Charles River Laboratories International, Inc. (NYSE: CRL) today
reported its results for the fourth-quarter and full-year 2007. For
the fourth quarter, net sales from continuing operations increased
17.0% to $318.0 million from $271.7 million in the fourth quarter
of 2006. Both the Research Models and Services (RMS) and
Preclinical Services (PCS) business segments reported strong net
sales growth, as pharmaceutical and biotechnology companies
continued to invest in basic research and increased their strategic
use of outsourced drug development services. Foreign exchange
contributed 4.2% to the net sales growth. On a GAAP basis, net
income from continuing operations for the fourth quarter of 2007
was $38.9 million, or $0.55 per diluted share, compared to $31.8
million, or $0.47 per diluted share, for the fourth quarter of
2006. The 17.0% increase in earnings per share resulted primarily
from higher sales. On a non-GAAP basis, net income from continuing
operations was $45.9 million for the fourth quarter of 2007,
compared to $39.0 million for the same period in 2006.
Fourth-quarter diluted earnings per share on a non-GAAP basis were
$0.65, an increase of 12.1% compared to $0.58 per share in the
fourth quarter of 2006. Non-GAAP earnings per share in the fourth
quarter of 2007 excluded $9.1 million of amortization of intangible
assets related to acquisitions, a charge of $4.6 million for
impairment and other charges related to the Company�s exit from its
preclinical facility in Worcester, Massachusetts, and a benefit of
$2.1 million resulting from a deferred tax revaluation. For the
fourth quarter of 2006, non-GAAP results excluded $9.8 million of
amortization of intangible assets and stock-based compensation
related to acquisitions and $0.9 million of charges related to
cost-savings initiatives. James C. Foster, Chairman, President and
Chief Executive Officer, said, �A strong fourth-quarter performance
capped a tremendous 2007 for Charles River, during which we clearly
demonstrated the strength of our business model and the value that
we provide to our global client base. Our financial results for the
quarter and year reflect our continued focus on our core
competencies of laboratory animal medicine and science and
regulatory compliant preclinical services, coupled with aggressive
investment to expand and strengthen our infrastructure to meet our
clients� needs. As a result, we are better positioned, both today
and for the future, to partner with our clients at this critical
inflection point when they are increasingly adopting strategic
outsourcing as a means to improve the efficiency and cost
effectiveness of their drug development efforts. And increasingly,
they are selecting Charles River to play an integral role in
accelerating these efforts. With robust demand for our products and
services, we see significant opportunities for continued growth in
both our RMS and PCS businesses. As a result, we are reaffirming
our 2008 guidance of sales growth in a range of 10% to 13%, GAAP
earnings per share in a range of $2.59 to $2.69 and non-GAAP
earnings per share in a range of $2.87 to $2.97.� Research Models
and Services (RMS) Sales for the RMS segment were $145.2 million in
the fourth quarter of 2007, an increase of 13.7% from $127.7
million in the fourth quarter of 2006. Sales growth was driven by
strong demand for research models in the United States and Europe,
worldwide Transgenic Services, and In Vitro products. In the fourth
quarter of 2007, the RMS segment�s GAAP operating margin increased
to 27.1% compared to 25.6% in the fourth quarter of 2006. On a
non-GAAP basis, which excluded charges of $0.7 million for
acquisition-related amortization, the operating margin was 27.6%
compared to 26.3% for the same period in the prior year. The
improvement was due primarily to higher sales. Preclinical Services
(PCS) Fourth-quarter net sales for the PCS segment were $172.9
million, an increase of 20.0% from $144.1 million in the fourth
quarter of 2006. Continuing strong demand for general and specialty
toxicology services from pharmaceutical and biotechnology customers
was the primary factor which contributed to the sales growth. The
addition of Northwest Kinetics� Phase I clinical services business,
which was acquired on October 30, 2006, also contributed to the
sales growth. As expected, the additional costs associated with the
transition to the new preclinical facilities in Massachusetts and
Nevada and the negative impact of foreign exchange in Canada
resulted in lower operating margins for the PCS segment. In the
fourth quarter of 2007, the new Massachusetts facility reported a
full quarter�s costs compared to minimal costs in the fourth
quarter of the prior year, and we also incurred operating costs in
the new Nevada facility. The fourth-quarter GAAP operating margin
declined to 13.1% from 16.0% in the same period in the prior year.
On a non-GAAP basis, which excludes $8.3 million of
acquisition-related amortization and $4.6 million of impairment and
other charges associated with the Company�s exit from its
Worcester, Massachusetts facility, the operating margin declined to
20.6% from 22.7% in the fourth quarter of 2006. Full-Year Results
For 2007, net sales from continuing operations increased by 16.3%
to $1.23 billion, from $1.06 billion in 2006. Foreign exchange
contributed approximately 2.9% to the sales growth rate. On a GAAP
basis, 2007 net income from continuing operations was $157.6
million compared to $125.2 million in 2006, an increase of 25.8%,
and earnings per diluted share increased 27.9% to $2.29 from $1.79
in 2006. On a non-GAAP basis, net income from continuing operations
for 2007 was $180.2 million, compared to $154.2 million for 2006,
an increase of 16.9%. Earnings per diluted share for 2007 were
$2.62, an increase of 19.1% from $2.20 in 2006. In 2007, non-GAAP
net income excluded $33.6 million of amortization and stock-based
compensation costs associated with acquisitions, a charge of $6.3
million related to the Company�s exit of its preclinical facility
in Worcester, Massachusetts, and a charge of $0.8 million related
to pre-acquisition Inveresk stock compensation taxes. Non-GAAP
results also excluded a $2.0 million gain on the sale of real
estate in Scotland and a benefit of $3.0 million resulting from a
deferred tax revaluation. Non-GAAP net income for 2006 excluded
acquisition-related charges of $38.3 million and charges of $6.2
million related to cost-savings initiatives. Research Models and
Services (RMS) For 2007, RMS net sales were $577.2 million, an
increase of 12.1% from net sales of $515.0 million in 2006. The RMS
segment�s GAAP operating margin was 30.7% in 2007, compared to
28.7% for the prior year. On a non-GAAP basis, the operating margin
was 31.0% compared to 29.4% in 2006. Preclinical Services (PCS) For
2007, PCS net sales were $653.4 million, an increase of 20.2% over
the $543.4 million reported in 2006. On a GAAP basis, the PCS
segment operating margin was 15.8% in 2007, compared to 15.2% in
the prior year. On a non-GAAP basis, the operating margin was 21.5%
in 2007 compared to 22.6% in 2006. 2008 Guidance The Company
reaffirms its forward-looking guidance for 2008, which was
originally provided on December 12, 2007. 2008 GUIDANCE � Net sales
growth (in %) 10% - 13% GAAP EPS estimate $2.59 - $2.69
Amortization of intangible assets $0.28 Non-GAAP EPS estimate $2.87
- $2.97 Discontinued Operations Discontinued operations included
both the Interventional and Surgical Services business, the closure
of which was finalized in the third quarter of 2007, and the Phase
II-IV clinical services business, which the Company sold in the
third quarter of 2006. In the fourth quarter of 2007, the net loss
from discontinued operations was $2.0 million. Including
discontinued operations, net income for the fourth quarter of 2007
was $36.9 million, or $0.52 per diluted share, compared to net
income of $35.2 million, or $0.52 per diluted share, in the fourth
quarter of 2006. For 2007, including a loss of $3.1 million from
discontinued operations, net income was $154.4 million, or $2.25
per diluted share, compared to a net loss of $55.8 million, or
$0.80 per diluted share, for 2006. The loss in the prior year was
due in part to a $129.2 million goodwill impairment recorded in the
first quarter of 2006 related to the sale of the Clinical Phase
II-IV business. Webcast Charles River Laboratories has scheduled a
live webcast on Wednesday, February 12, at 8:30 a.m. ET to discuss
matters relating to this press release. To participate, please go
to ir.criver.com and select the webcast link. You can also find the
associated slide presentation and reconciliations of non-GAAP
financial measures to comparable GAAP financial measures on the
website. Use of Non-GAAP Financial Measures This press release
contains non-GAAP financial measures, such as non-GAAP earnings per
diluted share from continuing operations, which exclude
amortization of intangible assets and other charges related to our
acquisitions, impairments due to our accelerated exit from our
Worcester Preclinical Services facility, charges related to
pre-acquisition Inveresk stock compensation charges, a deferred tax
revaluation, and the gain on the sale of real estate in Scotland.
We exclude these items from the non-GAAP financial measures because
they are outside our normal operations. There are limitations in
using non-GAAP financial measures, as they are not prepared in
accordance with generally accepted accounting principles, and may
be different than non-GAAP financial measures used by other
companies. In particular, we believe that the inclusion of
supplementary non-GAAP financial measures in this press release
helps investors to gain a meaningful understanding of our core
operating results and future prospects without the effect of
one-time charges, and is consistent with how management measures
and forecasts the Company's performance, especially when comparing
such results to prior periods or forecasts. We believe that the
financial impact of our acquisitions is often large relative to our
overall financial performance, which can adversely affect the
comparability of our results on a period-to-period basis. In
addition, certain activities, such as business acquisitions, happen
infrequently and the underlying costs associated with such
activities do not recur. Non-GAAP results also allow investors to
compare the Company�s operations against the financial results of
other companies in the industry who similarly provide non-GAAP
results. The non-GAAP financial measures included in this press
release are not meant to be considered superior to or a substitute
for results of operations prepared in accordance with GAAP. The
Company intends to continue to assess the potential value of
reporting non-GAAP results consistent with applicable rules and
regulations. Reconciliations of the non-GAAP financial measures
used in this press release to the most directly comparable GAAP
financial measures are set forth in the text of this press release,
and can also be found on the Company�s website at ir.criver.com.
Caution Concerning Forward-Looking Statements This news release
includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking
statements may be identified by the use of words such as
�anticipate,� �believe,� �expect,� �will,� �may,� �estimate,�
�plan,� �outlook,� and �project� and other similar expressions that
predict or indicate future events or trends or that are not
statements of historical matters. These statements also include
statements regarding our projected 2008 earnings; the future demand
for drug discovery and development products and services, including
the outsourcing of these services; the impact of specific actions
intended to improve overall operating efficiencies and
profitability; the timing of the opening of new and expanded
facilities; future cost reduction activities by our customers; and
Charles River�s future performance as delineated in our
forward-looking guidance, and particularly our expectations with
respect to sales growth. Forward-looking statements are based on
Charles River�s current expectations and beliefs, and involve a
number of risks and uncertainties that are difficult to predict and
that could cause actual results to differ materially from those
stated or implied by the forward-looking statements. Those risks
and uncertainties include, but are not limited to: a decrease in
research and development spending, a decrease in the level of
outsourced services, or other cost reduction actions by our
customers; the ability to convert backlog to sales; special
interest groups; contaminations; industry trends; new displacement
technologies; USDA and FDA regulations; changes in law; continued
availability of products and supplies; loss of key personnel;
interest rate and foreign currency exchange rate fluctuations;
changes in tax regulation and laws; changes in generally accepted
accounting principles; and any changes in business, political, or
economic conditions due to the threat of future terrorist activity
in the U.S. and other parts of the world, and related U.S. military
action overseas. A further description of these risks,
uncertainties, and other matters can be found in the Risk Factors
detailed in Charles River's Annual Report on Form 10-K as filed on
February 27, 2007, as well as other filings we make with the
Securities and Exchange Commission. Because forward-looking
statements involve risks and uncertainties, actual results and
events may differ materially from results and events currently
expected by Charles River, and Charles River assumes no obligation
and expressly disclaims any duty to update information contained in
this news release except as required by law. About Charles River
Accelerating Drug Development. Exactly. Charles River provides
essential products and services to help pharmaceutical and
biotechnology companies, government agencies and leading academic
institutions around the globe accelerate their research and drug
development efforts. Our more than 8,500 employees worldwide are
focused on providing clients with exactly what they need to improve
and expedite the discovery, development through first-in-human
evaluation, and safe manufacture of new therapies for the patients
who need them. To learn more about our unique portfolio and breadth
of services, visit www.criver.com. CHARLES RIVER LABORATORIES
INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) (dollars in thousands, except for per share data) � � �
� Three Months Ended Twelve Months Ended December 29, 2007 December
30, 2006 December 29, 2007 December 30, 2006 � Total net sales $
318,028 $ 271,725 $ 1,230,626 $ 1,058,385 Cost of products sold and
services provided � 200,265 � � 169,995 � � 752,435 � � 651,778 �
Gross margin 117,763 101,730 478,191 406,607 Selling, general and
administrative 56,535 46,819 217,491 180,795 Amortization of
intangibles � 9,094 � � 9,757 � � 33,509 � � 37,639 � Operating
income 52,134 45,154 227,191 188,173 Interest income (expense)
(1,339 ) (2,309 ) (8,321 ) (12,590 ) Other income (expense) � 333 �
� 1,624 � � (1,448 ) � 981 � Income before income taxes and
minority interests 51,128 44,469 217,422 176,564 Provision for
income taxes � 12,181 � � 12,568 � � 59,400 � � 49,738 � Income
before minority interests 38,947 31,901 158,022 126,826 Minority
interests � 1 � � (109 ) � (470 ) � (1,605 ) Income from continuing
operations 38,948 31,792 157,552 125,221 Loss from discontinued
businesses, net of tax � (2,038 ) � 3,397 � � (3,146 ) � (181,004 )
Net income (loss) $ 36,910 � $ 35,189 � $ 154,406 � $ (55,783 ) �
Earnings (loss) per common share Basic: Continuing operations $
0.58 $ 0.48 $ 2.35 $ 1.82 Discontinued operations $ (0.03 ) $ 0.05
$ (0.05 ) $ (2.63 ) Net income $ 0.55 $ 0.53 $ 2.31 $ (0.81 )
Diluted: Continuing operations $ 0.55 $ 0.47 $ 2.29 $ 1.79
Discontinued operations $ (0.03 ) $ 0.05 $ (0.05 ) $ (2.59 ) Net
income $ 0.52 $ 0.52 $ 2.25 $ (0.80 ) � Weighted average number of
common shares outstanding Basic 67,320,340 66,257,695 66,960,515
68,945,622 Diluted 70,525,144 67,450,735 68,735,936 69,948,032
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands) � �
� December 29,2007 December 30,2006 Assets Current assets Cash and
cash equivalents $ 225,449 $ 175,380 Trade receivables, net 213,908
202,658 Inventories 88,023 72,362 Other current assets 79,477
44,363 Current assets of discontinued businesses � 1,007 � 6,330
Total current assets 607,864 501,093 Property, plant and equipment,
net 748,793 534,745 Goodwill, net 1,120,540 1,119,309 Other
intangibles, net 148,905 160,204 Deferred tax asset 89,255 107,498
Other assets 85,993 133,944 Long-term assets of discontinued
businesses � 4,187 � 751 Total assets $ 2,805,537 $ 2,557,544 �
Liabilities and Shareholders� Equity Current liabilities Current
portion of long-term debt $ 25,051 $ 24,977 Accounts payable 36,715
28,223 Accrued compensation 53,359 41,651 Deferred revenue 102,021
93,197 Accrued liabilities 61,366 41,991 Other current liabilities
23,268 25,625 Current liabilities of discontinued businesses � 748
� 3,667 Total current liabilities 302,528 259,331 Long-term debt
484,998 547,084 Other long-term liabilities � 154,044 � 146,695
Total liabilities � 941,570 � 953,110 Minority interests 3,500
9,223 Total shareholders� equity � 1,860,467 � 1,595,211 Total
liabilities and shareholders� equity $ 2,805,537 $ 2,557,544
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. SELECTED BUSINESS
SEGMENT INFORMATION (UNAUDITED) (dollars in thousands) � � � � �
Three Months Ended Twelve Months Ended December 29,2007 December
30,2006 December 29,2007 December 30,2006 Research Models and
Services Net sales $ 145,153 $ 127,651 $ 577,231 $ 514,999 Gross
margin 59,177 50,358 249,348 214,125 Gross margin as a % of net
sales 40.8 % 39.4 % 43.2 % 41.6 % Operating income 39,288 32,619
177,151 147,789 Operating income as a % of net sales 27.1 % 25.6 %
30.7 % 28.7 % Depreciation and amortization 6,366 5,345 23,378
20,802 Capital expenditures 20,671 14,737 51,086 27,018 �
Preclinical Services Net sales $ 172,875 $ 144,074 $ 653,395 $
543,386 Gross margin 58,586 51,372 228,843 192,482 Gross margin as
a % of net sales 33.9 % 35.7 % 35.0 % 35.4 % Operating income
22,678 23,034 103,541 82,323 Operating income as a % of net sales
13.1 % 16.0 % 15.8 % 15.2 % Depreciation and amortization 16,908
16,482 63,001 61,784 Capital expenditures 68,694 67,249 175,950
154,728 � � Unallocated Corporate Overhead $ (9,832 ) $ (10,499 ) $
(53,501 ) $ (41,939 ) � � Total Net sales $ 318,028 $ 271,725 $
1,230,626 $ 1,058,385 Gross margin 117,763 101,730 478,191 406,607
Gross margin as a % of net sales 37.0 % 37.4 % 38.9 % 38.4 %
Operating income (loss) 52,134 45,154 227,191 188,173 Operating
income as a % of net sales 16.4 % 16.6 % 18.5 % 17.8 % Depreciation
and amortization 23,274 21,827 86,379 82,586 Capital expenditures
89,365 81,986 227,036 181,746 CHARLES RIVER LABORATORIES
INTERNATIONAL, INC. RECONCILIATION OF GAAP TO NON-GAAP SELECTED
BUSINESS SEGMENT INFORMATION (UNAUDITED) (dollars in thousands) � �
� � � Three Months Ended Twelve Months Ended December 29,2007
December 30,2006 December 29,2007 December 30,2006 Research Models
and Services Net sales $ 145,153 $ 127,651 $ 577,231 $ 514,999
Operating income 39,288 32,619 177,151 147,789 Operating income as
a % of net sales 27.1 % 25.6 % 30.7 % 28.7 % Add back: Amortization
related to acquisitions 748 191 1,873 461 Impairment and other
charges � - � � 781 � � - � � 3,115 � Operating income, excluding
specified charges (Non-GAAP) $ 40,036 $ 33,591 $ 179,024 $ 151,365
Non-GAAP operating income as a % of net sales 27.6 % 26.3 % 31.0 %
29.4 % � Preclinical Services Net sales $ 172,875 $ 144,074 $
653,395 $ 543,386 Operating income 22,678 23,034 103,541 82,323
Operating income as a % of net sales 13.1 % 16.0 % 15.8 % 15.2 %
Add back: Amortization related to acquisitions 8,346 9,566 31,636
37,178 Impairment and other charges 4,587 124 6,269 3,090 Gain on
sale of UK real estate - - (2,047 ) - Pre-acquisition Inveresk
stock compensation taxes � - � � - � � 845 � � - � Operating
income, excluding specified charges (Non-GAAP) $ 35,611 $ 32,724 $
140,244 $ 122,591 Non-GAAP operating income as a % of net sales
20.6 % 22.7 % 21.5 % 22.6 % � � Unallocated Corporate Overhead $
(9,832 ) $ (10,499 ) $ (53,501 ) $ (41,939 ) Add back: Stock-based
compensation related to Inveresk acquisition � - � � 70 � � 94 � �
635 � Unallocated corporate overhead, excluding specified charges
(Non-GAAP) $ (9,832 ) $ (10,429 ) $ (53,407 ) $ (41,304 ) � � Total
Net sales $ 318,028 $ 271,725 $ 1,230,626 $ 1,058,385 Operating
income 52,134 45,154 227,191 188,173 Operating income as a % of net
sales 16.4 % 16.6 % 18.5 % 17.8 % Add back: Amortization related to
acquisitions 9,094 9,757 33,509 37,639 Stock-based compensation
related to Inveresk acquisition - 70 94 635 Impairment and other
charges 4,587 905 6,269 6,205 Gain on sale of UK real estate - -
(2,047 ) - Pre-acquisition Inveresk stock compensation taxes � - �
� - � � 845 � � - � Operating income, excluding specified charges
(Non-GAAP) $ 65,815 $ 55,886 $ 265,861 $ 232,652 Non-GAAP operating
income as a % of net sales 20.7 % 20.6 % 21.6 % 22.0 % � � Charles
River management believes that supplementary non-GAAP financial
measures provide useful information to allow investors to gain a
meaningful understanding of our core operating results and future
prospects, without the effect of one-time charges, consistent with
the manner in which management measures and forecasts the Company�s
performance. The supplementary non-GAAP financial measures included
are not meant to be considered superior to, or a substitute for
results of operations prepared in accordance with GAAP. The Company
intends to continue to assess the potential value of reporting
non-GAAP results consistent with applicable rules and regulations.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF
GAAP EARNINGS TO NON-GAAP EARNINGS (dollars in thousands, except
for per share data) � � � � Three Months Ended Twelve Months Ended
December 29,2007 December 30,2006 December 29,2007 December 30,2006
� Net income (loss) $ 36,910 $ 35,189 $ 154,406 $ (55,783 ) Less:
Discontinued operations � 2,038 � � (3,397 ) � 3,146 � � 181,004 �
Net income from continuing operations 38,948 31,792 157,552 125,221
Add back: Amortization related to acquisitions 9,094 9,757 33,509
37,639 Stock-based compensation related to Inveresk acquisition -
70 94 635 Impairment and other charges 4,587 905 6,269 6,205 Gain
on sale of UK real estate - - (2,047 ) - Pre-acquisition Inveresk
stock compensation taxes - - 845 - Deferred tax revaluation (2,104
) - (3,011 ) - Tax effect � (4,622 ) � (3,496 ) � (12,984 ) �
(15,514 ) Net income from continuing operations, excluding
specified charges (Non-GAAP) $ 45,903 � $ 39,028 � $ 180,227 � $
154,186 � � Weighted average shares outstanding - Basic 67,320,340
66,257,695 66,960,515 68,945,622 Effect of dilutive securities:
2.25% senior convertible debentures 1,419,547 - 481,136 - Stock
options and contingently issued restricted stock 1,517,587
1,061,094 1,160,369 867,204 Warrants � 267,670 � � 131,946 � �
133,916 � � 135,206 � Weighted average shares outstanding - Diluted
� 70,525,144 � � 67,450,735 � � 68,735,936 � � 69,948,032 � � Basic
earnings (loss) per share $ 0.55 $ 0.53 $ 2.31 $ (0.81 ) Diluted
earnings (loss) per share $ 0.52 $ 0.52 $ 2.25 $ (0.80 ) � Basic
earnings per share, excluding specified charges (Non-GAAP) $ 0.68 $
0.59 $ 2.69 $ 2.24 Diluted earnings per share, excluding specified
charges (Non-GAAP) $ 0.65 $ 0.58 $ 2.62 $ 2.20 � � Charles River
management believes that supplementary non-GAAP financial measures
provide useful information to allow investors to gain a meaningful
understanding of our core operating results and future prospects,
without the effect of one-time charges, consistent with the manner
in which management measures and forecasts the Company�s
performance. The supplementary non-GAAP financial measures included
are not meant to be considered superior to, or a substitute for
results of operations prepared in accordance with GAAP. The Company
intends to continue to assess the potential value of reporting
non-GAAP results consistent with applicable rules and regulations.
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