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UNITED STATES
SECURITES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15() OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15() OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 333-92383
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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
(Exact Name of Registrant as specified in its Charter)
DELAWARE 06-1397316
(State of Incorporation) (I.R.S. Employer Identification No.)
251 BALLARDVALE STREET, WILMINGTON, MASSACHUSETTS 01887
(Address of Principal Executive Offices) (Zip Code)
978-658-6000
(Registrant's Telephone Number, Including Area Code)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of March 31, 2001 there were 40,127,642 shares of the registrant's common
stock outstanding
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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
TABLE OF CONTENTS
PAGE
--------
Part I. Financial Information
Item 1. Financial Statements............................... 3
Condensed Consolidated Statements of Income (Unaudited) for
the three months ended March 25, 2000 and March 31, 2001.... 3
Condensed Consolidated Balance Sheets as of December 30,
2000 and March 31, 2001 (Unaudited)......................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
as of the three months ended March 25, 2000 and March 31,
2001...................................................... 5
Notes to Unaudited Condensed Consolidated Interim Financial
Statements................................................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................... 17
Signature................................................... 18
2
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 25, 2000 AND MARCH 31, 2001
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED
-----------------------
MARCH 25, MARCH 31,
2000 2001
---------- ----------
Net sales related to products............................... $ 54,016 $ 62,078
Net sales related to services............................... 18,486 36,953
---------- ----------
Total net sales............................................. $ 72,502 $ 99,031
Costs and Expenses
Cost of products sold..................................... 32,193 36,418
Cost of services provided................................. 12,399 25,951
Selling, general and administrative....................... 11,813 15,460
Amortization of goodwill and intangibles.................. 865 1,828
---------- ----------
Operating income............................................ 15,232 19,374
Other income (expense)
Interest income........................................... 142 253
Interest expense.......................................... (12,664) (6,958)
Other income (expense).................................... (30) 555
---------- ----------
Income before income taxes, minority interests, earnings
from equity investments and extraordinary item............ 2,680 13,224
Provision for income taxes.................................. 2,468 5,555
---------- ----------
Income before minority interests, earnings from equity
investments and extraordinary item........................ 212 7,669
Minority interests.......................................... (217) (564)
Earnings from equity investments, net of tax................ 641 83
---------- ----------
Income before extraordinary item............................ 636 7,188
Extraordinary loss, net of tax benefit of $128.............. -- (237)
---------- ----------
Net income.................................................. $ 636 $ 6,951
Earnings per common share before extraordinary item
Basic..................................................... $ 0.03 $ 0.20
Diluted................................................... $ 0.03 $ 0.18
Earnings per common share after extraordinary item
Basic..................................................... $ 0.03 $ 0.19
Diluted................................................... $ 0.03 $ 0.17
Weighted average number of common shares outstanding before
and after extraordinary item
Basic..................................................... 19,820,369 36,582,532
Diluted................................................... 23,571,555 40,287,045
See Notes to Condensed Consolidated Financial Statements
3
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 30, MARCH 31,
2000 2001
------------ -----------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents................................. $ 33,129 $ 72,399
Trade receivables, less allowances of $1,036 and $1,012,
respectively............................................ 45,949 78,295
Inventories............................................... 33,890 34,287
Deferred income taxes..................................... 2,055 2,055
Due from affiliates....................................... 83 83
Other current assets...................................... 4,631 8,083
--------- ---------
Total current assets.................................... 119,737 195,202
Property, plant and equipment, net.......................... 117,001 139,694
Goodwill and other intangibles, less accumulated
amortization of $10,810 and $12,624, respectively......... 41,893 91,529
Investments in affiliates................................... 2,442 2,514
Deferred tax asset.......................................... 105,027 101,078
Deferred financing costs.................................... 7,979 8,203
Other assets................................................ 16,529 17,165
--------- ---------
Total assets............................................ $ 410,608 $ 555,385
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt......................... $ 231 $ 16,153
Current portion of capital lease obligation............... 181 1,633
Accounts payable.......................................... 10,767 10,814
Accrued compensation...................................... 16,997 16,300
Deferred income........................................... 5,223 11,760
Accrued interest.......................................... 3,451 7,059
Accrued liabilities....................................... 24,187 33,078
Accrued income taxes...................................... 3,283 2,503
--------- ---------
Total current liabilities............................... 64,320 99,300
Long-term debt.............................................. 201,957 228,302
Capital lease obligations................................... 543 2,403
Accrued ESLIRP.............................................. 10,116 10,391
Other long-term liabilities................................. 3,415 3,886
--------- ---------
Total liabilities....................................... 280,351 344,282
--------- ---------
Commitments and contingencies
Minority interests.......................................... 13,330 11,962
Shareholders' equity
Common stock $0.01 par value, 120,000,000 shares
authorized, 35,920,369 and 40,127,642 shares issued and
outstanding as of December 30, 2000 and March 31, 2001,
respectively............................................ 359 401
Capital in excess of par value............................ 451,404 529,959
Retained earnings......................................... (318,575) (311,624)
Loans to officers......................................... (920) (620)
Accumulated other comprehensive income.................... (15,341) (18,975)
--------- ---------
Total shareholders' equity.............................. 116,927 199,141
--------- ---------
Total liabilities and shareholders' equity.............. $ 410,608 $ 555,385
========= =========
See Notes to Condensed Consolidated Financial Statements
4
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
---------------------
MARCH 25, MARCH 31,
2000 2001
--------- ---------
CASH FLOWS RELATING TO OPERATING ACTIVITIES
Net income.................................................. $ 636 $ 6,951
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 3,764 5,439
Amortization of debt issuance costs and discounts......... 683 453
Accretion of debenture and discount note.................. 3,161 --
Provision for doubtful accounts........................... 82 199
Extraordinary loss, net of tax............................ -- 237
Earnings from equity investments.......................... (641) (83)
Minority interests........................................ 217 564
Deferred income taxes..................................... (42) 4,303
Property, plant, and equipment write-downs and
disposals............................................... -- 195
Other non-cash items...................................... 12 --
Changes in assets and liabilities:
Trade receivables......................................... (6,564) (5,559)
Inventories............................................... (104) (555)
Due from affiliates....................................... 128 --
Other current assets...................................... (583) (2,663)
Other assets.............................................. (102) (426)
Accounts payable.......................................... (2,585) (2,581)
Accrued compensation...................................... (413) (2,035)
Accrued ESLIRP............................................ 167 275
Deferred income........................................... (782) (208)
Accrued interest.......................................... 4,478 3,604
Accrued liabilities....................................... (740) 678
Accrued income taxes...................................... 1,243 (731)
Other long-term liabilities............................... (154) (229)
------- --------
Net cash provided by operating activities............... $ 1,861 $ 7,828
------- --------
CASH FLOWS RELATING TO INVESTING ACTIVITIES
Capital expenditures...................................... (2,786) (4,253)
Contingent payments for prior year acquisitions........... -- (250)
Acquisition of businesses, net of cash acquired........... (6,011) (51,265)
Proceeds from sale of animal colony....................... 7,000 --
------- --------
Net cash used in investing activities................... $(1,797) $(55,768)
------- --------
CASH FLOWS RELATING TO FINANCING ACTIVITIES
Proceeds from long term debt.............................. 4,114 39,831
Payments on long-term debt and revolving credit
facility................................................ (300) (12,099)
Payments of deferred financing costs...................... -- (891)
Payments on capital lease obligations..................... (93) (701)
Proceeds from issuance of common stock, net of transaction
fees.................................................... -- 62,222
Payments of officer loans................................. -- 300
------- --------
Net cash provided by financing activities............... $ 3,721 $ 88,662
------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (337) (1,452)
Net change in cash and cash equivalents..................... 3,448 39,270
------- --------
Cash and cash equivalents, beginning of period.............. 15,010 33,129
------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $18,458 $ 72,399
======= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.................................. $ 4,317 $ 6,747
Cash paid for taxes..................................... 980 2,339
5
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 30, 2000.
2. PUBLIC OFFERINGS
On March 21, 2001, the Company consummated a public offering (the "Follow-on
Offering") of 3,500,000 shares of its common stock at a price of $19.00 per
share. As part of the Follow-on Offering, existing shareholders sold an
additional 4,550,000 shares of common stock, which included the exercise of the
underwriters' over-allotment option of 1,050,000 shares. The Company received
proceeds of $62,222, net of underwriter's commissions and follow-on offering
costs. The Company has used a portion of the proceeds to repay $3,000 and $9,000
of the Term Loan A and Term Loan B, respectively. As a result of this debt
repayment the Company has recorded an extraordinary loss before tax of $365 due
to the write-off of deferred financing costs. This extraordinary loss has been
recorded net of a tax benefit of $128. The Company plans to use the remainder of
the proceeds to repay a portion of its remaining indebtedness.
On June 28, 2000, the Company consummated an initial public offering (the
"IPO") of 16,100,000 shares of its common stock at a price of $16.00 per share.
The Company used the net proceeds from the IPO of $235,964 plus cash on hand of
$300 to repay $204,732 of its existing debt, including issuance discounts and
premiums of $31,532.
3. ACQUISITIONS AND DISPOSALS
ACQUISITIONS
On January 8, 2001, Charles River Laboratories, Inc. ("CRL"), the Company's
wholly owned subsidiary, purchased 100% of the common stock of Pathology
Associates International Corporation ("PAI"). Consideration, including
acquisition expenses, of $35,238 was paid with respect to this acquisition
consisting of $25,557 in cash and a $12,000 callable convertible note. The
convertible note has a five year term and bears interest at 2% per annum. As the
stated interest rate attached to this $12,000 note is lower than the prevailing
borrowing rate available to CRL, a discount of $2,319, which is being amortized
over the life of the note, was recorded upon issuance. Consideration of $9,681
was recorded with respect to the convertible note. Under certain conditions the
note is convertible into shares of the Company's common stock at a price of
$23.38. The cash consideration was funded in part through a $15,000 drawdown
from CRL's revolving credit facility. This acquisition was recorded as a
purchase business combination and CRL is consolidating the operations of PAI
from the date of acquisition.
6
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. ACQUISITIONS AND DISPOSALS (CONTINUED)
Effective February 27, 2001 CRL acquired Primedica Corporation ("Primedica")
for consideration, including acquisition expenses, of $51,107. Consideration was
comprised of $25,708 of cash, $16,375 of the Company's restricted common stock
and $9,024 in assumed debt. This acquisition was recorded as a purchase business
combination and CRL is consolidating the operations of Primedica. The
acquisition agreement requires the Company to file a registration statement
under the Securities Act covering the restricted common stock no later than
July 1, 2001. In addition, the Company has the right to repurchase, at any time
prior to July 1, 2001, the restricted common stock at a price equal to the
greater of $24.05 or fair market value. Furthermore, in connection with the
Primedica acquisition CRL amended its senior credit facility to add a $25,000
Term Loan C and to increase the interest rate on the Term Loan A. The interest
rate on the Term Loan A, as amended, and the Term Loan C is based on the Libor
rate plus 1.75% and 3.25%, respectively.
As of March 31, 2001, CRL is in process of finalizing the purchase price
allocation associated with the PAI and Primedica acquisitions. CRL believes the
accounting for these acquisitions will be finalized during the second quarter of
2001. CRL's preliminary allocation of purchase price for these acquisitions,
based on valuations which have not yet been finalized, is as follows:
PAI PRIMEDICA
-------- ---------
Net current assets....................................... $ 3,126 $ 6,415
Property, plant and equipment............................ 1,276 24,637
Non-current assets....................................... 159 35
Non-current liabilities.................................. -- (859)
------- -------
Estimated fair value, net tangible assets acquired....... 4,561 30,228
Goodwill and other intangible assets..................... 30,677 20,879
Consideration............................................ 35,238 51,107
Less: assumed debt....................................... -- (9,024)
------- -------
$35,238 $42,083
======= =======
Net current liabilities in the above preliminary purchase price allocation
includes a $530 liability recorded in accordance with EITF 95-3 "Recognition of
Liabilities in Connection with a Purchase Business Combination" ("EITF 95-3").
This liability relates to severance benefits to be provided to certain Primedica
employees. These benefits are expected to be paid during 2001.
Goodwill and other intangible assets recorded in the accompanying condensed
consolidated interim financial statements associated with these acquisitions are
being amortized over their estimated useful lives ranging from 2 to 20 years.
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,
additional interest expense 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
7
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. ACQUISITIONS AND DISPOSALS (CONTINUED)
one during the period. No effect has been given for synergies, if any, that may
have been realized through the acquisitions.
THREE MONTHS ENDED
-------------------------------
MARCH 25, 2000 MARCH 31, 2001
-------------- --------------
Net sales........................................ $94,849 $111,199
Income/(loss) before extraordinary item.......... (411) 6,981
Net income....................................... (411) 6,744
Earnings/(loss) per common share before
extraordinary item
Basic.......................................... $ (0.02) $ 0.19
Diluted........................................ $ (0.02) $ 0.17
Earnings/(loss) per common share after
extraordinary item
Basic.......................................... $ (0.02) $ 0.18
Diluted........................................ $ (0.02) $ 0.17
Refer to Note 7 for further discussion of the method of computation of
earnings per share.
DISPOSALS
During the fourth quarter of 2000, the Company recorded a pre-tax
restructuring charge of $1,290 associated with the closing of a facility in
France. As of December 31, 2000, $1,078 of this charge was unpaid and included
in the consolidated balance sheet as an accrued liability. In the first quarter
of 2001 the Company recorded an additional charge of $799 relating to additional
severance payments negotiated with employees following labor disputes arising in
the first quarter. These charges have been recorded in selling, general and
administrative expenses in the accompanying condensed consolidated interim
statements of income. A summary of the activity associated with these
restructuring reserves is as follows:
EMPLOYEE
SEPARATIONS OTHER TOTAL
----------- -------- --------
December 30, 2000.......................................... $ 993 $85 $1,078
Additional charges recorded--first quarter 2001............ 799 -- 799
Amounts paid--first quarter 2001........................... -- -- --
------ --- ------
March 31, 2001............................................. $1,792 $85 $1,877
====== === ======
8
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. SUPPLEMENTAL BALANCE SHEET INFORMATION
The composition of inventories is as follows:
DECEMBER 30, MARCH 31,
2000 2001
------------ ---------
Raw materials and supplies............................ $ 4,052 $ 4,283
Work in process....................................... 910 1,161
Finished products..................................... 28,928 28,843
------- -------
Inventories........................................... $33,890 $34,287
======= =======
Inventories are stated at the lower of cost or market. Cost is determined
principally on the average cost method. Costs for large animals are accumulated
in inventory until the large animals are sold.
The composition of property, plant and equipment is as follows:
DECEMBER 30, MARCH 31,
2000 2001
------------ ---------
Land................................................. $ 9,367 $ 9,100
Buildings............................................ 142,569 146,331
Machinery and equipment.............................. 95,407 102,401
Leasehold improvements............................... 5,747 15,706
Furniture and fixtures............................... 1,992 2,587
Vehicles............................................. 2,378 2,359
Construction in progress............................. 5,102 6,231
--------- ---------
262,562 284,715
Less accumulated depreciation........................ (145,561) (145,021)
--------- ---------
Net property, plant and equipment.................... $ 117,001 $ 139,694
========= =========
5. INCOME TAXES
The provision for income taxes recorded for the three months ended
March 25, 2000 included certain unfavorable permanent differences including
nondeductible interest associated with debt recorded in the first half of 2000
which was subsequently repaid in connection with the Company's initial public
offering on June 28, 2000.
6. 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 $3,461 and $3,421
on December 30, 2000 and March 31, 2001, respectively. Separately, the Company
has provided a letter of credit in favor of the insurance carriers in the amount
of $2,500.
9
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. 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 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
refoliate the islands. The Company has removed its large animal operations from
the island in the first quarter of 2000. The Company continues to hold
discussions with the state of Florida and federal authorities regarding the
extent of refoliation required on the islands and believes the reserves recorded
in the accompanying condensed consolidated financial statements are sufficient
to provide for the estimated exposure in connection with the refoliation. The
Company has provided a letter of credit in regards to the completion of the
refoliation on the island for $350.
7. EARNINGS PER SHARE
Basic earnings per share for the three month periods ended March 31, 2001
and March 25, 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.
The weighted average number of common shares outstanding in the three month
periods ended March 25, 2000 and March 31, 2001 have been adjusted to include
common stock equivalents for the purpose of calculating diluted earnings per
share before and after the extraordinary item for these periods.
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.
10
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. EARNINGS PER SHARE (CONTINUED)
The following table illustrates the reconciliation of the numerator and
denominator of the basic and diluted earnings per share before and after the
extraordinary item computations:
THREE MONTH PERIOD ENDED
-------------------------------
MARCH 25, 2000 MARCH 31, 2001
-------------- --------------
Numerator--basic and diluted earnings per share
Income before the extraordinary item............. $ 636 $ 7,188
Extraordinary loss............................... -- (237)
Income after the extraordinary item.............. 636 6,951
Denominator:
Basic earnings per share--weighted average shares
outstanding.................................... 19,820,369 36,582,532
Effect of dilutive securities--stock options and
warrants....................................... 3,751,186 3,704,513
----------- -----------
Diluted earnings per share--weighted average
shares outstanding............................. 23,571,555 40,287,045
=========== ===========
Basic earnings per share before extraordinary
item........................................... $ 0.03 $ 0.20
Diluted earnings per share before extraordinary
item........................................... $ 0.03 $ 0.18
Basic (loss) per share on extraordinary item..... -- $ (0.01)
Diluted (loss) per share on extraordinary item... -- $ (0.01)
Basic earnings per share after extraordinary
item........................................... $ 0.03 $ 0.19
Diluted earnings per share after extraordinary
item........................................... $ 0.03 $ 0.17
8. BUSINESS SEGMENT INFORMATION
The following table presents sales and other financial information by
product line segment for the three month periods ended March 25, 2000 and
March 31, 2001. Sales to unaffiliated customers
11
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. BUSINESS SEGMENT INFORMATION (CONTINUED)
represent net sales originating in entities primarily engaged in either research
models or biomedical products and services.
THREE MONTH PERIOD ENDED
-------------------------------
MARCH 25, 2000 MARCH 31, 2001
-------------- --------------
Research Models
Net sales...................................... $41,104 $49,474
Gross margin................................... 16,822 20,549
Operating income............................... 11,999 13,271
Depreciation and amortization.................. 2,090 2,405
Capital expenditures........................... 1,438 1,913
Biomedical Products and Services
Net sales...................................... 31,398 49,557
Gross margin................................... 11,088 16,113
Operating income............................... 5,940 8,480
Depreciation and amortization.................. 1,674 3,034
Capital expenditures........................... 1,348 2,340
Total assets attributable to the research models segment as of December 30, 2000
and March 31, 2001 were $313,763 and $349,919 respectively. Total assets
attributable to the biomedical products and services segment as of December 30,
2000 and March 31, 2001 were $96,845 and $205,466 respectively.
A reconciliation of segment operating income to consolidated operating
income is as follows:
THREE MONTH PERIOD ENDED
-------------------------------
MARCH 25, 2000 MARCH 31, 2001
-------------- --------------
Total segment operating income................... $17,939 $21,751
Unallocated corporate overhead................... (2,707) (2,377)
------- -------
Consolidated operating income.................... $15,232 $19,374
======= =======
9. COMPREHENSIVE INCOME/(LOSS)
The components of comprehensive income/(loss) for the three-month periods
ended March 25, 2000 and March 31, 2001 are set forth below:
THREE MONTH PERIOD ENDED
-------------------------------
MARCH 25, 2000 MARCH 31, 2001
-------------- --------------
Net income....................................... $ 636 $ 6,951
Foreign currency translation..................... (1,873) (3,634)
------- -------
Comprehensive income/(loss)...................... $(1,237) $ 3,317
======= =======
10. SUBSEQUENT EVENTS
On April 27, 2001, the Company's French subsidiaries obtained a favorable
legal judgement in a contract dispute, with a damages award of 26,500 French
Francs or approximately $3,500. The Company expects the defendant to appeal the
decision. No amounts have been recorded in the quarter ended March 31, 2001,
with respect to this judgement.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 25,
2000
NET SALES. Net sales for the three months ended March 31, 2001 were
$99.0 million, an increase of $26.5 million, or 36.6%, from $72.5 million for
the three months ended March 25, 2000.
RESEARCH MODELS. Net sales of research models for the three months ended
March 31, 2001 were $49.5 million, an increase of $8.4 million, or 20.4%, from
$41.1 million for the three months ended March 25, 2000. Small animal research
model sales increased in North America by 13.5% due to improved pricing, a shift
to higher priced specialty units and an increase in unit volume. Excluding
negative currency translation of $1.1 million, small animal research model sales
in Europe increased 13.7%. Small animal research model sales in Japan, which we
began consolidating during the first quarter of 2000, were $11.1 million for the
three months ended March 31, 2001. Our large animal breeding and import
conditioning business sales decreased by $2.0 million for the three months ended
March 31, 2001 due to the closure of our conditioning facility in the UK during
the second quarter of 2000 and the sale of our Florida breeding colony, which
was sold in the first quarter of 2000.
BIOMEDICAL PRODUCTS AND SERVICES. Net sales of biomedical products and
services for the three months ended March 31, 2001 were $49.5 million, an
increase of $18.1 million, or 57.6%, from $31.4 million for the three months
ended March 25, 2000. We acquired two businesses during the first quarter of
2001, Pathology Associates International Corporation ("PAI") on January 8 and
Primedica Corporation ("Primedica") on February 27, which contributed
$16.1 million of sales in the quarter. On a proforma basis, giving effect to the
acquisitions, sales of biomedical products and services increased 15.0% over
last year, before the effects of unfavorable currency.
COST OF PRODUCTS SOLD AND SERVICES PROVIDED. Cost of products sold and
services provided for the three months ended March 31, 2001 was $62.4 million,
an increase of $17.8 million, or 39.9%, from $44.6 million for the three months
ended March 25, 2000. Cost of products sold and services provided for the three
months ended March 31, 2001 were 63.0% of the net sales compared to 61.5% for
the three months ended March 25, 2000.
RESEARCH MODELS. Cost of products sold and services provided for research
models for the three months ended March 31, 2001 was $28.9 million, an increase
of $4.6 million, or 18.9%, compared to $24.3 million for the three months ended
March 25, 2000. Cost of products sold and services provided for the three months
ended March 31, 2001 improved to 58.4% of net sales compared to 59.1% of net
sales for the three months ended March 25, 2000. Cost of products sold and
services provided increased at a lower rate than net sales due to a more
favorable product mix, improved pricing as well as improved capacity
utilization.
BIOMEDICAL PRODUCTS AND SERVICES. Cost of products sold and services
provided for biomedical products and services for the three months ended
March 31, 2001 was $33.4 million, an increase of $13.1 million, or 64.5%,
compared to $20.3 million for the three months ended March 25, 2000. Cost of
products sold and services provided as a percentage of net sales increased to
67.5% for the three months ended March 31, 2001 from 64.6% for the three months
ended March 25, 2000. Cost of products sold and services provided increased as a
percentage of sales for the three months ended March 31, 2001 due to the
addition of PAI and Primedica which operate at lower gross margins than the
remainder of our biomedical products and services businesses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended March 31, 2001 were
$15.5 million, an increase of $3.7 million, or 31.4%, from $11.8 million for the
three months ended March 25, 2000. Selling, general and administrative expenses
for the three months ended March 31, 2001 were 15.7% of net sales compared to
16.3% of net sales for the three months ended March 25, 2000.
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RESEARCH MODELS. Selling, general and administrative expenses for research
models for the three months ended March 31, 2001 were $7.1 million, an increase
of $2.3 million, or 47.9%, compared to $4.8 million for the three months ended
March 25, 2000. Selling, general and administrative expenses for the three
months ended March 31, 2001 were 14.3% of net sales, compared to 11.7% for the
three months ended March 25, 2000, principally due to a $0.8 million
restructuring charge in France.
BIOMEDICAL PRODUCTS AND SERVICES. Selling, general and administrative
expenses for biomedical products and services for the three months ended
March 31, 2001 were $6.0 million, an increase of $1.7 million, or 39.5%,
compared to $4.3 million for the three months ended March 25, 2000. Selling,
general and administrative expenses for the three months ended March 31, 2001
decreased to 12.1% of net sales, compared to 13.7% of net sales for the three
months ended March 25, 2000, due to greater economies of scale realized through
our acquisitions of PAI and Primedica.
UNALLOCATED CORPORATE OVERHEAD. Unallocated corporate overhead, which
consists of various corporate expenses and income items, was $2.4 million of
expense for the three months ended March 31, 2001, compared to $2.7 million
expense for the three months ended March 25, 2000 due mainly to pension income
from favorable investment returns.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles for the three months ended March 31, 2001 was
$1.8 million, an increase of $0.9 million from $0.9 million for the three months
ended March 25, 2000. The increase was due to the effect of additional
amortization of goodwill and other intangibles resulting from our PAI and
Primedica acquisitions.
OPERATING INCOME. Operating income for the three months ended March 31,
2001 was $19.4 million, an increase of $4.2 million, or 27.6%, from
$15.2 million for the three months ended March 25, 2000. Operating income for
the three months ended March 31, 2001 was 19.6% of net sales, compared to 21.0%
of net sales for the three months ended March 25, 2000. Operating income as a
percentage of net sales decreased due to the additional amortization expense
incurred as a result of our acquisitions and the restructuring charge in France.
RESEARCH MODELS. Operating income from sales of research models for the
three months ended March 31, 2001 was $13.3 million, an increase of
$1.3 million, or 10.8%, from $12.0 million for the three months ended March 25,
2000. Operating income from sales of research models for the three months ended
March 31, 2001 was 26.9% of net sales, compared to 29.2% for the three months
ended March 25, 2000, principally due to the restructuring charge in France.
BIOMEDICAL PRODUCTS AND SERVICES. Operating income from sales of biomedical
products and services for the three months ended March 31, 2001 was
$8.5 million, an increase of $2.6 million, or 44.1%, from $5.9 million for the
three months ended March 25, 2000. Operating income from sales of biomedical
products and services for the three months ended March 31, 2001 decreased to
17.2% of net sales, compared to 18.8% of net sales for the three months ended
March 25, 2000, due to the additional amortization expense resulting from the
acquisitions of PAI and Primedica.
INTEREST EXPENSE. Interest expense for the three months ended March 31,
2001 was $7.0 million, compared to $12.7 million for the three months ended
March 25, 2000. The $5.7 million decrease is primarily due to the reduction of
debt in the third quarter of 2000, which was repaid with proceeds from our
June 2000 initial public offering.
OTHER INCOME. During the three months ended March 31, 2001 we received
insurance proceeds relating to damaged production facilities, which resulted in
a net gain of $0.5 million.
INCOME TAXES. The effective tax rate for the three months ended March 31,
2001 of 42.0% compares favorably to the effective tax rate of 92.1% for the
three months ended March 25, 2000. The impact of leverage for the three months
ended March 25, 2000 had an unfavorable effect on our tax
14
rate by lowering our pretax income and increasing the impact of the permanent
differences on the effective tax rate.
INCOME BEFORE THE EXTRAORDINARY LOSS. Income before the extraordinary loss
for the three months ended March 31, 2001 was $7.2 million, an increase of
$6.6 million from $0.6 million for the three months ended March 25, 2000. The
increase is driven by the increase in operating income, the decrease in interest
expense and the decrease in our effective tax rate.
EXTRAORDINARY LOSS. We recorded an extraordinary loss of $0.2 million
during the first quarter of 2001. The pre-tax loss of $0.4 million is the result
of the write off of deferred financing costs associated with the debt
repayments, net of tax benefits of $0.2 million.
NET INCOME. Net income for the three months ended March 31, 2001 was
$7.0 million, an increase of $6.4 million from net income of $0.6 million for
the three months ended March 25, 2000. The increase is attributable to the
factors mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of the Company totaled $72.4 million at March 31,
2001 compared with $33.1 million at December 30, 2000. Our principal sources of
liquidity are cash from operations as well as cash provided by our public
offerings.
Net cash provided by operating activities for the three months ended
March 31, 2001 and March 25, 2000 was $7.8 million and $1.9 million
respectively. The increase in cash provided by operations is primarily a result
of our improved performance during the first three months of 2001.
Net cash used in investing activities during the three months ended
March 31, 2001 and March 25, 2000 were $55.8 million and $1.8 million
respectively. The increase in cash used is a result of our business
acquisitions. During the first quarter of 2001 we used net cash of
$51.3 million to acquire PAI and Primedica. In the first quarter of 2000, we
used net cash of $6.0 million to acquire an additional 16% of equity in Charles
River Japan. Also in order to grow our existing businesses we have incurred
capital expenditures for the three month periods ended March 31, 2001 and
March 30, 2000 of $4.3 million and $2.8 million, respectively.
Net cash provided by financing activities during the three months ended
March 31, 2001 and March 25, 2000 were $88.7 million and $3.7 million,
respectively. During March 2001 we consummated a follow-on offering which netted
$62.2 million in proceeds. We used $12.0 million of the proceeds to repay part
of our bank financing. We plan to use the remaining proceeds to repay portions
of our existing debt. Also the Company received $40.0 million from our bank
financing which was used to purchase PAI and Primedica.
We anticipate that our operating cash flow, along with borrowings under our
credit facility, will be sufficient to meet our anticipated future operating
expenses, capital expenditures and debt service obligations as they become due.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are subject to market risks arising from changes in interest rates and
foreign currency exchange rates. Our primary interest rate exposure results from
changes in LIBOR or the base rate which are used to determine the applicable
interest rates under our term loans and revolving credit facility. We have
entered into an interest rate protection agreement designed to protect us
against fluctuations in interest rates with respect to at least 50% of the
aggregate principal amount of the term loans and the senior subordinated notes.
Our potential loss over one year that would result from a hypothetical,
instantaneous and unfavorable change of 100 basis points in the interest rate on
all of our variable rate
15
obligations would be approximately $1.5 million. Fluctuations in interest rates
will not affect the interest payable on the senior subordinated notes, which is
fixed.
We do not use financial instruments for trading or other speculative
purposes.
We also have exposure to some foreign currency exchange rate fluctuations
for the cash flows received from our foreign affiliates. This risk is mitigated
by the fact that their operations are conducted in their respective local
currencies, and it is not our intention to repatriate earnings prospectively.
Currently, we do not engage in any foreign currency hedging activities as we do
not believe that our foreign currency exchange rate risk is material.
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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included as part of this Report on Form 10-Q:
10.1** Amended and Restated Credit Agreement, dated as of
February 2, 2001, among Charles River Laboratories, Inc.,
the various financial institutions, Union Bank of
California, N.A., Credit Suisse First Boston, and National
City Bank, (Filed as Exhibit 10.1).
10.2* Amendment No. 1 to the Credit Agreement among Charles River
Laboratories, Inc., the various financial institutions,
Union Bank of California, N.A., Credit Suisse First Boston,
and National City Bank, dated April 18, 2001.
99.1* Amendment No. 1 to the 2000 Incentive Plan of Charles River
Laboratories International, Inc. dated May 8, 2001.
- ------------------------
* Filed herewith.
** Previously filed as an exhibit to, and incorporated herein by reference
from, the Charles River Laboratories International, Inc.'s Registration
Statement on Form S-3 (File No. 333-55670), as amended, filed February 15,
2001.
(b) We filed the following Current Reports on Form 8-K during the quarter ended
March 31, 2001:
- We filed a Current Report on Form 8-K on January 9, 2001, to announce,
pursuant to Item 9, the completion of the acquisition of Pathology
Associates International Corporation. On March 12, 2001, we filed an 8-K/A
to amend this Form 8-K to change the Item number under which the
information was filed from Item 9 ("Regulation FD Disclosure") to Item 5
("Other Events").
- We filed a Current Report on Form 8-k on February 7, 2001, to announce,
pursuant to Item 9, the signing of a definative agreement to acquire
Primedica Corporation from Genzyme Transgenics Corporation. On March 12,
2001, we filed an 8-K/A to amend this Form 8-K to change the Item number
under which the information was filed from Item 9 ("Regulation FD
Disclosure") to Item 5 ("Other Events").
- We filed a Current Report on Form 8-K on February 15, 2001 to report
pursuant to Item 5, our consolidated financial statements for the fiscal
year ended December 30, 2000 and our Management's Discussions and Analysis
of Financial Condition and Results of Operations. We filed our
consolidated financial statements for the year ended December 31, 2000
with this report.
- We filed a Current Report on Form 8-K on February 28, 2001 to announce,
pursuant to Item 9, our completion of the acquisition of Primedica
Corporation from Genzyme Transgenics Corporation.
- We filed a Current Report on Form 8-K/A on March 12, 2001, to amend the
Form 8-K to change the Item number under which the information was filed
from Item 9 ("Regulation FD Disclosure") to Item 5 ("Other Events").
17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARLES RIVER LABORATORIES
INTERNATIONAL, INC.
May 15, 2001
/s/ THOMAS F. ACKERMAN
--------------------------------------------
Thomas F. Ackerman
SR. VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
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