Charles River Laboratories International (CRL)

 
Annual Reports

 
Quarterly Reports

  • 10-Q (Aug 7, 2014)
  • 10-Q (Apr 30, 2014)
  • 10-Q (Oct 30, 2013)
  • 10-Q (Jul 31, 2013)
  • 10-Q (May 8, 2013)
  • 10-Q (Nov 1, 2012)

 
8-K

 
Other

Charles River Laboratories International 10-Q 2008

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.1

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 2008

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                to                

Commission file number 001-15943

CHARLES RIVER LABORATORIES
INTERNATIONAL, INC.

(Exact Name of Registrant as specified in its Charter)

DELAWARE   06-1397316
(State of Incorporation)   (I.R.S. Employer Identification No.)

251 BALLARDVALE STREET, WILMINGTON, MASSACHUSETTS 01887
(Address of Principal Executive Offices) (Zip Code)

781-222-6000
(Registrant's Telephone Number, Including Area Code)


        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

        As of November 1, 2008, there were 67,681,021 shares of the registrant's common stock outstanding.


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

FORM 10-Q

For the Quarterly Period Ended September 27, 2008

Table of Contents

 
   
   
  Page  

Part I.

  Financial Information        

  Item 1.  

Financial Statements

       

     

Condensed Consolidated Statements of Income (Unaudited) for the three months ended September 27, 2008 and September 29, 2007

    4  

     

Condensed Consolidated Statements of Income (Unaudited) for the nine months ended September 27, 2008 and September 29, 2007

    5  

     

Condensed Consolidated Balance Sheets (Unaudited) as of September 27, 2008 and December 29, 2007

    6  

     

Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 27, 2008 and September 29, 2007

    7  

     

Condensed Consolidated Statement of Changes in Shareholders' Equity (Unaudited) for the nine months ended September 27, 2008

    8  

     

Notes to Unaudited Condensed Consolidated Interim Financial Statements

    9  

  Item 2.  

Management's Discussion and Analysis of Financial Condition and Results of Operations

    30  

  Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

    39  

  Item 4.  

Controls and Procedures

    39  

Part II.

  Other Information        

  Item 1A.  

Risk Factors

    41  

  Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

    41  

  Item 6.  

Exhibits

    41  

2


Table of Contents

Special Note on Factors Affecting Future Results

        This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and the future results of Charles River Laboratories International, Inc. ("Charles River") that are based on current expectations, estimates, forecasts, and projections about the industries in which Charles River operates and the beliefs and assumptions of our management. Words such as "expect," "anticipate," "target," "goal," "project," "intend," "plan," "believe," "seek," "estimate," "will," "likely," "may," "designed," "would," "future," "can," "could" and other similar expressions that are predictions of or indicate future events and trends or which do not relate to historical matters are intended to identify such forward-looking statements. These statements are based on current expectations and beliefs of Charles River and involve a number of risks, uncertainties, and assumptions that are difficult to predict. For example, we may use forward- looking statements when addressing topics such as: future demand for drug discovery and development products and services, including the outsourcing of these services and other cost reduction activities and present spending trends by our customers; future actions by our management; the outcome of contingencies; changes in our business strategy; changes in our business practices and methods of generating revenue; the development and performance of our services and products; market and industry conditions, including competitive and pricing trends; changes in the composition or level of our revenues; our cost structure; the impact of acquisitions and dispositions; the timing of the opening of new and expanded facilities by us and our competitors and the effect of such capacity on pricing; our expectations with respect to sales growth, efficiency improvements and operating synergies (including the impact of specific actions intended to cause related improvements); changes in our expectations regarding future stock option, restricted stock, performance awards and other equity grants to employees and directors; changes in our expectations regarding our stock repurchases; assessing (or changing our assessment of) our tax positions for financial statement purposes; and our cash flow; liquidity and expected impact of foreign exchange rates. You should not rely on forward-looking statements because they are predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document or in the case of statements incorporated by reference, on the date of the document incorporated by reference. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 29, 2007 under the section entitled "Risks Related to Our Business and Industry," the section of this Quarterly Report on Form 10-Q entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in our press releases and other financial filings with the Securities and Exchange Commission. We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or risks. New information, future events or risks may cause the forward-looking events we discuss in this report not to occur.

3


Table of Contents

Item 1.    Financial Statements


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(dollars in thousands, except per share amounts)

 
  Three Months Ended  
 
  September 27, 2008   September 29, 2007  

Net sales related to products

  $ 119,777   $ 104,228  

Net sales related to services

    222,450     209,736  
           

Total net sales

    342,227     313,964  

Costs and expenses

             
 

Cost of products sold

    64,145     55,487  
 

Cost of services provided

    147,812     134,578  
 

Selling, general and administrative

    54,450     51,847  
 

Amortization of intangibles

    7,609     8,421  
           

Operating income

    68,211     63,631  

Other income (expense)

             
 

Interest income

    2,299     2,317  
 

Interest expense

    (3,589 )   (4,645 )
 

Other, net

    (1,397 )   (861 )
           

Income before income taxes and minority interests

    65,524     60,442  

Provision for income taxes

    20,819     16,808  
           

Income before minority interests

    44,705     43,634  

Minority interests

    (5 )   (98 )
           

Income from continuing operations

    44,700     43,536  

Loss from operations of discontinued businesses, net of taxes

        (759 )
           
 

Net income

  $ 44,700   $ 42,777  
           

Basic earnings per common share:

             
 

Continuing operations

  $ 0.67   $ 0.65  
 

Discontinued operations (loss)

        (0.01 )
           
 

Net income

  $ 0.67   $ 0.64  

Diluted earnings per common share:

             
 

Continuing operations

  $ 0.63   $ 0.63  
 

Discontinued operations (loss)

        (0.01 )
           
 

Net income

  $ 0.63   $ 0.62  

See Notes to Condensed Consolidated Interim Financial Statements

4


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(dollars in thousands, except per share amounts)

 
  Nine Months Ended  
 
  September 27, 2008   September 29, 2007  

Net sales related to products

  $ 365,435   $ 313,297  

Net sales related to services

    666,611     599,301  
           

Total net sales

    1,032,046     912,598  

Costs and expenses

             
 

Cost of products sold

    190,928     166,772  
 

Cost of services provided

    442,484     385,398  
 

Selling, general and administrative

    174,820     160,956  
 

Amortization of intangibles

    22,780     24,415  
           

Operating income

    201,034     175,057  

Other income (expense)

             
 

Interest income

    7,145     6,908  
 

Interest expense

    (10,308 )   (13,890 )
 

Other, net

    (2,501 )   (1,781 )
           

Income before income taxes and minority interests

    195,370     166,294  

Provision for income taxes

    55,665     47,219  
           

Income before minority interests

    139,705     119,075  

Minority interests

    336     (471 )
           

Income from continuing operations

    140,041     118,604  

Loss from operations of discontinued businesses, net of taxes

        (1,108 )
           
 

Net income

  $ 140,041   $ 117,496  
           

Basic earnings per common share:

             
 

Continuing operations

  $ 2.08   $ 1.78  
 

Discontinued operations (loss)

        (0.02 )
           
 

Net income

  $ 2.08   $ 1.76  

Diluted earnings per common share:

             
 

Continuing operations

  $ 1.98   $ 1.74  
 

Discontinued operations (loss)

        (0.02 )
           
 

Net income

  $ 1.98   $ 1.72  

See Notes to Condensed Consolidated Interim Financial Statements

5


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(dollars in thousands, except per share amounts)

 
  September 27, 2008   December 29, 2007  

Assets

             
 

Current assets

             
   

Cash and cash equivalents

  $ 212,851   $ 225,449  
   

Trade receivables, net

    237,268     213,908  
   

Inventories

    93,537     88,023  
   

Other current assets

    74,594     79,477  
   

Current assets of discontinued operations

    575     1,007  
           
     

Total current assets

    618,825     607,864  
 

Property, plant and equipment, net

    845,130     748,793  
 

Goodwill, net

    1,154,865     1,120,540  
 

Other intangibles, net

    152,465     148,905  
 

Deferred tax asset

    62,875     89,255  
 

Other assets

    58,535     85,993  
 

Long term assets of discontinued operations

    4,187     4,187  
           
     

Total assets

  $ 2,896,882   $ 2,805,537  
           

Liabilities and Shareholders' Equity

             
 

Current liabilities

             
   

Current portion of long-term debt and capital obligations

  $ 239,030   $ 25,051  
   

Accounts payable

    36,367     36,715  
   

Accrued compensation

    48,937     53,359  
   

Deferred revenue

    85,470     102,021  
   

Accrued liabilities

    69,872     61,366  
   

Other current liabilities

    32,718     23,268  
   

Current liabilities of discontinued operations

    116     748  
           
     

Total current liabilities

    512,510     302,528  
 

Long-term debt and capital lease obligations

    303,681     484,998  
 

Other long-term liabilities

    132,617     154,044  
           
     

Total liabilities

    948,808     941,570  
 

Commitments and contingencies

             
 

Minority interests

    780     3,500  
 

Shareholders' equity

             
   

Preferred stock, $0.01 par value; 20,000,000 shares authorized; no shares issued and outstanding

         
   

Common stock, $0.01 par value; 120,000,000 shares authorized; 76,573,866 issued and 67,817,467 outstanding at September 27, 2008 and 75,427,649 issued and 68,135,324 shares outstanding at December 29, 2007

    766     754  
   

Capital in excess of par value

    1,959,182     1,906,997  
   

Retained earnings

    317,570     177,529  
   

Treasury stock, at cost, 8,756,399 shares and 7,292,325 shares at September 27, 2008 and December 29, 2007, respectively

    (401,132 )   (310,372 )
   

Accumulated other comprehensive income

    70,908     85,559  
           
     

Total shareholders' equity

    1,947,294     1,860,467  
           
     

Total liabilities and shareholders' equity

  $ 2,896,882   $ 2,805,537  
           

See Notes to Condensed Consolidated Interim Financial Statements

6


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(dollars in thousands)

 
  Nine Months Ended  
 
  September 27,
2008
  September 29,
2007
 

Cash flows relating to operating activities

             
 

Net income

  $ 140,041   $ 117,496  
 

Less: Loss from discontinued operations

        (1,108 )
           
   

Income from continuing operations

    140,041     118,604  

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:

             
 

Depreciation and amortization

    68,290     63,105  
 

Gain on pension curtailment

    (3,276 )    
 

Non-cash compensation

    18,473     19,815  
 

Other, net

    17,774     3,833  

Changes in assets and liabilities:

             
 

Trade receivables

    (24,052 )   (19,509 )
 

Inventories

    (5,713 )   (5,909 )
 

Other assets

    (880 )   (7,623 )
 

Accounts payable

    1,176     (7,132 )
 

Accrued compensation

    (6,319 )   634  
 

Deferred revenue

    (16,551 )   (4,839 )
 

Accrued liabilities

    1,274     3,067  
 

Other liabilities

    5,072     7,408  
           
   

Net cash provided by operating activities

    195,309     171,454  
           

Cash flows relating to investing activities

             
 

Acquisition of businesses, net of cash acquired

    (61,792 )   (11,584 )
 

Capital expenditures

    (150,030 )   (137,671 )
 

Purchases of marketable securities

    (6,439 )   (251,659 )
 

Proceeds from sale of marketable securities

    43,352     264,956  
 

Other, net

    (193 )   3,231  
           
   

Net cash used in investing activities

    (175,102 )   (132,727 )
           

Cash flows relating to financing activities

             
 

Proceeds from long-term debt and revolving credit agreement

    56,000      
 

Payments on long-term debt and revolving credit agreement

    (23,965 )   (56,730 )
 

Proceeds from exercises of employee stock options and warrants

    28,027     42,966  
 

Excess tax benefit from exercises of employee stock options

    3,703     4,296  
 

Purchase of treasury stock

    (89,950 )   (30,314 )
 

Other, net

        (1,392 )
           
   

Net cash used in financing activities

    (26,185 )   (41,174 )
           
 

Discontinued operations

             
   

Net cash used in operating activities

    (342 )   (3,044 )
           
   

Net cash used in discontinued operations

    (342 )   (3,044 )
           

Effect of exchange rate changes on cash and cash equivalents

    (6,278 )   13,608  
           

Net change in cash and cash equivalents

    (12,598 )   8,117  

Cash and cash equivalents, beginning of period

    225,449     175,380  
           

Cash and cash equivalents, end of period

  $ 212,851   $ 183,497  
           

Supplemental cash flow information

             
 

Capitalized interest

  $ 1,957   $ 3,629  
           

See Notes to Condensed Consolidated Interim Financial Statements

7


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY (UNAUDITED)

(dollars in thousands)

 
  Total   Common
Stock
  Capital in
Excess
of Par
  Accumulated
Earnings
  Treasury
Stock
  Accumulated
Other
Comprehensive
Income
 

Balance at December 29, 2007

  $ 1,860,467   $ 754   $ 1,906,997   $ 177,529   $ (310,372 ) $ 85,559  
 

Components of comprehensive income, net of tax:

                                     
   

Net income

    140,041             140,041          
   

Foreign currency translation adjustment

    (19,114 )                   (19,114 )
   

Change in pension benefits, net of $3,410 tax

    4,888                     4,888  
   

Amortization of pension, net gain/loss and prior service cost

    238                     238  
   

Unrealized loss on marketable securities

    (663 )                   (663 )
                                     
     

Total comprehensive income

    125,390                      
 

Exercise of warrants

    741         741              
 

Tax benefit associated with stock issued under employee compensation plans

    5,747         5,747              
 

Issuance of stock under employee compensation plans

    27,236     12     27,224              
 

Acquisition of treasury shares

    (90,760 )               (90,760 )    
 

Stock-based compensation

    18,473         18,473              
                           

Balance at September 27, 2008

  $ 1,947,294   $ 766   $ 1,959,182   $ 317,570   $ (401,132 ) $ 70,908  
                           

See Notes to Condensed Consolidated Interim Financial Statements

8


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

1. Basis of Presentation

        The condensed consolidated interim financial statements are unaudited, and certain information and footnote disclosures related thereto normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America 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 state fairly the financial position and results of operations of Charles River Laboratories International, Inc. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. These condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 29, 2007.

        Certain amounts in prior-year financial statements and related notes have been reclassified to conform with the current year presentation.

2. Business Acquisitions

        On September 15, 2008 we acquired privately-held Molecular Therapeutics, Inc., the parent entity of Molecular Imaging Research, Inc. (MIR) for $12,041 in cash. Ann Arbor, Michigan-based MIR provides discovery services utilizing extensive in vivo imaging capabilities to pharmaceutical and biotechnology clients and is included in our RMS segment. The preliminary purchase price allocation including deal cost of $85 incurred by us and net of $353 of cash acquired is as follows:

Current assets (excluding cash)

  $ 1,136  

Property, plant and equipment

    848  

Noncurrent assets

    127  

Current liabilities

    (1,710 )

Noncurrent liabilities

    (57 )

Deferred taxes

    (2,055 )

Goodwill and other intangible asset

    13,484  
       

Total purchase price allocation

  $ 11,773  
       

        In conjunction with the purchase, we paid off $364 of acquired debt.

        The breakout of goodwill and other intangibles acquired with the MIR acquisition was as follows:

 
   
  Weighted
average
amortization
life (years)
 

Customer relationships

  $ 4,900     6.5  

Backlog

    170     0.5  

Goodwill

    8,414      
             

Total goodwill and other intangibles

  $ 13,484        
             

9


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

2. Business Acquisitions (Continued)

        Goodwill is not deductible for tax purposes.

        In addition, on September 9, 2008, we acquired all of the capital stock of privately held Dusseldorf, Germany-based NewLab BioQuality AG (NewLab) for $48,500 in cash. NewLab, a contract service organization, provides safety and quality control services to biopharmaceutical clients and enhances our existing capabilities in process validation services, in consulting services, and assisting in designing International Conference on Harmonisation (ICH)-compliant stability testing programs and is included in our PCS segment.

        The preliminary purchase price allocation associated with the NewLab acquisition, including transaction costs of $1,633 incurred by us and net of $3,363 of cash acquired, is as follows:

Current assets (excluding cash)

  $ 5,277  

Noncurrent assets

    107  

Property, plant and equipment

    3,148  

Current liabilities

    (3,477 )

Deferred taxes

    (6,171 )

Goodwill and other intangibles acquired

    47,886  
       

Total purchase price allocation

  $ 46,770  
       

        In conjunction with the purchase of NewLab, we utilized $87 of available cash to prepay NewLab's existing debt.

        The breakout of goodwill and other intangibles acquired with the NewLab acquisition was as follows:

 
   
  Weighted
average
amortization
life (years)
 

Customer relationships

  $ 20,100     6.0  

Backlog

    1,500     0.3  

Non-compete covenants

    1,230     1.6  

Goodwill

    25,056      
             

Total goodwill and other intangibles

  $ 47,886        
             

        Goodwill is not deductible for tax purposes.

        The following selected unaudited pro forma consolidated results of operations are presented as if the above acquisitions had occurred as of the beginning of the period immediately preceding the period of acquisition after giving effect to certain adjustments including the amortization of intangibles. The pro forma data is for informational purposes only and does not necessarily reflect the results of

10


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

2. Business Acquisitions (Continued)


operations had the companies operated as one during the periods reported. No effect has been given for synergies, if any, that may have been realized through the acquisitions.

 
  Three Months Ended   Nine Months Ended  
 
  September 27,
2008
  September 29,
2007
  September 27,
2008
  September 29,
2007
 

Net sales

  $ 349,872   $ 319,344   $ 1,052,223   $ 927,994  

Operating income

    67,155     63,296     198,284     174,204  

Income from continuing operations

    44,881     43,079     139,377     117,641  

Earnings per common share for continuing operations

                         
 

Basic

  $ 0.67   $ 0.64   $ 2.07   $ 1.76  
 

Diluted

  $ 0.63   $ 0.62   $ 1.97   $ 1.73  

        Refer to Note 9 for further discussion of the method of computation of earnings per share.

3. Supplemental Balance Sheet Information

        The composition of trade receivables is as follows:

 
  September 27, 2008   December 29, 2007  

Customer receivables

  $ 184,525   $ 165,057  

Unbilled revenue

    56,185     52,033  
           

Total

    240,710     217,090  

Less allowance for doubtful accounts

    (3,442 )   (3,182 )
           
 

Net trade receivables

  $ 237,268   $ 213,908  
           

        The composition of inventories is as follows:

 
  September 27, 2008   December 29, 2007  

Raw materials and supplies

  $ 14,658   $ 13,139  

Work in process

    11,385     9,794  

Finished products

    67,494     65,090  
           
 

Inventories

  $ 93,537   $ 88,023  
           

11


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

3. Supplemental Balance Sheet Information (Continued)

        The composition of other current assets is as follows:

 
  September 27, 2008   December 29, 2007  

Prepaid assets

  $ 30,138   $ 26,087  

Deferred tax asset

    36,428     25,506  

Marketable securities

        14,958  

Prepaid income tax

    4,804     7,214  

Restricted cash

    3,224     3,493  

Other

        2,219  
           
 

Other current assets

  $ 74,594   $ 79,477  
           

        The composition of net property, plant and equipment is as follows:

 
  September 27, 2008   December 29, 2007  

Land

  $ 38,902   $ 35,934  

Buildings

    694,793     518,090  

Machinery and equipment

    367,681     337,215  

Leasehold improvements

    17,577     17,139  

Furniture and fixtures

    12,082     7,734  

Vehicles

    5,814     5,042  

Construction in progress

    112,344     199,399  
           
 

Total

    1,249,193     1,120,553  

Less accumulated depreciation

    (404,063 )   (371,760 )
           

Net property, plant and equipment

  $ 845,130   $ 748,793  
           

        Depreciation expense for the nine months ended September 27, 2008 and September 29, 2007 was $45,510 and $38,690, respectively.

        The composition of other assets is as follows:

 
  September 27, 2008   December 29, 2007  

Deferred financing costs

  $ 7,062   $ 8,632  

Cash surrender value of life insurance policies

    24,850     22,027  

Long-term marketable securities

    20,461     48,457  

Other assets

    6,162     6,877  
           
 

Other assets

  $ 58,535   $ 85,993  
           

12


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

3. Supplemental Balance Sheet Information (Continued)

        The composition of other current liabilities is as follows:

 
  September 27, 2008   December 29, 2007  

Accrued income taxes

  $ 29,085   $ 21,438  

Current deferred tax liability

    640     1,347  

Accrued interest and other

    2,993     483  
           
 

Other current liabilities

  $ 32,718   $ 23,268  
           

        The composition of other long-term liabilities is as follows:

 
  September 27, 2008   December 29, 2007  

Deferred tax liability

  $ 71,533   $ 70,914  

Long-term pension liability

    17,186     35,729  

Accrued Executive Supplemental Life Insurance Retirement Plan and Deferred Compensation Plan

    30,762     29,293  

Other long-term liabilities

    13,136     18,108  
           
 

Other long-term liabilities

  $ 132,617   $ 154,044  
           

4. Marketable Securities

        The amortized cost, gross unrealized gains, gross unrealized losses and fair value for marketable securities by major security type were as follows:

 
  September 27, 2008  
 
  Amortized
Cost
  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
  Fair
Value
 

Available-for-sale Securities

                         
 

Auction rate securities

  $ 21,175   $   $ 714   $ 20,461  
                   
   

Total securities

  $ 21,175   $   $ 714   $ 20,461  
                   

13


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

4. Marketable Securities (Continued)

 

 
  December 29, 2007  
 
  Amortized
Cost
  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
  Fair
Value
 

Trading Securities

                         
 

Mutual funds

  $ 2,161   $ 280   $ (69 ) $ 2,372  

Available-for-sale Securities

                         
 

Auction rate securities

    38,175             38,175  
 

Corporate debt securities

    13,620     21     (91 )   13,550  
 

Bank time deposits

    4,983             4,983  
 

Government securities and obligations

    4,339         (4 )   4,335  
                   
   

Total securities

  $ 63,278   $ 301   $ (164 ) $ 63,415  
                   

        As of September 27, 2008 and December 29, 2007, we held $20,461 and $38,175 in auction rate securities which are variable rate debt instruments that bear interest rates structured to reset approximately every 7 or 35 days. The auction rate securities owned by us are rated AAA by a major credit rating agency and are guaranteed by the Federal Family Education Loan Program (FFELP). The underlying securities have contractual maturities which are generally greater than ten years. We have classified these investments as long-term consistent with the term of the underlying security. At December 29, 2007, the carrying value of auction rate securities approximated fair value due to the frequent resetting of the interest rates and the market conditions at the time. As of September 27, 2008, the overall credit concerns in the capital markets as well as the failed auctions of these securities have impacted our ability to liquidate these investments. Fair value as of September 27, 2008 was determined by management utilizing an independent valuation which was based upon a discounted cash flow methodology incorporating assumptions that reflect the assumptions a marketplace participant would use. We evaluate securities for other-than-temporary impairment on a quarterly basis and more frequently when conditions warrant such evaluation. We have the ability and intent to hold these securities for a period of time sufficient to recover all gross unrealized losses. Accordingly, we have not recognized an other-than-temporary impairment for these securities.

        Maturities of investments are as follows:

 
  September 27, 2008   December 29, 2007  
 
  Amortized
Cost
  Fair
Value
  Amortized
Cost
  Fair
Value
 

Due less than one year

  $   $   $ 14,752   $ 14,958  

Due after one year

    21,175     20,461     48,526     48,457  
                   

  $ 21,175   $ 20,461   $ 63,278   $ 63,415  
                   

        Marketable securities due after one year are included in other assets on the consolidated balance sheets.

14


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

5. Goodwill and Other Intangible Assets

        The following table displays goodwill and other intangible assets not subject to amortization and other intangible assets that continue to be subject to amortization:

 
  September 27, 2008   December 29, 2007  
 
  Gross Carrying
Amount
  Accumulated
Amortization
  Gross Carrying
Amount
  Accumulated
Amortization
 

Goodwill

  $ 1,167,748   $ (12,883 ) $ 1,133,432   $ (12,892 )
                   

Other intangible assets not subject to amortization:

                         
 

Research models

  $ 3,438   $   $ 3,438   $  

Other intangible assets subject to amortization:

                         
 

Backlog

    60,955     (60,182 )   62,250     (62,250 )
 

Customer relationships

    243,824     (101,028 )   224,871     (85,000 )
 

Customer contracts

    1,655     (1,655 )   1,655     (1,655 )
 

Trademarks and trade names

    4,581     (3,867 )   3,274     (2,350 )
 

Standard operating procedures

    657     (639 )   1,356     (1,310 )
 

Other identifiable intangible assets

    11,443     (6,717 )   10,819     (6,193 )
                   

Total other intangible assets

  $ 326,553   $ (174,088 ) $ 307,663   $ (158,758 )
                   

        The changes in the gross carrying amount and accumulated amortization of goodwill are as follows:

 
   
  Adjustments to Goodwill    
 
 
  Balance at
December 29,
2007
  Balance at
September 27,
2008
 
 
  Acquisitions   Other  

Research Models and Services

                         
 

Gross carrying amount

  $ 22,006   $ 8,414   $ (52 ) $ 30,368  
 

Accumulated amortization

    (4,902 )       9     (4,893 )

Preclinical Services

                         
 

Gross carrying amount

    1,111,426     25,056     898     1,137,380  
 

Accumulated amortization

    (7,990 )           (7,990 )

Total

                         
 

Gross carrying amount

  $ 1,133,432   $ 33,470   $ 846   $ 1,167,748  
 

Accumulated amortization

    (12,892 )       9     (12,883 )

15


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

6. Long-Term Debt

        Long-term debt consists of the following:

 
  September 27, 2008   December 29, 2007  

Senior convertible debentures

  $ 350,000   $ 350,000  

Term loan facilities

    143,600     159,200  

Revolving credit facility

    48,000      

Other long-term debt, represents secured and unsecured promissory notes, interest rates ranging from 0% to 3.7% and 0% to 11.6% at September 27, 2008 and December 29, 2007, respectively, maturing between 2008 and 2013

    1,111     849  
           

Total debt

    542,711     510,049  

Less: current portion of long-term debt

    (239,030 )   (25,051 )
           

Long-term debt

  $ 303,681   $ 484,998  
           

        In 2006, we issued $350,000 of 2.25% Convertible Senior Notes (the 2013 notes) due in 2013. The 2013 notes are convertible into approximately 7.2 million shares of our common stock at an initial conversion price of $48.94 per share of common stock. The 2013 Notes are convertible into cash and shares of our common stock (or, at our election, cash in lieu of some or all of such common stock), if any, based on an initial conversion rate, subject to adjustment, of 20.4337 shares of our common stock per $1,000 principal amount of notes (which represents an initial conversion price of $48.94 per share), only in the following circumstances and to the following extent: (1) during any fiscal quarter beginning after July 1, 2006 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is more than 130% of the conversion price on the last day of such preceding fiscal quarter; (2) during the five business-day period after any five consecutive trading-day period, or the measurement period, in which the trading price per note for each day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such day; (3) upon the occurrence of specified corporate transactions, as described in the indenture for the 2013 Notes; and (4) at the option of the holder at any time beginning on the date that is two months prior to the stated maturity date and ending on the close of business on the second trading-day immediately preceding the maturity date. Upon conversion, we will pay cash and shares of our common stock (or, at our election, cash in lieu of some or all of such common stock), if any. If we undergo a fundamental change as described in the indenture for the 2013 Notes, holders will have the option to require us to purchase all or any portion of their notes for cash at a price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest, including any additional interest to, but excluding, the purchase date.

        As of September 27, 2008, our stock traded at or above 130% of the conversion price for 20 trading days during the last 30 consecutive trading days of the third quarter. Since the conversion trigger was met, the 2013 notes are convertible at the discretion of the bond holders during the fourth quarter of 2008. Accordingly, we have classified $203,466 as short term debt on our September 27, 2008

16


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

6. Long-Term Debt (Continued)


balance sheet. This test is repeated each fiscal quarter. As of September 27, 2008, no conversions have occurred. At September 27, 2008, the fair value of our outstanding 2013 notes was approximately $451,710 based on their quoted market value.

        The interest rates applicable to term loans and revolving loans under the credit agreement are, at our option, equal to either the base rate (which is the higher of the prime rate or the federal funds rate plus 0.50%) or the adjusted LIBOR rate plus an interest rate margin based upon our leverage ratio. Based on our leverage ratio, the margin range for LIBOR-based loans is 0.625% to 0.875%. As of September 27, 2008, the interest rate margin was 0.625%.

        We had $5,466 outstanding under letters of credit as of September 27, 2008.

        Principal maturities of existing debt for the periods set forth in the table below are as follows:

Twelve months ending September
   
 

2009

  $ 239,030  

2010

    77,931  

2011

    31,208  

2012

    48,008  

2013

    146,534  
       
 

Total

  $ 542,711  
       

7. Shareholders' Equity

Earnings (Loss) per Share

        Basic earnings per share for the three and nine months ended September 27, 2008 and September 29, 2007 were computed by dividing earnings available to common shareholders for these periods by the weighted average number of common shares outstanding in the respective periods. Diluted earnings per share were computed upon the weighted average number of common shares outstanding in the three months ended September 27, 2008 and September 29, 2007 and the nine months ended September 27, 2008 and September 29, 2007 and dilutive common stock equivalents outstanding. Potential common shares outstanding principally include stock options under our stock option plans, warrants and the assumed conversion of our 2013 Notes.

        Options to purchase 797,838 and 994,892 shares were outstanding in each of the three respective months ended September 27, 2008 and September 29, 2007, but were not included in computing diluted earnings per share because their inclusion would have been anti-dilutive. Options to purchase 813,265 and 1,523,954 shares were outstanding in each of the respective nine months ended September 27, 2008 and September 29, 2007, but were not included in computing diluted earnings per share because their inclusion would have been anti-dilutive.

        Basic weighted average shares outstanding for the three and nine months ended September 27, 2008 and September 29, 2007 excluded the weighted average impact of 840,571 and 806,251 shares, respectively, of non-vested fixed restricted stock awards.

17


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

7. Shareholders' Equity (Continued)

        The following table illustrates the reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share computations for income from continuing operations and loss from operations of discontinued businesses:

 
  Three Months Ended   Nine Months Ended  
 
  September 27, 2008   September 29, 2007   September 27, 2008   September 29, 2007  

Numerator:

                         

Income from continuing operations for purposes of calculating earnings per share

  $ 44,700   $ 43,536   $ 140,041   $ 118,604  

Loss from discontinued businesses

  $   $ (759 ) $   $ (1,108 )

Denominator:

                         

Weighted average shares outstanding—Basic

    67,167,827     67,192,236     67,380,141     66,813,724  

Effect of dilutive securities:

                         
 

2.25% senior convertible debentures

    1,752,046     526,591     1,547,131     85,190  
 

Stock options and contingently issued restricted stock

    1,385,703     1,226,004     1,359,051     1,126,481  
 

Warrants

    619,121     132,916     405,911     133,448  

Weighted average shares outstanding—Diluted

    70,924,697     69,077,747     70,692,234     68,158,843  

Basic earnings per share from continuing operations

  $ 0.67   $ 0.65   $ 2.08   $ 1.78  

Basic loss per share from discontinued operations

      $ (0.01 )     $ (0.02 )

Diluted earnings per share from continuing operations

  $ 0.63   $ 0.63   $ 1.98   $ 1.74  

Diluted loss per share from discontinued operations

      $ (0.01 )     $ (0.02 )

        The sum of the earnings per share from continuing operations and the loss per share from discontinued operations does not necessarily equal the earnings (loss) per share from net income in the condensed consolidated statements of operations for the three and nine months ended September 27, 2008 and September 29, 2007 due to rounding.

Treasury Shares

        Our Board of Directors has authorized a share repurchase program, originally authorized on July 27, 2005 and subsequently amended on October 26, 2005, May 9, 2006, August 1, 2007 and July 24, 2008 to acquire up to a total of $600,000 of common stock. The program does not have a fixed expiration date. In order to facilitate these share repurchases, we entered into Rule 10b5-1 Purchase Plans. As of September 27, 2008, approximately $211,880 remains authorized for share repurchases.

18


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

7. Shareholders' Equity (Continued)

        Share repurchases during the three and nine months ended September 27, 2008 and September 29, 2007 were as follows:

 
  Three Months Ended   Nine Months Ended  
 
  September 27, 2008   September 29, 2007   September 27, 2008   September 29, 2007  

Number of shares of common stock repurchased

    473,600     381,800     1,360,600     525,000  

Total cost of repurchase

  $ 30,633   $ 20,126   $ 84,520   $ 26,874  

        Additionally, our 2000 Incentive Plan and 2007 Incentive Plan permit the netting of common stock upon vesting of restricted stock awards in order to satisfy individual tax withholding requirements. During the three months ended September 27, 2008 and September 29, 2007, we acquired 22,940 shares for $1,514 and 22,981 shares for $1,214, respectively. During the nine months ended September 27, 2008 and September 29, 2007, we acquired 103,474 shares for $6,240 and 70,312 shares for $3,440, respectively, as a result of such withholdings.

        The timing and amount of any future repurchases will depend on market conditions and corporate considerations.

Warrants

        Separately and concurrently with the pricing of the 2013 Notes, we issued warrants for approximately 7.2 million shares of our common stock. The warrants give the holders the right to receive, for no additional consideration, cash or shares (at our option) with a value equal to the appreciation in the price of our shares above $59.925, and expire between September 13, 2013 and January 22, 2014 over 90 equal increments. The total proceeds from the issuance of the warrants were $65,423.

        As part of our recapitalization in 1999, we issued 150,000 units, each comprised of a $1 senior subordinated note and a warrant to purchase 7.6 shares of our common stock for total proceeds of $150,000. We allocated the $150,000 offering proceeds between the senior subordinated notes ($147,872) and the warrants ($2,128), based upon the estimated fair value. 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 7.6 shares of our common stock 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 4,180 shares of our common stock as of September 27, 2008. The warrants expire on October 1, 2009.

19


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

8. Income Taxes

        The following table provides a reconciliation of the provision for income taxes on the condensed consolidated statement of income:

 
  Three Months Ended   Nine Months Ended  
 
  September 27, 2008   September 29, 2007   September 27, 2008   September 29, 2007  

Income before income taxes and minority interest

  $ 65,524   $ 60,442   $ 195,370   $ 166,294  

Effective tax rate

    31.8 %   27.8 %   28.5 %   28.4 %

Provision for income tax

  $ 20,819   $ 16,808   $ 55,665   $ 47,219  

        Our overall effective tax rate was 31.8% in the third quarter of 2008 and 27.8% in the third quarter of 2007. The increase from the 27.8% effective tax rate in the third quarter of 2007 was primarily attributable to a Massachusetts tax law change which resulted in reporting additional income tax expense of $3,396 during the quarter from the revaluation of our deferred tax assets. This increase in our effective tax rate in the third quarter of 2008 was partially offset by reduced taxes due to tax law changes and declines in corporate income tax rates in Germany, Canada, and the United Kingdom.

        During the first three quarters of 2008, our unrecognized tax benefits recorded in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, increased by $4,023. Of this amount, $1,851 will impact the effective tax rate favorably if recognized in accordance with the currently effective accounting standards. The increase was primarily due to ongoing evaluation of uncertain tax positions related to the current and prior periods.

        We conduct business globally and, as a result, we and our subsidiaries are subject to income tax and file income tax returns in the U.S. and international jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including but not limited to such major jurisdictions as Canada, the United Kingdom, and the United States. With few exceptions, we are no longer subject to U.S. and international income tax examinations for years before 2002.

        We and certain of our subsidiaries are currently under audit by the Canada Revenue Agency and the Internal Revenue Service in the United States. In regards to the Internal Revenue Service examinations of the 2004 tax returns of the Company and an acquired subsidiary, we filed our formal protests of certain proposed income tax adjustments with the Appeals Division on July 2, 2007. Based upon discussions with the Internal Revenue Service, we believe it is reasonably possible that we will reach settlement with the Internal Revenue Service on the proposed adjustments within the next twelve months. We do not anticipate that the settlement of the proposed audit adjustments, which relate primarily to issues associated with an acquisition, will have a material impact on our financial position or results of operations. During the third quarter of 2008, there has been no change in status of the ongoing examinations being conducted by the Canada Revenue Agency and the Internal Revenue Service and the protest before the Appeals Division of the Internal Revenue Service. During the third quarter of 2008, the Commonwealth of Massachusetts commenced an audit of the Company and several of its subsidiaries. We believe that we have appropriately provided for all uncertain tax positions.

20


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

9. Employee Benefits

        The following table provides the components of net periodic benefit cost for our defined benefit plans:

Pension Benefits

 
  Three Months Ended   Nine Months Ended  
 
  September 27,
2008
  September 29,
2007
  September 29,
2008
  September 29,
2007
 

Service cost

  $ 2,313   $ 1,557   $ 5,708   $ 4,636  

Interest cost

    7,716     2,877     16,318     8,571  

Expected return on plan assets

    (8,685 )   (3,125 )   (18,359 )   (9,308 )

Amortization of prior service cost

    (610 )   (136 )   (1,133 )   (403 )

Amortization of net loss

    (67 )   108     (121 )   323  
                   
 

Net periodic benefit cost

  $ 667   $ 1,281   $ 2,413   $ 3,819  
                   

Company contributions

  $ 2,731   $ 4,150   $ 8,143   $ 9,000  

Supplemental Retirement Benefits

 
  Three Months Ended   Nine Months Ended  
 
  September 27,
2008
  September 29,
2007
  September 27,
2008
  September 29,
2007
 

Service cost

  $ 230   $ 220   $ 681   $ 659  

Interest cost

    436     396     1,288     1,187  

Amortization of prior service cost

    125     125     374     374  

Amortization of net loss

    118     143     310     428  
                   

Net periodic benefit cost

  $ 909   $ 884   $ 2,653   $ 2,648  
                   

        We expect to contribute $10,002 to these plans during 2008. As a result of declines in the fair value of our pension plan assets during 2008, it is possible that our future pension plan contributions may be significantly greater than projected.

        In April 2008, our Board of Directors voted to freeze the accrual of benefits under our U.S. pension plan effective April 30, 2008. In accordance with SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," we recorded a curtailment gain of $3,279 in the second quarter of 2008. Based on a remeasurement of the U.S. pension plan's assets and liabilities at April 30, 2008, the benefit accrual freeze reduced the projected benefit obligation by $8,298 and resulted in a corresponding adjustment, net of tax, to accumulated other comprehensive income.

10. Stock-Based Compensation Plans

        We adopted on a modified prospective basis, the provisions of SFAS No. 123(R), "Share-Based Payment (Revised 2004)," (SFAS No. 123(R)) and related guidance which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and

21


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

10. Stock-Based Compensation Plans (Continued)


directors including employee stock options and restricted stock awards based on estimated fair values. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period.

        The estimated fair value of our stock-based awards, less expected forfeitures, is amortized over the awards' vesting period on a straight-line basis. The effect of recording stock-based compensation for the three and nine months ended September 27, 2008 and September 29, 2007 was as follows:

 
  Three Months Ended   Nine Months Ended  
 
  September 27,
2008
  September 29,
2007
  September 27,
2008
  September 29,
2007
 

Stock-based compensation expense by type of award:

                         
 

Stock options

  $ 2,420   $ 2,984   $ 7,907   $ 8,358  
 

Restricted stock

    3,113     4,299     10,566     11,456  
                   
 

Share-based compensation expense before tax

    5,533     7,283     18,473     19,814  
 

Income tax benefit

    (1,860 )   (2,389 )   (6,459 )   (6,355 )
                   

Reduction to net income

  $ 3,673   $ 4,894   $ 12,014   $ 13,459  
                   

Reduction to earnings per share:

                         
 

Basic

  $ 0.06   $ 0.07   $ 0.18   $ 0.20  
 

Diluted

  $ 0.05   $ 0.07   $ 0.17   $ 0.20  

Effect on income by line item:

                         
 

Cost of sales

  $ 1,505   $ 2,217   $ 4,932   $ 6,183  
 

Selling and administration

    4,028     5,066     13,541     13,631  
                   
 

Share based compensation expense before tax

    5,533     7,283     18,473     19,814  
 

Income tax benefit

    (1,860 )   (2,389 )   (6,459 )   (6,355 )
                   

Reduction to net income

  $ 3,673   $ 4,894   $ 12,014   $ 13,459  
                   

        We estimate the fair value of stock options using the Black-Scholes valuation model. Key inputs and assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the risk-free interest rate over the option's expected term, the expected annual dividend yield and the expected stock price volatility. The expected stock price volatility assumption was determined using the historical volatility of our common stock over the expected life of the option. The risk-free interest rate was based on the market yield for the five-year U.S. Treasury security. The expected life of options was determined using historical option exercise activity. Management believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of our stock options granted. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

22


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

10. Stock-Based Compensation Plans (Continued)

        The fair values of stock-based awards granted were estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

 
  Options Granted In:  
 
  2008   2007  

Expected life (in years)

    4.50     5.00  

Expected volatility

    24 %   30 %

Risk-free interest rate

    2.76 %   4.59 %

Expected dividend yield

    0.0 %   0.0 %

Weighted average grant date fair value

  $ 14.91   $ 16.46  

Stock Options

        The following table summarizes the stock option activity in the equity incentive plans from December 29, 2007 through September 27, 2008:

 
  Shares   Weighted Average
Exercise Price
  Weighted Average
Remaining
Contractual Life
(in years)
  Aggregate
Intrinsic
Value
 

Options outstanding as of December 29, 2007

    4,467,803   $ 40.50            

Options granted

    807,730   $ 58.91            

Options exercised

    (696,651 ) $ 39.03            

Options cancelled

    (77,687 ) $ 44.69            
                       

Options outstanding as of September 27, 2008

    4,501,195   $ 43.93   5.26 years   $ 64,209  
                       

Options exercisable as of September 27, 2008

    2,722,054   $ 39.57   4.91 years   $ 50,271  

        As of September 27, 2008, the unrecognized compensation cost related to unvested stock options was $21,569 net of estimated forfeitures. This unrecognized compensation will be recognized over an estimated weighted average amortization period of 32 months.

        The total fair value of the options vested during the three and nine months ended September 27, 2008 was $2,379 and $11,794, respectively. The total fair value of the options vested during the three and nine months ended September 29, 2007 was $2,496 and $10,439, respectively.

        The total intrinsic value of options exercised during the three and nine months ended September 27, 2008 was $6,670 and $16,992, respectively. The total intrinsic value of options exercised during the three and nine months ended September 29, 2007 was $7,471 and $25,211, respectively. Intrinsic value is defined as the difference between the market price on the date of exercise and the grant date price.

        The total amount of cash received from the exercise of options during the nine months ended September 27, 2008 and September 29, 2007 was $27,234 and $42,952, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $5,938 and $6,865 for the nine months ended September 27, 2008 and September 29, 2007, respectively.

        We settle employee stock option exercises with newly issued common shares.

23


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

10. Stock-Based Compensation Plans (Continued)

Restricted Stock

        Stock compensation expense associated with restricted common stock is charged for the market value on the date of grant, less estimated forfeitures, and is amortized over the awards' vesting period on a straight-line basis.

        The following table summarizes the restricted stock activity from December 29, 2007 through September 27, 2008:

 
  Restricted Stock   Weighted
Average
Grant Date
Fair Value
 

Outstanding December 29, 2007

    711,896   $ 44.25  
 

Granted

    349,409   $ 58.83  
 

Vested

    (337,437 ) $ 46.53  
 

Cancelled

    (26,937 ) $ 45.96  
             

Outstanding September 27, 2008

    696,931   $ 50.39  
             

        As of September 27, 2008, the unrecognized compensation cost related to unvested restricted stock was $26,722 net of estimated forfeitures. This unrecognized compensation will be recognized over an estimated weighted average amortization period of 33 months.

        The total fair value of restricted stock grants that vested during the three and nine months ended September 27, 2008 was $2,880 and $15,706, respectively. The total fair value of restricted stock grants that vested during the three and nine months ended September 29, 2007 was $3,022 and $10,503, respectively.

Performance-Based Stock Award Program

        Compensation expense associated with awards made under our performance-based stock award program was $234 and $779 during the three months ended September 27, 2008 and September 29, 2007, respectively. Compensation expense associated with awards made under this new program of $1,771 and $1,874 has been recorded during the nine months ended September 27, 2008 and September 29, 2007, respectively. Payout of this award is contingent upon achievement of individualized stretch goals as determined by our Board of Directors.

11. Commitments and Contingencies

        Various lawsuits, claims and proceedings of a nature considered normal to its business are pending against us. In the opinion of management, the outcome of such proceedings and litigation currently pending will not materially affect our consolidated financial statements. In addition we have certain purchase commitments related to the completion of ongoing capacity expansion which amounted to approximately $47,000 as of September 27, 2008.

24


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

12. Business Segment Information

        The following table presents sales to unaffiliated customers and other financial information by product line segment.

 
  Three Months Ended   Nine Months Ended  
 
  September 27,
2008
  September 29,
2007
  September 27,
2008
  September 29,
2007
 

Research Models and Services

                         
 

Net sales

  $ 165,656   $ 145,207   $ 507,100   $ 432,078  
 

Gross margin

    70,813     63,408     223,498     190,171  
 

Operating income

    50,673     45,574     158,685     137,863  
 

Depreciation and amortization

    7,043     5,780     20,718     17,012  
 

Capital expenditures

    12,572     12,643     46,228     30,415  

Preclinical Services

                         
 

Net sales

  $ 176,571   $ 168,757   $ 524,946   $ 480,520  
 

Gross margin

    59,457     60,491     175,136     170,257  
 

Operating income

    30,390     29,993     82,507     80,863  
 

Depreciation and amortization

    15,894     16,180     47,572     46,093  
 

Capital expenditures

    33,577     37,692     103,802     107,256  

        A reconciliation of segment operating income to consolidated operating income is as follows:

 
  Three Months Ended   Nine Months Ended  
 
  September 27,
2008
  September 29,
2007
  September 27,
2008
  September 29,
2007
 

Total segment operating income

  $ 81,063   $ 75,567   $ 241,192   $ 218,726  

Unallocated corporate overhead

    (12,852 )   (11,936 )   (40,158 )   (43,669 )

Consolidated operating income

  $ 68,211   $ 63,631   $ 201,034   $ 175,057  

        A summary of unallocated corporate overhead consists of the following:

 
  Three Months Ended   Nine Months Ended  
 
  September 27,
2008
  September 29,
2007
  September 27,
2008
  September 29,
2007
 

Stock-based compensation expense

  $ 2,740   $ 3,389   $ 9,101   $ 9,177  

U.S. retirement plans

    722     1,821     111     5,481  

Audit, tax and related expenses

    871     765     2,133     3,042  

Salary and bonus

    3,385     4,231     14,257     11,349  

Global IT

    2,130     635     5,350     3,361  

Employee health, LDP and fringe benefit expense

    (648 )   (1,084 )   (535 )   2,992  

Consulting and outside services

    346     454     1,089     1,224  

Other general unallocated corporate expenses

    3,306     1,725     8,652     7,043  
                   

  $ 12,852   $ 11,936   $ 40,158   $ 43,669  
                   

25


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

12. Business Segment Information (Continued)

        Other general unallocated corporate expenses consist of various departmental costs including corporate accounting, legal and investor relations.

13. Fair Value

        Effective December 30, 2007, we adopted SFAS No. 157, "Fair Value Measurements" (SFAS 157) and SFAS No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159). SFAS 157 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value which are provided in the table below. SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The adoption of both SFAS 157 and SFAS 159 had no impact on our financial statements other than the disclosures presented herein.

Level 1   Quoted prices in active markets for identical assets or liabilities. Level 1 assets include bank time deposits, mutual funds and U.S. Treasury securities that are traded in an active exchange market.

Level 2

 

Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3

 

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes auction rate securities where independent pricing information was not able to be obtained.

26


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

13. Fair Value (Continued)

        Assets measured at fair value on a recurring basis are summarized below:

 
  Fair Value Measurements at
September 27, 2008 using
 
Assets
  Quoted Prices in
Active Markets
for Identical
Assets
Level 1
  Significant Other
Observable
Inputs
Level 2
  Significant
Unobservable
Inputs
Level 3
  Assets
at Fair Value
 

Auction rate securities

          $ 20,461   $ 20,461  

Fair value of life policies

  $ 17,214             17,214  
                     

Total assets

  $ 17,214       $ 20,461   $ 37,675  
                     

        The table below presents a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the quarter ended September 27, 2008. Our auction rate securities were valued at fair value by management utilizing an independent valuation which used pricing models and discounted cash flow methodologies incorporating assumptions that reflect the assumptions a marketplace participant would use at September 27, 2008.

 
  Fair Value Measurements
Using Significant Unobservable
Inputs (Level 3)
 
 
  Auction rate
securities
 

Balance, December 30, 2007

  $  

Total gains or losses (realized/unrealized):

       
 

Included in earnings

     
 

Included in other comprehensive income

    (714 )

Purchases, issuances and settlements

     

Transfers in and/or (out) of Level 3 upon adoption of SFAS 157

    21,175  
       

Balance, September 27, 2008

  $ 20,461  
       

        Certain assets and liabilities are measured at fair value on a non-recurring basis. As of September 27, 2008, we have not applied the provisions of SFAS 157 to these assets and liabilities in accordance with FASB "Staff Position FAS 157-2: Effective Date of SFAS 157" (FSP 157-2). FSP 157-2 partially defers the effective date of SFAS 157 for one year for certain nonfinancial assets and nonfinancial liabilities and removes certain leasing transactions from the scope of SFAS 157. SFAS 157 as amended by this FSP is effective for nonfinancial assets and liabilities in fiscal years beginning after November 15, 2008 and will be applied prospectively.

14. Recently Issued Accounting Standards

        In June, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1) which clarifies that

27


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

14. Recently Issued Accounting Standards (Continued)


share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities. As participating securities, these instruments should be included in the calculation of basic earnings per share. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, as well as interim periods within those years. Once effective, all prior-period earnings per share data presented must be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of the FSP. Early application is not permitted. We are evaluating the impact of this FSP on our consolidated financial statements.

        In May 2008, the FASB issued FSP No. APB 14-1 Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). This FSP specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and will be applied retrospectively to all periods presented. We are evaluating the magnitude of the impact of adopting the provisions of this FSP on our consolidated financial statements.

        In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities (FAS 161). FAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FASB Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This statement is not expected to have an impact on our consolidated financial statements.

        In February 2008, the FASB issued FSP 157-1 and 157-2 that (1) partially deferred the effective date of SFAS 157 for one year for certain nonfinancial assets and nonfinancial liabilities and (2) removed certain leasing transactions from the scope of SFAS 157. SFAS 157 as amended by this FSP is effective for nonfinancial assets and liabilities in fiscal years beginning after November 15, 2008 and will be applied prospectively. The provisions of SFAS 157 are not expected to have a material impact on our consolidated financial statements.

        In February 2008, the FASB issued FSP FAS 140-3: Accounting for Transfers of Financial Assets and Repurchase Financing Transactions (FSP 140-3). FSP 140-3 provides guidance on accounting for a transfer of a financial asset and a repurchase financing. This FSP presumes that an initial transfer for a financial asset and a repurchase financing are considered part of the same arrangement (linked transaction) under Statement 140. However, if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under Statement 140. This FSP is not expected to have an impact on our consolidated financial statements.

28


Table of Contents


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

14. Recently Issued Accounting Standards (Continued)

        In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)) and No. 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS 160). SFAS 141(R) and SFAS 160 introduce significant changes in the accounting for and reporting of business acquisitions and noncontrolling interests in a subsidiary. SFAS 141(R) continues the movement toward the greater use of fair values in financial reporting and increased transparency through expanded disclosures. SFAS 141(R) changes how business acquisitions are accounted for and will impact financial statements at the acquisition date and in subsequent periods. In addition, SFAS 141(R) will impact the annual goodwill impairment test associated with acquisitions that close both before and after its effective date. SFAS 141(R) amends SFAS 109 changing the accounting for adjustments to deferred tax asset valuation allowances and income tax uncertainties related to acquisitions that close both before and after its effective date, generally requiring adjustments to be reflected in income tax expense. SFAS 141(R) applies prospectively to fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. An entity may not apply SFAS 141(R) before that date. We are evaluating the impact of adopting the provisions of SFAS 141(R) and SFAS 160 on our consolidated financial statements.

29


Table of Contents

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes.

Overview

        We are a leading global provider of solutions that advance the drug discovery and development process, including research models and associated services and outsourced preclinical services. We partner with global pharmaceutical companies, a wide range of biotechnology companies, as well as government agencies, and leading hospitals and academic institutions throughout the world in order to bring drugs to market faster and more efficiently. Our broad portfolio of products and services enables our customers to reduce costs, increase speed to market and enhance their productivity and effectiveness in drug discovery and development. We have built upon our core competency of laboratory animal medicine and science (research model technologies) to develop a diverse and growing portfolio of regulatory compliant preclinical services which address drug discovery and development in the preclinical arena. We have been in business for over 60 years and currently operate over 60 facilities in 15 countries worldwide.

        Our sales growth in the third quarter and the first nine months of 2008 was driven by continued spending by major pharmaceuticals, biotechnology companies and academic institutions on our global products and services, which aid in their development of new drugs and products. We expect the long-term drivers for our business as a whole primarily to emerge from our customers' continued demand for research models and services and regulatory compliant preclinical services, as well as increased strategic focus on outsourcing. In the third quarter, however, demand for products remained strong, but demand for services was softer, impacting our growth rate. We believe this was primarily due to a number of emerging factors which include: business restructuring and reprioritization of pipelines by pharmaceutical and biotechnology clients, which led to significant and accelerating study slippage and delays; and tight cost controls which resulted in more measured spending and some pricing pressure. We expect these factors to impact the remainder of 2008 and to persist into 2009.

        Our capital expenditures were $150.0 million during the nine months ended September 27, 2008, with planned capital expenditures for the year not expected to exceed $210 million. This is below our previous estimates of $220—$240 million. As a result of the factors which are affecting our sales growth, we evaluated our expansion plans and determined that we have sufficient capacity to accommodate our clients' current demand. We expect to open the Sherbrooke (Canada) facility on schedule in the first quarter of 2009, in order to relieve capacity constraints at our Montreal facility. We have delayed the expansion of our Ohio facility until 2010, when we believe much of the industry's excess capacity will have been absorbed.

        In addition to internally generated organic growth, our business strategy includes strategic "bolt-on" acquisitions that complement our business, increase the rate of our growth or geographically expand our existing services, as evidenced by our acquisitions of NewLab BioQuality AG and MIR Preclinical Services in the third quarter of 2008.

        Total net sales during the third quarter of 2008 were $342.2 million, an increase of 9.0% over the same period last year. The sales increase was due primarily to increased customer demand and higher pricing in Research Models & Services (RMS), strong large model safety testing and certain specialty toxicology sales partially offset by slower demand for Preclinical Services (PCS) due to our clients' restructuring and reprioritization efforts, particularly in Europe. The effect of foreign currency translation added 1.5% to sales growth. Our gross margin decreased to 38.1% of net sales for the third quarter of 2008, compared to 39.5% of net sales for the third quarter of 2007, due primarily to the result of lower sales growth as well as the impact of higher costs primarily due to energy.

30


Table of Contents

        Our operating income for the third quarter of 2008 was $68.2 million compared to $63.6 million for the third quarter of 2007, an increase of 7.2%. The operating margin was 19.9% for the third quarter of 2008 compared to 20.3% for the prior year, primarily due to lower gross margin as a percent of sales partially offset by lower operating expenses as a percent of sales. Net income from continuing operations was $44.7 million for the third quarter of 2008 compared to $43.5 million for the third quarter of 2007. Diluted earnings per share from continuing operations for the third quarter of 2008 and 2007 were $0.63.

        Total net sales during the nine months ended September 27, 2008 were $1,032.0 million, an increase of 13.1% over the same period last year. The sales increase was due primarily to increased customer demand along with higher pricing in RMS. The effect of foreign currency translation added 3.2% to sales growth. Our gross margin decreased to 38.6% of net sales for the nine months ended September 27, 2008, compared to 39.5% of net sales for the nine months ended September 29, 2007.

        Our operating income for the nine months ended September 27, 2008 was $201.0 million compared to $175.1 million for the nine months ended September 29, 2007, an increase of 14.8%. The operating margin was 19.5% for the nine months ended September 27, 2008 compared to 19.2% for the prior year. Net income from continuing operations was $140.0 million for the nine months ended September 27, 2008 compared to $118.6 million for the nine months ended September 29, 2007. Diluted earnings per share from continuing operations for the nine months ended September 27, 2008 were $1.98 compared to $1.74 for the nine months ended September 29, 2007.

        We report two business segments: RMS and PCS, which reflect the manner in which our operating units are managed.

        Our RMS segment, which represented 48.4% of net sales in the third quarter of 2008, includes research models, genetically engineered models and services (GEMS), research animal diagnostics, discovery and imaging services, consulting and staffing services, vaccine support and in vitro technology (primarily endotoxin testing). Net sales for this segment increased 14.1% for the third quarter of 2008 compared to the third quarter of 2007, due to increased small model sales in the United States, consulting and staffing services, and large model, avian and in-vitro sales. Favorable foreign currency translation increased the net sales gain by 4.0%. We experienced decreases in both the RMS gross margin and operating margin compared to last year (to 42.7% from 43.7% and to 30.6% from 31.4%, respectively) due mainly to the impact of higher costs due to energy fuel surcharges.

        Sales on a year to date basis for our RMS business segment increased 17.4% compared to the nine months ended September 29, 2007, due to increased small model sales in the United States and Europe, increased consulting and staffing services and strong in-vitro sales. Operating income on a year to date basis was $158.7 million compared to $137.9 million, an increase of $20.8 million, or 15.1%, from the same period last year. Operating income for the nine months ended September 27, 2008 as a percent of net sales decreased to 31.3% compared to 31.9% for the same period last year due mainly to the impact of inflation and fuel surcharges on our costs.

        Our PCS segment, which represented 51.6% of net sales in the third quarter of 2008, includes services required to take a drug through the development process including discovery support, toxicology, pathology, biopharmaceutical, bioanalysis, pharmacokinetics and drug metabolism services, as well as Phase I clinical trials. Sales for this segment for the third quarter of 2008 increased 4.6% over the third quarter of 2007. Sales were driven by continuing strong demand for large model safety testing and certain specialty toxicology studies as well as the acquisition of NewLab BioQuality AG, partially offset by more measured pharmaceutical spending due to our clients' restructuring and reprioritization efforts, particularly in Europe. Unfavorable foreign currency decreased sales growth by 0.7%. We experienced a decrease in the PCS gross margin for the third quarter of 2008 to 33.7% from 35.8% in 2007, due mainly to the lower sales growth. Operating income decreased to 17.2% of net sales for the third quarter of 2008, compared to 17.8% for 2007 due mainly to the lower gross margin.

31


Table of Contents

        Sales on a year to date basis for our PCS segment increased 9.2% over the same period last year. Operating income for the nine months ended September 27, 2008 decreased to 15.7% of net sales, compared to 16.8% for the nine months ended September 29, 2007.

        Our unallocated corporate headquarters cost increased to $12.9 million in the third quarter of 2008, from $11.9 million in the third quarter of 2007, due mainly to costs associated with the evaluation of bolt-on acquisitions we decided to forgo.

Three Months Ended September 27, 2008 Compared to Three Months Ended September 29, 2007

         Net Sales.    Net sales for the three months ended September 27, 2008 were $342.2 million, an increase of $28.2 million, or 9.0%, from $314.0 million for the three months ended September 29, 2007.

         Research Models and Services.    For the three months ended September 27, 2008 net sales for our RMS segment increased to $165.7 million from $145.2 million for the three months ended September 29, 2007, an increase of 14.1%. Favorable foreign currency translation increased sales growth by approximately 4.0%. RMS sales increased due to increased model sales in the United States, consulting and staffing services, and large model, avian and in-vitro sales.

         Preclinical Services.    For the three months ended September 27, 2008, net sales for our PCS segment were $176.6 million, an increase of $7.8 million, or 4.6%, compared to $168.8 million for the three months ended September 29, 2007. The increase was primarily due to the increased customer demand for large model safety testing and certain specialty toxicology as well as the acquisition of NewLab BioQuality AG, offset by more measured pharmaceutical spending due to our clients' restructuring and reprioritization efforts, particularly in Europe. Unfavorable foreign currency had a negative impact on sales growth of 0.7%.

         Cost of Products Sold and Services Provided.    Cost of products sold and services provided for the three months ended September 27, 2008 was $212.0 million, an increase of $21.9 million, or 11.5%, from $190.1 million for the three months ended September 27, 2007. Cost of products sold and services provided for the three months ended September 27, 2008 was 61.9% of net sales, compared to 60.5% for the three months ended September 29, 2007.

         Research Models and Services.    Cost of products sold and services provided for RMS for the three months ended September 27, 2008 was $94.8 million, an increase of $13.0 million, or 15.9%, compared to $81.8 million for the three months ended September 29, 2007. Cost of products sold and services provided increased as a percent of net sales to 57.3% for the three months ended September 27, 2008, compared to 56.3% of net sales for the three months ended September 29, 2007 due mainly to the impact of higher costs due to energy and fuel surcharges.

         Preclinical Services.    Cost of services provided for the PCS segment for the three months ended September 27, 2008 was $117.1 million, an increase of $8.8 million, or 8.2%, compared to $108.3 million for the three months ended September 29, 2007. Cost of services provided as a percentage of net sales was 66.3% for the three months ended September 27, 2008, compared to 64.2% for the three months ended September 29, 2007 due primarily to the result of lower sales growth.

         Selling, General and Administrative Expenses.    Selling, general and administrative expenses for the three months ended September 27, 2008 were $54.5 million, an increase of $2.7 million, or 5.0%, from $51.8 million for the three months ended September 29, 2007. Selling, general and administrative expenses for the three months ended September 27, 2008 were 15.9% of net sales compared to 16.5% of net sales for the three months ended September 29, 2007.

         Research Models and Services.    Selling, general and administrative expenses for RMS for the three months ended September 27, 2008 were $19.5 million, an increase of $2.0 million, or 11.9%, compared

32


Table of Contents


to $17.5 million for the three months ended September 29, 2007. Selling, general and administrative expenses decreased as a percentage of sales to 11.8% for the three months ended September 27, 2008 from 12.0% for the three months ended September 29, 2007 due mainly to greater economies of scale.

         Preclinical Services.    Selling, general and administrative expenses for the PCS segment for the three months ended September 27, 2008 were $22.1 million, a decrease of $0.4 million, compared to $22.5 million for the three months ended September 29, 2007. Selling, general and administrative expenses for the three months ended September 27, 2008 decreased to 12.5% of net sales, compared to 13.3% of net sales for the three months ended September 30, 2006.

         Unallocated Corporate Overhead.    Unallocated corporate overhead, which consists of various costs primarily related to activities centered at our corporate headquarters, such as compensation (including stock-based compensation), information systems, compliance and facilities expenses associated with our corporate, administration and professional services functions was $12.9 million for the three months ended September 27, 2008, compared to $11.9 million for the three months ended September 29, 2007. The increase in unallocated corporate overhead during the third quarter of 2008 was due primarily to the costs associated with the evaluation of bolt-on acquisitions we decided to forgo.

         Amortization of Other Intangibles.    Amortization of other intangibles for the three months ended September 27, 2008 was $7.6 million, a decrease of $0.8 million, from $8.4 million for the three months ended September 29, 2007.

         Preclinical Services.    For the three months ended September 27, 2008, amortization of other intangibles for our PCS segment was $7.0 million, compared to $8.0 million for the three months ended September 29, 2007.

         Operating Income.    Operating income for the three months ended September 27, 2008 was $68.2 million, an increase of $4.6 million, or 7.2%, from $63.6 million for the three months ended September 29, 2007. Operating income for the three months ended September 27, 2008 was 19.9% of net sales, compared to 20.3% of net sales for the three months ended September 29, 2007.

         Research Models and Services.    For the three months ended September 27, 2008, operating income for our RMS segment was $50.7 million, an increase of $5.1 million, or 11.2%, from $45.6 million for the three months ended September 29, 2007. Operating income as a percentage of net sales for the three months ended September 27, 2008 was 30.6%, compared to 31.4% for the three months ended September 29, 2007. The decrease in operating income as a percentage of sales was due mainly to the impact of inflation and fuel surcharges on our costs.

         Preclinical Services.    For the three months ended September 27, 2008, operating income for our PCS segment was $30.4 million, an increase of $0.4 million, or 1.3%, from $30.0 million for the three months ended September 29, 2007. Operating income as a percentage of net sales decreased to 17.2%, compared to 17.8% of net sales for the three months ended September 29, 2007. The decrease in operating income as a percentage of net sales was primarily due to lower gross margin partially offset by lower amortization costs and favorable operating expenses.

         Interest Expense.    Interest expense for the three months ended September 27, 2008 was $3.6 million, compared to $4.6 million for the three months ended September 29, 2007 due primarily to debt repayment and lower interest rates.

         Interest Income.    Interest income during the third quarter of 2008 was $2.3 million essentially flat compared to the third quarter of 2007.

         Income Taxes.    Income tax expense for the three months ended September 27, 2008 was $20.8 million, an increase of $4.0 million compared to $16.8 million for the three months ended

33


Table of Contents


September 29, 2007. Our effective tax rate increased to 31.8% in the third quarter of 2008 from 27.8% in the third quarter of 2007 due primarily to a change in Massachusetts tax law that resulted in the reporting of $3.4 million of additional tax expense due to the revaluation of our deferred tax assets.

         Net Income.    Net income in the third quarter of 2008 was $44.7 million, compared to $42.8 million in the same period last year. Diluted earnings per share in the third quarter of 2008 were $0.63, compared to $0.62 in the same period last year.

Nine Months Ended September 27, 2008 Compared to Nine Months Ended September 29, 2007

         Net Sales.    Net sales for the nine months ended September 27, 2008 were $1,032.0 million, an increase of $119.4 million, or 13.1%, from $912.6 million for the nine months ended September 29, 2008.

         Research Models and Services.    For the nine months ended September 27, 2008, net sales for our RMS segment were $507.1 million, an increase of $75.0 million, or 17.4%, from $432.1 million for the nine months ended September 29, 2007, due to increased small model sales in the United States and Europe, increased consulting and staffing services and strong in-vitro sales, partially offset by lower small model growth in Japan. Favorable foreign currency translation increased sales growth by approximately 5.8%. RMS sales increased due to pricing and unit volume increases in both models, including large models, and services. The RMS sales growth was driven by increases in basic research and biotechnology spending, which drove greater demand for our products and services.

         Preclinical Services.    For the nine months ended September 27, 2008, net sales for our PCS segment were $524.9 million, an increase of $44.4 million, or 9.2%, compared to $480.5 million for the nine months ended September 29, 2007. Favorable foreign currency increased sales growth by 0.9%.

         Cost of Products Sold and Services Provided.    Cost of products sold and services provided for the nine months ended September 27, 2008 was $633.4 million, an increase of $81.2 million, or 14.7%, from $552.2 million for the nine months ended September 29, 2007. Cost of products sold and services provided for the nine months ended September 27, 2008 was 61.4% of net sales, compared to 60.5% for the nine months ended September 29, 2007.

         Research Models and Services.    Cost of products sold and services provided for RMS for the nine months ended September 27, 2008 was $283.6 million, an increase of $41.7 million, or 17.2%, compared to $241.9 million for the nine months ended September 29, 2007. Cost of products sold and services provided as a percentage of net sales for the nine months ended September 27, 2008 was 55.9% compared to 56.0% for the nine months ended September 29, 2007. The greater facility utilization was the result of the increased sales during the quarter.

         Preclinical Services.    Cost of services provided for the PCS segment for the nine months ended September 27, 2008 was $349.8 million, an increase of $39.5 million, or 12.7%, compared to $310.3 million for the nine months ended September 29, 2007. Cost of services provided as a percentage of net sales was 66.6% for the nine months ended September 27, 2008, compared to 64.6% for the nine months ended September 29, 2007. The increase in cost of services provided as a percentage of net sales was primarily due to the start-up and transition costs of PCS Nevada facilities.

34


Table of Contents

         Selling, General and Administrative Expenses.    Selling, general and administrative expenses for the nine months ended September 27, 2008 were $174.8 million, an increase of $13.8 million, or 8.6%, from $161.0 million for the nine months ended September 29, 2007. Selling, general and administrative expenses for the nine months ended September 27, 2008 were 16.9% of net sales compared to 17.6% of net sales for the nine months ended September 29, 2007.

         Research Models and Services.    Selling, general and administrative expenses for RMS for the nine months ended September 27, 2008 were $63.1 million, an increase of $11.9 million, or 23.2%, compared to $51.2 million for the nine months ended September 29, 2007. Selling, general and administrative expenses increased as a percentage of sales to 12.4% for the nine months ended September 27, 2008 from 11.8% for the nine months ended September 29, 2007 due mainly to higher operating costs in Japan.

         Preclinical Services.    Selling, general and administrative expenses for the PCS segment for the nine months ended September 27, 2008 were $71.6 million, an increase of $5.5 million, or 8.3%, compared to $66.1 million for the nine months ended September 29, 2007. Selling, general and administrative expenses for the nine months ended September 27, 2008 decreased to 13.6% of net sales compared to 13.8% for the nine months ended September 29, 2007.

         Unallocated Corporate Overhead.    Unallocated corporate overhead, which consists of various costs primarily related to activities centered at our corporate headquarters, such as compensation (including stock-based compensation), information systems, compliance and facilities expenses associated with our corporate, administration and professional services functions was $40.2 million for the nine months ended September 27, 2008, compared to $43.7 million for the nine months ended September 29, 2007. The decrease in unallocated corporate overhead during the nine months ended September 27, 2008 was primarily due to the curtailment of the pension plan and slower growth in health care costs.

         Amortization of Other Intangibles.    Amortization of other intangibles for the nine months ended September 27, 2008 was $22.8 million, a decrease of $1.6 million, from $24.4 million for the nine months ended September 29, 2007.

         Preclinical Services.    For the nine months ended September 27, 2008, amortization of other intangibles for our PCS segment was $21.1 million, a decrease of $2.2 million from $23.3 million for the nine months ended September 29, 2007.

         Operating Income.    Operating income for the nine months ended September 27, 2008 was $201.0 million, an increase of $25.9 million, or 14.8%, from $175.1 million for the nine months ended September 29, 2007. Operating income for the nine months ended September 27, 2008 was 19.5% of net sales, compared to 19.2% of net sales for the nine months ended September 29, 2007.

         Research Models and Services.    For the nine months ended September 27, 2008, operating income for our RMS segment was $158.7 million, an increase of $20.8 million, or 15.1%, from $137.9 million for the nine months ended September 29, 2007. Operating income as a percentage of net sales for the nine months ended September 27, 2008 was 31.3%, compared to 31.9% for the nine months ended September 29, 2007. The decrease in operating income as a percentage of sales was primarily due to increased operating expenses partially offset by improved utilization due to the higher sales volume.

         Preclinical Services.    For the nine months ended September 27, 2008 operating income for our PCS segment was $82.5 million, an increase of $1.6 million, or 2.0%, from $80.9 million for the nine months ended September 29, 2007. Operating income as a percentage of net sales decreased to 15.7% compared to 16.8% of net sales for the nine months ended September 29, 2007. The decrease in operating income as a percentage of net sales was primarily due to the start-up and transition costs for our PCS Nevada facilities partially offset by improved operating efficiency as a result of higher sales and lower amortization costs.

35


Table of Contents

         Interest Expense.    Interest expense for the nine months ended September 27, 2008 was $10.3 million, compared to $13.9 million for the nine months ended September 29, 2007, due primarily to lower outstanding debt.

         Interest Income.    Interest income for the nine months ended September 27, 2008 was $7.1 million compared to $6.9 million for the nine months ended September 29, 2007.

         Income Taxes.    Income tax expense for the nine months ended September 27, 2008 was $55.7 million, an increase of $8.5 million compared to $47.2 million for the nine months ended September 29, 2007. Our effective tax rate was 28.5% for the nine months ended September 27, 2008 compared to 28.4% for the nine months ended September 29, 2007. The increase in the effective tax rate for the nine months ending September 27, 2008 over the effective tax rate for the nine months ending September 29, 2007 was primarily due to a change in Massachusetts tax law that resulted in the reporting of $3.4 million of additional tax expense due to the revaluation of our deferred tax assets, largely offset by tax savings resulting from tax law changes and declines in corporate income tax rates in Germany, Canada, and the United Kingdom.

         Net Income.    Net income for the nine months ended September 27, 2008 was $140.0 million compared to $117.5 million for the nine months ended September 29, 2007.

Liquidity and Capital Resources

        The following discussion analyzes liquidity and capital resources by operating, investing and financing activities as presented in our condensed consolidated statements of cash flows.

        Our principal sources of liquidity have been our cash flow from operations, our marketable securities and our revolving line of credit arrangements.

        We had marketable securities of $20.5 million and $63.4 million as of September 27, 2008 and December 29, 2007, respectively. As of September 27, 2008 and December 29, 2007, we had $20.5 million and $38.2 million invested in auction rate securities rated AAA by a major credit rating agency. Our auction rate securities are guaranteed by U.S. federal agencies. These auction rate securities provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, usually every 7 or 35 days. The current overall credit concerns in the capital markets as well as the failed auctions of these securities have impacted our ability to liquidate these investments. If the auctions for the securities we own continue to fail, the investment may not be readily convertible to cash until a future auction of these investments is successful. Based on our ability to access our cash and other short-term investments, our expected operating cash flows, and other sources of cash, we do not anticipate the current lack of liquidity on these investments will affect our ability to operate our business as usual.

        In 2006, we issued $350,000 of 2.25% Convertible Senior Notes (the 2013 notes) due in 2013. The 2013 notes are convertible into approximately 7.2 million shares of our common stock at an initial conversion price of $48.94 per share of common stock. The 2013 Notes are convertible into cash and shares of our common stock (or, at our election, cash in lieu of some or all of such common stock), if any, based on an initial conversion rate, subject to adjustment, of 20.4337 shares of our common stock per $1,000 principal amount of notes (which represents an initial conversion price of $48.94 per share), only in the following circumstances and to the following extent: (1) during any fiscal quarter beginning after July 1, 2006 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is more than 130% of the conversion price on the last day of such preceding fiscal quarter; (2) during the five business-day period after any five consecutive trading-day period, or the measurement period, in which the trading price per note for each day of that measurement period was less than 98% of the product of the last reported sale price of our common

36


Table of Contents


stock and the conversion rate on each such day; (3) upon the occurrence of specified corporate transactions, as described in the indenture for the 2013 Notes; and (4) at the option of the holder at any time beginning on the date that is two months prior to the stated maturity date and ending on the close of business on the second trading-day immediately preceding the maturity date. Upon conversion, we will pay cash and shares of our common stock (or, at our election, cash in lieu of some or all of such common stock), if any. As of December 29, 2007, no conversion triggers were met. If we undergo a fundamental change as described in the indenture for the 2013 Notes, holders will have the option to require us to purchase all or any portion of their notes for cash at a price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest, including any additional interest to, but excluding, the purchase date. As of September 27, 2008, our stock traded at 130% of the conversion price for 20 trading days during the last 30 consecutive trading days of the second quarter. Since the conversion trigger was met, the 2013 notes are convertible at the discretion of the bond holders during the fourth quarter of 2008. Accordingly, we have classified $203.5 million as short term debt on our September 27, 2008 balance sheet. This test is repeated each fiscal quarter. If the conversion test is not met in a subsequent quarter, the notes may be reclassified as long term debt as of the end of such quarter. To date, no conversions have occurred. At September 27, 2008, the fair value of our outstanding 2013 notes was approximately $451.7 based on their quoted market value.

        In the event a bond holder exercises the conversion right prior to April 15, 2013, the amount of the settlement would be based upon the 30 consecutive trading day period of our common stock starting on the second trading day following the bondholder delivery of a conversion notice. We would make a cash payment up to the principal amount of the bonds being converted and pay either cash or stock or a combination (our choice) in a value equal to any amount of conversion value in excess of such principal amount. Additionally, under the bond hedge we would receive payment comparable to the amount of conversion value in excess of such principal amount.

        Cash and cash equivalents totaled $212.9 million at September 27, 2008, compared to $225.4 million at December 29, 2007.

        Net cash provided by operating activities for the nine months ended September 27, 2008 and September 29, 2007 was $195.3 million and $171.5 million, respectively. The increase in cash provided by operations was primarily a result of increased earnings. Our days sales outstanding (DSO) of 41 days as of September 27, 2008 increased from 35 days at December 29, 2007 and decreased from 43 days at September 29, 2007. Our DSO includes deferred revenue as an offset to accounts receivable in the calculation.

        Net cash used in investing activities for the nine months ended September 27, 2008 and September 29, 2007 was $175.1 million and $132.7 million, respectively. Our capital expenditures in 2008 were $150.0 million of which $46.2 million was related to RMS and $103.8 million to PCS. For 2008, we project capital expenditures not to exceed $210 million. We anticipate that future capital expenditures will be funded by operating activities and existing credit facilities.

        Net cash used in financing activities for the nine months ended September 27, 2008 was $26.2 million compared to $41.1 million for the nine months ended September 29, 2007. During 2008, we purchased $90.0 million of treasury stock and repaid debt of $24.0 million partially offset by proceeds from exercises of employee stock options and warrants of $28.0 million and proceeds from debt of $56.0 million. During 2007, we purchased $30.3 million of treasury stock and repaid debt of $56.7 million offset by exercises of employee stock options and warrants of $43.0 million.

New Accounting Pronouncements

        In June, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities which clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered

37


Table of Contents


participating securities. As participating securities, these instruments should be included in the calculation of basic earnings per share. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, as well as interim periods within those years. Once effective, all prior-period earnings per share data presented must be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of the FSP. Early application is not permitted. We are evaluating the impact of this FSP on our consolidated financial statements.

        In May 2008, the FASB issued FSP No. APB 14-1 Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). This FSP specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and will be applied retrospectively to all periods presented. We are evaluating the magnitude of the impact of adopting the provisions of this FSP on our consolidated financial statements.

        In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities (FAS 161). FAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FASB Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This statement is not expected to have an impact on our consolidated financial statements.

        In February 2008, the FASB issued a FSP 157-2 that (1) partially deferred the effective date of SFAS 157 for one year for certain nonfinancial assets and nonfinancial liabilities and (2) removed certain leasing transactions from the scope of SFAS 157. SFAS 157 as amended by this FSP is effective for nonfinancial assets and liabilities in fiscal years beginning after November 15, 2008 and will be applied prospectively. The provisions of SFAS 157 are not expected to have a material impact on our consolidated financial statements.

        In February 2008, the FASB issued FSP FAS 140-3: Accounting for Transfers of Financial Assets and Repurchase Financing Transactions (FSP-140-3). FSP 140-3 provides guidance on accounting for a transfer of a financial asset and a repurchase financing. This FSP presumes that an initial transfer for a financial asset and a repurchase financing are considered part of the same arrangement (linked transaction) under Statement 140. However, if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under Statement 140. This FSP is not expected to have an impact on our consolidated financial statements.

        In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)) and No. 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS 160). SFAS 141(R) and SFAS 160 introduce significant changes in the accounting for and reporting of business acquisitions and noncontrolling interests in a subsidiary. SFAS 141(R) continues the movement toward the greater use of fair values in financial reporting and increased transparency through expanded disclosures. SFAS 141(R) changes how business acquisitions are accounted for and will impact financial statements at the acquisition date and in subsequent periods. In addition, SFAS 141(R) will impact the annual goodwill impairment test associated with acquisitions that close both before and after its effective date. SFAS 141(R) amends SFAS 109 changing the accounting for adjustments to deferred tax asset valuation allowances and income tax uncertainties related to acquisitions that close both before and after its

38


Table of Contents


effective date, generally requiring adjustments to be reflected in income tax expense. SFAS 141(R) applies prospectively to fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. An entity may not apply SFAS 141(R) before that date. We are evaluating the impact of adopting the provisions of SFAS 141(R) and SFAS 160 on our consolidated financial statements.

Off-Balance Sheet Arrangements

        The conversion features of our 2013 Notes are equity-linked derivatives. As such, we recognize these instruments as off-balance sheet arrangements. The conversion features associated with these notes would be accounted for as derivative instruments, except that they are indexed to our common stock and classified in stockholders' equity. Therefore, these instruments meet the scope of exception of paragraph 11(a) of SFAS No. 133, "Accounting for Derivatives Instruments and Hedging Activities," and are accordingly not accounted for as derivatives for purposes of SFAS No. 133.

Item 3.    Quantitative and Qualitative Disclosure About Market Risk

        Certain of our financial instruments are subject to market risks, including interest rate risk and foreign currency exchange rates. We generally do not use financial instruments for trading or other speculative purposes.

Interest Rate Risk

        We have entered into two credit agreements, the amended and restated $428 million credit agreement and the $50 million credit agreement. Our primary interest rate exposure results from changes in LIBOR or the base rates which are used to determine the applicable interest rates under our term loans in the $428 million credit agreement and in the $50 million agreement and our revolving credit facilities. Our potential loss over one year that would result from a hypothetical, instantaneous and unfavorable change of 100 basis points in the interest rate would be approximately $3.4 million on a pre-tax basis. The book value of our debt approximates fair value.

        We issued $350 million of the 2013 Notes in a private placement in the second quarter of 2006. The convertible senior debenture notes bear an interest rate of 2.25%. The fair market value of the outstanding notes was $451.7 million on September 27, 2008.

Foreign Currency Exchange Rate Risk

        We operate on a global basis and have exposure to some foreign currency exchange rate fluctuations for our earnings and cash flows. This risk is mitigated by the fact that various foreign operations are principally conducted in their respective local currencies. A portion of our foreign operations' revenue is denominated in U.S. dollars, with the costs accounted for in their local currencies. We attempt to minimize this exposure by using certain financial instruments, for purposes other than trading, in accordance with our overall risk management and our hedge policy. Our hedge policy requires that we designate such transactions as hedges as set forth in SFAS No. 133.

        During 2008, we utilized foreign exchange contracts, principally to hedge the impact of currency fluctuations on customer transactions and certain balance sheet items. There were no significant contracts open as of September 27, 2008.

Item 4.    Controls and Procedures

(a)   Evaluation of Disclosure Controls and Procedures

        Based on their evaluation, required by paragraph (b) of Rules 13a-15 or 15d-15, promulgated by the Securities Exchange Act of 1934 , the Company's principal executive officer and principal financial

39


Table of Contents


officer have concluded that the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act are effective as of September 27, 2008 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures. We continually are in the process of further reviewing and documenting our disclosure controls and procedures, and our internal control over financial reporting, and accordingly may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

(b)   Changes in Internal Controls

        There were no changes in the Company's internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of the Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended September 27, 2008 that materially affected, or were reasonably likely to materially affect, the Company's internal control over financial reporting.

40


Table of Contents


Part II. Other Information

Item 1A.    Risk Factors

        In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 29, 2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

        The following table provides information relating to the Company's purchases of shares of its common stock during the quarter ended September 27, 2008.

 
  Total Number
of Shares
Purchased
  Average
Price Paid
per Share
  Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
  Approximate Dollar
Value of Shares
That May Yet Be
Purchased Under
the Plans or
Programs
 

June 29, 2008—July 26, 2008

    148,380   $ 63.98     148,000   $ 233,044,129  

July 27, 2008—August 23, 2008

    161,802   $ 66.75     140,000   $ 223,683,812  

August 24, 2008—September 27, 2008

    186,358   $ 63.61     185,600   $ 211,880,137  
                       

Total:

    496,540   $ 64.74     473,600   $ 211,880,137  
                       

        The Board of Directors of the Company has authorized a share repurchase program, originally authorized on July 27, 2005 and subsequently amended on October 26, 2005, May 9, 2006, August 1, 2007 and July 24, 2008, to acquire up to a total of $600.0 million of common stock. The program does not have a fixed expiration date.

        During the quarter ended September 27, 2008, the Company repurchased 473,600 shares of common stock for approximately $30.6 million. The timing and amount of any future repurchases will depend on market conditions and corporate considerations. Additionally, the Company's 2000 Incentive Plan permits the netting of common stock upon vesting of restricted stock awards in order to satisfy individual tax withholding requirements. Accordingly, during the quarter ended September 27, 2008, the Company acquired 22,940 shares as a result of such withholdings for approximately $1.5 million.

Item 6.    Exhibits

    (a)
    Exhibits

  31.1   Certification of the Principal Executive Officer required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act. Filed herewith.

 

31.2

 

Certification of the Principal Financial Officer required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act. Filed herewith.

 

32.1

 

Certification of the Principal Executive Officer and Principal Financial Officer required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act. Filed herewith.

41


Table of Contents


SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

November 6, 2008

 

 
    /s/ JAMES C. FOSTER

James C. Foster
Chairman, President and Chief Executive Officer

November 6, 2008

 

 
    /s/ THOMAS F. ACKERMAN

Thomas F. Ackerman
Corporate Executive Vice President and Chief Financial Officer

42



Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki