EX-99.2 4 dp66523_ex9902.htm EXHIBIT 99.2

Exhibit 99.2

 

ITEM 9.01 (b) UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

On April 4, 2016, Charles River Laboratories International, Inc. (“Charles River” or the “Company”), Pretzel Acquisition Corporation, a wholly-owned subsidiary of Charles River (“Merger Sub”), WRH, Inc. (“WRH”) and American Capital Equity III, LP, in its capacity as Stockholder’s Representative consummated the merger contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), dated as of January 6, 2016 (the “Acquisition”). Under the terms of the Merger Agreement, Merger Sub merged with and into WRH, resulting in WRH becoming a wholly-owned subsidiary of the Company. The purchase price for WRH was $605.5 million, subject to purchase price adjustments for certain working capital changes. The Acquisition was funded by cash on hand and borrowings on the Company’s credit facility. On March 30, 2016, Charles River amended and restated its existing credit agreement and borrowed $601.0 million to fund this transaction.

 

The Acquisition is accounted for under the Financial Accounting Standards Board’s Accounting Standards Codification Topic 805 (ASC 805), Business Combinations. The fair values of assets acquired and liabilities assumed are based on preliminary estimates of fair values as of the Acquisition date. Management believes the fair values recognized for the assets acquired and liabilities assumed are based on reasonable estimates and assumptions. Preliminary fair value estimates may change as additional information becomes available. There can be no assurance that the final determination will not result in material changes from these preliminary amounts.

 

The unaudited pro forma condensed combined balance sheet as of December 26, 2015 was derived from the historical balance sheet of Charles River as of December 26, 2015 and the historical balance sheet of WRH as of December 31, 2015, giving effect to the Acquisition as though it was completed on December 26, 2015.

 

The unaudited pro forma condensed combined statement of income for the year ended December 26, 2015 was prepared by combining Charles River’s historical statement of income from December 28, 2014 through December 26, 2015 with WRH’s historical statement of operations for the calendar year ended December 31, 2015, giving effect to the Acquisition as though it was completed on December 28, 2014. This unaudited pro forma condensed combined statement of income does not give effect to any potential cost savings, synergies or other operating efficiencies that could result from the Acquisition, nor any non-recurring expenses resulting from the transaction.

 

These unaudited pro forma condensed combined financial statements are presented for illustrative purposes only. The unaudited pro forma adjustments are based upon available information and assumptions that the Company believes are reasonable, directly attributable to the Acquisition, expected to have a continuing impact on Charles River, and factually supportable. These unaudited pro forma condensed combined financial statements do not purport to represent what the consolidated results of operations or financial position of the Company would actually have been if the Acquisition had occurred on the dates referred to above, nor do they purport to project the results of operations or financial position of the Company for any future period or as of any date.

 

The pro forma condensed combined financial statements should be read in conjunction with the separate historical consolidated financial statements and accompanying notes of Charles River and WRH.

 

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Charles River Laboratories International, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet  

December 26, 2015

(in thousands)

  

 

    Charles River   WRH   Reclassifications   Financing   Other Adjustments   Pro Forma Combined
                         
  Assets                      
  Current assets:                      
  Cash and cash equivalents  $     117,947    $   18,350    $                    -       $ 597,341 (b)  $  (577,195) (c)  $    156,443
  Trade receivables, net         270,068         49,569                          -                    -                  (564) (f)        319,073
  Inventories           93,735           4,391                          -                    -               (2,277) (f)          95,849
  Prepaid assets           30,198           1,769                        (20) (a)               -                   250 (f)          32,197
  Other current assets           47,286                 -                             20 (a)               -                1,123 (h)          48,429
  Total current assets         559,234         74,079                          -          597,341        (578,663)          651,991
  Property, plant and equipment, net         677,959       104,284                          -                    -              22,242 (d)        804,485
  Goodwill         438,829         56,411                          -                    -            275,497 (c)(d)(e)(f)(g)(h)        770,737
  Client relationships, net         213,374                 -                      20,493 (a)               -            120,207 (d)        354,074
  Other intangible assets, net           67,430         33,093                 (20,493) (a)               -              13,400 (d)          93,430
  Deferred tax assets           40,028                 -                             -                    -             (15,765) (h)          24,263
  Other assets           71,643           2,811                          -                    -               (2,570) (e)(f)          71,884
  Total assets  $  2,068,497    $ 270,678    $                    -       $ 597,341    $  (165,652)    $ 2,770,864
  Liabilities, Redeemable Noncontrolling Interest and Equity                      
  Current liabilities:                      
  Current portion of long-term debt and capital leases  $       17,033    $     8,625    $                    -       $   24,375 (b)  $      (8,576) (e)  $      41,457
  Accounts payable           36,675         10,093                          -                    -                7,140 (f)(g)          53,908
  Accrued compensation           72,832                 -                      16,740 (a)               -              26,988 (c)(d)(f)        116,560
  Deferred revenue           81,343         33,287                          -                    -               (4,087) (d)(f)        110,543
  Accrued liabilities           89,494         21,975                 (16,740) (a)               -               (1,910) (d)(e)(f)          92,819
  Other current liabilities           12,544              746                          -                    -                   279 (f)(h)          13,569
  Current liabilities of discontinued operations             1,840                 -                             -                    -                      -                 1,840
  Total current liabilities         311,761         74,726                          -            24,375           19,834          430,696
  Long-term debt, net and capital leases         845,997       216,087                          -          574,489 (b)      (215,907) (e)(f)     1,420,666
  Deferred tax liabilities           48,223         13,749                          -                    -               (2,464) (h)          59,508
  Other long-term liabilities           89,062           5,131                          -                    -                1,406 (f)(h)          95,599
  Long-term liabilities of discontinued operations             7,890                 -                             -                    -                      -                 7,890
  Total liabilities      1,302,933       309,693                          -          598,864        (197,131)       2,014,359
  Redeemable noncontrolling interest           28,008                 -                             -                    -                      -               28,008
  Equity:                      
  Preferred stock                   -          247,371                          -                    -           (247,371) (e)                  -   
  Common stock                855         64,336                          -                    -             (64,336) (e)               855
  Additional paid-in capital      2,397,960       274,949                          -                    -           (274,949) (e)     2,397,960
  Retained earnings (accumulated deficit)           10,538     (624,779)                          -            (1,523) (b)       617,243 (e)(g)            1,479
  Treasury stock, at cost    (1,540,738)                 -                             -                    -                      -        (1,540,738)
  Accumulated other comprehensive loss       (135,548)            (892)                          -                    -                   892 (e)      (135,548)
  Total equity attributable to common shareholders         733,067       (39,015)                          -            (1,523)           31,479          724,008
  Noncontrolling interests             4,489                 -                             -                    -                      -                 4,489
  Total equity         737,556       (39,015)                          -            (1,523)           31,479          728,497
  Total liabilities, redeemable noncontrolling interest and equity  $  2,068,497    $ 270,678    $                    -       $ 597,341    $  (165,652)    $ 2,770,864

 

 

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Charles River Laboratories International, Inc.

Unaudited Pro Forma Condensed Combined Statement of Income  

Year Ended December 26, 2015

(in thousands, except per share amounts)

 

    Charles River   WRH   Reclassifications   Financing   Other Adjustments   Pro Forma Combined
                         
  Service revenue  $     858,244    $ 218,213    $                    -       $          -       $             -       $ 1,076,457
  Product revenue         505,058                 -                             -                   -               (3,383) (6)        501,675
  Total revenue      1,363,302       218,213                          -                   -               (3,383)       1,578,132
  Costs and expenses:                      
  Cost of services provided (excluding amortization of intangible assets)         568,227       143,154                      (219) (1)              -                1,843 (4)(6)        713,005
  Cost of products sold (excluding amortization of intangible assets)         263,983                 -                             -                   -               (2,265) (6)        261,718
  Selling, general and administrative         300,414         48,870                   (5,143) (1)              -               (9,262) (4)(6)(7)        334,879
  Amortization of intangible assets           24,229                 -                        5,362 (1)              -              10,086 (5)          39,677
  Operating income         206,449         26,189                          -                   -               (3,785)          228,853
  Other income (expense):                      
  Interest income             1,043                 -                             -                   -                      -                 1,043
  Interest expense         (15,072)       (23,092)                          -          (12,544) (2)         23,092 (3)        (27,616)
  Other income (expense), net             3,008              601                          -                   -                      -                 3,609
  Income from continuing operations, before income taxes         195,428           3,698                          -          (12,544)           19,307          205,889
  Provision (benefit) for income taxes           43,391           2,523                          -                   -             (10,792) (8)          35,122
  Income from continuing operations, net of income taxes         152,037           1,175                          -          (12,544)           30,099          170,767
  Less: Income from continuing operations attributable to noncontrolling interests           (1,774)                 -                             -                   -                      -               (1,774)
  Income from continuing operations attributable to common shareholders  $     150,263    $     1,175    $                    -       $ (12,544)    $     30,099    $    168,993
                         
  Continuing operations per common share attributable to common shareholders                      
  Basic  $           3.23                    $          3.63
  Diluted  $           3.15                    $          3.55
                         
  Weighted average common shares outstanding:                      
  Basic 46,496                            46,496
  Diluted 47,634                            47,634

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1.Basis of Pro Forma Presentation

 

For the pro forma condensed combined balance sheet, the $605.5 million purchase price has been allocated based on management’s preliminary estimate of the fair values of the WRH’s assets acquired and liabilities assumed as of April 4, 2016. Certain elements of the purchase price allocation are considered preliminary, particularly as it relates to the final valuation of certain identifiable intangible assets, and there could be material adjustments when the valuation is finalized. The following table summarizes the allocation of the preliminary purchase price of $605.5 million, net of $55.4 million of cash acquired, as of the transaction’s closing date, April 4, 2016:

 

   April 4, 2016
   (in thousands)
Trade receivables  $48,090 
Inventories   2,296 
Other current assets (excluding cash)   4,088 
Property, plant and equipment   129,066 
Definite-lived intangible assets   166,700 
Other long-term assets   218 
Goodwill   329,394 
Current liabilities   (95,545)
Long-term liabilities   (34,173)
Total purchase price allocation  $550,134 

 

The purchase price allocation was prepared on a preliminary basis and is 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 preliminary breakout of definite-lived intangible assets acquired was as follows:

  

   Definite-Lived
Intangible Assets		  Weighted Average Amortization Life
   (in thousands)  (in years)
Client relationships  $140,700    23 
Developed technology   20,700    3 
Backlog   5,300    4 
Total definite-lived intangible assets  $166,700      

 

 

2.Pro Forma Adjustments

 

The following are the descriptions of the pro forma condensed combined balance sheet adjustments:

 

a)This adjustment records the impact of conforming WRH’s financial statement presentation with that of Charles River.

 

b)On March 30, 2016, Charles River amended and restated its $1.3 billion credit facility, creating a borrowing capacity of $1.65 billion, and borrowed $601.0 million to fund Charles River’s acquisition of WRH. The remainder of the purchase price was paid using cash on hand. Charles River paid $3.7 million of debt issuance costs in connection with the amendment, increasing capitalized debt issuance costs by $2.2 million on the Company’s balance sheet.

 

c)The purchase price for WRH, subject to purchase price adjustments for certain working capital changes, was $605.5 million, including: (1) $577.2 million paid in cash, (2) $15.7 million paid in cash to WRH upon consummation of the Acquisition to fund stock appreciation right (SAR) payments to WRH’s employees, (3) $12.3 million to be paid in cash to WRH after the Acquisition to fund SAR and other employee-related payments to WRH’s employees, and (4) $0.3 million in assumed WRH’s liabilities. The SAR and other employee-related liabilities of $28.0 million were paid by WRH on behalf of the sellers after the Acquisition date.

 

d)This adjustment eliminates the historical carrying values and records the fair values of WRH’s property, plant and equipment, customer relationships, other intangible assets, and deferred revenue; the net offsetting adjustments decreased goodwill by $22.2 million, $120.2 million, $13.4 million, and $4.0 million, respectively. The related adjustments to other assets acquired and liabilities assumed were immaterial.

 

e)This adjustment eliminates the historical carrying value of WRH’s existing shareholders’ deficit of $39.0 million, deferred financing costs of $2.5 million, accrued interest of $2.3 million, and debt of $224.7 million, which was repaid on the Acquisition date.

 

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f)This adjustment records the immaterial impact of aligning WRH’s accounting policies to those of Charles River and eliminates the immaterial intercompany activity between Charles River and WRH.

 

g)This adjustment records the impact of direct transaction costs of $7.5 million and $0.5 million incurred by Charles River and WRH, respectively, subsequent to December 26, 2015, as a result of the Acquisition.

 

h)This adjustment reflects the tax impact of adjustments b)-f) above at the respective jurisdictional statutory tax rates.

 

The following are the descriptions of the pro forma condensed combined statement of income adjustments:

 

1)This adjustment records the impact of conforming WRH’s financial statement presentation with that of Charles River.

 

2)This adjustment records incremental interest expense of $12.5 million related to the net additional borrowings and related amortization of the respective debt issuance costs capitalized. The Company used the interest rate on its $1.65 billion credit facility as of March 30, 2016. A change of 0.125% in the variable interest rate would have impacted the net interest expense above by approximately $1.8 million for the fiscal year ended December 26, 2015.

 

3)This adjustment eliminates WRH’s previously recorded interest expense of $23.1 million.

 

4)This adjustment eliminates WRH’s previously recorded fixed asset depreciation expense of $9.7 million and $2.8 million within cost of services provided and selling, general and administrative expenses, respectively, and records the estimated depreciation expense of acquired fixed assets of $8.3 million and $2.4 million within cost of services provided and selling, general and administrative expenses, respectively.

 

5)This adjustment eliminates WRH’s previously recorded intangible asset amortization of $5.4 million and records the amortization of acquired intangible assets of $15.4 million, calculated using the economic usage method. Estimated amortization expense for intangible assets for each of the next five years is expected to be as follows:

 

 

For the years following December 26, 2015  Amortization Expense
   (in thousands)
Year 1  $15,553 
Year 2   11,438 
Year 3   7,297 
Year 4   7,674 
Year 5   7,031 

 

 

6)This adjustment eliminates product revenue of $3.4 million and cost of products sold of $2.3 million from Charles River’s statement of income related to sales made to WRH in fiscal year 2015. This adjustment also records the impact of aligning WRH’s accounting policies to those of Charles River, comprised of a reclassification of $3.2 million from selling, general and administrative expenses to cost of services provided, to conform to the Company’s overhead allocation methodology.

 

7)This adjustment eliminates direct transaction costs of $3.2 million and $1.5 million incurred by Charles River and WRH, respectively, during the fiscal year 2015, as a result of the Acquisition.

 

8)This adjustment reflects the tax impact of adjustments 2)-7) above and the tax impact of combining WRH’s financial statements with those of Charles River at the respective jurisdictional statutory tax rates.

 

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