10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| |
(Mark One) | |
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 2015 |
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 No. 001-15943
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
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| | |
Delaware | | 06-1397316 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
251 Ballardvale Street Wilmington, Massachusetts (Address of Principal Executive Offices) | | 01887 (Zip Code) |
(Registrant’s telephone number, including area code): (781) 222-6000
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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. 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.
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| | | | | | |
Large accelerated filer ý | | Accelerated filer o | | Non-accelerated filer o (Do not check if 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 October 16, 2015, there were 46,623,582 shares of the Registrant’s common stock outstanding.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
FORM 10-Q
For the Quarterly Period Ended September 26, 2015
TABLE OF CONTENTS
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| | | Page |
Part I. | Financial Information | |
| Item 1. | Financial Statements | |
| | Condensed Consolidated Statements of Income (Unaudited) for the three and nine months ended September 26, 2015 and September 27, 2014 | |
| | Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 26, 2015 and September 27, 2014 | |
| | Condensed Consolidated Balance Sheets (Unaudited) as of September 26, 2015 and December 27, 2014 | |
| | Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 26, 2015 and September 27, 2014 | |
| | Notes to Unaudited Condensed Consolidated Financial Statements | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3. | Quantitative and Qualitative Disclosure About Market Risk | |
| Item 4. | Controls and Procedures | |
Part II. | Other Information | |
| Item 1A. | Risk Factors | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 6. | Exhibits | |
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. that are based on our current expectations, estimates, forecasts, and projections about the industries in which we operate 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 our current expectations and beliefs 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: goodwill and asset impairments still under review; future demand for drug discovery and development products and services, including the outsourcing of these services; our expectations regarding stock repurchases, including the number of shares to be repurchased, expected timing and duration, the amount of capital that may be expended and the treatment of repurchased shares; present spending trends and other cost reduction activities by our clients; future actions by our management; the outcome of contingencies; changes in our business strategy, 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; our strategic relationships with venture capital limited partnerships and leading pharmaceutical companies and opportunities for future similar arrangements; our cost structure; the impact of acquisitions (including Argenta and BioFocus, VivoPath, ChanTest, Sunrise and Celsis); our expectations with respect to revenue growth and operating synergies (including the impact of specific actions intended to generate improvements); the impact of specific actions intended to improve overall operating efficiencies and profitability (and our ability to accommodate future demand with our infrastructure) including gains and losses attributable to businesses we plan to close, consolidate or divest; changes in our expectations regarding future stock option, restricted stock, performance share units and other equity grants to employees and directors; expectations with respect to foreign currency exchange; assessing (or changing our assessment of) our tax positions for financial statement purposes; and our liquidity. In addition, these statements include the impact of economic and market conditions on our clients; the effects of our efficiency initiatives and the steps to optimize returns to shareholders on an effective and timely basis and our ability to withstand the current market conditions. 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 27, 2014 under the sections entitled “Our Strategy,” “Risk Factors,” “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.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 26, 2015 | | September 27, 2014 | | September 26, 2015 | | September 27, 2014 |
Service revenue | $ | 222,506 |
| | $ | 204,751 |
| | $ | 633,666 |
| | $ | 588,099 |
|
Product revenue | 126,959 |
| | 122,816 |
| | 375,786 |
| | 380,015 |
|
Total revenue | 349,465 |
| | 327,567 |
| | 1,009,452 |
| | 968,114 |
|
Costs and expenses: | | | | | | | |
Cost of services provided | 145,165 |
| | 144,053 |
| | 425,614 |
| | 415,976 |
|
Cost of products sold | 66,225 |
| | 65,246 |
| | 193,320 |
| | 199,423 |
|
Selling, general and administrative | 76,225 |
| | 64,476 |
| | 218,953 |
| | 196,999 |
|
Amortization of intangible assets | 6,410 |
| | 7,620 |
| | 17,385 |
| | 18,813 |
|
Operating income | 55,440 |
| | 46,172 |
| | 154,180 |
| | 136,903 |
|
Other income (expense): | | | | | | | |
Interest income | 177 |
| | 376 |
| | 758 |
| | 803 |
|
Interest expense | (3,851 | ) | | (2,997 | ) | | (11,251 | ) | | (9,171 | ) |
Other income (expense), net | 1,390 |
| | 331 |
| | 1,749 |
| | 8,874 |
|
Income from continuing operations, before income taxes | 53,156 |
| | 43,882 |
| | 145,436 |
| | 137,409 |
|
Provision for income taxes | 15,255 |
| | 11,582 |
| | 26,662 |
| | 36,021 |
|
Income from continuing operations, net of income taxes | 37,901 |
| | 32,300 |
| | 118,774 |
| | 101,388 |
|
Income (loss) from discontinued operations, net of income taxes | (34 | ) | | 52 |
| | (48 | ) | | (862 | ) |
Net income | 37,867 |
| | 32,352 |
| | 118,726 |
| | 100,526 |
|
Less: Net income attributable to noncontrolling interests | (488 | ) | | (316 | ) | | (1,297 | ) | | (994 | ) |
Net income attributable to common shareholders | $ | 37,379 |
| | $ | 32,036 |
| | $ | 117,429 |
| | $ | 99,532 |
|
Earnings (loss) per common share | | | | | | | |
Basic: | | | | | | | |
Continuing operations attributable to common shareholders | $ | 0.81 |
| | $ | 0.70 |
| | $ | 2.52 |
| | $ | 2.15 |
|
Discontinued operations | $ | — |
| | $ | — |
| | $ | — |
| | $ | (0.02 | ) |
Net income attributable to common shareholders | $ | 0.81 |
| | $ | 0.70 |
| | $ | 2.52 |
| | $ | 2.13 |
|
Diluted: | | | | | | | |
Continuing operations attributable to common shareholders | $ | 0.79 |
| | $ | 0.68 |
| | $ | 2.47 |
| | $ | 2.11 |
|
Discontinued operations | $ | — |
| | $ | — |
| | $ | — |
| | $ | (0.02 | ) |
Net income attributable to common shareholders | $ | 0.79 |
| | $ | 0.68 |
| | $ | 2.47 |
| | $ | 2.09 |
|
| | | | | | | |
See Notes to Unaudited Condensed Consolidated Financial Statements. |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 26, 2015 | | September 27, 2014 | | September 26, 2015 | | September 27, 2014 |
Net income | $ | 37,867 |
| | $ | 32,352 |
| | $ | 118,726 |
| | $ | 100,526 |
|
Foreign currency translation adjustment and other | (31,843 | ) | | (31,635 | ) | | (46,559 | ) | | (23,751 | ) |
Cumulative translation adjustment related to intercompany loan forgiveness | — |
| | — |
| | (2,341 | ) | | — |
|
Pension and other post-retirement benefit plans: | | | | | | | |
Amortization of net loss and prior service benefit included in net periodic pension cost | 695 |
| | 291 |
| | 2,185 |
| | 871 |
|
Comprehensive income, before income taxes | 6,719 |
| | 1,008 |
| | 72,011 |
| | 77,646 |
|
Income tax expense related to items of other comprehensive income (Note 9) | 220 |
| | 125 |
| | 700 |
| | 273 |
|
Comprehensive income, net of income taxes | 6,499 |
| | 883 |
| | 71,311 |
| | 77,373 |
|
Less: Comprehensive income (loss) related to noncontrolling interests | (443 | ) | | 712 |
| | 435 |
| | 852 |
|
Comprehensive income attributable to common shareholders | $ | 6,942 |
| | $ | 171 |
| | $ | 70,876 |
| | $ | 76,521 |
|
| | | | | | | |
See Notes to Unaudited Condensed Consolidated Financial Statements. |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share amounts) |
| | | | | | | |
| September 26, 2015 | | December 27, 2014 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 74,032 |
|
| $ | 160,023 |
|
Trade receivables, net | 288,836 |
|
| 257,991 |
|
Inventories | 98,097 |
|
| 89,043 |
|
Prepaid assets | 33,593 |
| | 26,900 |
|
Other current assets | 84,103 |
|
| 72,941 |
|
Total current assets | 578,661 |
|
| 606,898 |
|
Property, plant and equipment, net | 671,673 |
|
| 676,797 |
|
Goodwill | 418,245 |
|
| 321,077 |
|
Other intangible assets, net | 277,686 |
|
| 178,875 |
|
Deferred tax asset | 21,026 |
|
| 23,193 |
|
Other assets | 65,552 |
|
| 72,951 |
|
Total assets | $ | 2,032,843 |
|
| $ | 1,879,791 |
|
Liabilities, Redeemable Noncontrolling Interest and Equity | | | |
Current liabilities: | | | |
Current portion of long-term debt and capital leases | $ | 16,599 |
| | $ | 31,904 |
|
Accounts payable | 31,629 |
| | 33,815 |
|
Accrued compensation | 71,518 |
| | 71,569 |
|
Deferred revenue | 76,019 |
| | 78,124 |
|
Accrued liabilities | 94,692 |
| | 67,380 |
|
Other current liabilities | 21,347 |
| | 11,079 |
|
Current liabilities of discontinued operations | 2,300 |
| | 2,299 |
|
Total current liabilities | 314,104 |
| | 296,170 |
|
Long-term debt, net and capital leases | 835,800 |
| | 740,557 |
|
Other long-term liabilities | 139,756 |
| | 130,361 |
|
Long-term liabilities of discontinued operations | 7,139 |
| | 8,357 |
|
Total liabilities | 1,296,799 |
| | 1,175,445 |
|
Commitments and contingencies |
| |
|
Redeemable noncontrolling interest | 27,447 |
| | 28,419 |
|
Equity: | | | |
Preferred stock, $0.01 par value; 20,000 shares authorized; no shares issued and outstanding | — |
| | — |
|
Common stock, $0.01 par value; 120,000 shares authorized; 85,388 shares issued and 46,623 shares outstanding at September 26, 2015 and 84,503 shares issued and 47,327 shares outstanding at December 27, 2014 | 854 |
| | 845 |
|
Additional paid-in capital | 2,386,342 |
| | 2,307,640 |
|
Accumulated deficit | (21,346 | ) | | (138,775 | ) |
Treasury stock, at cost 38,765 shares and 37,176 shares at September 26, 2015 and December 27, 2014, respectively | (1,540,691 | ) | | (1,423,260 | ) |
Accumulated other comprehensive loss | (120,800 | ) | | (74,247 | ) |
Total equity attributable to common shareholders | 704,359 |
| | 672,203 |
|
Noncontrolling interests | 4,238 |
| | 3,724 |
|
Total equity and redeemable noncontrolling interest | 736,044 |
| | 704,346 |
|
Total liabilities, equity and redeemable noncontrolling interest | $ | 2,032,843 |
| | $ | 1,879,791 |
|
| | | |
See Notes to Unaudited Condensed Consolidated Financial Statements. |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands) |
| | | | | | | |
| Nine Months Ended |
| September 26, 2015 | | September 27, 2014 |
Cash flows relating to operating activities | | | |
Net income | $ | 118,726 |
| | $ | 100,526 |
|
Less: Loss from discontinued operations | (48 | ) | | (862 | ) |
Income from continuing operations | 118,774 |
| | 101,388 |
|
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: | | | |
Depreciation and amortization | 69,330 |
| | 70,435 |
|
Amortization of debt issuance costs | 1,970 |
| | 1,298 |
|
Stock-based compensation | 30,349 |
| | 23,132 |
|
Deferred income taxes | (4,235 | ) | | 1,140 |
|
Gain on investments in limited partnerships | (3,604 | ) | | (7,377 | ) |
Gain on bargain purchase | (9,933 | ) | | — |
|
Other, net | 1,101 |
| | (1,546 | ) |
Changes in assets and liabilities: | | | |
Trade receivables, net | (36,430 | ) | | (40,961 | ) |
Inventories | (470 | ) | | (4,573 | ) |
Other assets | 8,308 |
| | (15,055 | ) |
Accounts payable | (894 | ) | | (1,779 | ) |
Accrued compensation | 2,238 |
| | 10,795 |
|
Deferred revenue | 1,255 |
| | 8,826 |
|
Accrued liabilities | 22,189 |
| | 13,355 |
|
Taxes payable and prepaid taxes | (1,906 | ) | | (3,953 | ) |
Other liabilities | (12,147 | ) | | (2,842 | ) |
Net cash provided by operating activities | 185,895 |
| | 152,283 |
|
Cash flows relating to investing activities | | | |
Acquisition of businesses and assets, net of cash acquired | (211,974 | ) | | (183,151 | ) |
Capital expenditures | (35,008 | ) | | (29,907 | ) |
Purchases of investments | (26,315 | ) | | (18,171 | ) |
Proceeds from sale of investments and distributions from investments in limited partnerships | 24,562 |
| | 15,964 |
|
Other, net | (244 | ) | | (1,924 | ) |
Net cash used in investing activities | (248,979 | ) | | (217,189 | ) |
Cash flows relating to financing activities | | | |
Proceeds from long-term debt and revolving credit agreement | 453,778 |
| | 247,920 |
|
Proceeds from exercises of stock options | 36,587 |
| | 46,741 |
|
Payments on long-term debt, capital lease obligations and revolving credit agreement | (391,048 | ) | | (132,431 | ) |
Purchase of treasury stock | (117,431 | ) | | (121,985 | ) |
Other, net | 6,674 |
| | 4,051 |
|
Net cash provided by (used in) financing activities | (11,440 | ) | | 44,296 |
|
Discontinued operations | | | |
Net cash used in operating activities from discontinued operations | (1,265 | ) | | (570 | ) |
Effect of exchange rate changes on cash and cash equivalents | (10,202 | ) | | (4,000 | ) |
Net change in cash and cash equivalents | (85,991 | ) | | (25,180 | ) |
Cash and cash equivalents, beginning of period | 160,023 |
| | 155,927 |
|
Cash and cash equivalents, end of period | $ | 74,032 |
| | $ | 130,747 |
|
| | | |
See Notes to Unaudited Condensed Consolidated Financial Statements. |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements are unaudited and have been prepared by Charles River Laboratories International, Inc. (the Company) in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and pursuant to Rule 10-01 of Regulation S-X. The year-end condensed consolidated balance sheet data was derived from the Company’s audited financial statements, but does not include all disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 27, 2014. The condensed consolidated financial statements, in the opinion of management, reflect all normal and recurring adjustments necessary for a fair statement of our financial position and results of operations. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. The Company’s fiscal year is the twelve-month period ending the last Saturday in December.
Use of Estimates
The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires that the Company make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, judgments and methodologies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known.
Consolidation
The Company’s consolidated financial statements reflect its financial statements and those of its subsidiaries in which the Company holds a controlling financial interest. For consolidated entities in which the Company owns or is exposed to less than 100% of the economics, the Company records net income (loss) attributable to noncontrolling interests in its consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and transactions are eliminated in consolidation.
Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 1, “Description of Business and Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 27, 2014.
Newly Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of debt discounts or premiums. The ASU is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. During the three months ended June 27, 2015, the Company elected early adoption of this standard and applied the changes retrospectively to all prior periods presented in its consolidated financial statements.
The Company historically presented deferred debt issuance costs, or fees related to directly issuing debt, as assets on the consolidated balance sheets. As of June 27, 2015 and December 27, 2014, the adoption of this standard has resulted in the reclassification of $7.7 million and $5.4 million, respectively, from other assets to long-term debt, net and capital leases. These costs will continue to be amortized as interest expense over the term of the corresponding debt issuance.
Newly Issued Accounting Pronouncements
In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments,“ that eliminates the current requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers will recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” that simplifies the subsequent measurement of inventories by replacing the current lower of cost or market test with a lower of cost or net realizable value test. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In April 2015, the FASB issued ASU 2015-04, “Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets” to provide a practical expedient related to the measurement date of the defined benefit plan assets and obligations. The practical expedient allows employers with fiscal year-end dates that do not coincide with a calendar month end to measure pension and post-retirement benefit plan assets and obligations as of the calendar month-end date closest to the fiscal year end. The standard requires entities that elect the practical expedient to adjust the measurement of benefit plan assets and obligations for contributions or significant events between the month-end measurement date and the entity fiscal year end. The ASU is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. The Company is still evaluating the impact the election of the practical expedient would have on its consolidated financial statements and related disclosures.
In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis,” which amends existing consolidation requirements. The guidance affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the guidance amends (i) the identification of variable interests (fees paid to a decision maker or service provider), (ii) the variable interest entity characteristics for a limited partnership or similar entity and (iii) the primary beneficiary determination. The ASU is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this standard is not expected to have a significant impact on the Company’s financial position or results of operations.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” The standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The ASU was originally effective for annual and interim periods beginning after December 15, 2016; however, in August 2015, the FASB issued ASU 2015-14, “Deferral of the Effective Date,” to defer by one year the effective date of ASU 2014-09. As a result, the standard will be effective for annual and interim periods beginning after December 15, 2017. The Company has not yet selected a transition method and is evaluating the impact the adoption will have on its consolidated financial statements and related disclosures.
2. BUSINESS ACQUISITIONS
Celsis
On July 24, 2015, the Company acquired Celsis Group Limited (Celsis), a leading provider of rapid testing systems for non-sterile bacterial contamination for the biopharmaceutical and consumer products industries. The purpose of this acquisition was to enhance the Company’s portfolio of rapid microbial detection products and services with the addition of a rapid bioburden testing product. The purchase price for Celsis was $214.0 million, including assumed debt and certain liabilities of $10.3 million. The purchase price includes payment for estimated working capital, which is subject to a final adjustment based upon actual working capital of the acquired business. The acquisition was funded by cash on hand and borrowings on the Company’s revolving credit facility. The business is included in Microbial Solutions (formerly Endotoxin & Microbial Detection, or EMD) and reported in the Company’s Manufacturing Support (Manufacturing) reportable segment.
The preliminary purchase price allocation of $211.7 million, net of $2.3 million of cash acquired, was as follows:
|
| | | |
| July 24, 2015 |
| (in thousands) |
Accounts receivable (contractual amount of $5,410) | $ | 5,288 |
|
Inventory | 10,103 |
|
Other current assets (excluding cash) | 13,449 |
|
Property, plant and equipment | 5,086 |
|
Other long term assets | 614 |
|
Definite-lived intangible assets | 118,140 |
|
Goodwill | 104,785 |
|
Short-term debt | (9,766 | ) |
Other current liabilities | (7,382 | ) |
Long term liabilities | (28,593 | ) |
Total purchase price allocation | $ | 211,724 |
|
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The purchase price allocations were prepared on a preliminary basis and are subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.
The breakout of definite-lived intangible assets acquired was as follows: |
| | | | | |
| Definite-Lived Intangible Assets | | Weighted Average Amortization Life |
| (in thousands) | | (in years) |
Client relationships | $ | 71,000 |
| | 16 |
Developed technology | 39,140 |
| | 14 |
Trademark and trade names | 5,200 |
| | 14 |
Non-compete | 2,800 |
| | 5 |
Total definite-lived intangible assets | $ | 118,140 |
| | |
The goodwill resulting from the transaction is primarily attributed to the potential growth of the Company’s Manufacturing business from clients introduced through Celsis, the assembled workforce of the acquired business and expected cost synergies. The goodwill attributable to Celsis is not deductible for tax purposes.
The Company incurred transaction and integration costs in connection with the acquisition of $3.9 million and $7.4 million during the three and nine months ended September 26, 2015, respectively, which were included in selling, general and administrative expenses.
Celsis revenue and operating loss for both the three and nine months ended September 26, 2015 were $4.9 million and $3.1 million, respectively, since Celsis was acquired on July 24, 2015.
The following selected pro forma consolidated results of operations are presented as if the Celsis acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition after giving effect to certain adjustments, including additional depreciation and amortization of property, plant and equipment, inventory fair value adjustments and intangible assets of $2.4 million and $11.3 million for the nine months ended September 26, 2015 and September 27, 2014, respectively, and other nonrecurring costs.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 26, 2015 | | September 27, 2014 | | September 26, 2015 | | September 27, 2014 |
| (in thousands) |
Revenue | $ | 350,819 |
| | $ | 335,987 |
| | $ | 1,026,643 |
| | $ | 993,384 |
|
Net income attributable to common shareholders | $ | 40,826 |
| | $ | 31,893 |
| | $ | 125,863 |
| | $ | 84,545 |
|
Earnings per common share | | | | | | | |
Basic | $ | 0.88 |
| | $ | 0.69 |
| | $ | 2.70 |
| | $ | 1.81 |
|
Diluted | $ | 0.86 |
| | $ | 0.68 |
| | $ | 2.65 |
| | $ | 1.78 |
|
These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the date indicated or that may result in the future. No effect has been given for synergies, if any, that may have been realized through the acquisition.
Sunrise
On May 5, 2015, the Company acquired Sunrise Farms, Inc. (Sunrise), a producer of specific-pathogen-free fertile chicken eggs and chickens used in the manufacture of live viruses. The purpose of this business acquisition was to expand the capabilities of the Company’s existing Avian Vaccine Services business. The purchase price of the acquisition was $9.6 million and was funded by cash on hand and borrowings on the Company's revolving credit facility. The business is reported in the Company's Manufacturing reportable segment.
The Company recorded a bargain purchase gain of $9.9 million, which represents the excess of the estimated fair value of the net assets acquired over the preliminary purchase price. The bargain purchase gain was recorded in other income (expense), net, in the Company’s consolidated statement of income and was not recognized for tax purposes. The Company believes there were several factors that contributed to this transaction resulting in a bargain purchase gain, including the highly specialized nature of Sunrise’s business falling outside of the seller’s core activities and a limited pool of potential buyers.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Before recognizing the gain from the bargain purchase, the Company reassessed its initial identification and valuation of assets acquired and liabilities assumed to validate that all assets and liabilities that the Company was able to identify at the acquisition date were properly recognized.
The preliminary purchase price allocation of $9.6 million, net of less than $0.1 million of cash acquired, was as follows:
|
| | | |
| May 5, 2015 |
| (in thousands) |
Accounts receivable, net | $ | 981 |
|
Inventory | 1,518 |
|
Other current assets (excluding cash) | 373 |
|
Property, plant and equipment | 13,866 |
|
Definite-lived intangible assets | 3,400 |
|
Current liabilities | (397 | ) |
Long-term liabilities | (250 | ) |
Fair value of net assets acquired | 19,491 |
|
Bargain purchase gain | (9,933 | ) |
Total purchase price allocation | $ | 9,558 |
|
The purchase price allocations were prepared on a preliminary basis and are subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. During the three months ended September 26, 2015, the Company recorded measurement period adjustments related to the Sunrise acquisition that resulted in an immaterial change to the purchase price allocation and bargain purchase gain. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.
The identifiable definite-lived intangible assets acquired represent the client relationships intangible, which is being amortized over the estimated useful life of approximately 15 years.
The Company incurred transaction and integration costs in connection with the acquisition of $0.1 million and $0.7 million during the three and nine months ended September 26, 2015, respectively, which were included in selling, general and administrative expenses.
ChanTest
On October 29, 2014, the Company acquired ChanTest Corporation (ChanTest), a leading provider of ion channel testing services to the biopharmaceutical industry. The acquisition augments the Company’s early discovery capabilities and enhances the Company’s ability to support clients’ target discovery and lead optimization efforts. The purchase price of the acquisition was $59.2 million, including $0.3 million in contingent consideration. The aggregate, undiscounted amount of contingent consideration that could become payable is a maximum of $2.0 million. The Company estimated the fair value of this contingent consideration based on a probability-weighted set of outcomes. The business is reported in the Company’s Discovery and Safety Assessment (DSA) reportable segment.
The purchase price allocation of $52.0 million, net of $7.2 million in cash acquired, was as follows:
|
| | | |
| October 29, 2014 |
| (in thousands) |
Current assets (excluding cash) | $ | 4,669 |
|
Property, plant and equipment | 1,637 |
|
Definite-lived intangible assets | 23,920 |
|
Goodwill | 34,775 |
|
Current liabilities | (3,486 | ) |
Long-term liabilities | (9,486 | ) |
Total purchase price allocation | $ | 52,029 |
|
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The breakout of definite-lived intangible assets acquired was as follows:
|
| | | | | |
| October 29, 2014 | | Weighted average amortization life |
| (in thousands) | | (in years) |
Client relationships | $ | 19,000 |
| | 13 |
Other intangible assets | 4,920 |
| | 9 |
Total definite-lived intangible assets | $ | 23,920 |
| | |
The definite-lived intangibles are largely attributed to the expected cash flows related to client relationships existing at the acquisition closing date. The goodwill resulting from the transaction is primarily attributed to the potential growth of the business and is not deductible for tax purposes.
During the three and nine months ended September 26, 2015 and September 27, 2014, the Company incurred insignificant transaction and integration costs in connection with the acquisition, which were included in selling, general and administrative expenses.
VivoPath
On June 16, 2014, the Company acquired substantially all of the assets of VivoPath LLC (VivoPath), a discovery services company specializing in the rapid, in vivo compound evaluation of molecules in the therapeutic areas of metabolism, inflammation and oncology. The purchase price was $2.3 million, including $1.6 million in contingent consideration, and was allocated primarily to the intangible assets acquired. The Company estimated the fair value of this contingent consideration based on a probability-weighted set of outcomes. The undiscounted total amount of contingent consideration was a maximum of $2.4 million, payable over three years based on the achievement of revenue growth targets and other contractual requirements. During the three months ended September 26, 2015, the Company paid the first year tranche of the contingent consideration of $0.6 million and recorded a gain of $1.0 million based upon a decrease in the expected future contingent consideration payments. As of September 26, 2015, the remaining contingent consideration payable is a maximum of $0.4 million. The business is reported in the Company’s DSA reportable segment.
Argenta and BioFocus
On April 1, 2014, the Company acquired (1) 100% of the shares of the United Kingdom (U.K.) based entities Argenta and BioFocus, and (2) certain Dutch assets. These businesses have formed the core of the Company’s Early Discovery business. With this acquisition, the Company has enhanced its position as a full service, early-stage contract research organization, with integrated in vitro and in vivo capabilities from target discovery through preclinical development. The purchase price of the acquisition was $191.8 million, including $0.9 million in contingent consideration. The acquisition was funded by cash on hand and borrowings on the Company’s revolving credit facility. The businesses are reported in the Company’s DSA reportable segment.
The contingent consideration earn-out period ended on April 1, 2015. As a result, the related contingent consideration liability, as adjusted for subsequent changes in fair value, was reversed and a gain of $0.8 million was recorded in selling, general and administrative expenses during the three months ended March 28, 2015, as no payments are expected to be made. The contingent consideration was a one-time payment that could have become payable in the second quarter of 2015 based on the achievement of a certain revenue target for the twelve-month period following the acquisition. The aggregate, undiscounted amount of contingent consideration that the Company could have paid was €5.0 million ($5.6 million as of September 26, 2015). The Company estimated the fair value of this contingent consideration based on a probability-weighted set of outcomes.
The purchase price allocation of $183.6 million, net of $8.2 million of cash acquired, was as follows:
|
| | | |
| April 1, 2014 |
| (in thousands) |
Current assets (excluding cash) | $ | 31,682 |
|
Property, plant and equipment | 21,008 |
|
Other long term assets | 11,140 |
|
Definite-lived intangible assets | 104,470 |
|
Goodwill | 65,235 |
|
Current liabilities | (13,139 | ) |
Long term liabilities | (36,802 | ) |
Total purchase price allocation | $ | 183,594 |
|
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The breakout of definite-lived intangible assets acquired was as follows:
|
| | | | | |
| Definite-Lived Intangible Assets | | Weighted Average Amortization Life |
| (in thousands) | | (in years) |
Client relationships | $ | 94,000 |
| | 18 |
Backlog | 5,900 |
| | 1 |
Trademark and trade names | 1,170 |
| | 3 |
Leasehold interests | 1,000 |
| | 13 |
Other intangible assets | 2,400 |
| | 19 |
Total definite-lived intangible assets | $ | 104,470 |
| | |
The goodwill resulting from the transaction is primarily attributed to the potential growth of the Company’s DSA businesses from clients introduced through Argenta and BioFocus, the assembled workforce of the acquired businesses and expected cost synergies. The goodwill attributable to Argenta and BioFocus is not deductible for tax purposes. The Company incurred insignificant transaction and integration costs in connection with the acquisition during the three and nine months ended September 26, 2015 and costs of $0.5 million and $5.4 million during the three and nine months ended September 27, 2014, respectively, which were included in selling, general and administrative expenses.
Argenta and BioFocus revenue and operating loss for the nine months ended September 27, 2014 were $46.8 million and $0.4 million, respectively, since Argenta and BioFocus were acquired on April 1, 2014. Beginning in the three months ended September 27, 2014, Argenta and BioFocus have been fully included in the operating results of the Company.
The following selected pro forma consolidated results of operations are presented as if the Argenta and BioFocus acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition after giving effect to certain adjustments, including amortization of intangible assets and depreciation of fixed assets of $3.7 million and other nonrecurring costs.
|
| | | |
| Nine Months Ended |
| September 27, 2014 |
| (in thousands) |
Revenue | $ | 993,223 |
|
Net income attributable to common shareholders | $ | 101,029 |
|
Earnings per common share | |
Basic | $ | 2.16 |
|
Diluted | $ | 2.12 |
|
These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the date indicated or that may result in the future. No effect has been given for synergies, if any, that may have been realized through the acquisition.
3. SUPPLEMENTAL BALANCE SHEET INFORMATION
The composition of trade receivables, net is as follows:
|
| | | | | | | |
| September 26, 2015 | | December 27, 2014 |
| (in thousands) |
Client receivables | $ | 240,307 |
| | $ | 219,118 |
|
Unbilled revenue | 54,157 |
| | 43,780 |
|
Total | 294,464 |
| | 262,898 |
|
Less: Allowance for doubtful accounts | (5,628 | ) | | (4,907 | ) |
Trade receivables, net | $ | 288,836 |
| | $ | 257,991 |
|
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The composition of inventories is as follows:
|
| | | | | | | |
| September 26, 2015 | | December 27, 2014 |
| (in thousands) |
Raw materials and supplies | $ | 15,530 |
| | $ | 15,416 |
|
Work in process | 13,063 |
| | 11,802 |
|
Finished products | 69,504 |
| | 61,825 |
|
Inventories | $ | 98,097 |
| | $ | 89,043 |
|
The composition of other current assets is as follows:
|
| | | | | | | |
| September 26, 2015 | | December 27, 2014 |
| (in thousands) |
Deferred tax asset | $ | 33,156 |
| | $ | 27,644 |
|
Investments | 17,975 |
| | 16,167 |
|
Prepaid income tax | 30,828 |
| | 26,287 |
|
Restricted cash | 1,221 |
| | 2,552 |
|
Other | 923 |
| | 291 |
|
Other current assets | $ | 84,103 |
| | $ | 72,941 |
|
The composition of property, plant and equipment, net is as follows:
|
| | | | | | | |
| September 26, 2015 | | December 27, 2014 |
| (in thousands) |
Land | $ | 42,619 |
| | $ | 40,314 |
|
Buildings (1) | 705,694 |
| | 682,495 |
|
Machinery and equipment | 381,764 |
| | 384,713 |
|
Leasehold improvements | 39,221 |
| | 37,270 |
|
Furniture and fixtures | 22,053 |
| | 22,577 |
|
Vehicles | 4,054 |
| | 3,967 |
|
Computer hardware and software | 123,285 |
| | 119,474 |
|
Construction in progress | 23,823 |
| | 40,970 |
|
Total | 1,342,513 |
| | 1,331,780 |
|
Less: Accumulated depreciation | (670,840 | ) | | (654,983 | ) |
Property, plant and equipment, net | $ | 671,673 |
| | $ | 676,797 |
|
(1) The balance as of September 26, 2015 includes capital lease assets. See Note 7, “Long Term Debt and Capital Lease Obligations.”
Depreciation expense for the three months ended September 26, 2015 and September 27, 2014 was $17.4 million and $18.4 million, respectively. Depreciation expense for the nine months ended September 26, 2015 and September 27, 2014 was $51.9 million and $51.6 million, respectively.
The composition of other assets is as follows:
|
| | | | | | | |
| September 26, 2015 | | December 27, 2014 |
| (in thousands) |
Life insurance policies | $ | 26,458 |
| | $ | 27,603 |
|
Investments in limited partnerships | 29,931 |
| | 27,047 |
|
Other | 9,163 |
| | 18,301 |
|
Other assets | $ | 65,552 |
| | $ | 72,951 |
|
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The composition of other current liabilities is as follows:
|
| | | | | | | |
| September 26, 2015 | | December 27, 2014 |
| (in thousands) |
Accrued income taxes | $ | 17,630 |
| | $ | 9,362 |
|
Current deferred tax liability | 3,389 |
| | 1,484 |
|
Accrued interest and other | 328 |
| | 233 |
|
Other current liabilities | $ | 21,347 |
| | $ | 11,079 |
|
The composition of other long-term liabilities is as follows:
|
| | | | | | | |
| September 26, 2015 | | December 27, 2014 |
| (in thousands) |
Deferred tax liability | $ | 49,016 |
| | $ | 30,816 |
|
Long-term pension liability | 37,878 |
| | 45,135 |
|
Accrued executive supplemental life insurance retirement plan and deferred compensation plan | 33,858 |
| | 33,007 |
|
Other | 19,004 |
| | 21,403 |
|
Other long-term liabilities | $ | 139,756 |
| | $ | 130,361 |
|
4. INVESTMENTS IN LIMITED PARTNERSHIPS AND MARKETABLE SECURITIES
Investments in Limited Partnerships
The Company invests in several venture capital limited partnerships that invest in start-up companies primarily in the life sciences industry. The Company’s ownership interest in these limited partnerships ranges from 3.6% to 12.0%. The Company accounts for such investments under the equity method of accounting. The Company’s total commitment to these entities as of September 26, 2015 was $65.0 million, of which the Company had funded $26.3 million through September 26, 2015.
During the three and nine months ended September 26, 2015, the Company received dividends totaling $5.3 million and $7.3 million, respectively. During the three months ended September 27, 2014, the Company did not receive any dividends. During the nine months ended September 27, 2014, the Company received dividends totaling $7.4 million. The Company recognized a gain of $3.2 million and a loss of $0.8 million related to these investments for the three months ended September 26, 2015 and September 27, 2014, respectively.
Marketable Securities
The following is a summary of the Company's marketable securities, all of which are classified as available-for-sale:
|
| | | | | | | | | | | | | | | |
| September 26, 2015 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| (in thousands) |
Mutual fund | $ | 4,650 |
| | $ | — |
| | $ | (80 | ) | | $ | 4,570 |
|
Total | $ | 4,650 |
| | $ | — |
| | $ | (80 | ) | | $ | 4,570 |
|
There were no sales of available-for-sale securities during the nine months ended September 26, 2015.
5. FAIR VALUE
The Company has certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2, or 3 within the fair value hierarchy:
| |
• | Level 1 - Fair values are determined utilizing quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access; |
| |
• | Level 2 - Fair values are determined by utilizing quoted prices for identical or similar assets and liabilities in active markets or other market observable inputs such as interest rates, yield curves, and foreign currency spot rates; |
| |
• | Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair value hierarchy level is determined by asset and liability class based on the lowest level of significant input. The observability of inputs may change for certain assets or liabilities. This condition could cause an asset or liability to be reclassified between levels. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. During the nine months ended September 26, 2015 and September 27, 2014, there were no transfers between levels.
Valuation methodologies used for assets, liabilities, and the redeemable noncontrolling interest measured or disclosed at fair value are as follows:
| |
• | Cash equivalents - Valued at quoted market prices determined through third-party pricing services. |
| |
• | Mutual funds - Valued at the unadjusted quoted net asset value of shares held by the Company. |
| |
• | Foreign currency forward contracts - Valued using readily observable market inputs, such as forward foreign exchange points and foreign exchanges rates. |
| |
• | Investments in life insurance policies - Valued at cash surrender value based on fair value of underlying investments. |
| |
• | Contingent consideration - Valued based on a probability weighting of the future cash flows associated with the potential outcomes. |
| |
• | Redeemable noncontrolling interest - Valued primarily using the income approach based on estimated future cash flows of the underlying business based on the Company’s projected financial data discounted by a weighted average cost of capital. |
Assets, liabilities, and noncontrolling interest measured at fair value on a recurring basis are summarized below:
|
| | | | | | | | | | | | | | | |
| September 26, 2015 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (in thousands) |
Cash equivalents | $ | — |
| | $ | 159 |
| | $ | — |
| | $ | 159 |
|
Other current assets: | | | | | | | |
Marketable securities | 4,570 |
| | — |
| | — |
| | 4,570 |
|
Foreign currency forward contracts | — |
| | 16 |
| | — |
| | 16 |
|
Other assets: | | | | | | | |
Life insurance policies | — |
| | 19,346 |
| | — |
| | 19,346 |
|
Total assets measured at fair value | $ | 4,570 |
| | $ | 19,521 |
| | $ | — |
| | $ | 24,091 |
|
| | | | | | | |
Other current liabilities: | | | | | | | |
Contingent consideration | $ | — |
| | $ | — |
| | $ | 1,111 |
| | $ | 1,111 |
|
Foreign currency forward contracts | — |
| | 306 |
| | — |
| | 306 |
|
Other long-term liabilities: | | | | | | | |
Contingent consideration | — |
| | — |
| | 169 |
| | 169 |
|
Redeemable noncontrolling interest | — |
| | — |
| | 27,447 |
| | 27,447 |
|
Total liabilities and redeemable noncontrolling interest measured at fair value | $ | — |
| | $ | 306 |
| | $ | 28,727 |
| | $ | 29,033 |
|
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | | | | | |
| December 27, 2014 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (in thousands) |
Cash equivalents | $ | — |
| | $ | 1,934 |
| | $ | — |
| | $ | 1,934 |
|
Other assets: | | | | | | | |
Life insurance policies | — |
| | 20,520 |
| | — |
| | 20,520 |
|
Total assets measured at fair value | $ | — |
| | $ | 22,454 |
| | $ | — |
| | $ | 22,454 |
|
| | | | | | | |
Other current liabilities: | | | | | | | |
Contingent consideration | $ | — |
| | $ | — |
| | $ | 1,583 |
| | $ | 1,583 |
|
Other long-term liabilities: | | | | | | | |
Contingent consideration | — |
| | — |
| | 1,245 |
| | 1,245 |
|
Redeemable noncontrolling interest | — |
| | — |
| | 28,419 |
| | 28,419 |
|
Total liabilities and redeemable noncontrolling interest measured at fair value | $ | — |
| | $ | — |
| | $ | 31,247 |
| | $ | 31,247 |
|
Redeemable Noncontrolling Interest
The Company’s redeemable noncontrolling interest resulted from the acquisition of a 75% ownership interest in Vital River. Concurrent with the acquisition, the Company entered into a joint venture agreement with the noncontrolling interest holders that provides the Company with the right to purchase the remaining 25% of the entity for cash at its then appraised value beginning in January 2016. Additionally, the noncontrolling interest holders were granted the right to require the Company to purchase the remaining 25% of the entity at its then appraised value beginning in January 2016 for cash. These rights are accelerated in certain events. As the noncontrolling interest holders can require the Company purchase the remaining 25% interest, the noncontrolling interest is classified in the mezzanine section of the consolidated balance sheet, which is above the equity section and below liabilities.
The following table provides a rollforward of the fair value of the Company’s redeemable noncontrolling interest:
|
| | | | | | | |
| Nine Months Ended |
| September 26, 2015 | | September 27, 2014 |
| (in thousands) |
Beginning balance | $ | 28,419 |
| | $ | 20,581 |
|
Additions | — |
| | — |
|
Total gains or losses (realized/unrealized): | | | |
Net income attributable to noncontrolling interest | 614 |
| | 523 |
|
Foreign currency translation | (693 | ) | | (113 | ) |
Change in fair value, included in additional paid-in capital | (893 | ) | | 3,559 |
|
Ending balance | $ | 27,447 |
| | $ | 24,550 |
|
The significant unobservable inputs used in the fair value measurement of the Company’s redeemable noncontrolling interest are the estimated future cash flows based on projected financial data and a discount rate of 18.0%. Significant changes in the timing or amounts of the estimated future cash flows would result in a significantly higher or lower fair value measurement. Significant increases or decreases in the discount rate would result in a significantly lower or higher fair value measurement, respectively.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Contingent Consideration
The following table provides a rollforward of the contingent consideration related to the acquisitions of Argenta, BioFocus, VivoPath and ChanTest. See Note 2, “Business Acquisitions.”
|
| | | | | | | |
| Nine Months Ended |
| September 26, 2015 | | September 27, 2014 |
| (in thousands) |
Beginning balance | $ | 2,828 |
| | $ | — |
|
Additions | 675 |
| | 2,428 |
|
Payments | (600 | ) | | — |
|
Total gains or losses (realized/unrealized): | | | |
Reversal of previously recorded contingent liability and change in fair value | (1,623 | ) | | 120 |
|
Ending balance | $ | 1,280 |
| | $ | 2,548 |
|
The significant unobservable inputs used in the fair value measurement of the Company’s contingent consideration are the probabilities of successful achievement of certain financial targets and a discount rate. Significant increases or decreases in any of the probabilities of success would result in a significantly higher or lower fair value measurement, respectively. Significant increases or decreases in the discount rate would result in a significantly lower or higher fair value measurement, respectively.
Debt Instruments
The book value of the Company’s term and revolving loans, which are variable rate loans carried at amortized cost, approximates their fair value based on current market pricing of similar debt. As the fair value is based on significant other observable inputs, including current interest and foreign currency exchange rates, it is deemed to be Level 2.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table provides a rollforward of the Company’s goodwill:
|
| | | | | | | | | | | | | | | |
| | | Adjustments to Goodwill | | |
| December 27, 2014 | | Acquisitions | | Foreign Exchange | | September 26, 2015 |
| (in thousands) |
Research Models and Services | $ | 59,196 |
| | $ | — |
| | $ | (698 | ) | | $ | 58,498 |
|
Discovery and Safety Assessment | 229,302 |
| | (748 | ) | | (3,470 | ) | | 225,084 |
|
Manufacturing Support | 32,579 |
| | 104,972 |
| | (2,888 | ) | | 134,663 |
|
Total | $ | 321,077 |
| | $ | 104,224 |
| | $ | (7,056 | ) | | $ | 418,245 |
|
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Intangible Assets, net
The following table displays other intangible assets, net by major class:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 26, 2015 | | December 27, 2014 |
| Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
| (in thousands) |
Backlog | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8,728 |
| | $ | (6,636 | ) | | $ | 2,092 |
|
Client relationships | 390,585 |
| | (176,099 | ) | | 214,486 |
| | 379,339 |
| | (217,938 | ) | | 161,401 |
|
Technology | 49,204 |
| | (2,931 | ) | | 46,273 |
| | 13,474 |
| | (4,166 | ) | | 9,308 |
|
Trademarks and trade names | 6,631 |
| | (844 | ) | | 5,787 |
| | 6,603 |
| | (5,314 | ) | | 1,289 |
|
Standard operating procedures | 2,100 |
| | (1,745 | ) | | 355 |
| | 2,309 |
| | (1,642 | ) | | 667 |
|
Other identifiable intangible assets | 9,957 |
| | (2,610 | ) | | 7,347 |
| | 2,860 |
| | (2,180 | ) | | 680 |
|
Total definite-lived intangible assets | 458,477 |
| | (184,229 | ) | | 274,248 |
| | 413,313 |
| | (237,876 | ) | | 175,437 |
|
Indefinite-lived intangibles assets | | | | | 3,438 |
| | | | | | 3,438 |
|
Total other intangibles assets, net | | | | | $ | 277,686 |
| | | | | | $ | 178,875 |
|
7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-Term Debt
Long-term debt, net consists of the following:
|
| | | | | | | |
| September 26, 2015 | | December 27, 2014 |
| (in thousands) |
Term loans | $ | 395,000 |
| | $ | 378,000 |
|
Revolving credit facility | 429,871 |
| | 375,536 |
|
Other long-term debt | 196 |
| | 214 |
|
Total debt | 825,067 |
| | 753,750 |
|
Less: current portion of long-term debt | (15,196 | ) | | (31,714 | ) |
Long-term debt | 809,871 |
| | 722,036 |
|
Debt discount and debt issuance costs (1) | (7,215 | ) | | (5,401 | ) |
Long-term debt, net | $ | 802,656 |
| | $ | 716,635 |
|
(1) During the three months ended June 27, 2015, the Company adopted ASU 2015-03 and reclassified unamortized debt issuance costs from other assets to long-term debt, net and capital leases. See Note 1, “Basis of Presentation” for further discussion.
In April 2015, the Company amended and restated the $970M Credit Facility, creating a $1.3 billion facility ($1.3B Credit Facility) that provides for a $400.0 million term loan facility and a $900.0 million multi-currency revolving facility. The term loan facility matures in 20 quarterly installments with the last installment due April 22, 2020. The revolving facility matures on April 22, 2020 and requires no scheduled payment before that date.
The interest rates applicable to term loans and revolving loans under our credit agreement are, at our option, equal to either the alternate base rate (which is the higher of (1) the prime rate, (2) the federal funds rate plus 0.5% or (3) the one-month adjusted LIBOR rate plus 1%), or the adjusted LIBOR rate plus an interest rate margin based upon the our leverage ratio. As of September 26, 2015 and December 27, 2014, the weighted average interest rate on the Company’s debt was 1.31% and 1.42%, respectively.
The $1.3B Credit Facility includes certain customary representations and warranties, events of default, notices of material adverse changes to the Company’s business, and negative and affirmative covenants. As of September 26, 2015, the Company was compliant with all covenants.
At September 26, 2015 and December 27, 2014, the Company had $4.9 million and $5.0 million in outstanding letters of credit, respectively.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Capital Lease Obligations
The Company acquired a build-to-suit lease as part of its acquisition of Argenta and BioFocus. In accordance with accounting guidance applicable to entities involved with the construction of an asset that will be leased when the construction is completed, the Company was considered the owner, for accounting purposes, of this property during the construction period. Accordingly, the Company recorded an asset and a corresponding financing obligation on its consolidated balance sheet for the amount of total project costs incurred related to the construction in progress for this property through completion of the construction period. Upon completion of the construction during the three months ended June 27, 2015, the Company determined that it was no longer considered the owner of the property because it did not have continuing involvement. Consequently, the Company recorded a successful sale leaseback and derecognized the property and the associated financing obligation from the Company’s consolidated balance sheet and recorded a capital lease asset and a corresponding liability of $35.8 million.
The Company’s capital lease obligations amounted to $34.5 million and $1.0 million at September 26, 2015 and December 27, 2014, respectively.
8. EQUITY
Earnings Per Share
The following table reconciles the numerator and denominator in the computations of basic and diluted earnings per share:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 26, 2015 | | September 27, 2014 | | September 26, 2015 | | September 27, 2014 |
| (in thousands) |
Numerator: | | | | | | | |
Net income from continuing operations attributable to common shareholders | $ | 37,413 |
| | $ | 31,984 |
| | $ | 117,477 |
| | $ | 100,394 |
|
Loss (income) from discontinued operations, net of income taxes | (34 | ) | | 52 |
| | (48 | ) | | (862 | ) |
Net income attributable to common shareholders | $ | 37,379 |
| | $ | 32,036 |
| | $ | 117,429 |
| | $ | 99,532 |
|
| | | | | | | |
Denominator: | | | | | | | |
Weighted-average shares outstanding—Basic | 46,290 |
| | 46,016 |
| | 46,572 |
| | 46,683 |
|
Effect of dilutive securities: | | | | | | | |
Stock options, restricted stock units, performance stock units and contingently issuable restricted stock | 955 |
| | 862 |
| | 1,012 |
| | 883 |
|
Weighted-average shares outstanding—Diluted | 47,245 |
| | 46,878 |
| | 47,584 |
| | 47,566 |
|
Options to purchase approximately 0.5 million and 0.9 million shares were not included in computing diluted earnings per share for the three months ended September 26, 2015 and September 27, 2014, respectively, because their inclusion would have been anti-dilutive. For the nine months ended September 26, 2015 and September 27, 2014, anti-dilutive options were 0.5 million and 0.8 million shares, respectively. Basic weighted average shares outstanding for the three and nine months ended September 26, 2015 and September 27, 2014 excluded the impact of approximately 1.1 million and 1.2 million shares, respectively, of non-vested restricted stock and restricted stock units.
Treasury Shares
In July 2010, the Company’s Board of Directors authorized a $500.0 million stock repurchase program, and subsequently approved increases to the stock repurchase program of $250.0 million in 2010, $250.0 million in 2013 and $150.0 million in 2014, for an aggregate authorization of $1,150.0 million. The Company repurchased approximately 1.5 million shares for $108.8 million and approximately 2.1 million shares for $110.6 million in the nine months ended September 26, 2015 and September 27, 2014, respectively. As of September 26, 2015, the Company had $69.7 million remaining on the authorized stock repurchase program. The Company’s 2007 Incentive Plan permits the netting of common stock upon vesting of restricted stock and restricted stock units in order to satisfy individual minimum statutory tax withholding requirements. During the nine months ended September 26, 2015 and September 27, 2014, the Company acquired approximately 0.1 million shares for $8.7 million and approximately 0.1 million shares for $6.7 million, respectively.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accumulated Other Comprehensive Income (Loss)
Changes to each component of accumulated other comprehensive income (loss), net of income tax, are as follows:
|
| | | | | | | | | | | |
| Foreign Currency Translation and Other | | Pension and Other Post-Retirement Benefit Plans | | Total |
| (in thousands) |
December 27, 2014 | $ | (19,891 | ) | | $ | (54,356 | ) | | $ | (74,247 | ) |
Other comprehensive loss before reclassifications | (45,697 | ) | | — |
| | (45,697 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) | (2,341 | ) | | 2,185 |
| | (156 | ) |
Net current period other comprehensive income (loss) | (48,038 | ) | | 2,185 |
| | (45,853 | ) |
Income tax expense | — |
| | 700 |
| | 700 |
|
September 26, 2015 | $ | (67,929 | ) | | $ | (52,871 | ) | | $ | (120,800 | ) |
Foreign currency translation and other includes an insignificant amount of unrealized gains (losses) on available-for-sale marketable securities.
Nonredeemable Noncontrolling Interests
The Company has investments in several entities, whose financial results are consolidated in the Company’s financial statements, as it has the ability to exercise control over these entities. The interests of the respective noncontrolling parties in these entities have been recorded as noncontrolling interests. The activity within the nonredeemable noncontrolling interests was insignificant during the three and nine months ended September 26, 2015 and September 27, 2014.
9. INCOME TAXES
The Company’s overall effective tax rate for the three months ended September 26, 2015 and September 27, 2014 was 28.7% and 26.4%, respectively. The Company’s overall effective tax rate was 18.3% and 26.2% for each of the nine months ended September 26, 2015 and September 27, 2014, respectively. For the three months ended September 26, 2015 the increase was primarily attributable to the amount and mix of domestic and foreign earnings and discrete tax cost of $1.4 million related to nondeductible transaction costs incurred in 2015 for the acquisition of Celsis, offset by a $0.9 million release of an uncertain tax position resulting from an ability to offset tax on a capital gain from an investment in a limited partnership. For the nine months ended September 26, 2015, the decrease reflects the items above as well as a reduction in unrecognized tax benefits and related interest of $10.4 million due to the expiration of the statute of limitations associated with pre-acquisition tax positions on forgiveness of debt, an additional $1.8 million release of an uncertain tax position resulting from an ability to offset tax on a capital gain from an investment in a limited partnership, and a non-taxable bargain purchase gain of $9.9 million associated with the acquisition of Sunrise.
During the three months ended September 26, 2015, the Company’s unrecognized tax benefits decreased by $1.0 million to $22.0 million primarily due to the $0.9 million release resulting from an ability to offset tax on a capital gain from an investment in a limited partnership and benefit from foreign exchange, offset by pre-acquisition tax positions taken by Celsis. The amount of unrecognized income tax benefits that would impact the effective tax rate decreased by $1.4 million, to $18.7 million. The amount of accrued interest on unrecognized tax benefits was $1.0 million at September 26, 2015. The Company believes that it is reasonably possible that the unrecognized tax benefits will decrease by up to $0.4 million over the next twelve-month period, as a result of the settlement of audits and the lapse of statute of limitations.
The Company conducts business in a number of tax jurisdictions. As a result, it is subject to tax audits in jurisdictions including the U.S., U.K., Japan, France, Germany, and Canada. With few exceptions, the Company is no longer subject to U.S. and international income tax examinations for years before 2011.
The Company and certain of its subsidiaries are currently under audit by various tax authorities in the U.S., Canada, and France. The Company does not believe that resolution of these controversies will have a material impact on its financial position or results of operations.
On October 21, 2015, the Quebec government enacted Bill 13, which will provide a one-time retroactive benefit to operating income in the fourth quarter of 2015 related to tax years 2012 through 2014 and will provide a corresponding increase to the Company’s effective income tax rate. Additionally, the tax law change will provide an ongoing reduction in benefit to operating income and an additional corresponding increase to the Company’s effective income tax rate beginning in 2015 and beyond. The impact of this law change will be realized in the fourth quarter results.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In accordance with the Company’s policy, the remaining undistributed earnings of its non-U.S. subsidiaries remain indefinitely reinvested as of the end of the three months ended September 26, 2015 as they are required to fund needs outside the U.S. and cannot be repatriated in a manner that is substantially tax free.
The income tax expense (benefit) related to items of other comprehensive income are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 26, 2015 | | September 27, 2014 | | September 26, 2015 | | September 27, 2014 |
| (in thousands) |
Income tax benefit related to foreign currency translation adjustment | $ | — |
| | $ | — |
| | $ | — |
| | $ | (105 | ) |
Income tax expense related to change in unrecognized pension gains, losses and prior service costs | 220 |
| | 125 |
| | 700 |
| | 378 |
|
Income tax expense related to items of other comprehensive income | $ | 220 |
|
| $ | 125 |
|
| $ | 700 |
|
| $ | 273 |
|
10. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
The following table provides the components of net periodic cost (benefit) for the Company’s pension and other post-retirement benefit plans for the three months ended September 26, 2015 and September 27, 2014:
|
| | | | | | | | | | | | | | | |
| Pension Plans | | Other Post-Retirement Benefit Plans |
| September 26, 2015 | | September 27, 2014 | | September 26, 2015 | | September 27, 2014 |
| (in thousands) |
Service cost | $ | 935 |
|
| $ | 880 |
| | $ | 214 |
|
| $ | 190 |
|
Interest cost | 3,070 |
|
| 3,211 |
| | 265 |
|
| 252 |
|
Expected return on plan assets | (4,383 | ) |
| (4,540 | ) | | — |
|
| — |
|
Amortization of prior service cost (credit) | (150 | ) |
| (166 | ) | | — |
|
| 159 |
|
Amortization of net loss | 780 |
|
| 238 |
|
| 65 |
|
| 60 |
|
Net periodic cost (benefit) | $ | 252 |
| | $ | (377 | ) | | $ | 544 |
| | $ | 661 |
|
The following table provides the components of net periodic cost (benefit) for the Company’s pension and other post-retirement benefit plans for the nine months ended September 26, 2015 and September 27, 2014:
|
| | | | | | | | | | | | | | | |
| Pension Plans | | Other Post-Retirement Benefit Plans |
| September 26, 2015 | | September 27, 2014 | | September 26, 2015 | | September 27, 2014 |
| (in thousands) |
Service cost | $ | 2,806 |
| | $ | 2,565 |
| | $ | 642 |
| | $ | 569 |
|
Interest cost | 9,210 |
| | 9,633 |
| | 796 |
| | 757 |
|
Expected return on plan assets | (13,147 | ) | | (13,095 | ) | | — |
| | — |
|
Amortization of prior service cost (credit) | (451 | ) | | (484 | ) | | — |
| | 489 |
|
Amortization of net loss | 2,433 |
| | 684 |
| | 203 |
| | 185 |
|
Net periodic cost (benefit) | $ | 851 |
| | $ | (697 | ) | | $ | 1,641 |
| | $ | 2,000 |
|
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. STOCK-BASED COMPENSATION
The Company has stock-based compensation plans under which employees and non-employee directors may be granted stock-based awards such as stock options, restricted stock, restricted stock units and performance share units (PSUs).
The following table provides stock-based compensation by the financial statement line item in which it is reflected:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 26, 2015 | | September 27, 2014 | | September 26, 2015 | | September 27, 2014 |
| (in thousands) |
Cost of revenue | $ | 1,670 |
| | $ | 1,337 |
| | $ | 4,959 |
| | $ | 4,008 |
|
Selling, general and administrative | 8,806 |
| | 6,914 |
| | 25,390 |
| | 19,124 |
|
Stock-based compensation, before income taxes | 10,476 |
| | 8,251 |
| | 30,349 |
| | 23,132 |
|
Provision for income taxes | (3,733 | ) | | (2,943 | ) | | (10,737 | ) | | (8,271 | ) |
Stock-based compensation, net of income taxes | $ | 6,743 |
| | $ | 5,308 |
| | $ | 19,612 |
| | $ | 14,861 |
|
During the nine months ended September 26, 2015, the Company issued approximately 0.2 million restricted stock units with a per share weighted average grant date fair value of $76.66, less than 0.1 million shares of restricted stock with a per share weighted average grant date fair value of $70.29, approximately 0.5 million stock options with a per share weighted average grant date fair value of $17.25, and approximately 0.2 million PSUs with a per share weighted average grant date fair value of $87.50. The maximum number of common shares to be issued upon vesting of PSUs granted during the nine months ended September 26, 2015 is approximately 0.3 million.
During the three months ended March 28, 2015, the Company modified certain stock-based awards granted in previous years as part of executive retirement transitions. For the stock-based awards granted to employees during the nine months ended September 26, 2015 the Company introduced a new retirement provision, which allows for continued vesting of such awards after the employee’s retirement if certain eligibility conditions are met. The introduction of the new retirement provision and stock-based award modifications increased the Company’s stock-based compensation expense for the nine months ended September 26, 2015 by $3.8 million.
12. FOREIGN CURRENCY CONTRACTS
During the three months ended September 26, 2015, the Company entered into foreign exchange forward contracts to limit its foreign currency exposure related to intercompany loans denominated in British Pound and Euro that are not of a long-term investment nature. These contracts are recorded at fair value in the Company’s consolidated balance sheet and are not designated as hedging instruments. Any gains or losses on such contracts are immediately recognized in other income (expense), net, and are largely offset by the remeasurement of the underlying intercompany loan balances.
The notional amount and fair value of the Company’s foreign currency forward contracts is summarized as follows:
|
| | | | | | | | |
September 26, 2015 |
Notional Amount | | Fair Value | | Balance Sheet Location |
(in thousands) |
$ | 39,661 |
| | $ | 16 |
| | Other current assets |
$ | 88,417 |
| | $ | 306 |
| | Other current liabilities |
The following table summarizes the effect of foreign exchange forward contracts on the Company’s consolidated statement of income:
|
| | | | |
Three Months Ended September 26, 2015 |
Location of Gain (Loss) | | Gain (Loss) Recognized |
| | (in thousands) |
Other income (expense), net | | $ | (3,194 | ) |
The forward contracts outstanding as of September 26, 2015 had durations of 1 to 3 months.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. COMMITMENTS AND CONTINGENCIES
Litigation
Various lawsuits, claims, and proceedings of a nature considered normal to its business are pending against the Company. While the outcome of any of these proceedings cannot be accurately predicted, the Company does not believe the ultimate resolution of any of these existing matters would have a material adverse effect on the Company’s business or financial condition.
In May 2013, the Company commenced an investigation into inaccurate billing with respect to certain government contracts. The Company promptly reported these matters to the relevant government contracting officers, the Department of Health and Human Services’ Office of the Inspector General, and the Department of Justice, and the Company is cooperating with these agencies to ensure the proper repayment and resolution of this matter. The Company identified approximately $1.5 million of excess amounts billed on these contracts since January 1, 2007 and reserved such amount. Because of the ongoing discussions with the government and complex nature of this matter, the Company believes that it is reasonably possible that additional losses may be incurred; however, the Company cannot at this time estimate the potential range of loss beyond the current reserve of $1.5 million.
On July 31, 2015, IDEXX Laboratories, Inc. and IDEXX Distribution, Inc. (collectively, IDEXX) filed a complaint in the United States District Court for the District of Delaware alleging the Company has infringed three recently issued patents related to a blood spot sample collection method used in determining the presence or absence of an infectious disease in a population of rodents. On September 21, 2015, the Company timely filed a motion to dismiss the complaint on the grounds that all of the claims are directed to unpatentable subject matter and therefore are invalid. On October, 7, 2015, IDEXX filed an amended complaint which substantially asserts the same patents and infringement allegations as asserted in the original complaint, and on October 26, 2015, the Company timely filed a motion to dismiss this amended complaint. While no prediction may be made as to the outcome of litigation, we intend to defend against this proceeding vigorously and therefore an estimate of the possible loss or range of loss cannot be made.
Lease Commitments
During the nine months ended September 26, 2015, the Company assumed or entered into new lease agreements or exercised options to extend the lease terms for certain existing leases. As a result, the Company’s lease obligations through August 2024 increased by $17.9 million.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. SEGMENT INFORMATION
The Company reports its financial performance in three segments: Research Models and Services, Discovery and Safety Assessment, and Manufacturing Support.
The following table presents revenue and other financial information by reportable segment:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 26, 2015 | | September 27, 2014 | | September 26, 2015 | | September 27, 2014 |
| (in thousands) |
Research Models and Services | | | | | | | |
Revenue | $ | 118,451 |
| | $ | 124,021 |
| | $ | 358,506 |
| | |