Charles River Laboratories Announces Record Second-Quarter 2004 Results and Increases Guidance for 2004.WILMINGTON Wilmington. 1 City (1990 pop. 71,529), seat of New Castle co., NE Del., on the Delaware River and tributary streams, the Christina and the Brandywine; settled 1638, inc. as a city 1832. , Mass. -- Charles River Charles River River, eastern Massachusetts, U.S. The longest river wholly in the state, it flows into Boston Bay after a course of about 80 mi (130 km). Navigable for about 7 mi (11 km), its estuary separates the cities of Boston and Cambridge. Laboratories International, Inc. (NYSE NYSE See: New York Stock Exchange :CRL CRL - Carnegie Representation Language. Carnegie Group, Inc. Frame language derived from SRL. Written in Common LISP. Used in the product Knowledge Craft. ): - Sales Increase 17% and Operating Income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. Increases 26% - - Operating Margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: Reaches a Record 24.5% - - Earnings Per Share Rise 24% to $0.52 - Charles River Laboratories International, Inc. (NYSE:CRL) today reported second-quarter 2004 net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight of $180.2 million, a 16.7% increase over the $154.4 million reported in the second quarter of 2003. Net income for the second quarter of 2004 increased 27.9% to $26.3 million, or $0.52 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, from $20.6 million, or $0.42 per diluted share, in the second quarter of 2003. Last year's second-quarter results included a $0.9 million charge, or $0.01 per diluted share, resulting from a cost reduction program undertaken in the Development and Safety Testing segment. Operating income for the second quarter of 2004 rose 26.3% to $44.2 million from $35.0 million in the second quarter of last year. The Company's operating margin increased to 24.5% compared to 22.7% in the second 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 James Clifford Foster is the chairman and chief executive officer of Charles River Laboratories, Inc., an international company that works on the drug discovery and development process. , Chairman, President and Chief Executive Officer said, "We are very pleased with our second-quarter results. The value of our portfolio of essential products and services and our focused sales efforts are evident in our performance. Both business segments delivered strong results, benefiting from increased spending on drug discovery and development by pharmaceutical and biotechnology companies Top 100 Biotechnology Companies The following is a list of the top 100 biotechnology companies ranked by revenue. The first nine companies qualify for the list of the top 50 pharmaceutical companies. and by academic research institutions. By maintaining a consistent focus on expense management, we have leveraged significantly higher sales to generate an operating margin of 24.5%, the highest margin ever achieved by the Company." Mr. Foster continued, "The investment we made over the last eighteen months to streamline streamline, path of a fluid flowing steadily and without appreciable turbulence. A body is said to be streamlined if its shape offers the least possible resistance to a current of air, water, or other fluid. our Development Services business has positioned us extremely well to compete effectively in the robust market for outsourced drug development services. We are optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about our future performance both because of our positioning and our belief that the current market climate will continue through 2004 and beyond." Business Segments Results Second-quarter 2004 net sales for the Research Models and Services (RMS (1) (Record Management Services) A file management system used in VAXs. (2) (Root Mean Square) A method used to measure electrical output in volts and watts. 1. RMS - Record Management Services. 2. ) segment of the business were $113.3 million compared to $102.5 million last year, an increase of 10.6%. The double-digit dou·ble-dig·it adj. Being between 10 and 99 percent: double-digit inflation. growth reflected higher prices, increased customer demand, and favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. foreign currency translation. Increased capacity utilization Capacity Utilization measures the rate at which a firm makes use of their capital productive capacities, such as factories and machinery. Capacity Utilization generally rises when the economy is healthy and falls when demand softens. resulted in a gross margin of 43.6%, compared to 42.0% in the second quarter of last year. Higher sales and increased operating efficiencies resulted in a 19.5% increase in operating income, to $38.0 million in the second quarter with an operating margin of 33.5%, compared to last year's $31.8 million and 31.0%. Net sales for the Development and Safety Testing (DST (1) (DeSTination) Contrast with SRC, which is an abbreviation of "source." (2) (Digital Signal Trust Company, Salt Lake City, UT, www.digsigtrust.com) An organization that sets up and manages PKI systems for companies and industry groups. ) segment rose 28.9% in the second quarter, to $66.9 million from $51.9 million in the same period last year. The Company's efforts to integrate and harmonize its Development Services business and to focus its sales efforts positioned it to benefit from stronger customer demand for outsourced services, particularly in general and specialty toxicology toxicology, study of poisons, or toxins, from the standpoint of detection, isolation, identification, and determination of their effects on the human body. Toxicology may be considered the branch of pharmacology devoted to the study of the poisonous effects of drugs. . The segment's gross margin increased to 37.7% from 31.9% in the second quarter of 2003. Operating income doubled to $14.4 million from $7.3 million in the second quarter of last year. The second-quarter operating margin increased to 21.6% from 14.1% 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 Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. Results Net sales for the first six months of 2004 were $352.8 million, a 15.1% increase over the $306.5 million reported in the same period last year. As a result of higher net sales and increased capacity utilization, the gross margin rose to 40.7% from 38.4% in the first half of 2003. Operating income increased 21.6% to $83.7 million from $68.9 million last year, and the operating margin increased to 23.7% from 22.5%, due to improved operating performance from the DST segment. Diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of for the first half of 2004 increased to $0.88 from $0.82 in the same period last year, or 7.3%. Non-GAAP earnings per diluted share rose 17.9% in the first six months of 2004, to $0.99 from $0.84 in the first half of 2003. Non-GAAP earnings per share for the first six months of 2004 excluded a net charge of $5.8 million, or approximately $0.11 per diluted share, related to the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of a deferred tax asset and release of a related tax valuation allowance. Non-GAAP earnings per share for the first six 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 Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charge of $3.7 million related to the scale-back of a biopharmaceutical production facility, a French litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called 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 Inveresk (Gaelic: Inbhir Easg) is situated on slightly elevated ground to the south of Musselburgh in East Lothian, Scotland. This ridge of ground, 20 to 25 metres above sea level, was used by the Romans as the location for a Flavian fort in the first century AD which was Research Group On July July: see month. 1, 2004, Charles River Laboratories and Inveresk Research Group announced that their respective Boards of Directors had approved a definitive merger agreement to create a leading global provider of essential preclinical preclinical /pre·clin·i·cal/ (-klin´i-k'l) before a disease becomes clinically recognizable. pre·clin·i·cal adj. 1. and clinical drug development products and services to the pharmaceutical and biotechnology industry. On July 21, 2004, the companies announced that the Federal Trade Commission had granted early termination of the waiting period required by Hart-Scott-Rodino in connection with the merger. Subject to additional regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. and shareholder approvals, the Company expects the merger to close in the fourth quarter of 2004. 2004 Outlook The following forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. guidance is based on current foreign exchange rates and is exclusive of the Inveresk merger or any acquisitions which may occur. Since it is uncertain when in the fourth quarter the Inveresk merger would occur, it is impracticable to provide an estimate of the combined company's operating results or any related GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). reconciliations. Closing of the merger with Inveresk could cause actual results to be materially different from the forward-looking guidance. For 2004, the Company anticipates that net sales will increase between 12% and 16%, higher than previous guidance of 9% to 13% due to the more robust business environment. As a result of stronger sales growth, the Company now expects 2004 earnings per diluted share to be in a range of $1.79 to $1.85. Excluding the one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. net charge associated with the reorganization of the European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. operations, non-GAAP earnings per diluted share are expected to be $1.90 to $1.96, compared to the Company's earlier guidance of $1.83 to $1.89. For the third quarter of 2004, the Company expects net sales to increase between 14% and 16% due to higher sales in both the RMS and DST business segments. Based on higher net sales and operating efficiencies, earnings per diluted share are expected to be in a range of $0.48 to $0.50. Webcast Charles River Laboratories has scheduled a live webcast on Thursday Thursday: see week. , July 29, at 8:30 a.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT to discuss matters relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc 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. EDT on August 5, 2004. Charles River Laboratories, based in Wilmington, Massachusetts For other towns and places named Wilmington, see Wilmington. Wilmington is a town in Middlesex County, Massachusetts, United States. The population was 21,363 at the 2000 census. , is a leading provider of critical research tools and integrated support services support services Psychology Non-health care-related ancillary services–eg, transportation, financial aid, support groups, homemaker services, respite services, and other services that enable innovative and efficient drug discovery and development. The Company is a global leader in providing the animal research models required in research and development for new drugs, devices and therapies. The Company also offers a broad and growing portfolio of products and services that enable customers to reduce cost, increase speed, and enhance productivity and effectiveness in drug discovery and development. Charles Charles, archduke of Austria Charles, 1771–1847, archduke of Austria; brother of Holy Roman Emperor Francis II. Despite his epilepsy, he was the ablest Austrian commander in the French Revolutionary and Napoleonic wars; however, he was handicapped by River's customer base spans over 50 countries, and includes all of the major pharmaceutical companies, biotechnology companies, and many leading hospitals and academic institutions. Caution Concerning Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . This document includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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. These statements are based on management's current expectations, 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, and the Company expressly does not undertake any duty to update forward-looking statements, which speak only as of the date of this document. Those risks and uncertainties include, but are not limited to: the proposed merger with Inveresk; a decrease in pre-clinical research and development spending or a decrease in the level of outsourced services; acquisition integration risks; special interest groups; contaminations; industry trends; new displacement displacement, in psychology: see defense mechanism. Same as offset. See base/displacement. technologies; USDA USDA, n.pr See United States Department of Agriculture. and FDA FDA abbr. Food and Drug Administration FDA, n.pr See Food and Drug Administration. FDA, n.pr the abbreviation for the Food and Drug Administration. 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 The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ; 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 the Company's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. as filed on March 10, 2004, with the Securities and Exchange Commission. Additional Information This press release may be deemed to be solicitation solicitation In criminal law, the act of asking, inducing, or directing someone to commit a crime. The person soliciting another becomes an accomplice to the crime. The term also refers to the act of obtaining bribes, as well as to the crime of a prostitute who offers sexual material in respect of the proposed merger of Charles River and Inveresk. In connection with the proposed transaction, a registration statement on Form S-4 will be filed with the SEC. SHAREHOLDERS OF CHARLES RIVER AND SHAREHOLDERS OF INVERESK ARE URGED TO READ THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE JOINT PROXY See proxy server. (networking) proxy - A process that accepts requests for some service and passes them on to the real server. A proxy may run on dedicated hardware or may be purely software. STATEMENT/PROSPECTUS THAT WILL BE PART OF THE REGISTRATION STATEMENT, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. The final joint proxy statement/prospectus will be mailed to shareholders of Charles River and shareholders of Inveresk. Investors and security holders will be able to obtain the documents free of charge at the SEC's website, www.sec.gov See .gov and GovNet. (networking) gov - The top-level domain for US government bodies. , from Charles River Laboratories, 251 Ballardvale Street, Wilmington, MA 01887, Attention: General Counsel, or from Inveresk Research Group, 11000 Weston Weston, town (1990 pop. 10,200), Middlesex co., E Mass., W of Boston; settled c.1642, set off from Watertown and inc. 1713. The town is mainly residential. Regis College, the Weston College Geophysical Observatory, and many 18th-century buildings are there. Parkway, Cary, North Carolina Cary is the second largest municipality in Wake County, North Carolina and the third largest municipality in The Triangle (North Carolina) behind Raleigh and Durham. It is the seventh largest municipality in North Carolina. 27513, Attention: Secretary. In addition, shareholders may access copies of the documentation filed with the SEC by Charles River on Charles River's website at www.criver.com and shareholders may access copies of the documents filed with the SEC by Inveresk on Inveresk's website at www.inveresk.com. Charles River, Inveresk and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from their respective shareholders in respect of the proposed transactions. Information regarding Charles River's directors and executive officers is available in Charles River's proxy statement Proxy Statement A document containing the information that a company is required by the SEC to provide to shareholders so they can make informed decisions about matters that will be brought up at an annual stockholder meeting. for its 2004 annual meeting of shareholders, which was filed with the SEC on April 9, 2004, and information regarding Inveresk's directors and executive officers is available in Inveresk's proxy statement for its 2004 annual meeting of shareholders, which was filed with the SEC on March 31, 2004. Additional information regarding the interests of such potential participants will be included in the joint proxy statement/prospectus and the other relevant documents filed with the SEC when they become available.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except for per share data)
Three Months Ended Six Months Ended
---------------------- ----------------------
June 26, June 28, June 26, June 28,
2004 2003 2004 2003
Total net sales $180,193 $154,364 $352,830 $306,489
Cost of products sold
and services provided 105,572 94,779 209,381 188,922
---------------------- ----------------------
Gross margin 74,621 59,585 143,449 117,567
Selling, general and
administrative 29,220 23,349 57,340 45,488
Other operating
expenses, net - - - 747
Amortization of
intangibles 1,198 1,230 2,389 2,478
---------------------- ----------------------
Operating income 44,203 35,006 83,720 68,854
Interest income (expense) (1,310) (1,713) (2,725) (3,299)
Other, net (73) 434 127 416
---------------------- ----------------------
Income before income
taxes and minority
interests 42,820 33,727 81,122 65,971
Provision for income
taxes 16,058 12,985 36,210 25,399
---------------------- ----------------------
Income before minority
interests 26,762 20,742 44,912 40,572
Minority interests (462) (181) (1,018) (657)
---------------------- ----------------------
Net income $26,300 $20,561 $43,894 $39,915
====================== ======================
Earnings per common share
Basic $0.57 $0.45 $0.96 $0.88
Diluted $0.52 $0.42 $0.88 $0.82
Weighted average number of
common shares outstanding
Basic 46,046,675 45,319,310 45,950,897 45,248,913
Diluted 52,586,287 51,239,609 52,342,036 51,220,986
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
June 26, December 27,
2004 2003
Assets
Current assets
Cash and cash equivalents $224,153 $182,331
Marketable securities 10,506 13,156
Trade receivables, net 124,978 111,514
Inventories 54,676 52,370
Other current assets 10,297 11,517
--------- ---------
Total current assets 424,610 370,888
Property, plant and equipment, net 205,885 203,458
Goodwill, net 113,691 105,308
Other intangibles, net 32,158 30,415
Deferred tax asset 53,126 61,603
Other assets 32,914 27,882
--------- ---------
Total assets $862,384 $799,554
========= =========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $16,451 $19,433
Accrued compensation 29,811 27,251
Deferred income 33,603 30,846
Other current liabilities 42,496 36,821
--------- ---------
Total current liabilities 122,361 114,351
Long-term debt 185,500 185,600
Other long-term liabilities 25,977 24,804
--------- ---------
Total liabilities 333,838 324,755
--------- ---------
Minority interests 9,484 10,176
Total shareholders' equity 519,062 464,623
--------- ---------
Total liabilities and shareholders' equity $862,384 $799,554
========= =========
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(dollars in thousands)
Three Months Ended Six Months Ended
------------------ ------------------
June 26, June 28, June 26, June 28,
2004 2003 2004 2003
Research Models and Services
Net sales $113,334 $102,500 $226,800 $205,623
Gross margin 49,401 43,054 98,289 87,939
Gross margin as a % of
net sales 43.6% 42.0% 43.3% 42.8%
Operating income 38,007 31,798 74,486 69,036
Operating income as a % of net
sales 33.5% 31.0% 32.8% 33.6%
Depreciation and amortization 4,144 3,940 8,286 7,530
Capital expenditures 4,319 2,363 7,490 4,527
Development and Safety Testing
Net sales $66,859 $51,864 $126,030 $100,866
Gross margin 25,220 16,531 45,160 29,628
Gross margin as a % of
net sales 37.7% 31.9% 35.8% 29.4%
Operating income 14,431 7,320 24,277 8,251
Operating income as a % of
net sales 21.6% 14.1% 19.3% 8.2%
Depreciation and amortization 3,552 3,191 7,247 6,526
Capital expenditures 3,023 6,855 4,377 9,927
Unallocated Corporate Overhead $(8,235) $(4,112) $(15,043) $(8,433)
Total
Net sales $180,193 $154,364 $352,830 $306,489
Gross margin 74,621 59,585 143,449 117,567
Gross margin as a % of
net sales 41.4% 38.6% 40.7% 38.4%
Operating income 44,203 35,006 83,720 68,854
Operating income as a % of
net sales 24.5% 22.7% 23.7% 22.5%
Depreciation and amortization 7,696 7,131 15,533 14,056
Capital expenditures 7,342 9,218 11,867 14,454
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS
(dollars in thousands, except for per share data)
Three Months Ended Six Months Ended
---------------------- ----------------------
June 26, June 28, June 26, June 28,
2004 2003 2004 2003
---------------------------------------------
Net income $26,300 $20,561 $43,894 $39,915
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 - 871
Tax effect of impairment
charge, litigation
settlement and
severance charges - (335) - (623)
---------------------- ----------------------
Net income, excluding
specified charges
(Non-GAAP) $26,300 $21,097 $49,683 $40,910
====================== ======================
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) $26,300 $21,097 $49,683 $40,910
After-tax equivalent
interest expense on
3.5% senior convertible
debentures 995 995 1,991 1,991
---------------------- ----------------------
Income for purposes of
calculating fully
diluted earnings per
share, excluding
specified charges
(Non-GAAP) $27,295 $22,092 $51,674 $42,901
====================== ======================
Weighted average shares
outstanding - Basic 46,046,675 45,319,310 45,950,897 45,248,913
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 1,440,297 747,095 1,294,509 775,189
Warrants 339,860 413,749 337,175 437,429
---------------------- ----------------------
Weighted average shares
outstanding - Diluted 52,586,287 51,239,609 52,342,036 51,220,986
====================== ======================
Basic earnings per share $0.57 $0.45 $0.96 $0.88
Diluted earnings per share $0.52 $0.42 $0.88 $0.82
Basic earnings per share,
excluding specified
charges (Non-GAAP) $0.57 $0.47 $1.08 $0.90
Diluted earnings per
share, excluding specified
charges (Non-GAAP) $0.52 $0.43 $0.99 $0.84
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.
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