Pre-Effective Amendment to Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1/A Pre-Effective Amendment to Registration Statement 126 622K
(General Form)
2: EX-1.1 Underwriting Agreement 32 128K
3: EX-2.3 Plan of Acquisition, Reorganization, Arrangement, 5 22K
Liquidation or Succession
4: EX-3.1 Articles of Incorporation/Organization or By-Laws 5 22K
5: EX-3.2 Articles of Incorporation/Organization or By-Laws 19 89K
6: EX-4.1 Instrument Defining the Rights of Security Holders 2 9K
7: EX-4.2 Instrument Defining the Rights of Security Holders 48 158K
8: EX-5.1 Opinion re: Legality 2 10K
9: EX-10.14 Material Contract 10 42K
10: EX-10.15 Material Contract 6 22K
11: EX-10.16 Material Contract 17 68K
12: EX-23.2 Consent of Experts or Counsel 1 7K
13: EX-27.1 Financial Data Schedule (Pre-XBRL) 2 17K
S-1/A — Pre-Effective Amendment to Registration Statement (General Form)
Document Table of Contents
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 2000
REGISTRATION NO. 333-35524
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 6770 06-139-7316
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
251 BALLARDVALE STREET
WILMINGTON, MASSACHUSETTS 01887
(978) 658-6000
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
THOMAS F. ACKERMAN, CHIEF FINANCIAL OFFICER
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
251 BALLARDVALE STREET
WILMINGTON, MASSACHUSETTS 01887
(978) 658-6000, EXT. 1225
(978) 694-9504 (FAX)
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
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MARY E. WEBER, ESQ. RICHARD D. TRUESDELL, JR., ESQ.
Ropes & Gray Davis Polk & Wardwell
One International Place 450 Lexington Avenue
Boston, Massachusetts 02110 New York, New York 10017
(617) 951-7000 (212) 450-4000
(617) 951-7050 (fax) (212) 450-4800 (fax)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SUBJECT TO COMPLETION--JUNE 23, 2000
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PROSPECTUS
, 2000
We will amend and complete the information in this prospectus. Although we are
permitted by U.S. federal securities laws to offer these securities using this
prospectus, we may not sell them or accept your offer to buy them until the
documentation filed with the SEC relating to these securities has been declared
effective by the SEC. This prospectus is not an offer to sell these securities
or our solicitation of your offer to buy these securities in any jurisdiction
where that would not be permitted or legal.
[LOGO]
12,500,000 SHARES OF COMMON STOCK
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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.:
- We are a leading provider of critical research tools and integrated support
services that enable innovative and efficient drug discovery and
development.
- Charles River Laboratories International, Inc.
251 Ballardvale Street
Wilmington, MA 01887
(978) 658-6000
PROPOSED SYMBOL & MARKET:
- CRL / NYSE
THE OFFERING:
- We are offering 12,500,000 shares of our common stock.
- The underwriters have an option to purchase from us up to an additional
1,875,000 shares of our common stock to cover over-allotments.
- This is our initial public offering, and no public market currently exists
for our shares.
- We anticipate that the initial public offering price for our shares will be
between $15.00 and $17.00 per share.
- We plan to use the proceeds from this offering to repay debt.
- Closing: , 2000.
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PER
SHARE TOTAL
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Public offering price: $ $
Underwriting fees:
Proceeds to Charles River:
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THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 10.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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JOINT LEAD MANAGERS
DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS
----------------
ING BARINGS
SG COWEN
U.S. BANCORP PIPER JAFFRAY
DLJDIRECT INC.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 4
Risk Factors.......................... 10
Forward-Looking Statements............ 16
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Consolidated Financial
Data................................ 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 33
Management............................ 43
Security Ownership of Certain
Beneficial Owners and Management.... 49
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PAGE
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Relationships and Transactions with
Related Parties..................... 51
Description of Capital Stock.......... 53
Shares Eligible for Future Sale....... 56
Certain United States Federal Tax
Considerations for Non-United States
Holders of Common Stock............. 58
Underwriting.......................... 61
Legal Matters......................... 63
Experts............................... 63
Where You Can Find More Information... 63
Index to Unaudited Pro Forma Condensed
Consolidated Financial Data......... P-1
Index to Consolidated Financial
Statements.......................... F-1
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Charles River is a registered trademark of Charles River Laboratories, Inc. This
prospectus also includes trademarks and trade names of other parties.
3
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS IMPORTANT INFORMATION REGARDING OUR BUSINESS AND
THIS OFFERING. BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL THE
INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, INCLUDING "RISK FACTORS" AND OUR FINANCIAL STATEMENTS AND RELATED
NOTES, BEFORE DECIDING TO INVEST IN OUR COMMON STOCK. EXCEPT AS OTHERWISE NOTED,
ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION AND GIVES EFFECT TO THE EXCHANGE OF EACH EXISTING SHARE OF
OUR COMMON STOCK FOR 1.927 NEW SHARES EFFECTIVE JUNE 21, 2000.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
OVERVIEW
We are a leading provider of critical research tools and integrated support
services that enable innovative and efficient drug discovery and development. We
are the global leader in providing the animal research models required in
research and development for new drugs, devices and therapies and have been in
this business for more than 50 years. Since 1992, we have built upon our
research model technologies to develop a broad and growing portfolio of
biomedical products and services. Our wide array of services enables our
customers to reduce costs, increase speed and enhance their productivity and
effectiveness in drug discovery and development. Our customer base, spanning
over 50 countries, includes all of the major pharmaceutical and biotechnology
companies, as well as many leading hospitals and academic institutions. We
currently operate 53 facilities in 15 countries worldwide. Our differentiated
products and services, supported by our global infrastructure and scientific
expertise, enable our customers to meet many of the challenges of early-stage
life sciences research, a large and growing market. In 1999, our pro forma net
sales were $272.6 million, and our pro forma operating income was
$49.5 million. For the three months ended March 25, 2000, our pro forma net
sales were $76.7 million, and our pro forma operating income was $17.2 million.
RESEARCH MODELS. We are the global leader in the production and sale of
research models, principally genetically and virally defined purpose-bred rats
and mice. These products represented 65% of our 1999 pro forma net sales and 63%
of our pro forma net sales for the three months ended March 25, 2000. We offer
over 130 research models, one of the largest selections of small animal models
of any provider worldwide. Our higher growth models include genetically defined
models and models with compromised immune systems, which are increasingly in
demand as early-stage research tools. The FDA and foreign regulatory bodies
typically require the safety and efficacy of new drug candidates and many
medical devices to be tested on research models like ours prior to testing in
humans. As a result, our research models are an essential part of the drug
discovery and development process.
BIOMEDICAL PRODUCTS AND SERVICES. We have focused significant resources on
developing a diverse portfolio of biomedical products and services directed at
high-growth areas of drug discovery and development. Our biomedical products and
services business represented 35% of our 1999 pro forma net sales and 37% of our
pro forma net sales for the three months ended March 25, 2000, and has
experienced strong growth as demonstrated by the 26% compound annual growth rate
in our net sales over the past five fiscal years. We expect the drug discovery
and development markets that we serve will continue to experience strong growth,
particularly as new drug development based on advances in genetics continues to
evolve. There are four areas within this segment of our business:
DISCOVERY SERVICES. Our discovery services are designed to assist our
customers in screening drug candidates faster by providing genetically
defined research models for in-house research and by implementing efficacy
screening protocols to improve the customer's drug evaluation process. The
market for discovery services is growing rapidly as pharmaceutical and
biotechnology research and development increasingly focuses on selecting
lead drug candidates from the enormous number of new compounds being
generated.
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DEVELOPMENT SERVICES. We currently offer FDA-compliant development services
in three main areas: drug safety assessment, biotech safety testing and
medical device testing. Biotech safety testing services include a broad
range of services specifically focused on supporting biotech or
protein-based drug development, including such areas as protein
characterization, cell banking, methods development and release testing. Our
rapidly growing development services offerings enable our customers to
outsource their high-end, non-core drug development activities.
IN VITRO DETECTION SYSTEMS. We have diversified our product offerings to
include non-animal, or IN VITRO, methods for testing the safety of drugs and
devices. We are strategically committed to being the leader in providing our
customers with IN VITRO alternatives as these methods become scientifically
validated and commercially feasible.
VACCINE SUPPORT PRODUCTS. We produce pathogen-free fertilized chicken eggs,
a critical element of poultry vaccine production. We believe there is
significant potential for growth in this area in support of novel human
vaccines, such as a nasal spray flu vaccine currently in development.
COMPETITIVE STRENGTHS
Our leading research models business has provided us with steadily growing
revenues and strong cash flow, while our biomedical products and services
business provides significant opportunities for profitable growth. Our products
and services are critical to both traditional pharmaceutical research and the
rapidly growing fields of genomic, recombinant protein and humanized antibody
research. We believe we are well positioned to compete effectively in all of
these sectors as a result of a diverse set of competitive strengths, which
include:
- Critical products and services;
- Long-standing reputation for scientific excellence;
- Extensive global infrastructure and customer relationships;
- Biosecurity technology expertise;
- Platform acquisition and internal development capabilities; and
- Experienced and incentivized management team.
OUR STRATEGY
Our business strategy is to build upon our core research models business and
to actively invest in higher growth opportunities where our proven capabilities
and strong relationships allow us to achieve and maintain a leadership position.
Our growth strategies include:
- Broaden the scope of our discovery and development services;
- Acquire new technologies in research models;
- Expand our preclinical outsourcing services;
- Expand our non-animal technologies; and
- Pursue strategic acquisitions and alliances.
5
THE RECAPITALIZATION
On September 29, 1999, CRL Acquisition LLC, a limited liability company
owned by affiliates of DLJ Merchant Banking Partners, II, L.P., our management
and other investors, together with our former parent company, Bausch & Lomb
Incorporated, completed a recapitalization transaction.
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We are organized as a Delaware corporation. Our headquarters are located at
251 Ballardvale Street, Wilmington, Massachusetts 01887. Our telephone number is
(978) 658-6000. Our website address is www.criver.com. The information on our
website is not incorporated as a part of this prospectus.
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THE OFFERING
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Common stock offered by us................... 12,500,000 shares
Common stock outstanding after this
offering................................... 32,320,369 shares
Use of proceeds.............................. We plan to use the net proceeds from this
offering to redeem a portion of our
outstanding senior subordinated notes, and to
repay our senior discount debentures, our
subordinated discount note and a portion of
our bank debt.
Proposed NYSE symbol......................... CRL
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 25, 2000. This number
does not include the following:
- 1,875,000 shares of common stock to be sold by us if the underwriters'
over-allotment option is exercised in full;
- 1,726,328 shares of common stock reserved for issuance upon the exercise
of outstanding options granted under our 1999 management incentive plan,
of which none were exercisable;
- 1,347,056 shares of common stock available for future grants under our
1999 management incentive plan, 2000 incentive plan and 2000 director
stock plan; and
- 2,970,645 shares of common stock issuable upon the exercise of outstanding
warrants.
7
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The table below presents our summary historical and unaudited pro forma as
adjusted consolidated financial and other data. We derived the summary
consolidated financial data for the fiscal years ended December 27, 1997,
December 26, 1998 and December 25, 1999 from our audited consolidated financial
statements and the related notes included elsewhere in this prospectus. We
derived the summary consolidated financial data for the three months ended
March 27, 1999 and March 25, 2000 from our unaudited condensed consolidated
financial statements and the notes thereto included elsewhere in this
prospectus. In the opinion of management, our unaudited condensed consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
condition and results of operations for this period. The summary unaudited pro
forma as adjusted consolidated financial data of Charles River Laboratories
International, Inc. is based upon the consolidated financial statements as of
and for the year ended December 25, 1999, and as of and for the three months
ended March 25, 2000, adjusted as appropriate, to give effect to the
recapitalization, the acquisition of SBI Holdings Inc. which we call "Sierra,"
the acquisition of an additional 16% of the equity of Charles River Japan Inc.,
the sale of a product line within our research model business segment, and the
sale of 12,500,000 shares in this offering at an assumed initial public offering
price of $16.00 per share, the net proceeds of which will be used to repay
outstanding debt. The summary unaudited pro forma as adjusted consolidated
financial data may not be indicative of what our results would have been if the
transactions presented on a pro forma basis were completed as of December 27,
1998 and December 26, 1999 for annual and quarterly income statement data,
respectively, and as of March 25, 2000 for balance sheet data. In addition, they
are not projections of our consolidated future results of operations or
financial position. You should read the information contained in this table in
conjunction with "Use of Proceeds," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Unaudited Pro Forma Condensed Consolidated Financial Data" and our
consolidated financial statements and the related notes contained elsewhere in
this prospectus.
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PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
FISCAL YEAR ENDED(1) FISCAL YEAR THREE MONTHS ENDED THREE MONTHS
------------------------------------------ ENDED(1)(2) ------------------------- ENDED(2)(3)
DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 25, MARCH 27, MARCH 25, MARCH 25,
1997 1998 1999 1999 1999 2000 2000
------------ ------------ ------------ ------------ ----------- ----------- -------------
(DOLLARS IN THOUSANDS EXCEPT FOR SHARE DATA)
INCOME STATEMENT DATA:
Net sales................. $ 170,713 $ 193,301 $ 219,276 $ 272,557 $ 52,280 $ 69,302 $ 76,704
Cost of products sold and
services provided....... 111,460 122,547 134,592 166,865 32,160 41,392 45,512
Selling, general and
administrative
expenses................ 30,451 34,142 39,765 52,328 8,819 11,813 13,026
Amortization of goodwill
and intangibles......... 834 1,287 1,956 3,848 411 865 939
Restructuring charges..... 5,892 -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income.......... $ 22,076 $ 35,325 $ 42,963 $ 49,516 $ 10,890 $ 15,232 $ 17,227
----------- ----------- ----------- ----------- ----------- ----------- -----------
Interest expense.......... $ 501 $ 421 $ 12,789 $ 27,313 $ 77 $ 12,664 $ 7,208
=========== =========== =========== =========== =========== =========== ===========
Net income................ $ 15,340 $ 23,378 $ 17,124 $ 8,671 $ 7,073 $ 636 $ 4,383
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Earnings per common share
Basic(3).............. $ 0.77 $ 1.18 $ 0.86 $ 0.27 $ 0.36 $ 0.03 $ 0.14
Diluted............... 0.77 1.18 0.86 0.25 0.36 0.03 0.12
Weighted average number of
common shares
outstanding
Basic................. 19,820,369 19,820,369 19,820,369 32,320,369 19,820,369 19,820,369 32,320,369
Diluted............... 19,820,369 19,820,369 19,820,369 34,971,011 19,820,369 23,571,555 36,071,555
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PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
FISCAL YEAR ENDED(1) FISCAL YEAR THREE MONTHS ENDED THREE MONTHS
------------------------------------------ ENDED(1)(2) ------------------------- ENDED(2)(3)
DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 25, MARCH 27, MARCH 25, MARCH 25,
1997 1998 1999 1999 1999 2000 2000
------------ ------------ ------------ ------------ ----------- ----------- -------------
(DOLLARS IN THOUSANDS EXCEPT FOR SHARE DATA)
OTHER DATA:
EBITDA, as defined(4)..... $ 31,779 $ 46,220 $ 55,281 $ 66,590 $ 13,817 $ 18,996 $ 21,493
EBITDA margin............. 18.6% 23.9% 25.2% 24.4% 26.4% 27.4% 28.0%
Depreciation and
amortization............ $ 9,703 $ 10,895 $ 12,318 $ 17,074 $ 2,927 $ 3,764 $ 4,266
Cash flows from operating
activities(5)........... 24,324 37,380 37,568 -- 7,500 1,861 --
Cash flows used in
investing
activities(5)........... (12,946) (23,030) (34,168) -- (2,214) (1,797) --
Cash flows used in
financing
activities(5)........... (12,939) (8,018) (11,504) -- (12,874) 3,721 --
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AS OF MARCH 25, 2000
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PRO FORMA
HISTORICAL AS ADJUSTED
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(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 18,458 $ 18,458
Working capital............................................. 27,854 27,854
Total assets................................................ 401,600 413,425
Total debt.................................................. 398,142 255,313
Total shareholders' equity(2)............................... (111,173) 56,679
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(1) Our fiscal year consists of twelve months ending on the last Saturday on or
prior to December 31.
(2) As more fully discussed under "Risk Factors--We may be required to refinance
our existing credit facility", if we refinance our existing credit facility,
we will write-off the deferred financing fees relating to this facility,
which would reduce pro forma as adjusted shareholders' equity to $53,572.
(3) As more fully described in Note 4 to the consolidated financial statements,
historical earnings per share have been computed assuming that the shares
outstanding after the recapitalization had been outstanding for all periods
prior to the recapitalization.
(4) EBITDA, as defined, represents operating income plus depreciation and
amortization. EBITDA, as defined, is presented because it is a widely
accepted financial indicator used by some investors and analysts to analyze
and compare companies on the basis of operating performance.
EBITDA, as defined, is not intended to represent cash flows for the period,
nor is it presented as an alternative to operating income or as an indicator
of operating performance. It should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with GAAP in
the United States and is not indicative of operating income or cash flow
from operations as determined under GAAP. Our method of computation may or
may not be comparable to other similarly titled measures of other companies.
(5) Cash flow information is not presented with respect to the unaudited pro
forma data because a statement of cash flows is not required by Article 11
of SEC Regulation S-X.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES WE FACE.
ADDITIONAL RISKS NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY CONSIDER
IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. ANY OF THESE RISKS COULD
HAVE A MATERIAL AND NEGATIVE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE
TO ANY OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
CONTAMINATIONS IN OUR ANIMAL POPULATIONS CAN DAMAGE OUR INVENTORY, HARM OUR
REPUTATION FOR CONTAMINANT-FREE PRODUCTION AND RESULT IN DECREASED SALES.
Our research models and fertile chicken eggs must be free of contaminants,
such as viruses and bacteria. Presence of contaminants can distort or compromise
the quality of research results. Contaminations in our isolated breeding rooms
or poultry houses could disrupt our contaminant-free research model and fertile
egg production, harm our reputation for contaminant-free production and result
in decreased sales.
Contaminations typically require cleaning up the contaminated room or
poultry house. This clean-up results in inventory loss, clean-up and start-up
costs, and reduced sales as a result of lost customer orders and credits for
prior shipments. These contaminations are unanticipated and difficult to
predict. We experienced several material contaminations in our animal
populations in 1996 and a few significant contaminations in 1997 that adversely
impacted our 1996 and 1997 financial results. In response, we made over
$6.0 million in capital expenditures designed to strengthen our biosecurity and
significantly changed our operating procedures. We have not experienced any
significant contaminations since 1997.
MANY OF OUR CUSTOMERS ARE PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES, AND WE ARE
SUBJECT TO RISKS, UNCERTAINTIES AND TRENDS THAT AFFECT COMPANIES IN THOSE
INDUSTRIES.
Sales of our products and services are highly dependent on research and
development expenditures by the pharmaceutical and biotechnology companies. We
are therefore subject to risks, uncertainties and trends that affect companies
in those industries, including government regulation, pricing pressure,
technological change and shifts in the focus and scope of research and
development expenditures. For example, over the past several years, the
pharmaceutical industry has undergone significant mergers and combinations, and
many industry experts expect this trend to continue. After recent mergers and
combinations, some customers combined or otherwise reduced their research and
development operations, resulting in fewer animal research activities. We
experienced both temporary disruptions and permanent reductions in sales of our
research models to some of these customers. Future mergers and combinations in
the pharmaceutical or biotechnology industries, or other industry-wide trends,
could adversely affect demand for or pricing of our products.
NEW TECHNOLOGIES MAY BE DEVELOPED, VALIDATED AND INCREASINGLY USED IN BIOMEDICAL
RESEARCH THAT COULD REDUCE DEMAND FOR SOME OF OUR PRODUCTS AND SERVICES.
For many years, groups within the scientific and research community have
attempted to develop models, methods and systems that would replace or
supplement the use of living animals as test subjects in biomedical research.
Companies have developed several techniques that have scientific merit,
especially in the area of cosmetics and household product testing, markets in
which we are not active. Only a few alternative test methods in the discovery
and development of effective and safe treatments for human and animal disease
conditions have been validated and successfully deployed. The principal
validated non-animal test system is the LAL, or endotoxin detection system, a
technology which we acquired and have aggressively marketed as an alternative to
testing in animals. It is our strategy to participate in some fashion with any
non-animal test method as it becomes validated as a
10
research model alternative or adjunct in our markets. However, these methods may
not be available to us or we may not be successful in commercializing these
methods. Even if we are successful, sales or profits from these methods may not
offset reduced sales or profits from research models.
Alternative research methods could decrease the need for research models,
and we may not be able to develop new products effectively or in a timely manner
to replace any lost sales. In addition, one of the anticipated outcomes of
genomics research is to permit the elimination of more compounds prior to
preclinical testing. While this outcome may not occur for several years, if at
all, it may reduce the demand for some of our products and services.
THE OUTSOURCING TREND IN THE PRECLINICAL AND NONCLINICAL STAGES OF DRUG
DISCOVERY AND DEVELOPMENT, MEANING CONTRACTING OUT TO OTHERS FUNCTIONS THAT WERE
PREVIOUSLY PERFORMED INTERNALLY, MAY DECREASE, WHICH COULD SLOW OUR GROWTH.
Some areas of our biomedical products and services business have grown
significantly as a result of the increase over the past several years in
pharmaceutical and biotechnology companies outsourcing their preclinical and
nonclinical research support activities. While industry analysts expect the
outsourcing trend to continue for the next several years, a substantial decrease
in preclinical and nonclinical outsourcing activity could result in a diminished
growth rate in the sales of one or more of our expected higher growth areas.
WE MUST COMPLY WITH FDA REGULATION OF OUR ENDOTOXIN DETECTION SYSTEMS
OPERATIONS.
The United States Food and Drug Administration, or FDA, regulates our
endotoxin detection systems operations as a medical device manufacturer. Last
year, the FDA issued a "warning letter" to us and other LAL manufacturers,
citing quality control and other problems in the manufacturing facilities. The
FDA has allowed our facility, located in Charleston, South Carolina, to continue
to manufacture and sell the LAL product line, subject to our agreement to make
prescribed changes to our production and quality control systems. We believe
that we have taken all steps necessary to meet the FDA's requirements, but if
the FDA disagrees, it could take further enforcement action, including
potentially requiring us to recall our products or temporarily revoking our
manufacturing license. Any further enforcement action could impose additional
costs and affect our ability to provide our endotoxin detection systems.
OUR BUSINESS MAY BE AFFECTED BY CHANGES IN THE ANIMAL WELFARE ACT AND RELATED
REGULATIONS WHICH MAY REQUIRE US TO ALTER OUR OPERATIONS.
The United States Department of Agriculture, or USDA, is presently
considering changing the regulations issued under the Animal Welfare Act to
include rats, mice and birds, including chickens. The Animal Welfare Act imposes
a wide variety of specific regulations on producers and users of regulated
species including cage size, shipping conditions and environmental enrichment
methods. If the USDA decides to include rats, mice and birds, including
chickens, in its regulations, we could be required to alter our production
operations. This may include adding production capacity, new equipment and
additional employees. We believe that application of the Animal Welfare Act to
rats, mice and chickens used in our research model and vaccine support products
operations in the United States will not result in loss of net sales, margin or
market share, since all U.S. producers and users will be subject to the same
regulations. While we do not anticipate the addition of rats, mice and chickens
to the Animal Welfare Act to require significant expenditures, changes to the
regulations may be more stringent than we expect and require more significant
expenditures. Additionally, if we fail to comply with state regulations,
including general anti-cruelty legislation, foreign laws and other anti-cruelty
laws, we could face significant civil and criminal penalties.
11
IF WE ARE NOT SUCCESSFUL IN SELECTING AND INTEGRATING THE BUSINESSES AND
TECHNOLOGIES WE ACQUIRE, OUR BUSINESS MAY SUFFER.
We plan to continue to grow our business through acquisitions of businesses
and technologies and through alliances. However, businesses and technologies may
not be available on terms and conditions we find acceptable. Even if completed,
acquisitions and alliances involve numerous risks which may include:
- difficulties and expenses incurred in assimilating operations, services,
products or technologies;
- difficulties in developing and operating new businesses including
diversion of management's attention from other business concerns;
- the potential loss of key employees of an acquired business and
difficulties in attracting new employees to grow businesses;
- difficulties in assimilating differences in foreign business practices and
overcoming language barriers;
- difficulties in obtaining intellectual property protections and skills
that we and our employees currently do not have; and
- difficulties in achieving business and financial success.
In the event that the success of an acquired business or technology or an
alliance does not meet expectations, we may be required to restructure. We may
not be able to successfully integrate acquisitions into our existing business or
successfully exploit new business or technologies.
FACTORS SUCH AS EXCHANGE RATE FLUCTUATIONS AND INCREASED INTERNATIONAL AND U.S.
REGULATORY REQUIREMENTS MAY INCREASE OUR COSTS OF DOING BUSINESS IN FOREIGN
COUNTRIES.
A significant part of our net sales is derived from operations outside the
United States. Our operations and financial results could be significantly
affected by factors such as changes in foreign currency rates, uncertainties
related to regional economic circumstances and the costs of complying with a
wide variety of international and U.S. regulatory requirements.
Because the sales and expenses of our foreign operations are generally
denominated in local currencies, we are subject to exchange rate fluctuations
between local currencies and the U.S. dollar in the reported results of our
foreign operations. These fluctuations may decrease our earnings. We currently
do not hedge against the risk of exchange rate fluctuations.
WE FACE SIGNIFICANT COMPETITION IN OUR BUSINESS, AND IF WE ARE UNABLE TO RESPOND
TO COMPETITION IN OUR BUSINESS, OUR REVENUES MAY DECREASE.
We face significant competition from different competitors in each of our
business areas. Some of our competitors in biotech safety testing and medical
device testing are larger than we are and may have greater capital, technical or
other resources than we do. We generally compete on the basis of quality,
reputation, and availability of service. Expansion by our competitors into other
areas in which we operate, new entrants into our markets or changes in our
competitors' strategy could adversely affect our competitive position. Any
erosion of our competitive position may decrease our revenues or limit our
growth.
NEGATIVE ATTENTION FROM SPECIAL INTEREST GROUPS MAY IMPAIR OUR BUSINESS.
Our core research model activities with rats, mice and other rodents have
not historically been the subject of animal rights media attention. However, the
large animal component of our business has been the subject of adverse attention
and on-site protests. We recently closed our small import facility in England
due in part to protests by animal right activists, which included threats
against our facilities and employees. Future negative attention or threats
against our facilities or employees could impair our business.
12
ONE OF OUR LARGE ANIMAL OPERATIONS IS DEPENDENT ON A SINGLE SOURCE OF SUPPLY,
WHICH IF INTERRUPTED COULD ADVERSELY AFFECT OUR BUSINESS.
We depend on a single, international source of supply for one of our large
animal operations. Disruptions to their continued supply may arise from export
or import restrictions or embargoes, foreign government or economic instability,
or severe weather conditions. Any disruption of supply could harm our business
if we cannot remove the disruption or are unable to secure an alternative or
secondary source on comparable commercial terms.
TAX BENEFITS WE EXPECT TO BE AVAILABLE IN THE FUTURE MAY BE SUBJECT TO
CHALLENGE.
In connection with the recapitalization, our shareholders, CRL Acquisition
LLC and Bausch & Lomb Incorporated, or B&L, made a joint election intended to
permit us to increase the depreciable and amortizable tax basis in our assets
for Federal income tax purposes, thereby providing us with expected future tax
benefits. In connection with the offering, CRL Acquisition LLC is expected to
reorganize, terminate its existence as a corporation for tax purposes and
distribute a substantial portion of our stock to its members. It is possible
that the Internal Revenue Service may contend that this reorganization and
liquidating distribution should be integrated with our original
recapitalization. We believe that the reorganization and liquidating
distribution should not have any impact upon the election for federal income tax
purposes. However, the Internal Revenue Service may reach a different
conclusion. If the Internal Revenue Service were successful, the expected future
tax benefits would not be available and we would be required to write off the
related deferred tax asset reflected in our balance sheet by recording a
non-recurring tax expense in our results of operations in an amount equal to
such deferred tax asset. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
OUR SUPPLY OF ANIMAL FEED MAY BE INTERRUPTED BY THE BANKRUPTCY OF OUR DOMESTIC
COMMERCIAL SUPPLIER PURINA MILLS, INC.
Purina Mills, Inc., our commercial supplier of animal feed for our United
States research model business, has filed for reorganization under the U.S.
Bankruptcy Code. We do not expect this to interrupt our supply of animal feed.
If we need to secure an alternative or secondary source, our costs of animal
feed may increase.
WE DEPEND ON KEY PERSONNEL AND MAY NOT BE ABLE TO RETAIN THESE EMPLOYEES OR
RECRUIT ADDITIONAL QUALIFIED PERSONNEL, WHICH WOULD HARM OUR BUSINESS.
Our success depends to a significant extent on the continued services of our
senior management and other members of management. James C. Foster, our Chief
Executive Officer since 1992, has held various positions with Charles River for
24 years and recently became our Chairman. We have no employment agreement with
Mr. Foster, nor with any other executive officer. If Mr. Foster or other members
of management do not continue in their present positions, our business may
suffer.
Because of the specialized scientific nature of our business, we are highly
dependent upon qualified scientific, technical and managerial personnel. There
is intense competition for qualified personnel in the pharmaceutical and
biotechnological fields. Therefore, we may not be able to attract and retain the
qualified personnel necessary for the development of our business. The loss of
the services of existing personnel, as well as the failure to recruit additional
key scientific, technical and managerial personnel in a timely manner could harm
our business.
DLJ MERCHANT BANKING PARTNERS, II, L.P. AND ITS AFFILIATES HAVE SUBSTANTIAL
CONTROL OVER OUR COMPANY AND MAY HAVE DIFFERENT INTERESTS THAN THOSE OF OTHER
HOLDERS OF OUR COMMON STOCK.
Prior to this offering, DLJ Merchant Banking Partners II, L.P. and
affiliated funds, which we refer to as the DLJMB Funds, beneficially owned 75.0%
of our outstanding common stock and after this offering and the planned
distribution of our shares by CRL Acquisition LLC to its members these
13
entities will beneficially own 47.4% of our outstanding common stock (45.4% if
the underwriters' over-allotment option is exercised in full). As of March 25,
2000, without adjustment for the proposed distribution of our stock by CRL
Acquisition LLC to its members, the DLJMB Funds beneficially owned 88.5% of our
common stock before the offering and 56.0% after the offering. As a result of
their stock ownership and contractual rights they received in the
recapitalization, these entities have substantial control over our business,
policies and affairs, including the power to:
- elect a majority of our directors;
- appoint new management;
- prevent or cause a change of control; and
- substantially control any action requiring the approval of the holders of
common stock, including the adoption of amendments to our certificate of
incorporation and approval of mergers or sales of substantially all of our
assets.
The directors elected by the DLJMB Funds have the ability to control
decisions affecting the business and management of our company including our
capital structure. This includes the issuance of additional capital stock, the
implementation of stock repurchase programs and the declaration of dividends.
The DLJMB Funds and the directors they appoint may have different interests than
those of other holders of our common stock.
The general partners of each of the DLJMB Funds are affiliates or employees
of Donaldson, Lufkin & Jenrette Securities Corporation, a managing underwriter
of this offering.
OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS AS
A SEPARATE COMPANY.
The historical financial information in this prospectus may not reflect what
our results of operations, financial position and cash flows would have been had
we been a separate, stand-alone company during the periods presented or in the
future. We made some adjustments and allocations to the historical financial
statements in this prospectus because B&L did not account for us as a single
stand-alone business for all periods presented. Our adjustments and allocations
made in preparing our historical consolidated financial statements may not
appropriately reflect our operations during the periods presented as if we had
operated as a stand-alone company.
WE MAY BE REQUIRED TO REFINANCE OUR EXISTING CREDIT FACILITY.
The consummation of this offering and the planned application of the
proceeds would constitute an event of default under our existing credit
facility. We are currently seeking consents from the lenders under this facility
to permit the offering and planned application of proceeds and believe we will
be successful in obtaining such consents. If we are unsuccessful in obtaining
such consents, we intend to refinance this facility and have an irrevocable
committment from DLJ Capital Funding, Inc. (an affiliate of Donaldson, Lufkin &
Jenrette Securities Corporation, one of the joint lead managers of this
offering) to provide us with a new credit facility on substantially the same
terms as our existing credit facility, except that the new facility would permit
the offering and planned application of proceeds. If we are required to
refinance our existing credit facility, we will write-off approximately $8.487
million of deferred financing fees relating to our existing credit facility.
HEALTHCARE REFORM COULD REDUCE OR ELIMINATE OUR BUSINESS OPPORTUNITIES.
The United States and many foreign governments have reviewed or undertaken
healthcare reform, most notably price controls on new drugs, which may adversely
affect research and development expenditures by pharmaceutical and biotechnology
companies, resulting in a decrease of the business opportunities available to
us. We cannot predict the impact that any pending or future healthcare reform
proposals may have on our business.
14
RISKS RELATED TO THIS OFFERING
THERE IS CURRENTLY NO PUBLIC MARKET FOR OUR COMMON STOCK.
Prior to the offering, there has been no public market for our common stock.
We cannot assure you that an active trading market for our common stock will
develop or be sustained after the offering. The initial public offering price
for our common stock will be determined by negotiations between the underwriters
and us. We cannot assure you that the initial public offering price will
correspond to the price at which our common stock will trade in the public
market subsequent to the offering or that the price of our common stock
available in the public market will reflect our actual financial performance.
OUR STOCK PRICE MAY BE VOLATILE AND COULD DECLINE SUBSTANTIALLY.
The stock market has, from time to time, experienced extreme price and
volume fluctuations. Many factors may cause the market price for our common
stock to decline following this offering, including:
- our operating results failing to meet the expectations of securities
analysts or investors in any quarter;
- downward revisions in securities analysts' estimates;
- material announcements by us or our competitors;
- governmental regulatory action;
- technological innovations by competitors or competing technologies;
- investor perceptions of our industry or prospects or those of our
customers; and
- changes in general market conditions or economic trends.
In the past, companies that have experienced volatility in the market price
of their stock have been the subject of securities class action litigation. If
we become involved in a securities class action litigation in the future, it
could result in substantial costs and diversion of management attention and
resources, harming our business.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE.
The market price of our common stock could decline as a result of sales by
our existing stockholders after this offering or the perception that these sales
could occur. These sales also might make it difficult for us to sell equity
securities in the future at a time and price that we deem appropriate. In
addition, some existing stockholders have the ability to require us to register
their shares.
THE INITIAL PUBLIC OFFERING PRICE IS SIGNIFICANTLY HIGHER THAN THE BOOK VALUE OF
OUR COMMON STOCK, AND YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN
THE VALUE OF YOUR INVESTMENT.
The initial public offering price per share will significantly exceed our
net tangible book value per share. Accordingly, investors purchasing shares in
this offering will suffer immediate and substantial dilution of $15.56 per
share. We also have outstanding a large number of stock options and warrants to
purchase our common stock with exercise prices significantly below the initial
public offering price of our common stock. To the extent these options and
warrants are exercised, you will experience further dilution.
15
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. You can identify these
statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they discuss our
future expectations, contain projections of our future results of operations or
of our financial condition or state other "forward-looking" information. We
believe that it is important to communicate our future expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or control and that may cause our actual results to differ
materially from those discussed as a result of various factors, including
contaminations at our facilities, changes in the pharmaceutical or biotechnology
industries, competition and changes in government regulations or general
economic or market conditions. These factors should be considered carefully and
readers should not place undue reliance on our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in the "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
sections and elsewhere in this prospectus could harm our business, operating
results and financial condition. All forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements and risk factors contained throughout this prospectus.
We are under no duty to update any of the forward-looking statements after the
date of this prospectus or to conform these statements to actual results.
INDUSTRY AND MARKET DATA
In this prospectus, we rely on and refer to information and statistics
regarding the research model and biomedical products and services industries,
and our market share in the sectors in which we compete. We obtained this
information and statistics from various third party sources, discussions with
our customers and/or our own internal estimates. We believe that these sources
and estimates are reliable, but we have not independently verified them.
16
USE OF PROCEEDS
We estimate that we will receive proceeds from this offering of
approximately $185.0 million, at an assumed initial public offering price of
$16.00 per share, which are net of underwriting discounts and commissions and
estimated offering expenses payable by us. If the underwriters exercise their
over-allotment option in full, we estimate our net proceeds will be $213.0
million. We intend to use the net proceeds of this offering to repay outstanding
indebtedness. At March 25, 2000, our intended use of proceeds would have been as
follows:
- approximately $59.6 million to redeem approximately $52.5 million in
principal amount of our 13 1/2% senior subordinated notes due 2009 at a
redemption price of 113.5% of the principal amount, plus accrued and
unpaid interest to the redemption date;
- approximately $45.8 million to repay approximately $45.8 million in
principal amount of our subordinated discount note owed to B&L;
- approximately $65.4 million to repay approximately $40.6 million in
principal amount of our senior discount debentures due 2010 owed to DLJMB
and other investors, including a premium estimated at approximately
$24.8 million; and
- the remainder to repay approximately $3.6 million of indebtedness under
our term loan A facility and approximately $10.6 million of indebtedness
under our term loan B facility.
Although the planned redemption of our 13 1/2% senior subordinated notes due
2009 described above is prohibited by our existing credit facility, we believe
we will be successful in obtaining consents from our existing lenders to permit
us to do so. If we are unsuccessful in obtaining such consents, we intend to
refinance the facility pursuant to an existing commitment for a new facility.
See "Risk Factors--We may be required to refinance our existing credit
facility".
Indebtedness under the senior subordinated notes, the subordinated discount
note, the senior discount debentures and the credit facility was incurred in
connection with our recapitalization and acquisition of Sierra. The subordinated
discount note accretes at an effective rate of 13.0% to an aggregate principal
amount of $175.3 million at maturity on October 1, 2010. Interest on the senior
discount debentures accretes at an effective rate of 18.0%. Interest on term
loan A accrues at either a base rate plus 1.75% or LIBOR plus 3.00%, at our
option. As of March 25, 2000, the interest rate on term loan A was 9.13%.
Interest on term loan B accrues at either a base rate plus 2.50% or LIBOR plus
3.75%. As of March 25, 2000, the interest rate on term loan B was 9.88%.
DIVIDEND POLICY
We have not declared or paid any cash dividends on shares of our common
stock in the past two years except to our former parent company and we do not
intend to pay cash dividends in the foreseeable future. We currently intend to
retain any earnings to finance future operations and expansion and to reduce
indebtedness. We are a holding company and are dependent on distributions from
our subsidiaries to meet our cash requirements. The terms of the indenture
governing our senior subordinated notes and our credit facility restrict the
ability of our subsidiaries to make distributions to us and, consequently,
restrict our ability to pay dividends on our common stock.
17
CAPITALIZATION
The following table presents our consolidated capitalization as of
March 25, 2000 (i) on a historical basis and (ii) as adjusted to give pro forma
effect to the transactions described in notes (b) to (e) of the unaudited pro
forma condensed consolidated balance sheet and to the offering. This table
should be read in conjunction with "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Unaudited Pro
Forma Condensed Consolidated Financial Data" and our consolidated financial
statements and notes thereto included elsewhere in this prospectus.
[Enlarge/Download Table]
AS OF MARCH 25, 2000
------------------------
PRO FORMA
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
DEBT:
Credit facility:
Revolving credit facility(1)............................ $ 6,000 $ 6,000
Term loans(2)........................................... 159,700 147,008
Senior subordinated notes(3)................................ 147,978 96,186
Senior discount debentures(4)............................... 32,519 --
Subordinated discount note(5)............................... 45,826 --
Capital lease obligations and other long-term debt.......... 6,119 6,119
--------- --------
Total debt.................................................. 398,142 255,313
--------- --------
REDEEMABLE COMMON STOCK(6).................................. 13,198 --
SHAREHOLDERS' EQUITY:
Common stock................................................ 198 323
Additional paid-in capital.................................. 206,940 405,013
Accumulated deficit......................................... (306,715) (335,561)
Loans to officers........................................... (920) (920)
Accumulated other comprehensive loss........................ (10,676) (10,676)
--------- --------
Total shareholders' equity(7)............................... (111,173) 56,679
--------- --------
Total capitalization........................................ $ 300,167 $311,424
========= ========
------------------------
(1) At March 25, 2000, we had $24.0 million available under our revolving credit
facility, subject to customary borrowing conditions.
(2) Includes a senior secured term loan A facility of $40.0 million and a senior
secured term loan B facility of $119.7 million.
(3) Represents proceeds of $150.0 million related to the units which were
allocated between the senior subordinated notes ($147.9 million) and
warrants ($2.1 million), plus amortization of the discount on the senior
subordinated notes.
(4) Represents proceeds of $37.6 million which were allocated between the senior
discount debentures ($29.1 million) and warrants ($8.5 million), plus
accretion of interest and amortization of the discount on the debentures.
(5) Represents subordinated discount note of $43.0 million plus accretion of
interest.
(6) Upon completion of the offering contemplated in the pro forma as adjusted
column, the put option related to these shares of common stock will
terminate and, accordingly, the equity will be deemed to be permanent.
(7) If we need to refinance our existing credit facility as described under
"Risk Factors--We may be required to refinance our existing credit
facility", pro forma as adjusted total shareholders' equity would decrease
to $53.572 million.
18
DILUTION
The net tangible book deficit of our common stock as of March 25, 2000 was
$140.6 million, or $7.09 per share. Net tangible book value per share represents
the amount of our total tangible assets, reduced by the amount of our total
liabilities and minority interests, and then divided by the total number of
shares of common stock outstanding. Dilution in pro forma net tangible book
value per share represents the difference between the amount paid per share by
purchasers of shares of common stock in this offering and the pro forma net
tangible book value per share of common stock immediately after the completion
of this offering. After giving effect to the sale of the 12,500,000 shares of
common stock offered by us at an assumed initial public offering price of $16.00
per share, and after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us, our pro forma net tangible book value
at March 25, 2000 would have been $15.5 million or $0.48 per share of common
stock. This represents an immediate increase in pro forma net tangible book
value of $7.57 per share to existing stockholders and an immediate dilution of
$15.52 per share to new investors purchasing shares at the initial public
offering price. The following table illustrates this dilution on a per share
basis:
[Download Table]
Assumed public offering price per share..................... $16.00
Net tangible book deficit per share as of March 25,
2000.................................................. $(7.09)
Increase per share attributable to new investors........ 7.53
------
Pro forma net tangible book value per share after the
offering.................................................. 0.44
------
Dilution per share to new investors......................... $15.56
======
If we need to refinance our existing credit facility as described under
"Risk Factors--We may be required to refinance our existing credit facility",
the dilution per share to new investors would be $15.66.
The following table summarizes, as of March 25, 2000, the differences
between the existing stockholders and new investors with respect to the number
of shares of common stock purchased from us, the total consideration paid to us
and the average price per share paid:
[Enlarge/Download Table]
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------------- -------- --------------- -------- ---------
(IN THOUSANDS) (IN THOUSANDS)
Existing stockholders..................... 19,820 61% $105,585 35% $ 5.33
New investors............................. 12,500 39% 200,000 65% 16.00
------ ---- -------- ----
Totals.................................... 32,320 100% $305,585 100%
====== ==== ======== ====
The preceding tables assume no issuance of shares of common stock under our
stock plans after March 25, 2000. The table also assumes no exercise of options
to purchase 1,726,328 shares of our common stock outstanding as of March 25,
2000 at an exercise price of $5.33 and warrants to purchase 2,970,645 shares of
common stock outstanding as of March 25, 2000 at a weighted average exercise
price of $2.00. If all of these options and warrants were exercised, then the
total dilution per share to new investors would be $15.17.
19
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents our selected consolidated financial data and
other data as of and for the fiscal years ended December 30, 1995, December 28,
1996, December 27, 1997, December 26, 1998 and December 25, 1999 and as of and
for the three months ended March 27, 1999 and March 25, 2000. We derived the
selected consolidated income statement data for the three fiscal years ended
December 25, 1999 and the consolidated balance sheet data as of December 26,
1998 and December 25, 1999 from our audited consolidated financial statements
and the notes to those statements contained elsewhere in this prospectus. We
derived the selected consolidated financial data as of and for the fiscal year
ended December 28, 1996 from our audited consolidated financial statements and
the notes to those statements, which are not contained in this prospectus. We
derived the selected consolidated financial data as of and for the fiscal year
ended December 30, 1995 from our unaudited consolidated financial statements and
the notes to those statements which are also not contained in this prospectus.
We derived the selected consolidated data as of and for the three months ended
March 27, 1999 and March 25, 2000 from our unaudited condensed consolidated
financial statements and the notes thereto which are contained elsewhere in this
prospectus. In the opinion of management, our unaudited consolidated financial
statements and our unaudited condensed consolidated financial statements include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial condition and results of operations for
these periods. You should read the information contained in this table in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
related notes contained elsewhere in this prospectus.
[Enlarge/Download Table]
THREE MONTHS ENDED
FISCAL YEAR(1) ---------------------
---------------------------------------------------- MARCH 27, MARCH 25,
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Total net sales................................ $141,041 $155,604 $170,713 $193,301 $219,276 $ 52,280 $ 69,302
Cost of products sold and services provided.... 86,404 97,777 111,460 122,547 134,592 32,160 41,392
Selling, general and administrative expenses... 27,976 28,327 30,451 34,142 39,765 8,819 11,813
Amortization of goodwill and intangibles....... 558 610 834 1,287 1,956 411 865
Restructuring charges.......................... -- 4,748 5,892 -- -- -- --
-------- -------- -------- -------- -------- -------- ---------
Operating income............................... 26,103 24,142 22,076 35,325 42,963 10,890 15,232
Interest income................................ 634 654 865 986 536 225 142
Other income................................... -- -- -- -- 89 -- --
Interest expense............................... (768) (491) (501) (421) (12,789) (77) (12,664)
Gain/(loss) from foreign currency, net......... (68) 84 (221) (58) (136) (53) (30)
-------- -------- -------- -------- -------- -------- ---------
Income before income taxes, minority interests
and earnings from equity investments......... 25,901 24,389 22,219 35,832 30,663 10,985 2,680
Provision for income taxes..................... 10,759 10,889 8,499 14,123 15,561 4,526 2,468
-------- -------- -------- -------- -------- -------- ---------
Income before minority interests and earnings
from equity investments...................... 15,142 13,500 13,720 21,709 15,102 6,459 212
Minority interests............................. (13) (5) (10) (10) (22) 7 (217)
Earnings from equity investments............... 1,885 1,750 1,630 1,679 2,044 607 641
-------- -------- -------- -------- -------- -------- ---------
Net income..................................... $ 17,014 $ 15,245 $ 15,340 $ 23,378 $ 17,124 $ 7,073 $ 636
======== ======== ======== ======== ======== ======== =========
OTHER DATA:
Depreciation and amortization.................. $ 9,717 $ 9,528 $ 9,703 $ 10,895 $ 12,318 $ 2,927 $ 3,764
Capital expenditures........................... 10,239 11,572 11,872 11,909 12,951 1,963 2,786
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents...................... $ 15,336 $ 19,657 $ 17,915 $ 24,811 $ 15,010 $ 16,154 $ 18,458
Working capital................................ 35,901 45,204 41,746 34,827 20,337 33,679 27,854
Total assets................................... 184,271 196,981 196,211 234,254 363,056 223,576 401,600
Total debt..................................... 4,626 1,645 1,363 1,582 386,044 1,433 398,142
Total shareholders' equity/(deficit)........... 142,212 153,818 149,364 168,259 (110,142) 158,560 (111,173)
------------------------------
(1) Our fiscal year consists of twelve months ending on the last Saturday on or
prior to December 31.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND OUR UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA, INCLUDING THE RELATED NOTES, CONTAINED ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
We are a leading provider of critical research tools and integrated support
services that enable innovative and efficient drug discovery and development. We
are the global leader in providing the animal research models required in
research and development for new drugs, devices and therapies and have been in
this business for more than 50 years.
We operate in two segments for financial reporting purposes: research models
and biomedical products and services. In addition, since services represent over
10% of our net sales, our consolidated financial statements also provide a
breakdown of net sales between net sales related to products, which include both
research models and biomedical products, and net sales related to services,
which reflect biomedical services, and a breakdown of costs between costs of
products sold and costs of services provided. The following tables show the net
sales and the percentage contribution of our segments, research models and
biomedical products and services, for the past three years. It also shows costs
of products sold and services provided, selling, general and administrative
expenses and operating income for both research models and biomedical products
and services by segment and as percentages of their respective segment net
sales.
[Enlarge/Download Table]
FOR THE THREE
FISCAL YEAR ENDED MONTHS ENDED
------------------------------------------ ---------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25, MARCH 27, MARCH 25,
1997 1998 1999 1999 2000
------------ ------------ ------------ --------- ---------
(DOLLARS IN MILLIONS)
Net sales:
Research models............................... $125.2 $134.6 $142.3 $ 36.3 $ 41.0
Biomedical products and services.............. 45.5 58.7 77.0 16.0 28.3
------ ------ ------ ------ ------
Total....................................... $170.7 $193.3 $219.3 $ 52.3 $ 69.3
====== ====== ====== ====== ======
Costs of products sold and services provided:
Research models............................... $ 82.5 $ 85.8 $ 86.3 $ 22.1 $ 23.2
Biomedical products and services.............. 29.0 36.7 48.3 10.1 18.2
------ ------ ------ ------ ------
Total....................................... $111.5 $122.5 $134.6 $ 32.2 $ 41.4
====== ====== ====== ====== ======
Selling, general and administrative expenses:
Research models............................... $ 19.6 $ 18.1 $ 22.2 $ 5.0 $ 5.2
Biomedical products and services.............. 6.9 9.7 12.5 2.4 4.0
Unallocated corporate overhead................ 4.0 6.3 5.1 1.4 2.6
------ ------ ------ ------ ------
Total....................................... $ 30.5 $ 34.1 $ 39.8 $ 8.8 $ 11.8
====== ====== ====== ====== ======
Operating income:
Research models............................... $ 19.6 $ 30.5 $ 33.7 $ 9.2 $ 12.5
Biomedical products and services.............. 6.5 11.1 14.4 3.1 5.3
Unallocated corporate overhead................ (4.0) (6.3) (5.1) (1.4) (2.6)
------ ------ ------ ------ ------
Total....................................... $ 22.1 $ 35.3 $ 43.0 $ 10.9 $ 15.2
====== ====== ====== ====== ======
21
[Enlarge/Download Table]
FOR THE THREE
FISCAL YEAR ENDED MONTHS ENDED
------------------------------------------ ---------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25, MARCH 27, MARCH 25,
1997 1998 1999 1999 2000
------------ ------------ ------------ --------- ---------
(AS A PERCENT OF NET SALES)
Net sales:
Research models............................... 73.3% 69.6% 64.9% 69.4% 59.2%
Biomedical products and services.............. 26.7 30.4 35.1 30.6 40.8
----- ----- ----- ------ ------
Total....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ====== ======
Costs of products sold and services provided:
Research models............................... 65.9% 63.7% 60.6% 60.9% 56.6%
Biomedical products and services.............. 63.7 62.5 62.7 63.1% 64.3
Total....................................... 65.3 63.4 61.4 61.6 59.7
Selling, general and administrative expenses:
Research models............................... 15.7% 13.4% 15.6% 13.8% 12.7%
Biomedical products and services.............. 15.2 16.5 16.2 15.0 14.1
Unallocated corporate overhead................ -- -- -- -- --
Total....................................... 17.9 17.6 18.1 16.8 17.0
Operating income:
Research models............................... 15.7% 22.7% 23.7% 25.3% 30.5%
Biomedical products and services.............. 14.3 18.9 18.7 19.4 18.7
Unallocated corporate overhead................ -- -- -- -- --
Total....................................... 12.9 18.3 19.6 20.8 21.9
NET SALES. We recognize net sales when a product is shipped or as services
are completed. Over the past three years, unit volume of small animal research
models has increased modestly in North America and has decreased modestly in
Europe. During the same period, sales in both North America and Europe have
increased, principally as a result of price increases and a shift in mix towards
higher priced research models. In recent years, we have increased our focus on
the sale of specialty research models, such as special disease models, which
have contributed to additional sales growth.
Our customers typically place orders for research models with less than a
week's lead time. Meeting such demand requires efficient inventory management
and strong customer service support. We improved inventory availability in the
last three years through better forecasting and production mix, and most
importantly, improved biosecurity, thereby reducing contaminations.
Biomedical products and services have grown at a compounded rate of 30% from
1997 to 1999. Our growth in this business demonstrated our ability to capitalize
on our core research model technology and enter into related product development
activities undertaken by our customers.
PRICING. We maintain published list prices for all of our research models,
biomedical products and some of our services. We also have pricing agreements
with our customers which provide some discounts, usually based on volume. Many
of our services are based on customized orders and are priced accordingly. While
pricing has been competitive, some of our products are priced at a premium due
to higher quality, better availability and superior customer support that our
customers associate with our products.
BIOSECURITY. Biosecurity is one of our highest operational priorities.
Prior breaches of biosecurity have adversely affected our results of operations,
and we cannot assure you that future breaches would not materially affect our
results of operations. A biosecurity breach typically results in additional
expenses from the need to clean up the contaminated room, which in turn results
in inventory loss, clean-up and start-up costs, and can reduce net sales as a
result of lost customer orders and credits for prior shipments. We experienced a
few significant contaminations in 1997 in our isolation rooms for research
models and in our poultry houses for vaccine support products. Our net sales in
1997 were
22
adversely affected by our inability to fulfill customer orders, and our expenses
were increased during that period by the costs associated with cleaning up the
contaminations. Since January 1, 1997, we have made over $6.0 million of capital
expenditures designed to strengthen our biosecurity, primarily by upgrading our
production facilities. In addition, we have made significant changes to our
operating procedures for isolation rooms and poultry houses designed to further
minimize the risks of contamination, including, for example, increasing the
frequency of replacing masks and gowns, and most importantly, increasing
awareness and training among our employees. These improvements to our operating
procedures increased annual ongoing biosecurity-related expenses by
approximately $0.5 million in 1999. While we cannot assure you that we will not
experience future significant isolation room or poultry house contaminations in
the future, we believe these changes have contributed to our absence of
significant contaminations during 1998, 1999 and 2000 to date.
ACQUISITIONS. Since January 1, 1997, we have successfully acquired and
integrated four companies, which contributed $18.2 million in sales in 1999 and
$11.7 million in sales for the three months ended March 25, 2000, representing
8.3% and 16.9% of total sales, respectively. The acquisition of three of the
companies occurred prior to December 26, 1998. On September 29, 1999, we
acquired Sierra for an initial total purchase price of $23.3 million, including
approximately $17.3 million in cash paid to former shareholders and assumed debt
of approximately $6.0 million, which we immediately retired. In addition, we
have agreed to pay (a) up to $2.0 million in contingent purchase price if
specified financial objectives are reached by December 31, 2000, (b) up to
$10.0 million in performance-based bonus payments if specified financial
objectives are reached over the next five years, with no payment in any
individual year to exceed $2.7 million and (c) $3.0 million in retention and
non-competition payments contingent upon the continuing employment of specified
key scientific and managerial personnel through June 30, 2001. Sierra became
part of our drug safety assessment area.
The $2.0 million in contingent purchase price for Sierra will, if paid,
increase goodwill and will not affect our results of operations except through
the subsequent related amortization expense and any interest expense related to
any borrowings necessary to finance the payment. The $10.0 million in
performance-based bonus payments, will, if paid, be expensed during the periods
in which it becomes reasonably certain that the financial objectives will be
achieved. During fiscal 1999, we expensed $1.4 million of the $3.0 million in
retention and non-competition payments, with the $1.6 million remaining being
expensed ratably through June 2001 as it is earned. The contingent purchase
price and performance-based bonus payments are not reflected in the pro forma
condensed consolidated financial data included elsewhere herein because they are
not considered reasonably estimable; the retention and non-competition payments
are not included in the pro forma condensed consolidated financial data as they
are considered non-recurring.
JOINT VENTURES. At December 25, 1999, we had two unconsolidated joint
ventures. As of February 28, 2000, we acquired an additional 16% equity interest
in one of the joint ventures, Charles River Japan, increasing our ownership
interest to 66%. The purchase price for the 16% equity interest was 1.4 billion
yen, or $12.8 million, of which 400 million yen, or $3.6 million, was paid by a
three-year balloon promissory note secured by a pledge of the purchased
interest. The note bears interest at the long-term prime rate in Japan. Charles
River Japan is engaged principally in the research model business. Our royalty
agreement provides us with 3% of the sales of locally produced research models,
and having acquired majority ownership, we have consolidated its operations for
financial reporting purposes from the effective date of the acquisition in the
first quarter of fiscal 2000. This contributed $3.8 million in sales for the
first quarter ended March 25, 2000. We also receive dividends based on our
pro-rata share of net income. Charles River Japan paid dividends of
$0.8 million, $0.7 million and $0.8 million in 1997, 1998 and 1999,
respectively. No dividends were paid in the three months ended March 25, 2000.
Our other unconsolidated joint venture is Charles River Mexico, an extension of
our vaccine support products area, which is not significant to our business.
23
RESTRUCTURING PROGRAM. During 1997, we implemented a restructuring program.
Our plan, which was approved by B&L, was designed to reduce excess capacity,
increase efficiencies, eliminate non-essential operating and staff personnel,
and close several small product-lines. In 1997, we established a restructuring
reserve in the amount of $5.9 million, based on our plan to close particular
facilities and eliminate personnel in our vaccine support products area,
eliminate personnel in Europe, reduce corporate staff, and relocate one of our
large animal facilities. We have completed the actions underlying this plan.
These actions reduced cost of products sold and services provided and selling,
general and administrative expenses and also improved profitability in the areas
affected. At the time we prepared our restructuring program, we estimated we
would save approximately $3.1 million on an annual basis. In 1997 we saved
approximately $0.6 million from these actions, and in 1998 we saved
approximately $2.6 million.
ALLOCATION OF COSTS FROM BAUSCH & LOMB. Historically, B&L charged us for
some direct expenses, including insurance, information technology and other
miscellaneous expenses, based upon actual charges incurred on our behalf.
However, these charges and estimates are not necessarily indicative of the costs
and expenses which would have resulted had we incurred these costs as a
stand-alone entity. The actual amounts of expenses we incur in future periods
may vary significantly from these allocations and estimates. We expect to incur
other incremental expenses as a stand-alone company. See "Unaudited Pro Forma
Condensed Consolidated Financial Data."
THE RECAPITALIZATION AND SIERRA ACQUISITION. The recapitalization, which
was consummated on September 29, 1999, was accounted for as a leveraged
recapitalization and had no impact on the historical basis of our assets and
liabilities. The Sierra acquisition was accounted for under the purchase method
of accounting with the purchase price allocated to the assets and liabilities of
Sierra based on an estimate of their fair value, with the remainder allocated to
goodwill. We incurred various costs of approximately $22.6 million (pre-tax) in
connection with consummating the recapitalization. We have capitalized and are
amortizing the portion of these costs that represents deferred financing costs
(approximately $14.4 million) over the life of the related financing. We have
charged a portion of the expenses related to the recapitalization (approximately
$8.2 million) to retained earnings.
DEFERRED TAX ASSETS. In conjunction with the recapitalization, our
stockholders made an election under section 338(h)(10) of the Internal Revenue
Code of 1986, as amended. Such election resulted in a step-up in the tax basis
of the underlying assets. The resulting net deferred tax asset of $99.5 million
is expected to be realized over 15 years through future tax deductions which are
expected to reduce future tax payments. It is possible that the Internal Revenue
Service may contend that the reorganization and liquidating distribution that
CRL Acquisition LLC is expected to undertake in connection with the offering
should be integrated with our original recapitalization. If the Internal Revenue
Service were successful, the expected future tax benefits from the election
would not be available, and we would be required to write off the related
deferred tax assets by recording a non-recurring expense in our results of
operations in an amount equal to such deferred tax assets. See Note (8) to the
consolidated financial statements. We believe that the reorganization and
liquidating distribution should not have any impact upon the election for
federal income tax purposes. However, the Internal Revenue Service may reach a
different conclusion. See "Risk Factors--Tax benefits we expect to be available
in the future may be subject to challenge."
EXTRAORDINARY CHARGES RELATED TO THE OFFERING. As discussed previously in
"Use of Proceeds," we expect to repay approximately $144.3 million in
outstanding indebtedness. In connection with this repayment we expect to pay
premiums and write off deferred financing costs resulting in an extraordinary
loss on early debt extinguishment of $28.9 million, net of tax benefits of
$15.6 million. If we refinance our existing credit facility as described under
"Risk Factors - We may be required to refinance our existing credit facility",
the extraordinary loss on early debt extinguishment would be $32.0 million, net
of tax benefits of $17.2 million.
24
RESULTS OF OPERATIONS
The following table summarizes historical results of operations as a
percentage of net sales for the periods shown:
[Enlarge/Download Table]
FISCAL YEAR ENDED THREE MONTHS ENDED
------------------------------------------ ---------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25, MARCH 27, MARCH 25,
1997 1998 1999 1999 2000
------------ ------------ ------------ --------- ---------
Net sales............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of products sold and services
provided........................... 65.3 63.4 61.4 61.5 59.7
Selling, general and administrative
expenses........................... 17.8 17.7 18.1 16.9 17.0
Amortization of goodwill and other
intangibles........................ 0.5 0.7 0.9 0.8 1.2
Restructuring charges................ 3.5 -- -- -- --
Interest income...................... 0.5 0.5 0.2 0.4 0.2
Interest expense..................... 0.3 0.2 5.8 0.1 18.3
Provision for income taxes........... 5.0 7.3 7.1 8.7 3.6
Earnings from equity investment...... 0.9 0.8 0.9 1.2 0.9
Minority interests................... -- -- -- -- 0.3
----- ----- ----- ----- -----
Net income........................... 9.0% 12.1% 7.8% 13.5% 0.9%
===== ===== ===== ===== =====
THREE MONTHS ENDED MARCH 25, 2000 COMPARED TO THREE MONTHS ENDED MARCH 27, 1999
NET SALES. Net sales for the first three months of 2000 were $69.3 million,
an increase of $17.0 million, or 32.5%, from $52.3 million for the first three
months of 1999.
RESEARCH MODELS. Net sales of research models for the first three months of
2000 were $41.0 million, an increase of $4.7 million, or 12.9%, from $36.3
million for the first three months of 1999. The consolidation in March 2000 of
Charles River Japan increased sales by $3.6 million. Small animal research model
sales increased in North America by $1.3 million, or 8.3%. Unit and pricing
trends remained strong. Small animal research model sales decreased in Europe by
$1.6 million, principally due to the negative impact of $1.8 million from
foreign currency translations. We also experienced an increase in large animal
import and conditioning sales of $0.5 million, mainly due to pricing.
BIOMEDICAL PRODUCTS AND SERVICES. Net sales of biomedical products and
services for the first three months of 2000 were $28.3 million, an increase of
$12.3 million, or 76.9%, from $16.0 million for the first three months of 1999.
The acquisition of Sierra in the fourth quarter of 1999 added sales of $8.1
million in the first three months of 2000. The remaining increase was due to
significant sales increases of transgenic and research support services of $1.1
million, endotoxin detection systems of $0.5 million, biosafety testing of $0.8
million and contract site management of $1.1 million, primarily due to better
customer awareness of our outsourcing solutions.
COST OF PRODUCTS SOLD AND SERVICES PROVIDED. Cost of products sold and
services provided for the first three months of 2000 was $41.4 million, an
increase of $9.2 million, or 28.6%, from $32.2 million for the first three
months of 1999.
RESEARCH MODELS. Cost of products sold and services provided for research
models for the first three months of 2000 was $23.2 million, an increase of $1.1
million, or 5.0%, compared to $22.1 million for the first three months of 1999.
Cost of products sold and services provided for the first three months of 2000
was 56.6% of net sales compared to 60.9% of net sales for the first three months
of
25
1999. Cost of products sold and services provided increased at a lower rate than
net sales due to the more favorable product mix and better pricing, as well as
improved capacity utilization.
BIOMEDICAL PRODUCTS AND SERVICES. Cost of products sold and services
provided for biomedical products and services for the first three months of 2000
was $18.2 million, an increase of $8.1 million, or 80.2%, compared to $10.1
million for the first three months of 1999. Cost of products sold and services
provided was 64.3% of net sales for the first three months of 2000 compared to
63.1% for the first three months of 1999. This was principally due to the
acquisition of Sierra.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the first three months of 2000 were $11.8 million,
an increase of $3.0 million, or 34.1%, from $8.8 million for the first three
months of 1999. Selling, general and administrative expenses for the first three
months of 2000 were 17.0% of net sales compared to 16.8% of net sales for the
first three months of 1999.
RESEARCH MODELS. Selling, general and administrative expenses for research
models for the first three months of 2000 were $5.2 million, an increase of $0.2
million, or 4.0%, compared to $5.0 million for the first three months of 1999.
Selling, general and administrative expenses for the first three months of 2000
were 12.7% of net sales, compared to 13.8% for the first three months of 1999.
BIOMEDICAL PRODUCTS AND SERVICES. Selling, general and administrative
expenses for biomedical products and services for the first three months of 2000
were $4.0 million, an increase of $1.6 million, or 66.7%, compared to $2.4
million for the first three months of 1999. Selling, general and administrative
expenses for the first three months of 2000 decreased to 14.1% of net sales,
compared to 15.0% of net sales for the first three months of 1999. The
acquisition of Sierra is the major reason for the increase in expenses. However,
because selling, general and administrative expenses at Sierra are lower as a
percentage of net sales than the remainder of our company, this contributed to
the overall percentage decrease.
UNALLOCATED CORPORATE OVERHEAD. Unallocated corporate overhead, which
consists of various corporate expenses, was $2.6 million for the first three
months of 2000, an increase of $1.2 million, compared to $1.4 million for the
first three months of 1999.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles for the first three months of 2000 was $0.9 million, an
increase of $0.5 million from $0.4 million for the first three months of 1999.
The increase was due to the effect of additional amortization of intangibles
resulting from our Sierra acquisition.
OPERATING INCOME. Operating income for the first three months of 2000 was
$15.2 million, an increase of $4.3 million, or 39.4%, from $10.9 million for the
first three months of 1999. Operating income for the first three months of 2000
was 21.9% of net sales, compared to 20.8% of net sales for the first three
months of 1999. Operating income increased in total and as a percentage of net
sales for the reasons described above.
RESEARCH MODELS. Operating income from sales of research models for the
first three months of 2000 was $12.5 million, an increase of $3.3 million, or
35.9%, from $9.2 million for the first three months of 1999. Operating income
from sales of research models for the first three months of 2000 was 30.5% of
net sales, compared to 25.3% for the first three months of 1999. The increase
was attributable to the factors described above.
BIOMEDICAL PRODUCTS AND SERVICES. Operating income from sales of biomedical
products and services for the first three months of 2000 was $5.3 million, an
increase of $2.2 million, or 71.0%, from $3.1 million for the first three months
of 1999. Operating income from sales of biomedical products and services for the
first three months of 2000 decreased to 18.7% of net sales, compared to 19.4% of
26
net sales for the first three months of 1999. This was primarily due to the
acquisition of Sierra Biomedical, and the impact of the additional amortization
of intangibles.
INTEREST EXPENSE. Interest expense for the first three months of 2000 was
$12.7 million as compared to $0.1 million for the first three months of 1999.
The $12.6 million increase was primarily due to the additional debt incurred as
a result of the recapitalization which occurred on September 29, 1999.
INCOME TAXES. The effective tax rate of 92.1% for the first three months of
2000 as compared to 41.2% for the first three months of 1999 is due to several
permanent differences, including non-deductible interest expense, goodwill and a
valuation allowance on a portion of the deferred tax asset.
NET INCOME. Net income for the first three months of 2000 was $0.6 million,
a decrease of $6.5 million from $7.1 million for the first three months of 1999.
The decrease was attributable to the increased interest expense.
FISCAL 1999 COMPARED TO FISCAL 1998
NET SALES. Net sales in 1999 were $219.3 million, an increase of
$26.0 million, or 13.5%, from $193.3 million in 1998.
RESEARCH MODELS. Net sales of research models in 1999 were $142.3 million,
an increase of $7.7 million, or 5.7%, from $134.6 million in 1998. Sales
increased due to the increase in small animal research model sales in North
America and Europe of $7.1 million, resulting from improved pricing, a more
favorable product mix (meaning a shift to higher priced units) and an increase
in unit volume. We also experienced an increase in the large animal import and
conditioning area of $0.6 million, mainly due to pricing.
BIOMEDICAL PRODUCTS AND SERVICES. Net sales of biomedical products and
services in 1999 were $77.0 million, an increase of $18.3 million, or 31.2%,
from $58.7 million in 1998. At the beginning of the second quarter of 1998, we
made two acquisitions that contributed $3.4 million of this sales growth, and on
September 29, 1999, we acquired Sierra which had sales of $5.9 million in the
fourth quarter. The remaining increase was due to significant sales increases of
transgenic and research support services of $2.9 million and endotoxin detection
systems of $2.2 million, and sales from our contract site management services of
$1.8 million, primarily due to better customer awareness of our outsourcing
solutions.
COST OF PRODUCTS SOLD AND SERVICES PROVIDED. Cost of products sold and
services provided in 1999 was $134.6 million, an increase of $12.1 million, or
9.9%, from $122.5 million in 1998.
RESEARCH MODELS. Cost of products sold and services provided for research
models in 1999 was $86.3 million, an increase of $0.5 million, or 0.6%, compared
to $85.8 million in 1998. Cost of products sold and services provided in 1999
was 60.6% of net sales compared to 63.7% of net sales in 1998. Cost of products
sold and services provided increased at a lower rate than net sales due to the
more favorable product mix and better pricing, as well as improved capacity
utilization.
BIOMEDICAL PRODUCTS AND SERVICES. Cost of products sold and services
provided for biomedical products and services in 1999 was $48.3 million, an
increase of $11.6 million, or 31.6%, compared to $36.7 million in 1998. Cost of
products sold and services provided as a percentage of net sales was essentially
unchanged at 62.7% in 1999 compared to 62.5% in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in 1999 were $39.8 million, an increase of
$5.7 million, or 16.7%, from $34.1 million in 1998. Selling, general and
administrative expenses in 1999 were 18.1% of net sales compared to 17.6% of net
sales in 1998.
27
Selling, general and administrative expenses also included research and
development expense of $0.5 million in 1999 compared to $1.4 million in 1998.
RESEARCH MODELS. Selling, general and administrative expenses for research
models in 1999 were $22.2 million, an increase of $4.1 million, or 22.7%,
compared to $18.1 million in 1998. Selling, general and administrative expenses
in 1999 were 15.6% of net sales, compared to 13.4% in 1998. The increase was
attributable to additional worldwide marketing efforts, additional salespeople
in the United States and the impact of selling efforts in Europe for ESD, a
business acquired at the end of 1998.
BIOMEDICAL PRODUCTS AND SERVICES. Selling, general and administrative
expenses for biomedical products and services in 1999 were $12.5 million, an
increase of $2.8 million, or 28.9%, compared to $9.7 million in 1998. Selling,
general and administrative expenses in 1999 decreased to 16.2% of net sales,
compared to 16.5% of net sales in 1998, due to greater economies of scale.
UNALLOCATED CORPORATE OVERHEAD. Unallocated corporate overhead, which
consists of various corporate expenses, was $5.1 million in 1999, a decrease of
$1.2 million, or 19.0%, compared to $6.3 million in 1998. The decrease was
principally from the increase in cash surrender value associated with our
supplemental executive retirement program.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles in 1999 was $2.0 million, an increase of $0.7 million, or
53.8%, from $1.3 million in 1998. The increase was due to the effect of
additional amortization of intangibles resulting from four recent acquisitions,
two in April 1998, one in December 1998, and Sierra in September 1999.
RESTRUCTURING CHARGES. There were no restructuring charges in 1999 or 1998.
During 1999, we charged $1.1 million against the previously recorded
restructuring reserves, bringing the balance at year-end to zero.
OPERATING INCOME. Operating income in 1999 was $43.0 million, an increase
of $7.7 million, or 21.8%, from $35.3 million in 1998. Operating income in 1999
was 19.6% of net sales, compared to 18.3% of net sales in 1998. Operating income
increased in total and as a percentage of net sales for the reasons described
above.
RESEARCH MODELS. Operating income from sales of research models in 1999 was
$33.7 million, an increase of $3.2 million, or 10.5%, from $30.5 million in
1998. Operating income from sales of research models in 1999 was 23.0% of net
sales, compared to 23.7% in 1998. The increase was attributable to the factors
described above.
BIOMEDICAL PRODUCTS AND SERVICES. Operating income from sales of biomedical
products and services in 1999 was $14.4 million, an increase of $3.3 million, or
29.7%, from $11.1 million in 1998. Operating income from sales of biomedical
products and services in 1999 decreased to 18.7% of net sales, compared to 18.9%
of net sales in 1998. This was primarily due to the acquisition of Sierra, and
the impact of additional amortization of intangibles.
OTHER INCOME. We recorded a $1.4 million gain on the sale of two small
facilities, one located in Florida, and the other located in the Netherlands,
and a charge of $1.3 million for stock compensation expense.
INTEREST EXPENSE. Interest expense for 1999 was $12.8 million compared to
$0.4 million for 1998. The $12.4 million increase was primarily due to the
additional debt incurred in the recapitalization.
INCOME TAXES. The effective tax rate of 50.7% in 1999 as compared to 39.5%
in 1998 reflects the remittance of cash dividends of $20.7 million from our
foreign subsidiaries which, in turn, were remitted to B&L. The related amounts
were previously considered permanently reinvested in the foreign jurisdictions
for U.S. income tax reporting purposes. Therefore, we were required to provide
28
additional taxes upon their repatriation to the United States. In addition, in
1999, an election was made by B&L to treat some foreign entities as branches for
U.S. income tax purposes. As a result, all previously untaxed accumulated
earnings of such entities became immediately subject to tax in the United
States. The receipt of the cash dividends from the foreign subsidiaries and the
foreign tax elections made resulted in incremental United States taxes of
$2.0 million, net of foreign tax credits, in 1999.
NET INCOME. Net income in 1999 was $17.1 million, a decrease of
$6.3 million, or 26.9%, from $23.4 million in 1998. The decrease was
attributable to the increased interest expense.
FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES. Net sales in 1998 were $193.3 million, an increase of
$22.6 million, or 13.2%, from $170.7 million in 1997.
RESEARCH MODELS. Net sales of research models in 1998 were $134.6 million,
an increase of $9.4 million, or 7.5%, from $125.2 million in 1997. Sales
increased due to the increase in small animal research model sales in North
America of $4.2 million, resulting from improved pricing and a more favorable
product mix. In addition, in 1998 we were not affected by the significant
contaminations which negatively affected sales in 1997. Overall, unit volumes
remained relatively flat, with modest increases in North America offset by
modest declines in Europe. Our net sales in the large animal import and
conditioning area increased by $3.2 million as a result of expansion in our
boarding and service operations.
BIOMEDICAL PRODUCTS AND SERVICES. Net sales of biomedical products and
services in 1998 were $58.7 million, an increase of $13.2 million, or 29.0%,
from $45.5 million in 1997. During 1998 we made three acquisitions that
contributed $6.1 million of our sales growth. The remaining increase was due to
increased sales across all of our product lines, and in particular our
transgenic and research support services of $2.2 million and endotoxin detection
systems of $1.9 million.
COST OF PRODUCTS SOLD AND SERVICES PROVIDED. Cost of products sold and
services provided in 1998 was $122.5 million, an increase of $11.0 million, or
9.9%, from $111.5 million in 1997.
RESEARCH MODELS. Cost of products sold and services provided for research
models for 1998 was $85.8 million, an increase of $3.3 million, or 4.0%,
compared to $82.5 million in 1997. Cost of products sold and services provided
for 1998 was 63.7% of net sales compared to 65.9% for 1997. Cost of products
sold and services provided increased for 1998 compared to 1997, but at a slower
rate than net sales due principally to better product mix and pricing as well as
greater economies of scale and improved production efficiencies.
BIOMEDICAL PRODUCTS AND SERVICES. Cost of products sold and services
provided for biomedical products and services for 1998 was $36.7 million, an
increase of $7.7 million, or 26.6%, compared to $29.0 million in 1997. Cost of
products sold and services provided was 62.5% of net sales in 1998 compared to
63.7% in 1997. Cost of products sold and services provided increased for 1998
compared to 1997, but at a slower rate than net sales due principally to cost
savings.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in 1998 were $34.1 million, an increase of
$3.6 million, or 11.8%, from $30.5 million in 1997. Selling, general and
administrative expenses in 1998 were 17.6% of net sales compared to 17.9% of net
sales in 1997. These expenses increased mainly in line with sales. Selling,
general and administrative expenses also included research and development
expense of $1.4 million in 1998, which was the same amount as in 1997.
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RESEARCH MODELS. Selling, general and administrative expenses for research
models for 1998 were $18.1 million, a decrease of $1.5 million, or 7.7%,
compared to $19.6 million, for 1997. Selling, general and administrative
expenses for 1998 decreased to 13.4% of net sales, compared to 15.7% for 1997
due primarily to the significant increase in sales.
BIOMEDICAL PRODUCTS AND SERVICES. Selling, general and administrative
expenses for biomedical products and services for 1998 were $9.7 million, an
increase of $2.8 million, or 40.6%, compared to $6.9 million for 1997. Selling,
general and administrative expenses for 1998 were 16.5% of net sales, compared
to 15.2% of net sales for 1997. The increase was principally attributable to the
acquisition of two small companies in April 1998.
UNALLOCATED CORPORATE OVERHEAD. Unallocated corporate overhead was
$6.3 million for 1998, an increase of $2.3 million, or 57.5%, compared to
$4.0 million in 1997. The increase was due to an increase in our supplemental
retirement program costs, along with an increase in management bonuses for 1998.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles in 1998 was $1.3 million, an increase of $0.5 million, or
62.5%, from $0.8 million in 1998. The increase was due to amortization of
intangibles in connection with two acquisitions in April 1998.
RESTRUCTURING CHARGES. There were no restructuring charges in 1998 compared
to $5.9 million in 1997. The 1997 restructuring charges consisted of the
following: plant closings and personnel reductions in our vaccine support
products operations, severance, relocation and refoliation costs in the Florida
Keys and staff reductions and severance costs in Europe and the United States.
During 1998, we charged $1.6 million against the restructuring reserves
previously recorded.
OPERATING INCOME. Operating income in 1998 was $35.3 million, an increase
of $13.2 million, or 59.7%, from $22.1 million in 1997. Operating income in 1998
was 18.3% of net sales compared to 12.9% of net sales in 1997.
RESEARCH MODELS. Operating income from research models in 1998 was
$30.5 million, an increase of $10.9 million, or 55.6%, from $19.6 million in
1997. Operating income from sales of research models in 1998 increased to 22.7%
of net sales, compared to 15.7% of net sales in 1997 for the reasons described
above.
BIOMEDICAL PRODUCTS AND SERVICES. Operating income from biomedical products
and services in 1998 was $11.1 million, an increase of $4.6 million, or 70.8%,
from $6.5 million in 1997. Operating income increased to 18.9% of net sales,
compared to 14.3% of net sales in 1997 for the reasons described above.
INTEREST EXPENSE. Interest expense for 1998 was $0.4 million compared to
$0.5 million in 1997.
INCOME TAXES. The effective tax rate in 1998 was 39.5% compared to 38.2% in
1997.
NET INCOME. Net income in 1998 was $23.4 million, an increase of
$8.1 million, or 52.9%, from $15.3 million in 1997. The increase was
attributable to the factors referred to above.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the recapitalization our principal source of liquidity was cash
flow from operations. Following the consummation of the recapitalization, our
principal sources of liquidity are cash flow from operations and borrowings
under our credit facility.
In September 1999, we received a $92.4 million equity investment from DLJMB
and affiliated funds, management and some other investors, we issued
$37.6 million senior discount debentures with
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warrants to purchase common stock and $150.0 million units consisting of senior
subordinated notes due in 2009 with warrants to purchase common stock, and
borrowed $162.0 million under our senior secured credit facility. We redeemed
87.5% of our outstanding capital stock held by B&L for $400.0 million and a
$43.0 million subordinated discount note. We simultaneously acquired Sierra for
an initial purchase price of $23.3 million including $17.3 million paid to its
former stockholders and $6.0 million of assumed debt which we immediately
retired.
Borrowings under the credit facility bear interest at a rate per year equal
to a margin over either a base rate or LIBOR. The $30.0 million revolving loan
commitment will terminate six years after the date of the initial funding of the
credit facility. The revolving credit facility may be increased by up to
$25.0 million at our request, which will only be available to us under some
circumstances, under the same terms and conditions of the original
$30.0 million revolving credit facility. The term loan facility under the credit
facility consists of a $40.0 million term loan A facility and a $120.0 million
term loan B facility. The term loan A facility matures six years after the
closing date of the facility and the term loan B facility matures eight years
after the closing date of the facility. The credit facility contains customary
covenants and events of default, including substantial restrictions on our
subsidiary's ability to declare dividends or make distributions. The term loans
are subject to mandatory prepayment with the proceeds of certain asset sales and
a portion of our excess cash flow. The consummation of this offering and the
planned application of the proceeds would constitute an event of default under
our existing credit facility. We are currently seeking consents from the lenders
under this facility to permit the offering and planned application of proceeds
and believe we will be successful in obtaining such consents. If we are
unsuccessful in obtaining such consents, we intend to refinance the facility
pursuant to an existing irrevocable commitment for a new facility. See "Risk
Factors--We may be required to refinance our existing credit facility".
In February 2000, the 13 1/2% senior subordinated notes were exchanged for
registered notes having the same financial terms and covenants as the notes
issued in September 1999. Interest on the notes is payable semi-annually in
cash. The notes contain customary covenants and events of default, including
covenants that limit our ability to incur debt, pay dividends and make
particular investments.
We plan to use the net proceeds from this offering to repay debt incurred in
connection with the recapitalization.
We anticipate that our operating cash flow, together with borrowings under
our credit facility, will be sufficient to meet our anticipated future operating
expenses, capital expenditures and debt service obligations as they become due.
However, Charles River Laboratories International, Inc. is a holding company
with no operations or assets other than its ownership of 100% of the common
stock of its subsidiary, Charles River Laboratories, Inc. We have no source of
liquidity other than dividends from our subsidiary. Its ability to pay dividends
is subject to limitations contained in the indenture governing the senior
subordinated notes and the credit facility.
THREE MONTHS ENDED MARCH 25, 2000 COMPARED TO THREE MONTHS ENDED MARCH 27, 1999
Cash flow from operating activities for the three months ending March 25,
2000 was $1.9 million, compared to $7.5 million for the first three months of
1999.
Net cash used in investment activities for the three months ending March 25,
2000 was $1.8 million, compared to $2.2 million for the first three months of
1999. As of February 28, 2000, we paid $9.2 million in cash and a $3.7 million
three-year balloon promissory note for an additional 16% of the equity of
Charles River Japan. In the acquisition, we acquired $3.2 million in cash. In
January we sold an operation in Florida for $7.0 million. Capital expenditures
for the first three months ended March 25, 2000 were $2.8 million compared to
$2.0 million for the first three months of 1999.
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Net cash provided from financing activities for the three months ending
March 25, 2000 was $3.7 million compared to $12.9 million in net cash used in
financing activities for the first three months of 1999. We increased our
borrowings under the revolving loan by an additional $4.0 million during the
first three months ended March 25, 2000. We had net activity with B&L, our
former 100% shareholder, of $12.9 million for the first three months of 1999.
FISCAL 1999 COMPARED TO FISCAL 1998
Cash flow from operating activities in 1999 was $37.6 million compared to
$37.4 million in 1998. Net cash used in investing activities in 1999 was
$34.2 million compared to $23.0 million in 1998. The increase was primarily due
to the acquisition of Sierra for $23.3 million. Capital expenditures in 1999
were $13.0 million versus $11.9 million in 1998.
Net cash used in financing activities in 1999 was $11.5 million versus
$8.0 million in 1998. The activity in 1999 consisted of payments for deferred
financing costs of $14.4 million and transactions costs of $8.2 million
associated with the recapitalization. We also dividended $29.4 million to B&L,
which was excess cash at the time of the recapitalization, and the
recapitalization consideration was $400.0 million. The above was offset by the
proceeds from the issuance of long-term debt of $339.0 million, the issuance of
warrants of $10.6 million, and the issuance of common stock of $92.4 million.
FISCAL 1998 COMPARED TO FISCAL 1997
Cash flow from operating activities in 1998 was $37.4 million compared to
$24.3 million in 1997, due to an increase in net income and a decrease in
working capital.
Net cash used in investing activities in 1998 was $23.0 million compared to
$12.9 million in 1997. The increase in 1998 was primarily due to the
acquisitions previously discussed. Capital expenditures were $11.9 million in
1998, the same as 1997. Cash paid for acquisitions was $11.1 million in 1998,
compared to $1.2 million 1997.
Net cash used in financing activities was $8.0 million in 1998 compared to
$12.9 million in 1997. The decrease is due to the remittance of less cash to
B&L.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risks arising from changes in interest rates and
foreign currency exchange rates. Our primary interest rate exposure results from
changes in LIBOR or the base rate which are used to determine the applicable
interest rates under our term loans and revolving credit facility. We have
entered into an interest rate protection agreement designed to protect us
against fluctuations in interest rates with respect to at least 50% of the
aggregate principal amount of the term loans and the senior subordinated notes.
Interest rate swaps have the effect of converting variable rate obligations to
fixed or other interest rate obligations. Our potential loss over one year that
would result from a hypothetical, instantaneous and unfavorable change of 100
basis points in the interest rate on all of our variable rate obligations would
be approximately $1.7 million. Fluctuations in interest rates will not affect
the interest payable on the senior subordinated notes, senior discount
debentures or subordinated discount note, which is fixed.
We do not use financial instruments for trading or other speculative
purposes.
We also have exposure to some foreign currency exchange-rate fluctuations
for the cash flows received from our foreign affiliates. This risk is mitigated
by the fact that their operations are conducted in their respective local
currencies, and it is not our intention to repatriate earnings prospectively.
Currently, we do not engage in any foreign currency hedging activities as we do
not believe that our foreign currency exchange rate risk is material.
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BUSINESS
OVERVIEW
We are a leading provider of critical research tools and integrated support
services that enable innovative and efficient drug discovery and development. We
are the global leader in providing the animal research models required in
research and development for new drugs, devices and therapies and have been in
this business for more than 50 years. Since 1992, we have built upon our
research model technologies to develop a broad and growing portfolio of
biomedical products and services. Our wide array of services enables our
customers to reduce costs, increase speed and enhance their productivity and
effectiveness in drug discovery and development. Our customer base, spanning
over 50 countries, includes all of the major pharmaceutical and biotechnology
companies, as well as many leading hospitals and academic institutions. We
currently operate 53 facilities in 15 countries worldwide. Our differentiated
products and services, supported by our global infrastructure and scientific
expertise, enable our customers to meet many of the challenges of early-stage
life sciences research, a large and growing market. In 1999, our pro forma net
sales were $272.6 million, and our pro forma operating income was
$49.5 million. For the three months ended March 25, 2000, our pro forma net
sales were $76.7 million, and our pro forma operating income was $17.2 million.
RESEARCH MODELS. We are the global leader in the production and sale of
research models, principally genetically and virally defined purpose-bred rats
and mice. These products represented 65% of our 1999 pro forma net sales and 63%
of our pro forma net sales for the three months ended March 25, 2000. We offer
over 130 research models, one of the largest selections of small animal models
of any provider worldwide. Our higher growth models include genetically defined
models and models with compromised immune systems, which are increasingly in
demand as early-stage research tools. The FDA and foreign regulatory bodies
typically require the safety and efficacy of new drug candidates and many
medical devices to be tested on research models like ours prior to testing in
humans. As a result, our research models are an essential part of the drug
discovery and development process. Our research models are produced in a
biosecure environment designed to ensure that the animals are free of viral and
bacterial agents and other contaminants that can disrupt research operations and
distort results. With our biosecure production capabilities and our ability to
deliver consistent, high quality research models worldwide, we are well
positioned to benefit from the rapid growth in research and development spending
by pharmaceutical and biotechnology companies and the NIH.
BIOMEDICAL PRODUCTS AND SERVICES. We have focused significant resources on
developing a diverse portfolio of biomedical products and services directed at
high-growth areas of drug discovery and development. Our biomedical products and
services business represented 35% of our 1999 pro forma net sales and 37% of our
pro forma net sales for the three months ended March 25, 2000, and has
experienced strong growth as demonstrated by our 26% compound annual growth rate
in our net sales over the past five fiscal years. We expect the drug discovery
and development markets that we serve will continue to experience strong growth,
particularly as new drug development based on advances in genetics continues to
evolve. There are four areas within this segment of our business:
DISCOVERY SERVICES. Our discovery services are designed to assist our
customers in screening drug candidates faster by providing genetically
defined research models for in-house research and by implementing efficacy
screening protocols to improve the customer's drug evaluation process. The
market for discovery services is growing rapidly as pharmaceutical and
biotechnology research and development increasingly focuses on selecting
lead drug candidates from the enormous number of new compounds being
generated. We currently offer four major categories of discovery services:
transgenic services, research support services, infectious disease and
genetic testing and contract site management. Transgenic services is our
highest growth area and includes model development, genetic
characterizations, embryo cryopreservation, and rederivation and colony
scale-up.
33
DEVELOPMENT SERVICES. We currently offer FDA-compliant development services
in three main areas: drug safety assessment, biotech safety testing and
medical device testing. Biotech safety testing services include a broad
range of services specifically focused on supporting biotech or
protein-based drug development, including such areas as protein
characterization, cell banking, methods development and release testing. Our
rapidly growing development services offerings enable our customers to
outsource their high-end, non-core drug development activities.
IN VITRO DETECTION SYSTEMS. We have diversified our product offerings to
include non-animal, or IN VITRO, methods for testing the safety of drugs and
devices. We are strategically committed to being the leader in providing our
customers with IN VITRO alternatives as these methods become scientifically
validated and commercially feasible. Our current products include endotoxin
detection systems that ensure that injectable drugs and devices are free
from harmful contaminants as well as bioactivity software.
VACCINE SUPPORT PRODUCTS. We provide vaccine manufacturers with
pathogen-free fertilized chicken eggs, a critical ingredient for poultry
vaccine production. We believe there is significant potential for growth in
this area in support of novel human vaccines, such as a nasal spray flu
vaccine currently in development.
COMPETITIVE STRENGTHS
Our leading research models business has provided us with steadily growing
revenues and strong cash flow, while our biomedical products and services
business provides significant opportunities for profitable growth. Our products
and services are critical to both traditional pharmaceutical research and the
rapidly growing fields of genomic, recombinant protein and humanized antibody
research. We believe we are well positioned to compete effectively in all of
these sectors as a result of a diverse set of competitive strengths, which
include:
CRITICAL PRODUCTS AND SERVICES. We provide critical, proven and enabling
products and services that our customers rely upon to advance their early-stage
research efforts and accelerate product development. We offer a wide array of
complementary research tools and discovery and development services that
differentiate us from our competition and have created a sustained competitive
advantage in our markets.
LONG-STANDING REPUTATION FOR SCIENTIFIC EXCELLENCE. We have earned our
long-standing reputation for scientific excellence by consistently delivering
high-quality research models supported by exceptional technical service and
support for over 50 years. As a result, the Charles River brand name is
synonymous with premium quality products and services and scientific excellence
in the life sciences. We have nearly 100 science professionals on staff with
D.V.M.s, Ph.D.s and M.D.s, in areas including laboratory animal medicine,
molecular biology, pathology, immunology, toxicology and pharmacology.
EXTENSIVE GLOBAL INFRASTRUCTURE AND CUSTOMER RELATIONSHIPS. Our operations
are globally integrated throughout North America, Europe and Asia. Our extensive
investment in worldwide infrastructure allows us to standardize our products and
services across borders when required by our multinational customers, while also
offering a customized local presence when needed. We currently operate 54
facilities in 15 countries worldwide, serving a customer base spanning over 50
countries.
BIOSECURITY TECHNOLOGY EXPERTISE. In our research models business, our
commitment to and expert knowledge of biosecurity technology distinguishes us
from our competition. We maintain rigorous biosecurity standards in all of our
facilities to maintain the health profile and consistency of our research
models. These qualities are crucial to the integrity and timeliness of our
customers' research.
PLATFORM ACQUISITION AND INTERNAL DEVELOPMENT CAPABILITIES. We have a
proven track record of successfully identifying, acquiring and developing small
businesses and new technologies. With this
34
experience, we have developed internal expertise in sourcing acquisitions and
further developing new technologies. Historically, our strong operating cash
flow has allowed us to fund these growth initiatives without external financing.
Our disciplined approach to making these acquisitions without extensive capital
outlays has resulted in very attractive rates of return on these investments. We
believe this expertise will continue to differentiate us from our competitors as
we seek to further expand our business.
EXPERIENCED AND INCENTIVIZED MANAGEMENT TEAM. Our senior management team
has an average of 16 years of experience with our company, and has evidenced a
strong commitment and capability to deliver reliable performance and steady
growth. Our Chairman and Chief Executive Officer, James Foster, has been with us
for 24 years. Our management team owns or has options to acquire securities
representing over 12% of our equity on a fully diluted basis before giving
effect to the offering.
OUR STRATEGY
Our business strategy is to build upon our core research model business and
to actively invest in higher growth opportunities where our proven capabilities
and strong relationships allow us to achieve and maintain a leadership position.
Our growth strategies include:
BROADEN THE SCOPE OF OUR DISCOVERY AND DEVELOPMENT SERVICES. Primarily
through acquisitions and alliances, we plan to offer new services that
complement our existing drug discovery and development services. We have
targeted services that support transgenic research activities as a high-growth
area. We intend to provide the additional critical support services needed to
create, define, characterize and scientifically validate new genetic models
expected to arise out of the Human Genome and Mouse Genome Projects. In
addition, we plan to broaden our international presence in genetic services,
specialized pathology and drug efficacy analysis. We also intend to add new
capabilities in the biotech safety testing area.
ACQUIRE NEW TECHNOLOGIES IN RESEARCH MODELS. We intend to acquire novel
technologies in transgenics and cloning to increase sales in our research models
business and related transgenic services operations. We also expect to offer
additional genetically modified models for research of specific disease
conditions. These higher-value research models are often highly specialized and
are priced to reflect their greater intrinsic value. In particular, we intend to
acquire and develop transgenic rat technology, where development has been slow
compared to mice. We believe there is a growing need for genetically engineered
rats, which are larger and more accessible research models than mice.
EXPAND OUR PRECLINICAL OUTSOURCING SERVICES. Many of our pharmaceutical and
biotechnology customers outsource a wide variety of research activities that are
not directly associated with their scientific innovation process. We believe the
trend of outsourcing preclinical or early-stage research will continue to
increase rapidly. We are well positioned to exploit both existing and new
outsourcing opportunities, principally through our discovery and development
services offerings. We believe our early successes in the transgenic services
area have increased customer demand for outsourcing and have created significant
opportunities. Our research support services provide pharmaceutical and
biotechnology companies with significant cost and resource allocation advantages
over their existing internal operations. We intend to focus our marketing
efforts on stimulating demand for further outsourcing of preclinical research.
We also intend to expand our opportunities by increasing our international
presence.
EXPAND OUR NON-ANIMAL TECHNOLOGIES. IN VITRO testing technologies are in
their early stages of development, but we plan to continue to acquire and
introduce new IN VITRO products and services as they become scientifically
validated and commercially viable. We are particularly focused on acquiring new
technologies that allow for high through-put screening and testing of new drug
candidates in early
35
stages of development, using such materials and techniques as human cells and
tissues and predictive database software.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. Over the past decade, we have
successfully completed 12 acquisitions and alliances. Several of our operations
began as platform acquisitions, which we were able to grow rapidly by developing
and marketing the acquired products or services to our extensive global customer
base. We intend to further pursue strategic platform acquisitions and alliances
to drive our long-term growth. Historically, our strong cash flow has allowed us
to fund these transactions primarily with internal resources. We intend to
continue this strategy in the future, aided by our ability to issue publicly
traded common stock after this offering.
BUSINESS DIVISIONS
Our business is divided into two segments, research models and biomedical
products and services.
RESEARCH MODELS
Research models is our historical core business and accounted for 65% of our
1999 pro forma net sales and 63% of our pro forma net sales for the three months
ended March 25, 2000. The business is comprised of the commercial production and
sale of animal research models, principally purpose-bred rats, mice and other
rodents for use by researchers. We are the commercial leader in the small animal
research model area, supplying rodents for research since 1947. Our research
models include:
- outbred animals, which have genetic characteristics of a random
population;
- inbred animals, which have essentially identical genes;
- hybrid animals, which are the offspring of two different inbred parents;
- spontaneous mutant animals, which contain a naturally occurring genetic
mutation (such as immune deficiency); and
- transgenic animals, which contain genetic material transferred from
another source.
With over 130 research models, we offer one of the largest selections of
small animal models and provide our customers with high volume and high quality
production. Our rats, mice and other rodent species such as guinea pigs and
hamsters have been and continue to be some of the most extensively used research
models in the world, largely as a result of our continuous commitment to
innovation and quality in the breeding process. We provide our small animal
models to numerous customers around the world, including all major
pharmaceutical and biotechnology companies as well as hospitals and academic
institutions.
The use of animal models is critical to both the discovery and development
of a new drug. The FDA requires safe and effective testing on two species of
animal models, one small and one large, before moving into the clinic for
testing on humans. Animal testing is used in order to identify, define,
characterize and assess the safety of new drug candidates. Increasingly,
genetically defined rats and mice are the model of choice in early discovery and
development work as a more specifically targeted research tool. Outbred rats are
frequently used in safety assessment studies. Our models are also used in life
science research within universities, hospitals and other research institutions.
Unlike drug discovery, these uses are generally not specifically mandated by
regulatory agencies such as the FDA, but instead are governed by the terms of
government grants, institutional protocols as well as the scientific inquiry and
peer review publication processes. We also provide larger animal models,
including miniature swine and primates, to the research community, principally
for use in drug development and testing studies.
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We believe that over the next several years, many new research models will
be developed and used in biomedical research, such as transgenic models, cloned
models with identical genes, knock-out models with one or more disabled genes
and models that incorporate or exclude a particular mouse, rat or human gene.
These more highly defined and characterized models will allow researchers to
further focus their investigations into disease conditions and potential new
therapies or interventions. We intend to build upon our position as the leader
in transgenic services to expand our presence in this market for higher value
models, through internal development, licensing, partnerships and alliances, and
acquisitions.
BIOMEDICAL PRODUCTS AND SERVICES
Our biomedical products and services business consists of our newer,
higher-growth operations, which we organize as follows:
[Enlarge/Download Table]
DISCOVERY SERVICES DEVELOPMENT SERVICES IN VITRO DETECTION SYSTEMS VACCINE SUPPORT PRODUCTS
--------------------------- --------------------------- --------------------------- ---------------------------
- Transgenic Services - Drug Safety Assessment - Endotoxin Detection - Animal Health
- Research Support Services - Biotech Safety Testing Systems - Human Health
- Infectious Disease and - Medical Device Testing - BioActivity Software
Genetic Testing
- Contract Site Management
DISCOVERY SERVICES
Discovery represents the earliest stages of research and development in the
life sciences directed to the identification and selection of a lead compound
for future drug development. Discovery is followed by development activities,
which are directed at validation of the selected drug candidates. Discovery and
development represent most of the preclinical activities in drug development.
Initiated in 1995, the discovery services area of our business addresses the
growing need among pharmaceutical and biotechnology companies to outsource the
non-core aspects of their drug discovery activities. These discovery services
capitalize on the technologies and relationships developed through our research
model business. We currently offer four major categories of discovery services:
transgenic services, research support services, infectious disease and genetic
testing and contract site management.
TRANSGENIC SERVICES. In this rapidly growing area of our business, we
assist our customers in validating, maintaining, improving, breeding and testing
models purchased or created by them for biomedical research activities. While
the creation of a transgenic, knock-out or cloned model can be a critical
scientific event, it is only the first step in the discovery process. Productive
utilization of research models requires significant additional technical
expertise. We provide transgenic breeding expertise, model characterization and
colony development, genetic characterization, quarantine, embryo
cryopreservation, embryo transfer, rederivation, and health and genetic
monitoring. We provide these services to more than 100 laboratories around the
world from pharmaceutical and biotechnology companies to hospitals and
universities. We maintain nearly 300 different types of research models for our
customers. We expect that the demand for our services will grow as the use of
transgenic, knock-out and cloned animal models continues to grow within the
research community.
RESEARCH SUPPORT SERVICES. Our research support services provide advanced
or specialized research model studies for our customers. These projects
capitalize on our strong research model capabilities and also exploit more
recently developed capabilities in protocol development, animal micro-surgery,
dosing techniques, drug effectiveness testing and data management and analysis.
We believe these services, particularly in oncology and cardiovascular studies,
offer added value to our research customers, who rely on our extensive
expertise, infrastructure and resources. We also manage under
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contract a genetically defined, biosecure herd of miniature swine to provide
organs for human transplantation research, known as xenotransplantation.
INFECTIOUS DISEASE AND GENETIC TESTING. We assist our customers in
monitoring and analyzing the health and genetics of the research models used in
their research protocols. We developed this capability internally by building
upon the scientific foundation created by the diagnostic laboratory needs of our
research model business. Depending upon a customer's needs, we may serve as its
sole source testing laboratory, or as an alternative source supporting its
internal laboratory capabilities. We believe that the continued growth in
development and utilization of transgenic, knock-out and cloned models will
drive our future growth as the reference laboratory of choice for genetic
testing of special models.
CONTRACT SITE MANAGEMENT. Building upon our core capabilities as a leading
provider of high quality research models, we manage animal care operations on
behalf of government, academic, pharmaceutical and biotechnology organizations.
Increasing demand for our services reflects the growing necessity of these large
institutions to outsource internal functions or activities that are not critical
to the core scientific innovation and discovery process. In addition, we believe
that our expertise in managing the laboratory animal environment enhances the
productivity and quality of our customers' research facilities. This area leads
to additional opportunities for us to provide other products and services to our
customers. Site management does not require us to make any incremental
investment, thereby generating a particularly strong return.
DEVELOPMENT SERVICES
Our development services enable our customers to outsource their non-core
drug development activities to us. These activities are typically required for
the identification of the lead compound in order to support the regulatory
filings necessary to obtain FDA approval. We currently offer development
services in three main areas: drug safety assessment, biotech safety testing and
medical device testing.
DRUG SAFETY ASSESSMENT. We offer drug safety assessment services to
pharmaceutical, medical device and biotechnology companies that are principally
focused on conducting regulatory compliance studies producing data to support
FDA submissions. These studies require highly specialized scientific
capabilities. We have expertise in conducting critical developmental studies on
new drug candidates and medical devices that use research models, including
long- and short-term evaluations of potential new treatments for human or animal
disease conditions. We have unique expertise in several areas of safety
assessment and are continuously evaluating and selecting new services areas to
add to our portfolio. We focus on high-end niches of this market where our
scientific capabilities are strongly valued by our customers.
BIOTECH SAFETY TESTING. We provide specialized non-clinical quality control
testing that is frequently outsourced by both pharmaceutical and biotechnology
companies. These services allow our customers to determine if the human protein
drug candidates, or the process for manufacturing those products, are
essentially free of residual biological materials. The bulk of this testing work
is required by the FDA for obtaining new drug approval, maintaining an
FDA-licensed manufacturing capability or releasing approved products for use on
patients. Our scientific staff consults with customers in the areas of process
development, validation, manufacturing scale-up and biological testing. As more
biotechnology drug candidates with stronger potential enter and exit the
development pipeline, we expect to continue to experience strong demand for
these testing services.
MEDICAL DEVICE TESTING. The FDA requires companies introducing medical
devices to test the biocompatibility of any new materials that have not
previously been approved for contact with human tissue. We provide a wide
variety of medical device testing services from prototype feasibility testing to
38
long-term GLP, or good laboratory practices, studies, primarily in large
research models. These services include cardiovascular surgery, biomaterial
reactivity studies, orthopedic studies and related laboratory services. We
maintain state-of-the-art surgical suites where our skilled professional staff
implement custom surgery protocols provided by our customers.
IN VITRO DETECTION SYSTEMS
While we do not foresee significant replacement of animal models from the
use of IN VITRO techniques, we believe that these techniques may offer a strong
refinement or complement to animal test systems after the extended period of
scientific validation is successfully completed. We intend to pursue this area
to the extent alternatives become commercially viable.
ENDOTOXIN DETECTION SYSTEMS. We are a market leader in endotoxin testing,
which is used to test quality control samples of injectable drugs and devices,
their components and the processes under which they are manufactured, for the
presence of endotoxins. Endotoxins are fever producing pathogens or compounds
that are highly toxic to humans when sufficient quantities are introduced into
the body. Quality control testing for endotoxin contamination by our customers
is an FDA requirement for injectable drugs and devices, and the manufacture of
the test kits and reagents is regulated by the FDA as a medical device.
Endotoxin testing uses a processed extract from the blood of the horseshoe crab,
known as limulus amebocyte lysate, or LAL. The LAL test is the first and only
major FDA-validated IN VITRO alternative to an animal model test for testing the
safety and efficiency of new drug candidates. The process of extracting blood is
not harmful to the crabs, which are subsequently returned to their natural ocean
environment. We produce and distribute test kits, reagents, software,
accessories, instruments and associated services to pharmaceutical and
biotechnology companies for medical devices and other products worldwide. We
have filed for a patent relating to our next generation of endotoxin testing
technology.
BIOACTIVITY SOFTWARE. In the life sciences, we have an exclusive strategic
alliance with Multicase, Inc. under which we offer their unique database
software program. This program allows researchers to evaluate the potential
toxicity and pharmacological activity of new chemical compounds. This program
uses a proprietary artificial intelligence capability and nearly twenty years of
data collected from public sources including the FDA. This IN SILICO, or
software, alternative to the use of research animals is in the early stages of
commercialization. We expect that bioactivity software that allows researchers
to more accurately predict defined outcomes for potential new drug candidates
will complement rather than replace the use of research models. We plan to
evaluate adding other software tools through licensing and partnerships that
allow researchers to improve the efficiency and effectiveness of drug discovery
and development.
VACCINE SUPPORT PRODUCTS
ANIMAL HEALTH. We are the global leader for the supply of specific
pathogen-free, or SPF, chickens and fertile chicken eggs. SPF chicken embryos
are used by animal health companies as self-contained "bioreactors" for the
manufacturing of live and killed viruses. These viruses are used as a raw
material in poultry and potential human vaccine applications. The production of
SPF eggs is done under biosecure conditions, similar to our research model
production. We have a worldwide presence that includes several SPF egg
production facilities in the United States, as well as facilities in Germany and
in Australia. We have a joint venture in Mexico and a franchise in India. We
also operate a specialized avian laboratory in the United States, which provides
in-house testing and support services to our customers.
HUMAN HEALTH. We are also applying our SPF egg technology to human vaccine
markets. We have entered into an agreement with a company that is in the late
stages of the FDA approval process for a nasal spray-delivered vaccine for human
flu. If FDA-approved and commercially successful, this human flu vaccine may
significantly increase demand for our SPF eggs.
39
CUSTOMERS
Our customers consist primarily of large pharmaceutical companies, including
the ten largest pharmaceutical companies based on 1999 revenues, as well as
biotechnology, animal health, medical device and diagnostic companies and
hospitals, academic institutions and government agencies. We have many
long-term, stable relationships with our customers as evidenced by the fact that
all of our top 20 customers in 1990 remain our customers today.
During 1999, in both our research models and our biomedical products and
services businesses, approximately two-thirds of our sales were to
pharmaceutical and biotechnology companies, and the balance were to hospitals,
universities and the government. Our top 20 global customers represent only
about 26% of our 1999 pro forma net sales, and approximately 27% of our pro
forma net sales for the three months ended March 25, 2000, with no individual
customer accounting for more than 3% of net sales in either period.
SALES, MARKETING AND CUSTOMER SUPPORT
We sell our products and services principally through our direct sales
force. As of March 25, 2000, we had approximately 51 employees engaged in field
sales, of which 30 were in the United States, 12 were in Europe and 9 were with
Charles River Japan. The direct sales force is supplemented by a network of
international distributors for some areas of our biomedical products and
services business.
Our internal marketing groups support the field sales staff while developing
and implementing programs to create close working relationships with customers
in the biomedical research industry. Our web site, www.criver.com, is an
effective marketing tool, and has become recognized as a valuable resource in
the laboratory animal field by a broad spectrum of industry leaders, recording
over 400,000 hits each month. Our website is not incorporated by reference in
this prospectus.
We maintain both a customer service and technical assistance departments,
which services our customers' routine and more specialized needs. We frequently
assist our customers in solving problems related to animal husbandry, health and
genetics, biosecurity, protocol development and other areas in which our
expertise is recognized as a valuable customer resource.
RESEARCH AND DEVELOPMENT
We do not maintain a fully dedicated research and development staff. Rather,
this work is done on an individual project basis or through collaborations with
universities or other institutions. Our dedicated research and development
spending was $1.4 million in 1997, $1.4 million in 1998 and $0.5 million in 1999
and $0.1 million for the three months ended March 25, 2000. Our approach to
developing new products or services is to extend our base technologies into new
applications and fields, and to license or acquire technologies to serve as a
platform for the development of new businesses that service our existing
customer base. Our research and development focus is principally on developing
projects that improve our productivity or processes.
INDUSTRY SUPPORT AND ANIMAL WELFARE
Among the shared values of our employees is a concern for and commitment to
animal welfare. We have been in the forefront of animal welfare improvements in
our industry, and continue to demonstrate our commitment with special
recognition programs for employees who demonstrate an extraordinary commitment
in this critical area of our business.
We support a wide variety of organizations and individuals working to
further animal welfare as well as the interests of the biomedical research
community. We fund internships in laboratory animal medicine, provide financial
support to non-profit institutions that educate the public about the benefits of
animal research, and provide awards and prizes to outstanding leaders in the
laboratory animal medicine field. One of our businesses dedicates a portion of
its net sales, through a royalty, to support similar programs and initiatives.
40
EMPLOYEES
As of March 25, 2000, we had approximately 2,200 employees, including nearly
100 science professionals with advanced degrees including D.V.M.s, Ph.D.s and
M.D.s. Our employees are not unionized in the United States, though we are
unionized in some European locales, consistent with local custom for our
industry. We believe that we have a good relationship with our employees.
COMPETITION
Our strategy is to be the leader in each of the markets in which we
participate. Our competitors are generally different in each of our business and
geographic areas.
In our research models business division, our main competitors include three
smaller competitors in North America, several smaller ones in Europe, and two
smaller ones in Japan. Of our main United States competitors, two are privately
held businesses and the third is a government-financed, non-profit institution.
We believe that none of our competitors for research models has our comparable
global reach, financial strength, breadth of product and services offerings and
pharmaceutical and biotechnology industry relationships.
We have many competitors in our biomedical products and services business
division. A few of our competitors in our biomedical products and services
business are larger than we are and may have greater capital, technical or other
resources than we do; however, many are smaller and more regionalized. We have a
small relative share in the biotech safety testing market, where the market
leader is a well-established company, and in medical device testing, where there
are many larger competitors.
We generally compete on the basis of quality, reputation, and availability,
which is supported by our international presence with strategically located
facilities.
ENVIRONMENTAL MATTERS; LEGAL PROCEEDINGS
Our operations and properties are subject to extensive foreign and federal,
state and local environmental protection and health and safety laws and
regulations. These laws and regulations govern, among other things, the
generation, storage, handling, use and transportation of hazardous materials and
the handling and disposal of hazardous and biohazardous waste generated at our
facilities. Under such laws and regulations, we are required to obtain permits
from governmental authorities for some of our operations. If we violate or fail
to comply with these laws, regulations or permits, we could be fined or
otherwise sanctioned by regulators. Under some environmental laws and
regulations, we could also be held responsible for all of the costs relating to
any contamination at our past or present facilities and at third party waste
disposal sites. As a result of disputes with federal, state and local
authorities and private environmental groups regarding damage to mangrove plants
on two islands in the Florida Keys, we agreed to refoliate the islands at our
cost. Although we have not been able to completely replant, principally due to
the presence of a free-range animal population and storms, we believe that the
cost of refoliation will not have a material adverse effect on our business.
Although we believe that our costs of complying with current and future
environmental laws, and our liabilities arising from past or future releases of,
or exposure to, hazardous substances will not materially adversely affect our
business, results of operations or financial condition, we cannot assure you
that they will not do so.
We are not a party to any other material legal proceedings, other than
ordinary routine litigation incidental to our business that is not otherwise
material to our business or financial condition.
REGULATORY MATTERS
The Animal Welfare Act governs the treatment of particular species intended
for use in research. The AWA imposes a wide variety of specific regulations on
producers and users of these species, most
41
notably cage size, shipping conditions and environmental enrichment methods. We
comply with licensing and registration requirement standards set by the USDA for
handling regulated species, including breeding, maintenance and transportation.
However, rats, mice and chickens are not currently regulated under the AWA. As a
result, most of our United States small animal research model activities and our
vaccine support services operations are not subject to regulation under the AWA.
The USDA, which enforces the AWA, is presently considering changing the
regulations issued under the AWA, in light of judicial action, to include rats,
mice and chickens within its coverage. Our animal production facilities in the
United States are accredited by a highly regarded member association known as
AAALAC, which maintains standards that often exceed those of the USDA.
Our biomedical products and services business is also generally regulated by
the USDA, and in the case of our endotoxin detection systems, the FDA. Our
manufacture of test kits and reagents for endotoxin testing is subject to
regulation by the FDA under the authority of the Federal Food, Drug, and
Cosmetic Act. We are required to register with the FDA as a device manufacturer
and are subject to inspection on a routine basis for compliance with the FDA's
Quality System Regulations and Good Manufacturing Practices. These regulations
require that we manufacture our products and maintain our documents in a
prescribed manner with respect to manufacturing, testing and control activities.
Last year, we received a "warning letter" from the FDA for quality control
deficiencies with regard to our Charleston, South Carolina facility. We believe
we have taken all of the necessary steps to meet the FDA's requirements.
PROPERTIES
The following charts provide summary information on our properties. The
first chart lists the sites we own, and the second chart the sites we lease.
Most of our material leases expire from 2000 to 2005.
SITES--OWNED
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COUNTRY NO. OF SITES TOTAL SQUARE FEET PRINCIPAL FUNCTIONS
------- ------------ ----------------- ------------------------------
Belgium.............................. 1 16,140 Office, Production
Canada............................... 1 64,929 Office, Production, Laboratory
China................................ 1 10,000 Office, Production, Laboratory
France............................... 4 373,214 Office, Production, Laboratory
Germany.............................. 3 122,314 Office, Production, Laboratory
Italy................................ 1 36,677 Office, Production, Laboratory
Japan................................ 2 88,511 Office, Production, Laboratory
Netherlands.......................... 1 6,502 Sales Office
United Kingdom....................... 2 67,331 Office, Production, Laboratory
United States........................ 17 732,980 Office, Production, Laboratory
-- ---------
Total................................ 33 1,518,598
== =========
SITES--LEASED
[Enlarge/Download Table]
COUNTRY NO. OF SITES TOTAL SQUARE FEET PRINCIPAL FUNCTIONS
------- ------------ ----------------- ------------------------------
Australia............................ 1 9,787 Office, Production
Czech Republic....................... 1 23,704 Office, Production, Laboratory
Hungary.............................. 1 4,681 Office, Production, Laboratory
Japan................................ 2 23,552 Office, Production, Laboratory
Spain................................ 1 3,228 Sales Office
Sweden............................... 1 8,070 Sales Office
United States........................ 14 270,695 Office, Production, Laboratory
-- -------
Total................................ 21 343,717
== =======
42
MANAGEMENT
The following table sets forth the name, age and position of each of our
executive officers, key members of management, and directors.
[Enlarge/Download Table]
NAME AGE POSITION
---- -------- --------
James C. Foster........................... 49 Chairman, Chief Executive Officer,
President and Director
Thomas F. Ackerman........................ 45 Senior Vice President and Chief Financial
Officer
David P. Johst............................ 38 Senior Vice President, Human Resources and
Administration
Real H. Renaud............................ 52 Senior Vice President and General Manager,
European and North American Animal
Operations
Dennis R. Shaughnessy..................... 42 Senior Vice President, Corporate
Development, General Counsel and Secretary
Julia D. Palm............................. 52 Vice President and General Manager,
Biomedical Products and Services
Robert Cawthorn........................... 64 Director
Stephen D. Chubb.......................... 56 Director
Thompson Dean............................. 42 Director
Stephen C. McCluski....................... 47 Director
Reid S. Perper............................ 40 Director
Douglas E. Rogers......................... 45 Director
Samuel O. Thier........................... 63 Director
William Waltrip........................... 62 Director
Henry Wendt III........................... 66 Director
JAMES C. FOSTER joined us in 1976 as General Counsel. Over the past
24 years, Mr. Foster has held various staff and managerial positions, with
Mr. Foster being named our President in 1991, our Chief Executive Officer in
1992 and our Chairman in 2000. Mr. Foster also serves on the Board of Directors
of BioTransplant, Inc. Mr. Foster received a B.A. from Lake Forest College, a
M.S. from the Sloan School of Management at the Massachusetts Institute of
Technology, and a J.D. from Boston University School of Law.
THOMAS F. ACKERMAN joined us in 1988 with over eleven years of combined
public accounting and international finance experience. He was named Controller,
North America in 1992 and became our Vice President and Chief Financial Officer
in 1996. In 1999, he was named a Senior Vice President. He is currently
responsible for overseeing our Accounting and Finance Department, as well as our
Information Technology Group. Prior to joining us, Mr. Ackerman was an
accountant at Arthur Anderson & Co. Mr. Ackerman received a B.S. in Accounting
from the University of Massachusetts and is a certified public accountant.
DAVID P. JOHST joined us in 1991 as Corporate Counsel and was named Vice
President, Human Resources in 1995. He became Vice President, Human Resources
Administration in 1996, and a Senior Vice President in 1999. He is responsible
for overseeing our Human Resources Department, as well as several other
corporate staff departments. He also serves as our counsel on labor relations
matters. Prior to joining us, Mr. Johst was a corporate associate at Boston's
Hale and Dorr. Mr. Johst is a graduate of Dartmouth College, holds an M.B.A.
from Northeastern University and received his J.D. from Harvard University Law
School.
REAL H. RENAUD joined us in 1964 and has 35 years of small animal production
and related management experience. In 1986, Mr. Renaud became our Vice President
of Production, with
43
responsibility for overseeing our North American small animal operations, and
was named Vice President, Worldwide Production in 1990. Mr. Renaud became Vice
President and General Manager, European and North American Animal Operations in
1996, following a two-year European assignment during which he provided direct
oversight to our European operations. In 1999 he became a Senior Vice President.
Mr. Renaud attended Columbia University's executive education program, and has
also studied at the Lyon Veterinary School and the Montreal Business School.
DENNIS R. SHAUGHNESSY joined us in 1988 as Corporate Counsel and was named
Vice President, Business Affairs in 1991. He became Vice President, Corporate
Development and General Counsel in 1994 and is responsible for overseeing our
business development initiatives on a worldwide basis, as well as handling our
overall legal affairs. He became a Senior Vice President in 1999.
Mr. Shaughnessy also serves as our Corporate Secretary. Prior to joining us,
Mr. Shaughnessy was a corporate associate at Boston's Testa, Hurwitz & Thibeault
and previously served in government policy positions. Mr. Shaughnessy has a B.A.
from The Pennsylvania State University, an M.S. from The University of Michigan,
an M.B.A. from Northeastern University, and a J.D. from The University of
Maryland School of Law.
JULIA D. PALM joined us in 1995 with nearly 20 years of management and
marketing experience in the medical device and biotechnology industries. Prior
to joining us, she held various marketing positions with Becton Dickinson,
National Medical Care and W.R. Grace, and served as President of W.R. Grace's
Amicon Division immediately prior to joining us. Ms. Palm has responsibility for
overseeing a portfolio of most of our biomedical products and services companies
on a worldwide basis. Ms. Palm holds a B.A. in Biology from Denison University,
and an M.B.A. from Farleigh Dickinson University.
ROBERT CAWTHORN is an independent consultant to Global Health Care Partners,
a group at DLJ Merchant Banking, Inc., having been a Managing Director from 1997
to 1999. Mr. Cawthorn was Chief Executive Officer and Chairman of Rhone-Poulenc
Rorer Inc. until May 1996. Further, he previously served as an executive officer
of Pfizer International and was the first President of Biogen Inc. Mr. Cawthorn
serves as Chairman of Actelion Pharmaceuticals Ltd., NextPharma Technologies
S.A. and Pure Energy Corporation and also serves as a director of H(2)O
Technologies.
STEPHEN D. CHUBB has been Chairman, Director and Chief Executive Officer of
Matritech, Inc. since its inception in 1987. Previously, Mr. Chubb served as
President and Chief Executive Officer of T Cell Sciences, Inc. and as President
and Chief Executive Officer of Cytogen Company. Mr. Chubb serves as a director
of i-Stat Corporation and CompuCyte Corp.
THOMPSON DEAN has been a Managing Partner of DLJ Merchant Banking, Inc.
since November 1996. Previously, Mr. Dean was a Managing Director of DLJ
Merchant Banking, Inc. and its predecessor since January 1992. Mr. Dean serves
as a director of Von Hoffmann Press, Inc., Manufacturer's Services Limited,
Phase Metrics, Inc., AKI Holdings Corp., Amatek Ltd., DeCrane Aircraft
Holdings Inc., Insilco Holding Corporation, Formica Corporation and Mueller
Group, Inc.
STEPHEN C. MCCLUSKI has been Senior Vice President and Chief Financial
Officer of Bausch & Lomb Incorporated since 1995. Previously, Mr. McCluski
served as Vice President and Controller of Bausch & Lomb Incorporated and
President of Outlook Eyewear Company.
REID S. PERPER has been a Managing Director of DLJ Merchant Banking, Inc.
since January 2000. Mr. Perper was a Principal of DLJ Merchant Banking, Inc.
from 1996 to January 2000 and a Vice President from 1993 to 1996. Mr. Perper was
formerly a director of IVAC Holdings, Inc. and Fiberite Holdings, Inc.
DOUGLAS E. ROGERS has been a Managing Director of Global Health Care
Partners since 1996. Previously, Mr. Rogers was a Vice President at Kidder
Peabody & Co., Senior Vice President at Lehman Brothers, and head of U.S.
Investment Banking at Baring Brothers. Mr. Rogers serves as a director of
Computerized Medical Systems, Inc. and Wilson Greatbatch Ltd.
44
SAMUEL O. THIER has been Chief Executive Officer of Partners HealthCare
System, Inc. since July 1996 and President of Partners HealthCare System since
1994. Previously, he served as President of The Massachusetts General Hospital
from 1994 through 1997. He has served as President of the Institute of Medicine
of the National Academy of Sciences and Chairman of the American Board of
Internal Medicine, and he is a Fellow of the American Academy of Arts and
Sciences. He is a director of Merck & Co., Inc.
WILLIAM WALTRIP has been a director of Bausch & Lomb Incorporated since
1985, and Chairman of the Board of Directors of Technology Solutions Company
since 1993. Previously, Mr. Waltrip served as Chairman and Chief Executive
Officer of Bausch & Lomb Incorporated, as Chief Executive Officer of Technology
Solutions Company, as Chairman and Chief Executive Officer of Biggers
Brothers, Inc., and as Chief Operating Officer of IU International Corporation.
He was also previously President and Chief Executive Officer and a director of
Purolator Courier Corporation. He is a director of Teachers Insurance and
Annuity Association and Thomas & Betts Corporation and Technology Solutions
Company.
HENRY WENDT III has been the Chairman of Global Health Care Partners since
1996. Previously, Mr. Wendt was Chairman of SmithKline Beecham Corporation and
President and Chief Executive Officer of SmithKline Beckman Corp. prior to its
merger with Beecham and served as founder and First Chairman of Pharmaceutical
Partners for Better Health Care. Mr. Wendt serves as a director of
Allergan, Inc., Atlantic Richfield Company, Computerized Medical Systems, The
Egypt Investment Company, West Marine Products and Wilson Greatbatch Ltd.
Each of our directors serves until the next annual meeting of stockholders
and until a successor is duly elected and qualified or until his earlier death,
resignation or removal. All members of our board of directors, other than
Mr. Thier, were elected at the time of the recapitalization pursuant to the
investors' agreement that was entered into in connection with that transaction.
See "Relationships and Transactions with Related Parties--Investors' Agreement."
Mr. Thier was elected as a director in April 2000. There are no family
relationships between any of our directors or executive officers. Our executive
officers are elected by, and serve at the discretion of, the board of directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has an audit committee and a compensation committee.
The board may also establish other committees to assist in the discharge of its
responsibilities.
The audit committee makes recommendations to the board of directors
regarding the independent accountants to be nominated for election by the
stockholders and reviews the independence of such accountants, approves the
scope of the annual audit activities of the independent accountants, approves
the audit fee payable to the independent accountants and reviews such audit
results with the independent accountants. The audit committee is currently
comprised of Messrs. Chubb, Thier and Waltrip. PricewaterhouseCoopers LLP
presently serves as our independent accountants.
The duties of the compensation committee are to provide a general review of
our compensation and benefit plans to ensure that they meet corporate
objectives. In addition, the compensation committee reviews the chief executive
officer's recommendations on compensation of all of our officers and adopting
and changing major compensation policies and practices, and reports its
recommendations to the entire board of directors for approval and authorization.
The compensation committee also administers our stock plans. The compensation
committee is currently comprised of Messrs. Cawthorn, Dean, Waltrip and Wendt.
45
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for
the years ended December 25, 1999 and December 26, 1998 for our chief executive
officer and our four other most highly compensated executive officers at the end
of our last fiscal year. We collectively refer to these executive officers
throughout this section as our named executive officers.
SUMMARY COMPENSATION TABLE
[Enlarge/Download Table]
LONG-TERM
COMPENSATION
-----------------------
AWARDS
ANNUAL COMPENSATION OTHER RESTRICTED SECURITIES
------------------------------ ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) AWARD(S) OPTIONS COMPENSATION(2)
--------------------------- -------- -------- -------- ---------------- ---------- ---------- ---------------
James C. Foster................ 1999 $324,727 $790,001 $355,357 -- 558,824 $135,200
Chairman, Chief Executive 1998 308,700 230,705(3) 33,717 4,500 19,000 171,268
Officer, President and
Director
Real H. Renaud................. 1999 224,475 236,391 100,647 -- 163,793 42,252
Senior Vice President and 1998 212,000 99,814 21,559 -- 4,200 43,275
General Manager, European and
North American Animal
Operations
Dennis R. Shaughnessy.......... 1999 176,239 290,542 323,616(4) -- 134,642 61,057
Senior Vice President, 1998 167,800 79,898 21,968 -- 4,200 60,088
Corporate Development,
General Counsel and Secretary
David P. Johst................. 1999 154,209 238,767 84,569 -- 125,254 60,003
Senior Vice President, Human 1998 146,800 69,911 11,689 -- 4,200 58,182
Resources and Administration
Thomas F. Ackerman............. 1999 141,621 245,954 92,574 -- 125,254 38,200
Senior Vice President and 1998 135,000 64,378 10,670 -- 3,600 38,200
Chief Financial Officer
------------------------------
(1) Amounts in this column for 1999 include contractual payments made by B&L to
the named executive officers in lieu of accelerating their unvested B&L
options upon the closing of the recapitalization.
(2) Includes employer contribution under our Executive Supplemental Life
Insurance Retirement Plan (Mr. Foster (1999: $132,000), (1998: $168,068);
Mr. Renaud (1999: $39,052), (1998: $40,075); Mr. Shaughnessy (1999:
$57,857), (1998: $57,956); Mr. Johst (1999: $56,803), (1998: $54,982);
Mr. Ackerman (1999: $35,000), (1998: $35,000)) and Employee Savings Plan
(Mr. Foster (1999: $3,200), (1998: $3,200); Mr. Renaud (1999: $3,200),
(1998: $3,200); Mr. Shaughnessy (1999: $3,200), (1998: $2,132), Mr. Johst
(1999: $3,200), (1998: $3,200); Mr. Ackerman (1999: $3,200), (1998:
$3,200)).
(3) Includes $12,000 paid under B&L's Long Term Incentive Plan during 1998.
(4) Also includes a lump-sum payment of $253,000 made in return for
relinquishment of right to participate in our Executive Supplemental Life
Insurance Retirement Plan.
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STOCK OPTIONS
The following table presents material information regarding options to
acquire shares of our common stock granted to our named executive officers in
1999. No options to acquire shares of B&L's common stock were granted to our
executive officers in fiscal 1999.
OPTION GRANTS IN FISCAL 1999
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INDIVIDUAL GRANTS(1)
----------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
TOTAL AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OR OPTION TERM(2)
OPTIONS FISCAL YEAR BASE PRICE EXPIRATION ---------------------------
NAME GRANTED(#) (%) ($/SH) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- ------------ ------------
James C. Foster.................. 558,824 32.4% $ 5.33 9/29/2009 $1,871,892 $4,744,400
Real H. Renaud................... 163,793 9.5 5.33 9/29/2009 548,658 1,421,200
Dennis R. Shaughnessy............ 134,642 7.8 5.33 9/29/2009 451,010 1,168,260
David P. Johst................... 125,254 7.3 5.33 9/29/2009 419,562 1,086,800
Thomas F. Ackerman............... 125,254 7.3 5.33 9/20/2009 419,562 1,086,800
------------------------
(1) The options granted vest either over time, on the occurrence of specified
events or the achievement of specified performance goals.
(2) The value actually realized by an optionee may not be at or near the amount
estimated using this model. These amounts rely on assumed future stock price
movements which management believes cannot be predicted with a reliable
degree of accuracy. We based these amounts on the assumption that the option
holders hold the options granted for their full term.
The following table provides material information related to the number and
value of options to acquire common stock of B&L exercised during 1999 by the
named executive officers and the value of options to acquire common stock of B&L
and our common stock at the end of fiscal 1999. On December 23, 1999, the
closing sale price of B&L common stock on NYSE was $66.25.
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
[Enlarge/Download Table]
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT FISCAL YEAR-END (#) YEAR END ($)(2)
ACQUIRED ON VALUE REALIZED --------------------------- ---------------------------
NAME COMPANY EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ------------ -------------- ----------- ------------- ----------- -------------
James C. Foster............ CRL -- -- -- 558,824 -- --
B&L 100,054 $2,154,389 -- -- -- --
Real H. Renaud............. CRL -- -- -- 163,793 -- --
B&L 23,509 424,032 -- -- -- --
Dennis R. Shaughnessy...... CRL -- -- -- 134,642 -- --
B&L 5,951 122,617 -- -- -- --
David P. Johst............. CRL -- -- -- 125,254 -- --
B&L 11,921 328,913 -- -- -- --
Thomas F. Ackerman......... CRL -- -- -- 125,254 -- --
B&L 8,164 172,226 -- -- -- --
------------------------------
(1) Value realized represents the difference between the exercise price of the
option shares and the market price of the option shares on the date the
option was exercised. We determined the value realized without consideration
for any issues or brokerage expenses which may have been owed.
(2) There was no public trading market for our common stock as of December 25,
1999.
47
EMPLOYEE AGREEMENTS AND COMPENSATION ARRANGEMENTS
We do not currently have employment agreements with any of our named
executive officers.
DIRECTOR COMPENSATION
Directors who are not our employees or who are not otherwise affiliated with
us or our principal stockholders will receive $10,000 per year and $1,000 per
board meeting, plus travel expenses.
SEVERANCE PLANS
In January 1999, Charles River Laboratories, Inc. adopted the 1999 Charles
River Laboratories Officer Separation Plan. This plan provides for severance
payments to vice presidents and more senior officers who are terminated for
reasons other than cause, voluntary resignation, disability, early or normal
retirement or death and who have not been offered comparable positions within
Charles River Laboratories, Inc. A participant under the plan is entitled to a
severance payment equal to one year of the officer's base pay plus the accrued
vacation pay payable to the officer as of the separation date. Each of the named
executive officers other than Mr. Renaud is a participant under the plan. In
January 1992, Mr. Renaud entered into an agreement with Charles River
Laboratories, Inc. providing for a severance payment equal to one year of his
base pay if he is terminated for any reason other than for cause, and up to one
additional year of base pay until he finds non-competing employment. The plan
and the 1992 agreement with Mr. Renaud each prohibit the participant from
competing with Charles River Laboratories, Inc. for one year after termination
of the participant's employment.
On July 25, 1999, Charles River Laboratories, Inc. entered into an agreement
with each of the named executive officers providing for a severance payment to
any covered officer terminated by Charles River Laboratories, Inc. prior to
September 29, 2000 for any reason other than cause. Under these agreements,
Mr. Foster is entitled to a severance payment equal to two and one-half times
his base salary and each of Messrs. Ackerman, Johst and Shaughnessy is entitled
to a severance payment equal to two times his base salary.
STOCK PLANS
Our 1999 management incentive plan provides for the grant of stock options
to our employees, directors, officers and consultants. There are
1,784,384 shares of common stock reserved for awards under the plan. As of
March 25, 2000, options to purchase 1,726,328 shares were outstanding under the
plan.
Our 2000 incentive plan provides for the grant of incentive and nonstatutory
stock options, stock appreciation rights, restricted or unrestricted common
stock, promises to deliver stock or other securities in the future, awards of
cash or stock earned by attaining performance criteria, cash bonuses and cash
bonuses or loans to help defray the costs of the foregoing awards. There are
1,189,000 shares of common stock reserved under the plan. As of June 6, 2000, no
options were outstanding under the plan.
Our 2000 directors stock plan provides for the grant of both automatic and
discretionary nonstatutory stock options to our non-employee directors. Pursuant
to the plan, each independent director will be automatically granted an option
to purchase 20,000 shares of our common stock on the date he or she is first
elected or named a director. On the day of each annual meeting of stockholders,
each independent director who served during the prior year will be awarded an
option to purchase 4,000 shares of our common stock (pro-rated if the director
did not serve for the entire preceding year). There are 100,000 shares of common
stock reserved under this plan. As of June 6, 2000, no options were outstanding
under the plan.
48
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 25, 2000, without adjustment for the proposed distribution of
our stock by CRL Acquisition LLC to its members, DLJ Merchant Banking Partners
II, L.P. and related investors beneficially owned 19,027,872 shares, or 88.5% of
our common stock before the offering and 56.0% after the offering. The following
table shows information regarding the beneficial ownership of our common stock
as of March 25, 2000 and as adjusted to reflect the sale of the shares offered
by us in this offering and the proposed distribution by CRL Acquisition LLC to
its members:
- each person or group of affiliated persons known by us to own beneficially
more than 5% of the outstanding shares of common stock;
- each director and named executive officer; and
- all directors and executive officers as a group.
We have determined beneficial ownership in the table in accordance with the
rules of the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, we have deemed shares of common stock subject to options or warrants
held by that person that are currently exercisable or will become exercisable
within 60 days of March 25, 2000, assuming that this offering occurs in that
60-day period, to be outstanding, but we have not deemed these shares to be
outstanding for computing the percentage ownership of any other person. To our
knowledge, except as set forth in the footnotes below, each stockholder
identified in the table possesses sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by that stockholder.
Beneficial ownership percentage is based on 19,820,369 shares of our common
stock outstanding as of March 25, 2000 and 32,320,369 shares of our common stock
outstanding after completion of this offering.
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The address for each listed director and officer is c/o Charles River
Laboratories International, Inc., 251 Ballardvale Street, Wilmington, MA 01887.
[Enlarge/Download Table]
PERCENTAGE OF SHARES
OUTSTANDING
-------------------------
NUMBER OF SHARES BEFORE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING AFTER OFFERING
------------------------ ------------------ -------- --------------
DLJ Merchant Banking Partners II, L.P. and related
investors(1)......................................... 16,277,391(2) 75.0% 47.4%
Bausch & Lomb Incorporated(3).......................... 2,477,547 12.5 7.7
James C. Foster........................................ 394,212 2.0 1.2
Real H. Renaud......................................... 93,859 * *
Dennis R. Shaughnessy.................................. 84,475 * *
David P. Johst......................................... 93,859 * *
Thomas F. Ackerman..................................... 79,781 * *
Robert Cawthorn(4)..................................... -- -- --
Stephen D. Chubb....................................... 16,895 * *
Thompson Dean(4)....................................... -- -- --
Stephen C. McCluski(3)................................. 2,477,547 12.5 7.7
Reid S. Perper(4)...................................... -- -- --
Douglas E. Rogers(4)................................... -- -- --
Samuel O. Thier........................................ -- -- --
William Waltrip........................................ 16,895 * *
Henry Wendt III(4)..................................... -- -- --
Officers and directors as a group...................... 3,684,586 18.6 11.3
------------------------
* Less than 1%
(1) Consists of shares held directly or indirectly by the DLJMB Funds and the
following related investors: DLJ Merchant Banking Partners II-A, L.P.; DLJ
Investment Partners, L.P.; DLJ Offshore Partners II, C.V.; DLJ Capital
Corp.; DLJ Diversified Partners, L.P.; DLJ Diversified Partners-A, L.P.; DLJ
Millennium Partners, L.P.; DLJ Millennium Partners-A, L.P.; DLJMB Funding
II, Inc.; DLJ First ESC L.P.; DLJ EAB Partners, L.P.; DLJ ESC II, L.P., DLJ
Investment Funding, Inc., Sprout Capital VIII, L.P. and Sprout Venture
Capital, L.P. See "Certain Relationships and Related Party Transactions."
The address of each of these investors is 277 Park Avenue, New York, New
York 10172, except the address of Offshore Partners is John B. Gorsiraweg
14, Willemstad, Curacao, Netherlands Antilles.
(2) Includes 1,685,050 shares underlying currently exercisable warrants.
(3) Represents shares beneficially owned by B&L through a wholly owned
subsidiary. Mr. McCluski is Senior Vice President and Chief Financial
Officer of Bausch & Lomb Incorporated.
(4) Messrs. Cawthorn, Dean, Perper, Rogers and Wendt are officers of DLJ
Merchant Banking, Inc., an affiliate of the DLJMB Funds. Shares shown for
Messrs. Cawthorn, Dean, Perper, Rogers and Wendt exclude shares shown as
held by the DLJMB Funds, as to which they disclaim beneficial ownership. The
address of each of these investors is 277 Park Avenue, New York, New York
10172.
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RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES
FINANCIAL ADVISORY FEES AND AGREEMENTS
Donaldson, Lufkin & Jenrette Securities Corporation (or DLJ Securities
Corporation), an affiliate of the DLJMB Funds, received customary fees and
expense reimbursement for its services as financial advisor for the
recapitalization and as the initial purchaser of the units. DLJ Capital Funding,
an affiliate of the DLJMB Funds, received customary fees and reimbursement of
expenses in connection with the arrangement and syndication of our credit
facility and as a lender under the facility. The aggregate amount of all fees
paid to the DLJ entities in connection with the recapitalization and the related
financing was approximately $13.2 million plus out-of-pocket expenses. In
addition, we are offering to pay a fee to the lenders under our existing credit
facility, including DLJ Capital Funding, in connection with the consents we are
seeking to permit this offering and the planned application of proceeds. In the
event we are unsuccessful in obtaining such consents, we intend to refinance our
existing credit facility and have an irrevocable commitment from DLJ Capital
Funding, Inc. to provide us with a new credit facility. The aggregate fees
payable to DLJ Capital Funding in connection with such consent and commitment
are approximately $1.1 million. DLJ Securities Corporation is acting as a
managing underwriter in this offering and will receive the fees and expense
reimbursement described under "Underwriting" for its services.
Under the investors' agreement described below, for a period of five years
from the date of the investors' agreement, we have agreed to engage DLJ
Securities Corporation or its affiliates as our exclusive financial and
investment banking advisor. We expect that DLJ Securities Corporation or such
affiliate will receive customary fees for such services rendered and will be
entitled to reimbursement for all reasonable disbursements and out-of-pocket
expenses incurred in connection with any such engagement. We expect that any
such arrangement will include provisions for the indemnification of DLJ
Securities Corporation against some liabilities, including liabilities under the
federal securities laws.
CRL ACQUISITION LLC
Effective June 21, 2000, our current stockholders, including CRL Acquisition
LLC, transferred all of their shares to us in exchange for newly issued shares
of our common stock. Each old share was exchanged for 1.927 new shares. In
connection with the offering, CRL Acquisition LLC is expected to distribute a
substantial portion of these shares to its limited liability company unit
holders.
INVESTORS' AGREEMENT
Our company, CRL Acquisition LLC, CRL Holdings, Inc. (a subsidiary of B&L),
management and other of our investors are parties to an investors' agreement
entered into in connection with the recapitalization and amended on June 20,
2000. The investors' agreement provides, among other things, that any person
acquiring shares of our common stock who is required by the investors' agreement
or by any other agreement or plan of our company to become a party to the
investors' agreement will execute an agreement to be bound by the investors'
agreement.
The terms of the investors' agreement restrict transfers of the shares of
our common stock by CRL Holdings Inc., management and some other investors and
some future shareholders. The agreement provides for, among other things:
- the ability of some shareholders to participate in particular sales of our
shares;
- the ability of DLJMB Funds or CRL Acquisition LLC to require the other
shareholders to sell shares of our common stock held by them in particular
circumstances if the DLJMB Funds or CRL Acquisition LLC choose to sell
shares owned by them;
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- some registration rights with respect to shares of our common stock,
including rights to indemnification against some liabilities, including
liabilities under the Securities Act; and
- pre-emptive rights of all the parties, other than CRL Acquisition LLC and
its permitted transferees, to acquire its pre-emptive portion of our
common stock in particular instances when we propose to issue common
stock.
The investors' agreement also provides that our Board of Directors will
consist of at least nine but no more than twelve members, seven of whom
(including the chairman) will be appointed by DLJ Merchant Banking Partners II,
L.P. for so long as the aggregate number of shares of our common stock held by
the DLJMB Funds is at least 10% of the initial aggregate number of shares
purchased by the DLJMB Funds in the recapitalization. The investors' agreement
also provides that B&L CRL, Inc. has the right to appoint one director and that
the chief executive officer appointed by the board will serve as a director.
TRANSACTIONS WITH OFFICERS AND DIRECTORS
In connection with the recapitalization, some of our officers purchased
units of CRL Acquisition LLC, some of whom also borrowed funds up to a maximum
aggregate amount of $1.3 million from DLJ Inc. secured by their units. James C.
Foster borrowed $300,000 and each of Real H. Renaud, Thomas F. Ackerman and
Dennis R. Shaughnessy borrowed $200,000. Two weeks after the consummation of the
recapitalization, the loans matured and were repaid. Following the repayment,
the officers borrowed the following amounts from us: Mr. Foster ($300,000),
Mr. Renaud ($150,000), Mr. Shaughnessy ($175,000) and Mr. Ackerman ($175,000).
The loans mature in ten years and interest accrues at 6.75%, the applicable
federal rate. Each loan is fully recourse to the officer. Any after-tax proceeds
from the sale of these shares and options by each officer will be used to repay
his loan until it is repaid in full. Each note accelerates upon the termination
of the borrower's employment with us for any reason.
52
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
Upon completion of this offering, the total amount of our authorized capital
stock will consist of 120,000,000 shares of common stock, $.01 par value per
share, and 20,000,000 shares of preferred stock to be issued from time to time
in one or more series, with such designations, powers, preferences, rights,
qualifications, limitations and restrictions as our board of directors may
determine. As of March 25, 2000, we had outstanding 19,820,369 shares of common
stock and no shares of preferred stock.
After giving effect to this offering, we will have 32,320,369 shares of
common stock outstanding (34,195,369 shares if the underwriters' over-allotment
option is exercised in full) and no other shares of any series of preferred
stock outstanding. As of March 25, 2000, we had outstanding options to purchase
1,726,328 shares of our common stock, of which none were currently exercisable.
The following summary of provisions of our capital stock describes all material
provisions of, but does not purport to be complete and is subject to, and
qualified in its entirety by, our restated certificate of incorporation and our
amended and restated by-laws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the provisions of
applicable law.
COMMON STOCK
The issued and outstanding shares of common stock are, and the shares of
common stock to be issued by us in connection with the offering will be, validly
issued, fully paid and nonassessable. Holders of our common stock are entitled
to share equally, share for share, if dividends are declared on our common
stock, whether payable in cash, property or our securities. The shares of common
stock are not convertible and the holders thereof have no preemptive or
subscription rights to purchase any of our securities. Upon liquidation,
dissolution or winding up of our company, the holders of common stock are
entitled to share equally, share for share, in our assets which are legally
available for distribution, after payment of all debts and other liabilities and
subject to the prior rights of any holders of any series of preferred stock then
outstanding. Each outstanding share of common stock is entitled to one vote on
all matters submitted to a vote of stockholders. There is no cumulative voting.
Except as otherwise required by law or the restated certificate, the holders of
common stock vote together as a single class on all matters submitted to a vote
of stockholders.
Our common stock has been approved for listing on the New York Stock
Exchange under the symbol "CRL."
PREFERRED STOCK
Our board of directors may, without further action by our stockholders, from
time to time, direct the issuance of shares of preferred stock in series and
may, at the time of issuance, determine the rights, preferences and limitations
of each series. Satisfaction of any dividend preferences of outstanding shares
of preferred stock would reduce the amount of funds available for the payment of
dividends on shares of common stock. Holders of shares of preferred stock may be
entitled to receive a preference payment in the event of any liquidation,
dissolution or winding-up of our company before any payment is made to the
holders of shares of common stock. In some circumstances, the issuance of shares
of preferred stock may render more difficult or tend to discourage a merger,
tender offer or proxy contest, the assumption of control by a holder of a large
block of our securities or the removal of incumbent management. Upon the
affirmative vote of a majority of the total number of directors then in office,
our board of directors, without stockholder approval, may issue shares of
preferred stock with voting and conversion rights which could adversely affect
the holders of shares of common stock.
53
We have no current intention to issue any of our unissued, authorized shares
of preferred stock. However, the issuance of any shares of preferred stock in
the future could adversely affect the rights of the holders of common stock.
WARRANTS
As of March 25, 2000, we had outstanding warrants to purchase 1,139,551
shares of common stock at an exercise price of $5.19 per share, subject to
customary antidilution adjustment. The warrants will be exercisable at any time
on or after October 21, 2001. Unless exercised, the warrants will automatically
expire at 5:00 p.m., New York City time, on October 1, 2009.
As of March 25, 2000, we also had outstanding warrants to purchase 1,831,094
shares of common stock at an exercise price of not less than $0.01 per share
subject to customary antidilution provisions (which differ in some respects from
those contained in the above warrants) and other customary terms. These warrants
will be exercisable at any time prior to 5:00 p.m., New York City time, on
April 1, 2010.
REGISTRATION RIGHTS
Pursuant to the Investors' Agreement, we granted holders of approximately
17,000,000 shares of our common stock demand registration rights to cause us to
file a registration statement under the Securities Act covering resales of their
shares. We also have granted holders of approximately 23,600,000 shares of our
common stock "piggyback" registration rights to include their shares in a
registration of securities by us, subject to the right of the managing
underwriter of the offering to exclude some or all of the shares if and to the
extent their inclusion would adversely affect the marketing of the shares being
offered by us. The DLJMB Funds are entitled to particular registration rights
related to their warrants. We have agreed to indemnify all holders whose shares
are registered pursuant to exercise of these rights against specified
liabilities, including liabilities under the Securities Act, and to pay their
expenses in connection with these registrations. All holders of registration
rights have agreed not to exercise them in connection with and during the
180 days following this offering.
PROVISIONS OF DELAWARE LAW GOVERNING BUSINESS COMBINATIONS
Following the consummation of this offering, we will be subject to the
"business combination" provisions of the Delaware General Corporation Law. In
general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless:
- the transaction is approved by the board of directors prior to the date
the "interested stockholder" obtained such status;
- upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by (a) persons who are
directors and also officers and (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to such date the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested
stockholder."
A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. In general,
an "interested stockholder" is a person who,
54
together with affiliates and associates, owns 15% or more of a corporation's
voting stock or within three years did own 15% or more of a corporation's voting
stock. The statute could prohibit or delay mergers or other takeover or change
in control attempts.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our restated certificate of incorporation limits the liability of directors
to the fullest extent permitted by the Delaware General Corporation Law. In
addition, our restated certificate of incorporation provides that we will
indemnify our directors and officers to the fullest extent permitted by such
law. We are entering into indemnification agreements with our current directors
and executive officers prior to the completion of the offering and expect to
enter into a similar agreement with any new directors or executive officers. We
expect to obtain directors' and officers' insurance prior to the completion of
this offering.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is EquiServe Trust
Company, N.A.
55
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial amount of our common stock in the public market
after this offering could adversely affect the prevailing market price of our
common stock. Furthermore, because no shares will be available for sale shortly
after this offering due to the contractual and legal restrictions on resale
described below, the sale of a substantial amount of common stock in the public
market after these restrictions lapse could adversely affect the prevailing
market price of our common stock and our ability to raise equity capital in the
future.
Upon completion of this offering, we will have outstanding an aggregate of
32,320,369 shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options and warrants. Of
these shares, all of the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless the
shares are purchased by "affiliates" as that term is defined in Rule 144 under
the Securities Act. Any shares purchased by an affiliate may not be resold
except pursuant to an effective registration statement or an applicable
exemption from registration, including an exemption under Rule 144 of the
Securities Act. The remaining shares of common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act. These restricted securities may be sold in the public
market only if they are registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 under the Securities Act. These rules
are summarized below.
In connection with this offering, persons who will own an aggregate of
19,820,369 shares of our common stock after this offering, have agreed with the
underwriters that, subject to exceptions, they will not sell or dispose of any
of their shares for 180 days after the date of this prospectus. Donaldson,
Lufkin & Jenrette Securities Corporation may, in its sole discretion and at any
time without notice, release all or any portion of the shares subject to such
restrictions. The shares of common stock outstanding upon closing of this
offering will be available for sale in the public market as follows:
[Download Table]
APPROXIMATE
NUMBER OF SHARES DESCRIPTION
---------------- -----------
12,500,000 After the date of this prospectus, freely tradable shares
sold in this offering.
19,820,369 After 180 days from the date of this prospectus, the lock-up
period will expire and these shares will be saleable under
Rule 144 (subject, in some cases, to volume limitations).
LOCK-UP AGREEMENTS
We, our executive officers, directors, all of our existing stockholders and
optionholders have agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of our common stock for a period of 180 days after the
date of this prospectus without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation, except, in the case of our company,
for the shares of common stock to be issued in connection with the offering or
pursuant to employee benefit plans existing on the date of this prospectus or
sales or dispositions to our company, permitted transfers to related parties
that agree to be bound by the foregoing restrictions, and permitted sales of
shares acquired in the open market following the completion of the offering.
RULE 144
In general, under Rule 144 as currently in effect, beginning ninety
(90) days after the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year from the later of the date
whose shares of common stock were acquired from us or from an affiliate of ours
56
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding,
which will equal approximately 323,204 shares immediately after this
offering; or
- the average weekly trading volume of the common stock on the NYSE during
the four calendar weeks preceding the filing of a notice on Form 144 with
respect to the sale of any shares of common stock.
The sales of any shares of common stock under Rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information about us.
RULE 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years from the later of the date
such shares of common stock were acquired from us or from an affiliate of ours,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted pursuant to the lock-up agreements or otherwise,
those shares may be sold immediately upon the completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell those shares ninety (90) days after the effective date of this
offering in reliance on Rule 144, but without compliance with some of the
restrictions, including the holding period, contained in Rule 144.
No precise prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price of our common stock prevailing from time to time. We are unable to
estimate the number of our shares that may be sold in the public market pursuant
to Rule 144 or Rule 701 because this will depend on the market price of our
common stock, the personal circumstances of the sellers and other factors.
Nevertheless, sales of significant amounts of our common stock in the public
market could adversely affect the market price of our common stock.
STOCK PLANS
We intend to file a registration statement under the Securities Act covering
3,073,384 shares of common stock reserved for issuance under our 2000 incentive
plan, 1999 management incentive plan and 2000 directors stock plan. This
registration statement is expected to be filed as soon as practicable after the
effective date of this offering.
As of March 25, 2000, there were options to purchase 1,726,328 shares
outstanding under our 1999 management incentive plan. All of these shares will
be eligible for sale in the public market from time to time, subject to vesting
provisions, Rule 144 volume limitations applicable to our affiliates and, in the
case of some of the options, the expiration of lock-up agreements and the
investors' agreement.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS OF COMMON STOCK
The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of our common stock
by a non-U.S. holder. In general, a non-U.S. holder is:
- an individual who is a nonresident alien of the U.S.;
- a corporation or other entity taxed as a corporation organized or created
under non-U.S. law;
- an estate that is not taxable in the U.S. on its worldwide income; or
- a trust that is either not subject to primary supervision over its
administration by a U.S. court or not subject to the control of a U.S.
person with respect to substantial trust decisions.
If a partnership holds common stock, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner of a partnership holding common stock, we
suggest that you consult your tax advisor.
If you are an individual, you may, in many cases, be deemed to be a resident
alien, as opposed to a nonresident alien, by virtue of being present in the
United States for at least 31 days in the calendar year and for an aggregate of
at least 183 days during a three-year period ending in the current calendar year
(counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to U.S. federal income tax as if they were U. S. citizens.
This discussion is based on the Internal Revenue Code of 1986, as amended,
or Code, and administrative interpretations of the Code as of the date of this
prospectus, all of which are subject to change, including changes with
retroactive effect.
This discussion does not address all aspects of U.S. federal taxation, and
in particular is limited in the ways that follow:
- the discussion assumes that you hold your common stock as a capital asset
(that is, for investment purposes), and that you do not have a special tax
status.
- the discussion does not consider tax consequences that depend upon your
particular tax situation in addition to your ownership of the common
stock.
- the discussion does not consider special tax provisions that may be
applicable to you if you have relinquished U.S. citizenship or residence.
- the discussion is based on current law. Changes in the law may change the
tax treatment of the common stock, possibly on a retroactive basis.
- the discussion does not cover state, local or foreign law, and
- we have not requested a ruling from the Internal Revenue Service ("IRS")
on the tax consequences of owning the common stock. As a result, the IRS
could disagree with portions of this discussion.
Each prospective purchaser of common stock is advised to consult a tax
advisor with respect to current and possible future tax consequences of
purchasing, owning and disposing of our common stock as well as any tax
consequences that may arise under the laws of any United States state,
municipality or other taxing jurisdiction.
DISTRIBUTIONS
Distributions paid on the shares of common stock generally will constitute
dividends for U.S. federal income tax purposes to the extent paid from our
current or accumulated earnings and profits,
58
as determined under U.S. federal income tax principles. To the extent that the
amount of any distributions exceeds our current or accumulated earnings and
profits for a taxable year, the distribution first will be treated as a tax-free
return of your basis in the shares of common stock, causing a reduction in the
adjusted basis of the common stock, and the balance in excess of adjusted basis
will be taxed as capital gain recognized on a disposition of the common stock
(as discussed below).
Subject to the discussion below, dividends paid to a non-U.S. holder of
common stock generally will be subject to withholding tax at a 30% rate or a
reduced rate specified by an applicable income tax treaty. Under current U.S.
Treasury regulations, for purposes of withholding and of determining the
applicability of a tax treaty rate, dividends paid before January 1, 2001, to an
address outside the United States are presumed to be paid to a resident of the
country of address, unless the payor has knowledge to the contrary. However,
U.S. Treasury regulations applicable to dividends paid after December 31, 2000,
eliminate this presumption, subject to certain transition rules.
For dividends paid after December 31, 2000, unless non-U.S. holders comply
with certain IRS certification or documentary evidence procedures, they
generally will be subject to U.S. backup withholding tax at a 31% rate under the
backup withholding rules described below, rather than at the 30% or reduced tax
treaty rate. The certification requirement may be fulfilled by providing IRS
Form W-8BEN or W-8ECI. You should consult your own tax advisor concerning the
effect, if any, of the rules affecting post-December 31, 2000 dividends on your
possible investment in common stock.
The withholding tax does not apply to dividends paid to a non-U.S. holder
that provides a Form 4224 or, after December 31, 2000, a Form W-8ECI, certifying
that the dividends are effectively connected with the non-U.S. holder's conduct
of a trade or business within the United States. Instead, the effectively
connected dividends generally will be subject to regular U.S. income tax as if
the non-U.S. holders were a U.S. resident. If the non-U.S. holder is eligible
for the benefits of a tax treaty between the U.S. and the holder's country of
residence, any effectively connected income will be subject to U.S. federal
income tax only if it is attributable to a permanent establishment in the U.S.
maintained by the holder. A non-U.S. corporation receiving effectively connected
dividends also may be subject to an additional "branch profits tax" imposed at a
rate of 30% (or a lower treaty rate) on an earnings amount that is net of the
regular tax.
You may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund along with the required information with the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
on gain realized on a sale or other disposition of common stock unless:
- the gain is effectively connected with the trade or business of the
non-U.S. holder in the United States and, if certain tax treaties apply,
is attributable to a permanent establishment in the U.S. maintained by
such holder;
- in the case of certain non-U.S. holders who are non-resident alien
individuals and hold the common stock as a capital asset, the individuals
are present in the United States for 183 or more days in the taxable year
of the disposition and certain conditions are met; or
- we are or have been a U.S. real property holding corporation at any time
within the five-year period preceding the disposition or during the
non-U.S. holder's holding period, whichever period is shorter.
The tax relating to stock in a U.S. real property holding corporation does
not apply to a non-U.S. holder whose holdings, actual and constructive, at all
times during the applicable period, amount to 5% or less of the common stock of
a U.S. real property holding corporation, provided that the common
59
stock is regularly traded on an established securities market. Generally, a
corporation is a U.S. real property holding corporation if the fair market value
of its U.S. real property interests, as defined in the code and applicable
regulations, equals or exceeds 50% of the aggregate fair market value of its
worldwide real property interests and its other assets used or held for use in a
trade or business. We may be, or may prior to a non-U.S. holder's disposition of
common stock become, a U.S. real property holding corporation.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
We must report annually to the IRS the amount of dividends paid, the name
and address of the recipient, and the amount of any tax withheld. A similar
report is sent to the non-U.S. holder. Under tax treaties or other agreements,
the IRS may make its reports available to tax authorities in the recipient's
country of residence. Dividends paid on or before December 31, 2000, at an
address outside the United States are not subject to backup withholding, unless
the payor has knowledge that the payee is a U.S. person. However, a non-U.S.
holder will be required to certify its non-U.S. status in order to avoid backup
withholding at a 31% rate on dividends paid after December 31, 2000, or
dividends paid on or before that date at an address inside the United States.
U.S. information reporting and backup withholding generally will not apply
to a payment of proceeds of a disposition of common stock where the transaction
is effected outside the United States through a non-U.S. office of a non-U.S.
broker.
However, information reporting requirements, but not backup withholding,
generally will apply to such a payment if the broker is:
- a U.S. person;
- a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the U.S.;
- a controlled foreign corporation as defined in the Code; or
- a foreign partnership with certain U.S. connections (for payments made
after December 31, 2000).
Information reporting requirements will not apply in the above cases if the
broker has documentary evidence in its records that the holder is a non-U.S.
holder and certain conditions are met or the holder otherwise establishes an
exemption.
A non-U.S. holder will be required to certify its non-U.S. status, in order
to avoid information reporting and backup withholding at a 31% rate on
disposition proceeds, where the transaction is effected by or through a U.S.
office of a broker.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. When withholding results in an overpayment of taxes, a refund may be
obtained if the required information is furnished to the IRS.
FEDERAL ESTATE TAX
An individual non-U.S. holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the common stock will be required
to include the value of the stock in his gross estate for U.S. federal estate
tax purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.
THE FOREGOING DISCUSSION IS ONLY A SUMMARY OF CERTAIN U.S. FEDERAL INCOME
AND ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION OF
COMMON STOCK BY NON-U.S. HOLDERS. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR
WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF OWNERSHIP AND
DISPOSITION OF COMMON STOCK, INCLUDING THE EFFECT OF ANY STATE, LOCAL, FOREIGN
OR OTHER TAX LAWS, AND ANY APPLICABLE INCOME OR ESTATE TAX TREATIES.
60
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement dated
, 2000, the underwriters named below, who are represented by Donaldson,
Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc., ING Barings LLC,
SG Cowen Securities Corporation, U.S. Bancorp Piper Jaffray Inc. and
DLJDIRECT Inc. (the "Representatives"), have severally agreed to purchase from
us the respective number of shares of common stock set forth opposite their
names below at the initial public offering price less the underwriting fees set
forth on the cover page of this prospectus.
[Download Table]
UNDERWRITERS: NUMBER OF SHARES
------------- ----------------
Donaldson, Lufkin & Jenrette Securities Corporation.........
Lehman Brothers Inc.........................................
ING Barings LLC.............................................
SG Cowen Securities Corporation.............................
U.S. Bancorp Piper Jaffray Inc..............................
DLJDIRECT Inc...............................................
----------
Total....................................................... 12,500,000
==========
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to other
specified conditions. The underwriters are obligated to purchase and accept
delivery of all the shares (other than those shares covered by the
over-allotment option described below) if they purchase any of the shares.
The underwriters initially propose to offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow,
and such dealers may re-allow, a concession not in excess of $ per
share on sales to other dealers. After the initial offering of the shares to the
public, the Representatives may change the public offering price and such
concessions at any time without notice.
We have granted the underwriters an option, exercisable for 30 days from the
date of this prospectus, to purchase, from time to time, in whole or in part, up
to 1,875,000 additional shares at the public offering price less the
underwriting fees. The underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the underwriters exercise such option, each underwriter will become
obligated, subject to specified conditions, to purchase a number of additional
shares approximately proportionate to such underwriter's initial purchase
commitment.
The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.
[Download Table]
NO EXERCISE FULL EXERCISE
----------- -------------
Per Share............................................ $ $
Total................................................ $ $
We have agreed to indemnify the underwriters against specified civil
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments that the underwriters may be required to make in respect
of any of those liabilities.
The underwriters have reserved for sale, at the initial public offering
price, 625,000 shares of the common stock for employees, directors, customers,
suppliers and other persons associated with us who
61
have expressed an interest in purchasing such shares of common stock in this
offering. The number of shares of common stock available for sale to the general
public in this offering will be reduced to the extent such persons purchase the
reserved shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the other shares offered
hereby.
We estimate that expenses of the offering will total $1.5 million.
We, our shareholders and our executive officers and directors who are
holders of our common stock have agreed that, subject to some exceptions for a
period of 180 days from the date of this prospectus, we will not, without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock;
- purchase any option or contract to sell any shares of common stock or any
securities convertible into or exercisable or exchangeable for common
stock;
- grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common
stock; or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock or any securities convertible into or exercisable or exchangeable
for common stock (regardless of whether any of the transactions described
above is to be settled by the delivery of common stock, or such other
securities, in cash or otherwise).
However, during this period we may grant stock awards under the 1999
management incentive plan, 2000 incentive plan and 2000 directors stock option
plan and we may also issue shares of common stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date hereof. In
addition, during such period, we also have agreed not to file any registration
statement other than registration statements on Form S-8 to register shares of
common stock issuable in connection with awards under the 1999 management
incentive plan, 2000 incentive plan and 2000 directors stock option plan with
respect to, and each of our executive officers and directors and several of our
shareholders have agreed not to make any demand for, or exercise any right with
respect to, the registration of any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
Our common stock has been approved for listing on the New York Stock
Exchange under the symbol "CRL." In order to meet the requirements for listing
the common stock on the NYSE, the underwriters have undertaken to sell lots of
100 or more shares to a minimum of 2,000 beneficial owners.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction where action for that purpose is
required. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisement in connection with the offer and sale of any such shares be
distributed or published in regulations of such jurisdiction. Persons who
receive this prospectus are advised to inform themselves about and to observe
any restrictions relating to this offering and the distribution of this
prospectus. This prospectus is not an offer to sell or a solicitation of an
offer to buy any shares of common stock included in this offering in any
jurisdiction where that would not be permitted or legal.
62
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot this offering,
thereby creating a syndicate short position. In addition, the underwriters may
bid for and purchase shares of common stock in the open market to cover such
syndicate short position or to stabilize the price of the common stock. The
activities may stabilize or maintain the market price above independent market
levels. The underwriters are not required to engage in these activities, and may
end any of these activities at any time.
DLJ Capital Funding (an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation) acted as sole lead arranger and syndication agent under our credit
facility and has received fees pursuant to the credit facility customary to
performing such services. DLJ Capital Funding will also receive fees in
connection with the consents we are seeking under this facility in connection
with this offering and for providing a commitment to refinance this facility
with a new facility.
The DLJ Merchant Banking Partners II, L.P. and certain of its affiliated
funds and entities, including the Sprout Group and DLJ Investment Partners,
L.P., all of which are affiliates of Donaldson, Lufkin & Jenrette Securities
Corporation, control us through their ownership of our securities. See "Security
Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Party Transactions."
As stated above, affiliates of Donaldson, Lufkin & Jenrette Securities
Corporation, control our company through their security ownership. Under the
provisions of Rule 2720 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("Rule 2720"), when an NASD member such as Donaldson,
Lufkin & Jenrette Securities Corporation distributes securities of a company in
which it owns 10% or more of the company's outstanding voting securities, the
public offering price of the securities can be no higher than that recommended
by the "qualified independent underwriter," as such term is defined in
Rule 2720. In accordance with such requirements, Lehman Brothers Inc. has agreed
to serve as a "qualified independent underwriter" and will conduct due diligence
and recommend a maximum price for the shares.
LEGAL MATTERS
The validity of the shares of our common stock offered hereby will be passed
upon for us by Ropes & Gray, Boston, Massachusetts. Certain legal matters will
be passed upon for the underwriters by Davis Polk & Wardwell, New York, New
York. Davis Polk & Wardwell has also represented us from time to time.
EXPERTS
The consolidated financial statements of Charles River Laboratories
International, Inc. as of December 25, 1999 and December 26, 1998 and for each
of the three years in the period ended December 25, 1999 included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on authority of said
firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus does not contain all the information included in the
registration statement and the related exhibits and schedules. You will find
additional information about us and our common stock in the registration
statement. The registration statement and the related exhibits and schedules may
be inspected and copied at the public reference facilities maintained by the SEC
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the public reference facilities of the SEC's Regional Offices: New York
Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048;
and Chicago Regional
63
Office, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of this material may also be obtained from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. You can obtain information on the operation of the public reference
facilities by calling 1-800-SEC-0330. The SEC also maintains a site on the World
Wide Web (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, including us, that file
electronically with the SEC. Statements made in this prospectus about legal
documents may not necessarily be complete and you should read the documents
which are filed as exhibits or schedules to the registration statement or
otherwise filed with the SEC.
64
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
[Download Table]
PAGE
--------
Introduction to Unaudited Pro Forma Condensed Consolidated
Financial Data............................................ P-2
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. AND
SUBSIDIARIES
Unaudited Pro Forma as Adjusted Condensed Consolidated
Balance Sheet as of March 25, 2000........................ P-4
Notes to Unaudited Pro Forma as Adjusted Condensed
Consolidated Balance Sheet as of March 25, 2000........... P-5
Unaudited Pro Forma Condensed Consolidated Statement of
Income for the Year Ended December 25, 1999............... P-7
Unaudited Pro Forma as Adjusted Condensed Consolidated
Statement of Income for the Year Ended December 25,
1999...................................................... P-8
Notes to Unaudited Pro Forma and Pro Forma as Adjusted
Condensed Consolidated Statement of Income for the Year
Ended December 25, 1999................................... P-9
Unaudited Pro Forma as Adjusted Condensed Consolidated
Statement of Income for the Three Months Ended March 25,
2000...................................................... P-11
Notes to Unaudited Pro Forma as Adjusted Condensed
Consolidated Statement of Income for the Three Months
Ended March 25, 2000...................................... P-12
P-1
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL DATA
On September 29, 1999, the Company consummated the recapitalization. Prior
to the consummation of the recapitalization, Charles River Laboratories, Inc.
("CRLI") became a wholly owned subsidiary of Charles River Laboratories
International, Inc. Charles River Laboratories International, Inc. has no
operations other than those related to CRLI. The aggregate consideration for the
recapitalization consisted of $400.0 million in cash and a subordinated discount
note for $43.0 million issued to the subsidiaries of B&L. Subsidiaries of B&L
retained equity with a fair market value of $13.2 million. The $400.0 million
cash consideration was raised through the following:
- $92.4 million cash equity investment by the DLJMB Funds, management and
certain other investors;
- $37.6 million senior discount debentures with warrants issued to the DLJMB
Funds and other investors;
- $162.0 million senior secured credit facilities; and
- a portion of the net proceeds of the $150 million unit offering consisting
of senior subordinated notes ($147.9 million) and warrants
($2.1 million).
Upon the consummation of the recapitalization, the DLJMB Funds, management
and certain other investors owned 87.5% of our outstanding capital stock and B&L
owned 12.5%. The recapitalization has been accounted for as a leveraged
recapitalization, which had no impact on the historical basis of our, or our
subsidiaries', assets and liabilities.
Simultaneously with the recapitalization, we acquired SBI Holdings, Inc.
("Sierra") pursuant to a stock purchase agreement for an initial purchase price
of $23.3 million, of which approximately $6.0 million was used to repay Sierra's
existing debt, which we funded with available cash and a portion of the net
proceeds from the indebtedness described above. In addition, we have agreed to
pay (a) up to $2.0 million in contingent consideration if certain financial
objectives are reached by December 31, 2000, (b) up to $10.0 million in
performance-based bonus payments if certain financial objectives are reached
over the next five years, and (c) $3.0 million in retention and non-competition
payments contingent upon the continuing employment of certain key scientific and
managerial personnel through June 30, 2001. The recapitalization and the Sierra
acquisition were consummated concurrently.
As of February 28, 2000, the Company acquired an additional 16% of the
equity (340,840 common shares) of its 50% equity joint venture company, Charles
River Japan, Inc. ("Charles River Japan") from Ajinomoto Co., Inc. The purchase
price for the equity was 1.4 billion yen, or $12.8 million. One billion yen, or
$9.2 million, was paid at closing, and the balance of 400 million yen, or
$3.7 million, was deferred pursuant to a three-year balloon promissory note
secured by a pledge of the 16% interest. The note bears interest at the
long-term prime rate in Japan. Effective with the acquisition of this additional
interest, the Company will have control of and will consolidate the operations
of Charles River Japan, from the effective date of the incremental acquisition.
During January 2000, the Company sold a product line in its research model
business segment. The selling price of $7.0 million approximated the net book
value at the time of the sale. Fiscal 1999 sales associated with this product
line approximated $2.8 million. In addition, at the time of the sale, the
Company had approximately $0.9 million of deferred revenue which related to cash
payments received in advance of shipping the research models.
The following unaudited pro forma as adjusted condensed consolidated
financial data of the Company is based upon historical consolidated financial
statements of the Company as adjusted to give effect to the impact of the
transactions described above and the sale of 12,500,000 shares in this offering
at an assumed initial public offering price of $16.00 per share, the net
proceeds of which will
P-2
be used to repay certain outstanding indebtedness including a portion of the
senior subordinated notes. The unaudited pro forma condensed consolidated
balance sheet as of March 25, 2000 gives effect to the offering, assuming that
this had occurred on March 25, 2000. The unaudited pro forma condensed
consolidated statement of income for the year ended December 25, 1999, gives
effect to the recapitalization, the acquisition of Sierra, the acquisition of an
additional 16% of the equity of Charles River Japan, the sale of the product
line and the offering, as if these transactions had occurred at the beginning of
the period presented. The unaudited pro forma condensed consolidated statement
of income for the three months ended March 25, 2000 gives effect to the
acquisition of Charles River Japan and this offering, as if these transactions
had occurred at the beginning of the period presented.
The consummation of this offering and the planned application of the
proceeds would constitute an event of default under our existing credit
facility. We are currently seeking consents from the lenders under this facility
to permit the offering and planned application of proceeds and believe we will
be successful in obtaining such consents. In the event we are unsuccessful in
obtaining such consents, we intend to refinance this facility and have an
irrevocable commitment from DLJ Capital Funding, Inc. (an affiliate of
Donaldson, Lufkin & Jenrette Securities Corporation, one of the joint lead
managers of this offering) to provide us with a new credit facility on
substantially the same terms as our existing credit facility, except that the
new facility would permit the offering and planned application of proceeds. If
we refinance our existing credit facility, we will write-off approximately
$8.487 million of deferred financing fees relating to our existing credit
facility. The write-off of deferred financing fees would reduce pro forma as
adjusted shareholders' equity to $53.572 million.
The pro forma adjustments are based on estimates, available information and
assumptions and may be revised as additional information becomes available. The
unaudited pro forma condensed consolidated financial data do not purport to
represent what the Company's combined results of operations or financial
position would actually have been if the above transactions and the offering had
occurred on the dates indicated and are not necessarily representative of the
Company's combined results of operations for any future period. The unaudited
pro forma condensed consolidated balance sheet and condensed consolidated
statements of income should be read in conjunction with our consolidated
financial statements and the notes thereto, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the other
financial information appearing elsewhere in this prospectus.
P-3
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
UNAUDITED PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 25, 2000
(IN THOUSANDS)
[Enlarge/Download Table]
COMPANY OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS(A) AS ADJUSTED
---------- -------------- -----------
ASSETS
Current assets:
Cash and cash equivalents................................ $ 18,458 $ -- (b) $ 18,458
Trade receivables, net................................... 53,022 -- 53,022
Inventories, net......................................... 32,462 -- 32,462
Deferred tax asset....................................... 632 -- 632
Due from affiliates...................................... 131 -- 131
Other current assets..................................... 7,069 -- 7,069
--------- --------- ---------
Total current assets................................... 111,774 -- 111,774
Property, plant and equipment, net......................... 119,174 -- 119,174
Goodwill and other intangibles, net........................ 42,619 -- 42,619
Investments in affiliates.................................. 2,086 -- 2,086
Deferred tax assets........................................ 101,560 15,533 (c) 117,093
Deferred financing costs................................... 13,587 (3,708)(d) 9,879
Other assets............................................... 10,800 -- 10,800
--------- --------- ---------
Total assets......................................... $ 401,600 $ 11,825 $ 413,425
========= ========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt........................ $ 7,445 -- $ 7,445
Current portion of capital lease obligations............. 233 -- 233
Accounts payable......................................... 9,770 -- 9,770
Accrued compensation..................................... 10,174 -- 10,174
Accrued ESLIRP........................................... 8,482 -- 8,482
Deferred income.......................................... 6,860 -- 6,860
Accrued interest......................................... 13,416 -- 13,416
Accrued liabilities...................................... 22,206 -- 22,206
Accrued income taxes..................................... 5,334 -- 5,334
--------- --------- ---------
Total current liabilities................................ 83,920 -- 83,920
Long-term debt............................................. 389,743 (142,829)(e) 246,914
Deferred tax liability..................................... 7,336 -- 7,336
Capital lease obligations.................................. 721 -- 721
Other long-term liabilities................................ 3,706 -- 3,706
--------- --------- ---------
Total liabilities........................................ 485,426 (142,829) 342,597
--------- --------- ---------
Commitments and contingencies
Minority interests......................................... 14,149 -- 14,149
Redeemable common stock.................................... 13,198 (13,198)(f) --
Shareholder's equity
Common stock............................................. 198 125 (g) 323
Capital in excess of par value........................... 206,940 196,573 (g) 403,513
Accumulated deficit...................................... (306,715) (28,846)(h) (335,561)
Loans to officers........................................ (920) -- (920)
Accumulated other comprehensive loss..................... (10,676) -- (10,676)
--------- --------- ---------
Total shareholder's equity............................... (111,173) 167,852 56,679
--------- --------- ---------
Total liabilities and shareholder's equity............... $ 401,600 $ 11,825 $ 413,424
========= ========= =========
P-4
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA AS ADJUSTED CONDENSED
CONSOLIDATED BALANCE SHEET
AS OF MARCH 25, 2000
(a) The as adjusted condensed consolidated balance sheet as of March 25, 2000
gives effect to the sale of 12,500,000 shares in this offering at an assumed
initial public offering price of $16 per share with the net proceeds after
transaction costs of $185,000 being used to repay indebtedness of $144,329.
(b) The sources and uses of cash from the Offering are as follows:
[Download Table]
SOURCES OF FUNDS:
Proceeds from the offering.................................. $200,000
USES OF FUNDS:
Redemption of senior subordinated notes..................... (52,500)
Premium on redemption of principal amount of notes.......... (7,088)
Repayment of subordinated discount note..................... (45,826)
Repayment of senior discount debentures..................... (40,593)
Estimated premium on early extinguishment of senior discount
debentures................................................ (24,801)
Repayment of term loan A.................................... (3,179)
Repayment of term loan B.................................... (9,513)
Estimated transaction fees and expenses..................... (16,500)
--------
Net adjustments to cash................................. $ --
(c) The adjustment represents the income tax benefit related to:
(i) the estimated premium related to the senior subordinated notes to be
redeemed ($7,088) and the prepayment of the senior discount debentures
($24,801)
(ii) the write-off of the discounts associated with the portion of the
senior subordinated notes redeemed ($708) and the senior discount
debentures ($8,074)
(iii) the $3,708 write off of deferred financing costs related to the senior
subordinated notes to be redeemed, the repayment of the senior discount
debentures, and the portions of the term loan A and term loan B to be
repaid from the proceeds of the offering.
The income tax benefit of $15,533 was computed at a 35.0% effective income
tax rate.
(d) Reflects the write off of deferred financing costs of $3,759 related to the
senior subordinated notes to be redeemed, the repayment of the senior
discount debentures and the portions of the term loan A and term loan B to
be repaid from the proceeds of the offering.
(e) The adjustment represents the portion of the following indebtedness,
recorded as long term debt in the March 25, 2000 financial statements, to be
repaid from the proceeds of the offering:
(i) senior subordinated notes ($51,792)
(ii) term loan A ($3,179)
(iii) term loan B ($9,513)
(iv) subordinated discount note ($45,826)
(v) senior discount debentures ($32,519)
P-5
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA AS ADJUSTED CONDENSED
CONSOLIDATED BALANCE SHEET
AS OF MARCH 25, 2000
(f) Reflects the extinguishment, upon the initial public offering, of the put
option held by B&L with respect to its 12.5% equity investment in the
Company. Upon consummation of the offering, this stock is no longer
redeemable and has been disclosed as part of shareholders' equity (capital
in excess of par).
(g) The adjustments represent the allocation of the proceeds from the offering
of $200,000, net of estimated transaction fees and expenses of $16,500 plus
the transfer of $13,198 from redeemable common stock as described in note
(f), between common stock and capital in excess of par.
(h) The adjustment represents the extraordinary loss computed as of March 25,
2000 resulting from:
(i) the premiums related to the senior subordinated notes to be redeemed
($7,088) and the early extinguishment of the senior discount debentures
($24,801);
(ii) the $3,708 write off of deferred financing costs related to the senior
subordinated notes to be redeemed and the portion of the term loan A
and term loan B to be repaid from the proceeds of the offering;
(iii) the write off of the discounts related to the redeemed senior
subordinated notes ($708) and the senior discount debentures ($8,074).
These items are recorded net of the associated tax benefit of $15,533.
P-6
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 25, 1999
(DOLLARS IN THOUSANDS)
[Enlarge/Download Table]
CHARLES SALE OF
COMPANY RECAPITALIZATION SIERRA RIVER JAPAN, ACQUISITION PRODUCT PRO
HISTORICAL ADJUSTMENTS HISTORICAL(C) HISTORICAL(D) ADJUSTMENTS LINE(k) FORMA
---------- ---------------- ------------- ------------- ----------- -------- ----------
Net sales related to
products.................. $180,269 $ -- $ -- $41,063 $ (986)(e) $(2,830) $ 217,516
Net sales related to
services.................. 39,007 16,034 -- -- -- 55,041
-------- -------- ------ ------- ------- ------- ----------
Total net sales............. 219,276 -- 16,034 41,063 (986) (2,830) 272,557
Cost of products sold....... 108,928 -- -- 25,268 -- (2,584) 131,612
Cost of services provided... 25,664 -- 9,589 -- -- 35,253
Selling, general and
administrative expenses... 39,765 -- 5,364 8,412 (986)(e) (227) 52,328
Amortization of goodwill and
other intangibles......... 1,956 -- 192 -- 1,700 (f) -- 3,848
Restructuring charges....... -- -- -- -- -- -- --
-------- -------- ------ ------- ------- ------- ----------
Operating income............ 42,963 -- 889 7,383 (1,700) (19) 49,516
Interest income............. 536 -- -- -- -- -- 536
Other income (expense)...... 89 -- (865) -- -- (776)
Interest expense............ (12,789) (37,922) (a) (321) (95) 241 (g) -- (50,886)
(Loss)/gain from foreign
currency, net............. (136) -- -- -- -- -- (136)
-------- -------- ------ ------- ------- ------- ----------
Income before income taxes
and minority interests.... 30,663 (37,922) 568 6,423 (1,459) (19) (1,746)
Provision for income
taxes..................... 15,561 (14,191) (b) 233 2,537 (279)(h) 3,861
-------- -------- ------ ------- ------- ------- ----------
Income before minority
interests................. 15,102 (23,731) 335 3,886 (1,180) (19) (5,607)
Minority interests.......... (22) -- -- -- (1,321)(i) -- (1,343)
Earnings from unconsolidated
subsidiaries.............. 2,044 -- -- -- (1,943)(j) -- 101
-------- -------- ------ ------- ------- ------- ----------
Net income.................. $ 17,124 $(23,731) $ 335 $ 3,886 $(4,444) $ (19) $ (6,849)
======== ======== ====== ======= ======= ======= ==========
Earnings per common share
Basic................... $ 0.86
Diluted................. $ 0.86
Weighted average number of
shares outstanding
Basic................... 19,820,369
Diluted................. 19,820,369
P-7
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
UNAUDITED PRO FORMA AS ADJUSTED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 25, 1999
(DOLLARS IN THOUSANDS)
[Enlarge/Download Table]
PRO FORMA
PRO FORMA ADJUSTMENTS(L) AS ADJUSTED
--------- -------------- -----------
Net sales related to products.......................... $217,516 $ -- $ 217,516
Net sales related to services.......................... 55,041 -- 55,041
-------- ------- -----------
Total net sales........................................ 272,557 -- 272,557
Cost of products sold.................................. 131,612 -- 131,612
Cost of services provided.............................. 35,253 -- 35,253
Selling, general and administrative expenses........... 52,328 -- 52,328
Amortization of goodwill and other intangibles......... 3,848 -- 3,848
Restructuring charges.................................. -- -- --
-------- ------- -----------
Operating income....................................... 49,516 -- 49,516
Interest income........................................ 536 -- 536
Other income (expense)................................. (776) -- (776)
Interest expense....................................... (50,886) 23,573(m) (27,313)
(Loss)/gain from foreign currency, net................. (136) -- (136)
-------- ------- -----------
Income before income taxes and minority interests...... (1,746) 23,573 21,827
Provision for income taxes............................. 3,861 8,053(n) 11,914
-------- ------- -----------
Income before minority interests....................... (5,607) 15,520 9,913
Minority interests..................................... (1,343) -- (1,343)
Earnings from unconsolidated subsidiaries.............. 101 -- 101
-------- ------- -----------
Net income before extraordinary loss................... (6,849) 15,520 8,671
======== ======= ===========
Earnings per common share
Basic................................................ $ 0.27
Diluted.............................................. $ 0.25
Weighted average number of common shares outstanding
Basic................................................ 32,320,369
Diluted.............................................. 34,971,011
P-8
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 25, 1999
(a) Reflects the adjustment to unaudited pro forma consolidated interest expense
for the nine months ended September 25, 1999 as a result of the
recapitalization transaction.
The increase in interest expense can be reconciled as follows:
[Download Table]
Senior subordinated notes with warrants (1)................. $15,416
Senior discount debentures with warrants (2)................ 5,445
Subordinated discount note (3).............................. 4,623
Term loan A (4)............................................. 2,562
Term loan B (5)............................................. 8,363
Revolver (6)................................................ 229
Amortization of deferred financing costs (7)................ 1,284
-------
$37,922
=======
(1) Interest expense was calculated using an effective rate of 13.6%
(2) Interest expense was calculated using an effective rate of 18.0%
(3) Interest expense was calculated using an effective rate of 13.0%
(4) Interest expense was calculated using an effective rate of 8.5%
(5) Interest expense was calculated using an effective rate of 9.25%
(6) Represents interest expense calculated at 8.5% plus fees on the unused
portion of 0.50%
(7) Represents nine months of amortization expense
(b) Represents the income tax adjustment required to result in a pro forma
income tax provision based on: (i) the Company's historical tax provision
and (ii) the direct effects of the pro forma adjustments pertaining to the
recapitalization.
(c) Represents the historical unaudited financial results of Sierra for the nine
months ended September 25, 1999.
(d) Represents the historical unaudited financial results of Charles River Japan
for the twelve months ended December 25, 1999.
(e) Represents the elimination of inter-company balances
(f) Reflects the incremental amortization expense of the identifiable
intangibles and goodwill acquired in connection with the Sierra acquisition
based upon useful lives ranging from five to fifteen years, and the
incremental amortization of goodwill acquired in connection with the
additional equity investment in Charles River Japan based upon an estimated
useful life of fifteen years.
(g) To eliminate Sierra's historical interest expense related to debt that,
according to the terms of the Sierra stock purchase agreement, was repaid,
and to reflect additional interest expense on the acquisition of an
additional 16% of Charles River Japan.
(h) Represents the income tax adjustment required to result in a pro forma tax
provision based on: (i) Sierra's historical tax provision, (ii) Charles
River Japan's historical tax provision and (iii) the direct effects of the
pro forma adjustments pertaining to the acquisition of Sierra and an
additional 16% equity interest in Charles River Japan.
P-9
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 25, 1999
(i) Reflects minority interests of 34% for Charles River Japan.
(j) Represents the elimination of Charles River Japan's earnings from the
earnings from unconsolidated subsidiaries line due to the fact that earnings
are being consolidated into the Company's results on a pro forma basis.
(k) Represents the historical results of a product line sold subsequent to year
end. The realization of $900 of deferred income has not been reflected in
the pro forma consolidated income statement as it is a non-recurring item.
(l) The as adjusted condensed consolidated statement of income for the year
ended December 25, 1999 gives effect to the recapitalization, the Sierra
acquisition, the Charles River Japan acquisition, the product line sale, and
is further adjusted for the sale of 12,500,000 shares in this offering at an
assumed initial public offering price of $16 per share with the net proceeds
after transaction costs of $185,000 being used to repay some of the
Company's indebtedness.
(m) The reduction to interest expense reflects the savings that will be achieved
as a result of the redemption of a portion of the senior subordinated notes
and repayment of debt, along with the associated savings related to the
amortization of the deferred financing costs and the discounts on the
redeemed senior subordinated notes and the senior discount debentures.
(n) Reflects the tax effect of the interest and amortization savings described
above.
(o) The extraordinary loss which arises as a result of the offering has not been
reflected in the as adjusted condensed consolidated statement of income as
it is a non-recurring item. The extraordinary loss of $28,192 computed as if
the offering had occurred on December 27, 1998 results from:
(i) the estimated premiums related to the senior subordinated notes to be
redeemed ($7,088) and the early extinguishment of the senior discount
debentures ($22,918);
(ii) the $4,143 write off of deferred financing costs related to the senior
subordinated notes and senior discount debentures to be redeemed, and
the portions of the term loan A and term loan B to be repaid from the
proceeds of the offering;
(iii) the write off of the discounts related to the redeemed senior
subordinated notes ($745) and the senior discount debentures ($8,478).
The associated tax benefits are estimated to be $15,180.
P-10
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
UNAUDITED PRO FORMA AS ADJUSTED CONDENSED
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 25, 2000
(IN THOUSANDS)
[Enlarge/Download Table]
CHARLES RIVER
COMPANY JAPAN, INC. ACQUISITION PRO FORMA
HISTORICAL 2 MONTHS(A) ADJUSTMENTS PRO FORMA ADJUSTMENTS(H) AS ADJUSTED
----------- ------------- ----------- --------- -------------- -----------
Net sales related to
products.............. $ 50,816 $7,598 $ (196)(b) $ 58,218 $ -- $ 58,218
Net sales related to
services.............. 18,486 -- -- 18,486 -- 18,486
----------- ------ ------- -------- ------ -----------
Total net sales......... 69,302 7,598 (196) 76,704 -- 76,704
Cost of products sold... 28,993 4,120 -- 33,113 -- 33,113
Cost of services
provided.............. 12,399 -- -- 12,399 -- 12,399
Selling, general and
administrative
expenses.............. 11,813 1,409 (196)(b) 13,026 -- 13,026
Amortization of goodwill
and other
intangibles........... 865 -- 74 (c) 939 -- 939
Restructuring charges... -- -- -- -- -- --
----------- ------ ------- -------- ------ -----------
Operating income........ 15,232 2,069 (74) 17,227 -- 17,227
Interest income......... 142 -- -- 142 -- 142
Other income
(expense)............. -- -- -- -- -- --
Interest expense........ (12,664) (12) (29)(d) (12,705) 5,497(i) (7,208)
(Loss)/gain from foreign
currency, net......... (30) -- -- (30) -- (30)
----------- ------ ------- -------- ------ -----------
Income before income
taxes and minority
interests............. 2,680 2,057 (103) 4,634 5,497 10,131
Provision for income
taxes................. 2,468 879 (43)(e) 3,304 1,878(j) 5,182
----------- ------ ------- -------- ------ -----------
Income before minority
interests............. 212 1,178 (60) 1,330 3,619 4,949
Minority interests...... (217) -- (401)(f) (618) -- (618)
Earnings from
unconsolidated
subsidiaries.......... 641 -- (589)(g) 52 -- 52
----------- ------ ------- -------- ------ -----------
Net income.............. $ 636 $1,178 $(1,050) 764 3,619 4,383
=========== ====== ======= ======== ====== ===========
Earnings per share
Basic................. $ 0.03 $ 0.14
Diluted............... $ 0.03 $ 0.12
Weighted average number
of common shares
outstanding
Basic................. 19,820,369 32,320,369
Diluted............... 23,571,555 36,071,555
P-11
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA AS ADJUSTED CONDENSED
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 25, 2000
(a) Represents the historical unaudited financial results of Charles River Japan
for the two months ended February 28, 2000.
(b) Represents the elimination of inter-company balances
(c) Reflects the incremental amortization of goodwill acquired in connection
with the additional equity investment in Charles River Japan based upon an
estimated useful life of fifteen years.
(d) To reflect additional interest expense on the acquisition of an additional
16% of Charles River Japan.
(e) Represents the income tax adjustment required to result in a pro forma
income tax provision based on Charles River Japan's historical tax provision
and the direct effects of the pro forma adjustments pertaining to the
acquisition of an additional 16% of Charles River Japan.
(f) Reflects minority interests of 34% for Charles River Japan.
(g) Reflects the elimination of Charles River Japan's earnings for the two
months ended February 28, 2000 from the earnings from unconsolidated
subsidiaries line due to the fact that these earnings are being consolidated
into the Company's results on a pro forma basis.
(h) The as adjusted condensed consolidated statement of income for the three
months ended March 25, 2000 gives effect to the Charles River Japan
acquisition as if this occurred on the first day of the period, and is
further adjusted for the sale of 12,500,000 shares in this offering at an
assumed initial public offering price of $16 per share with the net proceeds
after transaction costs of $183,500 being used to repay some of the
Company's indebtedness.
(i) The reduction to interest expense reflects the savings that will be achieved
as a result of the redemption of a portion of the senior subordinated notes
and repayment of debt, along with the associated savings related to the
amortization of the deferred financing costs and the discounts on the
redeemed senior subordinated notes and the senior discount debentures.
(j) Reflects the tax effect of the interest and amortization savings described
above.
(k) The extraordinary loss which arises as a result of the offering has not been
reflected in the as adjusted condensed consolidated statement of income as
it is a non-recurring item. The extraordinary loss of $29,644 computed as if
the offering occurred on December 26, 1999 results from:
(i) the estimated premiums related to the senior subordinated notes to be
redeemed ($7,088) and the early extinguishment of the senior discount
debentures ($25,646);
(ii) the $3,870 write off of deferred financing costs related to the senior
subordinated notes and senior discount debentures to be redeemed, and
the portions of the term loan A and term loan B to be repaid from the
proceeds of the offering;
(iii) the write off of the discounts related to the redeemed senior
subordinated notes ($726) and the senior discount debentures ($8,276).
The associated tax benefits are estimated to be $15,962.
P-12
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
[Download Table]
PAGE
--------
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
Report of Independent Accountants........................... F-2
Consolidated Statements of Income for the years ended
December 27, 1997, December 26, 1998 and December 25,
1999...................................................... F-3
Consolidated Balance Sheets as of December 26, 1998 and
December 25, 1999......................................... F-4
Consolidated Statements of Cash Flows for the years ended
December 27, 1997, December 26, 1998 and December 25,
1999...................................................... F-5
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 28, 1996, December 27, 1997,
December 26, 1998 and December 25, 1999................... F-6
Notes to Consolidated Financial Statements.................. F-7
Condensed Consolidated Statements of Income for the three
months ended March 27, 1999 and March 25, 2000
(unaudited)............................................... F-29
Condensed Consolidated Balance Sheet as of March 25, 2000
(unaudited)............................................... F-30
Condensed Consolidated Statements of Cash Flows for the
three months ended March 27, 1999 and March 25, 2000
(unaudited)............................................... F-31
Notes to Condensed Consolidated Interim Financial Statements
(unaudited)............................................... F-32
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Charles River Laboratories International, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in shareholders' equity and cash
flows present fairly, in all material respects, the financial position of
Charles River Laboratories International, Inc. and its subsidiaries (the
"Company") at December 25, 1999 and December 26, 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 25, 1999, in conformity with accounting principles generally accepted
in the United States. In addition, in our opinion, the financial statement
schedules listed in the index appearing under Item 16(b) present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and the financial statement schedules are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 29, 2000, except as to exchange of shares
which is as of June 21, 2000.
F-2
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
[Enlarge/Download Table]
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25,
1997 1998 1999
------------ ------------ ------------
Net sales related to products......................... $ 156,800 $ 169,377 $ 180,269
Net sales related to services......................... 13,913 23,924 39,007
----------- ----------- -----------
Total net sales....................................... 170,713 193,301 219,276
Costs and expenses
Cost of products sold............................... 102,980 107,146 108,928
Cost of services provided........................... 8,480 15,401 25,664
Selling, general and administrative................. 30,451 34,142 39,765
Amortization of goodwill and intangibles............ 834 1,287 1,956
Restructuring charges............................... 5,892 -- --
----------- ----------- -----------
Operating income...................................... 22,076 35,325 42,963
Other income (expense)
Interest income..................................... 865 986 536
Other income........................................ -- -- 89
Interest expense.................................... (501) (421) (12,789)
Loss from foreign currency, net..................... (221) (58) (136)
----------- ----------- -----------
Income before income taxes, minority interests and
earnings from equity investments.................... 22,219 35,832 30,663
Provision for income taxes............................ 8,499 14,123 15,561
----------- ----------- -----------
Income before minority interests and earnings from
equity investments.................................. 13,720 21,709 15,102
Minority interests.................................... (10) (10) (22)
Earnings from equity investment....................... 1,630 1,679 2,044
----------- ----------- -----------
Net income............................................ $ 15,340 $ 23,378 $ 17,124
=========== =========== ===========
Earnings per common share
Basic and Diluted..................................... $ 0.77 $ 1.18 $ 0.86
Weighted average number of common shares outstanding
Basic and Diluted..................................... 19,820,369 19,820,369 19,820,369
See Notes to Consolidated Financial Statements
F-3
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
[Enlarge/Download Table]
DECEMBER 26, DECEMBER 25,
1998 1999
------------ ------------
ASSETS
Current assets
Cash and cash equivalents............................... $ 24,811 $ 15,010
Trade receivables, less allowances of $898 and $978,
respectively.......................................... 32,466 36,293
Inventories............................................. 30,731 30,534
Deferred tax asset...................................... 5,432 632
Due from affiliates..................................... 982 1,233
Other current assets.................................... 2,792 6,371
-------- ---------
Total current assets.................................. 97,214 90,073
Property, plant and equipment, net........................ 82,690 85,413
Goodwill and other intangibles, less accumulated
amortization of $5,591 and $7,220, respectively......... 17,705 36,958
Investments in affiliates................................. 18,470 21,722
Deferred tax asset........................................ 5,787 101,560
Deferred financing costs.................................. -- 14,015
Other assets.............................................. 12,388 13,315
-------- ---------
Total assets............................................ $234,254 $ 363,056
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt....................... $ 202 $ 3,290
Current portion of capital lease obligations............ 188 253
Accounts payable........................................ 11,615 9,291
Accrued compensation.................................... 9,972 10,792
Accrued ESLIRP.......................................... 7,747 8,315
Deferred income......................................... 3,419 7,643
Accrued liabilities..................................... 14,862 18,479
Accrued interest........................................ 53 8,935
Accrued income taxes.................................... 14,329 2,738
-------- ---------
Total current liabilities............................. 62,387 69,736
Long-term debt............................................ 248 381,706
Deferred tax liability.................................... 836 4,990
Capital lease obligations................................. 944 795
Other long-term liabilities............................... 1,274 2,469
-------- ---------
Total liabilities..................................... 65,689 459,696
-------- ---------
Commitments and contingencies (Note 13)
Minority interests........................................ 306 304
Redeemable common stock................................... -- 13,198
Shareholders' equity
Common stock (Note 5)................................... 1 198
Capital in excess of par value.......................... 17,836 206,940
Accumulated deficit..................................... 156,108 (307,351)
Loans to officers....................................... -- (920)
Accumulated other comprehensive loss.................... (5,686) (9,009)
-------- ---------
Total shareholders' equity............................ 168,259 (110,142)
-------- ---------
Total liabilities and shareholders' equity............ $234,254 $ 363,056
======== =========
See Notes to Consolidated Financial Statements
F-4
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
[Enlarge/Download Table]
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25,
1997 1998 1999
------------ ------------ ------------
CASH FLOWS RELATING TO OPERATING ACTIVITIES
Net income................................................ $ 15,340 $ 23,378 $ 17,124
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 9,703 10,895 12,318
Amortization of debt issuance costs and discounts....... -- -- 681
Accretion of debenture and discount note................ -- -- 2,644
Provision for doubtful accounts......................... 166 181 148
Earnings from equity investments........................ (1,630) (1,679) (2,044)
Minority interests...................................... 10 10 22
Deferred income taxes................................... (1,363) (3,133) 8,625
Stock compensation expense.............................. 84 333 124
Gain on sale of property, plant, and equipment.......... -- -- (1,441)
Property, plant and equipment write downs and
disposals............................................. 822 -- 1,803
Other non-cash items.................................... -- -- 486
Changes in assets and liabilities:
Trade receivables....................................... (2,232) (1,712) (3,333)
Inventories............................................. (1,917) (1,250) 133
Due from affiliates..................................... (462) 538 (251)
Other current assets.................................... 165 (241) (2,911)
Other assets............................................ 1,251 (4,309) (1,943)
Accounts payable........................................ 594 2,853 (2,374)
Accrued compensation.................................... 674 2,090 868
Accrued ESLIRP.......................................... 499 821 570
Deferred income......................................... 105 1,278 4,223
Accrued interest........................................ -- -- 8,930
Accrued liabilities..................................... 3,163 2,351 3,111
Accrued income taxes.................................... (500) 5,605 (11,264)
Other long-term liabilities............................. (148) (629) 1,319
-------- -------- ---------
Net cash provided by operating activities............. 24,324 37,380 37,568
-------- -------- ---------
CASH FLOWS RELATING TO INVESTING ACTIVITIES
Proceeds from sale of property, plant, and equipment.... -- -- 1,860
Dividends received from equity investments.............. 773 681 815
Capital expenditures.................................... (11,872) (11,909) (12,951)
Contingent payments for prior year acquisitions......... (640) (681) (841)
Acquisition of businesses net of cash acquired.......... (1,207) (11,121) (23,051)
-------- -------- ---------
Net cash used in investing activities................. (12,946) (23,030) (34,168)
-------- -------- ---------
CASH FLOWS RELATING TO FINANCING ACTIVITIES
Loans to officers....................................... -- -- (920)
Payments of deferred financing costs.................... -- -- (14,442)
Proceeds from long-term debt............................ 281 199 339,007
Payments on long-term debt.............................. (119) (1,247) (252)
Payments on capital lease obligations................... (346) (48) (307)
Net activity with Bausch & Lomb......................... (12,755) (6,922) (29,415)
Transaction costs....................................... -- -- (8,168)
Proceeds from issuance of warrants...................... -- -- 10,606
Proceeds from issuance of common stock.................. -- -- 92,387
Recapitalization consideration.......................... -- -- (400,000)
-------- -------- ---------
Net cash used in financing activities................. (12,939) (8,018) (11,504)
-------- -------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (181) 564 (1,697)
Net change in cash and cash equivalents..................... (1,742) 6,896 (9,801)
-------- -------- ---------
Cash and cash equivalents, beginning of year................ 19,657 17,915 24,811
-------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 17,915 $ 24,811 $ 15,010
======== ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for taxes..................................... $ 4,254 $ 4,681 $ 4,656
Cash paid for interest.................................. 287 177 538
See Notes to Consolidated Financial Statements
F-5
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
[Enlarge/Download Table]
ACCUMULATED
OTHER CAPITAL
RETAINED COMPREHENSIVE COMMON IN EXCESS LOANS TO
TOTAL EARNINGS INCOME STOCK OF PAR OFFICERS
--------- --------- ------------- -------- --------- --------
BALANCE AT DECEMBER 28, 1996......... $ 154,133 $ 137,067 $ (771) $ 1 $ 17,836 $ 0
Components of comprehensive income:
Net income....................... 15,340 15,340 -- -- -- --
Foreign currency translation..... (6,844) -- (6,844) -- -- --
Minimum pension liability
adjustment..................... (510) -- (510) -- -- --
--------- --------- ------- ---- -------- -----
Total comprehensive income..... 7,986 -- -- -- -- --
Net activity with Bausch & Lomb.... (12,755) (12,755) -- -- -- --
--------- --------- ------- ---- -------- -----
BALANCE AT DECEMBER 27, 1997......... $ 149,364 $ 139,652 $(8,125) $ 1 $ 17,836 $ 0
Components of comprehensive income:
Net income....................... 23,378 23,378 -- -- -- --
Foreign currency translation..... 2,839 -- 2,839 -- -- --
Minimum pension liability
adjustment..................... (400) -- (400) -- -- --
--------- --------- ------- ---- -------- -----
Total comprehensive income..... 25,817 -- -- -- -- --
Net activity with Bausch & Lomb.... (6,922) (6,922) -- -- -- --
--------- --------- ------- ---- -------- -----
BALANCE AT DECEMBER 26, 1998......... $ 168,259 $ 156,108 $(5,686) $ 1 $ 17,836 $ 0
Components of comprehensive income:
Net income....................... 17,124 17,124 -- -- -- --
Foreign currency translation..... (3,437) -- (3,437) -- -- --
Minimum pension liability
adjustment..................... 114 -- 114 -- -- --
--------- --------- ------- ---- -------- -----
Total comprehensive income..... 13,801 -- -- -- -- --
Net activity with Bausch & Lomb.... (29,415) (29,415) -- -- -- --
Loans to officers.................. (920) -- -- -- -- (920)
Transaction costs.................. (8,168) (8,168) -- -- -- --
Deferred tax asset................. 99,506 -- -- -- 99,506 --
Issuance of common stock........... 92,387 -- -- 102 92,285 --
Recapitalization consideration..... (443,000) (443,000) -- -- -- --
Redeemable common stock classified
outside of equity................ (13,198) -- -- -- (13,198) --
Warrants........................... 10,606 -- -- -- 10,606 --
Exchange of stock.................. -- -- -- 95 (95) --
--------- --------- ------- ---- -------- -----
BALANCE AT DECEMBER 25, 1999......... $(110,142) $(307,351) $(9,009) $198 $206,940 $(920)
========= ========= ======= ==== ======== =====
See Notes to Consolidated Financial Statements
F-6
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Subsequent to December 25, 1999, Charles River Laboratories Holdings, Inc.
changed its name to Charles River Laboratories International, Inc. The
consolidated financial statements and related notes presented herein have been
modified to reflect this name change.
Charles River Laboratories International, Inc. (together with its
subsidiaries, the "Company") is a holding company with no operations or assets
other than its ownership of 100% of the outstanding common stock of Charles
River Laboratories, Inc. For the periods presented in these consolidated
financial statements that are prior to September 29, 1999, Charles River
Laboratories International, Inc. and Charles River Laboratories, Inc. were 100%
owned by Bausch & Lomb Incorporated ("B&L"). The assets, liabilities, operations
and cash flows relating to Charles River Laboratories, Inc. and its subsidiaries
were held by B&L and certain of its affiliated entities. As more fully described
in Note 2, effective September 29, 1999, pursuant to a recapitalization
agreement all such assets, liabilities and operations were contributed to an
existing dormant subsidiary which was subsequently renamed Charles River
Laboratories, Inc. Under the terms of the recapitalization, Charles River
Laboratories, Inc. became a wholly owned subsidiary of Charles River
Laboratories International, Inc. These financial statements include all such
assets, liabilities, results of operations and cash flows on a combined basis
for all periods prior to September 29, 1999 and on a consolidated basis
thereafter.
On June 5, 2000, a 1.927 for 1 exchange of stock was approved by the Board
of Directors of the Company. This exchange of stock was effective June 21, 2000.
All earnings per common share amounts, references to common stock and
shareholders' equity amounts have been restated as if the exchange of stock had
occurred as of the earliest period presented.
DESCRIPTION OF BUSINESS
The Company is a leading provider of critical research tools and integrated
support services that enable innovative and efficient drug discovery and
development. The Company's fiscal year is the twelve month period ending the
last Saturday in December.
PRINCIPLES OF CONSOLIDATION
The financial statements include all majority-owned subsidiaries.
Intercompany accounts, transactions and profits are eliminated. Affiliated
companies over which the Company does not have the ability to exercise control
are accounted for using the equity method (Note 11).
USE OF ESTIMATES
The financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and judgments of management with consideration given to materiality.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents include time deposits and highly liquid investments with
remaining maturities at the purchase date of three months or less.
F-7
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
principally on the average cost method. Costs for primates are accumulated in
inventory until the primates are sold or declared breeders.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including improvements that significantly add
to productive capacity or extend useful life, are recorded at cost, while
maintenance and repairs are expensed as incurred. Depreciation is calculated for
financial reporting purposes using the straight-line method based on the
estimated useful lives of the assets as follows: buildings, 20 to 40 years;
machinery and equipment, 2 to 20 years; and leasehold improvements, shorter of
estimated useful life or the lease periods.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight-line basis over periods
ranging from 5 to 20 years. Intangible assets consist primarily of goodwill and
customer lists.
OTHER ASSETS
Other assets consist primarily of the cash surrender value of life insurance
policies and the net value of primate breeders. Primate breeders are amortized
over 20 years on a straight line basis. Total amortization expense for primate
breeders was $348, $323 and $300 for 1997, 1998 and 1999, respectively, and is
included in costs of products sold.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates long-lived assets and intangibles whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposal are less than its carrying amount. In such instances, the
carrying value of long-lived assets is reduced to the estimated fair value, as
determined using an appraisal or discounted cash flow analysis, as appropriate.
STOCK-BASED COMPENSATION PLANS
As permitted under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), the Company accounts for
its stock-based compensation plans using the intrinsic value method prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25).
REVENUE RECOGNITION
Revenues are recognized when products are shipped or as services are
performed. Deferred income represents cash received from customers in advance of
product shipment or performance of services.
F-8
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's significant financial instruments,
which include accounts receivable and debt, approximated their fair values at
December 26, 1998 and December 25, 1999.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(FAS 109). The asset and liability approach underlying FAS 109 requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and tax basis
of the Company's assets and liabilities.
FOREIGN CURRENCY TRANSLATION
In accordance with the Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation," the financial statements of all non-U.S.
subsidiaries are translated into U.S. dollars as follows: assets and liabilities
at year-end exchange rates; income, expenses and cash flows at average exchange
rates; and shareholders' equity at historical exchange rates. The resulting
translation adjustment is recorded as a component of accumulated other
comprehensive income in the accompanying balance sheet.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of trade receivables from customers within the
pharmaceutical and biomedical industries. As these industries have experienced
significant growth and its customers are predominantly well-established and
viable, the Company believes its exposure to credit risk to be minimal.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," (FAS 130) at the beginning of 1998. As it
relates to the Company, comprehensive income is defined as net income plus the
sum of currency translation adjustments and the change in minimum pension
liability (collectively, other comprehensive income), and is presented in the
Combined Statement of Changes in Shareholders' Equity.
SEGMENT REPORTING
During 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
(FAS 131), which requires financial and descriptive information about an
enterprise's reportable operating segments. Operating segments are components of
an enterprise about which separate financial information is available and
regularly evaluated by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Company operates in two
business segments, research models and biomedical products and services.
F-9
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
common share is calculated by adjusting the weighted average number of common
shares outstanding to include the number of additional common shares that would
have been outstanding if the dilutive potential common shares had been issued
(Note 4).
RECLASSIFICATIONS
Certain amounts in prior year financial statements and related notes have
been reclassified to conform with current year presentation.
2. RECAPITALIZATION AND RELATED FINANCING
On September 29, 1999 CRL Acquisition LLC, an affiliate of DLJ Merchant
Banking Partners II, L.P. and affiliated funds (the "DLJMB Funds"), consummated
a transaction in which it acquired 87.5% of the common stock of Charles River
Laboratories, Inc. from B&L for approximately $443 million. This transaction was
effected through Charles River Laboratories International, Inc. and was
accounted for as a leveraged recapitalization, which had no affect on the
historical basis of assets and liabilities. The transaction did, however, affect
the capital structure of the Company as further described below. In addition,
concurrent with the transaction, and more fully described in Note 3, the Company
purchased all of the outstanding shares of common stock of SBI Holdings, Inc.
("Sierra"), a preclinical biomedical services company, for $23.3 million.
The recapitalization transaction (the "recapitalization") and related fees
and expenses were funded as follows:
- issuance of 150,000 units, each consisting of a $1,000 principal amount of
a 13.5% senior subordinated note and one warrant to purchase 7.596 shares
of common stock of the Company;
- borrowings of $162.0 million under a senior secured credit facility;
- an equity investment of $92.4 million;
- issuance of $37.6 million senior discount debentures with warrants; and
- issuance of a $43.0 million subordinated discount note to B&L.
The Company incurred approximately $14,442 in debt issuance costs related to
these transactions. These costs have been capitalized as long-term assets and
are being amortized over the terms of the indebtedness. Amortization expense of
$426 was recorded in the accompanying combined financial statements for the year
ended December 25, 1999. In addition, the Company also incurred transaction
costs of $8,168, which were recorded as an adjustment to retained earnings.
Subsidiaries of B&L retained 12.5% of their equity investment in the Company
in the recapitalization. The Company estimated the fair value attributable to
this equity to be $13,198 which has been reclassified from additional paid in
capital to the mezzanine section of the balance sheet due to the existence of a
put option held by subsidiaries of B&L. The redemption price of the stock over
which the put option is held is the fair market value at the time of redemption.
F-10
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
RECONCILIATION OF RECAPITALIZATION TRANSACTION
The funding to consummate the recapitalization transactions was as follows:
[Download Table]
Funding:
Available cash.............................................. $ 4,886
Senior subordinated notes with warrants..................... 150,000
Senior secured credit facility.............................. 162,000
Senior discount debentures with warrants.................... 37,600
DLJMB funds, management and other investor equity........... 92,387
--------
Total cash funding........................................ 446,873
Subordinated discount note.................................. 43,000
Equity retained by subsidiaries of B&L...................... 13,198
--------
Total funding............................................. $503,071
========
Uses of funds:
Recapitalization consideration.............................. $443,000
Equity retained by subsidiaries of B&L...................... 13,198
Cash consideration for Sierra acquisition (Note 3).......... 23,343
Debt issuance costs......................................... 14,442
Transaction costs........................................... 8,168
Loans to officers........................................... 920
--------
Total uses of funds....................................... $503,071
========
SENIOR SUBORDINATED NOTES AND WARRANTS
The Company issued 150,000 units, each comprised of a $1,000 senior
subordinated note and a warrant to purchase 7.596 shares of common stock of
Charles River Laboratories International, Inc. for total proceeds of $150,000.
The Company estimated the fair value of the warrants to be $2,128 and allocated
the $150,000 offering proceeds between the senior subordinated notes ($147,872)
and the warrants ($2,128). The discount on the senior subordinated notes is
being amortized over the life of the notes and amounted to $53 in 1999. The
portion of the proceeds allocated to the warrants is reflected as capital in
excess of par in the accompanying consolidated financial statements. Each
warrant entitles the holder, subject to certain conditions, to purchase 7.596
shares of common stock of Charles River Laboratories International, Inc. at an
exercise price of $5.19 per share of common stock, subject to adjustment under
some circumstances. Upon exercise, the holders of warrants would be entitled to
purchase 1,139,551 shares of common stock of Charles River Laboratories
International, Inc. representing approximately 4.6% of the outstanding shares of
stock of Charles River Laboratories International, Inc., on a fully diluted
basis as of December 25, 1999. The warrants will be exercisable on or after
October 1, 2001 and will expire on October 1, 2009.
The senior subordinated notes will mature on October 1, 2009. The senior
subordinated notes are not redeemable prior to October 1, 2004 other than in
connection with a public offering of the common stock of Charles River
Laboratories International, Inc. Thereafter, the senior subordinated notes will
be subject to redemption at any time at the option of the issuer at redemption
prices set forth in the senior subordinated notes. Interest on the senior
subordinated notes will accrue at the rate
F-11
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
of 13.5% per annum and will be payable semi-annually in arrears on October 1 and
April 1 of each year, commencing on April 1, 2000. The payment of principal and
interest on the senior subordinated notes are subordinated in right to the prior
payment of all senior debt.
Upon the occurrence of a change in control, the Company will be obligated to
make an offer to each holder of the senior subordinated notes to repurchase all
or any part of such holder's senior subordinated notes at an offer price in cash
equal to 101% of the principal amount thereof, plus accrued and unpaid interest.
Restrictions under the senior subordinated notes include certain sales of
assets, certain payments of dividends and incurrence of debt, and limitations on
certain mergers and transactions with affiliates. The Company is also required
to maintain compliance with certain covenants with respect to the notes.
SENIOR SECURED CREDIT FACILITY
The senior secured credit facility includes a $40,000 term loan A facility,
a $120,000 term loan B facility and a $30,000 revolving credit facility. The
term loan A facility will mature on October 1, 2005, the term loan B facility
will mature on October 1, 2007, and the revolving credit facility will mature on
October 1, 2005. Interest on the term loan A and revolving credit facility will
accrue at either a base rate plus 1.75% or LIBOR plus 3.0%, at the Company's
option (9.08% at December 25, 1999). Interest on the term loan B accrues at
either a base rate plus 2.50% or LIBOR plus 3.75% (9.83% at December 25, 1999).
Interest will be paid quarterly in arrears commencing on December 30, 1999. At
December 25, 1999, the Company had $2,000 of outstanding borrowings on its
revolving credit facility. A commitment fee in an amount equal to 0.50% per
annum on the daily average unused portion of the revolving credit facility will
be paid quarterly in arrears. The credit facility requires the Company to remain
in compliance with certain financial ratios as well as other restrictive
covenants. Compliance with these ratios and covenants is not required until the
quarter ended March 25, 2000.
The Company had certain insignificant foreign borrowings outstanding at
December 25, 1999, amounting to $90.
OTHER FINANCING
The Company issued senior discount debentures with other warrants (the
"DLJMB Warrants") to the DLJMB Funds and other investors for $37,600. The
Company has estimated the fair value of the warrants to be $8,478 and allocated
the $37,600 in proceeds between the discount debentures ($29,122) and the
warrants ($8,478). The senior discount debentures accrete interest from their
original issue price of $37,600 to $82,300 on October 1, 2004. Thereafter,
interest is payable in cash. The senior discount debentures mature on April 1,
2010. The discount on the senior discount debentures is being amortized over the
life of the debentures and amounted to $202 in 1999. The senior discount
debentures contain covenants and events of default substantially similar to
those contained in the Notes. The portion of the proceeds allocated to the DLJMB
Warrants is reflected as capital in excess of par in the accompanying
consolidated financial statements. Each of the 1,831,094 DLJMB warrants will
entitle the holders thereof to purchase one share of common stock of the Company
at an exercise price of not less than $0.01 per share subject to customary
antidilution provisions and other customary terms. The DLJMB Warrants will be
exercisable at any time through April 1, 2010.
The $43,000 subordinated discount notes issued by the Company accrete at a
rate of 12% prior to October 1, 2004 and thereafter at 15% to an aggregate
principal amount of $175,300 at maturity on October 1, 2010. The subordinated
discount notes are subject to mandatory redemption upon a change
F-12
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
in control at the option of the holder and are subject to redemption at the
Company's option at any time.
As previously discussed, Charles River Laboratories International, Inc. is a
holding company with no operations or operational assets other than its
ownership of 100% of Charles River Laboratories Inc.'s outstanding common stock.
Charles River Laboratories, Inc. neither guarantees nor pledges its assets as
collateral for the senior discount debentures or the subordinated discount note,
which Charles River Laboratories International, Inc. issued. Charles River
Laboratories International, Inc. has no source of liquidity to meet its cash
requirements. As such, repayment of the obligations as outlined above will be
dependent upon either dividends from Charles River Laboratories, Inc., which are
restricted by terms contained in the indenture governing the senior subordinated
notes and the new senior secured credit facility, or through a refinancing or
equity transaction.
MINIMUM FUTURE PRINCIPAL REPAYMENTS
Minimum future principal payments of long-term debt at December 25, 1999 are
as follows:
[Download Table]
FISCAL YEAR
-----------
2000........................................................ $ 3,290
2001........................................................ 3,200
2002........................................................ 5,200
2003........................................................ 9,200
2004........................................................ 1,200
Thereafter.................................................. 362,906
--------
Total....................................................... $384,996
--------
3. BUSINESS ACQUISITIONS
The Company acquired several businesses during the three-year period ended
December 25, 1999. All acquisitions have been accounted for under the purchase
method of accounting. The results of operations of the acquired businesses are
included in the consolidated financial statements from the date of acquisition.
On September 29, 1999, the Company acquired 100% of the outstanding stock of
Sierra, a pre-clinical biomedical services company, for approximately $23,300 of
which $6,000 was used to repay
F-13
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
existing debt. The estimated fair value of assets acquired and liabilities
assumed relating to the Sierra acquisition are summarized below:
[Download Table]
ALLOCATION OF PURCHASE PRICE:
Net current assets (including cash of $292)................. $ 1,807
Property, plant and equipment............................... 5,198
Other non-current assets.................................... 254
Intangible assets:
Customer list............................................. 11,491
Work force................................................ 2,941
Other identifiable intangibles............................ 1,251
Goodwill.................................................. 852 16,535
------- -------
23,794
Less long-term liabilities assumed.......................... 451
-------
$23,343
=======
Goodwill and other intangibles related to the Sierra acquisition are being
amortized on a straight-line basis over their established lives, which range
from 5 to 15 years. As the transaction was effected through the acquisition of
the stock of Sierra, the historical tax basis of Sierra continues and a deferred
tax liability and offsetting goodwill of $4,374 has been recorded.
In conjunction with the Sierra acquisition, the Company has agreed to pay
additional consideration of up to $2,000 if Sierra achieves specified financial
targets by December 31, 2000. This additional consideration, if any, will be
recorded as additional goodwill at the time the contingency is resolved. Also,
as part of the acquisition, the Company has agreed to pay up to $10,000 in
performance-based bonus payments if specified financial objectives are reached
over the next five years. At the time these contingencies become probable, the
bonuses, if any, will be recorded as compensation expense. In addition, the
Company has entered into employment agreements with certain key scientific and
management personnel of Sierra that contain retention and non-competition
payments totaling $3,000 to be paid upon their continuing employment with the
Company at December 31, 1999 and June 30, 2001. The Company has recorded
compensation expense of $1,435 in the accompanying consolidated financial
statements relating to the first payment which was made on December 31, 1999.
The remaining $1,565 will be expensed ratably through June 30, 2001 as such
amounts are earned.
On March 30, 1998, the Company acquired 100% of the outstanding stock of
Tektagen, Inc. for $8,000 and assumed debt equal to approximately $850.
Tektagen, Inc. provides quality control testing and consulting services to the
biotechnology and pharmaceutical industries. The purchase price exceeded the
fair value of the net assets acquired by approximately $6,600, which is being
amortized on a straight line basis over 15 years. In addition, during 1998 the
Company acquired an additional biomedical service business and one research
model business; the impact of each is considered immaterial to the Company's
financial statements taken as a whole.
The following selected unaudited pro forma consolidated results of
operations are presented as if each of the acquisitions had occurred as of the
beginning of the period immediately preceding the period of acquisition after
giving effect to certain adjustments for the amortization of goodwill and
related income tax effects. The pro forma data is for informational purposes
only and does not
F-14
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
necessarily reflect the results of operations had the companies operated as one
during the period. No effect has been given for synergies, if any, that may have
been realized through the acquisitions.
[Enlarge/Download Table]
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25,
1997 1998 1999
------------ ------------ ------------
Net sales............................................... $179,513 $216,853 $235,310
Operating income........................................ 21,830 36,233 42,589
Net income.............................................. 15,018 23,451 16,796
Basic and diluted earnings per share.................... $ 0.64 $ 0.99 $ 0.71
Refer to Note 4 for the basis of determining the weighted average number of
outstanding common shares for purposes of computing the proforma earnings per
share disclosed above.
In addition, during 1997, 1998 and 1999, the Company made contingent
payments of $640 and $681, and $841 respectively, to the former owners of
acquired businesses in connection with an additional purchase price commitment.
4. EARNINGS PER SHARE
As more fully described under the BASIS OF PRESENTATION section of Note 1,
the accompanying consolidated financial statements include the combined capital
structure of Charles River Laboratories International, Inc. and Charles River
Laboratories, Inc. for the years ended December 27, 1997 and December 26, 1998
and for the period ended September 29, 1999, which was significantly different
than the capital structure of the Company after the recapitalization
transaction. Further, these historical financial statements include operations
of certain B&L entities that were contributed to Charles River
Laboratories, Inc. as part of the recapitalization and which were not
historically supported by the combined capital structure referred to above. As a
result, the presentation of historical earnings per share data determined using
the combined historical capital structure for the periods prior to
September 29, 1999, the date of the recapitalization, would not be meaningful
and has not been included herein. Rather, historical earnings per share have
been computed assuming that the shares outstanding after the recapitalization
had been outstanding for all periods presented on the basis described below.
As a result of the recapitalization more fully described in Note 2, the
DLJMB Funds, management and other investors indirectly own 87.5% of the capital
stock of the Company, and subsidiaries of B&L own the remaining 12.5%. Based
upon the amounts invested, shares outstanding of common stock in Charles River
Laboratories International, Inc. at the date of the recapitalization totaled
19,820,369. Basic earnings per share was computed by dividing earnings available
to common shareholders for each of the years in the three-year period ended
December 25, 1999 by the weighted average number of common shares outstanding in
the period subsequent to the recapitalization as if such shares had been
outstanding for the entire three-year period. Warrants to purchase 2,970,645
shares of common stock were outstanding in the period subsequent to the
recapitalization. The weighted average number of common shares outstanding in
the period subsequent to the recapitalization has not been adjusted to include
these common stock equivalents for purposes of calculating diluted earnings per
share as the warrants were issued in connection with the recapitalization
financing which are not assumed to be outstanding for purposes of computing
earnings per share.
F-15
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. SHAREHOLDERS' EQUITY
As more fully described in Note 1, the capital structure of the Company is
presented on a combined basis at December 26, 1998 and on a consolidated basis
at December 25, 1999. Common stock information at each date is as follows:
[Download Table]
DECEMBER 26, 1998
Charles River Laboratories Corp., $0.01 par value, 200,000
shares authorized,
100 shares issued and outstanding......................... $ --
----
Charles River Laboratories, Inc., $1 par value, 1,000 shares
authorized,
1000 shares issued and outstanding........................ $ 1
----
$ 1
----
DECEMBER 25, 1999
Charles River Laboratories International, Inc., $0.01 par
value, 77,079,208 shares authorized,
19,820,369 shares issued and outstanding.................. $198
====
The Company has 250,000 shares of $.01 par value Series A Redeemable
Preferred Stock and 10,000,000 shares of $.01 par value preferred stock
authorized. At December 25, 1999, no shares were issued and outstanding.
6. SUPPLEMENTAL BALANCE SHEET INFORMATION
The composition of inventories is as follows:
[Enlarge/Download Table]
DECEMBER 26, DECEMBER 25,
1998 1999
------------ ------------
Raw materials and supplies.................................. $ 4,932 $ 4,196
Work in process............................................. 1,088 1,608
Finished products........................................... 24,711 24,730
------- -------
Inventories............................................... $30,731 $30,534
======= =======
The composition of property, plant and equipment is as follows:
[Enlarge/Download Table]
DECEMBER 26, DECEMBER 25,
1998 1999
------------ ------------
Land........................................................ $ 7,783 $ 7,022
Buildings................................................... 90,919 90,730
Machinery and equipment..................................... 74,876 82,131
Leasehold improvements...................................... 3,063 4,668
Furniture and fixtures...................................... 1,532 1,826
Vehicles.................................................... 3,006 2,689
Construction in progress.................................... 6,176 4,679
-------- --------
187,355 193,745
Less accumulated depreciation............................... (104,665) (108,332)
-------- --------
Net property, plant and equipment......................... $ 82,690 $ 85,413
======== ========
Depreciation and amortization expense for the years ended 1997, 1998, and
1999 was $8,320,
$9,168, and $10,062, respectively.
F-16
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. LEASES
CAPITAL LEASES
The Company has one capital lease for a building and numerous capital leases
for equipment. These leases are capitalized using interest rates considered
appropriate at the inception of each lease. Assets under capital lease are not
significant.
Capital lease obligations amounted to $1,132 and $1,048 at December 26, 1998
and December 25, 1999, respectively, with maturities through 2003 at interest
rates ranging from 9.5% to 15.0%. Future minimum lease payments under capital
lease obligations at December 25, 1999 are as follows:
[Download Table]
2000........................................................ $ 384
2001........................................................ 312
2002........................................................ 293
2003........................................................ 475
------
Total minimum lease payments................................ 1,464
Less amount representing interest........................... (416)
------
Present value of net minimum lease payments................. $1,048
======
OPERATING LEASES
The Company has various operating leases for machinery and equipment,
automobiles, office equipment, land and office space. Rent expense for all
operating leases was $4,453 in 1999, $3,273 in 1998, and $3,111 in 1997. Future
minimum payments by year and in the aggregate, under noncancellable operating
leases with initial or remaining terms of one year or more consist of the
following at December 25, 1999:
[Download Table]
2000........................................................ $ 4,263
2001........................................................ 3,071
2002........................................................ 2,039
2003........................................................ 910
2004........................................................ 696
Thereafter.................................................. 1,928
-------
$12,907
=======
8. INCOME TAXES
In the fiscal years ended December 27, 1997 and December 26, 1998, and for
the nine-month period ended September 29, 1999, the Company was not a separate
taxable entity for federal and state income tax purposes and its income for
these periods was included in the consolidated B&L income tax returns. The
Company accounted for income taxes for these periods under the separate return
method in accordance with FAS 109. Under the terms of the recapitalization
agreement, B&L has assumed all income tax consequences associated with the
periods through September 29, 1999. Accordingly, all current and deferred income
tax attributes reflected in the Company's consolidated financial statements on
the effective date of the recapitalization will ultimately be settled by B&L. In
line with this, the
F-17
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
domestic income tax attributes have been included in the net activity with B&L
and have been charged off against retained earnings. Foreign subsidiaries are
responsible for remitting taxes in their local jurisdictions. All such payments
associated with periods prior to September 29, 1999 will ultimately be
reimbursed by B&L, and this reimbursement will be recorded as an adjustment to
additional paid in capital at the time of such reimbursement.
In addition, in connection with the recapitalization transaction, CRL
Acquisition LLC and B&L made a joint election under Internal Revenue Code
Section 338(h)(10) to treat the transaction as a purchase resulting in a step-up
in the tax basis of the underlying assets. The election resulted in the
recording of a deferred tax asset, before valuation allowance, of approximately
$105,900, representing the estimated future tax benefits associated with the
increased tax basis of its assets. In connection with the establishment of the
deferred tax asset, the Company has recorded a valuation allowance of $6,380,
primarily related to its realizability with respect to state income taxes. The
Company expects to realize the net benefit of the deferred tax asset over a
15 year period. For financial reporting purposes the benefit was treated as a
contribution to capital. The Company is in the process of finalizing the tax
purchase price allocation. Any increase or decrease in the net deferred tax
assets resulting from the final allocation of tax purchase price will be an
adjustment to additional paid-in-capital.
An analysis of the components of income before income taxes and minority
interests and the related provision for income taxes is presented below:
[Enlarge/Download Table]
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25,
1997 1998 1999
------------ ------------ ------------
INCOME BEFORE EQUITY IN EARNINGS OF FOREIGN
SUBSIDIARIES, INCOME TAXES AND MINORITY INTERESTS
U.S................................................... $13,497 $22,364 $14,608
Non-U.S............................................... 8,722 13,468 16,055
------- ------- -------
$22,219 $35,832 $30,663
======= ======= =======
INCOME TAX PROVISION
Current:
Federal............................................. $ 6,202 $ 7,730 $ 9,522
Foreign............................................. 2,528 6,171 6,035
State and local..................................... 1,397 1,833 1,895
------- ------- -------
Total current..................................... 10,127 15,734 17,452
------- ------- -------
Deferred:
Federal............................................. $(1,867) $ (597) $(2,000)
Foreign............................................. 498 (887) 53
State............................................... (259) (127) 56
------- ------- -------
Total deferred.................................... (1,628) (1,611) (1,891)
------- ------- -------
$ 8,499 $14,123 $15,561
======= ======= =======
F-18
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Deferred taxes, detailed below, recognize the impact of temporary
differences between the amounts of assets and liabilities recorded for financial
statement purposes and such amounts measured in accordance with tax laws.
[Enlarge/Download Table]
DECEMBER 26, 1998 DECEMBER 25, 1999
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
Current:
Inventories......................................... $ 827 -- $ -- $ --
Restructuring accruals.............................. 1,006 -- -- --
Employee benefits and compensation.................. 3,077 -- -- --
Other accruals...................................... 522 -- 632 --
------- ---- -------- ------
5,432 -- 632 --
------- ---- -------- ------
Non-current:
Goodwill and other intangibles...................... -- -- 104,617 4,272
Net operating loss and credit carryforwards......... 2,960 -- 2,220 --
Depreciation and amortization....................... 3,672 836 162 --
Accrued Interest.................................... -- -- 854 --
Other............................................... 921 -- 844 718
------- ---- -------- ------
7,553 836 108,697 4,990
Valuation allowance................................... (1,766) -- (7,137) --
------- ---- -------- ------
5,787 836 101,560 4,990
------- ---- -------- ------
Total deferred taxes after valuation allowance........ $11,219 $836 $102,192 $4,990
======= ==== ======== ======
As of December 25, 1999, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $4,200 expiring
between 2004 and 2019. Additionally, the Company has foreign tax credit
carryforwards of $600 expiring in 2004. The Company has increased its valuation
allowance from the $6,380 discussed above to $7,137, primarily related to the
realizability of state operating loss carryforwards, foreign tax credits, and
certain other deferred tax assets generated in the fourth quarter. The Company
has recorded the balance of the net deferred tax asset on the belief that it is
more likely than not that it will be realized. This belief is based upon a
review of all available evidence, including historical operating results,
projections of taxable income, and tax planning strategies.
F-19
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Reconciliations of the statutory U.S. federal income tax rate to effective
tax rates are as follows:
[Enlarge/Download Table]
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25,
1997 1998 1999
------------ ------------ ------------
Tax at statutory U.S. tax rate.......................... 35.0% 35.0% 35.0%
Foreign tax rate differences............................ (0.1) 1.6 7.4
Non-deductible goodwill amortization.................... 0.4 0.6 0.5
State income taxes, net of federal tax benefit.......... 3.3 3.1 3.6
Change in valuation allowance........................... -- -- 2.4
Other................................................... (0.4) (0.8) 1.8
----- ----- -----
38.2% 39.5% 50.7%
===== ===== =====
During the year ended December 25, 1999, substantially all of the
accumulated earnings of the Company's foreign subsidiaries through
September 29, 1999 were repatriated to the United States to B&L in connection
with the recapitalization transaction. Accordingly, a provision for U.S. federal
and state income taxes, net of foreign tax credits, has been provided on such
earnings in the year ended December 25, 1999. In addition, for periods
subsequent to September 29, 1999, the Company elected to treat certain foreign
subsidiaries in Germany and the United Kingdom as disregarded entities for U.S.
federal and state income tax purpose and, accordingly, is providing for U.S.
federal and state income taxes on such earnings. The Company's other foreign
subsidiaries have accumulated earnings subsequent to September 29, 1999. These
earnings are considered to be indefinitely reinvested and, accordingly, no
provision for U.S. income taxes has been provided thereon. Upon distribution of
those earnings in the form of dividends or otherwise, the Company would be
subject to both U.S. taxes and withholdings taxes payable to the various foreign
countries.
9. EMPLOYEE BENEFITS
The Company sponsors one defined contribution plan and two defined benefit
plans. The Company's defined contribution plan, the Charles River Laboratories
Employee Savings Plan, qualifies under section 401(k) of the Internal Revenue
Code. It covers substantially all U.S. employees and contains a provision
whereby the Company matches employee contributions. The costs associated with
the defined contribution plan totaled $416, $498 and $588 in 1997, 1998, and
1999, respectively.
One of the Company's sponsored defined benefit plans, the Charles River
Laboratories, Inc. Pension Plan, is a qualified, non-contributory plan that also
covers substantially all U.S. employees. Benefits are based on participants'
final average monthly compensation and years of service. Participants' rights
vest upon completion of five years of service.
Under another defined benefit plan, the Company provides some executives
with supplemental retirement benefits. This plan, the Executive Supplemental
Life Insurance Retirement Plan or ESLIRP, is generally unfunded and
non-qualified under the provisions of the Employee Retirement Income Securities
Act of 1974. The Company has, however, taken out several key person life
insurance policies with the intention of using their cash surrender value to
fund the ESLIRP Plan. At December 25, 1999, the cash surrender value of these
policies was $8,052.
F-20
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
The following table provides reconciliations of the changes in benefit
obligations, fair value of plan assets and funded status of the two defined
benefit plans.
[Download Table]
FISCAL YEAR
-------------------
1998 1999
-------- --------
RECONCILIATION OF BENEFIT OBLIGATION
Benefit/obligation at beginning of year................... $20,531 $25,112
Service cost.............................................. 795 958
Interest cost............................................. 1,588 1,738
Benefit payments.......................................... (742) (738)
Actuarial loss (gain)..................................... 2,940 (73)
------- -------
Benefit/obligation at end of year......................... $25,112 $26,997
======= =======
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at beginning of year............ $19,237 $26,493
Actual return on plan assets.............................. 7,773 24,781
Employer contributions.................................... 225 259
Benefit payments.......................................... (742) (738)
------- -------
Fair value of plan assets at end of year.................. $26,493 $50,795
======= =======
FUNDED STATUS
Funded status............................................. $ 1,381 $23,797
Unrecognized transition obligation........................ 563 423
Unrecognized prior-service cost........................... (27) (24)
Unrecognized gain......................................... (7,178) (29,108)
------- -------
Accrued benefit (cost).................................... $(5,261) $(4,912)
======= =======
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET
Accrued benefit cost...................................... $(7,849) $(7,237)
Intangible asset.......................................... 286 215
Accumulated other comprehensive income.................... 2,302 2,110
------- -------
Net amount recognized..................................... $(5,261) $(4,912)
======= =======
Key weighted-average assumptions used in the measurement of the Company's
benefit obligations are shown in the following table:
[Enlarge/Download Table]
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25,
1997 1998 1999
------------ ------------ ------------
Discount rate........................................... 7.5% 7% 7%
Expected return on plan assets.......................... 10% 10% 10%
Rate of compensation increase........................... 4.75% 4.75% 4.75%
F-21
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
The following table provides the components of net periodic benefit cost for
the two defined benefit plans for 1997, 1998 and 1999:
[Enlarge/Download Table]
FISCAL YEAR
------------------------------
1997 1998 1999
-------- -------- --------
Components of net periodic benefit cost
Service cost................................................ $ 804 $ 795 $ 958
Interest cost............................................... 1,413 1,588 1,738
Expected return on plan assets.............................. (1,717) (1,901) (2,623)
Amortization of transition obligation....................... 141 141 141
Amortization of prior-service cost.......................... (3) (3) (4)
Amortization of net gain.................................... (172) (85) (301)
------ ------ ------
Net periodic benefit cost................................... $ 466 $ 535 $ (91)
====== ====== ======
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $8,205, $7,745 and $0, as of December 26, 1998,
and $8,761, $8,315, and $0 at December 25, 1999.
The Company had an adjusted minimum pension liability of $2,302 ($1,381, net
of tax) and $2,110 ($1,266 net of tax) as of December 26, 1998 and December 25,
1999, which represented the excess of the minimum accumulated net benefit
obligation over previously recorded pension liabilities.
10. STOCK COMPENSATION PLANS
As part of the recapitalization, the equity investors in the
recapitalization transaction agreed and committed to establish a stock option
plan for the Company, for the purpose of providing significant equity incentives
to management. The 1999 Management Incentive Plan (the 'Plan') is administered
by the Company's Compensation Committee of the Board of Directors. A total of
1,784,384 shares were reserved for the exercise of option grants under the Plan.
Awards of 1,726,328 non-qualified stock options, none of which are currently
exerciseable, were ratified and granted by the Company's Compensation Committee
on December 9, 1999 effective as of September 29, 1999. Options to purchase
shares of Charles River Laboratories International, Inc. granted pursuant to the
Plan are subject to a vesting schedule based on three measures. Certain options
vest solely with the passage of time (incrementally over five years so long as
the optionee continues to be employed by the Company). The remainder of the
options vest over time but contain clauses providing for the acceleration of
vesting upon the achievement of certain performance targets or the occurrence of
certain liquidity events. All options granted expire on September 29, 2009. The
exercise price of all of the options initially granted under the Plan is $5.33,
the fair value of the underlying common stock at the time of grant.
Until September 29, 1999, employees of the Company participated in a stock
option plan sponsored by B&L. As a result of the recapitalization transaction
described in Note 2, employees participating in the B&L stock option plan
exercised all vested options and were compensated for all unvested options. The
Company recorded compensation expense of $1,300 in the fourth quarter of 1999
based upon the amount that B&L compensated these employees. The Company received
a capital contribution by B&L for this amount during the fourth quarter of 1999,
which has been recorded as part of the net activity with B&L. As management's
participation in the B&L plan was discontinued
F-22
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
10. STOCK COMPENSATION PLANS (CONTINUED)
earlier in the year, and the Company has established its own plan based on
current facts and circumstances, the historical FAS 123 disclosures relating to
the B&L plan are not considered relevant.
The Company accounts for stock-based compensation plans under the provisions
of APB 25. Under APB 25, because the exercise price of the new employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income is required by FAS 123, which
also requires that the information be determined as if the Company has accounted
for its employee stock options under the fair value method of that Statement.
For purposes of this disclosure, the fair value of the fixed option grant on
December 9, 1999 was estimated using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grants outstanding:
[Download Table]
Risk-free interest rate..................................... 6.28%
Volatility factor........................................... 45.00%
Weighted average expected life (years)...................... 6
The Black Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restricitions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
difference from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had compensation expense for the Company's portion of fixed options been
determined consistent with FAS 123, the Company's net income for the year ended
December 25, 1999 would have been reduced to the pro forma amounts indicated
below:
[Download Table]
AS REPORTED PRO FORMA
----------- ---------
Net Income.................................................. $17,124 $17,030
Earnings per share (actual dollars)......................... 0.86 0.86
11. JOINT VENTURES
The Company has investments in several joint ventures. These joint ventures
are separate legal entities whose purpose is consistent with the overall
operations of the Company and represent geographical expansions of existing
Company markets. The financial results of two of the joint ventures are
consolidated into the Company's results as the Company has the ability to
exercise control over these entities. The interests of the outside joint venture
partners in these two joint ventures has been recorded as minority interests
totaling $306 at December 26, 1998 and $304 at December 25, 1999.
The Company also has investments in two other joint ventures that are
accounted for on the equity method. Charles River Japan is a joint venture with
Ajinomoto Co., Inc. and is an extension of the Company's research model business
in Japan. Dividends received from Charles River Japan
F-23
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
11. JOINT VENTURES (CONTINUED)
amounted to $773 in 1997, $681 in 1998, and $815 in 1999. Charles River Mexico,
a joint venture which is an extension of the Company's avian (or bird) business
in Mexico, is not significant to the Company's operations.
Summarized financial statement information for the unconsolidated joint
ventures is as follows:
[Enlarge/Download Table]
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25,
1997 1998 1999
------------ ------------ ------------
CONDENSED COMBINED STATEMENTS OF INCOME
Net sales............................................. $44,744 $39,798 $44,826
Operating income...................................... 7,484 6,756 7,658
Net income............................................ 3,337 3,445 4,221
[Enlarge/Download Table]
DECEMBER 26, DECEMBER 25,
1998 1999
------------ ------------
CONDENSED COMBINED BALANCE SHEETS
Current assets............................................ $19,388 $20,486
Non-current assets........................................ 36,376 39,720
------- -------
$55,764 $60,206
======= =======
Current liabilities....................................... $13,501 $11,330
Non-current liabilities................................... 6,617 6,163
Shareholders' equity...................................... 35,646 42,713
------- -------
$55,764 $60,206
======= =======
12. RESTRUCTURING CHARGES AND ASSET IMPAIRMENTS
In April 1997, the B&L Board of Directors approved plans to restructure
portions of the Company. As a result, pre-tax restructuring charges of $5,892
were recorded in 1997. The major components of the plans are summarized in the
table below:
[Download Table]
Employee separations........................................ $3,200
Asset writedowns............................................ 2,157
Other....................................................... 535
------
$5,892
======
The overall purpose of the restructuring charges was to reduce costs and
improve profitability by closing excess capacity and eliminating associated
personnel, reducing excess corporate, administrative and professional personnel,
and exiting several small unprofitable product-lines. The restructuring actions
affected both the research model and biomedical products and services segments.
In total over 70 individuals were terminated in connection with these actions.
F-24
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
12. RESTRUCTURING CHARGES AND ASSET IMPAIRMENTS (CONTINUED)
These restructuring efforts have reduced the Company's fixed cost structure
and realigned the business to meet its strategic objectives through the closure,
relocation and combining of breeding, distribution, sales and administrative
operations, and workforce reductions. Some severance costs were being paid over
periods greater than one year. Asset writedowns relate primarily to the closing
of facilities and losses resulting from equipment dispositions. Other charges
included miscellaneous costs and other commitments.
The following table sets forth the activity in the restructuring reserves
through December 25, 1999:
[Download Table]
RESTRUCTURING PROGRAMS
----------------------
Restructuring provision................................. $ 5,892
Cash payments........................................... (1,725)
Asset write-downs....................................... (1,435)
-------
Balance, December 27, 1997............................ 2,732
Cash payments........................................... (897)
Asset write-downs....................................... (722)
-------
Balance, December 26, 1998............................ $ 1,113
Cash payments........................................... $(1,113)
-------
Balance, December 25, 1999............................ $ --
At December 25, 1999, the restructuring reserve was fully utilized.
13. COMMITMENTS AND CONTINGENCIES
INSURANCE
The Company maintains insurance for workers' compensation, auto liability,
employee medical and general liability. The per claim loss limits are $250, with
annual aggregate loss limits of $1,500. Related accruals were $2,556 and $2,813
on December 26, 1998 and December 25, 1999, respectively. Separately, the
Company has provided a letter of credit in favor of the insurance carriers in
the amount of $350.
SUPPLY AGREEMENT
The Company is currently engaged in distributing certain products under a
supply agreement. In the event certain minimum sales of $500 in 2000 and $1,000
in 2001 are not achieved, the Company at its option can pay the difference in
cash or terminate the agreement. In the event of such termination, the Company
will not be required to make any payments.
LITIGATION
Various lawsuits, claims and proceedings of a nature considered normal to
its business are pending against the Company. In the opinion of management, the
outcome of such proceedings and litigation currently pending will not materially
affect the Company's consolidated financial statements.
F-25
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is currently under a court order issued in June 1997 to remove
its large animal operations from two islands located in the Florida Keys and
refoliate the islands. The Company continues to hold discussions with the state
of Florida authorities regarding the extent of refoliation required on the
islands and believes the reserves recorded in the accompanying consolidated
financial statements are sufficient to provide for the estimated exposure in
connection with the refoliation. The Company has provided a letter of credit in
regards to the completion of the refoliation on the islands for $350.
14. RELATED PARTY TRANSACTIONS
As more fully described in Note 2, the Company completed the
recapitalization in September 1999 and became a stand-alone entity. Until the
recapitalization, the Company historically had operated autonomously from B&L.
Some costs and expenses including insurance, information technology and other
miscellaneous expenses were charged by B&L to the Company on a direct basis,
however. Management believes these charges were based upon assumptions that were
reasonable under the circumstances. These charges and estimates are not
necessarily indicative of the costs and expenses which would have resulted had
the Company incurred these costs as a separate entity. Charges of approximately
$470, $250, and $88 for these items are included in cost of products sold, cost
of services provided and selling, general and administrative expense in the
accompanying consolidated financial statements for the years ended 1997, 1998
and for the nine months ended 1999, respectively. The Company does not expect
its stand-alone costs to be significantly different from the historical costs
allocated by B&L due to the autonomy with which the Company operated.
As more fully described in Note 2, the accompanying consolidated financial
statements include a line item "net activity with Bausch and Lomb" which
comprises the above referenced intercompany allocations, net distributions made
by the Company to B&L, and settlements with B&L as a result of the
recapitalization.
On October 11, 1999 the Company loaned to certain officers $920 to purchase
stock in Charles River Laboratories International, Inc. through CRL Acquisition
LLC. These loans are full recourse and bear interest at a rate of 6.75%. The
year-end balance of $920 is classified as a reduction from Shareholders' Equity.
15. OTHER INCOME
During the third quarter of 1999, the Company recorded a gain of $1,441 on
the sale of property, plant and equipment located in Florida and the
Netherlands.
16. GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION
The Company is organized into geographic regions for management reporting
with operating income being the primary measure of regional profitability. Some
general and administrative expenses, including some centralized services
provided by regional offices, are allocated based on business segment sales. The
accounting policies used to generate geographic results are the same as the
Company's overall accounting policies.
F-26
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
16. GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION (CONTINUED)
The following table presents sales and other financial information by
geography for the years 1997, 1998 and 1999. Included in the other non-U.S.
category below are the Company's operations located in Canada, China, Germany,
Italy, Netherlands, United Kingdom, Australia, Belgium, Czech Republic, Hungary,
Spain and Sweden. Sales to unaffiliated customers represent net sales
originating in entities physically located in the identified geographic area.
Long-lived assets include property, plant and equipment, goodwill and
intangibles, other investments and other assets.
[Enlarge/Download Table]
OTHER
U.S. FRANCE NON-U.S. CONSOLIDATED
-------- -------- -------- ------------
1997
Sales to unaffiliated customers................... $100,314 $25,680 $44,719 $170,713
Long-lived assets................................. 62,236 10,146 22,108 94,490
1998
Sales to unaffiliated customers................... $115,639 $26,177 $51,485 $193,301
Long-lived assets................................. 76,289 12,751 23,743 112,783
1999
Sales to unaffiliated customers................... $137,417 $29,205 $52,654 $219,276
Long-lived assets................................. 103,261 12,234 20,191 135,686
The Company's product line segments are research models and biomedical
products and services. The following table presents sales and other financial
information by product line segment for the fiscal years 1997, 1998 and 1999.
Sales to unaffiliated customers represent net sales originating in entities
primarily engaged in either provision of research models or biomedical products
and services. Long-lived assets include property, plant and equipment, goodwill
and intangibles, other investments, and other assets.
[Enlarge/Download Table]
1997 1998 1999
-------- -------- --------
Research models
Net sales................................................. $125,214 $134,590 $142,312
Operating income.......................................... 19,583 30,517 33,663
Total assets.............................................. 157,915 180,983 268,381
Depreciation and amortization............................. 5,297 5,534 8,008
Capital expenditures...................................... 6,178 8,127 6,983
Biomedical products and services
Net sales................................................. $ 45,499 $ 58,711 $ 76,964
Operating income.......................................... 6,496 11,117 14,428
Total assets.............................................. 38,296 53,271 94,022
Depreciation and amortization............................. 4,406 5,361 4,310
Capital expenditures...................................... 5,694 3,782 5,968
F-27
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
16. GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION (CONTINUED)
A reconciliation of segment operating income to consolidated operating
income is as follows:
[Enlarge/Download Table]
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25,
1997 1998 1999
------------ ------------ ------------
Total segment operating income.......................... $26,079 $41,634 $48,091
Unallocated corporate overhead.......................... (4,003) (6,309) (5,128)
------- ------- -------
Consolidated operating income........................... $22,076 $35,325 $42,963
======= ======= =======
Total segment assets disclosed above can be reconciled to total consolidated
assets at December 25, 1999 with the addition of the $653 deferred tax asset
pertaining to accrued interest (net of valuation allowance). This deferred tax
asset is not attributable to a product line segment.
A summary of identifiable long-lived assets of each business segment at year
end is as follows:
[Enlarge/Download Table]
DECEMBER 26, DECEMBER 25,
1998 1999
------------ ------------
Research Models............................................. $ 73,190 $ 69,257
Biomedical Products and Services............................ 39,593 66,429
-------- --------
$112,783 $135,686
======== ========
17. SUBSEQUENT EVENTS (UNAUDITED)
As of February 28, 2000, the Company acquired an additional 16% of the
equity (340,840 common shares) of its 50% equity joint venture company, Charles
River Japan, from Ajinomoto Co., Inc. The purchase price for the equity was
1.4 billion yen, or $12,844. One billion yen, or $9,174, was paid at closing,
and the balance of 400 million yen, or $3,670, was deferred pursuant to a
three-year balloon promissory note secured by a pledge of the 16% shares. The
note bears interest at the long-term prime rate in Japan. Effective with the
acquisition of this additional interest, the Company will have control of and
will consolidate the operations of Charles River Japan, from the effective date
of the incremental acquisition.
On March 10, 2000, the Company announced the closure of its Shamrock import
and conditioning business in England. The Company expects the closure to be
completed during the second quarter of 2000. The actions contemplated in this
plan relate primarily to severance, property and equipment dispositions and
other miscellaneous activities directly related to the operations being shut
down. Management has met with the 16 employees subject to its severance plans
and has communicated its intended closure actions to customers. The Company does
not expect that the sales previously made by Shamrock will be significantly
affected.
During January 2000, the Company sold a product line within its research
model business segment. The selling price of $7,000 approximated the net book
value of the underlying assets at the time of the sale. In addition, the Company
had approximately $900 of deferred revenue which related to cash payments
received in advance of shipping the research models. Under the term of the sales
agreement, the Company is no longer obligated to ship research models and,
accordingly, has recorded this amount as income in the first quarter of 2000.
Fiscal 1999 sales associated with this product line approximated $2,800.
F-28
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
[Enlarge/Download Table]
THREE MONTHS ENDED
-------------------------
MARCH 27, MARCH 25,
1999 2000
----------- -----------
Net sales related to products............................... $ 45,157 $ 50,816
Net sales related to services............................... 7,123 18,486
----------- -----------
Total net sales............................................. $ 52,280 $ 69,302
Costs and Expenses
Cost of products sold..................................... 27,746 28,993
Cost of services provided................................. 4,414 12,399
Selling, general and administrative....................... 8,819 11,813
Amortization of goodwill and intangibles.................. 411 865
----------- -----------
Operating income............................................ 10,890 15,232
Other income (expense)
Interest income........................................... 225 142
Interest expense.......................................... (77) (12,664)
Loss from foreign currency, net........................... (53) (30)
----------- -----------
Income before income taxes, minority interests and earnings
from equity investments................................... 10,985 2,680
Provision for income taxes.................................. 4,526 2,468
----------- -----------
Income before minority interests and earnings from equity
investments............................................... 6,459 212
Minority interests.......................................... 7 (217)
Earnings from equity investments............................ 607 641
----------- -----------
Net income.................................................. $ 7,073 $ 636
=========== ===========
Earnings per common share
Basic..................................................... $ .36 $ .03
Diluted................................................... $ .36 $ .03
Weighted average number of common shares outstanding
Basic..................................................... 19,820,369 19,820,369
Diluted................................................... 19,820,369 23,571,555
See Notes to Consolidated Financial Statements
F-29
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
[Download Table]
MARCH 25,
2000
---------
ASSETS
Current assets
Cash and cash equivalents................................. $ 18,458
Trade receivables, less allowances of $1,031.............. 53,022
Inventories............................................... 32,462
Deferred tax asset........................................ 632
Due from affiliates....................................... 131
Other current assets...................................... 7,069
---------
Total current assets.................................. 111,774
Property, plant and equipment, net.......................... 119,174
Goodwill and other intangibles, less accumulated
amortization of $8,512.................................... 42,619
Investments in affiliates................................... 2,086
Deferred tax asset.......................................... 101,560
Deferred financing costs.................................... 13,587
Other assets................................................ 10,800
---------
Total assets.......................................... $ 401,600
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt......................... $ 7,445
Current portion of capital lease obligation............... 233
Accounts payable.......................................... 9,770
Accrued compensation...................................... 10,174
Accrued ESLIRP............................................ 8,482
Deferred income........................................... 6,860
Accrued interest.......................................... 13,416
Accrued liabilities....................................... 22,206
Accrued income taxes...................................... 5,334
---------
Total current liabilities............................. 83,920
Long-term debt.............................................. 389,743
Deferred tax liability...................................... 7,336
Capital lease obligations................................... 721
Other long-term liabilities................................. 3,706
---------
Total liabilities..................................... 485,426
---------
Commitments and contingencies (Note 3)
Minority interests.......................................... 14,149
Redeemable common stock..................................... 13,198
Shareholders' equity
Common stock.............................................. 198
Capital in excess of par value............................ 206,940
Accumulated deficit....................................... (306,715)
Loans to officers......................................... (920)
Accumulated other comprehensive loss...................... (10,676)
---------
Total shareholders' equity............................ (111,173)
---------
Total liabilities and shareholder's equity............ $ 401,600
=========
See Notes to Consolidated Financial Statements
F-30
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
[Download Table]
THREE MONTHS ENDED
---------------------
MARCH 27, MARCH 25,
1999 2000
--------- ---------
CASH FLOWS RELATING TO OPERATING ACTIVITIES
Net income................................................ $ 7,073 $ 636
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 2,927 3,764
Amortization of debt issuance costs and discounts....... -- 683
Accretion of debenture and discount note................ -- 3,161
Provision for doubtful accounts......................... (26) 82
Earnings from equity investments........................ (607) (641)
Minority interests...................................... (7) 217
Deferred income taxes................................... 1,182 (42)
Stock compensation expense.............................. 45 --
Other non-cash items.................................... 9 12
Changes in assets and liabilities
Trade receivables....................................... (3,329) (6,564)
Inventories............................................. 339 (104)
Due from affiliates..................................... 41 128
Other current assets.................................... (803) (583)
Other assets............................................ (262) (102)
Accounts payable........................................ (1,136) (2,585)
Accrued compensation.................................... (1,092) (413)
Accrued ESLIRP.......................................... 165 167
Deferred income......................................... 1,579 (782)
Accrued interest........................................ -- 4,478
Accrued liabilities..................................... (1,251) (740)
Accrued income taxes.................................... 2,687 1,243
Other long-term liabilities............................. (34) (154)
-------- -------
Net cash provided by operating activities............. $ 7,500 $ 1,861
-------- -------
CASH FLOWS RELATING TO INVESTING ACTIVITIES
Capital expenditures...................................... (1,963) (2,786)
Contingent payments for prior year acquisitions........... (251) --
Acquisition of business, net of cash acquired of $3,163... -- (6,011)
Proceeds from sale of animal colony....................... -- 7,000
-------- -------
Net cash used in investing activities................. $ (2,214) $(1,797)
-------- -------
CASH FLOWS RELATING TO FINANCING ACTIVITIES
Proceeds from long-term debt.............................. 1,093 4,114
Payments on long-term debt................................ 71 (300)
Payments on capital lease obligations..................... (1,132) (93)
Net activity with Bausch & Lomb........................... (12,906) --
-------- -------
Net cash provided by (used) in financing activities... $(12,874) $ 3,721
-------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (1,069) (337)
-------- -------
Net change in cash and cash equivalents..................... (8,657) 3,448
Cash and cash equivalents, beginning of period.............. 24,811 15,010
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 16,154 $18,458
======== =======
SUPPLEMENTAL CASH FLOW INFORMATION..........................
Cash paid for interest.................................... $ 78 $ 4,317
Cash paid for taxes....................................... 603 980
See Notes to Consolidated Financial Statements
F-31
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The condensed consolidated interim financial statements are unaudited, and
certain information and footnote disclosure related thereto normally included in
financial statements prepared in accordance with generally accepted accounting
principles in the United States, have been omitted in accordance with
Rule 10-01 of Regulation S-X. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements were prepared following
the same policies and procedures used in the preparation of the audited
financial statements and reflect all adjustments (consisting of normal recurring
adjustments) considered necessary to present fairly the financial position of
Charles River Laboratories International, Inc. ("the Company"). The results of
operations for the interim periods are not necessarily indicative of the results
for the entire fiscal year.
On June 5, 2000, a 1.927 for 1 exchange of stock was approved by the Board
of Directors of the Company. This exchange of stock was effective June 21, 2000.
All earnings per common share amounts, references to common stock and
shareholders' equity amounts have been restated as if the exchange of stock had
occurred as of the earliest period presented.
2. SUPPLEMENTAL BALANCE SHEET INFORMATION
The composition of inventories is as follows:
[Download Table]
MARCH 25,
2000
---------
Raw materials and supplies.................................. $ 3,785
Work in process............................................. 1,386
Finished products........................................... 27,291
-------
Inventories................................................. $32,462
=======
The composition of property, plant and equipment is as follows:
[Download Table]
MARCH 25,
2000
---------
Land........................................................ $ 9,455
Buildings................................................... 144,530
Machinery and equipment..................................... 92,396
Leasehold improvements...................................... 4,924
Furniture and fixtures...................................... 1,853
Vehicles.................................................... 2,647
Construction in progress.................................... 4,417
---------
260,222
Less accumulated depreciation............................... (141,048)
---------
Net property, plant and equipment........................... $ 119,174
=========
F-32
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. COMMITMENTS AND CONTINGENCIES
INSURANCE
The Company maintains insurance for workers' compensation, auto liability,
employee medical and general liability. The per claim loss limits are $250, with
annual aggregate loss limits of $1,500. Related accruals were $2,813 and $2,798
on December 25, 1999 and March 25, 2000, respectively. Separately, the Company
has provided a letter of credit in favor of the insurance carriers in the amount
of $350.
SUPPLY AGREEMENT
The Company is currently engaged in distributing certain products under a
supply agreement. In the event certain minimum sales of $500 in 2000 and $1,000
in 2001 are not achieved, the Company at its option can pay the difference in
cash or terminate the agreement. In the event of such termination the Company
will not be required to make any payments.
LITIGATION
Various lawsuits, claims and proceedings of a nature considered normal to
its business are pending against the Company. In the opinion of management, the
outcome of such proceedings and litigation currently pending will not materially
affect the Company's condensed consolidated financial statements.
The Company is currently under a court order issued in June 1997 to remove
its large animal operations from two islands located in the Florida Keys and
refoliate the islands. The Company continues to hold discussions with the state
of Florida authorities regarding the extent of refoliation required on the
islands and believes the reserves recorded in the accompanying condensed
consolidated financial statements are sufficient to provide for the estimated
exposure in connection with the refoliation. The Company has provided a letter
of credit in regards to the completion of the refoliation on the island for
$350.
4. EARNINGS PER SHARE
As described in the notes to the condensed consolidated financial statements
as of, and for the fiscal year ended, December 25, 1999, pursuant to a
recapitalization agreement effective September 29, 1999, all of the assets,
liabilities, operations and cash flows relating to Charles River Laboratories,
Inc., were contributed to an existing dormant subsidiary which was subsequently
renamed Charles River Laboratories, Inc. Under the terms of the
recapitalization, Charles River Laboratories, Inc., became a wholly owned
subsidiary of Charles River Laboratories International, Inc. The capital
structure in place for periods prior to September 29, 1999 was significantly
different than the capital structure of the Company after the recapitalization.
The consolidated income statement for the three months ended March 27, 1999 also
includes operations of certain Bausch and Lomb (the Company's 100% shareholder
prior to the recapitalization) entities which were not historically supported by
the combined capital structure of Charles River Laboratories International, Inc.
and Charles River Laboratories, Inc. As a result, the presentation of historical
earnings per share data determined using the combined historical capital
structure for the three month period ended March 27, 1999, would not be
meaningful and has not been included in these condensed consolidated interim
financial statements. Rather, earnings per share for the three months ended
March 27, 1999 have been computed assuming that the shares outstanding after the
recapitalization had been outstanding for this period.
F-33
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
(DOLLARS IN THOUSANDS)
4. EARNINGS PER SHARE (CONTINUED)
As a result of the recapitalization DLJ Merchant Banking Partners II, L.P.
and affiliated funds, management and other investors indirectly own 87.5% of the
capital stock of the Company, and subsidiaries of Bausch and Lomb own the
remaining 12.5%. Based upon the amounts invested, shares outstanding of common
stock in Charles River Laboratories International, Inc. at the date of the
recapitalization totaled 19,820,369. Basic earnings per share for the three
month period ended March 27, 1999 was computed by dividing earnings available to
common shareholders for this period, by the weighted average number of common
shares outstanding in the period subsequent to the recapitalization. Basic
earnings per share for the three month period ended March 25, 2000 was computed
by dividing earnings available to common shareholders for this period by the
weighted average number of common shares outstanding in the period.
For purposes of calculating diluted earnings per share for the three month
period ended March 27, 1999, the weighted average number of common shares used
in the basic earnings per share computation described above has not been
adjusted to include common stock equivalents, as these common stock equivalents
were issued in connection with the recapitalization financing and are not
assumed to be outstanding for purposes of computing earnings per share in this
period. The weighted average number of common shares outstanding in the three
month period ended March 25, 2000 has been adjusted to include common stock
equivalents for the purpose of calculating diluted earnings per shares for this
period.
5. ACQUISITIONS AND DISPOSALS
On February 28, 2000, the Company acquired an additional 16% of the equity
(340,840 common shares) of its 50% equity joint venture company, Charles River
Japan, from Ajinomoto Co., Inc. The purchase price for the equity was 1.4
billion yen, or $12,844. One billion yen, or $9,174, was paid at closing, and
the balance of 400 million yen, or $3,670, was deferred pursuant to a three-year
balloon promissory note secured by a pledge of the 16% shares. The note bears
interest at the long-term prime rate in Japan, 2.2% at March 25, 2000. Effective
with the acquisition of this additional interest, the Company has control of and
is consolidating the operations of Charles River Japan. The estimated fair value
of the incremental net assets acquired is $6,207. Goodwill of $6,637 has been
recorded in the accompanying condensed consolidated interim financial statements
and is being amortized over its estimated life of 15 years.
On March 10, 2000, the Company announced the closure of its Shamrock primate
import and conditioning business in Small Dole, England. The Company expects the
closure to be completed during the second quarter of 2000. The actions
contemplated in the plan related primarily to severance, property and equipment
dispositions and other miscellaneous activities directly related to the
operations being shut down. Management has met with the 16 employees subject to
its severance plans and has communicated its intended closure actions to
customers. The Company does not expect that the animal sales previously made by
Shamrock will be significantly affected. A charge of $751 related to the closure
has been recorded in selling, general and administrative expenses in the
accompanying condensed consolidated interim financial statements.
During January 2000, the Company sold a product line within its research
model business segment. The selling price of $7,000 approximated the net book
value of the underlying assets at the time of the
F-34
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
(DOLLARS IN THOUSANDS)
5. ACQUISITIONS AND DISPOSALS (CONTINUED)
sales. In addition the Company had approximately $900 of deferred revenue which
related to cash payments received in advance of shipping the research models.
Under the term of the sales agreement, the Company is no longer obligated to
ship research models and, accordingly, has recorded this amount as income in the
accompanying consolidated interim financial statements. Fiscal 1999 sales
associated with this product line approximated $2,800.
6. BUSINESS SEGMENT INFORMATION
The following table presents sales and other financial information by
product line segment for the three months ended March 27, 1999 and March 25,
2000. Sales to unaffiliated customers represent net sales originating in
entities primarily engaged in either animal services or biomedical products and
services.
[Download Table]
THREE MONTHS ENDED
---------------------
MARCH 27, MARCH 25,
1999 2000
--------- ---------
Research models
Net sales................................................. $ 36,262 $ 41,047
Operating income.......................................... 9,194 12,595
Total assets.............................................. 269,034 299,549
Depreciation and amortization............................. 2,017 2,090
Capital expenditures...................................... 1,442 1,485
Biomedical Products and Services
Net sales................................................. 16,018 28,255
Operating income.......................................... 3,113 5,263
Total assets.............................................. 94,022 102,051
Depreciation and amortization............................. 91 1,674
Capital expenditures...................................... 521 1,301
A reconciliation of segment operating income to consolidated operating
income is as follows:
[Download Table]
THREE MONTHS ENDED
---------------------
MARCH 27, MARCH 25,
1999 2000
--------- ---------
Total segment operating income.............................. $12,307 $17,858
Unallocated corporate overhead.............................. (1,417) (2,626)
------- -------
Consolidated operating income............................... $10,890 $15,232
======= =======
F-35
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
(DOLLARS IN THOUSANDS)
7. COMPREHENSIVE INCOME
The components of comprehensive income for the three-month periods ended
March 27, 1999 and March 25, 2000 are set forth below:
[Download Table]
THREE MONTHS ENDED
---------------------
MARCH 27, MARCH 25,
1999 2000
--------- ---------
Net income.................................................. $ 7,073 $ 636
Foreign currency translation................................ (2,565) (1,873)
------- -------
Comprehensive income........................................ $ 4,508 $(1,237)
======= =======
F-36
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
, 2000
[LOGO]
12,500,000 SHARES OF COMMON STOCK
---------------------
P R O S P E C T U S
---------------------
JOINT LEAD MANAGERS
DONALDSON, LUFKIN & JENRETTE
LEHMAN BROTHERS
----------
ING BARINGS
SG COWEN
U.S. BANCORP PIPER JAFFRAY
DLJDIRECT INC.
---------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or our affairs have not
changed since the date hereof.
--------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the securities being registered. All amounts shown are
estimates except the SEC registration fee, the NASD fee and the NYSE listing
fee.
[Download Table]
SEC registration fee........................................ $ 64,515
NASD filing fee............................................. 24,938
NYSE listing fee............................................ 110,850
Printing and engraving expenses............................. 275,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 435,000
Blue sky fees and expenses.................................. 5,000
Transfer agent and registrar fees........................... 20,000
Miscellaneous............................................... 64,697
----------
Total....................................................... $1,500,000
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, the Registrant's
certificate of incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) under section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases) or (iv) for any transaction from which
the director derived an improper personal benefit.
As a result of this provision, the ability of the Registrant, or a
stockholder thereof, to successfully prosecute an action against a director for
breach of his duty of care is limited. However, the provision does not affect
the availability of equitable remedies such as an injunction or rescission based
upon a director's breach of his duty of care. The SEC has taken the position
that the provision will have no effect on claims arising under the federal
securities laws.
In addition, the Registrant's certificate of incorporation provides for
mandatory indemnification rights, subject to limited exceptions, to any director
or executive officer of the Registrant who (because of the fact that he or she
is a director or officer) is involved in a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by such
director or officer in advance of the final disposition of such proceeding in
accordance with the applicable corporate law.
Reference is also made to Section 7 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provisions in
the Registrant's certificate of incorporation, by-laws and the indemnification
agreements entered into between the Registrant and each of its directors and
executive
II-1
officers may be sufficiently broad to permit indemnification of the Registrant's
directors and executive officers for liabilities arising under the Securities
Act.
Charles River Laboratories, Inc. provides insurance from commercial carriers
against some liabilities incurred by the directors and officers of the
Registrant.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
[Download Table]
DOCUMENT EXHIBIT NUMBER
-------- --------------
Form of Underwriting Agreement.............................. 1.1
Amended and Restated Certificate of Incorporation........... 3.1
By-laws..................................................... 3.2
Form of Indemnification Agreement........................... 10.16
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The shares of capital stock and other securities issued in the following
transactions were offered and sold in reliance upon the following exemptions:
(i) in the case of the transactions described in (a) below, Section 4(2) of a
the Securities Act or Registration D promulgated thereunder relative to sales by
an issuer not involving a public offering; and (ii) in the case of the
transactions (b) below, Section 3(b) of the Securities Act and Rule 701
promulgated thereunder relative to sales pursuant to certain compensatory
benefits plans.
(a) On September 29, 1999, Charles River Laboratories, Inc. sold 150,000
units consisting of 13 1/2% notes due 2009 and warrants to purchase 1,139,551
shares of common stock of Charles River Laboratories International, Inc. for an
aggregate principal amount of $150,000,000 to Donaldson, Lufkin & Jenrette
Securities Corporation in a private placement in reliance on Section 4(2) under
the Securities Act, at an offering price of $1,000 per unit. On the same day,
the Registrant sold senior discount debentures with other warrants to DLJ
Merchant Banking Partners II, L.P. and other investors for $37.6 million and a
subordinated discount note to subsidiaries of Bausch & Lomb Incorporated for
$43 million, each in a private placement in reliance on Section 4(2) under the
Securities Act.
(b) Grants of Stock Options: (i) As of March 25, 2000, options to purchase
1,726,328 shares of common stock were outstanding under the Registrant's
Management Incentive Plan, none of which were exercisable within 60 days of such
date. None of the outstanding options had been exercised. All such options were
granted on December 9, 1999 to employees of the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS. The following exhibits are filed as part of this registration
statement:
[Download Table]
NUMBER DESCRIPTION
------ -----------
1.1* Form of Underwriting Agreement
2.1** Recapitalization Agreement, dated as of July 25, 1999, among
Charles River Laboratories, Inc., Charles River Laboratories
International, Inc. (formerly known as Endosafe, Inc.),
Bausch & Lomb Incorporated, and other parties listed
therein.
2.2** Amendment No. 1 to Recapitalization Agreement, dated as of
September 29, 1999 by Bausch & Lomb Incorporated and CRL
Acquisition LLC.
2.3* Agreement and Plan of Reorganization, dated as of June 6,
2000, among Charles River Laboratories International, Inc.,
CRL Acquisition LLC and B&L CRL, Inc.
II-2
[Download Table]
NUMBER DESCRIPTION
------ -----------
3.1* Amended and Restated Certificate of Incorporation of Charles
River Laboratories International, Inc.
3.2* By-laws of Charles River Laboratories International, Inc.
4.1* Form of certificate representing shares of common stock,
$0.01 per value per share.
4.2* Amended and Restated Investors' Agreement, dated as of
June 20, 2000, among Charles River Laboratories
International, Inc. and the shareholders named therein.
5.1* Opinion of Ropes & Gray.
10.1** Credit Agreement, dated as of September 29, 1999, among
Charles River Laboratories, Inc., the various financial
institutions that are or may become parties as lenders
thereto, DLJ Capital Funding, Inc., as lead arranger, sole
book runner and syndication agent for the lenders, Union
Bank of California, N.A., as administrative agent for the
lenders, and National City Bank, as documentation agent for
the lenders.
10.2** Indenture, dated as of September 29, 1999 between Charles
River Laboratories, Inc. and the Trustee.
10.3** Purchase Agreement between Charles River Laboratories, Inc.
and Donaldson, Lufkin & Jenrette Securities Corporation as
Initial Purchaser.
10.4++ Joint Venture Agreement between Ajinomoto Co., Inc. and
Charles River Breeding Laboratories, Inc. dated June 24,
1981, and ancillary agreements, amendments and addendums.
10.5** Supply Agreement between Merck & Co., Inc. and Charles River
Laboratories, Inc. dated September 30, 1994.
10.6** Amended and Restated Stock Purchase Agreement among Charles
River Laboratories, Inc. and SBI Holdings, Inc. and its
stockholders dated September 4, 1999.
10.7+ Ground Lease between HIC Associates (Lessor) and Charles
River Laboratories, Inc. (Lessee) dated June 5, 1992; Real
Estate Lease between Charles River Laboratories, Inc.
(Landlord) and Charles River Partners L.P. (Tenant) dated
December 22, 1993; and Assignment and Assumption Agreement
between Charles River Partners, L.P. (Assignor) and
Wilmington Partners L.P. (Assignees) dated December 22,
1993.
10.8** Amended and Restated Distribution Agreement between Charles
River BRF, Inc., Charles River Laboratories, Inc.,
Bioculture Mauritius Ltd. and Marry Ann and Owen Griffiths,
dated December 23, 1997.
10.9** Supply Agreement between Sierra Biomedical, Inc. and
Scientific Resources International, Ltd., dated March 18,
1997.
10.10*** Severance Agreement between Charles River Laboratories, Inc.
and Real H. Renaud dated January 20, 1992.
10.11*** 1999 Charles River Laboratories Officer Separation Plan.
10.12*** Form of Agreement and Release among Bausch & Lomb,
Incorporated, Charles River Laboratories, Inc. and the named
executive officers dated as of July 25, 1999.
10.13# 1999 Management Incentive Plan.
10.14* 2000 Incentive Plan.
10.15* 2000 Directors Stock Plan.
10.16* Form of Indemnification Agreement
21.1*** Subsidiaries of Charles River Laboratories International,
Inc.
II-3
[Download Table]
NUMBER DESCRIPTION
------ -----------
23.1* Consent of Ropes & Gray (contained in their opinion filed as
Exhibit 5.1).
23.2* Consent of PricewaterhouseCoopers LLP.
24.1++ Power of Attorney pursuant to which amendments to this
registration statement may be filed.
27.1* Financial Data Schedule.
------------------------
* Filed herewith.
** Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 333-92383) filed December 8, 1999.
*** Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-35524) filed June 6, 2000.
+ Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-92383) filed January 28,
2000.
++ Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 333-35524) filed April 25, 2000.
# Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q
(File No. 333-92383) filed May 9, 2000.
II-4
(b) FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules are included as part of this registration statement.
FINANCIAL STATEMENT SCHEDULES
SCHEDULE I
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED PARENT COMPANY STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
[Download Table]
THREE MONTHS ENDED
DECEMBER 25, 1999
------------------
Operating income............................................ $ --
Interest expense............................................ 2,846
------
Loss before income taxes and loss from investment in
subsidiary................................................ 2,846
Income tax benefit.......................................... 653
------
Loss before loss from investment in subsidiary.............. 2,193
Loss from equity investment in subsidiary................... 635
------
Net loss.................................................... $2,828
======
CONDENSED PARENT COMPANY BALANCE SHEET
(DOLLARS IN THOUSANDS)
[Download Table]
DECEMBER 25, 1999
-----------------
Non-Current Assets
Deferred tax asset........................................ $ 653
----------
Total Assets.............................................. $ 653
==========
Liabilities and shareholders' equity
Non-current liabilities
Excess of liabilities over assets in equity accounted
subsidiary............................................ $ 22,616
Long term debt.......................................... 74,981
----------
Total liabilities..................................... 97,597
----------
Redeemable common stock................................... 13,198
Shareholders' equity
Common stock............................................ 198
Capital in excess of par................................ 206,940
Retained earnings (307,351)
Loans to officers....................................... (920)
Accumulated other comprehensive income.................. (9,009)
----------
Total shareholders' equity.............................. (110,142)
----------
Total liabilities and shareholders' equity............ $ 653
==========
II-5
CONDENSED PARENT COMPANY STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
[Download Table]
THREE MONTHS ENDED
DECEMBER 25, 1999
------------------
Cash flows relating to operating activities
Net loss.................................................. $(2,828)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Accretion of debenture and discount note................ 2,644
Amortization of discounts............................... 202
Deferred income taxes................................... (653)
Loss from equity investment............................. 635
-------
Net cash provided by operating activities............... $ --
-------
Net cash provided by investing activities............... $ --
-------
Net cash provided by financing activities............... $ --
-------
Net change in cash and cash equivalents................. $ --
-------
Cash and cash equivalents, beginning of period.......... $ --
-------
Cash and cash equivalents, end of period................ $ --
-------
FINANCIAL STATEMENT SCHEDULES
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These condensed parent company financial statements have been prepared in
accordance with Rule 12-04, Schedule 1 of Regulation S-X, as the restricted net
assets of Charles River Laboratories Inc. exceed 25% percent of the consolidated
net assets of Charles River Laboratories International, Inc. (the Parent
Company). As disclosed in note 2 to the accompanying consolidated financial
statements, in order to repay its obligations, the Parent Company is dependent
upon either dividends from Charles River Laboratories, Inc., which are
restricted by terms contained in the indenture governing the senior subordinated
notes and the senior secured credit facility, or through a refinancing or equity
transaction.
The Parent Company's 100% investment in Charles River Laboratories Inc. has
been recorded using the equity basis of accounting in the accompanying condensed
parent company financial statements. The condensed income statement and
statement of cash flows are presented for the three month period ended December
25, 1999, as the dividend restrictions and the current capital structure of the
Parent Company were created as a result of the recapitalization transaction more
fully described in note 2 to the accompanying consolidated financial statements.
For this reason, comparative information prior to the date of the
recapitalization is not considered relevant in these condensed parent company
financial statements. There were no cash dividends paid to the Parent Company by
Charles River Laboratories Inc. in the three-month period ended December 25,
1999.
On June 5, 2000, a 1.927 for 1 exchange of stock was approved by the Board
of Directors of the Parent Company. This exchange of stock was effective
June 21, 2000. All references to common stock and shareholders' equity amounts
have been restated in these condensed parent company financial statements as if
the exchange of stock had occurred as of the earliest period presented.
II-6
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
INCOME TAX VALUATION ALLOWANCE
[Enlarge/Download Table]
BALANCE CHARGED
AT TO COSTS CHARGED BALANCE
BEGINNING AND TO OTHER AT END OF
OF PERIOD EXPENSES ACCOUNTS DESCRIPTION DEDUCTIONS DESCRIPTION PERIOD
--------- -------- -------- ----------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 25, 1999
Income Tax Valuation Allowance........ $1,766 $5,371 Provisions $ -- $7,137
FOR THE YEAR ENDED DECEMBER 26, 1998
Income Tax Valuation Allowance........ $1,766 $ -- Provisions $ -- $1,766
FOR THE YEAR ENDED DECEMBER 27, 1997
Income Tax Valuation Allowance........ $ -- $1,766 Provisions $ -- $1,766
ALLOWANCE FOR DOUBTFUL ACCOUNTS
[Enlarge/Download Table]
BALANCE CHARGED
AT TO COSTS CHARGED BALANCE
BEGINNING AND TO OTHER AT END OF
OF PERIOD EXPENSES ACCOUNTS DESCRIPTION DEDUCTIONS DESCRIPTION PERIOD
--------- -------- -------- ----------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 25, 1999
Allowance for Doubtful Accounts....... $ 898 $ 324 Provisions $(244) Recoveries/ $ 978
Write-offs
FOR THE YEAR ENDED DECEMBER 26, 1998
Allowance for Doubtful Accounts....... $ 688 $ 265 Provisions $ (55) Recoveries/ $ 898
Write-offs
FOR THE YEAR ENDED DECEMBER 27, 1997
Allowance for Doubtful Accounts....... $ 568 $ 192 Provisions $ (72) Recoveries/ $ 688
Write-offs
Other financial statement schedules have been omitted because they are
inapplicable or are not required under applicable provisions of Regulation S-X
or because the information that would otherwise be included in such schedules is
contained in the Registrant's financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
II-7
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boston, State of Massachusetts, on the 22nd day of June, 2000.
[Download Table]
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
By: /s/ THOMAS F. ACKERMAN
---------------------------------------------
Thomas F. Ackerman
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-1 has been signed by the following
persons in the capacities indicated on June 22, 2000.
[Enlarge/Download Table]
SIGNATURE TITLE
--------- -----
*
------------------------------------------- President, Chief Executive Officer (Principal
James C. Foster Executive Officer) and Chairman
Chief Financial Officer (Principal Financial
/s/ THOMAS F. ACKERMAN Officer) and Senior Vice President, Finance
------------------------------------------- and Administration (Principal Accounting
Thomas F. Ackerman Officer)
*
------------------------------------------- Director
Robert Cawthorn
*
------------------------------------------- Director
Stephen D. Chubb
*
------------------------------------------- Director
Thompson Dean
*
------------------------------------------- Director
Stephen C. McCluski
*
------------------------------------------- Director
Reid S. Perper
II-9
[Download Table]
SIGNATURE TITLE
--------- -----
*
------------------------------------------- Director
Douglas E. Rogers
*
------------------------------------------- Director
Samuel Thier
*
------------------------------------------- Director
William Waltrip
*
------------------------------------------- Director
Henry C. Wendt
The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 2 pursuant to the Power of Attorney executed by the above-named
directors and officers of the Registrant and previously filed with the
Securities and Exchange Commission on behalf of such directors and officers.
[Download Table]
By: /s/ THOMAS F. ACKERMAN
-------------------------------------- Attorney-in Fact
Thomas F. Ackerman
II-10
EXHIBIT INDEX
[Download Table]
NUMBER DESCRIPTION
------ -----------
1.1* Form of Underwriting Agreement
2.1** Recapitalization Agreement, dated as of July 25, 1999, among
Charles River Laboratories, Inc., Charles River Laboratories
International, Inc. (formerly known as Endosafe, Inc.),
Bausch & Lomb Incorporated, and other parties listed
therein.
2.2** Amendment No. 1 to Recapitalization Agreement, dated as of
September 29, 1999 by Bausch & Lomb Incorporated and CRL
Acquisition LLC.
2.3* Agreement and Plan of Reorganization, dated as of June 6,
2000, among Charles River Laboratories, International Inc.,
CRL Acquisition LLC and B&L CRL, Inc.
3.1* Amended and Restated Certificate of Incorporation of Charles
River Laboratories International, Inc.
3.2* By-laws of Charles River Laboratories International, Inc.
4.1* Form of certificate representing shares of common stock,
$0.01 per value per share.
4.2* Amended and Restated Investors' Agreement, dated as of
June 20, 2000, among Charles River Laboratories
International, Inc. and the shareholders named therein.
5.1* Opinion of Ropes & Gray.
10.1** Credit Agreement, dated as of September 29, 1999, among
Charles River Laboratories, Inc., the various financial
institutions that are or may become parties as lenders
thereto, DLJ Capital Funding, Inc., as lead arranger, sole
book runner and syndication agent for the lenders, Union
Bank of California, N.A., as administrative agent for the
lenders, and National City Bank, as documentation agent for
the lenders.
10.2** Indenture, dated as of September 29, 1999 between Charles
River Laboratories, Inc. and the Trustee.
10.3** Purchase Agreement between Charles River Laboratories, Inc.
and Donaldson, Lufkin & Jenrette Securities Corporation as
Initial Purchaser.
10.4++ Joint Venture Agreement between Ajinomoto Co., Inc. and
Charles River Breeding Laboratories, Inc. dated June 24,
1981, and ancillary agreements, amendments and addendums.
10.5** Supply Agreement between Merck & Co., Inc. and Charles River
Laboratories, Inc. dated September 30, 1994.
10.6** Amended and Restated Stock Purchase Agreement among Charles
River Laboratories, Inc. and SBI Holdings, Inc. and its
stockholders dated September 4, 1999.
10.7+ Ground Lease between HIC Associates (Lessor) and Charles
River Laboratories, Inc. (Lessee) dated June 5, 1992; Real
Estate Lease between Charles River Laboratories, Inc.
(Landlord) and Charles River Partners L.P. (Tenant) dated
December 22, 1993; and Assignment and Assumption Agreement
between Charles River Partners, L.P. (Assignor) and
Wilmington Partners L.P. (Assignees) dated December 22,
1993.
10.8** Amended and Restated Distribution Agreement between Charles
River BRF, Inc., Charles River Laboratories, Inc.,
Bioculture Mauritius Ltd. and Marry Ann and Owen Griffiths,
dated December 23, 1997.
10.9** Supply Agreement between Sierra Biomedical, Inc. and
Scientific Resources International, Ltd., dated March 18,
1997.
10.10*** Severance Agreement between Charles River Laboratories, Inc.
and Real H. Renaud dated January 20, 1992.
10.11*** 1999 Charles River Laboratories Officer Separation Plan.
[Download Table]
NUMBER DESCRIPTION
------ -----------
10.12*** Form of Agreement and Release among Bausch & Lomb,
Incorporated, Charles River Laboratories, Inc. and the named
executive officers dated as of July 25, 1999.
10.13# 1999 Management Incentive Plan.
10.14* 2000 Incentive Plan.
10.15* 2000 Directors Stock Plan.
10.16* Form of Indemnification Agreement
21.1*** Subsidiaries of Charles River Laboratories International,
Inc.
23.1* Consent of Ropes & Gray (contained in their opinion filed as
Exhibit 5.1).
23.2* Consent of PricewaterhouseCoopers LLP.
24.1++ Power of Attorney pursuant to which amendments to this
registration statement may be filed.
27.1* Financial Data Schedule.
------------------------
* Filed herewith.
** Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 333-92383) filed December 8, 1999.
*** Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-35524) filed June 6, 2000.
+ Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-92383) filed January 28,
2000.
++ Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 333-35524) filed April 25, 2000.
# Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q
(File No. 333-92383) filed May 9, 2000.
Dates Referenced Herein and Documents Incorporated by Reference
5 Subsequent Filings that Reference this Filing
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