our differentiated
products and services, supported by our global infrastructure and scientific
expertise, enable our customers to meet many of the challenges of early-stage
life sciences research, a large and growing market. In 1999, our pro forma net
sales were $272.6 million, and our pro forma operating income was $49.5
million. For the six months ended June 24, 2000, our pro forma net sales were
$150.8 million, and our pro forma operating income was $35.4 million.
Research Models. We are the global leader in the production and sale of
research models, principally genetically and virally defined purpose-bred rats
and mice. These products represented 65% of our 1999 pro forma net sales and
63% of our pro forma net sales for the six months ended June 24, 2000. We offer
over 130 research models, one of the largest selections of small animal models
of any provider worldwide. Our higher growth models include genetically defined
models and models with compromised immune systems, which are increasingly in
demand as early-stage research tools. The FDA and foreign regulatory bodies
typically require the safety and efficacy of new drug candidates and many
medical devices to be tested on research models like ours prior to testing in
humans. As a result, our research models are an essential part of the drug
discovery and development process.
Biomedical Products and Services. We have focused significant resources on
developing a diverse portfolio of biomedical products and services directed at
high-growth areas of drug discovery and development. Our biomedical products
and services business represented 35% of our 1999 pro forma net sales and 37%
of our pro forma net sales for the six months ended June 24, 2000, and has
experienced strong growth as demonstrated by the 26% compound annual growth
rate in our net sales over the past five fiscal years. We expect the drug
discovery and development markets that we serve will continue to experience
strong growth, particularly as new drug development based on advances in
genetics continues to evolve. There are four areas within this segment of our
business:
Discovery Services. Our discovery services are designed to assist our
customers in screening drug candidates faster by providing
genetically defined research models for in-house research and by
implementing efficacy screening protocols to improve the customer's
drug evaluation process. The market for discovery services is growing
rapidly as pharmaceutical and biotechnology research and development
increasingly focuses on selecting lead drug candidates from the
enormous number of new compounds being generated.
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Development Services. We currently offer FDA-compliant development
services in three main areas: drug safety assessment, biotech safety
testing and medical device testing. Biotech safety testing services
include a broad range of services specifically focused on supporting
biotech or protein-based drug development, including such areas as
protein characterization, cell banking, methods development and
release testing. Our rapidly growing development services offerings
enable our customers to outsource their high-end, non-core drug
development activities.
In Vitro Detection Systems. We have diversified our product offerings
to include non-animal, or in vitro, methods for testing the safety of
drugs and devices. We are strategically committed to being the leader
in providing our customers with in vitro alternatives as these
methods become scientifically validated and commercially feasible.
Vaccine Support Products. We produce pathogen-free fertilized chicken
eggs, a critical element of poultry vaccine production. We believe
there is significant potential for growth in this area in support of
novel human vaccines, such as a nasal spray flu vaccine currently in
development.
Competitive Strengths
Our leading research models business has provided us with steadily growing
revenues and strong cash flow, while our biomedical products and services
business provides significant opportunities for profitable growth. Our products
and services are critical to both traditional pharmaceutical research and the
rapidly growing fields of genomic, recombinant protein and humanized antibody
research. We believe we are well positioned to compete effectively in all of
these sectors as a result of a diverse set of competitive strengths, which
include:
o Critical products and services;
o Long-standing reputation for scientific excellence;
o Extensive global infrastructure and customer relationships;
o Biosecurity technology expertise;
o Platform acquisition and internal development capabilities; and
o Experienced and incentivized management team.
Our Strategy
Our business strategy is to build upon our core research models business
and to actively invest in higher growth opportunities where our proven
capabilities and strong relationships allow us to achieve and maintain a
leadership position. Our growth strategies include:
o Broaden the scope of our discovery and development services;
o Acquire new technologies in research models;
o Expand our preclinical outsourcing services;
o Expand our non-animal technologies; and
o Pursue strategic acquisitions and alliances.
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THE RECAPITALIZATION
On September 29, 1999, CRL Acquisition LLC, a limited liability company
owned by affiliates of DLJ Merchant Banking Partners, II, L.P., our management
and other investors, together with our former parent company, Bausch & Lomb
Incorporated, completed a recapitalization transaction.
THE INITIAL PUBLIC OFFERING
We consummated an initial public offering of 14,000,000 shares of our
common stock on June 28, 2000 at a price of $16.00 a share. We issued an
additional 2,100,000 shares of our common stock on July 6, 2000 upon the
exercise of an over-allotment option by the underwriters. Our common stock is
listed on the New York Stock Exchange under the symbol "CRL."
_______________
We are organized as a Delaware corporation. Our headquarters are located
at 251 Ballardvale Street, Wilmington, Massachusetts 01887. Our telephone
number is (978) 658-6000. Our website address is www.criver.com. The
information on our website is not incorporated as a part of this prospectus.
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SUMMARY DESCRIPTION OF THE WARRANTS
We initially issued the warrants as part of units in a transaction exempt
from the registration requirements of the Securities Act of 1933. Each unit
consisted of $1,000 principal amount of 13-1/2% senior subordinated notes due
2009, or notes, and one warrant initially to purchase 3.942 shares of common
stock, par value $.01 per share, at an exercise price of $10.00 per share. The
warrants became transferable and exchangeable separately from the notes on
February 8, 2000. On June 21, 2000, each then outstanding share of our common
stock was exchanged for 1.927 new shares of our common stock. After adjustment
for this exchange, each warrant entitles the holder to purchase 7.60 shares of
our common stock at an exercise price of $5.19 per share.
Warrants............................. 150,000 warrants which will entitle the
holders to purchase an aggregate of
1,140,000 shares of our common stock,
representing approximately 2.8% of our
common stock on a fully diluted basis
as of July 15, 2000. The warrants are
subject to the terms and conditions set
forth in the warrant agreement dated as
of September 29, 1999.
Exercise............................. Each warrant will entitle the holder,
subject to some conditions, to purchase
7.60 shares of our common stock at an
exercise price of $5.19 per share,
subject to adjustment under some
circumstances. The warrants will be
exercisable at any time on or after
October 1, 2001, and prior to the
expiration of the warrants.
The exercise price and number of shares
of our common stock issuable upon
exercise of the warrants will be subject
to adjustment from time to time upon the
occurrence of particular changes with
respect to our common stock, including:
o particular distributions of shares
of common stock;
o issuances of options or convertible
securities;
o dividends and distributions; and
o particular changes in our options
and convertible securities.
A warrant does not entitle its holder to
receive any dividends paid on shares of
our common stock.
Expiration........................... October 1, 2009.
You should refer to the section entitled "Risk Factors" for an explanation
of risks of investing in our warrants and common stock.
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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The table below presents our summary historical and unaudited pro forma as
adjusted consolidated financial and other data. We derived the summary
consolidated financial data for the fiscal years ended December 27, 1997,
December 26, 1998 and December 25, 1999 from our audited consolidated financial
statements and the related notes included elsewhere in this prospectus. We
derived the summary consolidated financial data for the six months ended June
26, 1999 and June 24, 2000 from our unaudited condensed consolidated financial
statements and the notes thereto included elsewhere in this prospectus. In the
opinion of management, our unaudited condensed consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial condition and
results of operations for this period. The summary unaudited pro forma as
adjusted consolidated financial data of Charles River Laboratories
International, Inc. is based upon the consolidated financial statements for the
year ended December 25, 1999, and as of and for the six months ended June 24,
2000, adjusted as appropriate, to give effect to the recapitalization, the
acquisition of SBI Holdings Inc. which we call "Sierra," the acquisition of an
additional 16% of the equity of Charles River Japan Inc., the sale of a product
line within our research model business segment, and the sale of 16,100,000
shares in our initial public offering at the price to the public of $16.00 per
share, the net proceeds of which have been used to repay outstanding debt. The
summary unaudited pro forma as adjusted consolidated financial data may not be
indicative of what our results would have been if the transactions presented on
a pro forma basis were completed as of December 27, 1998 and December 26, 1999
for annual and quarterly income statement data, respectively, and as of June
24, 2000 for balance sheet data. In addition, they are not projections of our
consolidated future results of operations or financial position. You should
read the information contained in this table in conjunction with "Use of
Proceeds," "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro
Forma Condensed Consolidated Financial Data" and our consolidated financial
statements and the related notes contained elsewhere in this prospectus.
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Pro Forma
As Adjusted
Fiscal Year Ended (1) Fiscal Year
------------------------------------------------ Ended (1)
December 27, December 26, December 25, December 25,
1997 1998 1999 1999
------------ ------------ ------------ ------------
(dollars in thousands except for share data)
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Income Statement Data:
Net sales..................... $170,713 $193,301 $219,276 $272,557
Cost of products sold and
services provided............ 111,460 122,547 134,592 166,865
Selling, general and
administrative expenses...... 30,451 34,142 39,765 52,328
Amortization of goodwill
and intangibles.............. 834 1,287 1,956 3,848
Restructuring charges......... 5,892 -- -- --
------------ ------------ ------------ ------------
Operating income.............. $22,076 $35,325 $42,963 $49,516
------------ ------------ ------------ ------------
Interest expense ............. $501 $421 $12,789 $22,550
============ ============ ============ ============
Net income.................... $15,340 $23,378 $17,124 $11,807
============ ============ ============ ============
Earnings per common share
Basic(2)..................... $0.77 $1.18 $0.86 $0.33
Diluted...................... 0.77 1.18 0.86 0.31
Weighted average number of
common shares
outstanding
Basic........................ 19,820,369 19,820,369 19,820,369 35,920,369
Diluted...................... 19,820,369 19,820,369 19,820,369 38,571,011
Other Data:
EBITDA, as defined(3)......... $31,779 $46,220 $55,281 $66,590
EBITDA margin................. 18.6% 23.9% 25.2% 24.4%
Depreciation and amortization. $9,703 $10,895 $12,318 $17,074
Cash flows from operating
activities(4)................ $24,324 $37,380 $37,568 $--
Cash flows (used in)
investing activities(4)...... $(12,946) $(23,030) $(34,168) $--
Cash flows (used in)
provided by financing
activities(4)................ $(12,939) $(8,018) $(11,504) $--
Six Months Ended Pro Forma
-------------------------------- As Adjusted Six
Months Ended
June 26, 1999 June 24, 2000 June 24, 2000
------------- ------------- ----------------
(dollars in thousands except for share data)
<S> <C> <C> <C>
Income Statement Data:
Net sales..................... $108,166 $143,399 $150,801
Cost of products sold and
services provided............ 64,322 83,912 88,032
Selling, general and
administrative expenses...... 19,911 24,240 25,453
Amortization of goodwill
and intangibles.............. 764 1,802 1,876
Restructuring charges......... -- -- --
------------- ------------- ----------------
Operating income.............. $23,169 $33,445 $35,440
------------- ------------- ----------------
Interest expense ............. $171 $25,821 $11,816
============= ============= ================
Net income.................... $14,308 $8,610 $17,986
============= ============= ================
Earnings per common share
Basic(2)..................... $0.72 $0.43 $0.50
Diluted...................... 0.72 0.37 0.45
Weighted average number of
common shares
outstanding
Basic........................ 19,820,369 19,820,369 35,920,369
Diluted...................... 19,820,369 23,571,555 39,671,555
Other Data:
EBITDA, as defined(3)......... $28,985 $41,457 $43,954
EBITDA margin................. 26.8% 28.9% 29.1%
Depreciation and amortization. $5,816 $8,012 $8,514
Cash flows from operating
activities(4)................ $8,697 $7,042 $--
Cash flows (used in)
investing activities(4)...... $(4,888) $(5,118) $--
Cash flows (used in)
provided by financing
activities(4)................ $(6,306) $2,184 $--
</TABLE>
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<TABLE>
As of June 24, 2000
----------------------------
Pro Forma
Historical As Adjusted
---------- -----------
(dollars in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........ $18,993 $18,993
Working capital.................. 41,260 46,275
Total assets..................... 398,900 409,377
Total debt....................... 400,016 203,641
Total shareholders' equity....... (108,663) 111,402
</TABLE>
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(1) Our fiscal year consists of twelve months ending on the last Saturday on
or prior to December 31.
(2) As more fully described in Note 4 to the consolidated financial
statements, historical earnings per share have been computed assuming that
the shares outstanding after the recapitalization had been outstanding for
all periods prior to the recapitalization.
(3) EBITDA, as defined, represents operating income plus depreciation and
amortization. EBITDA, as defined, is presented because it is a widely
accepted financial indicator used by some investors and analysts to
analyze and compare companies on the basis of operating performance.
EBITDA, as defined, is not intended to represent cash flows for the
period, nor is it presented as an alternative to operating income or as an
indicator of operating performance. It should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with GAAP in the United States and is not indicative of
operating income or cash flow from operations as determined under GAAP.
Our method of computation may or may not be comparable to other similarly
titled measures of other companies.
(4) Cash flow information is not presented with respect to the unaudited pro
forma data because a statement of cash flows is not required by Article 11
of SEC Regulation S-X.
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones we face.
Additional risks not presently known to us or that we currently consider
immaterial may also impair our business operations. Any of these risks could
have a material and negative effect on our business, financial condition or
results of operations. The value of the warrants and trading price of our
common stock issuable upon exercise of the warrants could decline due to any of
these risks, and you may lose all or part of your investment.
Risks Related to Our Business and Industry
Contaminations in our animal populations can damage our inventory, harm our
reputation for contaminant-free production and result in decreased sales.
Our research models and fertile chicken eggs must be free of contaminants,
such as viruses and bacteria. Presence of contaminants can distort or
compromise the quality of research results. Contaminations in our isolated
breeding rooms or poultry houses could disrupt our contaminant-free research
model and fertile egg production, harm our reputation for contaminant-free
production and result in decreased sales.
Contaminations typically require cleaning up the contaminated room or
poultry house. This clean-up results in inventory loss, clean-up and start-up
costs, and reduced sales as a result of lost customer orders and credits for
prior shipments. These contaminations are unanticipated and difficult to
predict. We experienced several material contaminations in our animal
populations in 1996 and a few significant contaminations in 1997 that adversely
impacted our 1996 and 1997 financial results. Since then, we made over $6.0
million in capital expenditures designed to strengthen our biosecurity and
significantly changed our operating procedures. We have not experienced any
significant contaminations since 1997.
Many of our customers are pharmaceutical and biotechnology companies, and we
are subject to risks, uncertainties and trends that affect companies in those
industries.
Sales of our products and services are highly dependent on research and
development expenditures by pharmaceutical and biotechnology companies. We are
therefore subject to risks, uncertainties and trends that affect companies in
those industries, including government regulation, pricing pressure,
technological change and shifts in the focus and scope of research and
development expenditures. For example, over the past several years, the
pharmaceutical industry has undergone significant mergers and combinations, and
many industry experts expect this trend to continue. After recent mergers and
combinations, some customers combined or otherwise reduced their research and
development operations, resulting in fewer animal research activities. We
experienced both temporary disruptions and permanent reductions in sales of our
research models to some of these customers. Future mergers and combinations in
the pharmaceutical or biotechnology industries, or other industry-wide trends,
could adversely affect demand for or pricing of our products.
New technologies may be developed, validated and increasingly used in
biomedical research that could reduce demand for some of our products and
services.
For many years, groups within the scientific and research community have
attempted to develop models, methods and systems that would replace or
supplement the use of living animals as test subjects in biomedical research.
Companies have developed several techniques that have scientific merit,
especially in the area of cosmetics and household product testing, markets in
which we are not active. Only a few alternative test methods in the discovery
and development of effective and safe treatments for human and animal disease
conditions have been validated and successfully deployed. The principal
validated non-animal test system is the LAL, or endotoxin detection system, a
technology which we acquired and have aggressively marketed as an alternative
to testing in animals. It is our strategy to participate in some fashion with
any non-animal test method as it becomes validated as a
10
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research model alternative or adjunct in our markets. However, these methods
may not be available to us or we may not be successful in commercializing these
methods. Even if we are successful, sales or profits from these methods may not
offset reduced sales or profits from research models.
Alternative research methods could decrease the need for research models,
and we may not be able to develop new products effectively or in a timely
manner to replace any lost sales. In addition, one of the anticipated outcomes
of genomics research is to permit the elimination of more compounds prior to
preclinical testing. While this outcome may not occur for several years, if at
all, it may reduce the demand for some of our products and services.
The outsourcing trend in the preclinical and nonclinical stages of drug
discovery and development, meaning contracting out to others functions that
were previously performed internally, may decrease, which could slow our
growth.
Some areas of our biomedical products and services business have grown
significantly as a result of the increase over the past several years in
pharmaceutical and biotechnology companies outsourcing their preclinical and
nonclinical research support activities. While industry analysts expect the
outsourcing trend to continue for the next several years, a substantial
decrease in preclinical and nonclinical outsourcing activity could result in a
diminished growth rate in the sales of one or more of our expected higher
growth areas.
We must comply with FDA regulation of our endotoxin detection systems
operations.
The United States Food and Drug Administration, or FDA, regulates our
endotoxin detection systems operations as a medical device manufacturer. Last
year, the FDA issued a "warning letter" to us and other LAL manufacturers,
citing quality control and other problems in the manufacturing facilities. The
FDA has allowed our facility, located in Charleston, South Carolina, to
continue to manufacture and sell the LAL product line, subject to our agreement
to make prescribed changes to our production and quality control systems. We
believe that we have taken all steps necessary to meet the FDA's requirements,
but if the FDA disagrees, it could take further enforcement action, including
potentially requiring us to recall our products or temporarily revoking our
manufacturing license. Any further enforcement action could impose additional
costs and affect our ability to provide our endotoxin detection systems.
Our business may be affected by changes in the Animal Welfare Act and related
regulations which may require us to alter our operations.
The United States Department of Agriculture, or USDA, is presently
considering changing the regulations issued under the Animal Welfare Act to
include rats, mice and birds, including chickens. The Animal Welfare Act
imposes a wide variety of specific regulations on producers and users of
regulated species including cage size, shipping conditions and environmental
enrichment methods. If the USDA decides to include rats, mice and birds,
including chickens, in its regulations, we could be required to alter our
production operations. This may include adding production capacity, new
equipment and additional employees. We believe that application of the Animal
Welfare Act to rats, mice and chickens used in our research model and vaccine
support products operations in the United States will not result in loss of net
sales, margin or market share, since all U.S. producers and users will be
subject to the same regulations. While we do not anticipate the addition of
rats, mice and chickens to the Animal Welfare Act to require significant
expenditures, changes to the regulations may be more stringent than we expect
and require more significant expenditures. Additionally, if we fail to comply
with state regulations, including general anti-cruelty legislation, foreign
laws and other anti-cruelty laws, we could face significant civil and criminal
penalties.
If we are not successful in selecting and integrating the businesses and
technologies we acquire, our business may suffer.
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We plan to continue to grow our business through acquisitions of
businesses and technologies and through alliances. However, businesses and
technologies may not be available on terms and conditions we find acceptable.
Even if completed, acquisitions and alliances involve numerous risks which may
include:
o difficulties and expenses incurred in assimilating operations,
services, products or technologies;
o difficulties in developing and operating new businesses including
diversion of management's attention from other business concerns;
o the potential loss of key employees of an acquired business and
difficulties in attracting new employees to grow businesses;
o difficulties in assimilating differences in foreign business
practices and overcoming language barriers;
o difficulties in obtaining intellectual property protections and
skills that we and our employees currently do not have; and
o difficulties in achieving business and financial success.
In the event that the success of an acquired business or technology or an
alliance does not meet expectations, we may be required to restructure. We may
not be able to successfully integrate acquisitions into our existing business
or successfully exploit new business or technologies.
Factors such as exchange rate fluctuations and increased international and U.S.
regulatory requirements may increase our costs of doing business in foreign
countries.
A significant part of our net sales is derived from operations outside the
United States. Our operations and financial results could be significantly
affected by factors such as changes in foreign currency rates, uncertainties
related to regional economic circumstances and the costs of complying with a
wide variety of international and U.S. regulatory requirements.
Because the sales and expenses of our foreign operations are generally
denominated in local currencies, we are subject to exchange rate fluctuations
between local currencies and the U.S. dollar in the reported results of our
foreign operations. These fluctuations may decrease our earnings. We currently
do not hedge against the risk of exchange rate fluctuations.
We face significant competition in our business, and if we are unable to
respond to competition in our business, our revenues may decrease.
We face significant competition from different competitors in each of our
business areas. Some of our competitors in biotech safety testing and medical
device testing are larger than we are and may have greater capital, technical
or other resources than we do. We generally compete on the basis of quality,
reputation, and availability of service. Expansion by our competitors into
other areas in which we operate, new entrants into our markets or changes in
our competitors' strategy could adversely affect our competitive position. Any
erosion of our competitive position may decrease our revenues or limit our
growth.
Negative attention from special interest groups may impair our business.
Our core research model activities with rats, mice and other rodents have
not historically been the subject of animal rights media attention. However,
the large animal component of our business has been the subject of adverse
attention and on-site protests. We recently closed our small import facility in
England due in part to protests by animal right activists, which included
threats against our facilities and employees. Future negative attention or
threats against our facilities or employees could impair our business.
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<PAGE>
One of our large animal operations is dependent on a single source of supply,
which if interrupted could adversely affect our business.
We depend on a single, international source of supply for one of our large
animal operations. Disruptions to their continued supply may arise from export
or import restrictions or embargoes, foreign government or economic
instability, or severe weather conditions. Any disruption of supply could harm
our business if we cannot remove the disruption or are unable to secure an
alternative or secondary source on comparable commercial terms.
Tax benefits we expect to be available in the future may be subject to
challenge.
In connection with the recapitalization, our shareholders, CRL Acquisition
LLC and Bausch & Lomb Incorporated, or B&L, made a joint election intended to
permit us to increase the depreciable and amortizable tax basis in our assets
for Federal income tax purposes, thereby providing us with expected future tax
benefits. In connection with our initial public offering, CRL Acquisition LLC
reorganized, terminated its existence as a corporation for tax purposes and
distributed a substantial portion of our stock to its members. It is possible
that the Internal Revenue Service may contend that this reorganization and
liquidating distribution should be integrated with our original
recapitalization. We believe that the reorganization and liquidating
distribution should not have any impact upon the election for federal income
tax purposes. However, the Internal Revenue Service may reach a different
conclusion. If the Internal Revenue Service were successful, the expected
future tax benefits would not be available, and we would be required to write
off the related deferred tax asset reflected in our balance sheet by recording
a non-recurring tax expense in our results of operations in an amount equal to
such deferred tax asset. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Our supply of animal feed may be interrupted by the bankruptcy of our domestic
commercial supplier Purina Mills, Inc.
Purina Mills, Inc., our commercial supplier of animal feed for our United
States research model business, has filed for reorganization under the U.S.
Bankruptcy Code. We do not expect this to interrupt our supply of animal feed.
If we need to secure an alternative or secondary source, our costs of animal
feed may increase.
We depend on key personnel and may not be able to retain these employees or
recruit additional qualified personnel, which would harm our business.
Our success depends to a significant extent on the continued services of
our senior management and other members of management. James C. Foster, our
Chief Executive Officer since 1992, has held various positions with Charles
River for 24 years and recently became our Chairman. We have no employment
agreement with Mr. Foster, nor with any other executive officer. If Mr. Foster
or other members of management do not continue in their present positions, our
business may suffer.
Because of the specialized scientific nature of our business, we are
highly dependent upon qualified scientific, technical and managerial personnel.
There is intense competition for qualified personnel in the pharmaceutical and
biotechnological fields. Therefore, we may not be able to attract and retain
the qualified personnel necessary for the development of our business. The loss
of the services of existing personnel, as well as the failure to recruit
additional key scientific, technical and managerial personnel in a timely
manner could harm our business.
DLJ Merchant Banking Partners, II, L.P. and its affiliates have substantial
control over our company and may have different interests than those of other
holders of our securities.
As of July 15, 2000, DLJ Merchant Banking Partners II, L.P. and affiliated
funds, which we refer to as the DLJMB Funds, beneficially own 45.3% of our
outstanding common stock. As a result of their stock ownership and contractual
rights they received in the recapitalization, these entities have substantial
control over our business, policies and affairs, including the power to:
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<PAGE>
o elect a majority of our directors;
o appoint new management;
o prevent or cause a change of control; and
o substantially control any action requiring the approval of the
holders of common stock, including the adoption of amendments to our
certificate of incorporation and approval of mergers or sales of
substantially all of our assets.
The directors elected by the DLJMB Funds have the ability to control
decisions affecting the business and management of our company including our
capital structure. This includes the issuance of additional capital stock, the
implementation of stock repurchase programs and the declaration of dividends.
The DLJMB Funds and the directors they appoint may have different interests
than those of other holders of our securities.
Our historical financial information may not be representative of our results
as a separate company.
The historical financial information in this prospectus for the periods
prior to the recapitalization may not reflect what our results of operations,
financial position and cash flows would have been had we been a separate,
stand-alone company during the periods presented or in the future. We made some
adjustments and allocations to the historical financial statements in this
prospectus because B&L did not account for us as a single stand-alone business
for all periods presented. Our adjustments and allocations made in preparing
our historical consolidated financial statements may not appropriately reflect
our operations during the periods presented as if we had operated as a stand-
alone company.
Healthcare reform could reduce or eliminate our business opportunities.
The United States and many foreign governments have reviewed or undertaken
healthcare reform, most notably price controls on new drugs, which may
adversely affect research and development expenditures by pharmaceutical and
biotechnology companies, resulting in a decrease of the business opportunities
available to us. We cannot predict the impact that any pending or future
healthcare reform proposals may have on our business.
Risks Relating to the Warrants and Common Stock
There is no active trading market for the warrants
There is no active trading market for the warrants which may make it
difficult for you to sell your warrants, or sell your warrants at a price that
you believe reflects the financial performance of our company.
Our stock price may be volatile and could decline substantially.
The stock market has, from time to time, experienced extreme price and
volume fluctuations. The market price for our common stock and value of the
warrants may be adversely affected due to many factors, including:
o our operating results failing to meet the expectations of securities
analysts or investors in any quarter;
o downward revisions in securities analysts' estimates;
o material announcements by us or our competitors;
o governmental regulatory action;
14
<PAGE>
o technological innovations by competitors or competing technologies;
o investor perceptions of our industry or prospects or those of our
customers; and
o changes in general market conditions or economic trends.
In the past, companies that have experienced volatility in the market
price of their stock have been the subject of securities class action
litigation. If we become involved in a securities class action litigation in
the future, it could result in substantial costs and diversion of management
attention and resources, harming our business.
Shares eligible for public sale could adversely affect our stock price and the
value of the warrants.
The market price of our common stock and the value of the warrants could
decline as a result of sales by our existing stockholders or the perception
that these sales could occur. These sales also might make it difficult for us
to sell equity securities in the future at a time and price that we deem
appropriate. In addition, some existing stockholders have the ability to
require us to register their shares.
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<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they discuss our
future expectations, contain projections of our future results of operations or
of our financial condition or state other "forward-looking" information. We
believe that it is important to communicate our future expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or control and that may cause our actual results to differ
materially from those discussed as a result of various factors, including
contaminations at our facilities, changes in the pharmaceutical or
biotechnology industries, competition and changes in government regulations or
general economic or market conditions. These factors should be considered
carefully and readers should not place undue reliance on our forward-looking
statements. Before you invest in the warrants or common stock, you should be
aware that the occurrence of the events described in the "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" sections and elsewhere in this prospectus could harm
our business, operating results and financial condition. All forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements and risk factors
contained throughout this prospectus. We are under no duty to update any of the
forward-looking statements after the date of this prospectus or to conform
these statements to actual results.
Industry and Market Data
In this prospectus, we rely on and refer to information and statistics
regarding the research model and biomedical products and services industries,
and our market share in the sectors in which we compete. We obtained this
information and statistics from various third party sources, discussions with
our customers and/or our own internal estimates. We believe that these sources
and estimates are reliable, but we have not independently verified them.
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<PAGE>
USE OF PROCEEDS
All of the warrants offered hereby are being sold by the holders listed on
page 53 of this prospectus. We will not receive any proceeds from the sale of
our warrants or common stock issued upon the exercise of the warrants, other
than the payment of the exercise price of the warrants.
DIVIDEND POLICY
We have not declared or paid any cash dividends on shares of our common
stock in the past two years except to our former parent company and we do not
intend to pay cash dividends in the foreseeable future. We currently intend to
retain any earnings to finance future operations and expansion and to reduce
indebtedness. We are a holding company and are dependent on distributions from
our subsidiaries to meet our cash requirements. The terms of the indenture
governing our senior subordinated notes and our credit facility restrict the
ability of our subsidiaries to make distributions to us and, consequently,
restrict our ability to pay dividends on our common stock. In addition, holders
of the warrants will not have the right to receive any dividends so long as
their warrants are unexercised.
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<PAGE>
CAPITALIZATION
The following table presents our consolidated capitalization as of June
24, 2000 (i) on a historical basis and (ii) as adjusted to give pro forma
effect to the transactions described in the notes to the unaudited pro forma as
adjusted condensed consolidated balance sheet and our initial public offering.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro
Forma Condensed Consolidated Financial Data" and our consolidated financial
statements and notes thereto included elsewhere in this prospectus.
<TABLE>
As of June 24, 2000
------------------------------
Pro Forma
Historical As Adjusted
---------- -----------
(dollars in thousands)
<S> <C> <C>
Debt:
Credit facility:
Revolving credit facility(1).................................... $5,000 $ --
Term loans(2)................................................... 159,400 101,477
Senior subordinated notes(3)..................................... 148,032 96,220
Senior discount debentures(4).................................... 34,332 --
Subordinated discount note(5).................................... 47,308 --
Capital lease obligations and other long-term debt............... 5,944 5,944
---------- -----------
Total debt....................................................... 400,016 203,641
========== ===========
Redeemable Common Stock(6)....................................... 13,198 --
Shareholders' equity:
Common stock..................................................... 198 359
Additional paid-in capital....................................... 206,940 451,508
Accumulated deficit.............................................. (307,351) (327,942)
Loan to officers................................................. (920) (920)
Accumulated other comprehensive loss............................. (9,009) (11,603)
---------- -----------
Total shareholders' equity....................................... (110,142) 111,402
---------- -----------
Total capitalization............................................. $303,072 $315,043
========== ===========
</TABLE>
-------------------
(1) At June 24, 2000, we had $25.0 million available under our revolving
credit facility, subject to customary borrowing conditions.
(2) Includes a senior secured term loan A of $40.0 million and a senior
secured term loan B of $119.4 million.
(3) Represents proceeds of $150.0 million related to the units which were
allocated between the senior subordinated notes ($147.9 million) and
warrants ($2.1 million), plus amortization of the discount on the senior
subordinated notes.
(4) Represents proceeds of $37.6 million which were allocated between the
senior discount debentures ($29.1 million) and warrants ($8.5 million),
plus accretion of interest and amortization of the discount on the
debentures.
(5) Represents subordinated discount note of $43.0 million plus accretion of
interest.
(6) Upon completion of our initial public offering contemplated in the pro
forma as adjusted column, the put option related to these shares of common
stock terminated and, accordingly, the equity was deemed to be permanent.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents our selected consolidated financial data and
other data as of and for the fiscal years ended December 30, 1995, December 28,
1996, December 27, 1997, December 26, 1998 and December 25, 1999 and as of and
for the six months ended June 26, 1999 and June 24, 2000. We derived the
selected consolidated income statement data for the three fiscal years ended
December 25, 1999 and the consolidated balance sheet data as of December 26,
1998 and December 25, 1999 from our audited consolidated financial statements
and the notes to those statements contained elsewhere in this prospectus. We
derived the selected consolidated financial data as of and for the fiscal year
ended December 28, 1996 from our audited consolidated financial statements and
the notes to those statements, which are not contained in this prospectus. We
derived the selected consolidated financial data as of and for the fiscal year
ended December 30, 1995 from our unaudited consolidated financial statements
and the notes to those statements which are also not contained in this
prospectus. We derived the selected consolidated data as of and for the six
months ended June 26, 1999 and June 24, 2000 from our unaudited condensed
consolidated financial statements and the notes thereto which are contained
elsewhere in this prospectus. In the opinion of management, our unaudited
consolidated financial statements and our unaudited condensed consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
condition and results of operations for these periods. You should read the
information contained in this table in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the related notes contained elsewhere
in this prospectus.
<TABLE>
Fiscal Year(1) Six Months Ended
-------------------------------------------------------- ------------------------------
1995 1996 1997 1998 1999 June 26, 1999 June 24, 2000
-------- -------- -------- -------- -------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Total net sales....................... $141,041 $155,604 $170,713 $193,301 $219,276 $108,166 $143,399
Cost of products sold and services
provided........................... 86,404 97,777 111,460 122,547 134,592 64,322 83,912
Selling, general and administrative
expenses........................... 27,976 28,327 30,451 34,142 39,765 19,911 24,240
Amortization of goodwill and
intangibles........................ 558 610 834 1,287 1,956 764 1,802
Restructuring charges................. -- 4,748 5,892 -- -- -- --
-------- -------- -------- -------- -------- ------------- -------------
Operating income...................... 26,103 24,142 22,076 35,325 42,963 23,169 33,445
Interest income....................... 634 654 865 986 536 359 291
Other income.......................... -- -- -- -- 89 -- 390
Interest expense...................... (768) (491) (501) (421) (12,789) (171) (25,821)
Gain/(loss) from foreign currency,
net................................ (68) 84 (221) (58) (136) (153) (160)
-------- -------- -------- -------- -------- ------------- -------------
Income before income taxes,
minority interests and earnings
from equity investments............ 25,901 24,389 22,219 35,832 30,663 23,204 8,145
Provision for income taxes............ 10,759 10,889 8,499 14,123 15,561 10,011 (396)
-------- -------- -------- -------- -------- ------------- -------------
Income before minority interests
and earnings from equity
investments........................ 15,142 13,500 13,720 21,709 15,102 13,193 8,541
Minority interests.................... (13) (5) (10) (10) (22) (2) (679)
Earnings from equity investments...... 1,885 1,750 1,630 1,679 2,044 1,117 748
-------- -------- -------- -------- -------- ------------- -------------
Net income............................ 17,014 15,245 15,340 23,378 17,124 14,308 8,610
======== ======== ======== ======== ======== ============= =============
Other Data:
Depreciation and amortization......... 9,717 9,528 9,703 10,895 12,318 5,816 8,012
Capital expenditures.................. 10,239 11,572 11,872 11,909 12,951 4,637 6,107
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Fiscal Year(1) Six Months Ended
-------------------------------------------------------- ------------------------------
1995 1996 1997 1998 1999 June 26, 1999 June 24, 2000
-------- -------- -------- -------- -------- ------------- -------------
(dollars in thousands)
Balance Sheet Data (at end of
period):
Cash and cash equivalents............. $15,336 $19,657 $17,915 $24,811 $15,010 $21,569 $18,993
Working capital....................... 39,100 48,985 46,153 42,574 27,574 49,196 41,260
Total assets.......................... 184,271 196,981 196,211 234,254 363,056 227,038 398,900
Total debt............................ 4,626 1,645 1,363 1,582 386,044 1,278 400,016
Total shareholders' equity/(deficit).. 142,212 153,818 149,364 168,259 (110,142) 169,153 (108,663)
</TABLE>
-------------------
(1) Our fiscal year consists of twelve months ending on the last Saturday on
or prior to December 31.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and our unaudited pro forma condensed
consolidated financial data, including the related notes, contained elsewhere
in this prospectus.
CHARLES RIVER LABORATORIES
Charles River Laboratories International, Inc. is a holding company and
does not have any material operations or assets other than its ownership of all
of the capital stock of Charles River Laboratories, Inc.
Overview
We are a leading provider of critical research tools and integrated
support services that enable innovative and efficient drug discovery and
development. We are the global leader in providing the animal research models
required in research and development for new drugs, devices and therapies and
have been in this business for more than 50 years.
We operate in two segments for financial reporting purposes: research
models and biomedical products and services. In addition, since services
represent over 10% of our net sales, our consolidated financial statements also
provide a breakdown of net sales between net sales related to products, which
include both research models and biomedical products, and net sales related to
services, which reflect biomedical services, and a breakdown of costs between
costs of products sold and costs of services provided. The following tables
show the net sales and the percentage contribution of our segments, research
models and biomedical products and services, for the past three years. It also
shows costs of products sold and services provided, selling, general and
administrative expenses and operating income for both research models and
biomedical products and services by segment and as percentages of their
respective segment net sales.
<TABLE>
For the Six
Fiscal Year Ended Months Ended
------------------------------------------------ -----------------------
December 27, December 26, December 25, June 26, June 24,
1997 1998 1999 1999 2000
------------ ------------ ------------ -------- --------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Net sales:
Research models.............................. $125.2 $134.6 $142.3 $73.8 $87.2
Biomedical products and services............. 45.5 58.7 77.0 34.4 56.2
Costs of products sold and services provided:
Research models.............................. $82.5 $85.8 $86.3 $43.5 $50.0
Biomedical products and services............. 29.0 36.7 48.3 20.9 35.8
Selling, general and administrative expenses:
Research models.............................. $19.6 $18.1 $22.2 $10.0 $12.0
Biomedical products and services............. 6.9 9.7 12.5 6.1 9.4
Operating income:
Research models.............................. $19.6 $30.5 $33.7 $20.3 $25.2
Biomedical products and services............. 6.5 11.1 14.4 7.4 11.0
</TABLE>
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<TABLE>
For the Six
Fiscal Year Ended Months Ended
------------------------------------------------ -----------------------
December 27, December 26, December 25, June 26, June 24,
1997 1998 1999 1999 2000
------------ ------------ ------------ -------- --------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Net sales:
Research models.............................. 73.3% 69.6% 64.9% 68.2% 60.8%
Biomedical products and services............. 26.7 30.4 35.1 31.8 39.2
Costs of products sold and services provided:
Research models.............................. 65.9% 63.7% 60.6% 58.9% 57.3%
Biomedical products and services............. 63.7 62.5 62.7 60.8 63.7
Selling, general and administrative expenses:
Research models.............................. 15.7% 13.4% 15.6% 13.6% 13.8%
Biomedical products and services............. 15.2 16.5 16.2 17.7 16.7
Operating income:
Research models.............................. 15.7% 22.7% 23.7% 27.5% 28.9%
Biomedical products and services............. 14.3 18.9 18.7 21.5 19.6
</TABLE>
Net Sales. We recognize net sales when a product is shipped or as services
are completed. Over the past three years, unit volume of small animal research
models has increased modestly in North America and has decreased modestly in
Europe. During the same period, sales in both North America and Europe have
increased, principally as a result of price increases and a shift in mix
towards higher priced research models. In recent years, we have increased our
focus on the sale of specialty research models, such as special disease models,
which have contributed to additional sales growth.
Our customers typically place orders for research models with less than a
week's lead time. Meeting such demand requires efficient inventory management
and strong customer service support. We improved inventory availability in the
last three years through better forecasting and production mix, and most
importantly, improved biosecurity, thereby reducing contaminations.
Biomedical products and services have grown at a compounded rate of 30%
from 1997 to 1999. Our growth in this business demonstrated our ability to
capitalize on our core research model technology and enter into related product
development activities undertaken by our customers.
Pricing. We maintain published list prices for all of our research models,
biomedical products and some of our services. We also have pricing agreements
with our customers which provide some discounts, usually based on volume. Many
of our services are based on customized orders and are priced accordingly.
While pricing has been competitive, some of our products are priced at a
premium due to higher quality, better availability and superior customer
support that our customers associate with our products.
Biosecurity. Biosecurity is one of our highest operational priorities.
Prior breaches of biosecurity have adversely affected our results of
operations, and we cannot assure you that future breaches would not materially
affect our results of operations. A biosecurity breach typically results in
additional expenses from the need to clean up the contaminated room, which in
turn results in inventory loss, clean-up and start-up costs, and can reduce net
sales as a result of lost customer orders and credits for prior shipments. We
experienced a few significant contaminations in 1997 in our isolation rooms for
research models and in our poultry houses for vaccine support products. Our net
sales in 1997 were adversely affected by our inability to fulfill customer
orders, and our expenses were increased during that period by the costs
associated with cleaning up the contaminations. Since January 1, 1997, we have
made over $6.0 million of capital expenditures designed to strengthen our
biosecurity, primarily by upgrading our production facilities. In addition, we
have made significant changes to our operating procedures for
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<PAGE>
isolation rooms and poultry houses designed to further minimize the risks of
contamination, including, for example, increasing the frequency of replacing
masks and gowns, and most importantly, increasing awareness and training among
our employees. These improvements to our operating procedures increased annual
ongoing biosecurity-related expenses by approximately $0.5 million in 1999.
While we cannot assure you that we will not experience future significant
isolation room or poultry house contaminations in the future, we believe these
changes have contributed to our absence of significant contaminations during
1998, 1999 and 2000 to date.
Acquisitions. Since January 1, 1997, we have successfully acquired and
integrated four companies, which contributed $18.2 million in sales in 1999 and
$22.8 million in sales for the six months ended June 24, 2000, representing
8.3% and 15.9% of total sales, respectively. The acquisition of three of the
companies occurred prior to December 26, 1998. On September 29, 1999, we
acquired Sierra for an initial total purchase price of $23.3 million, including
approximately $17.3 million in cash paid to former shareholders and assumed
debt of approximately $6.0 million, which we immediately retired. In addition,
we have agreed to pay (a) up to $2.0 million in contingent purchase price if
specified financial objectives are reached by December 31, 2000, (b) up to
$10.0 million in performance-based bonus payments if specified financial
objectives are reached over the next five years, with no payment in any
individual year to exceed $2.7 million and (c) $3.0 million in retention and
non-competition payments contingent upon the continuing employment of specified
key scientific and managerial personnel through June 30, 2001. Sierra became
part of our drug safety assessment area.
The $2.0 million in contingent purchase price for Sierra will, if paid,
increase goodwill and will not affect our results of operations except through
the subsequent related amortization expense and any interest expense related to
any borrowings necessary to finance the payment. The $10.0 million in
performance-based bonus payments, will, if paid, be expensed during the periods
in which it becomes reasonably certain that the financial objectives will be
achieved. During fiscal 1999, we expensed $1.4 million of the $3.0 million in
retention and non-competition payments, with the $1.6 million remaining being
expensed ratably through June 2001 as it is earned. The contingent purchase
price and performance-based bonus payments are not reflected in the pro forma
condensed consolidated financial data included elsewhere herein because they
are not considered reasonably estimable; the retention and non-competition
payments are not included in the pro forma condensed consolidated financial
data as they are considered non-recurring.
Joint Ventures. At December 25, 1999, we had two unconsolidated joint
ventures. As of February 28, 2000, we acquired an additional 16% equity
interest in one of the joint ventures, Charles River Japan, increasing our
ownership interest to 66%. The purchase price for the 16% equity interest was
1.4 billion yen, or $12.8 million, of which 400 million yen, or $3.6 million,
was paid by a three-year balloon promissory note secured by a pledge of the
purchased interest. The note bears interest at the long-term prime rate in
Japan. Charles River Japan is engaged principally in the research model
business. Our royalty agreement provides us with 3% of the sales of locally
produced research models, and having acquired majority ownership, we have
consolidated its operations for financial reporting purposes from the effective
date of the acquisition in the first quarter of fiscal 2000. This contributed
$3.8 million in sales for the six months ended June 24, 2000. We also receive
dividends based on our pro-rata share of net income. Charles River Japan paid
dividends of $0.8 million, $0.7 million and $0.8 million in 1997, 1998 and
1999, respectively. No dividends were paid in the six months ended June 24,
2000. Our other unconsolidated joint venture is Charles River Mexico, an
extension of our vaccine support products area, which is not significant to our
business.
Restructuring Program. During 1997, we implemented a restructuring
program. Our plan, which was approved by B&L, was designed to reduce excess
capacity, increase efficiencies, eliminate non-essential operating and staff
personnel, and close several small product-lines. In 1997, we established a
restructuring reserve in the amount of $5.9 million, based on our plan to close
particular facilities and eliminate personnel in our vaccine support products
area, eliminate personnel in Europe, reduce corporate staff, and relocate one
of our large animal facilities. We have completed the actions underlying this
plan. These actions reduced cost of products sold and services provided and
selling, general and administrative expenses and also improved profitability in
the areas affected. At the time we prepared our restructuring program, we
estimated we would save approximately $3.1 million on an
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<PAGE>
annual basis. In 1997 we saved approximately $0.6 million from these actions,
and in 1998 we saved approximately $2.6 million.
Allocation of Costs from Bausch & Lomb. Historically, B&L charged us for
some direct expenses, including insurance, information technology and other
miscellaneous expenses, based upon actual charges incurred on our behalf.
However, these charges and estimates are not necessarily indicative of the
costs and expenses which would have resulted had we incurred these costs as a
stand-alone entity. The actual amounts of expenses we incur in future periods
may vary significantly from these allocations and estimates. We expect to incur
other incremental expenses as a stand-alone company. See "Unaudited Pro Forma
Condensed Consolidated Financial Data."
The Recapitalization and Sierra Acquisition. The recapitalization, which
was consummated on September 29, 1999, was accounted for as a leveraged
recapitalization and had no impact on the historical basis of our assets and
liabilities. The Sierra acquisition was accounted for under the purchase method
of accounting with the purchase price allocated to the assets and liabilities
of Sierra based on an estimate of their fair value, with the remainder
allocated to goodwill. We incurred various costs of approximately $22.6 million
(pre-tax) in connection with consummating the recapitalization. We have
capitalized and are amortizing the portion of these costs that represents
deferred financing costs (approximately $14.4 million) over the life of the
related financing. We have charged a portion of the expenses related to the
recapitalization (approximately $8.2 million) to retained earnings.
Deferred Tax Assets. In conjunction with the recapitalization, our
stockholders made an election under section 338(h)(10) of the Internal Revenue
Code of 1986, as amended. Such election resulted in a step-up in the tax basis
of the underlying assets and a net deferred tax asset of $99.5 million was
recorded in the consolidated financial statements. The tax purchase price
allocation related to the election was not finalized until the second quarter
of 2000, and an adjustment of $4.5 million was recorded in that quarter to
reduce the net deferred tax asset balance and capital in excess of par in
accordance with the final allocation. In addition, we have used the proceeds
from our initial public offering of 16,100,000 shares of our common stock at
the price of $16 per share, to repay outstanding debt and expect to be more
profitable in the future, due to reduced interest costs. We have therefore
reassessed the need for a valuation allowance associated with the deferred
asset balance discussed above and have reduced this valuation allowance by $4.8
million. This reduction in valuation allowance has been recorded as a tax
benefit in the second quarter of 2000. The net deferred tax asset pertaining to
the election under section 338(h)(10) of the Internal Revenue Code as of June
24, 2000 of $100.2 million is expected to be realized over 15 years through
future tax deductions which are expected to reduce future tax payments. It is
possible that the Internal Revenue Service may contend that the reorganization
and liquidating distribution that CRL Acquisition LLC undertook in connection
with the initial public offering should be integrated with our original
recapitalization. If the Internal Revenue Service were successful, the expected
future tax benefits from the election would not be available, and we would be
required to write off the related deferred tax assets by recording a
non-recurring expense in our results of operations in an amount equal to such
deferred tax assets. See note (8) to the consolidated financial statements and
note (4) to the condensed consolidated interim financial statements. We believe
that the reorganization and liquidating distribution should not have any impact
upon the election for federal income tax purposes. However, the Internal
Revenue Service may reach a different conclusion. See "Risk Factors-Tax
benefits we expect to be available in the future may be subject to challenge."
Initial Public Offering. The proceeds of our initial public offering have
been used to repay approximately $196.4 million in outstanding indebtedness in
the third quarter of 2000. In connection with this repayment we have paid
premiums and written off deferred financing costs. We expect to record an
extraordinary loss of approximately $29.2 million, net of tax benefits of $15.7
million, in the third quarter of 2000.
Results of Operations
The following table summarizes historical results of operations as a
percentage of net sales for the periods shown:
24
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<TABLE>
Fiscal Year Ended Six Months Ended
-------------------------------------------------- -----------------------
December 27, December 26, December 25, June 26, June 24,
1997 1998 1999 1999 2000
------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of products sold and services
provided........................... 65.3 63.4 61.4 59.5 58.5
Selling, general and administrative
expenses........................... 17.8 17.7 18.1 18.4 16.9
Amortization of goodwill and other
intangibles........................ 0.5 0.7 0.9 0.7 1.2
Restructuring charges............... 3.5 -- -- -- --
Interest income..................... 0.5 0.5 0.2 0.3 0.2
Interest expense.................... 0.3 0.2 5.8 0.2 18.0
Provision for income taxes.......... 5.0 7.3 7.1 9.3 0.3
Earnings from equity investment..... 0.9 0.8 0.9 1.0 0.5
Minority interests.................. -- -- -- -- 0.5
------------ ------------ ------------ -------- --------
Net income.......................... 9.0% 12.1% 7.8% 13.2% 6.0%
============ ============ ============ ======== ========
</TABLE>
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 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.
25
<PAGE>
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 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 16.9% 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.
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 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 53.6% as compared to 43.1% 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
26
<PAGE>
reassessment of the need for a deferred tax valuation allowance following our
initial public offering of 16,100,000 shares of our common stock subsequent to
the second quarter of 2000.
Interest Expense. Interest expense for the first six months of 2000 was
$25.8 million. The $25.6 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 $8.6 million,
a decrease of $5.7 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.
Fiscal 1999 Compared to Fiscal 1998
Net Sales. Net sales in 1999 were $219.3 million, an increase of $26.0
million, or 13.5%, from $193.3 million in 1998.
Research Models. Net sales of research models in 1999 were $142.3 million,
an increase of $7.7 million, or 5.7%, from $134.6 million in 1998. Sales
increased due to the increase in small animal research model sales in North
America and Europe of $7.1 million, resulting from improved pricing, a more
favorable product mix (meaning a shift to higher priced units) and an increase
in unit volume. We also experienced an increase in the large animal import and
conditioning area of $0.6 million, mainly due to pricing.
Biomedical Products and Services. Net sales of biomedical products and
services in 1999 were $77.0 million, an increase of $18.3 million, or 31.2%,
from $58.7 million in 1998. At the beginning of the second quarter of 1998, we
made two acquisitions that contributed $3.4 million of this sales growth, and
on September 29, 1999, we acquired Sierra which had sales of $5.9 million in
the fourth quarter. The remaining increase was due to significant sales
increases of transgenic and research support services of $2.9 million and
endotoxin detection systems of $2.2 million, and sales from our contract site
management services of $1.8 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 in 1999 was $134.6 million, an increase of $12.1 million, or
9.9%, from $122.5 million in 1998.
Research Models. Cost of products sold and services provided for research
models in 1999 was $86.3 million, an increase of $0.5 million, or 0.6%,
compared to $85.8 million in 1998. Cost of products sold and services provided
in 1999 was 60.6% of net sales compared to 63.7% of net sales in 1998. 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 in 1999 was $48.3 million, an
increase of $11.6 million, or 31.6%, compared to $36.7 million in 1998. Cost of
products sold and services provided as a percentage of net sales was
essentially unchanged at 62.7% in 1999 compared to 62.5% in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1999 were $39.8 million, an increase of $5.7
million, or 16.7%, from $34.1 million in 1998. Selling, general and
administrative expenses in 1999 were 18.1% of net sales compared to 17.7% of
net sales in 1998. Selling, general and administrative expenses also included
research and development expense of $0.5 million in 1999 compared to $1.4
million in 1998.
Research Models. Selling, general and administrative expenses for research
models in 1999 were $22.2 million, an increase of $4.1 million, or 22.7%,
compared to $18.1 million in 1998. Selling, general and
27
<PAGE>
administrative expenses in 1999 were 15.6% of net sales, compared to 13.4% in
1998. The increase was attributable to additional worldwide marketing efforts,
additional salespeople in the United States and the impact of selling efforts
in Europe for ESD, a business acquired at the end of 1998.
Biomedical Products and Services. Selling, general and administrative
expenses for biomedical products and services in 1999 were $12.5 million, an
increase of $2.8 million, or 28.9%, compared to $9.7 million in 1998. Selling,
general and administrative expenses in 1999 decreased to 16.2% of net sales,
compared to 16.5% of net sales in 1998, due to greater economies of scale.
Unallocated Corporate Overhead. Unallocated corporate overhead, which
consists of various corporate expenses, was $5.1 million in 1999, a decrease of
$1.2 million, or 19.0%, compared to $6.3 million in 1998. The decrease was
principally from the increase in cash surrender value associated with our
supplemental executive retirement program.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles in 1999 was $2.0 million, an increase of $0.7 million, or
53.8%, from $1.3 million in 1998. The increase was due to the effect of
additional amortization of intangibles resulting from four recent acquisitions,
two in April 1998, one in December 1998, and Sierra in September 1999.
Restructuring Charges. There were no restructuring charges in 1999 or
1998. During 1999, we charged $1.1 million against the previously recorded
restructuring reserves, bringing the balance at year-end to zero.
Operating Income. Operating income in 1999 was $43.0 million, an increase
of $7.7 million, or 21.8%, from $35.3 million in 1998. Operating income in 1999
was 19.6% of net sales, compared to 18.3% of net sales in 1998. 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 in 1999
was $33.7 million, an increase of $3.2 million, or 10.5%, from $30.5 million in
1998. Operating income from sales of research models in 1999 was 23.7% of net
sales, compared to 22.7% in 1998. The increase was attributable to the factors
described above.
Biomedical Products and Services. Operating income from sales of
biomedical products and services in 1999 was $14.4 million, an increase of $3.3
million, or 29.7%, from $11.1 million in 1998. Operating income from sales of
biomedical products and services in 1999 decreased to 18.7% of net sales,
compared to 18.9% of net sales in 1998. This was primarily due to the
acquisition of Sierra, and the impact of additional amortization of
intangibles.
Other Income. We recorded a $1.4 million gain on the sale of two small
facilities, one located in Florida, and the other located in the Netherlands,
and a charge of $1.3 million for stock compensation expense.
Interest Expense. Interest expense for 1999 was $12.8 million compared to
$0.4 million for 1998. The $12.4 million increase was primarily due to the
additional debt incurred in the recapitalization.
Income Taxes. The effective tax rate of 50.7% in 1999 as compared to 39.5%
in 1998 reflects the remittance of cash dividends of $20.7 million from our
foreign subsidiaries which, in turn, were remitted to B&L. The related amounts
were previously considered permanently reinvested in the foreign jurisdictions
for U.S. income tax reporting purposes. Therefore, we were required to provide
additional taxes upon their repatriation to the United States. In addition, in
1999, an election was made by B&L to treat some foreign entities as branches
for U.S. income tax purposes. As a result, all previously untaxed accumulated
earnings of such entities became immediately subject to tax in the United
States. The receipt of the cash dividends from the foreign subsidiaries and the
foreign tax elections made resulted in incremental United States taxes of $2.0
million, net of foreign tax credits, in 1999.
Net Income. Net income in 1999 was $17.1 million, a decrease of $6.3
million, or 26.9%, from $23.4 million in 1998. The decrease was attributable to
the increased interest expense.
28
<PAGE>
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Net sales in 1998 were $193.3 million, an increase of $22.6
million, or 13.2%, from $170.7 million in 1997.
Research Models. Net sales of research models in 1998 were $134.6 million,
an increase of $9.4 million, or 7.5%, from $125.2 million in 1997. Sales
increased due to the increase in small animal research model sales in North
America of $4.2 million, resulting from improved pricing and a more favorable
product mix. In addition, in 1998 we were not affected by the significant
contaminations which negatively affected sales in 1997. Overall, unit volumes
remained relatively flat, with modest increases in North America offset by
modest declines in Europe. Our net sales in the large animal import and
conditioning area increased by $3.2 million as a result of expansion in our
boarding and service operations.
Biomedical Products and Services. Net sales of biomedical products and
services in 1998 were $58.7 million, an increase of $13.2 million, or 29.0%,
from $45.5 million in 1997. During 1998 we made three acquisitions that
contributed $6.1 million of our sales growth. The remaining increase was due to
increased sales across all of our product lines, and in particular our
transgenic and research support services of $2.2 million and endotoxin
detection systems of $1.9 million.
Cost of Products Sold and Services Provided. Cost of products sold and
services provided in 1998 was $122.5 million, an increase of $11.0 million, or
9.9%, from $111.5 million in 1997.
Research Models. Cost of products sold and services provided for research
models for 1998 was $85.8 million, an increase of $3.3 million, or 4.0%,
compared to $82.5 million in 1997. Cost of products sold and services provided
for 1998 was 63.7% of net sales compared to 65.9% for 1997. Cost of products
sold and services provided increased for 1998 compared to 1997, but at a slower
rate than net sales due principally to better product mix and pricing as well
as greater economies of scale and improved production efficiencies.
Biomedical Products and Services. Cost of products sold and services
provided for biomedical products and services for 1998 was $36.7 million, an
increase of $7.7 million, or 26.6%, compared to $29.0 million in 1997. Cost of
products sold and services provided was 62.5% of net sales in 1998 compared to
63.7% in 1997. Cost of products sold and services provided increased for 1998
compared to 1997, but at a slower rate than net sales due principally to cost
savings.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1998 were $34.1 million, an increase of $3.6
million, or 11.8%, from $30.5 million in 1997. Selling, general and
administrative expenses in 1998 were 17.7% of net sales compared to 17.8% of
net sales in 1997. These expenses increased mainly in line with sales. Selling,
general and administrative expenses also included research and development
expense of $1.4 million in 1998, which was the same amount as in 1997.
Research Models. Selling, general and administrative expenses for research
models for 1998 were $18.1 million, a decrease of $1.5 million, or 7.7%,
compared to $19.6 million, for 1997. Selling, general and administrative
expenses for 1998 decreased to 13.4% of net sales, compared to 15.7% for 1997
due primarily to the significant increase in sales.
Biomedical Products and Services. Selling, general and administrative
expenses for biomedical products and services for 1998 were $9.7 million, an
increase of $2.8 million, or 40.6%, compared to $6.9 million for 1997. Selling,
general and administrative expenses for 1998 were 16.5% of net sales, compared
to 15.2% of net sales for 1997. The increase was principally attributable to
the acquisition of two small companies in April 1998.
Unallocated Corporate Overhead. Unallocated corporate overhead was $6.3
million for 1998, an increase of $2.3 million, or 57.5%, compared to $4.0
million in 1997. The increase was due to an increase in our supplemental
retirement program costs, along with an increase in management bonuses for
1998.
29
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Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles in 1998 was $1.3 million, an increase of $0.5 million, or
62.5%, from $0.8 million in 1998. The increase was due to amortization of
intangibles in connection with two acquisitions in April 1998.
Restructuring Charges. There were no restructuring charges in 1998
compared to $5.9 million in 1997. The 1997 restructuring charges consisted of
the following: plant closings and personnel reductions in our vaccine support
products operations, severance, relocation and refoliation costs in the Florida
Keys and staff reductions and severance costs in Europe and the United States.
During 1998, we charged $1.6 million against the restructuring reserves
previously recorded.
Operating Income. Operating income in 1998 was $35.3 million, an increase
of $13.2 million, or 59.7%, from $22.1 million in 1997. Operating income in
1998 was 18.3% of net sales compared to 12.9% of net sales in 1997.
Research Models. Operating income from research models in 1998 was $30.5
million, an increase of $10.9 million, or 55.6%, from $19.6 million in 1997.
Operating income from sales of research models in 1998 increased to 22.7% of
net sales, compared to 15.7% of net sales in 1997 for the reasons described
above.
Biomedical Products and Services. Operating income from biomedical
products and services in 1998 was $11.1 million, an increase of $4.6 million,
or 70.8%, from $6.5 million in 1997. Operating income increased to 18.9% of net
sales, compared to 14.3% of net sales in 1997 for the reasons described above.
Interest Expense. Interest expense for 1998 was $0.4 million compared to
$0.5 million in 1997.
Income Taxes. The effective tax rate in 1998 was 39.5% compared to 38.2%
in 1997.
Net Income. Net income in 1998 was $23.4 million, an increase of $8.1
million, or 52.9%, from $15.3 million in 1997. The increase was attributable to
the factors referred to above.
Liquidity and Capital Resources
Prior to the recapitalization our principal source of liquidity was cash
flow from operations. Following the consummation of the recapitalization, our
principal sources of liquidity are cash flow from operations and borrowings
under our credit facility.
In September 1999, we received a $92.4 million equity investment from
DLJMB and affiliated funds, management and some other investors, we issued
$37.6 million senior discount debentures with warrants to purchase common stock
and $150.0 million units consisting of senior subordinated notes due in 2009
with warrants to purchase common stock, and borrowed $162.0 million under our
senior secured credit facility. We redeemed 87.5% of our outstanding capital
stock held by B&L for $400.0 million and a $43.0 million subordinated discount
note. We simultaneously acquired Sierra for an initial purchase price of $23.3
million including $17.3 million paid to its former stockholders and $6.0
million of assumed debt which we immediately retired.
Borrowings under the credit facility bear interest at a rate per year
equal to a margin over either a base rate or LIBOR. The $30.0 million revolving
loan commitment will terminate six years after the date of the initial funding
of the credit facility. The revolving credit facility may be increased by up to
$25.0 million at our request, which will only be available to us under some
circumstances, under the same terms and conditions of the original $30.0
million revolving credit facility. The term loan facility under the credit
facility consists of a $40.0 million term loan A facility and a $120.0 million
term loan B facility. The term loan A facility matures six years after the
closing date of the facility and the term loan B facility matures eight years
after the closing date of the facility. The credit facility contains customary
covenants and events of default, including substantial restrictions on our
subsidiary's ability to declare dividends or make distributions. The term loans
are subject to mandatory prepayment with the proceeds of certain asset sales
and a portion of our excess cash flow.
30
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In February 2000, the 13-1/2% senior subordinated notes were exchanged for
registered notes having the same financial terms and covenants as the notes
issued in September 1999. Interest on the notes is payable semi-annually in
cash. The notes contain customary covenants and events of default, including
covenants that limit our ability to incur debt, pay dividends and make
particular investments.
In the third quarter of 2000, we consummated an initial public offering of
16,100,000 shares of our common stock at a price of $16.00 per share. We used
the net proceeds from the offering of approximately $236 million to redeem a
portion of the outstanding senior subordinated notes and to repay our senior
discount debentures, subordinated discount note and a portion of our bank debt.
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. However, Charles River Laboratories International, Inc. is a
holding company with no operations or assets other than its ownership of 100%
of the common stock of its subsidiary, Charles River Laboratories, Inc. We have
no source of liquidity other than dividends from our subsidiary. Its ability to
pay dividends is subject to limitations contained in the indenture governing
the senior subordinated notes and the credit facility.
Six Months Ended June 24, 2000 Compared to Six Months Ended June 26, 1996
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 was impacted by the non-cash accretion of the
senior discount debentures and the subordinated discount note of $6.3 million.
This was partially offset 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, we acquired an additional 16% of the
equity (340,840 common shares) of our 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 million 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. However, we are a holding company with no operations or assets
other than our ownership of 100% of the common stock of our subsidiary, Charles
River Laboratories, Inc. We have no source of liquidity other than dividends
from our subsidiary. Its ability to pay dividends is subject to limitations
contained in the indenture governing the senior subordinated notes and the
credit facility.
Fiscal 1999 Compared to Fiscal 1998
Cash flow from operating activities in 1999 was $37.6 million compared to
$37.4 million in 1998. Net cash used in investing activities in 1999 was $34.2
million compared to $23.0 million in 1998. The increase was primarily due to
the acquisition of Sierra for $23.3 million. Capital expenditures in 1999 were
$13.0 million versus $11.9 million in 1998.
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Net cash used in financing activities in 1999 was $11.5 million versus
$8.0 million in 1998. The activity in 1999 consisted of payments for deferred
financing costs of $14.4 million and transactions costs of $8.2 million
associated with the recapitalization. We also dividended $29.4 million to B&L,
which was excess cash at the time of the recapitalization, and the
recapitalization consideration was $400.0 million. The above was offset by the
proceeds from the issuance of long-term debt of $339.0 million, the issuance of
warrants of $10.6 million, and the issuance of common stock of $92.4 million.
Fiscal 1998 Compared to Fiscal 1997
Cash flow from operating activities in 1998 was $37.4 million compared to
$24.3 million in 1997, due to an increase in net income and a decrease in
working capital.
Net cash used in investing activities in 1998 was $23.0 million compared
to $12.9 million in 1997. The increase in 1998 was primarily due to the
acquisitions previously discussed. Capital expenditures were $11.9 million in
1998, the same as 1997. Cash paid for acquisitions was $11.1 million in 1998,
compared to $1.2 million 1997.
Net cash used in financing activities was $8.0 million in 1998 compared to
$12.9 million in 1997. The decrease is due to the remittance of less cash to
B&L.
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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BUSINESS
CHARLES RIVER LABORATORIES
Charles River Laboratories International, Inc. is a holding company and
does not have any material operations or assets other than its ownership of all
of the capital stock of Charles River Laboratories, Inc.
Overview
We are a leading provider of critical research tools and integrated
support services that enable innovative and efficient drug discovery and
development. We are the global leader in providing the animal research models
required in research and development for new drugs, devices and therapies and
have been in this business for more than 50 years. Since 1992, we have built
upon our research model technologies to develop a broad and growing portfolio
of biomedical products and services. Our wide array of services enables our
customers to reduce costs, increase speed and enhance their productivity and
effectiveness in drug discovery and development. Our customer base, spanning
over 50 countries, includes all of the major pharmaceutical and biotechnology
companies, as well as many leading hospitals and academic institutions. We
currently operate 53 facilities in 15 countries worldwide. Our differentiated
products and services, supported by our global infrastructure and scientific
expertise, enable our customers to meet many of the challenges of early-stage
life sciences research, a large and growing market. In 1999, our pro forma net
sales were $272.6 million, and our pro forma operating income was $49.5
million. For the six months ended June 24, 2000, our pro forma net sales were
$150.8 million, and our pro forma operating income was $35.4 million.
Research Models. We are the global leader in the production and sale of
research models, principally genetically and virally defined purpose-bred rats
and mice. These products represented 65% of our 1999 pro forma net sales and
63% of our pro forma net sales for the six months ended June 24, 2000. We offer
over 130 research models, one of the largest selections of small animal models
of any provider worldwide. Our higher growth models include genetically defined
models and models with compromised immune systems, which are increasingly in
demand as early-stage research tools. The FDA and foreign regulatory bodies
typically require the safety and efficacy of new drug candidates and many
medical devices to be tested on research models like ours prior to testing in
humans. As a result, our research models are an essential part of the drug
discovery and development process. Our research models are produced in a
biosecure environment designed to ensure that the animals are free of viral and
bacterial agents and other contaminants that can disrupt research operations
and distort results. With our biosecure production capabilities and our ability
to deliver consistent, high quality research models worldwide, we are well
positioned to benefit from the rapid growth in research and development
spending by pharmaceutical and biotechnology companies and the NIH.
Biomedical Products and Services. We have focused significant resources on
developing a diverse portfolio of biomedical products and services directed at
high-growth areas of drug discovery and development. Our biomedical products
and services business represented 35% of our 1999 pro forma net sales and 37%
of our pro forma net sales for the six months ended June 24, 2000, and has
experienced strong growth as demonstrated by our 26% compound annual growth
rate in our net sales over the past five fiscal years. We expect the drug
discovery and development markets that we serve will continue to experience
strong growth, particularly as new drug development based on advances in
genetics continues to evolve. There are four areas within this segment of our
business:
Discovery Services. Our discovery services are designed to assist our
customers in screening drug candidates faster by providing
genetically defined research models for in-house research and by
implementing efficacy screening protocols to improve the customer's
drug evaluation process. The market for discovery services is growing
rapidly as pharmaceutical and biotechnology research and development
increasingly focuses on selecting lead drug candidates from the
enormous number of new compounds being generated. We currently offer
four major categories of discovery services: transgenic services,
research support services, infectious disease and genetic testing and
contract site management. Transgenic
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services is our highest growth area and includes model development,
genetic characterizations, embryo cryopreservation, and rederivation
and colony scale-up.
Development Services. We currently offer FDA-compliant development
services in three main areas: drug safety assessment, biotech safety
testing and medical device testing. Biotech safety testing services
include a broad range of services specifically focused on supporting
biotech or protein-based drug development, including such areas as
protein characterization, cell banking, methods development and
release testing. Our rapidly growing development services offerings
enable our customers to outsource their high-end, non-core drug
development activities.
In Vitro Detection Systems. We have diversified our product offerings
to include non-animal, or in vitro, methods for testing the safety of
drugs and devices. We are strategically committed to being the leader
in providing our customers with in vitro alternatives as these
methods become scientifically validated and commercially feasible.
Our current products include endotoxin detection systems that ensure
that injectable drugs and devices are free from harmful contaminants
as well as bioactivity software.
Vaccine Support Products. We provide vaccine manufacturers with
pathogen-free fertilized chicken eggs, a critical ingredient for
poultry vaccine production. We believe there is significant potential
for growth in this area in support of novel human vaccines, such as a
nasal spray flu vaccine currently in development.
Competitive Strengths
Our leading research models business has provided us with steadily growing
revenues and strong cash flow, while our biomedical products and services
business provides significant opportunities for profitable growth. Our products
and services are critical to both traditional pharmaceutical research and the
rapidly growing fields of genomic, recombinant protein and humanized antibody
research. We believe we are well positioned to compete effectively in all of
these sectors as a result of a diverse set of competitive strengths, which
include:
Critical Products and Services. We provide critical, proven and enabling
products and services that our customers rely upon to advance their early-stage
research efforts and accelerate product development. We offer a wide array of
complementary research tools and discovery and development services that
differentiate us from our competition and have created a sustained competitive
advantage in our markets.
Long-Standing Reputation for Scientific Excellence. We have earned our
long-standing reputation for scientific excellence by consistently delivering
high-quality research models supported by exceptional technical service and
support for over 50 years. As a result, the Charles River brand name is
synonymous with premium quality products and services and scientific excellence
in the life sciences. We have nearly 100 science professionals on staff with
D.V.M.s, Ph.D.s and M.D.s, in areas including laboratory animal medicine,
molecular biology, pathology, immunology, toxicology and pharmacology.
Extensive Global Infrastructure and Customer Relationships. Our operations
are globally integrated throughout North America, Europe and Asia. Our
extensive investment in worldwide infrastructure allows us to standardize our
products and services across borders when required by our multinational
customers, while also offering a customized local presence when needed. We
currently operate 53 facilities in 15 countries worldwide, serving a customer
base spanning over 50 countries.
Biosecurity Technology Expertise. In our research models business, our
commitment to and expert knowledge of biosecurity technology distinguishes us
from our competition. We maintain rigorous biosecurity standards in all of our
facilities to maintain the health profile and consistency of our research
models. These qualities are crucial to the integrity and timeliness of our
customers' research.
Platform Acquisition and Internal Development Capabilities. We have a
proven track record of successfully identifying, acquiring and developing small
businesses and new technologies. With this experience, we have
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developed internal expertise in sourcing acquisitions and further developing
new technologies. Historically, our strong operating cash flow has allowed us
to fund these growth initiatives without external financing. Our disciplined
approach to making these acquisitions without extensive capital outlays has
resulted in very attractive rates of return on these investments. We believe
this expertise will continue to differentiate us from our competitors as we
seek to further expand our business.
Experienced and Incentivized Management Team. Our senior management team
has an average of 16 years of experience with our company, and has evidenced a
strong commitment and capability to deliver reliable performance and steady
growth. Our Chairman and Chief Executive Officer, James C. Foster, has been
with us for 24 years. Our management team owns or has options to acquire
securities representing over 5.1% of our equity on a fully diluted basis as of
July 15, 2000.
Our Strategy
Our business strategy is to build upon our core research model business
and to actively invest in higher growth opportunities where our proven
capabilities and strong relationships allow us to achieve and maintain a
leadership position. Our growth strategies include:
Broaden the Scope of Our Discovery and Development Services. Primarily
through acquisitions and alliances, we plan to offer new services that
complement our existing drug discovery and development services. We have
targeted services that support transgenic research activities as a high-growth
area. We intend to provide the additional critical support services needed to
create, define, characterize and scientifically validate new genetic models
expected to arise out of the Human Genome and Mouse Genome Projects. In
addition, we plan to broaden our international presence in genetic services,
specialized pathology and drug efficacy analysis. We also intend to add new
capabilities in the biotech safety testing area.
Acquire New Technologies in Research Models. We intend to acquire novel
technologies in transgenics and cloning to increase sales in our research
models business and related transgenic services operations. We also expect to
offer additional genetically modified models for research of specific disease
conditions. These higher-value research models are often highly specialized and
are priced to reflect their greater intrinsic value. In particular, we intend
to acquire and develop transgenic rat technology, where development has been
slow compared to mice. We believe there is a growing need for genetically
engineered rats, which are larger and more accessible research models than
mice.
Expand Our Preclinical Outsourcing Services. Many of our pharmaceutical
and biotechnology customers outsource a wide variety of research activities
that are not directly associated with their scientific innovation process. We
believe the trend of outsourcing preclinical or early-stage research will
continue to increase rapidly. We are well positioned to exploit both existing
and new outsourcing opportunities, principally through our discovery and
development services offerings. We believe our early successes in the
transgenic services area have increased customer demand for outsourcing and
have created significant opportunities. Our research support services provide
pharmaceutical and biotechnology companies with significant cost and resource
allocation advantages over their existing internal operations. We intend to
focus our marketing efforts on stimulating demand for further outsourcing of
preclinical research. We also intend to expand our opportunities by increasing
our international presence.
Expand Our Non-Animal Technologies. In vitro testing technologies are in
their early stages of development, but we plan to continue to acquire and
introduce new in vitro products and services as they become scientifically
validated and commercially viable. We are particularly focused on acquiring new
technologies that allow for high through-put screening and testing of new drug
candidates in early stages of development, using such materials and techniques
as human cells and tissues and predictive database software.
Pursue Strategic Acquisitions and Alliances. Over the past decade, we have
successfully completed 12 acquisitions and alliances. Several of our operations
began as platform acquisitions, which we were able to grow rapidly by
developing and marketing the acquired products or services to our extensive
global customer base. We
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intend to further pursue strategic platform acquisitions and alliances to drive
our long-term growth. Historically, our strong cash flow has allowed us to fund
these transactions primarily with internal resources. We intend to continue
this strategy in the future, aided by our new ability to issue publicly traded
common stock.
Business Divisions
Our business is divided into two segments, research models and biomedical
products and services.
Research Models
Research models is our historical core business and accounted for 65% of
our 1999 pro forma net sales and 63% of our pro forma net sales for the six
months ended June 24, 2000. The business is comprised of the commercial
production and sale of animal research models, principally purpose-bred rats,
mice and other rodents for use by researchers. We are the commercial leader in
the small animal research model area, supplying rodents for research since
1947. Our research models include:
o outbred animals, which have genetic characteristics of a random
population;
o inbred animals, which have essentially identical genes;
o hybrid animals, which are the offspring of two different inbred
parents;
o spontaneous mutant animals, which contain a naturally occurring
genetic mutation (such as immune deficiency); and
o transgenic animals, which contain genetic material transferred from
another source.
With over 130 research models, we offer one of the largest selections of
small animal models and provide our customers with high volume and high quality
production. Our rats, mice and other rodent species such as guinea pigs and
hamsters have been and continue to be some of the most extensively used
research models in the world, largely as a result of our continuous commitment
to innovation and quality in the breeding process. We provide our small animal
models to numerous customers around the world, including all major
pharmaceutical and biotechnology companies as well as hospitals and academic
institutions.
The use of animal models is critical to both the discovery and development
of a new drug. The FDA requires safe and effective testing on two species of
animal models, one small and one large, before moving into the clinic for
testing on humans. Animal testing is used in order to identify, define,
characterize and assess the safety of new drug candidates. Increasingly,
genetically defined rats and mice are the model of choice in early discovery
and development work as a more specifically targeted research tool. Outbred
rats are frequently used in safety assessment studies. Our models are also used
in life science research within universities, hospitals and other research
institutions. Unlike drug discovery, these uses are generally not specifically
mandated by regulatory agencies such as the FDA, but instead are governed by
the terms of government grants, institutional protocols as well as the
scientific inquiry and peer review publication processes. We also provide
larger animal models, including miniature swine and primates, to the research
community, principally for use in drug development and testing studies.
We believe that over the next several years, many new research models will
be developed and used in biomedical research, such as transgenic models, cloned
models with identical genes, knock-out models with one or more disabled genes
and models that incorporate or exclude a particular mouse, rat or human gene.
These more highly defined and characterized models will allow researchers to
further focus their investigations into disease conditions and potential new
therapies or interventions. We intend to build upon our position as the leader
in transgenic services to expand our presence in this market for higher value
models, through internal development, licensing, partnerships and alliances,
and acquisitions.
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Biomedical Products and Services
Our biomedical products and services business consists of our newer,
higher- growth operations, which we organize as follows:
<TABLE>
Discovery Services Development Services In Vitro Detection Systems Vaccine Support Products
------------------ -------------------- -------------------------- ------------------------
<S> <C> <C> <C>
o Transgenic Services o Drug Safety Assessment o Endotoxin Detection o Animal Health
Systems
o Research Support o Biotech Safety Testing o BioActivity Software o Human Health
Services
o Infectious Disease and o Medical Device Testing
Genetic Testing
o Contract Site
Management
</TABLE>
Discovery Services
Discovery represents the earliest stages of research and development in
the life sciences directed to the identification and selection of a lead
compound for future drug development. Discovery is followed by development
activities, which are directed at validation of the selected drug candidates.
Discovery and development represent most of the preclinical activities in drug
development.
Initiated in 1995, the discovery services area of our business addresses
the growing need among pharmaceutical and biotechnology companies to outsource
the non-core aspects of their drug discovery activities. These discovery
services capitalize on the technologies and relationships developed through our
research model business. We currently offer four major categories of discovery
services: transgenic services, research support services, infectious disease
and genetic testing and contract site management.
Transgenic Services. In this rapidly growing area of our business, we
assist our customers in validating, maintaining, improving, breeding and
testing models purchased or created by them for biomedical research activities.
While the creation of a transgenic, knock-out or cloned model can be a critical
scientific event, it is only the first step in the discovery process.
Productive utilization of research models requires significant additional
technical expertise. We provide transgenic breeding expertise, model
characterization and colony development, genetic characterization, quarantine,
embryo cryopreservation, embryo transfer, rederivation, and health and genetic
monitoring. We provide these services to more than 100 laboratories around the
world from pharmaceutical and biotechnology companies to hospitals and
universities. We maintain nearly 300 different types of research models for our
customers. We expect that the demand for our services will grow as the use of
transgenic, knock-out and cloned animal models continues to grow within the
research community.
Research Support Services. Our research support services provide advanced
or specialized research model studies for our customers. These projects
capitalize on our strong research model capabilities and also exploit more
recently developed capabilities in protocol development, animal micro-surgery,
dosing techniques, drug effectiveness testing and data management and analysis.
We believe these services, particularly in oncology and cardiovascular studies,
offer added value to our research customers, who rely on our extensive
expertise, infrastructure and resources. We also manage under contract a
genetically defined, biosecure herd of miniature swine to provide organs for
human transplantation research, known as xenotransplantation.
Infectious Disease and Genetic Testing. We assist our customers in
monitoring and analyzing the health and genetics of the research models used in
their research protocols. We developed this capability internally by building
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upon the scientific foundation created by the diagnostic laboratory needs of
our research model business. Depending upon a customer's needs, we may serve as
its sole source testing laboratory, or as an alternative source supporting its
internal laboratory capabilities. We believe that the continued growth in
development and utilization of transgenic, knock-out and cloned models will
drive our future growth as the reference laboratory of choice for genetic
testing of special models.
Contract Site Management. Building upon our core capabilities as a leading
provider of high quality research models, we manage animal care operations on
behalf of government, academic, pharmaceutical and biotechnology organizations.
Increasing demand for our services reflects the growing necessity of these
large institutions to outsource internal functions or activities that are not
critical to the core scientific innovation and discovery process. In addition,
we believe that our expertise in managing the laboratory animal environment
enhances the productivity and quality of our customers' research facilities.
This area leads to additional opportunities for us to provide other products
and services to our customers. Site management does not require us to make any
incremental investment, thereby generating a particularly strong return.
Development Services
Our development services enable our customers to outsource their non-core
drug development activities to us. These activities are typically required for
the identification of the lead compound in order to support the regulatory
filings necessary to obtain FDA approval. We currently offer development
services in three main areas: drug safety assessment, biotech safety testing
and medical device testing.
Drug Safety Assessment. We offer drug safety assessment services to
pharmaceutical, medical device and biotechnology companies that are principally
focused on conducting regulatory compliance studies producing data to support
FDA submissions. These studies require highly specialized scientific
capabilities. We have expertise in conducting critical developmental studies on
new drug candidates and medical devices that use research models, including
long- and short-term evaluations of potential new treatments for human or
animal disease conditions. We have unique expertise in several areas of safety
assessment and are continuously evaluating and selecting new services areas to
add to our portfolio. We focus on high-end niches of this market where our
scientific capabilities are strongly valued by our customers.
Biotech Safety Testing. We provide specialized non-clinical quality
control testing that is frequently outsourced by both pharmaceutical and
biotechnology companies. These services allow our customers to determine if the
human protein drug candidates, or the process for manufacturing those products,
are essentially free of residual biological materials. The bulk of this testing
work is required by the FDA for obtaining new drug approval, maintaining an
FDA-licensed manufacturing capability or releasing approved products for use on
patients. Our scientific staff consults with customers in the areas of process
development, validation, manufacturing scale-up and biological testing. As more
biotechnology drug candidates with stronger potential enter and exit the
development pipeline, we expect to continue to experience strong demand for
these testing services.
Medical Device Testing. The FDA requires companies introducing medical
devices to test the biocompatibility of any new materials that have not
previously been approved for contact with human tissue. We provide a wide
variety of medical device testing services from prototype feasibility testing
to long-term GLP, or good laboratory practices, studies, primarily in large
research models. These services include cardiovascular surgery, biomaterial
reactivity studies, orthopedic studies and related laboratory services. We
maintain state-of-the-art surgical suites where our skilled professional staff
implement custom surgery protocols provided by our customers.
In Vitro Detection Systems
While we do not foresee significant replacement of animal models from the
use of in vitro techniques, we believe that these techniques may offer a strong
refinement or complement to animal test systems after the extended period of
scientific validation is successfully completed. We intend to pursue this area
to the extent alternatives become commercially viable.
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Endotoxin Detection Systems. We are a market leader in endotoxin testing,
which is used to test quality control samples of injectable drugs and devices,
their components and the processes under which they are manufactured, for the
presence of endotoxins. Endotoxins are fever producing pathogens or compounds
that are highly toxic to humans when sufficient quantities are introduced into
the body. Quality control testing for endotoxin contamination by our customers
is an FDA requirement for injectable drugs and devices, and the manufacture of
the test kits and reagents is regulated by the FDA as a medical device.
Endotoxin testing uses a processed extract from the blood of the horseshoe
crab, known as limulus amebocyte lysate, or LAL. The LAL test is the first and
only major FDA-validated in vitro alternative to an animal model test for
testing the safety and efficiency of new drug candidates. The process of
extracting blood is not harmful to the crabs, which are subsequently returned
to their natural ocean environment. We produce and distribute test kits,
reagents, software, accessories, instruments and associated services to
pharmaceutical and biotechnology companies for medical devices and other
products worldwide. We have filed for a patent relating to our next generation
of endotoxin testing technology.
BioActivity Software. In the life sciences, we have an exclusive strategic
alliance with Multicase, Inc. under which we offer their unique database
software program. This program allows researchers to evaluate the potential
toxicity and pharmacological activity of new chemical compounds. This program
uses a proprietary artificial intelligence capability and nearly twenty years
of data collected from public sources including the FDA. This in silico, or
software, alternative to the use of research animals is in the early stages of
commercialization. We expect that bioactivity software that allows researchers
to more accurately predict defined outcomes for potential new drug candidates
will complement rather than replace the use of research models. We plan to
evaluate adding other software tools through licensing and partnerships that
allow researchers to improve the efficiency and effectiveness of drug discovery
and development.
Vaccine Support Products
Animal Health. We are the global leader for the supply of specific
pathogen-free, or SPF, chickens and fertile chicken eggs. SPF chicken embryos
are used by animal health companies as self-contained "bioreactors" for the
manufacturing of live and killed viruses. These viruses are used as a raw
material in poultry and potential human vaccine applications. The production of
SPF eggs is done under biosecure conditions, similar to our research model
production. We have a worldwide presence that includes several SPF egg
production facilities in the United States, as well as facilities in Germany
and in Australia. We have a joint venture in Mexico and a franchise in India.
We also operate a specialized avian laboratory in the United States, which
provides in-house testing and support services to our customers.
Human Health. We are also applying our SPF egg technology to human vaccine
markets. We have entered into an agreement with a company that is in the late
stages of the FDA approval process for a nasal spray-delivered vaccine for
human flu. If FDA-approved and commercially successful, this human flu vaccine
may significantly increase demand for our SPF eggs.
Customers
Our customers consist primarily of large pharmaceutical companies,
including the ten largest pharmaceutical companies based on 1999 revenues, as
well as biotechnology, animal health, medical device and diagnostic companies
and hospitals, academic institutions and government agencies. We have many
long-term, stable relationships with our customers as evidenced by the fact
that all of our top 20 customers in 1990 remain our customers today.
During 1999, in both our research models and our biomedical products and
services businesses, approximately two-thirds of our sales were to
pharmaceutical and biotechnology companies, and the balance were to hospitals,
universities and the government. Our top 20 global customers represent only
about 26% of our 1999 pro forma net sales, and approximately 29% of our pro
forma net sales for the six months ended June 24, 2000, with no individual
customer accounting for more than 3% of net sales in either period.
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Sales, Marketing and Customer Support
We sell our products and services principally through our direct sales
force. As of June 24, 2000, we had approximately 51 employees engaged in field
sales, of which 30 were in the United States, 12 were in Europe and 9 were with
Charles River Japan. The direct sales force is supplemented by a network of
international distributors for some areas of our biomedical products and
services business.
Our internal marketing groups support the field sales staff while
developing and implementing programs to create close working relationships with
customers in the biomedical research industry. Our web site, www.criver.com, is
an effective marketing tool, and has become recognized as a valuable resource
in the laboratory animal field by a broad spectrum of industry leaders,
recording over 400,000 hits each month. Our website is not incorporated by
reference in this prospectus.
We maintain both a customer service and technical assistance departments,
which services our customers' routine and more specialized needs. We frequently
assist our customers in solving problems related to animal husbandry, health
and genetics, biosecurity, protocol development and other areas in which our
expertise is recognized as a valuable customer resource.
Research and Development
We do not maintain a fully dedicated research and development staff.
Rather, this work is done on an individual project basis or through
collaborations with universities or other institutions. Our dedicated research
and development spending was $1.4 million in 1997, $1.4 million in 1998 and
$0.5 million in 1999 and $0.3 million for the six months ended June 24, 2000.
Our approach to developing new products or services is to extend our base
technologies into new applications and fields, and to license or acquire
technologies to serve as a platform for the development of new businesses that
service our existing customer base. Our research and development focus is
principally on developing projects that improve our productivity or processes.
Industry Support and Animal Welfare
Among the shared values of our employees is a concern for and commitment
to animal welfare. We have been in the forefront of animal welfare improvements
in our industry, and continue to demonstrate our commitment with special
recognition programs for employees who demonstrate an extraordinary commitment
in this critical area of our business.
We support a wide variety of organizations and individuals working to
further animal welfare as well as the interests of the biomedical research
community. We fund internships in laboratory animal medicine, provide financial
support to non-profit institutions that educate the public about the benefits
of animal research, and provide awards and prizes to outstanding leaders in the
laboratory animal medicine field. One of our businesses dedicates a portion of
its net sales, through a royalty, to support similar programs and initiatives.
Employees
As of June 24, 2000, we had approximately 2,400 employees, including
nearly 100 science professionals with advanced degrees including D.V.M.s,
Ph.D.s and M.D.s. Our employees are not unionized in the United States, though
we are unionized in some European locales, consistent with local custom for our
industry. We believe that we have a good relationship with our employees.
Competition
Our strategy is to be the leader in each of the markets in which we
participate. Our competitors are generally different in each of our business
and geographic areas.
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In our research models business division, our main competitors include
three smaller competitors in North America, several smaller ones in Europe, and
two smaller ones in Japan. Of our main United States competitors, two are
privately held businesses and the third is a government-financed, non-profit
institution. We believe that none of our competitors for research models has
our comparable global reach, financial strength, breadth of product and
services offerings and pharmaceutical and biotechnology industry relationships.
We have many competitors in our biomedical products and services business
division. A few of our competitors in our biomedical products and services
business are larger than we are and may have greater capital, technical or
other resources than we do; however, many are smaller and more regionalized. We
have a small relative share in the biotech safety testing market, where the
market leader is a well-established company, and in medical device testing,
where there are many larger competitors.
We generally compete on the basis of quality, reputation, and
availability, which is supported by our international presence with
strategically located facilities.
Environmental Matters; Legal Proceedings
Our operations and properties are subject to extensive foreign and
federal, state and local environmental protection and health and safety laws
and regulations. These laws and regulations govern, among other things, the
generation, storage, handling, use and transportation of hazardous materials
and the handling and disposal of hazardous and biohazardous waste generated at
our facilities. Under such laws and regulations, we are required to obtain
permits from governmental authorities for some of our operations. If we violate
or fail to comply with these laws, regulations or permits, we could be fined or
otherwise sanctioned by regulators. Under some environmental laws and
regulations, we could also be held responsible for all of the costs relating to
any contamination at our past or present facilities and at third party waste
disposal sites. As a result of disputes with federal, state and local
authorities and private environmental groups regarding damage to mangrove
plants on two islands in the Florida Keys, we agreed to refoliate the islands
at our cost. Although we have not been able to completely replant, principally
due to the presence of a free-range animal population and storms, we believe
that the cost of refoliation will not have a material adverse effect on our
business.
Although we believe that our costs of complying with current and future
environmental laws, and our liabilities arising from past or future releases
of, or exposure to, hazardous substances will not materially adversely affect
our business, results of operations or financial condition, we cannot assure
you that they will not do so.
We are not a party to any other material legal proceedings, other than
ordinary routine litigation incidental to our business that is not otherwise
material to our business or financial condition.
Regulatory Matters
The Animal Welfare Act governs the treatment of particular species
intended for use in research. The AWA imposes a wide variety of specific
regulations on producers and users of these species, most notably cage size,
shipping conditions and environmental enrichment methods. We comply with
licensing and registration requirement standards set by the USDA for handling
regulated species, including breeding, maintenance and transportation. However,
rats, mice and chickens are not currently regulated under the AWA. As a result,
most of our United States small animal research model activities and our
vaccine support services operations are not subject to regulation under the
AWA. The USDA, which enforces the AWA, is presently considering changing the
regulations issued under the AWA, in light of judicial action, to include rats,
mice and chickens within its coverage. Our animal production facilities in the
United States are accredited by a highly regarded member association known as
AAALAC, which maintains standards that often exceed those of the USDA.
Our biomedical products and services business is also generally regulated
by the USDA, and in the case of our endotoxin detection systems, the FDA. Our
manufacture of test kits and reagents for endotoxin testing is subject to
regulation by the FDA under the authority of the Federal Food, Drug, and
Cosmetic Act. We are required to register
41
<PAGE>
with the FDA as a device manufacturer and are subject to inspection on a
routine basis for compliance with the FDA's Quality System Regulations and Good
Manufacturing Practices. These regulations require that we manufacture our
products and maintain our documents in a prescribed manner with respect to
manufacturing, testing and control activities. Last year, we received a
"warning letter" from the FDA for quality control deficiencies with regard to
our Charleston, South Carolina facility. We believe we have taken all of the
necessary steps to meet the FDA's requirements.
Properties
The following charts provide summary information on our properties. The
first chart lists the sites we own, and the second chart the sites we lease.
Most of our material leases expire from 2000 to 2005.
Sites--Owned
<TABLE>
Country No. of Sites Total Square Feet Principal Functions
-------------------------- ------------ ----------------- ------------------------------
<S> <C> <C> <C>
Belgium................... 1 16,140 Office, Production
Canada.................... 1 64,929 Office, Production, Laboratory
China..................... 1 10,000 Office, Production, Laboratory
France.................... 4 373,214 Office, Production, Laboratory
Germany................... 3 122,314 Office, Production, Laboratory
Italy..................... 1 36,677 Office, Production, Laboratory
Japan..................... 2 88,511 Office, Production, Laboratory
Netherlands............... 1 6,502 Sales Office
United Kingdom............ 2 67,331 Office, Production, Laboratory
United States............. 17 732,980 Office, Production, Laboratory
-- ---------
Total..................... 33 1,518,598
== =========
</TABLE>
Sites--Leased
<TABLE>
Country No. of Sites Total Square Feet Principal Functions
-------------------------- ------------ ----------------- ------------------------------
<S> <C> <C> <C>
Australia................. 1 9,787 Office, Production
Czech Republic............ 1 23,704 Office, Production, Laboratory
Hungary................... 1 4,681 Office, Production, Laboratory
Japan..................... 2 23,552 Office, Production, Laboratory
Spain..................... 1 3,228 Sales Office
Sweden.................... 1 8,070 Sales Office
United States............. 14 270,695 Office, Production, Laboratory
-- ---------
Total..................... 21 343,717
-- ---------
</TABLE>
42
<PAGE>
MANAGEMENT
The following table sets forth the name, age and position of each of our
executive officers, key members of management, and directors.
<TABLE>
Name Age Position
---- --- --------
<S> <C> <C>
James C. Foster................. 49 Chairman, Chief Executive Officer and President
Thomas F. Ackerman.............. 45 Senior Vice President and Chief Financial Officer
David P. Johst.................. 38 Senior Vice President, Human Resources and Administration
Real H. Renaud.................. 53 Senior Vice President and General Manager, European and North
American Animal Operations
Dennis R. Shaughnessy........... 42 Senior Vice President, Corporate Development, General Counsel and
Secretary
Julia D. Palm................... 52 Vice President and General Manager, Biomedical Products and Services
Robert Cawthorn................. 64 Director
Stephen D. Chubb................ 56 Director
Thompson Dean................... 42 Director
Stephen C. McCluski............. 48 Director
Reid S. Perper.................. 40 Director
Douglas E. Rogers............... 45 Director
Samuel O. Thier................. 63 Director
William Waltrip................. 62 Director
Henry Wendt III................. 66 Director
</TABLE>
James C. Foster joined us in 1976 as General Counsel. Over the past 24
years, Mr. Foster has held various staff and managerial positions, with Mr.
Foster being named our President in 1991, our Chief Executive Officer in 1992
and our Chairman in 2000. Mr. Foster also serves on the Board of Directors of
BioTransplant, Inc. Mr. Foster received a B.A. from Lake Forest College, a M.S.
from the Sloan School of Management at the Massachusetts Institute of
Technology, and a J.D. from Boston University School of Law.
Thomas F. Ackerman joined us in 1988 with over eleven years of combined
public accounting and international finance experience. He was named
Controller, North America in 1992 and became our Vice President and Chief
Financial Officer in 1996. In 1999, he was named a Senior Vice President. He is
currently responsible for overseeing our Accounting and Finance Department, as
well as our Information Technology Group. Prior to joining us, Mr. Ackerman was
an accountant at Arthur Anderson & Co. Mr. Ackerman received a B.S. in
Accounting from the University of Massachusetts and is a certified public
accountant.
David P. Johst joined us in 1991 as Corporate Counsel and was named Vice
President, Human Resources in 1995. He became Vice President, Human Resources
Administration in 1996, and a Senior Vice President in 1999. He is responsible
for overseeing our Human Resources Department, as well as several other
corporate staff departments. He also serves as our counsel on labor relations
matters. Prior to joining us, Mr. Johst was a corporate associate at Boston's
Hale and Dorr. Mr. Johst is a graduate of Dartmouth College, holds an M.B.A.
from Northeastern University and received his J.D. from Harvard University Law
School.
Real H. Renaud joined us in 1964 and has 35 years of small animal
production and related management experience. In 1986, Mr. Renaud became our
Vice President of Production, with responsibility for overseeing our North
American small animal operations, and was named Vice President, Worldwide
Production in 1990. Mr. Renaud became Vice President and General Manager,
European and North American Animal Operations in 1996, following a two-year
European assignment during which he provided direct oversight to our European
operations. In 1999 he became a Senior Vice President. Mr. Renaud attended
Columbia University's executive education program, and has also studied at the
Lyon Veterinary School and the Montreal Business School.
43
<PAGE>
Dennis R. Shaughnessy joined us in 1988 as Corporate Counsel and was named
Vice President, Business Affairs in 1991. He became Vice President, Corporate
Development and General Counsel in 1994 and is responsible for overseeing our
business development initiatives on a worldwide basis, as well as handling our
overall legal affairs. He became a Senior Vice President in 1999. Mr.
Shaughnessy also serves as our Corporate Secretary. Prior to joining us, Mr.
Shaughnessy was a corporate associate at Boston's Testa, Hurwitz & Thibeault
and previously served in government policy positions. Mr. Shaughnessy has a
B.A. from The Pennsylvania State University, an M.S. from The University of
Michigan, an M.B.A. from Northeastern University, and a J.D. from The
University of Maryland School of Law.
Julia D. Palm joined us in 1995 with nearly 20 years of management and
marketing experience in the medical device and biotechnology industries. Prior
to joining us, she held various marketing positions with Becton Dickinson,
National Medical Care and W.R. Grace, and served as President of W.R. Grace's
Amicon Division immediately prior to joining us. Ms. Palm has responsibility
for overseeing a portfolio of most of our biomedical products and services
companies on a worldwide basis. Ms. Palm holds a B.A. in Biology from Denison
University, and an M.B.A. from Fairleigh Dickinson University.
Robert Cawthorn is an independent consultant to Global Health Care
Partners, a group at DLJ Merchant Banking, Inc., having been a Managing
Director from 1997 to 1999. Mr. Cawthorn was Chief Executive Officer and
Chairman of Rhone-Poulenc Rorer Inc. until May 1996. Further, he previously
served as an executive officer of Pfizer International and was the first
President of Biogen Inc. Mr. Cawthorn serves as Chairman of Actelion
Pharmaceuticals Ltd., NextPharma Technologies S.A. and Pure Energy Corporation
and also serves as a director of HO Technologies.
Stephen D. Chubb has been Chairman, Director and Chief Executive Officer
of Matritech, Inc. since its inception in 1987. Previously, Mr. Chubb served as
President and Chief Executive Officer of T Cell Sciences, Inc. and as President
and Chief Executive Officer of Cytogen Company. Mr. Chubb serves as a director
of i-Stat Corporation and CompuCyte Corp.
Thompson Dean has been a Managing Partner of DLJ Merchant Banking, Inc.
since November 1996. Previously, Mr. Dean was a Managing Director of DLJ
Merchant Banking, Inc. and its predecessor since January 1992. Mr. Dean serves
as a director of Von Hoffmann Press, Inc., Manufacturer's Services Limited,
Phase Metrics, Inc., AKI Holdings Corp., Amatek Ltd., DeCrane Aircraft Holdings
Inc., Insilco Holding Corporation, Formica Corporation and Mueller Group, Inc.
Stephen C. McCluski has been Senior Vice President and Chief Financial
Officer of Bausch & Lomb Incorporated, our former parent, since 1995.
Previously, Mr. McCluski served as Vice President and Controller of Bausch &
Lomb Incorporated and President of Outlook Eyewear Company.
Reid S. Perper has been a Managing Director of DLJ Merchant Banking, Inc.
since January 2000. Mr. Perper was a Principal of DLJ Merchant Banking, Inc.
from 1996 to January 2000 and a Vice President from 1993 to 1996. Mr. Perper
was formerly a director of IVAC Holdings, Inc. and Fiberite Holdings, Inc.
Douglas E. Rogers has been a Managing Director of Global Health Care
Partners since 1996. Previously, Mr. Rogers was a Vice President at Kidder
Peabody & Co., Senior Vice President at Lehman Brothers, and head of U.S.
Investment Banking at Baring Brothers. Mr. Rogers serves as a director of
Computerized Medical Systems, Inc. and Wilson Greatbatch Ltd.
Samuel O. Thier has been Chief Executive Officer of Partners HealthCare
System, Inc. since July 1996 and President of Partners HealthCare System since
1994. Previously, he served as President of the Massachusetts General Hospital
from 1994 through 1997. He has served as President of the Institute of Medicine
of the National Academy of Sciences and Chairman of the American Board of
Internal Medicine, and he is a Fellow of the American Academy of Arts and
Sciences. He is a director of Merck & Co., Inc.
44
<PAGE>
William Waltrip has been director of Bausch & Lomb Incorporated, our
former parent, since 1985, and Chairman of the Board of Directors of Technology
Solutions Company since 1993. He is also a director of Teachers Insurance and
Annuity Association, Thomas & Betts Corporation and Technology Solutions
Company. Previously, Mr. Waltrip served as Chairman and Chief Executive Officer
of Bausch & Lomb Incorporated, as Chief Executive Officer of Technology
Solutions Company, as Chairman and Chief Executive Officer of Biggers Brothers,
Inc., and as Chief Operating Officer of IU International Corporation. He was
also previously President and Chief Executive Officer and a director of
Purolator Courier Corporation.
Henry Wendt III has been the Chairman of Global Health Care Partners since
1996. Previously, Mr. Wendt was Chairman of SmithKline Beecham Corporation and
President and Chief Executive Officer of SmithKline Beckman Corp. prior to its
merger with Beecham and served as founder and First Chairman of Pharmaceutical
Partners for Better Health Care. Mr. Wendt serves as a director of Allergan,
Inc., Atlantic Richfield Company, Computerized Medical Systems, The Egypt
Investment Company, West Marine Products and Wilson Greatbatch Ltd.
Each of our directors serves until the next annual meeting of stockholders
and until a successor is duly elected and qualified or until his earlier death,
resignation or removal. All members of our board of directors, other than Mr.
Thier, were elected at the time of the recapitalization pursuant to the
investors' agreement that was entered into in connection with that transaction.
See "Relationships and Transactions with Related Parties--Investors'
Agreement." Mr. Thier was elected as a director in April 2000. There are no
family relationships between any of our directors or executive officers. Our
executive officers are elected by, and serve at the discretion of, the board of
directors.
Committees of the Board of Directors
Our board of directors has an audit committee and a compensation
committee. The board may also establish other committees to assist in the
discharge of its responsibilities.
The audit committee makes recommendations to the board of directors
regarding the independent accountants to be nominated for election by the
stockholders and reviews the independence of such accountants, approves the
scope of the annual audit activities of the independent accountants, approves
the audit fee payable to the independent accountants and reviews such audit
results with the independent accountants. The audit committee is currently
comprised of Messrs. Chubb, Thier and Waltrip. PricewaterhouseCoopers LLP
presently serves as our independent accountants.
The duties of the compensation committee are to provide a general review
of our compensation and benefit plans to ensure that they meet corporate
objectives. In addition, the compensation committee reviews the chief executive
officer's recommendations on compensation of all of our officers and adopting
and changing major compensation policies and practices, and reports its
recommendations to the entire board of directors for approval and
authorization. The compensation committee also administers our stock plans. The
compensation committee is currently comprised of Messrs. Cawthorn, Dean,
Waltrip and Wendt.
45
<PAGE>
Executive Compensation
The following table sets forth information concerning the compensation for
the years ended December 25, 1999 and December 26, 1998 for our chief executive
officer and our four other most highly compensated executive officers at the
end of our last fiscal year. We collectively refer to these executive officers
throughout this section as our named executive officers.
Summary Compensation Table
<TABLE>
Long-Term Compensation
------------------------
Awards
Annual Compensation Other Annual Restricted Securities All Other
------------------------------- Compensation Stock Underlying Compensation
Name and Principal Position Year Salary Bonus (1) Award(s) Options (2)
--------------------------- ---- -------- ----------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
James C. Foster 1999 $324,727 $790,001 $355,357 -- 558,824 $135,200
Chairman, Chief Executive
Officer, President and
Director................... 1998 308,700 230,705 (3) 33,717 4,500 19,000 171,268
Real H. Renaud 1999 224,475 236,391 100,647 -- 163,793 42,252
Senior Vice President and
General Manager, European
and North American Animal
Operations................. 1998 212,000 99,814 21,559 -- 4,200 43,275
Dennis R. Shaughnessy 1999 176,239 290,542 323,616 (4) -- 134,642 61,057
Senior Vice President,
Corporate Development,
General Counsel and
Secretary.................. 1998 167,800 79,898 21,968 -- 4,200 60,088
David P. Johst 1999 154,209 238,767 84,569 -- 125,254 60,003
Senior Vice President,
Human Resources and
Administration............. 1998 146,800 69,911 11,689 -- 4,200 58,182
Thomas F. Ackerman 1999 141,021 245,954 92,574 -- 125,254 38,200
Senior Vice President and
Chief Financial Officer.... 1998 135,000 64,378 10,670 -- 3,600 38,200
</TABLE>
-------------------
(1) Amounts in this column for 1999 include contractual payments made by B&L
to the named executive officers in lieu of accelerating their unvested B&L
options upon the closing of the recapitalization.
(2) Includes employer contribution under our Executive Supplemental Life
Insurance Retirement Plan (Mr. Foster (1999: $132,000, 1998: $168,068);
Mr. Renaud (1999: $39,052, 1998: $40,075); Mr. Shaughnessy (1999: $57,857,
1998: $57,956); Mr. Johst (1999: $56,803, 1998: $54,982); Mr. Ackerman
(1999: $35,000, 1998: $35,000)) and Employee Savings Plan (Mr. Foster
(1999: $3,200, 1998: $3,200); Mr. Renaud (1999: $3,200, 1998: $3,200); Mr.
Shaughnessy (1999: $3,200, 1998: $2,132), Mr. Johst (1999: $3,200, 1998:
$3,200); Mr. Ackerman (1999: $3,200, 1998: $3,200)).
(3) Includes $12,000 paid under B&L's Long Term Incentive Plan during 1998.
(4) Also includes a lump-sum payment of $253,000 made in return for
relinquishment of right to participate in our Executive Supplemental Life
Insurance Retirement Plan.
Stock Options
The following table presents material information regarding options to
acquire shares of our common stock granted to our named executive officers in
1999. No options to acquire shares of B&L's common stock were granted to our
executive officers in fiscal 1999.
46
<PAGE>
Option Grants in Fiscal 1999
<TABLE>
Individual Grants(1)
-------------------------------------------------------------
Percent of Potential Realizable Value at
Number of Total Assumed Annual Rates of Stock
Securities Options Exercise Price Appreciation for
Underlying Granted to of Base Option Term (2)
Options Employees in Price Expiration -----------------------------
Granted(#) Fiscal Year (%) ($/Sh) Date 5%($) 10%($)
---------- --------------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
James C. Foster......... 558,824 32.4% 5.33 9/29/2009 $1,871,892 $4,744,400
Real H. Renaud.......... 163,793 9.5 5.33 9/29/2009 548,658 1,421,200
Dennis R. Shaughnessy... 134,642 7.8 5.33 9/29/2009 451,010 1,168,260
David P. Johst.......... 125,254 7.3 5.33 9/29/2009 419,562 1,086,800
Thomas F. Ackerman...... 125,254 7.3 5.33 9/29/2009 419,562 1,086,800
</TABLE>
-------------------
(1) The options granted vest either over time, on the occurrence of specified
events or the achievement of specified performance goals.
(2) The value actually realized by an optionee may not be at or near the
amount estimated using this model. These amounts rely on assumed future
stock price movements which management believes cannot be predicted with a
reliable degree of accuracy. We based these amounts on the assumption that
the option holders hold the options granted for their full term.
The following table provides material information related to the number
and value of options to acquire common stock of B&L exercised during 1999 by
the named executive officers and the value of options to acquire common stock
of B&L and our common stock at the end of fiscal 1999. On December 23, 1999,
the closing sale price of B&L common stock on NYSE was $66.25.
Aggregated Option Exercises in Fiscal 1999 and Fiscal Year-End Option Values
<TABLE>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options at
at Fiscal Year-End(#) Year End($)(2)
Shares Acquired Value Realized --------------------------- ----------------------------
Name Company on Exercise (#) ($) (1) Exercisable Unexercisable Exercisable Unexercisable
---- ------- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
James C. Foster......... CRL -- -- -- 558,824 -- --
B&L 100,054 $2,154,389 -- -- -- --
Real H. Renaud.......... CRL -- -- -- 163,793 -- --
B&L 23,509 424,032 -- -- -- --
Dennis R. Shaughnessy... CRL -- -- -- 134,642 -- --
B&L 5,951 122,617 -- -- -- --
David P. Johst.......... CRL -- -- -- 125,254 -- --
B&L 11,921 328,913 -- -- -- --
Thomas F. Ackerman...... CRL -- -- -- 125,254 -- --
B&L 8,164 172,226 -- -- -- --
</TABLE>
-------------------
(1) Value realized represents the difference between the exercise price of the
option shares and the market price of the option shares on the date the
option was exercised. We determined the value realized without
consideration for any issues or brokerage expenses which may have been
owed.
47
<PAGE>
(2) There was no public trading market for our common stock as of December 25,
1999.
Employee Agreements and Compensation Arrangements
We do not currently have employment agreements with any of our named
executive officers.
Director Compensation
Directors who are not our employees or who are not otherwise affiliated
with us or our principal stockholders receive $10,000 per year and $1,000 per
board meeting, plus travel expenses.
Severance Plans
In January 1999, Charles River Laboratories, Inc. adopted the 1999 Charles
River Laboratories Officer Separation Plan. This plan provides for severance
payments to vice presidents and more senior officers who are terminated for
reasons other than cause, voluntary resignation, disability, early or normal
retirement or death and who have not been offered comparable positions within
Charles River Laboratories, Inc. A participant under the plan is entitled to a
severance payment equal to one year of the officer's base pay plus the accrued
vacation pay payable to the officer as of the separation date. Each of the
named executive officers other than Mr. Renaud is a participant under the plan.
In January 1992, Mr. Renaud entered into an agreement with Charles River
Laboratories, Inc. providing for a severance payment equal to one year of his
base pay if he is terminated for any reason other than for cause, and up to one
additional year of base pay until he finds non-competing employment. The plan
and the 1992 agreement with Mr. Renaud each prohibit the participant from
competing with Charles River Laboratories, Inc. for one year after termination
of the participant's employment.
On July 25, 1999, Charles River Laboratories, Inc. entered into an
agreement with each of the named executive officers providing for a severance
payment to any covered officer terminated by Charles River Laboratories, Inc.
prior to September 29, 2000 for any reason other than cause. Under these
agreements, Mr. Foster is entitled to a severance payment equal to two and
one-half times his base salary and each of Messrs. Ackerman, Johst and
Shaughnessy is entitled to a severance payment equal to two times his base
salary.
Stock Plans
Our 1999 management incentive plan provides for the grant of stock options
to our employees, directors, officers and consultants. There are 1,784,384
shares of common stock reserved for awards under the plan. As of July 15, 2000,
options to purchase 1,726,328 shares were outstanding under the plan.
Our 2000 incentive plan provides for the grant of incentive and
nonstatutory stock options, stock appreciation rights, restricted or
unrestricted common stock, promises to deliver stock or other securities in the
future, awards of cash or stock earned by attaining performance criteria, cash
bonuses and cash bonuses or loans to help defray the costs of the foregoing
awards. There are 1,189,000 shares of common stock reserved under the plan. As
of July 15, 2000, options to purchase 447,400 shares were outstanding under the
plan.
Our 2000 directors stock plan provides for the grant of both automatic and
discretionary nonstatutory stock options to our non-employee directors.
Pursuant to the plan, each independent director will be automatically granted
an option to purchase 20,000 shares of our common stock on the date he or she
is first elected or named a director. On the day of each annual meeting of
stockholders, each independent director who served during the prior year will
be awarded an option to purchase 4,000 shares of our common stock (pro-rated if
the director did not serve for the entire preceding year). There are 100,000
shares of common stock reserved under this plan. As of July 15, 2000, options
to purchase 60,000 shares were outstanding under the plan.
48
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows information regarding the beneficial ownership
of our common stock as of July 15, 2000 for:
o each person or group of affiliated persons known by us to own
beneficially more than 5% of the outstanding shares of common stock;
o each director and named executive officer; and
o all directors and executive officers as a group.
We have determined beneficial ownership in the table in accordance with
the rules of the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, we have deemed shares of common stock subject to options or warrants
held by that person that are currently exercisable or will become exercisable
within 60 days of July 15, 2000, to be outstanding, but we have not deemed
these shares to be outstanding for computing the percentage ownership of any
other person. To our knowledge, except as set forth in the footnotes below,
each stockholder identified in the table possesses sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
that stockholder. Beneficial ownership percentage is based on 35,920,369 shares
of our common stock outstanding after completion of the initial public
offering.
The address for each listed director and officer is c/o Charles River
Laboratories International, Inc., 251 Ballardvale Street, Wilmington, MA 01887.
<TABLE>
Number of Shares Percentage of Shares
Name of Beneficial Owner Beneficially Owned Outstanding
------------------------ ------------------ --------------------
<S> <C> <C> <C>
DLJ Merchant Banking Partners II, L.P. and related investors(1).... 16,277,391 (2) 45.3%
Bausch & Lomb Incorporated(3)...................................... 2,477,547 6.9
James C. Foster.................................................... 395,262 1.1
Real H. Renaud..................................................... 94,859 *
Dennis R. Shaughnessy.............................................. 86,975 *
David P. Johst..................................................... 97,685 *
Thomas F. Ackerman................................................. 80,481 *
Robert Cawthorn(4)................................................. -- --
Stephen D. Chubb................................................... 16,895 --
Thompson Dean(4)................................................... -- --
Stephen C. McCluski(3)............................................. 2,477,547 6.9
Reid S. Perper(4).................................................. -- --
Douglas E. Rogers(4)............................................... -- --
Samuel O. Thier.................................................... 13,000 *
William Waltrip.................................................... 16,895 *
Henry Wendt III(4)................................................. -- --
Officers and directors as a group.................................. 3,279,599 9.1
</TABLE>
-------------------
* Less than 1%
(1) Consists of shares held directly or indirectly by the DLJMB Funds and the
following related investors: DLJ Merchant Banking Partners II-A, L.P.; DLJ
Investment Partners, L.P.; DLJ Offshore Partners II, C.V.; DLJ Capital
Corp.; DLJ Diversified Partners, L.P.; DLJ Diversified Partners-A, L.P.;
DLJ Millennium Partners, L.P.; DLJ Millennium Partners-A, L.P.; DLJMB
Funding II, Inc.; DLJ First ESC L.P.; DLJ EAB Partners, L.P.; DLJ ESC II,
L.P., DLJ Investment Funding, Inc., Sprout Capital VIII, L.P. and Sprout
Venture Capital, L.P. See "Relationships and Transactions with Related
Parties." The address of each of these investors is 277 Park
49
<PAGE>
Avenue, New York, New York 10172, except the address of Offshore Partners
is John B. Gorsiraweg 14, Willemstad, Curacao, Netherlands Antilles.
(2) Includes 1,685,050 shares underlying currently exercisable warrants.
(3) Represents shares beneficially owned by B&L through a wholly owned
subsidiary. Mr. McCluski is Senior Vice President and Chief Financial
Officer of Bausch & Lomb Incorporated.
(4) Messrs. Cawthorn, Dean, Perper, Rogers and Wendt are officers of DLJ
Merchant Banking, Inc., an affiliate of the DLJMB Funds. Shares shown for
Messrs. Cawthorn, Dean, Perper, Rogers and Wendt exclude shares shown as
held by the DLJMB Funds, as to which they disclaim beneficial ownership.
The address of each of these investors is 277 Park Avenue, New York, New
York 10172.
50
<PAGE>
RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES
Financial Advisory Fees and Agreements
Donaldson, Lufkin & Jenrette Securities Corporation or DLJ Securities
Corporation, an affiliate of the DLJMB Funds, received customary fees and
expense reimbursement for its services as financial advisor for the
recapitalization and as the initial purchaser of the units. DLJ Capital
Funding, an affiliate of the DLJMB Funds, received customary fees and
reimbursement of expenses in connection with the arrangement and syndication of
our credit facility and as a lender under the facility. The aggregate amount of
all fees paid to the DLJ entities in connection with the recapitalization and
the related financing was approximately $13.2 million plus out-of-pocket
expenses. We paid a fee to the lenders under our existing credit facility,
including DLJ Capital Funding, in connection with amendments to that facility
and to DLJ Capital Funding for an irrevocable commitment to provide us with a
new credit facility. The aggregate fees payable to DLJ Capital Funding in
connection with such amendments and commitment were approximately $1.1 million.
DLJ Securities Corporation was a co-managing underwriter in our public offering
and received customary fees of approximately $4.4 million, and DLJdirect, Inc.
was an underwriter and received fees of approximately $0.1 million. We also
paid a premium of approximately $24.5 million to DLJMB and other investors for
early repayment of our senior discount debentures due 2010.
Under the investors' agreement described below, for a period of five years
from the date of the investors' agreement, we have agreed to engage DLJ
Securities Corporation or its affiliates as our exclusive financial and
investment banking advisor. We expect that DLJ Securities Corporation or such
affiliate will receive customary fees for such services rendered and will be
entitled to reimbursement for all reasonable disbursements and out-of-pocket
expenses incurred in connection with any such engagement. We expect that any
such arrangement will include provisions for the indemnification of DLJ
Securities Corporation against some liabilities, including liabilities under
the federal securities laws.
CRL Acquisition LLC
Effective June 21, 2000, our stockholders, including CRL Acquisition LLC,
exchanged each of their shares of common stock for 1.927 newly issued shares of
our common stock. Immediately prior to our initial public offering, CRL
Acquisition LLC distributed a substantial portion of these shares to its
limited liability company unit holders.
Investors' Agreement
Our company, CRL Acquisition LLC, CRL Holdings, Inc. (a subsidiary of
B&L), management and other of our investors are parties to an investors'
agreement entered into in connection with the recapitalization and amended on
June 20, 2000. The investors' agreement provides, among other things, that any
person acquiring shares of our common stock who is required by the investors'
agreement or by any other agreement or plan of our company to become a party to
the investors' agreement will execute an agreement to be bound by the
investors' agreement.
The terms of the investors' agreement restrict transfers of the shares of
our common stock by CRL Holdings Inc., management and some other investors and
some future shareholders. The agreement provides for, among other things:
o the ability of some shareholders to participate in particular sales
of our common stock;
o the ability of DLJMB Funds or CRL Acquisition LLC to require the
other shareholders to sell shares of our common stock held by them in
particular circumstances if the DLJMB Funds or CRL Acquisition LLC
choose to sell shares owned by them;
o some registration rights with respect to shares of our common stock,
including rights to indemnification against some liabilities,
including liabilities under the Securities Act; and
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o pre-emptive rights of all the parties, other than CRL Acquisition LLC
and its permitted transferees, to acquire its pre-emptive portion of
our common stock in particular instances when we propose to issue
common stock.
The investors' agreement also provides that our Board of Directors will
consist of at least nine but no more than twelve members, seven of whom
(including the chairman) will be appointed by DLJ Merchant Banking Partners II,
L.P. for so long as the aggregate number of shares of our common stock held by
the DLJMB Funds is at least 10% of the initial aggregate number of shares
purchased by the DLJMB Funds in the recapitalization. The investors' agreement
also provides that B&L CRL, Inc. has the right to appoint one director and that
the chief executive officer appointed by the board will serve as a director.
Transactions with Officers and Directors
In connection with the recapitalization, some of our officers purchased
units of CRL Acquisition LLC, some of whom also borrowed funds up to a maximum
aggregate amount of $1.3 million from DLJ Inc. secured by their units. James C.
Foster borrowed $300,000 and each of Real H. Renaud, Thomas F. Ackerman and
Dennis R. Shaughnessy borrowed $200,000. Two weeks after the consummation of
the recapitalization, the loans matured and were repaid. Following the
repayment, the officers borrowed the following amounts from us: Mr. Foster
($300,000), Mr. Renaud ($150,000), Mr. Shaughnessy ($175,000) and Mr. Ackerman
($175,000). The loans mature in ten years and interest accrues at 6.75%, the
applicable federal rate. Each loan is fully recourse to the officer. Any
after-tax proceeds from the sale of these shares and options by each officer
will be used to repay his loan until it is repaid in full. Each note
accelerates upon the termination of the borrower's employment with us for any
reason.
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HOLDERS OF THE WARRANTS
The table below sets forth information with respect to the number of
warrants and shares of our common stock owned by each of the holders. We have
registered the warrants and the common stock issuable upon the exercise of the
warrants to permit public secondary trading of the warrants and shares of our
common stock, and the holders may offer the warrants and common stock issued
upon the exercise of the warrants for resale from time to time. See "Plan of
Distribution." The percentage of ownership shown in the table is based on
35,920,369 shares of common stock outstanding on July 15, 2000.
Because the holders may, under this prospectus, offer all or some portion
of the warrants or the common stock issuable upon exercise of the warrants, no
estimate can be given as to the amount of the warrants or the common stock
issuable upon exercise of the warrants that will be held by the holders upon
termination of any such sales. In addition, the holders identified below may
have sold, transferred or otherwise disposed of all or a portion of their
warrants, since the date on which they provided the information regarding their
warrants, in transactions exempt from the registration requirements of the
Securities Act. See "Plan of Distribution."
None of the holders listed below have, or within the past three years had,
any position, office or other material relationship with us or any of our
predecessors or affiliates other than the affiliation of some of our directors,
with some of the holders listed below as disclosed in "Management."
We filed with the SEC a registration statement, of which this prospectus
forms a part, with respect to the resale of the warrants and the issuance and
resale of our common stock issued upon the exercise of the warrants from time
to time, under Rule 415 under the Securities Act, in the over-the-counter
market, in privately-negotiated transactions, in underwritten offerings or by a
combination of such methods of sale. We are obligated to use our best efforts
to keep the registration statement effective until the later of (i) February 8,
2002 and (ii) the earlier of (A) the expiration of the warrants on October 1,
2009 and (B) the first date as of which all warrants have been exercised by
their holders; provided that this obligation shall expire before that date if
we deliver to the warrant agent a written opinion of our counsel that all
holders of warrants and our common stock may resell the warrants and our common
stock without registration under the Securities Act of 1933 and without
restriction as to the manner, timing or volume of any such sale.
The warrants and our common stock issued upon the exercise of the warrants
offered by this prospectus may be offered from time to time by the persons or
entities named below:
<TABLE>
Ownership
Number of Warrants and Underlying Common After Resale
Stock Owned Prior to Resale of Warrants of Warrants
---------------------------------------------- -------------
Percentage of
Number of Common Number of Percentage of
Shares Stock Owned Warrants Shares of
Number of Underlying Prior to Offered by Common
Name and Address of Holders Warrants the Warrants Resale Holder Stock
--------------------------- --------- ------------ ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Atlas Strategic Income Fund c/o
Oppenheimer Funds, Inc. Two World Trade
Center, 34th Floor
New York, NY 10048....................... 100 760 -- 100 --
Ares Leveraged Investment Fund, L.P.
c/o Ares Management, L.P.
1999 Avenue of the Stars,
Suite 1900
Los Angeles, CA 90067.................... 2,500 19,000 -- 2,500 --
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Ownership
Number of Warrants and Underlying Common After Resale
Stock Owned Prior to Resale of Warrants of Warrants
---------------------------------------------- -------------
Percentage of
Number of Common Number of Percentage of
Shares Stock Owned Warrants Shares of
Number of Underlying Prior to Offered by Common
Name and Address of Holders Warrants the Warrants Resale Holder Stock
--------------------------- --------- ------------ ------------- ---------- -------------
Ares Leveraged Investment Fund II, L.P.
c/o Ares Management, L.P.
1999 Avenue of the Stars,
Suite 1900
Los Angeles, CA 90067.................... 5,000 3,800 -- 5,000 --
Columbia/HCA
c/o Caywood Scholl Capital Mgmt.
4350 Executive Drive #125
San Diego, CA 92121...................... 150 1,140 -- 150 --
DeMoss Foundation
c/o Caywood Scholl Capital Mgmt.
4350 Executive Drive #125
San Diego, CA 92121...................... 100 760 -- 100 --
Dresdner RCM Caywood Scholl CBO I, Ltd.
c/o Caywood Scholl Capital Mgmt.
4350 Executive Drive #125
San Diego, CA 92121...................... 2,500 19,000 -- 2,500 --
DLJ ESC II, L.P.
277 Park Avenue
New York, NY 10172....................... 3,455 26,258 45.3%* 3,455 45.3%*
DLJ Investment Funding, Inc.
277 Park Avenue
New York, NY 10172....................... 2,303 17,503 45.3%* 2,303 45.3%*
DLJ Investment Partners, L.P.
277 Park Avenue
New York, NY 10172....................... 24,242 184,239 45.3%* 24,242 45.3%*
Enterprise High Yield Bond Fund
c/o Caywood Scholl Capital Mgmt.
4350 Executive Drive #125
San Diego, CA 92121...................... 350 2,660 -- 350 --
Enterprise Accumulation Trust High Yield
c/o Caywood Scholl Capital Mgmt.
4350 Executive Drive #125
San Diego, CA 92121...................... 250 1,900 -- 250 --
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IL Annuity & Insurance Co.-RGA
c/o Caywood Scholl Capital Mgmt.
4350 Executive Drive # 125
San Diego, CA 92121...................... 150 1,140 -- 150 --
JHW Cash Flow Fund I, L.P.
c/o Kerri Cagnassola1
77 Broad Street
Stamford, CT 06901....................... 5,000 38,000 -- 5,000 --
Oneok Master Trust
10 West 3rd Street, 1st Floor
Tulsa, Oklahoma 74103.................... 500 3,800 -- 500 --
Oppenheimer Champion Income Fund
c/o Oppenheimer Funds, Inc.
Two World Trade Center, 34th Floor
New York, NY 10048....................... 4,500 34,200 -- 4,500 --
Oppenheimer High Income Fund
c/o Oppenheimer Funds, Inc.
Two World Trade Center, 34th Floor
New York, NY 10048....................... 1,100 8,360 -- 1,100 --
Oppenheimer High Yield Bond Fund
c/o Oppenheimer Funds, Inc.
Two World Trade Center, 34th Floor
New York, NY 10048....................... 3,000 22,800 -- 3,000 --
Oppenheimer Strategic Bond Fund
c/o Oppenheimer Funds, Inc.
Two World Trade Center, 34th Floor
New York, NY 10048....................... 350 2,660 -- 350 --
Oppenheimer Strategic Income
c/o Oppenheimer Funds, Inc.
Two World Trade Center, 34th Floor
New York, NY 10048....................... 5,950 45,220 -- 5,950 --
Sutter CBO 1999-1 Ltd.
c/o Chase Bank of Texas, N.A.
600 Travis Street, 51st Floor
Houston, TX 77002........................ 3,500 26,600 -- 3,500 --
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TCW Leveraged Income
Investment Trust L.P.
865 South Figueroa Street, 21st Floor
Los Angeles, CA 90017.................... 2,526 19,198 -- 2,526 --
TCW Leveraged Income Trust II L.P.
865 South Figueroa Street, 21st Floor
Los Angeles, CA 90017.................... 2,526 19,198 -- 2,526 --
TCW Crescent Mezzanine Partners II, L.P.
865 South Figueroa Street, 21st Floor
Los Angeles, CA 90017.................... 16,266 123,622 -- 16,266 --
TCW Crescent Mezzanine Trust II
865 South Figueroa Street, 21st Floor
Los Angeles, CA 90017.................... 3,945 29,982 -- 3,945 --
The 1818 Mezzanine Fund, L.P.
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, NY 1005........................ 39,424 299,622 -- 39,424 --
Wells Fargo Bank, N.A.,
Capital Markets High Yield
555 Montgomery Street, 10(th) Floor
San Francisco, CA 94111................ 4,000 30,400 -- 4,000 --
</TABLE>
-------------------
* The holder indirectly owns such percentage of our common stock.
Only selling holders identified above who beneficially own the securities
set forth opposite each such selling holder's name in the foregoing table may
sell such securities under the registration statement of which this prospectus
forms a part. Prior to any use of this prospectus in connection with sale of
the warrants and/or the common stock issuable upon exercise of warrants by any
holder not identified above, we will supplement this prospectus to set forth
the name and number of shares beneficially owned by the selling holder
intending to sell such warrants and/or common stock, and the number of warrants
and/or shares of common stock to be offered. The prospectus supplement will
also disclose whether any selling holder selling in connection with such
prospectus supplement has held any position or office with, been employed by or
otherwise has had a material relationship with, us or any of our affiliates
during the three years prior to the date of the prospectus supplement, if such
information has not been disclosed herein.
Each of DLJ ESC II, L.P., DLJ Investment Funding, Inc. and DLJ Investment
Partners, L.P., has made the following representations:
o it acquired the warrants in the ordinary course of its business;
o it is not engaged in, and do not intend to engage in, a distribution
of the warrants; and
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o it has no arrangement or understanding to participate in a
distribution of the warrants.
DESCRIPTION OF THE WARRANTS
We issued the warrants under a warrant agreement between us and State
Street Bank and Trust Company, as warrant agent, a copy of which is available
as described under the caption entitled "Where You Can Find More Information."
The following is only a summary of the warrant agreement and may not contain
all the information that is important to you. Therefore, we encourage you to
read the warrant agreement which has been filed with the SEC as an exhibit to
the registration statement on form S-1 with respect to the warrants and shares
of our common stock issuable upon the exercise of the warrants. See "Where You
Can Find More Information" for information on how you can obtain a copy of the
warrant agreement.
General
We initially issued the warrants as part of units in a transaction exempt
from the registration requirements of the Securities Act of 1933. Each unit
consisted of $1,000 principal amount of 13-1/2% senior subordinated notes due
2009, or notes, and one warrant initially to purchase 3.942 shares of common
stock, par value $.01 per share, at an exercise price of $10.00 per share.
On June 21, 2000, each of our then outstanding share of common stock was
exchanged for 1.927 new shares of common stock. After adjusting for the
exchange, each warrant entitles the holder to purchase 7.60 shares of common
stock at an exercise price of $5.19 per share. The holders are entitled to
purchase an aggregate of 1,140,000 shares of our common stock, representing
approximately 2.8% of our common stock on a fully diluted basis as of July 15,
2000. Unless exercised, the warrants will automatically expire at 5:00 p.m. New
York City time on October 1, 2009.
The exercise price and the number of our common stock are both subject to
adjustment in particular cases referred to below. The warrants will be
exercisable at any time on or after October 1, 2001.
The warrants shall be exercised by surrendering to our warrant agent the
warrant certificates evidencing the warrants to be exercised with the
accompanying form of election to purchase properly completed and executed,
together with payment of the exercise price. Payment of the exercise price may
be made at the holder's election (i) by tendering notes having an aggregate
principal amount at maturity, plus accrued and unpaid interest, if any,
thereon, to the date of exercise equal to the exercise price and (ii) in cash
in United States dollars by wire transfer or by certified or official bank
check to our order. Upon surrender of the warrant certificate and payment of
the exercise price, we will deliver or cause to be delivered, to or upon the
written order of such holder, stock certificates representing the number of
whole shares of our common stock to which the holder is entitled. If less than
all of the warrants evidenced by a warrant certificate are to be exercised, a
new warrant certificate will be issued for the remaining number of warrants.
Holders of warrants will be able to exercise their warrants only if a
registration statement relating to our common stock underlying the warrants is
then in effect, or the exercise of such warrants is exempt from the
registration requirements of the Securities Act, and such securities are
qualified for sale or exempt from qualification under the applicable securities
laws of the states in which the various holders of warrants or other persons to
whom it is proposed that our common stock be issued on exercise of the warrants
reside.
No fractional shares of our common stock will be issued upon exercise of
the warrants. We will pay to the holder of the warrant at the time of exercise
an amount in cash equal to the current market value of any such fractional
shares of our common stock less a corresponding fraction of the exercise price.
The holders of the warrants will have no right to vote on matters
submitted to our stockholders and will have no right to receive dividends. The
holders of the warrants will not be entitled to share in our assets in the
event of our liquidation, dissolution or the winding up. In the event a
bankruptcy or reorganization is commenced by or against us, a bankruptcy court
may hold that unexercised warrants are executory contracts which may be subject
to rejection by us with approval of the bankruptcy court, and the holders of
the warrants may, even if sufficient funds are
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available, receive nothing or a lesser amount as a result of any such
bankruptcy case than they would be entitled to if they had exercised their
warrants prior to the commencement of any such case.
In the event of a taxable distribution to holders of our common stock that
results in an adjustment to the number of shares of our common stock or other
consideration for which a warrant may be exercised, the holders of the warrants
may, in particular circumstances, be deemed to have received a distribution
subject to United States federal income tax as a dividend. See "Certain United
States Federal Tax Consequences."
There is no established public trading market for the warrants.
Adjustments
The number of shares of our common stock purchasable upon the exercise of
the warrants and the exercise price will be subject to adjustment if particular
events occur, including:
(1) the payment of dividends and other distributions on our common stock,
(2) subdivisions, combinations and reclassifications of our common stock,
(3) the issuance to all holders of our common stock of rights, options or
other warrants entitling them to subscribe for our common stock or securities
convertible into, or exchangeable or exercisable for, our common stock at a
price which is less than the fair market value per share (as defined) of our
common stock,
(4) some distributions to all holders of our common stock of any of our
assets or debt securities or any rights or other warrants to purchase any such
securities, but excluding those rights and warrants referred to in clause (3)
above;
(5) the issuance of shares of our common stock for consideration per
share less than the then fair market value per share of our common stock, but
excluding securities issued in transactions referred to in clauses (1) through
(4) above or (6) below and subject to some exceptions;
(6) the issuance of securities convertible into or exchangeable for our
common stock for a conversion or exchange price plus consideration received
upon issuance less than the then fair market value per share of our common
stock at the time of issuance of such convertible or exchangeable security, but
excluding securities issued in transactions referred to in clauses (1) through
(4) above; and
(7) some other events that could have the effect of depriving holders of
the warrants of the benefit of all or a portion of the purchase rights
evidenced by the warrants.
Adjustments to the exercise price will be calculated to the nearest cent.
No adjustment need be made for any of the foregoing transactions if holders of
warrants issued are to participate in the transaction on a basis and with
notice that our board of directors determines to be fair and appropriate in
light of the basis and notice on which other holders of our common stock
participate in the transaction.
"Fair market value" per security at any date of determination shall be (1)
in connection with a sale to a party that is not our affiliate in an
arm's-length transaction, the price per security at which such security is sold
and (2) in connection with any sale to our affiliate, (a) the last price per
security at which such security was sold in an arm's-length transaction within
the three-month period preceding such date of determination or (b) if clause
(a) is not applicable, the fair market value of such security determined in
good faith by (i) a majority of our board of directors, including a majority of
the disinterested directors, and approved in a board resolution delivered to
the Warrant Agent or (ii) a nationally recognized investment banking, appraisal
or valuation firm, which is not our affiliate, in each case taking into
account, among all other factors deemed relevant by the board of directors or
such investment banking,
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appraisal or valuation firm, the trading price and volume of such security on
any national securities exchange or automated quotation system on which such
security is traded.
"Disinterested director" means, in connection with any issuance of
securities that gives rise to a determination of the fair market value thereof,
each member of our board of directors who is not an officer, employee, director
or other affiliate of the party to whom we are proposing to issue the
securities giving rise to such determination.
No adjustment in the exercise price will be required unless such
adjustment would require an increase or decrease of at least one percent (1.0%)
in the exercise price; provided however, that any adjustment that is not made
will be carried forward and taken into account in any subsequent adjustment. In
the case of particular combinations or mergers, or the sale of all or
substantially all of our assets to another corporation, (i) each warrant will
thereafter be exercisable for the right to receive the kind and amount of
shares of stock or other securities or property to which such holder would have
been entitled as a result of such combination, merger or sale had the warrants
been exercised immediately prior thereto and (ii) the Person formed by or
surviving any such combination or merger, if other than the company, or to
which such sale shall have been made will assume our obligations under the
warrant agreement.
Reservation of Shares
We have authorized and reserved for issuance and will at all times reserve
and keep available such number of shares of our common stock as will be
issuable upon the exercise of all outstanding warrants. Such shares of our
common stock, when paid for and issued, will be duly and validly issued, fully
paid and non-assessable, free of preemptive rights and free from all taxes,
liens, charges and security interests with respect to the issuance thereof.
Amendment
From time to time, we and State Street Bank and Trust Company, warrant
agent, without the consent of the holders of the warrants, may amend or
supplement the warrant agreement for particular purposes, including curing
defects or inconsistencies or making any change that does not adversely affect
the legal rights of any holder. Any amendment or supplement to the warrant
agreement that adversely affects the legal rights of the holders of the
warrants will require the written consent of the holders of a majority of the
then outstanding warrants (excluding warrants held by us or any of our
affiliates). The consent of each holder of the warrants affected will be
required for any amendment under which the exercise price would be increased or
the number of shares of our common stock purchasable upon exercise of warrants
would be decreased, other than for particular adjustments provided in the
warrant agreement.
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DESCRIPTION OF CAPITAL STOCK
General Matters
As of July 15, 2000, the total amount of our authorized capital stock is
120,000,000 shares of common stock, $.01 par value per share, and 20,000,000
shares of preferred stock to be issued from time to time in one or more series,
with such designations, powers, preferences, rights, qualifications,
limitations and restrictions as our board of directors may determine. As of
July 15, 2000 we had outstanding 35,920,369 shares of common stock, no shares
of preferred stock and options to purchase 2,233,728 shares of our common
stock, of which none were currently exercisable. As of July 15, 2000, there
were approximately 60 holders of record of our common stock. The following
summary of provisions of our capital stock describes all material provisions
of, but does not purport to be complete and is subject to, and qualified in its
entirety by, our restated certificate of incorporation and our amended and
restated by-laws, which are included as exhibits to the registration statement
of which this prospectus forms a part, and by the provisions of applicable law.
Common Stock
Holders of our common stock are entitled to share equally, share for
share, if dividends are declared on our common stock, whether payable in cash,
property or our securities. The shares of common stock are not convertible and
the holders thereof have no preemptive or subscription rights to purchase any
of our securities. Upon liquidation, dissolution or winding up of our company,
the holders of common stock are entitled to share equally, share for share, in
our assets which are legally available for distribution, after payment of all
debts and other liabilities and subject to the prior rights of any holders of
any series of preferred stock then outstanding. Each outstanding share of
common stock is entitled to one vote on all matters submitted to a vote of
stockholders. There is no cumulative voting. Except as otherwise required by
law or the restated certificate, the holders of common stock vote together as a
single class on all matters submitted to a vote of stockholders.
Our common stock is listed on the New York Stock Exchange under the symbol
"CRL."
Preferred Stock
Our board of directors may, without further action by our stockholders,
from time to time, direct the issuance of shares of preferred stock in series
and may, at the time of issuance, determine the rights, preferences and
limitations of each series. Satisfaction of any dividend preferences of
outstanding shares of preferred stock would reduce the amount of funds
available for the payment of dividends on shares of common stock. Holders of
shares of preferred stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of our company before
any payment is made to the holders of shares of common stock. In some
circumstances, the issuance of shares of preferred stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of our securities or the
removal of incumbent management. Upon the affirmative vote of a majority of the
total number of directors then in office, our board of directors, without
stockholder approval, may issue shares of preferred stock with voting and
conversion rights which could adversely affect the holders of shares of common
stock.
We have no current intention to issue any of our unissued, authorized
shares of preferred stock. However, the issuance of any shares of preferred
stock in the future could adversely affect the rights of the holders of common
stock.
Select Provisions of Certificate of Incorporation and Bylaws
Our directors will be elected by a plurality of the votes cast for
election. Directors may only be removed for cause with the affirmative vote of
the holders of 80% of the shares of our capital stock.
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Special meetings of stockholders may be called at any time by our
chairman, our chief executive officer or our board of directors pursuant to a
resolution adopted by a majority of the directors then in office. Our
certificate of incorporation and bylaws do not permit our stockholders to take
any action by written consent in lieu of a meeting. Our bylaws also have
specific provisions regarding the procedures for nominating directors and
giving notice of business to be brought before the annual meeting of
stockholders. The affirmative vote of the holders of 80% of the shares of our
capital stock are required to alter, amend or repeal these provisions of our
certificate of incorporation and bylaws.
DLJMB Warrants
In addition to the warrants described in this prospectus, as of July 15,
2000, we had outstanding warrants to purchase 1,831,094 shares of common stock
at an exercise price of not less than $0.01 per share subject to customary
antidilution provisions (which differ in some respects from those contained in
the warrants described in this prospectus) and other customary terms. These
warrants will be exercisable at any time prior to 5:00 p.m., New York city
time, on April 1, 2010.
Registration Rights
Pursuant to the Investors' Agreement, we granted holders of approximately
17,000,000 shares of our common stock demand registration rights to cause us to
file a registration statement under the Securities Act covering resales of
their shares. We also have granted holders of approximately 23,600,000 shares
of our common stock "piggyback" registration rights to include their shares in
our registration of securities. The DLJMB Funds are entitled to registration
rights with respect to their warrants and the 1,831,094 shares issuable on
exercise thereof. We have agreed to indemnify all holders whose shares are
registered pursuant to exercise of these rights against specified liabilities,
including liabilities under the Securities Act, and to pay their expenses in
connection with these registrations. All holders of registration rights have
agreed not to exercise them until December 20, 2000.
Provisions of Delaware Law Governing Business Combinations
We are subject to the "business combination" provisions of the Delaware
General Corporation Law. In general, such provisions prohibit a publicly held
Delaware corporation from engaging in various "business combination"
transactions with any "interested stockholder" for a period of three years
after the date of the transaction in which the person became an "interested
stockholder," unless:
o the transaction is approved by the board of directors prior to the
date the "interested stockholder" obtained such status;
o upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested
stockholder" owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares
outstanding those shares owned by (a) persons who are directors and
also officers and (b) employee stock plans in which employee
participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender
or exchange offer; or
o on or subsequent to such date the "business combination" is approved
by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2-3%
of the outstanding voting stock which is not owned by the "interested
stockholder."
A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. In general,
an "interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of a corporation's voting stock or within three
years did own 15% or more of a corporation's voting stock. The statute could
prohibit or delay mergers or other takeover or change in control attempts.
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Limitations on Liability and Indemnification of Officers and Directors
Our restated certificate of incorporation limits the liability of
directors to the fullest extent permitted by the Delaware General Corporation
Law. In addition, our restated certificate of incorporation provides that we
will indemnify our directors and officers to the fullest extent permitted by
such law. We have entered into indemnification agreements with our current
directors and executive officers and expect to enter into a similar agreement
with any new directors or executive officers.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is EquiServe Trust
Company, N.A.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
The following discussion describes the material United States federal
income tax consequences of the ownership, disposition and exercise of warrants
and the ownership and sale or other disposition of stock issuable upon the
exercise of the warrants. This discussion is based on the Internal Revenue Code
of 1986, as amended to the date hereof (the "Code"), administrative
pronouncements, judicial decisions and Treasury Regulations, and
interpretations of the foregoing, changes to any of which subsequent to the
date of this registration statement may affect the tax consequences described
herein, possibly with retroactive effect.
The following discusses only warrants and shares of common stock issuable
upon the exercise of the warrants that are held as capital assets within the
meaning of Section 1221 of the Code. It does not discuss all of the tax
consequences that may be relevant to a holder in light of its particular
circumstances or to holders subject to special rules, such as some financial
institutions, tax-exempt entities, insurance companies, dealers and traders in
securities or currencies and holders who hold the warrants or the shares of
common stock issuable upon the exercise of the warrants as part of a hedging
transaction, "straddle," conversion transaction or other integrated
transaction, or persons who have ceased to be United States citizens or to be
taxed as resident aliens. Persons considering the purchase of warrants should
consult their tax advisors with regard to the application of the United States
federal income tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a
warrant or of the shares of common stock issuable upon the exercise of the
warrants that for United States federal income tax purposes is:
o a citizen or resident of the United States;
o a corporation created or organized in or under the laws of the United
States or of any political subdivision thereof;
o an estate the income of which is subject to United States federal
income taxation regardless of its source; or
o a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more United States persons have the authority to control all
substantial decisions of the trust.
As used herein, the term "Non-U.S. Holder" means an owner of a warrant or
of the shares of common stock issuable upon the exercise of the warrants that
is, for United States federal income tax purposes,
o a nonresident alien individual;
o a foreign corporation;
o a nonresident alien fiduciary of a foreign estate or trust; or
o a foreign partnership, one or more of the members of which is a
nonresident alien individual, a foreign corporation or a nonresident
alien fiduciary of a foreign estate or trust.
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Tax Consequences to U.S. Holders
The Warrants
A U.S. Holder will generally not recognize any gain or loss upon exercise
of any warrants (except with respect to any cash received in lieu of a
fractional share of common stock issuable upon the exercise of a warrant). A
U.S. Holder will have an initial tax basis in the shares of common stock
received on exercise of the warrants equal to the sum of its tax basis in the
warrants and the aggregate cash exercise price paid for the shares. A U.S.
Holder's holding period in the shares of common stock received will commence on
the day the warrants are exercised.
If a warrant expires without being exercised, a U.S. Holder will recognize
a capital loss in an amount equal to its tax basis in the warrant. Upon the
sale or other disposition of a warrant, a U.S. Holder will generally recognize
a capital gain or loss equal to the difference, if any, between the amount
realized on the sale or disposition and the U.S. Holder's tax basis in the
warrant. This capital gain or loss will be long-term capital gain or loss if,
at the time of such sale or disposition, the warrant has been held for more
than one year.
Under Section 305 of the Code, a U.S. Holder of a warrant may be deemed to
have received a constructive distribution from us, which may result in the
inclusion of ordinary dividend income, in the event of particular adjustments
to the number of shares of common stock to be issued on exercise of a warrant.
Backup Withholding and Information Reporting
Information reporting will generally, apply to dividends received with
respect to the shares of common stock issuable upon the exercises of the
warrants, and to the proceeds received on the sale or disposition of a warrant
or of shares, in each case by a U.S. Holder who is not an exempt resident.
Backup withholding of U.S. federal income tax at a rate of 31% may also apply
to dividends received with respect to the shares of common stock issuable upon
the exercise of the warrants and to the proceeds of a disposition of a warrant
or shares by a U.S. Holder who is not an exempt recipient. Generally,
individuals are not exempt recipients, whereas corporations and some other
entities are exempt recipients. Backup withholding will apply only if the U.S.
Holder is not an exempt recipient and
o fails to furnish its Taxpayer Identification Number ("TIN") which, in
the case of an individual, is his or her Social Security Number;
o furnishes an incorrect TIN;
o is notified by the Internal Revenue Service ("IRS") that it has
failed to properly report payments of dividends; or
o under particular circumstances, fails to certify, under penalty of
perjury, that it has furnished a correct TIN and has not been
notified by the IRS that it is subject to backup withholding.
U.S. Holders should consult their tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a U.S. Holder is
not an additional tax and is allowable as a credit against the U.S. Holder's
United States federal income tax liability, if any, or may be claimed as a
refund, provided that the required information is furnished to the IRS.
Tax Consequences to Non-U.S. Holders
Dividends on Warrant Shares
Dividends paid to a Non-U.S. Holder on the shares of common stock (and any
deemed dividends resulting from particular adjustments to the number of shares
of common stock to be issued on exercise of a warrant) generally will be
subject to withholding tax at a 30% rate or at a lower rate provided in an
applicable income tax treaty, unless the
64
<PAGE>
dividends are effectively connected with the conduct by the Non-U.S. Holder of
a trade or business in the United States. Currently, for purposes of
determining whether tax is to be withheld at a 30% rate or at a reduced treaty
rate, we ordinarily will presume that dividends paid on or before December 31,
2000 to an address in a foreign country are paid to a resident of that country
absent knowledge that this presumption is not warranted. Under Treasury
Regulations effective for payments after December 31, 2000, Non-U.S. Holders
will be required to satisfy particular applicable certification requirements to
claim a reduced rate of withholding under an applicable treaty.
Sale, Exercise or other Disposition of the Warrants or Shares
A Non-U.S. Holder will generally not recognize any gain or loss upon
exercise of any warrants (except with respect to any cash received in lieu of a
fractional share of common stock issuable upon the exercise of the warrant). A
Non-U.S. Holder will have an initial tax basis in the shares of common stock
received on exercise of the warrants equal to the sum of its tax basis in the
warrants and the aggregate cash exercise price paid for the shares. A Non- U.S.
Holder's holding period in the shares of common stock received will commence on
the day the warrants are exercised.
A Non-U.S. Holder of a warrant of shares of common stock issuable upon the
exercise of the warrants will not be subject to United States federal income
tax on any gain realized on the sale or other disposition of the warrant or
shares, unless:
o that gain is effectively connected with the Non-U.S. Holder's conduct
of a trade or business in the United States; or
o the warrant or share was a United States real property interest
("USRPI") as defined in Section 897(c)(1) of the Code at any time
during the five year period prior to the sale or exchange or at any
time during the time that the Non-U.S. Holder held such warrant or
share, whichever time was shorter.
A warrant or share of common stock would be a USRPI only if, at any time
during the five years prior to the sale or exchange of the warrant or share or
at any time during the period that the Non-U.S. Holder held the warrant or
share, whichever time was shorter, we had been a "United States real property
holding corporation" (USRPHC") as defined in Section 897(c)(2) of the Code. We
believe that we were not, have not been and will not become a USRPHC for
federal income tax purposes.
Effectively Connected Dividend Income or Gain
Dividends with respect to shares of common stock or gain realized on the
sale or other disposition of warrants or shares that are effectively connected
with the conduct of a trade or business in the U.S. by a Non-U.S. Holder,
although exempt from the withholding tax, described above may be subject to
U.S. income tax at graduated rates as if such dividends or gain were earned by
a U.S. Holder. The Non-U.S. Holder will be entitled to the exemption from
withholding tax if it properly certifies on IRS Form 4224, Form W-8ECI or other
appropriate successor form that the income is effectively connected with the
conduct of a United States trade or business. In addition, if the Non-U.S.
Holder is a foreign corporation, it may be subject to a 30% branch profits tax
(unless reduced or eliminated by an applicable treaty) on its earnings and
profits for the taxable year attributable to its effectively connected income,
subject to particular adjustments.
Backup Withholding and Information Reporting
Where required, we will report annually to the IRS and to each Non-U.S.
Holder the amount of any dividends paid to the Non-U.S. Holder. Copies of these
information returns may also be made available under the provisions of a
specific treaty or other agreement to the tax authorities of the country in
which the Non-U.S. Holder resides.
Backup withholding (described above under "-- Tax Consequences to U.S.
Holders--Backup Withholding and Information Reporting") generally will not
apply to dividends paid on or before December 31, 2000 to a Non-U.S.
65
<PAGE>
Holder at an address outside the United States, provided we or our paying agent
do not have actual knowledge that the payee is a United States Person. Under
Treasury Regulations effective for payments made after December 31, 2000,
however, a Non-U.S. Holder will be subject to backup withholding unless
applicable certification requirements are met.
Under current Treasury Regulations, payments on the sale or other
disposition of a warrant or of shares of common stock made to or through a
foreign office of a broker generally will not be subject to backup withholding.
However, if such broker is a United States person, a controlled foreign
corporation for United States federal income tax purposes, a foreign person 50
percent or more of whose gross income is effectively connected with a United
States trade or business for a specified three-year period or (generally in the
case of payments made after December 31, 2000) a foreign partnership with
particular connections to the United States, then information reporting (but
not backup withholding) will be required unless the broker has in its records
documentary evidence that the beneficial owner is not a United States person
and some other particular conditions are met or the beneficial owner otherwise
establishes an exemption. Backup withholding may apply to any payment that the
broker is required to report if the broker has actual knowledge that the payee
is a United States person. Payments to or through the United States office of a
broker will be subject to backup withholding and information reporting unless
the holder certifies, under penalties of perjury, that it is not a United
States person or otherwise establishes an exemption.
Recently promulgated Treasury Regulations, generally effective for
payments after December 31, 2000, provide some presumptions under which a
Non-U.S. Holder will be subject to backup withholding and information reporting
unless the holder certifies as to its non-U.S. status or otherwise establishes
an exemption. In addition, the new Treasury Regulations change some procedural
requirements relating to establishing a holder's non-U.S. status.
Non-U.S. Holders of warrants or of the shares of common stock issuable
upon the exercise of the warrants should consult their tax advisers regarding
the application of information reporting and backup withholding in their
particular situations, the availability of an exemption therefrom, and the
procedure for obtaining such an exemption, if available. Any amount withheld
from a payment to a Non-U.S. Holder under the backup withholding rules is not
an additional tax and is allowable as a credit against the holder's United
States federal income tax liability, if any, or may entitle the holder to a
refund, provided that the required information is furnished to the IRS.
66
<PAGE>
PLAN OF DISTRIBUTION
We will not receive any proceeds from the sale of our warrants or common
stock issued upon the exercise of the warrants, other than the payment of the
exercise price of the warrants. The warrants and the common stock issued upon
the exercise of the warrants may be sold by the holders from time to time in
transactions in the market, in negotiated transactions, in underwritten
offerings, or a combination of such methods of sale, at fixed prices which may
be changed, at market prices prevailing at the time of sale, at prices related
to prevailing market prices or at negotiated prices. The holders may effect
such transactions by selling the warrants and our common stock issued upon the
exercise of the warrants to or through broker-dealers, and such broker-dealers
may receive compensation in the form of discounts, concessions or commissions
from the holders and/or the purchasers of the warrants for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
In order to comply with the securities laws of particular states, if
applicable, the warrants and common stock issued on exercise of the warrants
may be sold in such jurisdictions only through registered or licensed brokers
or dealers. In addition, in particular states the warrants and shares of our
common stock issued on exercise of the warrants may not be sold unless they
have been registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirement is available and
is complied with.
The holders and any broker-dealers or agents that participate with the
holders in the distribution of the warrants or our common stock issued upon the
exercise of the warrants may be deemed to be "underwriters" within the meaning
of the Securities Act, and any commissions received by them and any profit on
the resale of the warrants or the common stock issued upon the exercise of the
warrants purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
Each holder will be subject to applicable provisions of the Securities
Exchange Act of 1934 and the rules and regulations thereunder, which provisions
may limit the timing of purchases and sales of shares of our common stock by
the holders.
The costs of the registration of the warrants and the shares issuable on
exercise of the warrants will be paid by us, including, without limitation, SEC
filing fees and expenses of compliance with state securities or "blue sky"
laws; provided, however, that the selling holders will pay all underwriting
discounts and selling commissions, if any. The selling holders will be
indemnified by us against particular civil liabilities, including some
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith.
LEGAL MATTERS
The validity of the warrants and shares of our common stock issuable upon
the exercise of the warrants offered hereby will be passed upon for us by Davis
Polk & Wardwell, New York, New York.
EXPERTS
The consolidated financial statements of Charles River Laboratories
International, Inc. as of December 25, 1999 and December 26, 1998 and for each
of the three years in the period ended December 25, 1999 included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on authority of said
firm as experts in auditing and accounting.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the resale of warrants and shares of common
stock issuable upon the exercise of the warrants. This prospectus does not
contain all the information included in the registration statement and the
related exhibits and schedules. You will find additional information about us,
our common stock and the warrants in the registration statement. The
registration statement and the related exhibits and schedules may be inspected
and copied at the public reference facilities maintained by the SEC at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the public reference facilities of the SEC's Regional Offices: New York
Regional Office, Seven World Trade Center, Suite 1300, New York, New York
10048; and Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661. Copies of this material may also be obtained from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. You can obtain information on the operation of the
public reference facilities by calling 1-800-SEC-0330. The SEC also maintains a
site on the World Wide Web (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding registrants,
including us, that file electronically with the SEC. Statements made in this
prospectus about legal documents may not necessarily be complete and you should
read the documents which are filed as exhibits or schedules to the registration
statement or otherwise filed with the SEC.
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INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
<TABLE>
Page
-----
<S> <C>
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Data...................... P-2
Charles River Laboratories International, Inc. and Subsidiaries
Unaudited Pro Forma as Adjusted Condensed Consolidated Balance Sheet as of June 24, 2000....... P-4
Notes to Unaudited Pro Forma as Adjusted Condensed Consolidated Balance Sheet as of
June 24, 2000................................................................................ P-5
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Year Ended
December 25, 1999............................................................................ P-7
Unaudited Pro Forma as Adjusted Condensed Consolidated Statement of Income for the Year
Ended December 25, 1999...................................................................... P-8
Notes to Unaudited Pro Forma and Pro Forma as Adjusted Condensed Consolidated Statement
of Income for the Year Ended December 25, 1999............................................... P-9
Unaudited Pro Forma as Adjusted Condensed Consolidated Statement of Income for the Six
Months Ended June 24, 2000................................................................... P-11
Notes to Unaudited Pro Forma as Adjusted Condensed Consolidated Statement of Income for
the Six Months Ended June 24, 2000........................................................... P-12
</TABLE>
P-1
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
On September 29, 1999, Charles River Laboratories International, Inc. (the
"Company") consummated the recapitalization. Prior to the consummation of the
recapitalization, Charles River Laboratories, Inc. ("CRL") became a wholly
owned subsidiary of Charles River Laboratories International, Inc. Charles
River Laboratories International, Inc. has no operations other than those
related to CRL. The aggregate consideration for the recapitalization consisted
of $400.0 million in cash and a subordinated discount note for $43.0 million
issued to the subsidiaries of B&L. Subsidiaries of B&L retained equity with a
fair market value of $13.2 million. The $400.0 million cash consideration was
raised through the following:
o $92.4 million cash equity investment by the DLJMB Funds, management
and certain other investors;
o $37.6 million senior discount debentures with warrants issued to the
DLJMB Funds and other investors;
o $162.0 million senior secured credit facilities; and
o a portion of the net proceeds of the $150 million unit offering
consisting of senior subordinated notes ($147.9 million) and warrants
($2.1 million).
Upon the consummation of the recapitalization, the DLJMB Funds, management
and certain other investors owned 87.5% of our outstanding capital stock and
B&L owned 12.5%. The recapitalization has been accounted for as a leveraged
recapitalization, which had no impact on the historical basis of our, or our
subsidiaries', assets and liabilities.
Simultaneously with the recapitalization, we acquired SBI Holdings, Inc.
("Sierra") pursuant to a stock purchase agreement for an initial purchase price
of $23.3 million, of which approximately $6.0 million was used to repay
Sierra's existing debt, which we funded with available cash and a portion of
the net proceeds from the indebtedness described above. In addition, we have
agreed to pay (a) up to $2.0 million in contingent consideration if certain
financial objectives are reached by December 31, 2000, (b) up to $10.0 million
in performance-based bonus payments if certain financial objectives are reached
over the next five years, and (c) $3.0 million in retention and non-competition
payments contingent upon the continuing employment of certain key scientific
and managerial personnel through June 30, 2001. The recapitalization and the
Sierra acquisition were consummated concurrently.
As of 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, Inc. ("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 secured
by a pledge of the 16% interest. The note bears interest at the long-term prime
rate in Japan. Effective with the acquisition of this additional interest, the
Company has control of and is consolidating the operations of Charles River
Japan, from the effective date of the incremental acquisition.
During January 2000, the Company sold a product line in its research model
business segment. The selling price of $7.0 million approximated the net book
value at the time of the sale. Fiscal 1999 sales associated with this product
line approximated $2.8 million. In addition, at the time of the sale, the
Company had approximately $0.9 million of deferred revenue which related to
cash payments received in advance of shipping the research models.
The following unaudited pro forma as adjusted condensed consolidated
financial data of the Company is based upon historical consolidated financial
statements of the Company as adjusted to give effect to the impact of the
transactions described above and the sale of 16,100,000 shares in our initial
public offering (the "offering") at the price of $16.00 per share, the net
proceeds of which have been used to repay certain outstanding indebtedness
including a portion of the senior subordinated notes. The unaudited pro
P-2
<PAGE>
forma condensed consolidated balance sheet as of June 24, 2000 gives effect to
the offering, assuming that this had occurred on June 24, 2000. The unaudited
pro forma condensed consolidated statement of income for the year ended
December 25, 1999, gives effect to the recapitalization, the acquisition of
Sierra, the acquisition of the additional 16% of the equity of Charles River
Japan, the sale of the product line and the offering, as if these transactions
had occurred at the beginning of the period presented. The unaudited pro forma
condensed consolidated statement of income for the six months ended June 24,
2000 gives effect to the acquisition of Charles River Japan and the offering,
as if these transactions had occurred at the beginning of the period presented.
The pro forma adjustments are based on estimates, available information
and assumptions and may be revised as additional information becomes available.
The unaudited pro forma condensed consolidated financial data do not purport to
represent what the Company's combined results of operations or financial
position would actually have been if the above transactions and the offering
had occurred on the dates indicated and are not necessarily representative of
the Company's combined results of operations for any future period. The
unaudited pro forma condensed consolidated balance sheet and condensed
consolidated statements of income should be read in conjunction with our
consolidated financial statements and the notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the other financial information appearing elsewhere in this prospectus.
P-3
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
UNAUDITED PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED BALANCE SHEET
As of June 24, 2000
(dollars in thousands)
<TABLE>
Company Offering Pro Forma
Historical Adjustments(a) As Adjusted
---------- -------------- -----------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $18,993 - (b) $18,993
Trade receivables, net............................ 50,930 - 50,930
Inventories, net.................................. 32,192 - 32,192
Deferred tax asset................................ 632 - 632
Due from affiliates............................... 99 - 99
Other current assets.............................. 5,492 - 5,492
---------- -------------- -----------
Total current assets............................ 108,338 - 108,338
Property, plant and equipment, net................. 117,741 - 117,741
Goodwill and other intangibles, net................ 41,658 - 41,658
Investments in affiliates.......................... 2,166 - 2,166
Deferred tax assets................................ 101,783 15,732 (c) 117,515
Deferred financing costs........................... 13,747 (5,255) (d) 8,492
Other assets....................................... 13,467 -- 13,467
---------- -------------- -----------
Total assets.................................... $398,900 $10,477 $409,377
========== ============== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt................. $6,442 (5,000) (e) $1,442
Current portion of capital lease obligations...... 211 - 211
Accounts payable.................................. 8,693 - 8,693
Accrued compensation.............................. 13,540 - 13,540
Deferred income................................... 5,808 - 5,808
Accrued interest.................................. 8,363 - 8,363
Accrued liabilities............................... 20,429 - 20,429
Accrued income taxes.............................. 3,577 - 3,577
---------- -------------- -----------
Total current liabilities......................... 67,063 (5,000) 62,063
Long-term debt..................................... 392,742 (191,375) (f) 201,367
Deferred tax liability............................. 6,964 - 6,964
Capital lease obligations.......................... 621 - 621
Accrued ESLIRP..................................... 8,638 - 8,638
Other long-term liabilities........................ 3,851 - 3,851
---------- -------------- -----------
Total liabilities................................. 479,879 (196,375) 283,504
---------- -------------- -----------
Commitments and contingencies
Minority interests................................. 14,471 - 14,471
Redeemable common stock............................ 13,198 (13,198) (g) -
Shareholders' equity
Common stock...................................... 198 161 (h) 359
Capital in excess of par value.................... 202,403 249,105 (h) 451,508
Accumulated deficit............................... (298,726) (29,216) (i) (327,942)
Loans to officers................................. (920) - (920)
Accumulated other comprehensive loss.............. (11,603) - (11,603)
---------- -------------- -----------
Total shareholders' equity........................ (108,648) 220,050 111,402
---------- -------------- -----------
Total liabilities and shareholders' equity........ $398,900 $10,447 $409,377
========== ============== ===========
</TABLE>
P-4
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA AS ADJUSTED
CONDENSED CONSOLIDATED BALANCE SHEET
As of June 24, 2000
(dollars in thousands)
(a) The as adjusted condensed consolidated balance sheet as of June 24,
2000 gives effect to the sale of 16,100,000 shares in this offering
at the initial public offering price of $16 per share with the net
proceeds after transaction costs of $236,068 being used to repay
indebtedness of $196,375.
(b) The sources and uses of cash from the Offering are as follows:
Sources of funds:
Proceeds from the offering...................................... $ 257,600
Uses of funds:
Redemption of senior subordinated notes......................... (52,500)
Repayment of outstanding amount - revolving credit facility..... (5,000)
Premium on redemption of principal amount of notes.............. (7,088)
Repayment of subordinated discount note......................... (46,884)
Repayment of senior discount debentures......................... (42,205)
Estimated premium on early extinguishment of senior discount
debentures.................................................... (24,468)
Repayment of term loan A........................................ (14,500)
Repayment of term loan B........................................ (43,423)
----------
Estimated transaction fees and expenses......................... (21,532)
Net adjustments to cash.................................... $--
(c) The adjustment represents the income tax benefit related to:
(i) the estimated premium related to the senior subordinated notes
to be redeemed ($7,088) and the prepayment of the senior
discount debentures ($24,468).
(ii) the write-off of the discounts associated with the portion of
the senior subordinated notes redeemed ($689) and the senior
discount debentures ($7,872).
(iii)the $5,255 write off of deferred financing costs related to the
senior subordinated notes to be redeemed, the repayment of the
senior discount debentures, and the portions of the term loan A
and term loan B to be repaid from the proceeds of the offering.
(iv) a $424 gain related to repayment of the senior subordinated
notes.
The income tax benefit of $15,732 was computed at a 35.0% effective
income tax rate.
(d) Reflects the write off of deferred financing costs of $5,255 related
to the senior subordinated notes to be redeemed, the repayment of the
senior discount debentures and the amount outstanding on the
revolving credit facility, and the portions of the term loan A and
term loan B to be repaid from the proceeds of the offering.
P-5
<PAGE>
(e) Reflects the repayment of the $5,000 outstanding on the revolving
credit facility at June 24, 2000.
(f) The adjustment represents the portion of the following indebtedness,
recorded as long term debt in the March 25, 2000 financial
statements, to be repaid from the proceeds of the offering:
(i) senior subordinated notes ($51,811)
(ii) term loan A ($14,500)
(iii)term loan B ($43,423)
(iv) subordinated discount note ($47,308)
(v) senior discount debentures ($34,333)
(g) Reflects the extinguishment, upon the initial public offering, of the
put option held by B&L with respect to its 12.5% equity investment in
the Company. Upon consummation of the offering, this stock is no
longer redeemable and has been disclosed as part of shareholders'
equity (capital in excess of par).
(h) The adjustments represent the allocation of the proceeds from the
offering of $257,600, net of estimated transaction fees and expenses
of $21,532 plus the transfer of $13,198 from redeemable common stock
as described in note (f), between common stock and capital in excess
of par.
(i) The adjustment represents the extraordinary loss computed as of June
24, 2000 resulting from:
(i) the premiums related to the senior subordinated notes to be
redeemed ($7,088) and the early extinguishment of the senior
discount debentures ($24,468);
(ii) the $5,255 write off of deferred financing costs related to the
senior subordinated notes to be redeemed, the amount outstanding
on the revolving credit facility, and the portion of the term
loan A and term loan B to be repaid from the proceeds of the
offering;
(iii) the write off of the discounts related to the redeemed senior
subordinated notes ($689) and the senior discount debentures
($7,872).
(iv) the $424 gain related to repayment of the senior subordinated
notes.
These items are recorded net of the associated tax benefit of
$15,732.
P-6
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 25, 1999
(dollars in thousands)
<TABLE>
Charles
Pro Forma River Japan,
Company Recapitalization for the Sierra Historical
Historical Adjustments Recapitalization Historical (c) (d)
---------- ---------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales related to products.. $180,269 - $180,269 - $41,063
Net sales related to services.. 39,007 39,007 16,034 -
---------- ---------------- ---------------- -------------- ------------
Total net sales................ 219,276 - 219,276 16,034 41,063
Cost of products sold.......... 108,928 - 108,928 - 25,268
Cost of services provided...... 25,664 - 25,664 9,589 -
Selling, general and
administrative expenses....... 39,765 - 39,765 5,364 8,412
Amortization of goodwill and
other intangibles............. 1,956 - 1,956 192 -
Restructuring charges.......... - - - - -
---------- ---------------- ---------------- -------------- ------------
Operating income............... 42,963 - 42,963 889 7,383
Interest income................ 536 - 536 - -
Other income (expense)......... 89 - 89 (865)
Interest expense............... (12,789) (37,922) (a) (50,711) (321) (95)
(Loss)/gain from foreign
currency, net................. (136) - (136) - -
---------- ---------------- ---------------- -------------- ------------
Income before income taxes and
minority interests............ 30,663 (37,922) (7,259) 568 6,423
Provision for income taxes..... 15,561 (14,191) (b) 1,370 233 2,537
---------- ---------------- ---------------- -------------- ------------
Income before minority
interests..................... 15,102 (23,731) (8,629) 335 3,886
Minority interests............. (22) - (22) - -
Earnings from unconsolidated
subsidiaries.................. 2,044 - 2,044 - -
---------- ---------------- ---------------- -------------- ------------
Net income..................... $17,124 $(23,731) $(6,607) $335 $3,886
========== ================ ================ ============== ============
Earnings per common share
Basic..................... $ 0.86
Diluted................... $ 0.86
Weighted average number of
shares outstanding
Basic..................... 19,820,369
Diluted................... 19,820,369
Sale of
Acquisition Product Pro
Adjustments Line (k) Forma
----------- -------- ---------
Net sales related to products.. $(986) (e) $(2,830) $217,516
Net sales related to services.. - - 55,041
----------- -------- ---------
Total net sales................ (986) (2,830) 272,557
Cost of products sold.......... - (2,584) 131,612
Cost of services provided...... - 35,253
Selling, general and
administrative expenses....... (986) (e) (227) 52,328
Amortization of goodwill and
other intangibles............. 1,700 (f) - 3,848
Restructuring charges.......... - - -
----------- -------- ---------
Operating income............... (1,700) (19) 49,516
Interest income................ - - 536
Other income (expense)......... - - (776)
Interest expense............... 241 (g) - (50,886)
(Loss)/gain from foreign
currency, net................. - - (136)
----------- -------- ---------
Income before income taxes and
minority interests............ (1,459) (19) (1,746)
Provision for income taxes..... (279) (h) 3,861
----------- -------- ---------
Income before minority
interests..................... (1,180) (19) (5,607)
Minority interests............. (1,321) (i) - (1,343)
Earnings from unconsolidated
subsidiaries.................. (1,943) (j) - 101
----------- -------- ---------
Net income..................... $(4,444) $(19) $(6,849)
=========== ======== =========
</TABLE>
P-7
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
UNAUDITED PRO FORMA AS ADJUSTED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 25, 1999
(dollars in thousands)
<TABLE>
Pro Forma
Pro Forma Adjustments(l) As Adjusted
--------- -------------- -----------
<S> <C> <C> <C> <C>
Net sales related to products............................. $217,516 - $217,516
Net sales related to services............................. 55,041 - 55,041
--------- -------------- -----------
Total net sales........................................... 272,557 - 272,557
Cost of products sold..................................... 131,612 - 131,612
Cost of services provided................................. 35,253 - 35,253
Selling, general and administrative expenses.............. 52,328 - 52,328
Amortization of goodwill and other intangibles............ 3,848 - 3,848
Restructuring charges..................................... - - -
--------- -------------- -----------
Operating income.......................................... 49,516 - 49,516
Interest income........................................... 536 - 536
Other income (expense).................................... (776) - (776)
Interest expense.......................................... (50,886) 28,336 (m) (22,550)
(Loss)/gain from foreign currency, net.................... (136) - (136)
--------- -------------- -----------
Income before income taxes and minority interests......... (1,746) 28,336 26,590
Provision for income taxes................................ 3,861 9,680 (n) 13,541
--------- -------------- -----------
Income before minority interests.......................... (5,607) 18,656 13,049
Minority interests........................................ (1,343) - (1,343)
Earnings from unconsolidated subsidiaries................. 101 - 101
--------- -------------- -----------
Net income before extraordinary loss...................... (6,849) 18,656 11,807
========= ============== ===========
Earnings per common share
Basic.................................................... $ 0.33
Diluted.................................................. $ 0.31
Weighted average number of common shares outstanding......
Basic.................................................... 35,920,369
Diluted.................................................. 38,571,011
</TABLE>
P-8
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 25, 1999
(dollars in thousands)
(a) Reflects the adjustment to unaudited pro forma consolidated interest
expense for the nine months ended September 25, 1999 as a result of
the recapitalization transaction.
The increase in interest expense can be reconciled as follows:
Senior subordinated notes with warrants (1)............... $15,416
Senior discount debentures with warrants (2).............. 5,445
Subordinated discount note (3)............................ 4,623
Term loan A (4)........................................... 2,562
Term loan B (5)........................................... 8,363
Revolver (6).............................................. 229
Amortization of deferred financing costs (7).............. 1,284
-------
$37,922
=======
(1) Interest expense was calculated using an effective rate of 13.6%
(2) Interest expense was calculated using an effective rate of 18.0%
(3) Interest expense was calculated using an effective rate of 13.0%
(4) Interest expense was calculated using an effective rate of 8.5%
(5) Interest expense was calculated using an effective rate of 9.25%
(6) Represents interest expense calculated at 8.5% plus fees on the
unused portion of 0.50%
(7) Represents nine months of amortization expense
(b) Represents the income tax adjustment required to result in a pro
forma income tax provision based on: (i) the Company's historical tax
provision and (ii) the direct effects of the pro forma adjustments
pertaining to the recapitalization.
(c) Represents the historical unaudited financial results of Sierra for
the nine months ended September 25, 1999.
(d) Represents the historical unaudited financial results of Charles
River Japan for the twelve months ended December 25, 1999.
(e) Represents the elimination of inter-company balances.
(f) Reflects the incremental amortization expense of the identifiable
intangibles and goodwill acquired in connection with the Sierra
acquisition based upon useful lives ranging from five to fifteen
years, and the incremental amortization of goodwill acquired in
connection with the additional equity investment in Charles River
Japan based upon an estimated useful life of fifteen years.
(g) To eliminate Sierra's historical interest expense related to debt
that, according to the terms of the Sierra stock purchase agreement,
was repaid, and to reflect additional interest expense on the
acquisition of an additional 16% of Charles River Japan.
(h) Represents the income tax adjustment required to result in a pro
forma tax provision based on: (i) Sierra's historical tax provision,
(ii) Charles River Japan's historical tax provision and (iii) the
direct effects of the
P-9
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 25, 1999
(dollars in thousands)
pro forma adjustments pertaining to the acquisition of Sierra and an
additional 16% equity interest in Charles River Japan.
(i) Reflects minority interests of 34% for Charles River Japan.
(j) Represents the elimination of Charles River Japan's earnings from the
earnings from unconsolidated subsidiaries line due to the fact that
earnings are being consolidated into the Company's results on a pro
forma basis.
(k) Represents the historical results of a product line sold subsequent
to year end. The realization of $900 of deferred income has not been
reflected in the pro forma consolidated income statement as it is a
non-recurring item.
(l) The as adjusted condensed consolidated statement of income for the
year ended December 25, 1999 gives effect to the recapitalization,
the Sierra acquisition, the Charles River Japan acquisition, the
product line sale, and is further adjusted for the sale of 16,100,000
shares in our initial public offering at a price of $16 per share
with the net proceeds after transaction costs of $236,068 being used
to repay some of the Company's indebtedness.
(m) Reflects the reduction to interest expense that will be achieved as a
result of the redemption of a portion of the senior subordinated
notes and repayment of debt, along with the associated reduction to
expense related to the amortization of the deferred financing costs
and the discounts on the redeemed senior subordinated notes and the
senior discount debentures.
(n) Reflects the tax effect of the reduction to interest and amortization
expense described above. This adjustment does not include the $4,762
release of valuation allowance associated with the deferred tax asset
as this is a non-recurring item. We expect to be significantly more
profitable in the future as a result of our initial public offering
due to reduced interest costs as described above. The need for a
valuation allowance associated with the deferred tax asset has been
reassessed and the $4,762 release was recorded as a tax benefit in
the second quarter of 2000. Refer to Note 4 to the unaudited condensed
consolidated interim financial statements contained elsewhere in this
prospectus.
(o) The extraordinary loss which arises as a result of the offering has
not been reflected in the as adjusted condensed consolidated
statement of income as it is a non-recurring item. The extraordinary
loss of $29,369 computed as if the offering had occurred on December
27, 1998 results from:
(i) the estimated premiums related to the senior subordinated notes
to be redeemed ($7,088) and the early extinguishment of the
senior discount debentures ($22,918);
(ii) the $5,954 write off of deferred financing costs related to the
senior subordinated notes and senior discount debentures to be
redeemed, the repayment of the outstanding amount on the
revolving credit facility, and the portions of the term loan A
and term loan B to be repaid from the proceeds of the offering;
and
(iii)the write off of the discounts related to the redeemed senior
subordinated notes ($745) and the senior discount debentures
($8,478).
The associated tax benefits are estimated to be $15,814.
P-10
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
UNAUDITED PRO FORMA AS ADJUSTED CONDENSED
CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended June 24, 2000
(dollars in thousands)
<TABLE>
Charles River
Japan, Inc.
Company Two Acquisition Pro Forma
Historical months(a) Adjustments Pro Forma Adjustments(h) As Adjusted
---------- ------------- ----------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales related to
products................... $106,970 $7,598 $(196) (b) $114,372 - $114,372
Net sales related to
services................... 36,429 - - 36,429 - 36,429
---------- ------------- ----------- --------- -------------- -----------
Total net sales............. 143,399 7,598 (196) 150,801 - 150,801
Cost of products sold....... 59,511 4,120 - 63,631 - 63,631
Cost of services provided... 24,401 - - 24,401 - 24,401
Selling, general and
administrative
expenses................... 24,240 1,409 (196) (b) 25,453 - 25,453
Amortization of goodwill
and other intangibles...... 1,802 - 74 (c) 1,876 - 1,876
Restructuring charges....... - - - - - -
---------- ------------- ----------- --------- -------------- -----------
Operating income............ 33,445 2,069 (74) 35,440 - 35,440
Interest income............. 291 - - 291 - 291
Other income (expense)...... 390 - - 390 - 390
Interest expense............ (25,821) (12) (29) (d) (25,862) 14,046 (i) (11,816)
(Loss)/gain from foreign
currency, net.............. (160) - - (160) - (160)
---------- ------------- ----------- --------- -------------- -----------
Income before income taxes
and minority interests..... 8,145 2,057 (103) 10,099 14,046 24,145
Provision for income taxes.. (396) 879 (43) (e) 440 4,798 (j) 5,238
---------- ------------- ----------- --------- -------------- -----------
Income before minority
interests.................. 8,541 1,178 (60) 9,659 9,248 18,907
Minority interests.......... (679) - (401) (f) (1,080) - (1,080)
Earnings from
unconsolidated
subsidiaries............... 748 - (589) (g) 159 - 159
---------- ------------- ----------- --------- -------------- -----------
Net income.................. $8,610 $1,178 $(1,050) $8,738 $9,248 $17,986
========== ============= =========== ========= ============== ===========
Earnings per share
Basic.................... $ 0.43 $ 0.50
Diluted.................. $ 0.37 $ 0.45
Weighted average number
of common shares
outstanding
Basic.................... 19,820,369 35,920,369
Diluted.................. 23,571,555 39,671,555
</TABLE>
P-11
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA AS ADJUSTED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended June 24, 2000
(dollars in thousands)
(a) Represents the historical unaudited financial results of Charles
River Japan for the two months ended February 28, 2000.
(b) Represents the elimination of inter-company balances.
(c) Reflects the incremental amortization of goodwill acquired in
connection with the additional equity investment in Charles River
Japan based upon an estimated useful life of fifteen years.
(d) To reflect additional interest expense on the acquisition of an
additional 16% of Charles River Japan.
(e) Represents the income tax adjustment required to result in a pro
forma income tax provision based on Charles River Japan's historical
tax provision and the direct effects of the pro forma adjustments
pertaining to the acquisition of an additional 16% of Charles River
Japan.
(f) Reflects minority interests of 34% for Charles River Japan.
(g) Reflects the elimination of Charles River Japan's earnings for the
two months ended February 28, 2000 from the earnings from
unconsolidated subsidiaries line due to the fact that these earnings
are being consolidated into the Company's results on a pro forma
basis.
(h) The as adjusted condensed consolidated statement of income for the
six months ended June 24, 2000 gives effect to the Charles River
Japan acquisition as if this occurred on the first day of the period,
and is further adjusted for the sale of 16,100,000 shares in our
initial public offering at the price of $16 per share with the net
proceeds after transaction costs of $236,068 being used to repay some
of the Company's indebtedness.
(i) Reflects the reduction to interest expense that will be achieved as a
result of the redemption of a portion of the senior subordinated
notes and repayment of debt, along with the associated reduction to
expense related to the amortization of the deferred financing costs
and the discounts on the redeemed senior subordinated notes and the
senior discount debentures.
(j) Reflects the tax effect of the reduction to interest and amortization
expense described above. A $4,762 release of valuation allowance
associated with the deferred tax asset was recorded in the second
quarter of 2000. Refer to note 4 to the unaudited condensed
consolidated interim financial statements contained elsewhere in this
prospectus.
(k) The extraordinary loss which arises as a result of the offering has
not been reflected in the as adjusted condensed consolidated
statement of income as it is a non-recurring item. The extraordinary
loss of $30,780 computed as if the offering occurred on December 26,
1999 results from:
(i) the estimated premiums related to the senior subordinated notes
to be redeemed ($7,088) and the early extinguishment of the
senior discount debentures ($25,646);
(ii) the $5,618 write off of deferred financing costs related to the
senior subordinated notes and senior discount debentures to be
redeemed, the repayment of the outstanding amount on the
revolving credit facility, and the portions of the term loan A
and term loan B to be repaid from the proceeds of the offering;
and
(iii)the write off of the discounts related to the redeemed senior
subordinated notes ($726) and the senior discount debentures
($8,276).
The associated tax benefits are estimated to be $16,574.
P-12
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Charles River Laboratories International, Inc.
Report of Independent Accountants....................................... F-2
Consolidated Statements of Income for the years ended
December 27, 1997, December 26, 1998
and December 25, 1999................................................ F-3
Consolidated Balance Sheets as of December 26, 1998
and December 25, 1999............................................... F-4
Consolidated Statements of Cash Flows for the years
ended December 27, 1997, December 26, 1998
and December 25, 1999................................................ F-5
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 28,
1996, December 27, 1997, December 26, 1998 and December 25, 1999..... F-6
Notes to Consolidated Financial Statements.............................. F-7
Condensed Consolidated Statements of Income for the six months
ended June 26, 1999 and June 24, 2000 (unaudited)................... F-29
Condensed Consolidated Balance Sheets as of December 25, 1999
and June 24, 2000 (unaudited)........................................ F-30
Condensed Consolidated Statements of Cash Flows for the
six months ended June 24, 1999 and June 26, 2000 (unaudited)......... F-31
Notes to Condensed Consolidated Interim Financial Statements
(unaudited).......................................................... F-32
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors of
Charles River Laboratories International, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, changes in shareholders' equity and
cash flows present fairly, in all material respects, the financial position of
Charles River Laboratories International, Inc. and its subsidiaries (the
"Company") at December 25, 1999 and December 26, 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 25, 1999, in conformity with accounting principles generally accepted
in the United States. In addition, in our opinion, the financial statement
schedules appearing under Item 16(b) present fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and the financial
statement schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and the
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 29, 2000, except as to exchange of shares
which is as of June 21, 2000.
F-2
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except for per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------
December 27, December 26, December 25,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net sales related to products....................................... $ 156,800 $ 169,377 $ 180,269
Net sales related to services....................................... 13,913 23,924 39,007
---------- ---------- ----------
Total net sales..................................................... 170,713 193,301 219,276
Costs and expenses
Cost of products sold.............................................. 102,980 107,146 108,928
Cost of services provided.......................................... 8,480 15,401 25,664
Selling, general and administrative................................ 30,451 34,142 39,765
Amortization of goodwill and intangibles........................... 834 1,287 1,956
Restructuring charges.............................................. 5,892 -- --
---------- ---------- ----------
Operating income.................................................... 22,076 35,325 42,963
Other income (expense)
Interest income.................................................... 865 986 536
Other income....................................................... -- -- 89
Interest expense................................................... (501) (421) (12,789)
Loss from foreign currency, net.................................... (221) (58) (136)
---------- ---------- ----------
Income before income taxes, minority interests and earnings from
equity investments................................................. 22,219 35,832 30,663
Provision for income taxes.......................................... 8,499 14,123 15,561
---------- ---------- ----------
Income before minority interests and earnings from equity
investments........................................................ 13,720 21,709 15,102
Minority interests.................................................. (10) (10) (22)
Earnings from equity investment..................................... 1,630 1,679 2,044
---------- ---------- ----------
Net income.......................................................... $ 15,340 $ 23,378 $ 17,124
========== ========== ==========
Earnings per common share
Basic and Diluted................................................... $0.77 $1.18 $0.86
Weighted average number of common shares outstanding
Basic and Diluted................................................... 19,820,369 19,820,369 19,820,369
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
December 26, December 25,
1998 1999
------------ ------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents..................................................... $ 24,811 $ 15,010
Trade receivables, less allowances of $898 and $978, respectively............. 32,466 36,293
Inventories................................................................... 30,731 30,534
Deferred tax asset............................................................ 5,432 632
Due from affiliates........................................................... 982 1,233
Other current assets.......................................................... 2,792 5,293
----------- ----------
Total current assets........................................................ 97,214 88,995
Property, plant and equipment, net.............................................. 82,690 85,413
Goodwill and other intangibles, less accumulated amortization of $5,591
and $7,220, respectively...................................................... 17,705 36,958
Investments in affiliates....................................................... 18,470 21,722
Deferred tax asset.............................................................. 5,787 101,560
Deferred financing costs........................................................ -- 14,015
Other assets.................................................................... 12,388 14,393
----------- ----------
Total assets.................................................................. $ 234,254 $ 363,056
=========== ==========
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt............................................. $ 202 $ 3,290
Current portion of capital lease obligations.................................. 188 253
Accounts payable.............................................................. 11,615 9,291
Accrued compensation.......................................................... 9,972 10,792
Deferred income............................................................... 3,419 7,643
Accrued liabilities........................................................... 14,862 18,479
Accrued interest.............................................................. 53 8,935
Accrued income taxes.......................................................... 14,329 2,738
----------- ----------
Total current liabilities................................................... 54,640 61,421
Long-term debt.................................................................. 248 381,706
Deferred tax liability.......................................................... 836 4,990
Capital lease obligations....................................................... 944 795
Accrued ESLIRP.................................................................. 7,747 8,315
Other long-term liabilities..................................................... 1,274 2,469
----------- ----------
Total liabilities............................................................. 65,689 459,696
Commitments and contingencies (Note 13)
Minority interests.............................................................. 306 304
Redeemable common stock......................................................... -- 13,198
Shareholders' equity
Common stock (Note 5)......................................................... 1 198
Capital in excess of par value................................................ 17,836 206,940
Accumulated deficit........................................................... 156,108 (307,351)
Loans to officers............................................................. -- (920)
Accumulated other comprehensive loss.......................................... (5,686) (9,009)
----------- ----------
Total shareholders' equity.................................................. 168,259 (110,142)
----------- ----------
Total liabilities and shareholders' equity.................................. $ 234,254 $ 363,056
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
December 27, December 26, December 25,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows relating to operating activities
Net income....................................................................... $15,340 $23,378 $17,124
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 9,703 10,895 12,318
Amortization of debt issuance costs and discounts.............................. -- -- 681
Accretion of debenture and discount note....................................... -- -- 2,644
Provision for doubtful accounts................................................ 166 181 148
Earnings from equity investments............................................... (1,630) (1,679) (2,044)
Minority interests............................................................. 10 10 22
Deferred income taxes.......................................................... (1,363) (3,133) 8,625
Stock compensation expense..................................................... 84 333 124
Gain on sale of property, plant, and equipment................................. -- -- (1,441)
Property, plant and equipment write downs and disposals........................ 822 -- 1,803
Other non-cash items........................................................... -- -- 486
Changes in assets and liabilities:
Trade receivables.............................................................. (2,232) (1,712) (3,333)
Inventories.................................................................... (1,917) (1,250) 133
Due from affiliates............................................................ (462) 538 (251)
Other current assets........................................................... 165 (241) (2,911)
Other assets................................................................... 1,251 (4,309) (1,943)
Accounts payable............................................................... 594 2,853 (2,374)
Accrued compensation........................................................... 674 2,090 868
Accrued ESLIRP................................................................. 499 821 570
Deferred income................................................................ 105 1,278 4,223
Accrued interest............................................................... -- -- 8,930
Accrued liabilities............................................................ 3,163 2,351 3,111
Accrued income taxes........................................................... (500) 5,605 (11,264)
Other long-term liabilities.................................................... (148) (629) 1,319
------- ------- -------
Net cash provided by operating activities..................................... 24,324 37,380 37,568
------- ------- -------
Cash flows relating to investing activities
Proceeds from sale of property, plant, and equipment........................... -- -- 1,860
Dividends received from equity investments..................................... 773 681 815
Capital expenditures........................................................... (11,872) (11,909) (12,951)
Contingent payments for prior year acquisitions................................ (640) (681) (841)
Acquisition of businesses net of cash acquired................................. (1,207) (11,121) (23,051)
------- ------- -------
Net cash used in investing activities......................................... (12,946) (23,030) (34,168)
------- ------- -------
Cash flows relating to financing activities
Loans to officers.............................................................. -- -- (920)
Payments of deferred financing costs........................................... -- -- (14,442)
Proceeds from long-term debt................................................... 281 199 339,007
Payments on long-term debt..................................................... (119) (1,247) (252)
Payments on capital lease obligations.......................................... (346) (48) (307)
Net activity with Bausch & Lomb................................................ (12,755) (6,922) (29,415)
Transaction costs.............................................................. -- -- (8,168)
Proceeds from issuance of warrants............................................. -- -- 10,606
Proceeds from issuance of common stock......................................... -- -- 92,387
Recapitalization consideration................................................. -- -- (400,000)
------- ------- -------
Net cash used in financing activities......................................... (12,939) (8,018) (11,504)
------- ------- -------
Effect of exchange rate changes on cash and cash equivalents (181) 564 (1,697)
Net change in cash and cash equivalents............................................ (1,742) 6,896 (9,801)
------- ------- -------
Cash and cash equivalents, beginning of year....................................... 19,657 17,915 24,811
------- ------- -------
Cash and cash equivalents, end of year............................................. $17,915 $24,811 $15,010
======= ======= =======
Supplemental cash flow information
Cash paid for taxes............................................................ $4,254 $4,681 $4,656
Cash paid for interest......................................................... 287 177 538
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Other Capital
Retained Comprehensive Common In Excess Loans to
Total Earnings Income Stock of Par Officers
----- -------- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 28, 1996......... $154,133 $137,067 $(771) $1 $17,836 $--
Components of comprehensive income:
Net income....................... 15,340 15,340 -- -- -- --
Foreign currency translation..... (6,844) -- (6,844) -- -- --
Minimum pension liability
adjustment...................... (510) -- (510) -- -- --
--------- --------- ------- ---- -------- -----
Total comprehensive income..... 7,986 -- -- -- -- --
Net activity with Bausch & Lomb.... (12,755) (12,755) -- -- -- --
--------- --------- ------- ---- -------- -----
Balance at December 27, 1997......... $149,364 $139,652 $(8,125) $1 $17,836 $--
Components of comprehensive income:
Net income....................... 23,378 23,378 -- -- -- --
Foreign currency translation..... 2,839 -- 2,839 -- -- --
Minimum pension liability
adjustment...................... (400) -- (400) -- -- --
--------- --------- ------- ---- -------- -----
Total comprehensive income..... 25,817 -- -- -- -- --
Net activity with Bausch & Lomb.... (6,922) (6,922) -- -- -- --
--------- --------- ------- ---- -------- -----
Balance at December 26, 1998......... $168,259 $156,108 $(5,686) $1 $17,836 $--
Components of comprehensive income:
Net income....................... 17,124 17,124 -- -- -- --
Foreign currency translation..... (3,437) -- (3,437) -- -- --
Minimum pension liability
adjustment...................... 114 -- 114 -- -- --
--------- --------- ------- ---- -------- -----
Total comprehensive income..... 13,801 -- -- -- -- --
Net activity with Bausch & Lomb.... (29,415) (29,415) -- -- -- --
Loans to officers................ (920) -- -- -- -- (920)
Transaction costs.............. (8,168) (8,168)
Deferred tax asset............. 99,506 99,506
Issuance of common stock......... 92,387 -- -- 102 92,285 --
Recapitalization consideration... (443,000) (443,000) -- -- -- --
Redeemable common stock
classified outside of equity... (13,198) -- -- -- (13,198) --
Warrants......................... 10,606 -- -- -- 10,606 --
Exchange of stock................ -- -- -- 95 (95) --
--------- --------- ------- ---- -------- -----
Balance at December 25, 1999......... $(110,142) $(307,351) $(9,009) $198 $206,940 $(920)
========= ========= ======= ==== ======== =====
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands except for per share data)
1. Description of Business and Summary of Significant Accounting Policies
Basis of Presentation
Subsequent to December 25, 1999, Charles River Laboratories Holdings,
Inc. changed its name to Charles River Laboratories International, Inc. The
consolidated financial statements and related notes presented herein have been
modified to reflect this name change.
Charles River Laboratories International, Inc. (together with its
subsidiaries, the "Company") is a holding company with no operations or assets
other than its ownership of 100% of the outstanding common stock of Charles
River Laboratories, Inc. For the periods presented in these consolidated
financial statements that are prior to September 29, 1999, Charles River
Laboratories International, Inc. and Charles River Laboratories, Inc. were 100%
owned by Bausch & Lomb Incorporated ("B&L"). The assets, liabilities, operations
and cash flows relating to Charles River Laboratories, Inc. and its subsidiaries
were held by B&L and certain of its affiliated entities. As more fully described
in Note 2, effective September 29, 1999, pursuant to a recapitalization
agreement all such assets, liabilities and operations were contributed to an
existing dormant subsidiary which was subsequently renamed Charles River
Laboratories, Inc. Under the terms of the recapitalization, Charles River
Laboratories, Inc. became a wholly owned subsidiary of Charles River
Laboratories International, Inc. These financial statements include all such
assets, liabilities, results of operations and cash flows on a combined basis
for all periods prior to September 29, 1999 and on a consolidated basis
thereafter.
On June 5, 2000, a 1.927 for 1 exchange of stock was approved by the
Board of Directors of the Company. This exchange of stock was effective June 21,
2000. All earnings per common share amounts, references to common stock and
shareholders' equity amounts have been restated as if the exchange of stock had
occurred as of the earliest period presented.
Description of Business
The Company is a leading provider of critical research tools and
integrated support services that enable innovative and efficient drug discovery
and development. The Company's fiscal year is the twelve month period ending the
last Saturday in December.
Principles of Consolidation
The financial statements include all majority-owned subsidiaries.
Intercompany accounts, transactions and profits are eliminated. Affiliated
companies over which the Company does not have the ability to exercise control
are accounted for using the equity method (Note 11).
Use of Estimates
The financial statements have been prepared in conformity with
generally accepted accounting principles and, as such, include amounts based on
informed estimates and judgments of management with consideration given to
materiality. Actual results could differ from those estimates.
F-7
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. Description of Business and Summary of significant Accounting Policies
(continued)
Cash and Cash Equivalents
Cash equivalents include time deposits and highly liquid investments
with remaining maturities at the purchase date of three months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined principally on the average cost method. Costs for primates are
accumulated in inventory until the primates are sold or declared breeders.
Property, Plant and Equipment
Property, plant and equipment, including improvements that
significantly add to productive capacity or extend useful life, are recorded at
cost, while maintenance and repairs are expensed as incurred. Depreciation is
calculated for financial reporting purposes using the straight-line method based
on the estimated useful lives of the assets as follows: buildings, 20 to 40
years; machinery and equipment, 2 to 20 years; and leasehold improvements,
shorter of estimated useful life or the lease periods.
Intangible Assets
Intangible assets are amortized on a straight-line basis over periods
ranging from 5 to 20 years. Intangible assets consist primarily of goodwill and
customer lists.
Other Assets
Other assets consist primarily of the cash surrender value of life
insurance policies and the net value of primate breeders. Primate breeders are
amortized over 20 years on a straight line basis. Total amortization expense for
primate breeders was $348, $323 and $300 for 1997, 1998 and 1999, respectively,
and is included in costs of products sold.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets and intangibles whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposal are less than its carrying amount. In such instances, the
carrying value of long-lived assets is reduced to the estimated fair value, as
determined using an appraisal or discounted cash flow analysis, as appropriate.
Stock-Based Compensation Plans
As permitted under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), the Company accounts for
its stock-based compensation plans using the intrinsic value method prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25).
F-8
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. Description of Business and Summary of significant Accounting Policies
(continued)
Revenue Recognition
Revenues are recognized when products are shipped or as services are
performed. Deferred income represents cash received from customers in advance of
product shipment or performance of services.
Fair Value of Financial Instruments
The carrying amount of the Company's significant financial instruments,
which include accounts receivable and debt, approximated their fair values at
December 26, 1998 and December 25, 1999.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109).
The asset and liability approach underlying FAS 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and tax basis of the
Company's assets and liabilities.
Foreign Currency Translation
In accordance with the Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation," the financial statements of all non-U.S.
subsidiaries are translated into U.S. dollars as follows: assets and liabilities
at year-end exchange rates; income, expenses and cash flows at average exchange
rates; and shareholders' equity at historical exchange rates. The resulting
translation adjustment is recorded as a component of accumulated other
comprehensive income in the accompanying balance sheet.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables from
customers within the pharmaceutical and biomedical industries. As these
industries have experienced significant growth and its customers are
predominantly well-established and viable, the Company believes its exposure to
credit risk to be minimal.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," (FAS 130) at the beginning of 1998. As it
relates to the Company, comprehensive income is defined as net income plus the
sum of currency translation adjustments and the change in minimum pension
liability (collectively, other comprehensive income), and is presented in the
Combined Statement of Changes in Shareholders' Equity.
Segment Reporting
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (FAS 131), which requires financial and descriptive information
about an enterprise's reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available and regularly evaluated by the chief operating decision maker in
F-9
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. Description of Business and Summary of significant Accounting Policies
(continued)
deciding how to allocate resources and in assessing performance. The Company
operates in two business segments, research models and biomedical products and
services.
Earnings Per Share
Basic earnings per common share is calculated by dividing net income by
the weighted average number of common shares outstanding. Diluted earnings per
common share is calculated by adjusting the weighted average number of common
shares outstanding to include the number of additional common shares that would
have been outstanding if the dilutive potential common shares had been issued
(Note 4).
Reclassifications
Certain amounts in prior year financial statements and related notes
have been reclassified to conform with current year presentation.
2. Recapitalization and Related Financing
On September 29, 1999 CRL Acquisition LLC, an affiliate of DLJ Merchant
Banking Partners II, L.P. and affiliated funds (the "DLJMB Funds"), consummated
a transaction in which it acquired 87.5% of the common stock of Charles River
Laboratories, Inc. from B&L for approximately $443 million. This transaction was
effected through Charles River Laboratories International, Inc. and was
accounted for as a leveraged recapitalization, which had no affect on the
historical basis of assets and liabilities. The transaction did, however, affect
the capital structure of the Company as further described below. In addition,
concurrent with the transaction, and more fully described in Note 3, the Company
purchased all of the outstanding shares of common stock of SBI Holdings, Inc.
("Sierra"), a preclinical biomedical services company, for $23.3 million.
The recapitalization transaction (the "recapitalization") and related
fees and expenses were funded as follows:
o issuance of 150,000 units, each consisting of a $1,000 principal
amount of a 13.5% senior subordinated note and one warrant to
purchase 7.6 shares of common stock of the Company;
o borrowings of $162.0 million under a senior secured credit
facility;
o an equity investment of $92.4 million;
o issuance of $37.6 million senior discount debentures with
warrants; and
o issuance of a $43.0 million subordinated discount note to B&L.
The Company incurred approximately $14,442 in debt issuance costs
related to these transactions. These costs have been capitalized as long-term
assets and are being amortized over the terms of the indebtedness. Amortization
expense of $426 was recorded in the accompanying combined financial statements
for the year ended December 25, 1999. In addition, the Company also incurred
transaction costs of $8,168, which were recorded as an adjustment to retained
earnings.
F-10
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Subsidiaries of B&L retained 12.5% of their equity investment in the
Company in the recapitalization. The Company estimated the fair value
attributable to this equity to be $13,198 which has been reclassified from
additional paid in capital to the mezzanine section of the balance sheet due to
the existence of a put option held by subsidiaries of B&L. The redemption price
of the stock over which the put option is held is the fair market value at the
time of redemption.
F-11
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
2. Recapitalization and Related Financing (continued)
Reconciliation of Recapitalization Transaction
The funding to consummate the recapitalization transactions was as
follows:
Funding:
Available cash............................................. $ 4,886
Senior subordinated notes with warrants.................... 150,000
Senior secured credit facility............................. 162,000
Senior discount debentures with warrants................... 37,600
DLJMB funds, management and other investor equity.......... 92,387
----------
Total cash funding................................... 446,873
Subordinated discount note................................. 43,000
Equity retained by subsidiaries of B&L..................... 13,198
----------
Total funding........................................ $ 503,071
==========
Uses of funds:
Recapitalization consideration............................. $ 443,000
Equity retained by subsidiaries of B&L..................... 13,198
Cash consideration for Sierra acquisition (Note 3)......... 23,343
Debt issuance costs........................................ 14,442
Transaction costs.......................................... 8,168
Loans to officers.......................................... 920
----------
Total uses of funds.................................. $ 503,071
==========
Senior Subordinated Notes and Warrants
The Company issued 150,000 units, each comprised of a $1,000 senior
subordinated note and a warrant to purchase 7.6 shares of common stock of
Charles River Laboratories International, Inc. for total proceeds of $150,000.
The Company estimated the fair value of the warrants to be $2,128 and allocated
the $150,000 offering proceeds between the senior subordinated notes ($147,872)
and the warrants ($2,128). The discount on the senior subordinated notes is
being amortized over the life of the notes and amounted to $53 in 1999. The
portion of the proceeds allocated to the warrants is reflected as capital in
excess of par in the accompanying consolidated financial statements. Each
warrant entitles the holder, subject to certain conditions, to purchase 7.6
shares of common stock of Charles River Laboratories International, Inc. at an
exercise price of $5.19 per share of common stock, subject to adjustment under
some circumstances. Upon exercise, the holders of warrants would be entitled to
purchase 1,140,000 shares of common stock of Charles River Laboratories
International, Inc. representing approximately 4.6% of the outstanding shares of
stock of Charles River Laboratories International, Inc., on a fully diluted
basis as of December 25, 1999. The warrants will be exercisable on or after
October 1, 2001 and will expire on October 1, 2009.
The senior subordinated notes will mature on October 1, 2009. The
senior subordinated notes are not redeemable prior to October 1, 2004 other than
in connection with a public offering of the common stock of Charles River
Laboratories International, Inc. Thereafter, the senior subordinated notes will
be subject to redemption at any time at the option of the issuer at redemption
prices set forth in the senior subordinated notes. Interest on the senior
subordinated notes will accrue at the rate of 13.5% per annum and will be
payable semi-annually in arrears on
F-12
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
2. Recapitalization and Related Financing (continued)
October 1 and April 1 of each year, commencing on April 1, 2000. The payment of
principal and interest on the senior subordinated notes are subordinated in
right to the prior payment of all senior debt.
Upon the occurrence of a change in control, the Company will be
obligated to make an offer to each holder of the senior subordinated notes to
repurchase all or any part of such holder's senior subordinated notes at an
offer price in cash equal to 101% of the principal amount thereof, plus accrued
and unpaid interest. Restrictions under the senior subordinated notes include
certain sales of assets, certain payments of dividends and incurrence of debt,
and limitations on certain mergers and transactions with affiliates. The Company
is also required to maintain compliance with certain covenants with respect to
the notes.
Senior Secured Credit Facility
The senior secured credit facility includes a $40,000 term loan A
facility, a $120,000 term loan B facility and a $30,000 revolving credit
facility. The term loan A facility will mature on October 1, 2005, the term loan
B facility will mature on October 1, 2007, and the revolving credit facility
will mature on October 1, 2005. Interest on the term loan A and revolving credit
facility will accrue at either a base rate plus 1.75% or LIBOR plus 3.0%, at the
Company's option (9.08% at December 25, 1999). Interest on the term loan B
accrues at either a base rate plus 2.50% or LIBOR plus 3.75% (9.83% at December
25, 1999). Interest will be paid quarterly in arrears commencing on December 30,
1999. At December 25, 1999, the Company had $2,000 of outstanding borrowings on
its revolving credit facility. A commitment fee in an amount equal to 0.50% per
annum on the daily average unused portion of the revolving credit facility will
be paid quarterly in arrears. The credit facility requires the Company to remain
in compliance with certain financial ratios as well as other restrictive
covenants. Compliance with these ratios and covenants is not required until the
quarter ended March 25, 2000.
The Company had certain insignificant foreign borrowings outstanding at
December 25, 1999, amounting to $90.
Other Financing
The Company issued senior discount debentures with other warrants (the
"DLJMB Warrants") to the DLJMB Funds and other investors for $37,600. The
Company has estimated the fair value of the warrants to be $8,478 and allocated
the $37,600 in proceeds between the discount debentures ($29,122) and the
warrants ($8,478). The senior discount debentures accrete interest from their
original issue price of $37,600 to $82,300 on October 1, 2004. Thereafter,
interest is payable in cash. The senior discount debentures mature on April 1,
2010. The discount on the senior discount debentures is being amortized over the
life of the debentures and amounted to $202 in 1999. The senior discount
debentures contain covenants and events of default substantially similar to
those contained in the Notes. The portion of the proceeds allocated to the DLJMB
Warrants is reflected as capital in excess of par in the accompanying
consolidated financial statements. Each of the 1,831,094 DLJMB warrants will
entitle the holders thereof to purchase one share of common stock of the Company
at an exercise price of not less than $0.01 per share subject to customary
antidilution provisions and other customary terms. The DLJMB Warrants will be
exercisable at any time through April 1, 2010.
The $43,000 subordinated discount notes issued by the Company accrete
at a rate of 12% prior to October 1, 2004 and thereafter at 15% to an aggregate
principal amount of $175,300 at maturity on October 1, 2010. The subordinated
discount notes are subject to mandatory redemption upon a change in control at
the option of the holder and are subject to redemption at the Company's option
at any time.
F-13
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
2. Recapitalization and Related Financing (continued)
As previously discussed, Charles River Laboratories International, Inc.
is a holding company with no operations or operational assets other than its
ownership of 100% of Charles River Laboratories Inc.'s outstanding common stock.
Charles River Laboratories, Inc. neither guarantees nor pledges its assets as
collateral for the senior discount debentures or the subordinated discount note,
which Charles River Laboratories International, Inc. issued. Charles River
Laboratories International, Inc. has no source of liquidity to meet its cash
requirements. As such, repayment of the obligations as outlined above will be
dependent upon either dividends from Charles River Laboratories, Inc., which are
restricted by terms contained in the indenture governing the senior subordinated
notes and the new senior secured credit facility, or through a refinancing or
equity transaction.
Minimum Future Principal Repayments
Minimum future principal payments of long-term debt at December 25,
1999 are as follows:
Fiscal Year
-----------
2000................................... $ 3,290
2001................................... 3,200
2002................................... 5,200
2003................................... 9,200
2004................................... 1,200
Thereafter............................. 362,906
---------
Total.................................. $ 384,996
=========
3. Business Acquisitions
The Company acquired several businesses during the three-year period
ended December 25, 1999. All acquisitions have been accounted for under the
purchase method of accounting. The results of operations of the acquired
businesses are included in the consolidated financial statements from the date
of acquisition.
On September 29, 1999, the Company acquired 100% of the outstanding
stock of Sierra, a pre-clinical biomedical services company, for approximately
$23,300 of which $6,000 was used to repay existing debt. The estimated fair
value of assets acquired and liabilities assumed relating to the Sierra
acquisition are summarized below:
Allocation of purchase price:
Net current assets (including cash of $292)..... $1,807
Property, plant and equipment................... 5,198
Other non-current assets........................ 254
Intangible assets:
Customer list................................ 11,491
Work force................................... 2,941
Other identifiable intangibles............... 1,251
Goodwill..................................... 852 16,535
------ -------
23,794
Less long-term liabilities assumed.............. 451
-------
$23,343
=======
F-14
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
3. Business Acquisitions (continued)
Goodwill and other intangibles related to the Sierra acquisition are
being amortized on a straight-line basis over their established lives, which
range from 5 to 15 years. As the transaction was effected through the
acquisition of the stock of Sierra, the historical tax basis of Sierra continues
and a deferred tax liability and offsetting goodwill of $4,374 has been
recorded.
In conjunction with the Sierra acquisition, the Company has agreed to
pay additional consideration of up to $2,000 if Sierra achieves specified
financial targets by December 31, 2000. This additional consideration, if any,
will be recorded as additional goodwill at the time the contingency is resolved.
Also, as part of the acquisition, the Company has agreed to pay up to $10,000 in
performance-based bonus payments if specified financial objectives are reached
over the next five years. At the time these contingencies become probable, the
bonuses, if any, will be recorded as compensation expense. In addition, the
Company has entered into employment agreements with certain key scientific and
management personnel of Sierra that contain retention and non-competition
payments totaling $3,000 to be paid upon their continuing employment with the
Company at December 31, 1999 and June 30, 2001. The Company has recorded
compensation expense of $1,435 in the accompanying consolidated financial
statements relating to the first payment which was made on December 31, 1999.
The remaining $1,565 will be expensed ratably through June 30, 2001 as such
amounts are earned.
On March 30, 1998, the Company acquired 100% of the outstanding stock
of Tektagen, Inc. for $8,000 and assumed debt equal to approximately $850.
Tektagen, Inc. provides quality control testing and consulting services to the
biotechnology and pharmaceutical industries. The purchase price exceeded the
fair value of the net assets acquired by approximately $6,600, which is being
amortized on a straight line basis over 15 years. In addition, during 1998 the
Company acquired an additional biomedical service business and one research
model business; the impact of each is considered immaterial to the Company's
financial statements taken as a whole.
The following selected unaudited pro forma consolidated results of
operations are presented as if each of the acquisitions had occurred as of the
beginning of the period immediately preceding the period of acquisition after
giving effect to certain adjustments for the amortization of goodwill and
related income tax effects. The pro forma data is for informational purposes
only and does not necessarily reflect the results of operations had the
companies operated as one during the period. No effect has been given for
synergies, if any, that may have been realized through the acquisitions.
<TABLE>
Fiscal Year Ended
------------------------------------------------
December 27, December 26, December 25,
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Net sales....................................... $ 179,513 $ 216,853 $ 235,310
Operating income................................ 21,830 36,233 42,589
Net income...................................... 15,018 23,451 16,796
Basic and diluted earnings per share............ $ 0.64 $ 0.99 $ 0.71
</TABLE>
Refer to Note 4 for the basis of determining the weighted average
number of outstanding common shares for purposes of computing the proforma
earnings per share disclosed above.
In addition, during 1997, 1998 and 1999, the Company made contingent
payments of $640 and $681, and $841 respectively, to the former owners of
acquired businesses in connection with an additional purchase price commitment.
F-15
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
4. Earnings Per Share
As more fully described under the Basis of Presentation section of Note
1, the accompanying consolidated financial statements include the combined
capital structure of Charles River Laboratories International, Inc. and Charles
River Laboratories, Inc. for the years ended December 27, 1997 and December 26,
1998 and for the period ended September 29, 1999, which was significantly
different than the capital structure of the Company after the recapitalization
transaction. Further, these historical financial statements include operations
of certain B&L entities that were contributed to Charles River Laboratories,
Inc. as part of the recapitalization and which were not historically supported
by the combined capital structure referred to above. As a result, the
presentation of historical earnings per share data determined using the combined
historical capital structure for the periods prior to September 29, 1999, the
date of the recapitalization, would not be meaningful and has not been included
herein. Rather, historical earnings per share have been computed assuming that
the shares outstanding after the recapitalization had been outstanding for all
periods presented on the basis described below.
As a result of the recapitalization more fully described in Note 2, the
DLJMB Funds, management and other investors indirectly own 87.5% of the capital
stock of the Company, and subsidiaries of B&L own the remaining 12.5%. Based
upon the amounts invested, shares outstanding of common stock in Charles River
Laboratories International, Inc. at the date of the recapitalization totaled
19,820,369. Basic earnings per share was computed by dividing earnings available
to common shareholders for each of the years in the three-year period ended
December 25, 1999 by the weighted average number of common shares outstanding in
the period subsequent to the recapitalization as if such shares had been
outstanding for the entire three-year period. Warrants to purchase 2,970,645
shares of common stock were outstanding in the period subsequent to the
recapitalization. The weighted average number of common shares outstanding in
the period subsequent to the recapitalization has not been adjusted to include
these common stock equivalents for purposes of calculating diluted earnings per
share as the warrants were issued in connection with the recapitalization
financing which are not assumed to be outstanding for purposes of computing
earnings per share.
5. Shareholders' Equity
As more fully described in Note 1, the capital structure of the Company
is presented on a combined basis at December 26, 1998 and on a consolidated
basis at December 25, 1999. Common stock information at each date is as follows:
<TABLE>
<S> <C>
December 26, 1998
Charles River Laboratories Corp., $0.01 par value, 200,000 shares authorized,
100 shares issued and outstanding....................................................... $ --
--------
Charles River Laboratories, Inc., $1 par value, 1,000 shares authorized,
1000 shares issued and outstanding...................................................... $ 1
--------
$ 1
--------
December 25, 1999
Charles River Laboratories International, Inc., $0.01 par value, 77,079,208 shares
authorized,19,820,369 shares issued and outstanding..................................... $ 198
========
</TABLE>
The Company has 250,000 shares of $.01 par value Series A Redeemable
Preferred Stock and 10,000,000 shares of $.01 par value preferred stock
authorized. At December 25, 1999, no shares were issued and outstanding.
F-16
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
6. Supplemental Balance Sheet Information
The composition of inventories is as follows:
December 26, December 25,
1998 1999
------------ ------------
Raw materials and supplies....... $ 4,932 $ 4,196
Work in process.................. 1,088 1,608
Finished products................ 24,711 24,730
--------- ---------
Inventories...................... $ 30,731 $ 30,534
========= =========
The composition of property, plant and equipment is as follows:
December 26, December 25,
1998 1999
------------ ------------
Land..................................$ 7,783 $ 7,022
Buildings............................. 90,919 90,730
Machinery and equipment............... 74,876 82,131
Leasehold improvements................ 3,063 4,668
Furniture and fixtures................ 1,532 1,826
Vehicles.............................. 3,006 2,689
Construction in progress.............. 6,176 4,679
--------- ----------
187,355 193,745
Less accumulated depreciation......... (104,665) (108,332)
--------- ----------
Net property, plant and equipment....$ 82,690 $ 85,413
========= ==========
Depreciation and amortization expense for the years ended 1997, 1998,
and 1999 was $8,320, $9,168, and $10,062, respectively.
7. Leases
Capital Leases
The Company has one capital lease for a building and numerous capital
leases for equipment. These leases are capitalized using interest rates
considered appropriate at the inception of each lease. Assets under capital
lease are not significant.
Capital lease obligations amounted to $1,132 and $1,048 at December 26,
1998 and December 25, 1999, respectively, with maturities through 2003 at
interest rates ranging from 9.5% to 15.0%. Future minimum lease payments under
capital lease obligations at December 25, 1999 are as follows:
2000.................................................... $ 384
2001.................................................... 312
2002.................................................... 293
2003.................................................... 475
----- ---------
Total minimum lease payments............................ 1,464
Less amount representing interest....................... (416)
---------
Present value of net minimum lease payments............. $ 1,048
=========
F-17
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
7. Leases (continued)
Operating Leases
The Company has various operating leases for machinery and equipment,
automobiles, office equipment, land and office space. Rent expense for all
operating leases was $4,453 in 1999, $3,273 in 1998, and $3,111 in 1997. Future
minimum payments by year and in the aggregate, under noncancellable operating
leases with initial or remaining terms of one year or more consist of the
following at December 25, 1999:
2000................................... $ 4,263
2001................................... 3,071
2002................................... 2,039
2003................................... 910
2004................................... 696
Thereafter............................. 1,928
-------
$12,907
=======
8. Income Taxes
In the fiscal years ended December 27, 1997 and December 26, 1998, and
for the nine-month period ended September 29, 1999, the Company was not a
separate taxable entity for federal and state income tax purposes and its income
for these periods was included in the consolidated B&L income tax returns. The
Company accounted for income taxes for these periods under the separate return
method in accordance with FAS 109. Under the terms of the recapitalization
agreement, B&L has assumed all income tax consequences associated with the
periods through September 29, 1999. Accordingly, all current and deferred income
tax attributes reflected in the Company's consolidated financial statements on
the effective date of the recapitalization will ultimately be settled by B&L. In
line with this, the domestic income tax attributes have been included in the net
activity with B&L and have been charged off against retained earnings. Foreign
subsidiaries are responsible for remitting taxes in their local jurisdictions.
All such payments associated with periods prior to September 29, 1999 will
ultimately be reimbursed by B&L, and this reimbursement will be recorded as an
adjustment to additional paid in capital at the time of such reimbursement.
In addition, in connection with the recapitalization transaction, CRL
Acquisition LLC and B&L made a joint election under Internal Revenue Code
Section 338(h)(10) to treat the transaction as a purchase resulting in a step-up
in the tax basis of the underlying assets. The election resulted in the
recording of a deferred tax asset, before valuation allowance, of approximately
$105,900, representing the estimated future tax benefits associated with the
increased tax basis of its assets. In connection with the establishment of the
deferred tax asset, the Company has recorded a valuation allowance of $6,380,
primarily related to its realizability with respect to state income taxes. The
Company expects to realize the net benefit of the deferred tax asset over a 15
year period. For financial reporting purposes the benefit was treated as a
contribution to capital. The Company is in the process of finalizing the tax
purchase price allocation. Any increase or decrease in the net deferred tax
assets resulting from the final allocation of tax purchase price will be an
adjustment to additional paid-in-capital.
An analysis of the components of income before income taxes and
minority interests and the related provision for income taxes is presented
below:
F-18
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
8. Income Taxes (continued)
Fiscal Year Ended
--------------------------------------
December 27, December 26, December 25,
1997 1998 1999
------------ ------------ ------------
Income before equity in earnings of
foreign subsidiaries, income taxes and
minority interests
U.S .................................... $ 13,497 $ 22,364 $ 14,608
Non-U.S ................................ 8,722 13,468 16,055
-------- -------- --------
$ 22,219 $ 35,832 $ 30,663
======== ======== ========
Income tax provision
Current:
Federal ............................... $ 6,202 $ 7,730 $ 9,522
Foreign ............................... 2,528 6,171 6,035
State and local ....................... 1,397 1,833 1,895
-------- -------- --------
Total current ....................... 10,127 15,734 17,452
-------- -------- --------
Deferred:
Federal ............................... $ (1,867) $ (597) $ (2,000)
Foreign ............................... 498 (887) 53
State ................................. (259) (127) 56
-------- -------- --------
Total deferred ...................... (1,628) (1,611) (1,891)
-------- -------- --------
$ 8,499 $ 14,123 $ 15,561
======== ======== ========
Deferred taxes, detailed below, recognize the impact of temporary
differences between the amounts of assets and liabilities recorded for financial
statement purposes and such amounts measured in accordance with tax laws.
<TABLE>
December 26, 1998 December 25, 1999
----------------------- ------------------------
Assets Liabilities Assets Liabilities
<S> <C> <C> <C> <C>
Current:
Inventories ................................. $ 827 $ -- $ -- $ --
Restructuring accruals ...................... 1,006 -- -- --
Employee benefits and compensation .......... 3,077 -- -- --
Other accruals .............................. 522 -- 632 --
--------- --------- --------- ---------
5,432 -- 632 --
--------- --------- --------- ---------
Non-current:
Goodwill and other intangibles .............. -- -- 104,617 4,272
Net operating loss and credit carryforwards . 2,960 -- 2,220 --
Depreciation and amortization ............... 3,672 836 162 --
Accrued Interest ............................ -- -- 854 --
Other ....................................... 921 -- 844 718
--------- --------- --------- ---------
7,553 836 108,697 4,990
Valuation allowance .......................... (1,766) -- (7,137) --
--------- --------- --------- ---------
5,787 836 101,560 4,990
--------- --------- --------- ---------
Total deferred taxes after valuation allowance $ 11,219 $ 836 $ 102,192 $ 4,990
========= ========= ========= =========
</TABLE>
F-19
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
8. Income Taxes (continued)
As of December 25, 1999, the Company had net operating loss
carryforwards for federal and state income tax purposes of approximately $4,200
expiring between 2004 and 2019. Additionally, the Company has foreign tax credit
carryforwards of $600 expiring in 2004. The Company has increased its valuation
allowance from the $6,380 discussed above to $7,137, primarily related to the
realizability of state operating loss carryforwards, foreign tax credits, and
certain other deferred tax assets generated in the fourth quarter. The Company
has recorded the balance of the net deferred tax asset on the belief that it is
more likely than not that it will be realized. This belief is based upon a
review of all available evidence, including historical operating results,
projections of taxable income, and tax planning strategies.
Reconciliations of the statutory U.S. federal income tax rate to
effective tax rates are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------
December 27, December 26, December 25,
1997 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
Tax at statutory U.S. tax rate .................... 35.0% 35.0% 35.0%
Foreign tax rate differences ...................... (0.1) 1.6 7.4
Non-deductible goodwill amortization .............. 0.4 0.6 0.5
State income taxes, net of federal tax benefit .... 3.3 3.1 3.6
Change in valuation allowance ..................... -- -- 2.4
Other ............................................. (0.4) (0.8) 1.8
---- ---- ---
38.2% 39.5% 50.7%
==== ==== ====
</TABLE>
During the year ended December 25, 1999, substantially all of the
accumulated earnings of the Company's foreign subsidiaries through September 29,
1999 were repatriated to the United States to B&L in connection with the
recapitalization transaction. Accordingly, a provision for U.S. federal and
state income taxes, net of foreign tax credits, has been provided on such
earnings in the year ended December 25, 1999. In addition, for periods
subsequent to September 29, 1999, the Company elected to treat certain foreign
subsidiaries in Germany and the United Kingdom as disregarded entities for U.S.
federal and state income tax purpose and, accordingly, is providing for U.S.
federal and state income taxes on such earnings. The Company's other foreign
subsidiaries have accumulated earnings subsequent to September 29, 1999. These
earnings are considered to be indefinitely reinvested and, accordingly, no
provision for U.S. income taxes has been provided thereon. Upon distribution of
those earnings in the form of dividends or otherwise, the Company would be
subject to both U.S. taxes and withholdings taxes payable to the various foreign
countries.
9. Employee Benefits
The Company sponsors one defined contribution plan and two defined
benefit plans. The Company's defined contribution plan, the Charles River
Laboratories Employee Savings Plan, qualifies under section 401(k) of the
Internal Revenue Code. It covers substantially all U.S. employees and contains a
provision whereby the Company matches employee contributions. The costs
associated with the defined contribution plan totaled $416, $498 and $588 in
1997, 1998, and 1999, respectively.
F-20
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
9. Employee Benefits (continued)
One of the Company's sponsored defined benefit plans, the Charles River
Laboratories, Inc. Pension Plan, is a qualified, non-contributory plan that also
covers substantially all U.S. employees. Benefits are based on participants'
final average monthly compensation and years of service. Participants' rights
vest upon completion of five years of service.
Under another defined benefit plan, the Company provides some executives with
supplemental retirement benefits. This plan, the Executive Supplemental Life
Insurance Retirement Plan or ESLIRP, is generally unfunded and non-qualified
under the provisions of the Employee Retirement Income Securities Act of 1974.
The Company has, however, taken out several key person life insurance policies
with the intention of using their cash surrender value to fund the ESLIRP
Plan. At December 25, 1999, the cash surrender value of these policies was
$8,052.
The following table provides reconciliations of the changes in benefit
obligations, fair value of plan assets and funded status of the two defined
benefit plans.
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------
1997 1998
---------- --------
<S> <C> <C>
Reconciliation of benefit obligation
Benefit/obligation at beginning of year........................ $20,531 $25,112
Service cost................................................... 795 958
Interest cost.................................................. 1,588 1,738
Benefit payments............................................... (742) (738)
Actuarial loss (gain).......................................... 2,940 73
------- -------
Benefit/obligation at end of year.............................. $25,112 $26,997
======= =======
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year................. $19,237 $26,493
Actual return on plan assets................................... 7,773 24,781
Employer contributions......................................... 225 759
Benefit payments............................................... (742) (738)
------- -------
Fair value of plan assets at end of year....................... $26,493 $50,795
======= =======
Funded status
Funded status.................................................. $1,381 $23,797
Unrecognized transition obligation............................. 563 423
Unrecognized prior-service cost................................ (27) (24)
Unrecognized gain.............................................. (7,178) (29,108)
------- -------
Accrued benefit (cost)......................................... $(5,261) $(4,912)
======= =======
Amounts recognized in the consolidated balance sheet
Accrued benefit cost........................................... $(7,849) $(7,237)
Intangible asset............................................... 286 215
Accumulated other comprehensive income......................... 2,302 2,110
------- -------
Net amount recognized.......................................... $(5,261) $(4,912)
======= =======
</TABLE>
F-21
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
9. Employee Benefits (continued)
Key weighted-average assumptions used in the measurement of the
Company's benefit obligations are shown in the following table:
Fiscal Year Ended
------------------------------------------
December 27, December 26, December 25,
1997 1998 1999
------------ ------------ ------------
Discount rate........................ 7.5% 7% 7%
Expected return on plan assets....... 10% 10% 10%
Rate of compensation increase........ 4.75% 4.75% 4.75%
The following table provides the components of net periodic benefit
cost for the two defined benefit plans for 1997, 1998 and 1999:
Fiscal Year
-------------------------------
1997 1998 1999
---- ---- ----
Components of net periodic benefit cost
Service cost............................ $ 804 $ 795 $ 958
Interest cost........................... 1,413 1,588 1,738
Expected return on plan assets.......... (1,717) (1,901) (2,623)
Amortization of transition obligation... 141 141 141
Amortization of prior-service cost...... (3) (3) (4)
Amortization of net gain................ (172) (85) (301)
------ ------ ------
Net periodic benefit cost............... $ 466 $ 535 $ (91)
====== ====== ======
The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for the pension plan with accumulated benefit
obligations in excess of plan assets were $8,205, $7,745 and $0, as of December
26, 1998, and $8,761, $8,315, and $0 at December 25, 1999.
The Company had an adjusted minimum pension liability of $2,302
($1,381, net of tax) and $2,110 ($1,266 net of tax) as of December 26, 1998 and
December 25, 1999, which represented the excess of the minimum accumulated net
benefit obligation over previously recorded pension liabilities.
10. Stock Compensation Plans
As part of the recapitalization, the equity investors in the
recapitalization transaction agreed and committed to establish a stock option
plan for the Company, for the purpose of providing significant equity incentives
to management. The 1999 Management Incentive Plan (the "Plan") is administered
by the Company's Compensation Committee of the Board of Directors. A total of
1,784,384 shares were reserved for the exercise of option grants under the Plan.
Awards of 1,726,328 non-qualified stock options, none of which are currently
exercisable, were ratified and granted by the Company's Compensation Committee
on December 9, 1999 effective as of September 29, 1999. Options to purchase
shares of Charles River Laboratories International, Inc. granted pursuant to the
Plan are subject to a vesting schedule based on three measures. Certain options
vest solely with the passage of time (incrementally over five years so long as
the optionee continues to be employed by the Company). The remainder of the
options vest over time but contain clauses providing for the acceleration of
vesting upon the achievement of certain performance targets or the occurrence of
certain liquidity events. All options granted expire on September 29,
F-22
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
10. Stock Compensation Plans (continued)
2009. The exercise price of all of the options initially granted under the Plan
is $5.33, the fair value of the underlying common stock at the time of grant.
Until September 29, 1999, employees of the Company participated in a
stock option plan sponsored by B&L. As a result of the recapitalization
transaction described in Note 2, employees participating in the B&L stock option
plan exercised all vested options and were compensated for all unvested options.
The Company recorded compensation expense of $1,300 in the fourth quarter of
1999 based upon the amount that B&L compensated these employees. The Company
received a capital contribution by B&L for this amount during the fourth quarter
of 1999, which has been recorded as part of the net activity with B&L. As
management's participation in the B&L plan was discontinued earlier in the year,
and the Company has established its own plan based on current facts and
circumstances, the historical FAS 123 disclosures relating to the B&L plan are
not considered relevant.
The Company accounts for stock-based compensation plans under the
provisions of APB 25. Under APB 25, because the exercise price of the new
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income is required by FAS 123,
which also requires that the information be determined as if the Company has
accounted for its employee stock options under the fair value method of that
Statement.
For purposes of this disclosure, the fair value of the fixed option
grant on December 9, 1999 was estimated using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants
outstanding:
Risk-free interest rate............................... 6.28%
Volatility factor..................................... 45.00%
Weighted average expected life (years)................ 6
The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Had compensation expense for the Company's portion of fixed options
been determined consistent with FAS 123, the Company's net income for the year
ended December 25, 1999 would have been reduced to the pro forma amounts
indicated below:
As Reported Pro Forma
Net income.............................. $17,124 $17,030
Earnings per share (actual dollars)..... 0.86 0.86
F-23
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
11. Joint Ventures
The Company has investments in several joint ventures. These joint
ventures are separate legal entities whose purpose is consistent with the
overall operations of the Company and represent geographical expansions of
existing Company markets. The financial results of two of the joint ventures are
consolidated into the Company's results as the Company has the ability to
exercise control over these entities. The interests of the outside joint venture
partners in these two joint ventures has been recorded as minority interests
totaling $306 at December 26, 1998 and $304 at December 25, 1999.
The Company also has investments in two other joint ventures that are
accounted for on the equity method. Charles River Japan is a joint venture
with Ajinomoto Co., Inc. and is an extension of the Company's research model
business in Japan. Dividends received from Charles River Japan amounted to
$773 in 1997, $681 in 1998, and $815 in 1999. Charles River Mexico, a joint
venture which is an extension of the Company's avian (or bird) business in
Mexico, is not significant to the Company's operations.
Summarized financial statement information for the unconsolidated joint
ventures is as follows:
Fiscal Year Ended
--------------------------------------
December 27, December 26, December 25,
1997 1998 1999
------------ ------------ ------------
Condensed Combined Statements of Income
Net sales......................... $ 44,744 $ 39,798 $ 44,826
Operating income.................. 7,484 6,756 7,658
Net income........................ 3,337 3,445 4,221
December 26, December 25,
1998 1999
------------ ------------
Condensed Combined Balance Sheets
Current assets.................. $19,388 $20,486
Non-current assets.............. 36,376 39,720
------- -------
$55,764 $60,206
======= =======
Current liabilities............. $13,501 $11,330
Non-current liabilities......... 6,617 6,163
Shareholders' equity............ 35,646 42,713
------- -------
$55,764 $60,206
======= =======
12. Restructuring Charges and Asset Impairments
In April 1997, the B&L Board of Directors approved plans to restructure
portions of the Company. As a result, pre-tax restructuring charges of $5,892
were recorded in 1997. The major components of the plans are summarized in the
table below:
Employee separations......................... $3,200
Asset writedowns............................. 2,157
Other........................................ 535
------
$5,892
======
F-24
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
12. Restructuring Charges and Asset Impairments (continued)
The overall purpose of the restructuring charges was to reduce costs
and improve profitability by closing excess capacity and eliminating associated
personnel, reducing excess corporate, administrative and professional personnel,
and exiting several small unprofitable product-lines. The restructuring actions
affected both the research model and biomedical products and services segments.
In total over 70 individuals were terminated in connection with these actions.
These restructuring efforts have reduced the Company's fixed cost
structure and realigned the business to meet its strategic objectives through
the closure, relocation and combining of breeding, distribution, sales and
administrative operations, and workforce reductions. Some severance costs were
being paid over periods greater than one year. Asset writedowns relate primarily
to the closing of facilities and losses resulting from equipment dispositions.
Other charges included miscellaneous costs and other commitments.
The following table sets forth the activity in the restructuring
reserves through December 25, 1999:
Restructuring Programs
----------------------
Restructuring provision................. $ 5,892
Cash payments........................... (1,725)
Asset write-downs....................... (1,435)
----------
Balance, December 27, 1997........ 2,732
Cash payments........................... (897)
Asset write-downs....................... (722)
----------
Balance, December 26, 1998........ $ 1,113
Cash payments........................... $ (1,113)
----------
Balance, December 25, 1999........ $ --
At December 25, 1999, the restructuring reserve was fully utilized.
13. 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 $2,556
and $2,813 on December 26, 1998 and December 25, 1999, 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.
F-25
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
13. Commitments and Contingencies (continued)
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 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 refoliate the islands. The Company continues to hold discussions with the
state of Florida authorities regarding the extent of refoliation required on the
islands and believes the reserves recorded in the accompanying 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 islands for $350.
14. Related Party Transactions
As more fully described in Note 2, the Company completed the
recapitalization in September 1999 and became a stand-alone entity. Until the
recapitalization, the Company historically had operated autonomously from B&L.
Some costs and expenses including insurance, information technology and other
miscellaneous expenses were charged by B&L to the Company on a direct basis,
however. Management believes these charges were based upon assumptions that were
reasonable under the circumstances. These charges and estimates are not
necessarily indicative of the costs and expenses which would have resulted had
the Company incurred these costs as a separate entity. Charges of approximately
$470, $250, and $88 for these items are included in cost of products sold, cost
of services provided and selling, general and administrative expense in the
accompanying consolidated financial statements for the years ended 1997, 1998
and for the nine months ended 1999, respectively. The Company does not expect
its stand-alone costs to be significantly different from the historical costs
allocated by B&L due to the autonomy with which the Company operated.
As more fully described in Note 2, the accompanying consolidated
financial statements include a line item "net activity with Bausch and Lomb"
which comprises the above referenced intercompany allocations, net distributions
made by the Company to B&L, and settlements with B&L as a result of the
recapitalization.
On October 11, 1999 the Company loaned to certain officers $920 to
purchase stock in Charles River Laboratories International, Inc. through CRL
Acquisition LLC. These loans are full recourse and bear interest at a rate of
6.75%. The year-end balance of $920 is classified as a reduction from
Shareholders' Equity.
15. Other Income
During the third quarter of 1999, the Company recorded a gain of $1,441
on the sale of property, plant and equipment located in Florida and the
Netherlands.
16. Geographic and Business Segment Information
The Company is organized into geographic regions for management
reporting with operating income being the primary measure of regional
profitability. Some general and administrative expenses, including some
centralized services provided by regional offices, are allocated based on
business segment sales. The accounting policies used to generate geographic
results are the same as the Company's overall accounting policies.
F-26
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
The following table presents sales and other financial information by
geography for the years 1997, 1998 and 1999. Included in the other non-U.S.
category below are the Company's operations located in Canada, China, Germany,
Italy, Netherlands, United Kingdom, Australia, Belgium, Czech Republic, Hungary,
Spain and Sweden. Sales to unaffiliated customers represent net sales
originating in entities physically located in the identified geographic area.
Long-lived assets include property, plant and equipment, goodwill and
intangibles, other investments and other assets.
F-27
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
16. Geographic and Business Segment Information (continued)
<TABLE>
<CAPTION>
Other
U.S. France Non U.S. Consolidated
--------- -------- -------- ------------
<S> <C> <C> <C> <C>
1997
Sales to unaffiliated customers..... $100,314 $25,680 $44,719 $170,713
Long-lived assets................... 62,236 10,146 22,108 94,490
1998
Sales to unaffiliated customers..... $115,639 $26,177 $51,485 $193,301
Long-lived assets................... 76,289 12,751 23,743 112,783
1999
Sales to unaffiliated customers..... $137,417 $29,205 $52,654 $219,276
Long-lived assets................... 103,261 12,234 20,191 135,686
</TABLE>
The Company's product line segments are research models and biomedical
products and services. The following table presents sales and other financial
information by product line segment for the fiscal years 1997, 1998 and 1999.
Sales to unaffiliated customers represent net sales originating in entities
primarily engaged in either provision of research models or biomedical products
and services. Long-lived assets include property, plant and equipment, goodwill
and intangibles, other investments, and other assets.
1997 1998 1999
---------- ---------- ----------
Research models
Net sales..................... $ 125,214 $ 134,590 $ 142,312
Operating income.............. 19,583 30,517 33,663
Total assets ................. 157,915 180,983 268,381
Depreciation and amortization. 5,297 5,534 8,008
Capital expenditures ......... 6,178 8,127 6,983
Biomedical products and services
Net sales .................... $ 45,499 $ 58,711 $ 76,964
Operating income ............. 6,496 11,117 14,428
Total assets ................. 38,296 53,271 94,022
Depreciation and amortization. 4,406 5,361 4,310
Capital expenditures ......... 5,694 3,782 5,968
A reconciliation of segment operating income to consolidated operating
income is as follows:
Fiscal Year Ended
--------------------------------------------
December 27, December 26, December 25,
1997 1998 1999
------------ ------------ ------------
Total segment operating income. $ 26,079 $ 41,634 $ 48,091
Unallocated corporate overhead. (4,003) (6,309) (5,128)
--------- --------- ---------
Consolidated operating income.. $ 22,076 $ 35,325 $ 42,963
========= ========= =========
Total segment assets disclosed above can be reconciled to total
consolidated assets at December 25, 1999 with the addition of the $653 deferred
tax asset pertaining to accrued interest (net of valuation allowance). This
deferred tax asset is not attributable to a product line segment.
F-28
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
16. Geographic and Business Segment Information (continued)
A summary of identifiable long-lived assets of each business segment at
year end is as follows:
December 26, December 25,
1998 1999
------------ ------------
Research Models...................... $ 73,190 $ 69,257
Biomedical Products and Services..... 39,593 66,429
----------- ----------
$ 112,783 $ 135,686
=========== ==========
17. Subsequent Events (unaudited)
As of 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. Effective with the acquisition of
this additional interest, the Company will have control of and will consolidate
the operations of Charles River Japan, from the effective date of the
incremental acquisition.
On March 10, 2000, the Company announced the closure of its Shamrock
import and conditioning business in England. The Company expects the closure to
be completed during the second quarter of 2000. The actions contemplated in this
plan relate primarily to severance, property and equipment dispositions and
other miscellaneous activities directly related to the operations being shut
down. Management has met with the 16 employees subject to its severance plans
and has communicated its intended closure actions to customers. The Company does
not expect that the sales previously made by Shamrock will be significantly
affected.
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 sale. 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.
The Company consummated an initial public offering (the "Offering") of
16,100,000 shares of its common stock at a price of $16 subsequent to the second
quarter of 2000. The Company plans to use the net proceeds from the Offering of
$236,068 to redeem a portion of its outstanding senior subordinated notes, and
to repay its senior discount debentures, subordinated discount note and a
portion of its 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.
The following pro forma presentation of selected unaudited balance
sheet information gives effect to the Offering as if it had occurred on June 24,
2000.
Pro forma as of
June 24, 2000
---------------
Total assets............................ $ 409,377
Total liabilities....................... 283,504
Shareholders' equity.................... 111,402
F-29
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
17. Subsequent Events (unaudited) (continued)
The Company will record an extraordinary loss, net of tax, of
approximately $29 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 senior discount debentures, and the
write-off of deferred financing costs and discounts associated with the debt
repayment.
F-30
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE SIX-MONTHS ENDED JUNE 26, 1999 AND JUNE 24, 2000
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------
June 26, 1999 June 24, 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) (25,821)
Loss from foreign currency, net............................................... (153) (160)
Other income (expense)........................................................ - 390
--------------- --------------
Income before income taxes, minority interests and earnings from equity
investments................................................................... 23,204 8,145
Provision for income taxes..................................................... 10,011 (396)
--------------- --------------
Income before minority interests and earnings from equity investments.......... 13,193 8,541
Minority interests............................................................. (2) (679)
Earnings from equity investments............................................... 1,117 748
--------------- --------------
Net Income..................................................................... $ 14,308 $ 8,610
=============== ==============
Earnings per common share
Basic......................................................................... $ 0.72 $ 0.43
Diluted....................................................................... $ 0.72 $ 0.37
Weighted average number of common shares outstanding
Basic......................................................................... 19,820,369 19,820,369
Diluted....................................................................... 19,820,369 23,571,555
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-31
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
December 25, June 24,
1999 2000
------------ --------
(Unaudited)
<S> <C> <C>
Assets
Current assets
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 $7,220 and
$8,971, respectively ..................................................... 36,958 41,658
Investments in affiliates ................................................. 21,722 2,166
Deferred tax asset ........................................................ 101,560 101,783
Deferred financing costs .................................................. 14,015 13,747
Other assets .............................................................. 14,393 13,467
--------- ---------
Total assets ............................................................. $ 363,056 $ 398,900
========= =========
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 20,444
Accrued income taxes ..................................................... 2,738 3,577
--------- ---------
Total current liabilities .............................................. 61,421 67,078
Long-term debt ............................................................ 381,706 392,742
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 ...................................................... 459,696 479,894
--------- ---------
Commitments and contingencies (Note 5)
Minority interests ........................................................ 304 14,471
Redeemable common stock ................................................... 13,198 13,198
Shareholder's equity
Common stock ............................................................. 198 198
Capital in excess of par value ........................................... 206,940 202,403
Retained earnings ........................................................ (307,351) (298,741)
Loans to officers ........................................................ (920) (920)
Accumulated other comprehensive income ................................... (9,009) (11,603)
Total shareholder's equity ............................................. (110,142) (108,663)
--------- ---------
Total liabilities and shareholder's equity ............................. $ 363,056 $ 398,900
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-32
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
---------------------
June 26, June 24,
1999 2000
-------- --------
<S> <C> <C>
Cash Flows Relating to Operating Activities
Net income ...................................................................... $ 14,308 $ 8,610
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 ............................. -- 1,366
Accretion of debenture and discount note ...................................... -- 6,256
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 cost ....................................................... -- (588)
Other current assets .......................................................... (694) (122)
Other assets .................................................................. (481) (1,740)
Accounts payable .............................................................. (1,210) (3,532)
Accrued compensation .......................................................... 368 3,050
Accrued ESLIRP ................................................................ 801 323
Deferred income ............................................................... 2,607 (1,835)
Accrued interest .............................................................. -- (601)
Accrued liabilities ........................................................... (2,499) (2,339)
Accrued income taxes .......................................................... (4,569) (449)
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 .......................................................... $ 171 $ 18,773
Cash paid for taxes ............................................................. 2,978 4,539
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-33
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, 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 International, 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 10-K for
the year ended December 25, 1999.
On June 5, 2000, a 1.927 for 1 exchange of stock was approved by the
Board of Directors of the Company. This exchange of stock was effective June 21,
2000. All earnings per common share amounts, references to common stock and
shareholders' equity amounts have been restated as if the exchange of stock had
occurred as of the earliest period presented.
2. Initial Public Offering
The Company 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. The Company plans to use the net proceeds from the Offering of $236,068 to
redeem a portion of its outstanding senior subordinated notes, and to repay its
senior discount debentures, subordinated discount note and a portion of its 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 proforma presentation of selected unaudited balance sheet
information gives effect to the Offering as if it had occurred on June 24, 2000.
Pro forma as of
June 24, 2000
-------------
Total assets............................ $409,377
Total liabilities....................... 283,504
Shareholders' equity.................... 111,402
The Company will record an extraordinary loss, net of tax, of
approximately $29 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 senior discount debentures, and the
write-off of deferred financing costs and discounts associated with the debt
repayment.
F-34
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(dollars in thousands)
3. Supplemental Balance Sheet Information
The composition of inventories is as follows:
December 25, June 24,
1999 2000
------------ --------
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
========= ========
The composition of property, plant and equipment is as follows:
December 25, June 24,
1999 2000
------------ --------
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
========= ========
4. Income Taxes
Effect of the Offering
As further described in Note 2, the Company closed its initial public
offering in the third quarter of 2000. 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 53.6%. The 53.6%
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 balance of $102,415 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.
F-35
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(dollars in thousands)
4. Income Taxes (continued)
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,
the Company'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.
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.
F-36
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(dollars in thousands)
6. Earnings Per Share
As described in the notes to the Company's consolidated financial
statements as of, and for the fiscal year ended, December 25, 1999, pursuant to
a recapitalization agreement effective September 29, 1999, all of the assets,
liabilities, operations and cash flows relating to Charles River Laboratories,
Inc., were contributed to an existing dormant subsidiary which was subsequently
renamed Charles River Laboratories, Inc. Under the terms of the
recapitalization, Charles River Laboratories, Inc., became a wholly owned
subsidiary of Charles River Laboratories, International, Inc. The capital
structure in place for periods prior to September 29, 1999 was significantly
different than the capital structure of the Company after the recapitalization.
The condensed consolidated income statements for the three month and six month
periods ended June 26, 1999 also include operations of certain Bausch and Lomb
(the Company's 100% shareholder prior to the recapitalization) entities which
were not historically supported by the combined capital structure of Charles
River Laboratories International, Inc. and Charles River Laboratories, Inc. As a
result, the presentation of historical earnings per share data determined using
the combined historical capital structure for the six month period ended June
26, 1999, would not be meaningful and has not been included in these condensed
consolidated interim financial statements. Rather, earnings per share for the
six months ended June 26, 1999 has been computed assuming that the shares
outstanding after the recapitalization had been outstanding for these periods.
As a result of the recapitalization DLJ Merchant Banking Partners II,
L.P. and affiliated funds, management and other investors indirectly owned 87.5%
of the capital stock of the Company, and subsidiaries of Bausch and Lomb owned
the remaining 12.5% as of June 24, 2000. Based upon the amounts invested, shares
outstanding of common stock in Charles River Laboratories, International, Inc.
at the date of the recapitalization totaled 19,820,369. Basic earnings per share
for the six month period ended June 26, 1999 was computed by dividing earnings
available to common shareholders for these periods, by the weighted average
number of common shares outstanding in the period subsequent to the
recapitalization. Basic earnings per share for the six month period ended June
24, 2000 was computed by dividing earnings available to common shareholders for
these periods by the weighted average number of common shares outstanding in the
respective periods.
For purposes of calculating diluted earnings per share for the six
month period ended June 26, 1999, the weighted average number of common shares
used in the basic earnings per share computation described above has not been
adjusted to include common stock equivalents, as these common stock equivalents
were issued in connection with the recapitalization financing and are not
assumed to be outstanding for purposes of computing earnings per share in these
periods. The weighted average number of common shares outstanding in the six
month period ended June 24, 2000 has been adjusted to include common stock
equivalents for the purpose of calculating diluted earnings per shares for these
periods.
The following table illustrates the reconciliation of the numerator and
denominator of the basic and diluted earnings per share computations:
<TABLE>
Six Month Period Ended
----------------------------
June 26, 1999 June 24, 2000
------------- -------------
<S> <C> <C>
Numerator - basic and diluted earnings per share
Income available to common stockholders ........................ $ 14,308 $ 8,610
Denominator:
Basic earnings per share - weighted average shares outstanding . 19,820,369 19,820,369
Effect of dilutive securities - stock options and warrants ..... -- 3,751,186
----------- -----------
Diluted earnings per share - weighted average shares outstanding 19,820,369 23,571,555
=========== ===========
Basic earnings per share ....................................... $ 0.72 $ 0.43
Diluted earnings per share ..................................... $ 0.72 $ 0.37
</TABLE>
F-37
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(dollars in thousands)
7. 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
by the closure. A charge 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 term of
the sales agreement, the Company is no longer obligated to ship research models
and, accordingly, recorded this amount as income in the first quarter of 2000.
Fiscal 1999 sales associated with this product line approximated $2,800.
8. Business Segment Information
The following table presents sales and other financial information by
product line segment for the 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.
Six Month Period Ended
-----------------------------
June 26, 1999 June 24, 2000
------------- -------------
Research Models
Net sales .................................. $73,782 $87,176
Operating income ........................... 20,306 25,150
Depreciation and amortization .............. 3,991 4,596
Capital expenditures ....................... 2,512 3,281
Biomedical Products and Services
Net sales .................................. 34,384 56,223
Operating income ........................... 7,417 11,056
Depreciation and amortization .............. 1,825 3,416
Capital expenditures ....................... 2,125 2,826
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:
F-38
<PAGE>
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(dollars in thousands)
Six Month Period Ended
---------------------------------
June 26, 1999 June 24, 2000
------------- -------------
Total segment operating income..... $ 27,723 $ 36,206
Unallocated corporate overhead..... (4,554) (2,761)
--------- ---------
Consolidated operating income...... 23,169 33,445
========= =========
9. Comprehensive Income
The components of comprehensive income for the six-month periods ended
June 26, 1999 and June 24, 2000 are set forth below:
Six Month Period Ended
---------------------------------
June 26, 1999 June 24, 2000
------------- -------------
Net income....................... $ 14,308 $ 8,610
Foreign currency translation..... (4,768) (2,594)
--------- --------
Comprehensive income............. 9,540 6,016
========= ========
F-39
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the securities being registered.
Legal fees and expenses...................... $ 25,000
Accounting fees and expenses................. 17,500
Miscellaneous................................ 7,500
--------
Total........................................ $ 50,000
========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court
to award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, the Registrant's
certificate of incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) under section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases) or (iv) for any transaction from which
the director derived an improper personal benefit.
As a result of this provision, the ability of the Registrant, or a
stockholder thereof, to successfully prosecute an action against a director for
breach of his duty of care is limited. However, the provision does not affect
the availability of equitable remedies such as an injunction or rescission based
upon a director's breach of his duty of care. The SEC has taken the position
that the provision will have no effect on claims arising under the federal
securities laws.
In addition, the Registrant's certificate of incorporation provides for
mandatory indemnification rights, subject to limited exceptions, to any director
or executive officer of the Registrant who (because of the fact that he or she
is a director or officer) is involved in a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by such
director or officer in advance of the final disposition of such proceeding in
accordance with the applicable corporate law.
The indemnification provisions in the Registrant's certificate of
incorporation, by-laws and the indemnification agreements entered into between
the Registrant and each of its directors and executive officers may be
sufficiently broad to permit indemnification of the Registrant's directors and
executive officers for liabilities arising under the Securities Act.
Charles River Laboratories, Inc. provides insurance from commercial
carriers against some liabilities incurred by the directors and officers of the
Registrant.
II-1
<PAGE>
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
Document Exhibit Number
-------- --------------
Amended and Restated Certificate of Incorporation...... 3.1
By-laws................................................ 3.2
Form of Indemnification Agreement...................... 10.16
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The shares of capital stock and other securities issued in the
following transactions were offered and sold in reliance upon the following
exemptions: (i) in the case of the transactions described in (a) below, Section
4(2) of a the Securities Act or Registration D promulgated thereunder relative
to sales by an issuer not involving a public offering; and (ii) in the case of
the transactions (b) below, Section 3(b) of the Securities Act and Rule 701
promulgated thereunder relative to sales pursuant to certain compensatory
benefits plans.
(a) On September 29, 1999, Charles River Laboratories, Inc. sold
150,000 units consisting of 13-1/2% notes due 2009 and warrants to purchase
1,140,000 shares of common stock of Charles River Laboratories International,
Inc. for an aggregate principal amount of $150,000,000 to Donaldson, Lufkin &
Jenrette Securities Corporation in a private placement in reliance on Section
4(2) under the Securities Act, at an offering price of $1,000 per unit. On the
same day, the Registrant sold senior discount debentures with other warrants to
DLJ Merchant Banking Partners II, L.P. and other investors for $37.6 million and
a subordinated discount note to subsidiaries of Bausch & Lomb Incorporated for
$43 million, each in a private placement in reliance on Section 4(2) under the
Securities Act.
(b) Grants of Stock Options: (i) As of July 15, 2000, options to
purchase 1,726,328 shares of common stock were outstanding under the
Registrant's 1999 Management Incentive Plan, none of which were exercisable
within 60 days of such date. None of the outstanding options had been exercised.
All such options were granted on December 9, 1999 to employees of the
Registrant; (ii) as of July 15, 2000, options to purchase 60,000 shares of
common stock were outstanding under the Registrant's 2000 Director Stock Plan,
none of which were exercisable within 60 days of such date. None of the
outstanding options had been exercised. All such options were granted on
December 9, 1999 to employees of the Registrant; (iii) as of July 15, 2000,
options to purchase 447,400 shares of common stock were outstanding under the
Registrant's 2000 Incentive Plan, none of which were exercisable within 60 days
of such date. None of the outstanding options had been exercised. All such
options were granted on June 23, 2000 to employees of the Registrant.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following exhibits are filed as part of this registration
statement:
Number Description
-------- -------------------------------------------------------------------
2.1*** Recapitalization Agreement, dated as of July 25, 1999, among
Charles River Laboratories, Inc., Charles River Laboratories
International, Inc. (formerly known as Endosafe, Inc.), Bausch &
Lomb Incorporated, and other parties listed therein.
2.2*** Amendment No. 1 to Recapitalization Agreement, dated as of
September 29, 1999 by Bausch & Lomb Incorporated and CRL
Acquisition LLC.
2.3** Agreement and Plan of Reorganization, dated as of June 6, 2000,
among Charles River Laboratories International, Inc., CRL
Acquisition LLC and B&L CRL, Inc.
3.1** Amended and Restated Certificate of Incorporation of Charles River
Laboratories International, Inc.
3.2** By-laws of Charles River Laboratories International, Inc.
4.1* Warrant Agreement dated as of September 29, 1999, between Charles
River Laboratories Holdings, Inc. and State Street Bank and Trust
Company.
4.2*** Investors' Agreement, dated as of September 29, 1999, among Charles
River Laboratories International, Inc. and the shareholders named
therein.
5.1*** Opinion of Davis Polk & Wardwell with respect to the validity of
the securities.
10.1*** Credit Agreement, dated as of September 29, 1999, among Charles
River Laboratories, Inc., the various financial institutions that
are or may become parties as lenders thereto, DLJ Capital Funding,
Inc., as lead arranger, sole book runner and syndication agent for
the lenders, Union Bank of California, N.A., as administrative
agent for the lenders, and National City Bank, as documentation
agent for the lenders.
10.2*** Indenture, dated as of September 29, 1999 between Charles River
Laboratories, Inc. and the Trustee.
10.3*** Purchase Agreement between Charles River Laboratories, Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation as Initial
Purchaser.
10.4+ Joint Venture Agreement between Ajinomoto Co., Inc. and Charles
River Breeding Laboratories, Inc. dated June 24, 1981, and
ancillary agreements, amendments and addendums.
10.5*** Supply Agreement between Merck & Co., Inc. and Charles River
Laboratories, Inc. dated September 30, 1994.
10.6*** Amended and Restated Stock Purchase Agreement among Charles River
Laboratories, Inc. and SBI Holdings, Inc. and its stockholders
dated September 4, 1999.
10.7+ Ground Lease between HIC Associates (Lessor) and Charles River
Laboratories, Inc. (Lessee) dated June 5, 1992; Real Estate Lease
between Charles River Laboratories, Inc. (Landlord) and Charles
River Partners L.P. (Tenant) dated December 22, 1993; and
Assignment and Assumption Agreement between Charles River Partners,
L.P. (Assignor) and Wilmington Partners L.P. (Assignees) dated
December 22, 1993.
10.8*** Amended and Restated Distribution Agreement between Charles River
BRF, Inc., Charles River Laboratories, Inc., Bioculture Mauritius
Ltd. and Marry Ann and Owen Griffiths, dated December 23, 1997.
10.9*** Supply Agreement between Sierra Biomedical, Inc. and Scientific
Resources International, Ltd., dated March 18, 1997.
II-3
<PAGE>
Number Description
-------- -------------------------------------------------------------------
10.10**** Severance Agreement between Charles River Laboratories, Inc. and
Real H. Renaud dated January 20, 1992.
10.11**** 1999 Charles River Laboratories Officer Separation Plan.
10.12**** Form of Agreement and Release among Bausch & Lomb, Incorporated,
Charles River Laboratories, Inc. and the named executive officers
dated as of July 25, 1999.
10.13# 1999 Management Incentive Plan.
10.14** 2000 Incentive Plan.
10.15** 2000 Directors Stock Plan.
10.16** Form of Indemnification Agreement.
21.1**** Subsidiaries of Charles River Laboratories International, Inc.
23.1*** Consent of Davis Polk & Wardwell (contained in their opinion filed
as Exhibit 5.1).
23.2* Consent of PricewaterhouseCoopers LLP.
24.1*** Power of Attorney pursuant to which amendments to this registration
statement may be filed.
--------------------
* Filed herewith.
** Previously filed as an exhibit to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (File No. 333-35524) filed June 23,
2000.
*** Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 333-92383) filed December 8, 1999.
**** Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-35524) filed June 6, 2000.
+ Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-92383) filed January 28,
2000.
# Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q (File No. 333-92383) filed May 9, 2000.
II-4
<PAGE>
(b) Financial Statement Schedules. The following financial
statement schedules are included as part of this registration statement.
Financial Statement Schedules
Schedule I
Charles River Laboratories International, Inc.
Condensed Parent Company Statement of Income
(Dollars in Thousands)
Three Months Ended
December 25, 1999
------------------
Operating income ............................................. $ --
Interest expense ............................................. 2,846
Loss before income taxes and loss from investment in
subsidiary ................................................. 2,846
Income tax benefit ........................................... 653
Loss before loss from investment in subsidiary ............... 2,193
Loss from equity investment in subsidiary .................... 635
---------
Net loss ..................................................... $ 2,828
=========
Condensed Parent Company Balance Sheet
(Dollars in Thousands)
Three Months Ended
December 25, 1999
------------------
Non-Current Assets
Deferred tax asset .......................................... $ 653
---------
Total Assets ................................................ $ 653
---------
Liabilities and shareholders' equity
Non-current liabilities
Excess of liabilities over assets in
equity accounted subsidiary .............................. $ 22,616
Long-term debt ............................................ 74,981
---------
Total liabilities ....................................... 97,597
---------
Redeemable common stock ..................................... 13,198
Shareholders' equity
Common stock .............................................. 198
Capital in excess of par .................................. 206,940
Retained earnings ......................................... (307,351)
Loans to officers ......................................... (920)
Accumulated other comprehensive income .................... (9,009)
---------
Total shareholders' equity ................................ (110,142)
---------
Total liabilities and shareholders' equity .............. $ 653
=========
II-5
<PAGE>
Condensed Parent Company Statement of Cash Flows
(Dollars in Thousands)
Three Months Ended
December 25, 1999
-----------------
Cash flows relating to operating activities
Net loss ....................................... $(2,828)
Adjustment to reconcile net loss to net cash
provided by operating activities:
Accretion of debenture and discount note ..... 2,644
Amortization of discounts .................... 202
Deferred income taxes ........................ (653)
Loss from equity investment .................. 635
-------
Net cash provided by operating activities .... $ --
-------
Net cash provided by investing activities .... $ --
-------
Net cash provided by financing activities .... $ --
-------
Net change in cash and cash equivalents ...... $ --
-------
Cash and cash equivalents, beginning of period $ --
-------
Cash and cash equivalents, end of period ..... $ --
-------
Financial Statement Schedules
Charles River Laboratories International, Inc.
Notes to Condensed Parent Company
Financial Statements
1. Basis of Presentation
These condensed parent company financial statements have been prepared
in accordance with Rule 12-04, Schedule 1 of Regulation S-X, as the restricted
net assets of Charles River Laboratories Inc. exceed 25% percent of the
consolidated net assets of Charles River Laboratories International, Inc. (the
"Parent Company"). As disclosed in note 2 to the accompanying consolidated
financial statements, in order to repay its obligations, the Parent Company is
dependent upon either dividends from Charles River Laboratories, Inc., which are
restricted by terms contained in the indenture governing the senior subordinated
notes and the senior secured credit facility, or through a refinancing or equity
transaction.
The Parent Company's 100% investment in Charles River Laboratories Inc.
has been recorded using the equity basis of accounting in the accompanying
condensed parent company financial statements. The condensed income statement
and statement of cash flows are presented for the three month period ended
December 25, 1999, as the dividend restrictions and the current capital
structure of the Parent Company were created as a result of the recapitalization
transaction more fully described in note 2 to the accompanying consolidated
financial statements. For this reason, comparative information prior to the date
of the recapitalization is not considered relevant in these condensed Parent
Company financial statements. There were no cash dividends paid to the Parent
Company by Charles River Laboratories Inc. in the three-month period ended
December 25, 1999.
On June 5, 2000, a 1.927 for 1 exchange of stock was approved by the
Board of Directors of the Parent Company. This exchange of stock was effective
June 21, 2000. All references to common stock and shareholders' equity amounts
have been restated in these condensed Parent Company financial statements as if
the exchange of stock had occurred as of the earliest period presented.
II-6
<PAGE>
Schedule II--Valuation and Qualifying Accounts
Charles River Laboratories International, Inc.
Income Tax Valuation Allowance
<TABLE>
Charged
Balance to costs Charged Balance
at beginning and to other at end of
of period expenses accounts Description Deductions Description period
--------- -------- -------- ----------- ---------- ----------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
For the year ended December 25, 1999.
Income Tax Valuation Allowance....... $1,766 $5,371 Provisions $-- $7,137
For the year ended December 25, 1998.
Income Tax Valuation Allowance....... $1,766 $ -- Provisions $-- $1,766
For the year ended December 25, 1997.
Income Tax Valuation Allowance....... $ -- $1,766 Provisions $-- $1,766
</TABLE>
Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Charged
Balance to costs Charged Balance
at beginning and to other at end of
of period expenses accounts Description Deductions Description period
--------- -------- -------- ----------- ---------- ----------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
For the year ended December 25, 1999.
Income Tax Doubtful Accounts......... Recoveries/
$898 $324 Provisions $(244) Write-offs $978
For the year ended December 25, 1998.
Income Tax Doubtful Accounts......... Recoveries/
$688 $265 Provisions $(55) Write-offs $898
For the year ended December 25, 1997.
Income Tax Doubtful Accounts......... Recoveries/
$568 $192 Provisions $(72) Write-offs $688
</TABLE>
Other financial statement schedules have been omitted because they are
inapplicable or are not required under applicable provisions of Regulation S-X
or because the information that would otherwise be included in such schedules is
contained in the Registrant's financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(x) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(y) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement.
(z) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
II-7
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment No. 1 to the Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Wilmington, State of Massachusetts, on the 31st
day of August, 2000.
Charles River Laboratories International, Inc.
By /s/Thomas F. Ackerman
-----------------------------------------------
Thomas F. Ackerman
Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement on Form S-1 has
been signed by the following persons in the capacities indicated on August 31,
2000.
Signature Title
--------- -----
*
--------------------- President, Chief Executive Officer
James C. Foster (Principal Executive Officer) and
Chairman
/s/Thomas F. Ackerman Chief Financial Officer (Principal
--------------------- Financial Officer) and Senior Vice
Thomas F. Ackerman President, Finance and Administration
(Principal Accounting Officer)
*
--------------------- Director
Robert Cawthorn
* Director
---------------------
Stephen D. Chubb
* Director
---------------------
Thompson Dean
* Director
---------------------
Reid S. Perper
* Director
---------------------
Douglas E. Rogers
* The undersigned, by signing his name hereto, does sign and execute this
Post-Effective Amendment No. 1 pursuant to the Power of Attorney executed by
the above-named directors and officers of the Registrant and previously filed
with the Securities and Exchange Commission on behalf of such directors and
officers.
By: /s/Thomas F. Ackerman
---------------------------
Thomas F. Ackerman
Attorney-in Fact
II-9
<PAGE>
Exhibit Index
(a) Exhibits. The following exhibits are filed as part of this registration
statement:
Number Description
-------- ------------------------------------------------------------------
2.1*** Recapitalization Agreement, dated as of July 25, 1999, among
Charles River Laboratories, Inc., Charles River Laboratories
International, Inc. (formerly known as Endosafe, Inc.), Bausch &
Lomb Incorporated, and other parties listed therein.
2.2*** Amendment No. 1 to Recapitalization Agreement, dated as of
September 29, 1999 by Bausch & Lomb Incorporated and CRL
Acquisition LLC.
2.3** Agreement and Plan of Reorganization, dated as of June 6, 2000,
among Charles River Laboratories International, Inc., CRL
Acquisition LLC and B&L CRL, Inc.
3.1** Amended and Restated Certificate of Incorporation of Charles River
Laboratories International, Inc.
3.2** By-laws of Charles River Laboratories International, Inc.
4.1* Warrant Agreement dated as of September 29, 1999, between Charles
River Laboratories Holdings, Inc. and State Street Bank and Trust
Company.
4.2*** Investors' Agreement, dated as of September 29, 1999, among Charles
River Laboratories International, Inc. and the shareholders named
therein.
5.1*** Opinion of Davis Polk & Wardwell with respect to the validity of
the securities.
10.1*** Credit Agreement, dated as of September 29, 1999, among Charles
River Laboratories, Inc., the various financial institutions that
are or may become parties as lenders thereto, DLJ Capital Funding,
Inc., as lead arranger, sole book runner and syndication agent for
the lenders, Union Bank of California, N.A., as administrative
agent for the lenders, and National City Bank, as documentation
agent for the lenders.
10.2*** Indenture, dated as of September 29, 1999 between Charles River
Laboratories, Inc. and the Trustee.
10.3*** Purchase Agreement between Charles River Laboratories, Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation as Initial
Purchaser.
10.4+ Joint Venture Agreement between Ajinomoto Co., Inc. and Charles
River Breeding Laboratories, Inc. dated June 24, 1981, and
ancillary agreements, amendments and addendums.
10.5*** Supply Agreement between Merck & Co., Inc. and Charles River
Laboratories, Inc. dated September 30, 1994.
10.6*** Amended and Restated Stock Purchase Agreement among Charles River
Laboratories, Inc. and SBI Holdings, Inc. and its stockholders
dated September 4, 1999.
10.7+ Ground Lease between HIC Associates (Lessor) and Charles River
Laboratories, Inc. (Lessee) dated June 5, 1992; Real Estate Lease
between Charles River Laboratories, Inc. (Landlord) and Charles
River Partners L.P. (Tenant) dated December 22, 1993; and
Assignment and Assumption Agreement between Charles River Partners,
L.P. (Assignor) and Wilmington Partners L.P. (Assignees) dated
December 22, 1993.
10.8*** Amended and Restated Distribution Agreement between Charles River
BRF, Inc., Charles River Laboratories, Inc., Bioculture Mauritius
Ltd. and Marry Ann and Owen Griffiths, dated December 23, 1997.
10.9*** Supply Agreement between Sierra Biomedical, Inc. and Scientific
Resources International, Ltd., dated March 18, 1997.
II-10
<PAGE>
Number Description
-------- ------------------------------------------------------------------
10.10**** Severance Agreement between Charles River Laboratories, Inc. and
Real H. Renaud dated January 20, 1992.
10.11**** 1999 Charles River Laboratories Officer Separation Plan.
10.12**** Form of Agreement and Release among Bausch & Lomb, Incorporated,
Charles River Laboratories, Inc. and the named executive officers
dated as of July 25, 1999.
10.13# 1999 Management Incentive Plan.
10.14** 2000 Incentive Plan.
10.15** 2000 Directors Stock Plan.
10.16** Form of Indemnification Agreement.
21.1**** Subsidiaries of Charles River Laboratories International, Inc.
23.1*** Consent of Davis Polk & Wardwell (contained in their opinion filed
as Exhibit 5.1).
23.2* Consent of PricewaterhouseCoopers LLP.
24.1*** Power of Attorney pursuant to which amendments to this registration
statement may be filed.
--------------------
* Filed herewith.
** Previously filed as an exhibit to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (File No. 333-35524) filed June 23,
2000.
*** Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 333-92383) filed December 8, 1999.
**** Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-35524) filed June 6, 2000.
+ Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-92383) filed January 28,
2000.
# Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q (File No. 333-92383) filed May 9, 2000.
II-11
