Charles River Laboratories Announces Record Third-Quarter 2004 Results and Provides Guidance for Fourth Quarter 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 16% 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 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 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 $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 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 $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 Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: 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 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, "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 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. 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 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 October October: see month. 20 was a momentous mo·men·tous adj. Of utmost importance; of outstanding significance or consequence: a momentous occasion; a momentous decision. event for Charles River. It marked our transformation into a leading global provider of high quality, value-added val·ue-add·ed adj. Of or relating to the estimated value that is added to a product or material at each stage of its manufacture or distribution: 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 biosafety the safe handling of biological materials, particularly infectious agents which are classified on the basis of degree of risk to humans working with them and includes definition of biosafety levels for handling such agents. 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 (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 $111.9 million compared to $99.1 million last year, an increase of 12.9%. The double-digit dou·ble-dig·it adj. Being between 10 and 99 percent: double-digit inflation. growth reflected increased customer demand, higher prices, 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 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 (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 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 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. , 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 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 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 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 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 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, in connection with the European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. 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 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 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 brisk adj. brisk·er, brisk·est 1. Marked by speed, liveliness, and vigor; energetic: had a brisk walk in the park. 2. to implement its integration plan. An integration steering committee steer·ing committee n. A committee that sets agendas and schedules of business, as for a legislative body or other assemblage. steering committee Noun was established immediately following the merger announcement on July July: see month. 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 Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets , sales and marketing, information technology, human resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. , accounting and finance, security, and regulatory guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. . 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 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 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 Cost Synergy In the context of mergers, cost synergy is the savings in operating costs expected after two companies, who compliment each other's strengths, join. Notes: The savings in operating costs usually come in the form of laying off employees. , 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 Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible 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 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 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 Wednesday: see week. , December December: see month. 15, 2004, in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. to provide guidance for 2005. Please contact 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 Investor Relations Investor relations The process by which the corporation communicates with its investors. 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 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. ET on November 5, 2004. About Charles River Laboratories Charles River Laboratories (CRL), 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 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 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. 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 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 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.
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