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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15 (d) of the
Securities Exchange Act of 1934
October 28, 2004
Date of Report (Date of earliest event reported)
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
(Exact Name of Registrant as specified in its Charter)
---------------------
Delaware 333-92383 06-1397316
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) 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)
ITEM 2.02. Results of Operations and Financial Condition
The following information shall not be deemed "filed" for purposes of Section 18
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
incorporated by reference in any filing under the Securities Act of 1933, as
amended, or the Exchange Act, except as shall be expressly set forth by specific
reference in such a filing.
On October 28, 2004, Charles River Laboratories International, Inc. issued a
press release providing financial results for the fiscal quarter ended September
25, 2004. The press release, attached as an exhibit to this report, includes
"safe harbor" language pursuant to the Private Securities Litigation Reform Act
of 1995, as amended, indicating that certain statements about Charles River's
business contained in the press release are "forward-looking" rather than
historic. The press release also states that these and other risks relating to
Charles River are set forth in the documents filed by Charles River with the
Securities and Exchange Commission.
ITEM 9.01. Financial Statements and Exhibits
(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
This exhibit is furnished pursuant to Item 12 hereof and should not be
deemed to be "filed" under the Securities Exchange Act of 1934, as
amended.
99.1 Press release dated October 28, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
we have duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
Dated: October 28, 2004
By: /s/ Dennis R. Shaughnessy
-----------------------------------------
Dennis R. Shaughnessy, Senior Vice
President, Corporate Development,
General Counsel and Secretary
Exhibit Index
Exhibit No. Description
- ----------- -----------
99.1 Press release dated October 28, 2004.
Exhibit 99.1
Charles River Laboratories Announces Record Third-Quarter 2004 Results and
Provides Guidance for Fourth Quarter 2004
WILMINGTON, Mass.--(BUSINESS WIRE)--Oct. 28, 2004--Charles River
Laboratories International, Inc. (NYSE:CRL):
-- Sales Increase 16% and Operating Income Increases 27%
-- Operating Margin Reaches a Record 24.6%
-- Earnings Per Share Rise 28% to $0.51
Charles River Laboratories International, Inc. (NYSE:CRL) today reported
third-quarter 2004 net sales of $176.0 million, a 16.4% increase over the $151.2
million reported in the third quarter of 2003. Net income for the third quarter
of 2004 increased 31.8% to $25.8 million, or $0.51 per diluted share, from $19.6
million, or $0.40 per diluted share, in the third quarter of 2003.
Operating income for the third quarter of 2004 rose 26.6% to $43.4 million
from $34.3 million in the third quarter of last year. The Company's operating
margin reached a record 24.6%, compared to 22.7% in the third quarter of last
year. The operating margin increase resulted from higher sales and improved
operating efficiency in both the Research Models and Services segment and the
Development and Safety Testing segment.
James C. Foster, Chairman, President and Chief Executive Officer said, "Our
third-quarter results were outstanding, reflecting the value of our portfolio of
essential products and services, our focused sales efforts, and the strength of
the market for products and services that support the drug discovery and
development process. Both business segments delivered strong results, benefiting
from increased spending by pharmaceutical and biotechnology companies and by
academic research institutions. Higher sales and our consistent focus on expense
management enabled us to generate an operating margin of 24.6%, just slightly
higher than in the second quarter, and a new record for the Company."
Mr. Foster continued, "Closing the merger with Inveresk Research Group on
October 20 was a momentous event for Charles River. It marked our transformation
into a leading global provider of high quality, value-added products and
services which now span the entire drug development process from early discovery
through the clinic. In addition to being a global leader in research models and
services, we are now a global leader in drug safety testing, a significant
provider of Phase I-IV clinical development services, and of biosafety testing
on a worldwide basis. The new Charles River is extremely well positioned to meet
the needs of its customers and to support them in their goal to bring new drugs,
therapies, and medical devices to market faster and more efficiently."
Business Segments Results
Third-quarter 2004 net sales for the Research Models and Services (RMS)
segment of the business were $111.9 million compared to $99.1 million last year,
an increase of 12.9%. The double-digit growth reflected increased customer
demand, higher prices, and favorable foreign currency translation. Increased
capacity utilization resulted in a gross margin of 42.0%, compared to 39.5% in
the third quarter of last year. Higher sales and increased operating
efficiencies resulted in a 24.1% increase in operating income, to $35.8 million
in the third quarter with an operating margin of 32.0%, compared to last year's
$28.9 million and 29.1%.
Net sales for the Development and Safety Testing (DST) segment rose 23.1%
in the third quarter, to $64.2 million from $52.1 million in the same period
last year. Demand for outsourced development services, particularly general and
specialty toxicology, continued to be robust. The Company's efforts to integrate
and harmonize its Development Services business and to focus its sales efforts,
combined with a strong market, resulted in sales and margin growth. The
segment's gross margin increased to 34.9% from 33.2% in the third quarter of
2003. Operating income rose to $12.0 million from $8.7 million in the third
quarter of last year. The third-quarter operating margin increased to 18.8% from
16.6% last year, reflecting greater operating efficiencies as a result of higher
sales, and the benefit of efforts to streamline the Development Services
business.
Year-to-Date Results
Net sales for the first nine months of 2004 were $528.9 million, a 15.6%
increase over the $457.7 million reported in the same period last year. As a
result of higher net sales and increased capacity utilization, the gross margin
rose to 40.2% from 38.0% in the first nine months of 2003. Operating income
increased 23.3% to $127.1 million from $103.1 million last year, and the
operating margin increased to 24.0% from 22.5%, due primarily to improved
operating performance from the DST segment.
Diluted earnings per share for the first nine months of 2004 increased
13.9%, to $1.39 from $1.22 in the same period last year. Non-GAAP earnings per
diluted share rose 21.0% in the first nine months of 2004, to $1.50 from $1.24
in the same period in 2003. Non-GAAP earnings per share for the first nine
months of 2004 excluded a net charge of $5.8 million, or approximately $0.11 per
diluted share, related to the write-off of a deferred tax asset and release of a
related tax valuation allowance, in connection with the European reorganization
implemented in the first quarter of the year. Non-GAAP earnings per share for
the first nine months of 2003 excluded a net charge of $1.7 million, or
approximately $0.02 per diluted share, as a result of an asset impairment charge
of $3.7 million related to the scale-back of a biopharmaceutical production
facility, a French litigation settlement in the Company's favor of $2.9 million,
and a charge of $0.9 million for expenses associated with cost reduction
initiatives. Charles River believes that the foregoing comparison of non-GAAP
earnings is useful to investors in assessing the performance of the business on
an ongoing basis, since the specified charges are unusual in nature.
Merger with Inveresk Research Group
On October 20, 2004, Charles River and Inveresk Research Group held special
shareholder meetings at which their merger was approved. It became effective the
same day.
Mr. Foster said, "Our newly combined company allows us to provide customers
with broader support for their efforts to bring new drugs, devices and therapies
to market, and affords Charles River a platform to expand our pre-clinical and
clinical businesses and develop new closely related businesses with potential
for further growth."
Charles River is moving forward briskly to implement its integration plan.
An integration steering committee was established immediately following the
merger announcement on July 1, 2004, comprised of senior management of both
Charles River and Inveresk. A number of sub-committees have been created to
accomplish specific tasks including integration of business operations, sales
and marketing, information technology, human resources, accounting and finance,
security, and regulatory guidelines. The Company is focusing significant
resources on integration planning and implementation, and efforts are well
underway.
Following the merger with Inveresk, Charles River will report three
business segments: Research Models and Services, Pre-Clinical Services, and
Clinical Services. Management believes that these segments best reflect the
manner in which it manages the business.
2004 Outlook
The following forward-looking guidance is based on current foreign exchange
rates and includes the expected impact of the Inveresk merger on the Company's
results of operations.
For the fourth quarter of 2004, the Company expects net sales to increase
between 44% and 47% due to consolidation of Inveresk sales for approximately two
months and continued strong demand for the Company's products and services.
Based on the anticipated higher net sales and cost synergies, earnings per
diluted share are expected to be in a range of $0.23 to $0.26. Non-GAAP earnings
per diluted share are expected to be in a range of $0.46 to $0.48, which
excludes amortization of intangible assets of approximately $20.0 million and
other merger-related charges of approximately $1.5 million, an estimated total
of $21.5 million, or $0.22 to $0.23 per diluted share.
For 2004, the Company anticipates that net sales will increase between 21%
and 24% as a result of the consolidation of Inveresk and strong market demand.
The Company expects 2004 earnings per diluted share to be in a range of $1.58 to
$1.61. Excluding merger-related amortization of intangibles and other charges,
and the one-time net charge associated with the reorganization of the European
operations, non-GAAP earnings per diluted share are expected to be between $1.96
and $1.98.
Upcoming 2005 Guidance Meeting
Charles River Laboratories will hold a meeting for investors on Wednesday,
December 15, 2004, in New York City to provide guidance for 2005. Please contact
Charles River's Investor Relations Department for further information.
Webcast
Charles River Laboratories has scheduled a live webcast on Friday, October
29, at 8:30 a.m. ET to discuss matters relating to this press release. To
participate, please go to ir.criver.com and select the webcast link. The webcast
will be available until 5:00 p.m. ET on November 5, 2004.
About Charles River Laboratories
Charles River Laboratories (CRL), based in Wilmington, Massachusetts, is a
global provider of solutions that advance the drug discovery and development
process. Our leading-edge products and services are designed to enable our
clients to bring drugs to market faster and more efficiently. Backed by our
rigorous, best-in-class procedures and our proven data collection, analysis and
reporting capabilities, our products and services are organized into three
categories spanning every step of the drug development pipeline: Research Models
and Services, Pre-Clinical Services, and Clinical Services. CRL's customer base
includes all of the major pharmaceutical companies, biotechnology companies,
government agencies and many leading hospitals and academic institutions.
Charles River's 7,500 employees serve clients in more than 50 countries. For
more information on CRL, visit our website at www.criver.com.
Caution Concerning Forward-Looking Statements. This document includes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements may be identified by
the use of words such as "anticipate," "believe," "expect," "estimate," "plan,"
"outlook," and "project" and other similar expressions that predict or indicate
future events or trends or that are not statements of historical matters.
Forward-looking statements are based on Charles River's current expectations and
beliefs, and involve a number of risks and uncertainties that could cause actual
results to differ materially from those stated or implied by the forward-looking
statements. Those risks and uncertainties include, but are not limited to:
challenges arising from the merger with Inveresk Research Group; a decrease in
research and development spending or a decrease in the level of outsourced
services; acquisition integration risks; special interest groups;
contaminations; industry trends; new displacement technologies; USDA and FDA
regulations; changes in law; continued availability of products and supplies;
loss of key personnel; interest rate and foreign currency exchange rate
fluctuations; changes in tax regulation and laws; changes in generally accepted
accounting principles; and any changes in business, political, or economic
conditions due to the threat of future terrorist activity in the U.S. and other
parts of the world, and related U.S. military action overseas. A further
description of these risks, uncertainties, and other matters can be found in the
Risk Factors detailed in Charles River's Registration Statement on Form S-4 as
filed on September 16, 2004, with the Securities and Exchange Commission.
Because forward-looking statements involve risks and uncertainties, actual
results and events may differ materially from results and events currently
expected by Charles River, and Charles River assumes no obligation and expressly
disclaims any duty to update information contained in this news release except
as required by law.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except for per share data)
Three Months Ended Nine Months Ended
----------------------- -----------------------
Sept. 25, Sept. 27, Sept. 25, Sept. 27,
2004 2003 2004 2003
Total net sales $176,026 $151,194 $528,856 $457,683
Cost of products
sold and services
provided 106,629 94,702 316,010 283,624
----------- ----------- ----------- -----------
Gross margin 69,397 56,492 212,846 174,059
Selling, general
and administrative 24,821 21,003 82,161 66,491
Other operating
expenses, net - - - 747
Amortization of
intangibles 1,202 1,233 3,591 3,711
----------- ----------- ----------- -----------
Operating income 43,374 34,256 127,094 103,110
Interest income
(expense) (1,224) (1,722) (3,949) (5,021)
Other, net (83) 27 44 443
----------- ----------- ----------- -----------
Income before
income taxes and
minority interests 42,067 32,561 123,189 98,532
Provision for
income taxes 15,775 12,536 51,985 37,935
----------- ----------- ----------- -----------
Income before
minority interests 26,292 20,025 71,204 60,597
Minority interests (471) (434) (1,489) (1,091)
----------- ----------- ----------- -----------
Net income $25,821 $19,591 $69,715 $59,506
=========== =========== =========== ===========
Earnings per common
share
Basic $0.56 $0.43 $1.51 $1.31
Diluted $0.51 $0.40 $1.39 $1.22
Weighted average number of common shares
outstanding
Basic 46,160,504 45,600,735 46,020,766 45,366,187
Diluted 52,552,617 51,490,250 52,395,604 51,288,568
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
September 25, December 27,
2004 2003
Assets
Current assets
Cash and cash equivalents $259,406 $182,331
Marketable securities 10,857 13,156
Trade receivables, net 128,601 111,514
Inventories 55,572 52,370
Other current assets 10,924 11,517
---------------- ---------------
Total current assets 465,360 370,888
Property, plant and equipment, net 209,193 203,458
Goodwill, net 114,970 105,308
Other intangibles, net 31,014 30,415
Deferred tax asset 51,227 61,603
Other assets 35,284 27,882
---------------- ---------------
Total assets $907,048 $799,554
================ ===============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $15,487 $19,433
Accrued compensation 35,550 27,251
Deferred income 37,321 30,846
Other current liabilities 47,710 36,821
---------------- ---------------
Total current liabilities 136,068 114,351
Long-term debt 185,394 185,600
Other long-term liabilities 25,351 24,804
---------------- ---------------
Total liabilities 346,813 324,755
---------------- ---------------
Minority interests 9,411 10,176
Total shareholders' equity 550,824 464,623
---------------- ---------------
Total liabilities and shareholders'
equity $907,048 $799,554
================ ===============
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(dollars in thousands)
Three Months Ended Nine Months Ended
------------------- -------------------
Sept. 25, Sept. 27, Sept. 25, Sept. 27,
2004 2003 2004 2003
Research Models and
Services
Net sales $111,862 $99,079 $338,662 $304,702
Gross margin 47,022 39,165 145,311 127,104
Gross margin as a % of
net sales 42.0% 39.5% 42.9% 41.7%
Operating income 35,836 28,866 110,322 97,902
Operating income as a %
of net sales 32.0% 29.1% 32.6% 32.1%
Depreciation and
amortization 4,354 3,959 12,640 11,489
Capital expenditures 6,249 3,450 14,196 13,377
Development and Safety
Testing
Net sales $64,164 $52,115 $190,194 $152,981
Gross margin 22,375 17,327 67,535 46,955
Gross margin as a % of
net sales 34.9% 33.2% 35.5% 30.7%
Operating income 12,043 8,667 36,320 16,918
Operating income as a %
of net sales 18.8% 16.6% 19.1% 11.1%
Depreciation and
amortization 3,725 3,267 10,972 9,793
Capital expenditures 3,538 1,865 7,915 6,392
Unallocated Corporate
Overhead $(4,505) $(3,277) $(19,548) $(11,710)
Total
Net sales $176,026 $151,194 $528,856 $457,683
Gross margin 69,397 56,492 212,846 174,059
Gross margin as a % of
net sales 39.4% 37.4% 40.2% 38.0%
Operating income 43,374 34,256 127,094 103,110
Operating income as a %
of net sales 24.6% 22.7% 24.0% 22.5%
Depreciation and
amortization 8,079 7,226 23,612 21,282
Capital expenditures 9,787 5,315 22,111 19,769
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS
(dollars in thousands, except for per share data)
Three Months Ended Nine Months Ended
----------------------- -----------------------
Sept. 25, Sept. 27, Sept. 25, Sept. 27,
2004 2003 2004 2003
Net income $25,821 $19,591 $69,715 $59,506
Add back:
Deferred tax asset
write-off - - 7,900 -
Valuation allowance
release - - (2,111) -
Impairment charge - - - 3,655
Litigation settlement - - - (2,908)
Severance charges - - - 871
Tax effect of
impairment charge,
litigation
settlement and
severance charges - - - (623)
----------- ----------- ----------- -----------
Net income, excluding
specified charges
(Non-GAAP) $25,821 $19,591 $75,504 $60,501
=========== =========== =========== ===========
Calculation of earnings per
common share, excluding
specified charges
(Non-GAAP):
Net income for purposes of
calculating earnings per share,
excluding specified
charges (Non-GAAP) $25,821 $19,591 $75,504 $60,501
After tax equivalent interest
expense on 3.5% senior
convertible debentures 1,012 996 3,035 2,987
----------- ----------- ----------- -----------
Income for purposes of
calculating diluted earnings
per share, excluding
specified charges
(Non-GAAP) $26,833 $20,587 $78,539 $63,488
=========== =========== =========== ===========
Weighted average
shares outstanding -
Basic 46,160,504 45,600,735 46,020,766 45,366,187
Effect of dilutive
securities:
3.5% senior
convertible
debentures 4,759,455 4,759,455 4,759,455 4,759,455
Stock options and
contingently issued
restricted stock 1,293,848 805,720 1,277,632 762,780
Warrants 338,810 324,340 337,751 400,146
----------- ----------- ----------- -----------
Weighted average
shares outstanding -
Diluted 52,552,617 51,490,250 52,395,604 51,288,568
=========== =========== =========== ===========
Basic earnings per
share $0.56 $0.43 $1.51 $1.31
Diluted earnings per
share $0.51 $0.40 $1.39 $1.22
Basic earnings per share,
excluding specified charges
(Non-GAAP) $0.56 $0.43 $1.64 $1.33
Diluted earnings per share,
excluding specified charges
(Non-GAAP) $0.51 $0.40 $1.50 $1.24
Charles River management believes that non-GAAP financial results
provide useful information to investors in being able to assess
the Company's ongoing operations without the effect of one-time
charges. Such information provides investors with the ability to
assess the Company's operating performance. The Company intends to
continue to assess the potential value of reporting non-GAAP
results consistent with applicable rules and regulations.
CONTACT: Charles River Laboratories International, Inc.
Susan E. Hardy, 978-658-6000 Ext. 1616