Charles River Laboratories Reports Record Year in 2003, Strong Fourth-Quarter Results and Improving Outlook for 2004.Business Editors/Health/Medical Writers 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.--(BUSINESS WIRE)--Feb. 10, 2004 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. ) today reported a 9.2% increase in fourth-quarter 2003 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 , to $156.0 million from $142.9 million reported in the fourth quarter of 2002. Net income for the fourth quarter of 2003 increased 17.9% to $20.6 million, or $0.42 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 $17.5 million, or $0.36 per diluted share, in the fourth quarter of 2002. Due primarily to the double-digit dou·ble-dig·it adj. Being between 10 and 99 percent: double-digit inflation. net income gain, cash provided by operating activities increased to $43.5 million, and at the end of the fourth quarter, the Company's combined cash, cash equivalents and marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has were a record $202.8 million. 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. for the fourth quarter of 2003 rose 14.5% to $35.4 million from $31.0 million in the fourth quarter of 2002. The Company's operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: was 22.7% in the fourth quarter of 2003 compared to 21.7% in the fourth quarter of the prior year. Full-year 2003 net sales were $613.7 million, a record for the Company, and a 10.7% increase over the $554.6 million reported in 2002. Operating income rose 13.3% to $138.6 million from $122.3 million in the prior year, and the operating margin increased to 22.6% from 22.0%. 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 2003 were a record $1.64, compared to $1.06 in 2002. The 2003 results included a net charge of $1.6 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 closure 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 savings initiatives. The 2002 results included charges of $29.9 million, or $0.36 per diluted share, for the early retirement of high-yield debt In finance, a high yield bond (non-investment grade bond, speculative grade bond or junk bond) is a bond that is rated below investment grade at the time of purchase. . After adjusting for all items, non-GAAP earnings per diluted share were $1.66 in 2003 compared to $1.42 in 2002, a 16.9% increase. 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 the fourth-quarter and full-year results. Research models finished the year on a stronger note, as did our Development Services business. We benefited from improving pharmaceutical and biotechnology spending and increasing demand for outsourced services. We believe that the upward trend in demand for outsourced development services will continue and are optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about the business environment for 2004." Business Segments Revision During the fourth quarter of 2003, Charles River revised its consolidated financial reporting segments to better reflect the manner in which the Company's operating units operating unit A type of operating company that engages in transactions with outsiders and that is owned by another business. For example, in 1995 the stockholders of Capital Cities/ABC approved a $19 billion merger with the Walt Disney Company, whereupon are managed. The Company believed the revision was required because in 2003, a number of changes were made to align align (  līn),v to move the teeth into their proper positions to conform to the line of occlusion. related businesses, to focus sales force responsibilities and to simplify management structure. The Company will continue to report two segments, now called Research Models & 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. ) and Development & 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. ). The Research Models business will continue to be reported to be spoken of; to be mentioned, whether favorably or unfavorably. See also: Report in the RMS segment and Transgenic trans·ge·nic adj. 1. Of, relating to, or being an organism whose genome has been altered by the transfer of a gene or genes from another species or breed: transgenic mice. 2. Services, Laboratory Services, Contract Staffing Services and Vaccine vaccine Preparation containing either killed or weakened live microorganisms or their toxins, introduced by mouth, by injection, or by nasal spray to stimulate production of antibodies against an infectious agent. Support Services support services Psychology Non-health care-related ancillary services–eg, transportation, financial aid, support groups, homemaker services, respite services, and other services will now be reported in the RMS segment. The Company will now report Development Services, including Drug Safety Testing, Pathology pathology, study of the cause of disease and the modifications in cellular function and changes in cellular structure produced in any cell, organ, or part of the body by disease. Services and Interventional and Surgical Services, and In Vitro in vitro /in vi·tro/ (in ve´tro) [L.] within a glass; observable in a test tube; in an artificial environment. in vi·tro adj. In an artificial environment outside a living organism. Technology in the DST segment. The changes in segment presentation have no effect on consolidated revenues or net income. Management believes that the new business segments will better reflect results of operations and facilitate investors' understanding of the Company's business. The business segment detail discussed in this press release is based on the new business segments. Business Segments Results Fourth-quarter 2003 net sales of $156.0 million increased 9.2% over the fourth quarter of 2002. Favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. foreign currency translation contributed approximately 4.5% of the net sales gain. Fourth-quarter 2003 net sales for the Research Models & Services segment of the business increased 11.7% to $100.4 million from $89.9 million in the prior year. The sales increase was due in part to an increase in biotechnology spending and higher demand for research models. Higher net sales yielded a gross margin of 39.6% compared to 37.9% in the fourth quarter of 2002. Operating income increased 20.3% in the fourth quarter to $28.5 million from $23.7 million in 2002, and the operating margin was 28.4% compared to the prior year's 26.3%. Net sales for the Development & Safety Testing segment rose 4.9% in the fourth quarter, to $55.6 million from $53.0 million in the same period in 2002. Net sales for Development Services improved from the fourth quarter of 2002 and sequentially from the third quarter of 2003, as the demand for outsourced services continued to strengthen. The In Vitro Technology business had a strong fourth quarter due to higher product demand, particularly in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. , and increasing sales of the Endosafe(R)PTS PTS put to sleep; a common euphemism for euthanasia, but also used to describe general anesthesia. , the Company's recently-launched portable testing device for rapid microbial microbial pertaining to or emanating from a microbe. microbial digestion the breakdown of organic material, especially feedstuffs, by microbial organisms. detection. In the fourth quarter of 2003, gross margins for the Development & Safety Testing segment were relatively flat at 35.7%. Operating income for the fourth quarter rose 26.4% to $10.7 million from $8.5 million in the fourth quarter of 2002, and the operating margin increased to 19.3% from 16.0%. The increase in the operating margin was due to improved operating efficiency resulting from higher net sales, the cost savings program initiated in the second quarter of 2003 and a continuing focus on limiting operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. growth. European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. Reorganization In the first quarter of 2004, the Company began a reorganization of its European operations. The purpose of the reorganization is to streamline the corporate legal structure in order to improve operating efficiency and cash management, facilitate acquisitions and provide tax benefits. The reorganization, which will not involve reductions of personnel or facility closures, is expected to result in a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. , non-cash charge Non-Cash Charge A charge off, made by a company against earnings, that does not require an initial outlay of cash. Notes: Non-cash charges are typically against the depreciation, amortization, and depletion accounts on a company's balance sheet. to earnings for 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 in the first quarter of 2004 of approximately $7.5 million, or $0.15 per diluted share, but is expected to improve full-year 2004 earnings per diluted share by an estimated $0.02 to $0.03 excluding the one-time charge. The earnings benefit is expected to increase in 2005. 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 any acquisitions which may occur. For 2004, the Company anticipates that net sales will increase between 7% and 11%, higher than previous guidance of 5% to 9% due to the acquisition of River Valley Farms on January January: see month. 8, 2004, the benefit of foreign exchange and an improving business environment. As a result of stronger sales growth and the benefit of the European reorganization, the Company now expects 2004 earnings per diluted share to be in a range of $1.63 to $1.69. Excluding the one-time charge for reorganization of the European operations, non-GAAP earnings per diluted share would be $1.78 to $1.84, compared to the Company's earlier guidance of at least $1.76. For the first quarter of 2004, the Company expects that net sales will increase between 7% and 11% and that earnings per diluted share will be in a range of $0.28 to $0.30. Excluding the one-time charge, non-GAAP earnings per diluted share are expected to be in a range of $0.43 to $0.45. Webcast Charles River Laboratories has scheduled a live webcast on Wednesday Wednesday: see week. , February 11, at 8:30 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy 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. EST P.M. also p.m. or p.m. abbr. post meridiem Usage Note: By definition, 12 a.m. on February 18, 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 that enable innovative and efficient drug discovery and development. The Company is the 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 biomedical bi·o·med·i·cal adj. 1. Of or relating to biomedicine. 2. Of, relating to, or involving biological, medical, and physical sciences. products and services that enable customers to reduce cost, increase speed, and enhance productivity and effectiveness in drug discovery and development. Charles River's customer base spans over 50 countries, and includes all of the major pharmaceutical companies, 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 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: 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 20, 2003, with the Securities and Exchange Commission.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except for per share data)
Three Months Ended Twelve Months Ended
------------------------------------------------
December 27,December 28,December 27,December 28,
2003 2002 2003 2002
Total net sales $ 156,040 $ 142,944 $ 613,723 $ 554,629
Cost of products sold
and services provided 96,434 89,795 380,058 345,646
----------- ----------- ----------- -----------
Gross margin 59,606 53,149 233,665 208,983
Selling, general and
administrative 22,998 20,974 89,489 83,303
Other operating
expense (income) - - 747 -
Amortization of
intangibles 1,165 1,220 4,876 3,414
----------- ----------- ----------- -----------
Operating income 35,443 30,955 138,553 122,266
Interest income
(expense) (1,685) (1,570) (6,706) (9,085)
Loss on debt
retirement - - - (29,882)
Other income (expense) 340 193 783 1,222
----------- ----------- ----------- -----------
Income before taxes,
minority interests
and earnings from
equity investments 34,098 29,578 132,630 84,521
Provision for income
taxes 13,128 11,387 51,063 31,921
----------- ----------- ----------- -----------
Income before minority
interests and
earnings from equity
investments 20,970 18,191 81,567 52,600
Minority interests (325) (686) (1,416) (2,784)
Earnings from equity
investments - - - 316
----------- ----------- ----------- -----------
Net income $ 20,645 $ 17,505 $ 80,151 $ 50,132
=========== =========== =========== ===========
Earnings per common
share
Basic $ 0.45 $ 0.39 $ 1.76 $ 1.12
Diluted $ 0.42 $ 0.36 $ 1.64 $ 1.06
Weighted average
number of common
shares outstanding
Basic 45,694,910 45,077,506 45,448,368 44,681,601
Diluted 51,453,537 51,518,643 51,314,805 50,856,723
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
December 27, December 28,
2003 2002
Assets
Current assets
Cash and cash equivalents $182,331 $127,509
Investment securities 13,156 $ -
Trade receivables, net 111,514 94,245
Inventories 52,370 43,892
Other current assets 11,517 12,446
-------- --------
Total current assets 370,888 278,092
Property, plant and equipment, net 203,458 187,875
Goodwill, net 105,308 96,532
Other intangibles, net 30,415 34,204
Deferred tax asset 61,603 80,884
Other assets 27,882 23,757
-------- --------
Total assets $799,554 $701,344
======== ========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 19,433 $ 13,084
Accrued compensation 27,251 31,825
Deferred income 30,846 27,029
Other current liabilities 36,821 41,431
-------- --------
Total current liabilities 114,351 113,369
Long-term debt 185,600 192,420
Other long-term liabilities 24,804 19,612
-------- --------
Total liabilities 324,755 325,401
-------- --------
Minority interests 10,176 18,567
Total shareholders' equity 464,623 357,376
-------- --------
Total liabilities and shareholders'
equity $799,554 $701,344
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(dollars in thousands)
Three Months Ended Twelve Months Ended
------------------------------------------------
December 27,December 28,December 27,December 28,
2003 2002 2003 2002
Research Models &
Services
Net sales $ 100,419 $ 89,898 $ 405,121 $ 353,912
Gross margin 39,756 34,068 166,860 141,666
Gross margin as a %
of net sales 39.6% 37.9% 41.2% 40.0%
Operating income 28,486 23,674 126,388 102,713
Operating income as
a % of net sales 28.4% 26.3% 31.2% 29.0%
Depreciation and
amortization 4,882 3,132 16,371 13,404
Capital
expenditures 9,607 9,163 22,984 23,343
Development & Safety
Testing
Net sales $ 55,621 $ 53,046 $ 208,602 $ 200,717
Gross margin 19,850 19,081 66,805 67,317
Gross margin as a %
of net sales 35.7% 36.0% 32.0% 33.5%
Operating income 10,733 8,489 27,651 34,102
Operating income as
a % of net sales 19.3% 16.0% 13.3% 17.0%
Depreciation and
amortization 3,400 3,473 13,193 10,582
Capital
expenditures 3,328 6,766 9,720 14,200
Unallocated Corporate
Overhead $ (3,776) $ (1,208) $ (15,486) $ (14,549)
Total
Net sales $ 156,040 $ 142,944 $ 613,723 $ 554,629
Gross margin 59,606 53,149 233,665 208,983
Gross margin as a %
of net sales 38.2% 37.2% 38.1% 37.7%
Operating income 35,443 30,955 138,553 122,266
Operating income as
a % of net sales 22.7% 21.7% 22.6% 22.0%
Depreciation and
amortization 8,282 6,605 29,564 23,986
Capital
expenditures 12,935 15,929 32,704 37,543
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS
(dollars in thousands, except for per share data)
Three Months Ending
-------------------------
March 27, 2004
Expected diluted earnings per share range $0.28 - $0.30
European reorganization one-time, non-cash
charge 0.15 0.15
----- -----
Diluted earnings per share range, excluding
European reorganization one-time, non-cash
charge (Non-GAAP) $0.43 - $0.45
===== =====
Twelve months ending
-------------------------
December 25, 2004
Expected diluted earnings per share range $1.63 - $1.69
European reorganization one-time, non-cash
charge 0.15 0.15
----- -----
Diluted earnings per share range, excluding
European reorganization one-time, non-cash
charge (Non-GAAP) $1.78 - $1.84
===== =====
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.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS
(dollars in thousands, except for per share data)
Twelve Months Ended
--------------------------
December 27, December 28,
2003 2002
--------------------------
Income before taxes, minority interests and
earnings from equity investments $ 132,630 $ 84,521
Add back:
Impairment charge 3,655 -
Litigation settlement (2,908) -
Severance charge 871
Loss on debt retirement - 29,882
------------ ------------
Income before taxes, minority interest and
earnings from equity investments, excluding
specified charges (Non-GAAP) 134,248 114,403
Provision for income taxes, excluding
specified charges (Non-GAAP) 51,685 43,572
------------ ------------
Income before minority interests and
earnings from equity investments, excluding
specified charges (Non-GAAP) 82,563 70,831
Minority interests (1,416) (2,784)
Earnings from equity investments - 316
------------ ------------
Net income, excluding specified charges
(Non-GAAP) $ 81,147 $ 68,363
============ ============
Calculation of earnings per common share,
excluding specified charges (Non-GAAP):
Net income, excluding specified charges
(Non-GAAP) $ 81,147 $ 68,363
After tax equivalent interest expense 3,982 3,706
------------ ------------
Net income for calculation of fully diluted
earnings per share, excluding specified
charges (Non-GAAP) $ 85,129 $ 72,069
============ ============
Weighted average shares outstanding - Basic 45,448,368 44,681,601
Effect of dilutive securities:
3.5% senior convertible debentures 4,759,455 4,419,847
Stock options 726,291 1,061,243
Warrants 380,691 685,219
2% convertible notes - 8,813
------------ ------------
Weighted average shares outstanding -
Diluted 51,314,805 50,856,723
============ ============
Basic earnings per share, excluding
specified charges (Non-GAAP) $ 1.79 $ 1.53
Diluted earnings per share, excluding
specified charges (Non-GAAP) $ 1.66 $ 1.42
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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