Charles River Laboratories Announces Fourth-Quarter and Full-Year 2014 Results from Continuing Operations and Provides 2015 Guidance

Charles River Laboratories Announces Fourth-Quarter and Full-Year 2014 Results from Continuing Operations and Provides 2015 Guidance
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– Fourth-Quarter Revenue of $329.5 Million and Full-Year 2014 Revenue of $1.30 Billion –

– Fourth-Quarter GAAP Earnings per Share of $0.59 and Non-GAAP Earnings per Share of $0.81 –

– Full-Year GAAP Earnings per Share of $2.70 and Non-GAAP Earnings per Share of $3.46 –

– Provides 2015 Guidance for Constant Currency Revenue Growth of 6-7.5% and Reported Revenue Growth of 1-2.5%; Non-GAAP Earnings per Share of $3.55-$3.65, including Unfavorable Impact from Foreign Exchange of $0.12 per share; GAAP Earnings per Share of $3.15-$3.25 –

WILMINGTON, Mass.--(BUSINESS WIRE)--Feb. 10, 2015-- Charles River Laboratories International, Inc. (NYSE:CRL) today reported its results for the fourth-quarter and full-year 2014 and provided guidance for 2015. For the quarter, revenue from continuing operations was $329.5 million, an increase of 13.9% from $289.2 million in the fourth quarter of 2013. Revenue growth was driven by the Discovery and Safety Assessment and Manufacturing Support segments. The Early Discovery acquisitions in 2014, which include Argenta, BioFocus, and ChanTest, contributed 9.3% to consolidated fourth-quarter revenue growth. Foreign currency translation reduced reported revenue growth by 2.9%.

On a GAAP basis, net income from continuing operations for the fourth quarter of 2014 was $28.5 million, or $0.59 per diluted share, compared to $19.5 million, or $0.40 per diluted share, for the fourth quarter of 2013.

On a non-GAAP basis, net income from continuing operations was $38.5 million for the fourth quarter of 2014, an increase of 9.7% from $35.1 million for the same period in 2013. Fourth-quarter diluted earnings per share on a non-GAAP basis were $0.81, an increase of 11.0% compared to $0.73 per share in the fourth quarter of 2013. Higher revenue was the primary contributor to the earnings per share increase, which was partially offset by a higher tax rate. A gain of $0.03 per share on our limited partnership investments in the fourth quarter of 2014 compared to a $0.01 gain for the same period in 2013.

James C. Foster, Chairman, President and Chief Executive Officer, said, "I am very pleased to say that 2014 was an exceptional year. Our financial results demonstrate what we've worked very hard to achieve: the strongest portfolio we've ever had, with the ability to support clients from target discovery through preclinical development; deep client relationships, where we are a respected and trusted partner; a streamlined organization, with the flexibility to respond to a changing industry and client requirements; and employees who are committed to providing exceptional service to our clients."

"Given our strong performance in 2014, and the fact that we believe the company is very well positioned to win new business, we are optimistic about the opportunities in 2015. The potential for expanding strategic relationships, gaining market share in each of our client segments, and implementation of new efficiency and productivity initiatives give us confidence that we can achieve our guidance in 2015 for constant currency revenue growth of 6.0 to 7.5% and non-GAAP EPS in a range from $3.55 to $3.65," Mr. Foster concluded.

Fourth-Quarter Segment Results

Research Models and Services (RMS)

Revenue for the RMS segment was $117.7 million in the fourth quarter of 2014, a decrease of 3.9% from $122.5 million in the fourth quarter of 2013. Foreign currency translation reduced reported revenue growth by 3.7%. On a constant-currency basis, revenue was essentially unchanged, as higher sales of research models, particularly in North America, were offset by lower sales of research model services, due in part to the termination of an Insourcing Solutions contract with the National Cancer Institute.

In the fourth quarter of 2014, the RMS segment's GAAP operating margin was 20.1% compared to 15.6% in the fourth quarter of 2013. On a non-GAAP basis, the operating margin increased to 23.2% from 22.9% in the fourth quarter of 2013. The increase was primarily driven by benefits from the Company's global efficiency initiatives, partially offset by the impact of lower revenue for research model services.

Discovery and Safety Assessment (DSA)

Revenue from continuing operations for the DSA segment was $149.6 million in the fourth quarter of 2014, an increase of 35.4% from $110.5 million in the fourth quarter of 2013. Foreign currency translation reduced reported revenue growth by 1.5%. DSA revenue growth was driven primarily by the Early Discovery acquisitions, which contributed 24.3% to DSA revenue growth in the fourth quarter, as well as low-double-digit revenue growth for the Company's safety assessment services. Sales to mid-tier clients were robust, and sales to global key accounts also increased.

In the fourth quarter of 2014, the DSA segment's GAAP operating margin was 14.0% compared to 7.9% in the fourth quarter of 2013. On a non-GAAP basis, the operating margin increased to 19.4% from 16.8% in the fourth quarter of 2013. The non-GAAP operating margin improvement was driven by leverage from higher sales and a foreign exchange benefit due to a weaker Canadian dollar.

Manufacturing Support (Manufacturing)

Revenue for the Manufacturing segment was $62.3 million in the fourth quarter of 2014, an increase of 10.6% from $56.3 million in the fourth quarter of 2013. Foreign currency translation reduced reported revenue growth by 3.7%. Excluding foreign exchange, Manufacturing revenue increased 14.3% on a constant-currency basis, driven by double-digit growth in the Endotoxin and Microbial Detection business.

In the fourth quarter of 2014, the Manufacturing segment's GAAP operating margin was 33.0% compared to 26.0% in the fourth quarter of 2013. On a non-GAAP basis, the operating margin increased to 35.0% from 32.1% in the fourth quarter of 2013. The improvement was driven by fixed-cost leverage from higher sales.

Stock Repurchase Update

During the fourth quarter of 2014, the Company did not repurchase any shares of its common stock. For fiscal-year 2014, the Company repurchased 2.1 million shares for a total of $110.6 million. On December 1, 2014, the Company's Board of Directors increased the stock repurchase authorization by $150 million, to an aggregate amount of $1.15 billion. As of December 27, 2014, the Company had $178.5 million remaining on its stock repurchase authorization.

Full-Year Results

For 2014, revenue increased by 11.3% to $1.30 billion from $1.17 billion in 2013. The Early Discovery acquisitions contributed 6.3% to 2014 revenue growth, while foreign currency translation reduced reported revenue growth by 0.1%.

On a GAAP basis, net income from continuing operations in 2014 was $129.9 million, or $2.70 per diluted share, compared to $105.4 million, or $2.15 per diluted share, in 2013.

On a non-GAAP basis, net income from continuing operations in 2014 was $164.5 million, or $3.46 per diluted share, compared to $142.3 million, or $2.93 per diluted share, in 2013.

Research Models and Services (RMS)

For 2014, RMS revenue was $507.3 million, a decrease of 0.8% from $511.4 million in 2013. Foreign currency translation reduced reported revenue growth by 0.7%. On a GAAP basis, the RMS segment operating margin was 23.9% in 2014, compared to 22.8% in 2013. On a non-GAAP basis, the operating margin was 26.9% in 2014, essentially unchanged from 2013.

Discovery and Safety Assessment (DSA)

For 2014, DSA revenue was $538.2 million, an increase of 24.5% from $432.4 million in 2013. The Early Discovery acquisitions contributed 17.0% to 2014 revenue growth, and foreign currency translation benefited reported revenue growth by 0.3%. On a GAAP basis, the DSA segment operating margin was 13.0% in 2014, compared to 11.0% in 2013. On a non-GAAP basis, the operating margin increased to 17.4% in 2014 from 15.6% in 2013.

Manufacturing Support (Manufacturing)

For 2014, Manufacturing revenue was $252.1 million, an increase of 13.7% from $221.8 million in 2013. Foreign currency translation benefited reported revenue growth by 0.2%. On a GAAP basis, the Manufacturing segment operating margin was 31.2% in 2014, compared to 27.6% in 2013. On a non-GAAP basis, the operating margin increased to 33.4% in 2014 from 31.0% in 2013.

2015 Guidance

The Company is providing the following financial guidance for 2015. Revenue growth is expected to be 6.0% to 7.5% on a constant-currency basis. Based on current rates, foreign currency translation is expected to reduce revenue growth by approximately 5%, which would result in reported revenue growth of 1.0% to 2.5%. Revenue growth in 2015 will be driven by the DSA and Manufacturing segments.

Earnings per share in 2015 are expected to benefit from higher sales and the Company's ongoing global productivity and efficiency initiatives. These benefits are expected to be partially offset by foreign exchange, which is expected to reduce 2015 earnings per share by approximately $0.12. The Company's 2014 earnings per share include a $0.12 gain on limited-partnership investments; 2015 guidance includes an estimated $0.03 benefit from these investments.

     
2015 GUIDANCE (from continuing operations)    
GAAP EPS estimate   $3.15 - $3.25
Amortization of intangible assets   $0.31
Operating losses (1)   $0.04
Charges related to global efficiency initiatives (2)   $0.05
Non-GAAP EPS estimate   $3.55 - $3.65
(1) These costs relate primarily to the Company's Shrewsbury, Massachusetts, facility.
(2) These charges relate primarily to the Company's planned efficiency initiatives in 2015. Other projects in support of the global productivity and efficiency initiatives are expected, but these charges reflect only the decisions that have already been finalized.

Webcast

Charles River Laboratories has scheduled a live webcast on Wednesday, February 11, at 9:00 a.m. ET to discuss matters relating to this press release. To participate, please go to ir.criver.com and select the webcast link. You can also find the associated slide presentation and reconciliations of non-GAAP financial measures to comparable GAAP financial measures on the website.

Non-GAAP Reconciliations/Discontinued Operations

The Company reports non-GAAP results in this press release, which exclude certain items that are outside of normal operations. A reconciliation of GAAP to non-GAAP results is provided in the schedules at the end of this press release. In addition, the Company reports results from continuing operations, which exclude results of the Phase I clinical business that was divested in 2011. The Phase I business is reported as a discontinued operation.

Use of Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, which exclude the amortization of intangible assets and other charges related to our acquisitions; expenses associated with evaluating and integrating acquisitions; charges, gains and losses attributable to businesses or properties we plan to close, consolidate or divest; severance costs associated with our efficiency initiatives; accelerated depreciation charges related to the consolidation of research model production operations; a charge related to a dispute with a large model supplier; gains related to the sales of former research model facilities; write-offs of deferred financing costs and fees related to debt refinancing; costs related to a U.S. government billing adjustment and related expenses; and the additional interest recorded as a result of the adoption in 2009 of an accounting standard related to our convertible debt accounting which increased interest and depreciation expense. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. This press release also refers to our revenue in both a GAAP and non-GAAP (constant currency) basis. There are limitations in using non-GAAP financial measures, as they are not prepared in accordance with generally accepted accounting principles, and may be different than non-GAAP financial measures used by other companies. In particular, we believe that the inclusion of supplementary non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of our core operating results and future prospects without the effect of these often-one-time charges, and is consistent with how management measures and forecasts the Company's performance, especially when comparing such results to prior periods or forecasts. We believe that the financial impact of our acquisitions (and in certain cases, the evaluation of such acquisitions, whether or not ultimately consummated) is often large relative to our overall financial performance, which can adversely affect the comparability of our results on a period-to-period basis. In addition, certain activities, such as business acquisitions, happen infrequently and the underlying costs associated with such activities do not recur on a regular basis. Presenting revenue on a constant currency basis allows investors to measure our revenue growth exclusive of foreign currency exchange fluctuations more clearly. Non-GAAP results also allow investors to compare the Company's operations against the financial results of other companies in the industry who similarly provide non-GAAP results. The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules and regulations. Reconciliations of the non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures are set forth in this press release, and can also be found on the Company's website at ir.criver.com.

Caution Concerning Forward-Looking Statements

This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "anticipate," "believe," "expect," "will," "may," "estimate," "plan," "outlook," and "project" and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These statements also include statements regarding our projected future financial performance including revenue (on both a reported and constant currency basis), operating margins, earnings per share, and the expected impact of foreign exchange rates; the future demand for drug discovery and development products and services, including our expectations for future revenue trends; our expectations with respect to the impact of acquisitions on the Company, our service offerings, strategic relationships, revenue, revenue growth rates, and earnings; the development and performance of our services and products; market and industry conditions including the outsourcing of these services and spending trends by our clients; the potential outcome of and impact to our business and financial operations due to litigation and legal proceedings, including with respect to our ongoing investigation of inaccurate billing with respect to certain government contracts; and Charles River's future performance as delineated in our forward-looking guidance, and particularly our expectations with respect to revenue, the impact of foreign exchange, and enhanced efficiency initiatives. Forward-looking statements are based on Charles River's current expectations and beliefs, and involve a number of risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking statements. Those risks and uncertainties include, but are not limited to: the ability to successfully integrate businesses we acquire; the ability to execute our efficiency initiatives on an effective and timely basis (including divestitures and site closures); the timing and magnitude of our share repurchases; negative trends in research and development spending, negative trends in the level of outsourced services, or other cost reduction actions by our clients; the ability to convert backlog to revenue; special interest groups; contaminations; industry trends; new displacement technologies; USDA and FDA regulations; changes in law; continued availability of products and supplies; loss of key personnel; interest rate and foreign currency exchange rate fluctuations; changes in tax regulation and laws; changes in generally accepted accounting principles; and any changes in business, political, or economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas. A further description of these risks, uncertainties, and other matters can be found in the Risk Factors detailed in Charles River's Annual Report on Form 10-K as filed on February 25, 2014, as well as other filings we make with the Securities and Exchange Commission. Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from results and events currently expected by Charles River, and Charles River assumes no obligation and expressly disclaims any duty to update information contained in this news release except as required by law.

About Charles River

Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our dedicated employees are focused on providing clients with exactly what they need to improve and expedite the discovery, early-stage development and safe manufacture of new therapies for the patients who need them. To learn more about our unique portfolio and breadth of services, visit www.criver.com.

             
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except for share and per share data)
                     
        Three Months Ended   Twelve Months Ended
        December 27,

2014

  December 28,

2013

  December 27,

2014

  December 28,

2013

                     
Total revenue       $ 329,548     $ 289,228     $ 1,297,662     $ 1,165,528  
Cost of revenue         209,603       201,033       825,002       770,626  
Gross margin         119,945       88,195       472,660       394,902  
Selling, general and administrative         72,034       58,674       269,033       225,695  
Amortization of intangibles         7,144       4,914       25,957       17,806  
Operating income         40,767       24,607       177,670       151,401  
Interest expense, net         (2,428 )     (2,572 )     (10,796 )     (20,239 )
Other income, net         1,847       1,071       10,721       7,165  
Income from continuing operations before income taxes         40,186       23,106       177,595       138,327  
Provision for income taxes         11,650       3,580       47,671       32,911  
Income from continuing operations, net of income taxes         28,536       19,526       129,924       105,416  
Loss from discontinued operations, net of income taxes         (864 )     (82 )     (1,726 )     (1,265 )
Net income         27,672       19,444       128,198       104,151  
Net income attributable to noncontrolling interests         (506 )     (345 )     (1,500 )     (1,323 )
Net income attributable to common shareowners       $ 27,166     $ 19,099     $ 126,698     $ 102,828  
                     
Earnings per common share                    
Basic:                    
Continuing operations       $ 0.60     $ 0.41     $ 2.76     $ 2.18  
Discontinued operations       $ (0.02 )   $ -     $ (0.04 )   $ (0.03 )
Net       $ 0.58     $ 0.41     $ 2.72     $ 2.15  
Diluted:                    
Continuing operations       $ 0.59     $ 0.40     $ 2.70     $ 2.15  
Discontinued operations       $ (0.02 )   $ -     $ (0.04 )   $ (0.03 )
Net       $ 0.57     $ 0.40     $ 2.66     $ 2.12  
                     
Weighted average number of common shares outstanding                    
Basic         46,459,512       47,150,688       46,626,997       47,740,167  
Diluted         47,516,659       48,134,992       47,557,706       48,489,322  
                     

 

     
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
             
             
        December 27,

2014

  December 28,

2013

Assets            
Current assets            
Cash and cash equivalents       $ 160,023   $ 155,927
Trade receivables, net         257,991     220,630
Inventories         89,043     89,396
Other current assets         99,841     86,597
Total current assets         606,898     552,550
Property, plant and equipment, net         676,797     676,182
Goodwill, net         321,077     230,701
Other intangibles, net         178,875     84,537
Deferred tax asset         23,193     26,822
Other assets         78,352     61,964
Total assets       $ 1,885,192   $ 1,632,756
             
Liabilities and Equity            
Current liabilities            
Current portion of long-term debt and capital leases       $ 31,904   $ 21,437
Accounts payable         33,815     31,770
Accrued compensation         71,569     58,461
Deferred revenue         78,124     54,177
Accrued liabilities         67,380     56,712
Other current liabilities         11,079     22,546
Current liabilities of discontinued businesses         2,299     1,931
Total current liabilities         296,170     247,034
Long-term debt & capital leases         745,958     642,352
Other long-term liabilities         130,361     70,632
Long-term liabilities of discontinued businesses         8,357     8,080
Total liabilities         1,180,846     968,098
Redeemable non-controlling interest         28,419     20,581
Total shareholders' equity         672,203     640,984
Non-controlling interest         3,724     3,093
Total liabilities, equity and noncontrolling interests       $ 1,885,192   $ 1,632,756
                 

 

         
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(in thousands, except percentages)
                     
        Three Months Ended   Twelve Months Ended
        December 27,

2014

  December 28,

2013

  December 27,

2014

  December 28,

2013

Research Models and Services                    
Revenue       $ 117,691     $ 122,482     $ 507,327     $ 511,350  
Gross margin         40,700       35,890       190,092       179,493  
Gross margin as a % of revenue         34.6 %     29.3 %     37.5 %     35.1 %
Operating income         23,642       19,161       121,376       116,737  
Operating income as a % of revenue         20.1 %     15.6 %     23.9 %     22.8 %
Depreciation and amortization         7,235       14,195       27,512       41,837  
Capital expenditures         7,221       6,300       18,749       16,717  
                     
Discovery and Safety Assessment                    
Revenue       $ 149,604     $ 110,470     $ 538,218     $ 432,378  
Gross margin         45,886       25,654       150,970       106,766  
Gross margin as a % of revenue         30.7 %     23.2 %     28.0 %     24.7 %
Operating income         20,909       8,741       69,749       47,413  
Operating income as a % of revenue         14.0 %     7.9 %     13.0 %     11.0 %
Depreciation and amortization         13,271       9,451       47,138       37,720  
Capital expenditures         8,429       5,246       19,759       12,561  
                     
Manufacturing Support                    
Revenue       $ 62,253     $ 56,276     $ 252,117     $ 221,800  
Gross margin         33,359       26,651       131,598       108,643  
Gross margin as a % of revenue         53.6 %     47.4 %     52.2 %     49.0 %
Operating income         20,529       14,651       78,620       61,227  
Operating income as a % of revenue         33.0 %     26.0 %     31.2 %     27.6 %
Depreciation and amortization         3,467       5,655       14,092       17,079  
Capital expenditures         10,097       2,289       15,541       9,876  
                     
Unallocated Corporate Overhead       $ (24,313 )   $ (17,946 )   $ (92,075 )   $ (73,976 )
                     
Total                    
Revenue       $ 329,548     $ 289,228     $ 1,297,662     $ 1,165,528  
Gross margin         119,945       88,195       472,660       394,902  
Gross margin as a % of revenue         36.4 %     30.5 %     36.4 %     33.9 %
Operating income         40,767       24,607       177,670       151,401  
Operating income as a % of revenue         12.4 %     8.5 %     13.7 %     13.0 %
Depreciation and amortization         26,010       29,301       96,445       96,636  
Capital expenditures         27,018       13,835       56,925       39,154  
                     

 

         
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP TO NON-GAAP
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (1)
(in thousands, except percentages)
                     
        Three Months Ended   Twelve Months Ended
        December 27,

2014

  December 28,

2013

  December 27,

2014

  December 28,

2013

Research Models and Services                    
Revenue       $ 117,691     $ 122,482     $ 507,327     $ 511,350  
Add back government billing adjustment         -       -       -       1,495  
Non-GAAP revenue       $ 117,691     $ 122,482     $ 507,327     $ 512,845  
Operating income         23,642       19,161       121,376       116,737  
Operating income as a % of revenue         20.1 %     15.6 %     23.9 %     22.8 %
Add back:                    
Amortization of intangible assets related to acquisitions         451       1,076       2,466       2,778  
Severance related to cost-savings actions         619       1,123       4,593       1,424  
Government billing adjustment and related expenses         554       226       848       2,402  
Impairment and other items (2)         2,002       6,440       7,109       13,678  
Operating losses (3)         -       14       27       270  
Operating income, excluding specified charges (Non-GAAP)       $ 27,268     $ 28,040     $ 136,419     $ 137,289  
Non-GAAP operating income as a % of non-GAAP revenue         23.2 %     22.9 %     26.9 %     26.8 %
                     
Discovery and Safety Assessment                    
Revenue       $ 149,604     $ 110,470     $ 538,218     $ 432,378  
Operating income         20,909       8,741       69,749       47,413  
Operating income as a % of revenue         14.0 %     7.9 %     13.0 %     11.0 %
Add back:                    
Amortization of intangible assets related to acquisitions         5,458       2,401       18,110       9,593  
Severance related to cost-savings actions         1,794       915       2,912       1,625  
Impairment and other items (2)         -       5,829       -       5,829  
Operating losses (3)         619       629       2,600       3,101  
Costs associated with the evaluation and integration of acquisitions         208       -       404       -  
Operating income, excluding specified charges (Non-GAAP)       $ 28,988     $ 18,515     $ 93,775     $ 67,561  
Non-GAAP operating income as a % of revenue         19.4 %     16.8 %     17.4 %     15.6 %
                     
Manufacturing Support                    
Revenue       $ 62,253     $ 56,276     $ 252,117     $ 221,800  
Operating income         20,529       14,651       78,620       61,227  
Operating income as a % of revenue         33.0 %     26.0 %     31.2 %     27.6 %
Add back:                    
Amortization of intangible assets related to acquisitions         1,235       1,438       5,381       5,435  
Severance related to cost-savings actions         16       123       166       169  
Impairment and other items (2)         -       1,874       -       1,874  
Operating income, excluding specified charges (Non-GAAP)       $ 21,780     $ 18,086     $ 84,167     $ 68,705  
Non-GAAP operating income as a % of revenue         35.0 %     32.1 %     33.4 %     31.0 %
                     
Unallocated Corporate Overhead       $ (24,313 )   $ (17,946 )   $ (92,075 )   $ (73,976 )
Add back:                    
Severance related to cost-savings actions         -       -       121       -  
Costs associated with the evaluation and integration of acquisitions         1,028       766       6,284       1,752  
Convertible debt accounting         -       -       -       107  
Unallocated corporate overhead, excluding specified charges (Non-GAAP)       $ (23,285 )   $ (17,180 )   $ (85,670 )   $ (72,117 )
                     
Total                    
Revenue       $ 329,548     $ 289,228     $ 1,297,662     $ 1,165,528  
Add back government billing adjustment         -       -       -       1,495  
Non-GAAP revenue       $ 329,548     $ 289,228     $ 1,297,662     $ 1,167,023  
Operating income         40,767       24,607       177,670       151,401  
Operating income as a % of revenue         12.4 %     8.5 %     13.7 %     13.0 %
Add back:                    
Amortization of intangible assets related to acquisitions         7,144       4,915       25,957       17,806  
Severance related to cost-savings actions         2,429       2,161       7,792       3,218  
Government billing adjustment and related expenses         554       226       848       2,402  
Impairment and other items (2)         2,002       14,143       7,109       21,381  
Operating losses (3)         619       643       2,627       3,371  
Costs associated with the evaluation and integration of acquisitions         1,236       766       6,688       1,752  
Convertible debt accounting (4)         -       -       -       107  
Operating income, excluding specified charges (Non-GAAP)       $ 54,751     $ 47,461     $ 228,691     $ 201,438  
Non-GAAP operating income as a % of non-GAAP revenue         16.6 %     16.4 %     17.6 %     17.3 %
                     
(1)   Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of one-time charges and other items which are outside our normal operations, consistent with the manner in which management measures and forecasts the Company's performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations, and guidance.
     
(2)  

For the three and twelve months ended December 27, 2014, impairment and other items included $1.9 million and $6.5 million of asset impairments and accelerated depreciation related to the consolidation of research model production operations, respectively; $0 and $1.6 million of charges related to a dispute with a large model supplier, respectively; and a $0.1 million charge and a $1.0 million gain related to the sale of a former research model facility in France, respectively. For the three and twelve months ended December 28, 2013, impairment and other items included $6.6 million and $13.5 million of accelerated depreciation related to the consolidation of research model production operations in California, respectively; and $0.2 million and $0.6 million of impairments in Germany, respectively. In addition, for both the three and twelve months ended December 28, 2013, impairment and other items included $1.9 million of accelerated depreciation related to Biologics Testing Solutions operations; $3.8 million for an impairment charge related to the Company's Shrewsbury, Massachusetts facility; and $1.6 million for an adjustment to prior-period accrued compensated absences.

     
(3)   This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.
     
(4)   The year ended December 28, 2013 includes the impact of convertible debt accounting adopted at the beginning of 2009, which increased depreciation expense by $0.1 million.

 

                     
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS (1)
(in thousands, except for share and per share data)
                     
        Three Months Ended   Twelve Months Ended
        December 27,

2014

  December 28,

2013

  December 27,

2014

  December 28,

2013

                     
Net income attributable to common shareholders       $ 27,166     $ 19,099     $ 126,698     $ 102,828  
Less: Discontinued operations         864       82       1,726       1,265  
Net income from continuing operations attributable to common shareholders         28,030       19,181       128,424       104,093  
Add back:                    
Amortization of intangible assets related to acquisitions         7,144       4,915       25,957       17,806  
Severance related to cost-savings actions         2,429       2,161       7,792       3,218  
Government billing adjustment and related expenses         554       226       848       2,402  
Impairment and other items (2)         2,002       14,143       7,109       21,381  
Operating losses (3)         619       643       2,627       3,371  
Costs associated with the evaluation and integration of acquisitions         1,236       766       6,688       1,752  
Convertible debt accounting, net (4)         -       -       -       6,710  
Write-off of deferred financing costs and fees related to debt refinancing         -       -       -       645  
Tax effect of items above         (3,506 )     (6,919 )     (14,987 )     (19,126 )
Net income from continuing operations attributable to common shareholders, excluding specified charges (Non-GAAP)       $ 38,508     $ 35,116     $ 164,458     $ 142,252  
                     
Weighted average shares outstanding - Basic         46,459,512       47,150,688       46,626,997       47,740,167  
Effect of dilutive securities:                    
Stock options and contingently issued restricted stock         1,057,147       984,304       930,709       749,155  
Weighted average shares outstanding - Diluted         47,516,659       48,134,992       47,557,706       48,489,322  
                     
Basic earnings per share from continuing operations       $ 0.60     $ 0.41     $ 2.76     $ 2.18  
Diluted earnings per share from continuing operations       $ 0.59     $ 0.40     $ 2.70     $ 2.15  
                     
Basic earnings per share from continuing operations, excluding specified charges (Non-GAAP)       $ 0.83     $ 0.74     $ 3.53     $ 2.98  
Diluted earnings per share from continuing operations, excluding specified charges (Non-GAAP)       $ 0.81     $ 0.73     $ 3.46     $ 2.93  
                     
(1)   Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of one-time charges and other items which are outside our normal operations, consistent with the manner in which management measures and forecasts the Company's performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations, and guidance.
     
(2)  

For the three and twelve months ended December 27, 2014, impairment and other items included $1.9 million and $6.5 million of asset impairments and accelerated depreciation related to the consolidation of research model production operations, respectively; $0 and $1.6 million of charges related to a dispute with a large model supplier, respectively; and a $0.1 million charge and a $1.0 million gain related to the sale of a former research model facility in France, respectively. For the three and twelve months ended December 28, 2013, impairment and other items included $6.6 million and $13.5 million of accelerated depreciation related to the consolidation of research model production operations in California, respectively; and $0.2 million and $0.6 million of impairments in Germany, respectively. In addition, for both the three and twelve months ended December 28, 2013, impairment and other items included $1.9 million of accelerated depreciation related to Biologics Testing Solutions operations; $3.8 million for an impairment charge related to the Company's Shrewsbury, Massachusetts facility; and $1.6 million for an adjustment to prior-period accrued compensated absences.

     
(3)   This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.
     
(4)   The year ended December 28, 2013 includes the impact of convertible debt accounting adopted at the beginning of 2009, which increased interest expense by $6.6 million and depreciation expense by $0.1 million.

 

                   
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP TO NON-GAAP REVENUE GROWTH (YEAR-OVER-YEAR)
EXCLUDING THE IMPACT OF FOREIGN EXCHANGE AND A GOVERNMENT BILLING ADJUSTMENT
For the Three and Twelve Months Ended December 27, 2014
                     
                     
For the three months ended December 27, 2014:      

Total CRL

  RMS Segment   DSA Segment   MS Segment
                     
Revenue growth, reported       13.9%   (3.9%)   35.4%   10.6%
Impact of foreign exchange       (2.9%)   (3.7%)   (1.5%)   (3.7%)
Non-GAAP revenue growth, constant currency       16.8%   (0.2%)   36.9%   14.3%
                     
For the twelve months ended December 27, 2014:       Total CRL   RMS Segment   DSA Segment   MS Segment
                     
Revenue growth, reported       11.3%   (0.8%)   24.5%   13.7%
Impact of foreign exchange       (0.1%)   (0.7%)   0.3%   0.2%
Impact of government billing adjustment       0.1%   0.3%   0.0%   0.0%
Non-GAAP revenue growth, constant currency       11.3%   (0.4%)   24.2%   13.5%
                     
Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of one-time charges and other items which are outside our normal operations, consistent with the manner in which management measures and forecasts the Company's performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations, and guidance.

 

     
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
             
        Twelve Months Ended
        December 27,

2014

  December 28,

2013

Cash flows relating to operating activities:            
Net income       $ 128,198     $ 104,151  
Less: Loss from discontinued operations         (1,726 )     (1,265 )
Income from continuing operations         129,924       105,416  
Summary of non-cash adjustments         125,982       128,986  
Changes in assets and liabilities         (3,774 )     (25,357 )
Net cash provided by operating activities         252,132       209,045  
             
Cash flows relating to investing activities:            
Acquisition of businesses, net of cash acquired         (234,267 )     (29,218 )
Capital expenditures         (56,925 )     (39,154 )
Other         (6,798 )     (5,675 )
Net cash used in investing activities         (297,990 )     (74,047 )
             
Cash flow relating to financing activities:            
Net cash used in financing activities         61,414       (84,237 )
             
Cash flows used in discontinued operations         (1,081 )     (1,906 )
Effect of exchange rate changes on cash and cash equivalents         (10,379 )     (2,613 )
Net change in cash and cash equivalents         4,096       46,242  
Cash and cash equivalents, beginning of period         155,927       109,685  
Cash and cash equivalents, end of period       $ 160,023     $ 155,927  

 

Source: Charles River Laboratories International, Inc.

Charles River Laboratories International, Inc.
Investor:
Susan E. Hardy, 781-222-6190
Corporate Vice President, Investor Relations
[email protected]
or
Media:
Amy Cianciaruso, 781-222-6168
Executive Director, Public Relations
[email protected]

 

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