Charles River Laboratories Announces Second-Quarter 2014 Results from Continuing Operations

– Second-Quarter Revenue of $341.2 Million –

– Second-Quarter GAAP Earnings per Share of $0.75 and Non-GAAP Earnings per Share of $0.97 –

– Updates EPS Guidance for 2014 –

– Revises Financial Reporting into Three Segments –

WILMINGTON, Mass.-- Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the second quarter of 2014. For the quarter, revenue from continuing operations was $341.2 million, an increase of 16.5% from$292.9 million in the second quarter of 2013. On a non-GAAP basis, second-quarter revenue increased 15.9%. The acquisition of Argenta and BioFocus, which was completed on April 1, 2014, contributed 8.0% to second-quarter revenue, and foreign currency translation benefited reported revenue by 1.4%.

On a GAAP basis, net income from continuing operations for the second quarter of 2014 was$36.5 million, or $0.75 per diluted share, compared to $28.6 million, or $0.58 per diluted share, for the second quarter of 2013.

On a non-GAAP basis, net income from continuing operations was $46.3 million for the second quarter of 2014, an increase of 29.7% from $35.7 million for the same period in 2013. Second-quarter diluted earnings per share on a non-GAAP basis were $0.97, an increase of 32.9% compared to $0.73 per share in the second quarter of 2013. Higher revenue and operating margin improvement were the primary drivers behind the earnings per share increase. A gain on the Company's limited partnership investments contributed $0.04 per share.

James C. Foster, Chairman, President and Chief Executive Officer, said, "We are very pleased with the second-quarter performance, which is one of the strongest we have ever reported. Double-digit sales growth for the EMD, Biologics, and safety assessment businesses, and the acquisition of Argenta and BioFocus, drove mid-teens revenue growth in the quarter. Leverage from higher sales and our efficiency initiatives combined to generate a 33% increase in non-GAAP earnings per share. As a result, we are increasing our 2014 non-GAAP earnings guidance to a range of $3.25 to $3.35."

"We are continuing our focus on targeted sales efforts, which have been particularly successful with the mid-tier clients. And now that we have broadened our early-stage portfolio with the addition of early discovery capabilities, we are engaging in expanded discussions with existing clients and reaching potential clients who are interested in outsourcing entire drug discovery and development programs to a single provider. We believe these discussions will result in expanded and new strategic relationships across our global, mid-tier, and academic clients," Mr. Foster concluded.

Business Segment Revision

During the second quarter of 2014, following the acquisition of Argenta and BioFocus on April 1, 2014, Charles River revised its financial reporting segments to ensure alignment with its view of the business. The Company reviewed discrete financial information, the new and existing markets addressed by each business, and its recently revised go-to-market strategy. As a result of this review, the Company has determined that its financial results should be reported in three segments: Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Support (Manufacturing).

Management believes that the new business segments reflect results of operations and facilitate investors' understanding of the Company's business. The changes in segment presentation have no effect on consolidated revenue or net income. The business segment details discussed in this press release are based on the new business segments. Comparable prior periods have been recast based on the new business segments since the first quarter of 2012, and this quarterly financial information is provided in the schedules at the end of this press release.

The revised reportable segments are as follows:

             

Research Models
and Services

   

Discovery and
Safety Assessment

   

Manufacturing
Support

Research Models     Discovery Services (2)     Endotoxin and Microbial Detection
Research Model Services (1)     Safety Assessment     Avian Vaccine Services
            Biologics Testing Solutions

(1) The Research Models Services business currently includes Genetically Engineered Models and Services (GEMS), Research Animal Diagnostic Services (RADS), and Insourcing Solutions (IS).
(2) The Discovery Services business includes the legacy Discovery Research Services operations (formerly reported in the RMS segment), discovery services which were formerly reported in Preclinical Services, and Argenta and BioFocus.

Prior to recasting the reportable segments, the businesses were reported in two segments as follows:

       

Research Models
and Services

   

Preclinical
Services

Research Models     Discovery Services
(including Avian Vaccine Services)     Safety Assessment
Research Model Services (1)     Biologics Testing Solutions
Endotoxin and Microbial Detection      

(1) The Research Models Services business previously included Genetically Engineered Models and Services (GEMS), Research Animal Diagnostic Services (RADS), Insourcing Solutions (IS), and Discovery Research Services.

Second-Quarter Segment Results

Research Models and Services (RMS)

Revenue for the RMS segment was $133.1 million in the second quarter of 2014, an increase of 2.6% from $129.8 million in the second quarter of 2013. On a non-GAAP basis, second-quarter RMS revenue increased 1.4%. Foreign currency translation benefited reported revenue by 1.1%. The RMS revenue increase was primarily driven by research model services.

In the second quarter of 2014, the RMS segment's GAAP operating margin was unchanged at 25.7% compared to the second quarter of 2013. On a non-GAAP basis, the operating margin increased to 29.0% from 27.5% in the second quarter of 2013. Benefits from the Company's global efficiency initiatives drove the operating margin improvement.

Discovery and Safety Assessment (DSA)

Second-quarter 2014 revenue from continuing operations for the DSA segment was $142.6 million, an increase of 32.7% from $107.5 million in the second quarter of 2013. Foreign currency translation benefited reported revenue by 1.3%. DSA revenue growth was driven by the acquisition of Argenta and BioFocus, which contributed 21.9% to DSA revenue in the second quarter. Robust demand for the Company's safety assessment services from mid-tier clients also contributed to the second-quarter revenue increase.

In the second quarter of 2014, the DSA segment's GAAP operating margin was 12.5% compared to 10.5% in the second quarter of 2013. On a non-GAAP basis, the operating margin increased to 17.1% from 13.5% in the second quarter of 2013. The non-GAAP operating margin improvement was due primarily to leverage from higher sales of safety assessment services. In addition, a foreign exchange benefit from a weaker Canadian dollar and the U.K. tax law change adopted in the third quarter of 2013, which reclassified research and development tax credits, also contributed to the operating margin improvement.

Manufacturing Support (Manufacturing)

Revenue for the Manufacturing segment was $65.4 million in the second quarter of 2014, an increase of 17.5% from $55.7 million in the second quarter of 2013. Foreign currency translation benefited reported revenue by 2.3%. Manufacturing revenue was driven by broad-based growth across all businesses, including a double-digit growth rate for both the Endotoxin and Microbial Detection, and Biologics Testing Solutions businesses.

In the second quarter of 2014, the Manufacturing segment's GAAP operating margin was 31.3% compared to 28.7% for the second quarter of 2013. On a non-GAAP basis, the operating margin increased to 33.4% from 31.1% in the second quarter of 2013. The operating margin improvement was primarily driven by improved utilization for the Biologics business.

Stock Repurchase Update

During the second quarter of 2014, the Company repurchased approximately 1.5 million shares of its common stock for $80.5 million. As of June 28, 2014, the Company had $48.8 million remaining on its stock repurchase authorization.

Six-Month Results

For the first six months of 2014, revenue increased by 9.7% to $640.5 million from $584.2 million in the same period in 2013. On a non-GAAP basis, first-half revenue increased 9.4%. The acquisition of Argenta and BioFocus contributed 4.0% to first-half revenue, and foreign currency translation benefited reported revenue by 1.0%.

On a GAAP basis, net income from continuing operations for the first half of 2014 was $69.1 million, or $1.43 per diluted share, compared to $54.6 million, or $1.11 per diluted share, for the same period in 2013.

On a non-GAAP basis, net income from continuing operations for the first half of 2014 was$85.5 million, or $1.79 per diluted share, compared to $68.9 million, or $1.42 per diluted share, for the same period in 2013.

Research Models and Services (RMS)

For the first six months of 2014, RMS revenue was $265.6 million, an increase of 0.4% from$264.6 million in the same period in 2013. On a non-GAAP basis, first-half RMS revenue declined by 0.2%. Foreign currency translation benefited reported revenue by 0.6%. On a GAAP basis, the RMS segment operating margin was 26.2% in the first half of 2014, compared to 27.9% for the prior-year period. On a non-GAAP basis, the operating margin was 29.2% in the first half of 2014, compared to 29.1% for the same period in 2013.

Discovery and Safety Assessment (DSA)

For the first six months of 2014, DSA revenue was $247.8 million, an increase of 18.4% from$209.3 million in the same period in 2013. The acquisition of Argenta and BioFocus contributed 11.2% to first-half revenue, and foreign currency translation benefited reported revenue by 0.9%. On a GAAP basis, the DSA segment operating margin was 11.9% in the first half of 2014, compared to 9.4% for the prior-year period. On a non-GAAP basis, the operating margin was 15.7% in the first half of 2014, compared to 12.7% for the same period in 2013.

Manufacturing Support (Manufacturing)

For the first six months of 2014, Manufacturing revenue was $127.2 million, an increase of 15.3% from $110.3 million in the same period in 2013. Foreign currency translation benefited reported revenue by 1.9%. On a GAAP basis, the Manufacturing segment operating margin was 30.6% in the first half of 2014, compared to 27.6% for the prior-year period. On a non-GAAP basis, the operating margin was 32.8% in the first half of 2014, compared to 30.0% for the same period in 2013.

2014 Guidance

The Company is updating its 2014 forward-looking guidance based on continuing operations. Guidance for non-GAAP earnings per share has been increased to primarily reflect the strong second-quarter performance, including the gain from limited partnership investments. Primarily as a result of additional charges associated with the Company's global efficiency initiatives, GAAP earnings per share guidance has been reduced. The Company is maintaining its 2014 revenue guidance and continues to expect foreign currency translation to provide only a small benefit to reported revenue. The outlook for the remainder of the year assumes normal seasonality in the RMS segment.

         
2014 GUIDANCE (from continuing operations)   REVISED   PRIOR
Net revenue growth, reported   9.0% – 11.0%   9.0% – 11.0%
Impact of foreign exchange   N/M   N/M
Net revenue growth, constant currency   9.0% - 11.0%   9.0% - 11.0%
GAAP EPS estimate   $2.60 - $2.70   $2.64 - $2.74
Amortization of intangible assets   $0.36   $0.33
Operating losses and other items (1)   $0.06   $0.04
Charges related to global efficiency initiative (2)   $0.16-$0.18   $0.08-$0.10
Costs associated with evaluation and integration of acquisitions   $0.06   $0.05
Non-GAAP EPS estimate   $3.25 - $3.35   $3.15 - $3.25

(1) These costs relate primarily to the Company's Shrewsbury, Massachusetts, facility and a dispute with a large model supplier.
(2) These charges relate primarily to the consolidation of research model production operations and other efficiency initiatives. Other projects in support of the global efficiency initiative are expected, but these charges reflect only the decisions that have already been finalized.

Webcast

Charles River Laboratories has scheduled a live webcast on Thursday, August 7, at 9:00 a.m. ET to discuss matters relating to this press release. To participate, please go to ir.criver.comand 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 and Biologics Testing Solutions operations; a charge related to a dispute with a large model supplier; gains related to the sales of former research model facilities; an adjustment to prior-period accrued compensation 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, 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; the integration of Argenta and BioFocus, and our expectations with respect to their impact on the Company, our service offerings, strategic relationships, revenue, revenue growth rates, and earnings; the development and performance of our services and products, including the impact this can have on our clients' drug development models; 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)
(dollars in thousands, except for share and per share data)
                 
    Three Months Ended   Six Months Ended
   

June 28,
2014

 

June 29,
2013

 

June 28,
2014

 

June 29,
2013

                 
Total revenue   $ 341,179     $ 292,933     $ 640,547     $ 584,171  
Cost of products sold and services provided     215,545       190,363       406,100       377,390  
Gross margin     125,634       102,570       234,447       206,781  
Selling, general and administrative     67,756       54,919       132,523       112,118  
Amortization of intangibles     6,853       4,463       11,193       8,712  
Operating income     51,025       43,188       90,731       85,951  
Interest income (expense)     (3,151 )     (7,308 )     (5,747 )     (15,491 )
Other income (expense)     2,667       967       8,543       2,035  
Income from continuing operations before income taxes     50,541       36,847       93,527       72,495  
Provision for income taxes     14,081       8,219       24,439       17,941  
Income from continuing operations, net of tax     36,460       28,628       69,088       54,554  
Loss from discontinued operations, net of tax     (644 )     (915 )     (914 )     (1,070 )
Net income     35,816       27,713       68,174       53,484  
Income from noncontrolling interests     (552 )     (429 )     (678 )     (622 )
Net income attributable to common shareowners   $ 35,264     $ 27,284     $ 67,496     $ 52,862  
                 
Earnings per common share                
Basic:                
Continuing operations   $ 0.76     $ 0.58     $ 1.46     $ 1.12  
Discontinued operations   $ (0.01 )   $ (0.02 )   $ (0.02 )   $ (0.02 )
Net   $ 0.75     $ 0.57     $ 1.44     $ 1.10  
Diluted:                
Continuing operations   $ 0.75     $ 0.58     $ 1.43     $ 1.11  
Discontinued operations   $ (0.01 )   $ (0.02 )   $ (0.02 )   $ (0.02 )
Net   $ 0.74     $ 0.56     $ 1.41     $ 1.09  
                 
Weighted average number of common shares outstanding                
Basic     46,941,612       48,280,371       47,016,221       47,969,683  
Diluted     47,684,096       48,835,453       47,909,233       48,647,942  
                                 

 

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

June 28,
2014

 

December 28,
2013

Assets        
Current assets        
Cash and cash equivalents   $ 117,012   $ 155,927
Trade receivables, net     274,504     220,630
Inventories     92,621     89,396
Other current assets     107,709     85,847
Current assets of discontinued businesses     856     750
Total current assets     592,702     552,550
Property, plant and equipment, net     687,664     676,182
Goodwill, net     297,005     230,701
Other intangibles, net     181,269     84,537
Deferred tax asset     19,746     23,671
Other assets     81,815     61,964
Long-term assets of discontinued businesses     3,261     3,151
Total assets   $ 1,863,462   $ 1,632,756
         
Liabilities and Equity        
Current liabilities        
Current portion of long-term debt and capital leases   $ 31,932   $ 21,437
Accounts payable     35,218     31,770
Accrued compensation     59,224     58,461
Deferred revenue     61,870     54,177
Accrued liabilities     67,462     56,712
Other current liabilities     13,761     22,546
Current liabilities of discontinued businesses     2,181     1,931
Total current liabilities     271,648     247,034
Long-term debt & capital leases     781,617     642,352
Other long-term liabilities     103,305     70,632
Long-term liabilities of discontinued businesses     8,271     8,080
Total liabilities     1,164,841     968,098
Redeemable non-controlling interest     23,483     20,581
Total shareholders' equity     671,815     640,984
Non-controlling interest     3,323     3,093
Total liabilities and equity   $ 1,863,462   $ 1,632,756
             

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(dollars in thousands)
                   
      Three Months Ended   Six Months Ended
     

June 28,
2014

 

June 29,
2013

 

June 28,
2014

 

June 29,
2013

Research Models and Services                
  Revenue   $ 133,120     $ 129,759     $ 265,615     $ 264,632  
  Gross margin     52,450       49,020       104,097       104,476  
  Gross margin as a % of revenue     39.4 %     37.8 %     39.2 %     39.5 %
  Operating income     34,234       33,296       69,678       73,773  
  Operating income as a % of revenue     25.7 %     25.7 %     26.2 %     27.9 %
  Depreciation and amortization     7,165       7,192       14,364       14,094  
  Capital expenditures     2,478       3,991       7,711       6,209  
                   
Discovery and Safety Assessment                
  Revenue   $ 142,614     $ 107,490     $ 247,752     $ 209,281  
  Gross margin     39,457       25,534       65,116       48,051  
  Gross margin as a % of revenue     27.7 %     23.8 %     26.3 %     23.0 %
  Operating income     17,798       11,261       29,511       19,704  
  Operating income as a % of revenue     12.5 %     10.5 %     11.9 %     9.4 %
  Depreciation and amortization     13,241       9,369       22,012       18,783  
  Capital expenditures     4,340       3,064       8,051       4,856  
                   
Manufacturing Support                
  Revenue   $ 65,445     $ 55,684     $ 127,180     $ 110,258  
  Gross margin     33,727       28,016       65,234       54,254  
  Gross margin as a % of revenue     51.5 %     50.3 %     51.3 %     49.2 %
  Operating income     20,455       16,008       38,871       30,451  
  Operating income as a % of revenue     31.3 %     28.7 %     30.6 %     27.6 %
  Depreciation and amortization     3,894       3,849       7,975       7,543  
  Capital expenditures     2,497       2,740       4,743       5,158  
                   
Unallocated Corporate Overhead   $ (21,462 )   $ (17,377 )   $ (47,329 )   $ (37,977 )
                   
Total                
  Revenue   $ 341,179     $ 292,933     $ 640,547     $ 584,171  
  Gross margin     125,634       102,570       234,447       206,781  
  Gross margin as a % of revenue     36.8 %     35.0 %     36.6 %     35.4 %
  Operating income     51,025       43,188       90,731       85,951  
  Operating income as a % of revenue     15.0 %     14.7 %     14.2 %     14.7 %
  Depreciation and amortization     24,300       20,410       44,351       40,420  
  Capital expenditures     9,315       9,795       20,505       16,223  
                                   

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP TO NON-GAAP
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (1)
(dollars in thousands)
                 
    Three Months Ended   Six Months Ended
   

June 28,
2014

 

June 29,
2013

 

June 28,
2014

 

June 29,
2013

Research Models and Services                
Revenue   $ 133,120     $ 129,759     $ 265,615     $ 264,632  
Add back government billing adjustment     -       1,495       -       1,495  
Non-GAAP revenue   $ 133,120     $ 131,254     $ 265,615     $ 266,127  
Operating income     34,234       33,296       69,678       73,773  
Operating income as a % of revenue     25.7 %     25.7 %     26.2 %     27.9 %
Add back:                
Amortization of intangible assets related to acquisitions     608       754       1,545       1,245  
Severance related to cost-savings actions     2,011       183       3,595       269  
Government billing adjustment and related expenses     13       1,855       80       1,855  

Impairment and other items (2)

    1,725       -       2,705       -  

Operating losses (3)

    15       51       27       209  
Operating income, excluding specified charges (Non-GAAP)   $ 38,606     $ 36,139     $ 77,630     $ 77,351  
Non-GAAP operating income as a % of revenue     29.0 %     27.5 %     29.2 %     29.1 %
                 
Discovery and Safety Assessment                
Revenue   $ 142,614     $ 107,490     $ 247,752     $ 209,281  
Operating income     17,798       11,261       29,511       19,704  
Operating income as a % of revenue     12.5 %     10.5 %     11.9 %     9.4 %
Add back:                
Amortization of intangible assets related to acquisitions     4,891       2,393       6,863       4,809  
Severance related to cost-savings actions     854       102       1,049       313  

Operating losses (3)

    704       787       1,375       1,735  
Costs associated with the evaluation and integration of acquisitions     203       -       203       -  
Operating income, excluding specified charges (Non-GAAP)   $ 24,450     $ 14,543     $ 39,001     $ 26,561  
Non-GAAP operating income as a % of revenue     17.1 %     13.5 %     15.7 %     12.7 %
                 
Manufacturing Support                
Revenue   $ 65,445     $ 55,684     $ 127,180     $ 110,258  
Operating income     20,455       16,008       38,871       30,451  
Operating income as a % of revenue     31.3 %     28.7 %     30.6 %     27.6 %
Add back:                
Amortization of intangible assets related to acquisitions     1,355       1,317       2,785       2,658  
Severance related to cost-savings actions     24       -       24       -  
Operating income, excluding specified charges (Non-GAAP)   $ 21,834     $ 17,325     $ 41,680     $ 33,109  
Non-GAAP operating income as a % of revenue     33.4 %     31.1 %     32.8 %     30.0 %
                 
Unallocated Corporate Overhead   $ (21,462 )   $ (17,377 )   $ (47,329 )   $ (37,977 )
Add back:                
Severance related to cost-savings actions     -       -       121       -  
Costs associated with the evaluation and integration of acquisitions     1,371       194       4,676       680  
Convertible debt accounting     -       54       -       107  
Unallocated corporate overhead, excluding specified charges (Non-GAAP)   $ (20,091 )   $ (17,129 )   $ (42,532 )   $ (37,190 )
                 
Total                
Revenue   $ 341,179     $ 292,933     $ 640,547     $ 584,171  
Add back government billing adjustment     -       1,495       -       1,495  
Non-GAAP revenue   $ 341,179     $ 294,428     $ 640,547     $ 585,666  
Operating income     51,025       43,188       90,731       85,951  
Operating income as a % of revenue     15.0 %     14.7 %     14.2 %     14.7 %
Add back:                
Amortization of intangible assets related to acquisitions     6,854       4,464       11,193       8,712  
Severance related to cost-savings actions     2,889       285       4,789       582  
Government billing adjustment and related expenses     13       1,855       80       1,855  

Impairment and other items (2)

    1,725       -       2,705       -  

Operating losses (3)

    719       838       1,402       1,944  
Costs associated with the evaluation and integration of acquisitions     1,574       194       4,879       680  
Convertible debt accounting     -       54       -       107  
Operating income, excluding specified charges (Non-GAAP)   $ 64,799     $ 50,878     $ 115,779     $ 99,831  
Non-GAAP operating income as a % of revenue     19.0 %     17.3 %     18.1 %     17.0 %
                 

(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 six months ended June 28, 2014, impairment and other items primarily include $1.5 million and $2.5 million of asset impairments and accelerated depreciation related to the consolidation of research model production operations, respectively; a $1.3 millioncharge related to a dispute with a large model supplier; and a $1.1 million gain related to the sale of a former research model facility in France.

(3) This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.

 

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

June 28,
2014

 

June 29,
2013

 

June 28,
2014

 

June 29,
2013

                 
Net income attributable to common shareholders   $ 35,264     $ 27,284     $ 67,496     $ 52,862  
Less: Discontinued operations     644       915       914       1,070  
Net income from continuing operations     35,908       28,199       68,410       53,932  
Add back:                
Amortization of intangible assets related to acquisitions     6,854       4,464       11,193       8,712  
Severance related to cost-savings actions     2,889       285       4,789       582  
Impairment and other items (2)     1,725       -       2,705       -  
Operating losses (3)     719       838       1,402       1,944  
Costs associated with the evaluation and integration of acquisitions     1,574       194       4,879       680  
Government billing adjustment and related expenses     13       1,855       80       1,855  
Write-off of deferred financing costs and fees related to debt refinancing     -       645       -       645  
Convertible debt accounting, net (4)     -       2,897       -       6,710  
Tax effect of items above     (3,426 )     (3,709 )     (7,928 )     (6,166 )
Net income from continuing operations, excluding specified charges (Non-GAAP)   $ 46,256     $ 35,668     $ 85,530     $ 68,894  
                 
Weighted average shares outstanding - Basic     46,941,612       48,280,371       47,016,221       47,969,683  
Effect of dilutive securities:                
Stock options and contingently issued restricted stock     742,484       555,082       893,012       678,259  
Weighted average shares outstanding - Diluted     47,684,096       48,835,453       47,909,233       48,647,942  
                 
Basic earnings per share from continuing operations   $ 0.76     $ 0.58     $ 1.46     $ 1.12  
Diluted earnings per share from continuing operations   $ 0.75     $ 0.58     $ 1.43     $ 1.11  
                 
Basic earnings per share from continuing operations, excluding specified charges (Non-GAAP)   $ 0.99     $ 0.74     $ 1.82     $ 1.44  
Diluted earnings per share from continuing operations, excluding specified charges (Non-GAAP)   $ 0.97     $ 0.73     $ 1.79     $ 1.42  
                 

(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 six months ended June 28, 2014, impairment and other items primarily include $1.5 million and $2.5 million of asset impairments and accelerated depreciation related to the consolidation of research model production operations, respectively; a $1.3 millioncharge related to a dispute with a large model supplier; and a $1.1 million gain related to the sale of a former research model facility in France.

(3) This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.

(4) The three and six months ended June 29, 2013 include the impact of convertible debt accounting adopted at the beginning of 2009, which increased interest expense by $2.8 millionand $6.6 million and depreciation expense by $0.1 million and $0.1 million, respectively.

 

 
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 Six Months Ended June 28, 2014
                 
                 
For the three months ended June 28, 2014:  

Total CRL

 

RMS Segment

 

DSA Segment

 

MS Segment

                 
Revenue growth, reported   16.5 %   2.6 %   32.7 %   17.5 %
Impact of foreign exchange   1.4 %   1.1 %   1.3 %   2.3 %
Impact of government billing adjustment   0.6 %   1.2 %   0.0 %   0.0 %
Non-GAAP revenue growth, constant currency   14.5 %   0.3 %   31.4 %   15.2 %
                 
For the six months ended June 28, 2014:  

Total CRL

 

RMS Segment

 

DSA Segment

 

MS Segment

                 
Revenue growth, reported   9.7 %   0.4 %   18.4 %   15.3 %
Impact of foreign exchange   1.0 %   0.6 %   0.9 %   1.9 %
Impact of government billing adjustment   0.3 %   0.6 %   0.0 %   0.0 %
Non-GAAP revenue growth, constant currency   8.4 %   (0.8 %)   17.5 %   13.4 %
                 
                 

Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of one-time charges, consistent with the manner in which management measures and forecasts the Company's performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules and regulations.

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
         
   

Six Months Ended

   

June 28,
2014

 

June 29,
2013

Cash flows relating to operating activities:        
Net income   $ 68,174     $ 53,484  
Less: Loss from discontinued operations     (914 )     (1,070 )
Income from continuing operations     69,088       54,554  
Summary of non-cash adjustments     59,081       66,386  
Changes in assets and liabilities     (42,731 )     (41,997 )
Net cash provided by operating activities     85,438       78,943  
         
Cash flows relating to investing activities:        
Acquisition of businesses, net of cash acquired     (183,151 )     (24,218 )
Capital expenditures     (20,505 )     (16,223 )
Other     1,158       454  
Net cash used in investing activities     (202,498 )     (39,987 )
         
Cash flow relating to financing activities:        
Net cash used in financing activities     78,212       (29,417 )
         
Cash flows used in discontinued operations     (689 )     (946 )
Effect of exchange rate changes on cash and cash equivalents     622       (4,757 )
Net change in cash and cash equivalents     (38,915 )     3,836  
Cash and cash equivalents, beginning of period     155,927       109,685  
Cash and cash equivalents, end of period   $ 117,012     $ 113,521  
                 

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SUPPLEMENTAL SCHEDULE: PRIOR PERIODS RECAST FOR BUSINESS SEGMENT REVISION
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(dollars in thousands)
                           
      Three Months Ended  

Twelve Months
Ended

 

Three Months
Ended

     

March 30,
2013

 

June 29,
2013

 

September 28,
2013

 

December 28,
2013

 

December 28,
2013

 

March 29,
2014

Research Models and Services                        
  Revenue   $ 134,873     $ 129,759     $ 124,236     $ 122,482     $ 511,350     $ 132,495  
  Gross margin     55,456       49,020       39,127       35,889       179,492       51,647  
  Gross margin as a % of revenue     41.1 %     37.8 %     31.5 %     29.3 %     35.1 %     39.0 %
  Operating income     40,477       33,296       23,803       19,161       116,737       35,444  
  Operating income as a % of revenue     30.0 %     25.7 %     19.2 %     15.6 %     22.8 %     26.8 %
  Depreciation and amortization     6,902       7,192       13,548       14,195       41,837       7,199  
  Capital expenditures     2,218       3,991       4,208       6,300       16,717       5,233  
                           
Discovery and Safety Assessment                        
  Revenue   $ 101,791     $ 107,490     $ 112,627     $ 110,470     $ 432,378     $ 105,138  
  Gross margin     22,517       25,534       33,061       25,654       106,766       25,659  
  Gross margin as a % of revenue     22.1 %     23.8 %     29.4 %     23.2 %     24.7 %     24.4 %
  Operating income     8,443       11,261       18,968       8,741       47,413       11,713  
  Operating income as a % of revenue     8.3 %     10.5 %     16.8 %     7.9 %     11.0 %     11.1 %
  Depreciation and amortization     9,414       9,369       9,486       9,451       37,720       8,771  
  Capital expenditures     1,792       3,064       2,459       5,246       12,561       3,711  
                           
Manufacturing Support                        
  Revenue   $ 54,574     $ 55,684     $ 55,266     $ 56,276     $ 221,800     $ 61,735  
  Gross margin     26,238       28,016       27,738       26,651       108,643       31,507  
  Gross margin as a % of revenue     48.1 %     50.3 %     50.2 %     47.4 %     49.0 %     51.0 %
  Operating income     14,443       16,008       16,125       14,651       61,227       18,416  
  Operating income as a % of revenue     26.5 %     28.7 %     29.2 %     26.0 %     27.6 %     29.8 %
  Depreciation and amortization     3,694       3,849       3,881       5,655       17,079       4,081  
  Capital expenditures     2,418       2,740       2,429       2,289       9,876       2,246  
                           
Unallocated Corporate Overhead   $ (20,600 )   $ (17,377 )   $ (18,053 )   $ (17,946 )   $ (73,976 )   $ (25,867 )
                           
Total                        
  Revenue   $ 291,238     $ 292,933     $ 292,129     $ 289,228     $ 1,165,528     $ 299,368  
  Gross margin     104,211       102,570       99,926       88,194       394,901       108,813  
  Gross margin as a % of revenue     35.8 %     35.0 %     34.2 %     30.5 %     33.9 %     36.3 %
  Operating income     42,763       43,188       40,843       24,607       151,401       39,706  
  Operating income as a % of revenue     14.7 %     14.7 %     14.0 %     8.5 %     13.0 %     13.3 %
  Depreciation and amortization     20,010       20,410       26,915       29,301       96,636       20,051  
  Capital expenditures     6,428       9,795       9,096       13,835       39,154       11,190  
                                                   

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SUPPLEMENTAL SCHEDULE: PRIOR PERIODS RECAST FOR BUSINESS SEGMENT REVISION
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(dollars in thousands)
                       
      Three Months Ended  

Twelve Months
Ended

     

March 31,
2012

 

June 30,
2012

 

September 29,
2012

 

December 29,
2012

 

December 29,
2012

Research Models and Services                    
  Revenue   $ 140,875     $ 132,428     $ 124,541     $ 123,789     $ 521,633  
  Gross margin     59,154       53,900       44,364       40,873       198,291  
  Gross margin as a % of revenue     42.0 %     40.7 %     35.6 %     33.0 %     38.0 %
  Operating income     44,523       41,131       29,418       28,711       143,783  
  Operating income as a % of revenue     31.6 %     31.1 %     23.6 %     23.2 %     27.6 %
  Depreciation and amortization     6,597       6,618       6,792       6,718       26,725  
  Capital expenditures     8,039       5,378       5,834       7,826       27,077  
                       
Discovery and Safety Assessment                    
  Revenue   $ 98,840     $ 103,787     $ 105,080     $ 101,201     $ 408,908  
  Gross margin     23,165       25,384       24,961       24,398       97,908  
  Gross margin as a % of revenue     23.4 %     24.5 %     23.8 %     24.1 %     23.9 %
  Operating income     6,344       10,314       10,333       8,697       35,688  
  Operating income as a % of revenue     6.4 %     9.9 %     9.8 %     8.6 %     8.7 %
  Depreciation and amortization     10,286       10,270       10,375       10,070       41,001  
  Capital expenditures     2,984       1,996       2,166       2,905       10,051  
                       
Manufacturing Support                    
  Revenue   $ 46,266     $ 48,508     $ 49,065     $ 55,150     $ 198,989  
  Gross margin     21,893       24,301       23,935       25,753       95,882  
  Gross margin as a % of revenue     47.3 %     50.1 %     48.8 %     46.7 %     48.2 %
  Operating income     12,774       14,906       14,613       15,226       57,519  
  Operating income as a % of revenue     27.6 %     30.7 %     29.8 %     27.6 %     28.9 %
  Depreciation and amortization     3,119       3,177       3,383       3,870       13,549  
  Capital expenditures     3,089       2,067       2,242       3,009       10,407  
                       
Unallocated Corporate Overhead   $ (19,901 )   $ (17,077 )   $ (16,682 )   $ (17,565 )   $ (71,225 )
                       
Total                    
  Revenue   $ 285,981     $ 284,723     $ 278,686     $ 280,140     $ 1,129,530  
  Gross margin     104,212       103,585       93,260       91,024       392,081  
  Gross margin as a % of revenue     36.4 %     36.4 %     33.5 %     32.5 %     34.7 %
  Operating income     43,740       49,274       37,682       35,069       165,765  
  Operating income as a % of revenue     15.3 %     17.3 %     13.5 %     12.5 %     14.7 %
  Depreciation and amortization     20,002       20,065       20,550       20,658       81,275  
  Capital expenditures     14,112       9,441       10,242       13,740       47,535  
                                           

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SUPPLEMENTAL SCHEDULE: PRIOR PERIODS RECAST FOR BUSINESS SEGMENT REVISION
RECONCILIATION OF GAAP TO NON-GAAP
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (1)
(dollars in thousands)
                         
    Three Months Ended  

Twelve Months
Ended

 

Three Months
Ended

   

March 30,
2013

 

June 29,
2013

 

September 28,
2013

 

December 28,
2013

 

December 28,
2013

 

March 29,
2014

Research Models and Services                        
Revenue   $ 134,873     $ 129,759     $ 124,236     $ 122,482     $ 511,350     $ 132,495  
Add back government billing adjustment     -       1,495       -       -       1,495       -  
Non-GAAP revenue   $ 134,873     $ 131,254     $ 124,236     $ 122,482     $ 512,845     $ 132,495  
Operating income     40,477       33,296       23,803       19,161       116,737       35,444  
Operating income as a % of revenue     30.0 %     25.4 %     19.2 %     15.6 %     22.8 %     26.8 %
Add back:                        
Amortization of intangible assets related to acquisitions     491       754       457       1,076       2,778       937  
Severance related to cost-savings actions     86       183       32       1,123       1,424       1,584  
Government billing adjustment and related expenses     -       1,855       321       226       2,402       67  

Impairment and other items (2)

    -       -       7,238       6,440       13,678       980  

Operating losses (3)

    158       51       47       14       270       12  
Operating income, excluding specified charges (Non-GAAP)   $ 41,212     $ 36,139     $ 31,898     $ 28,040     $ 137,289     $ 39,024  
Non-GAAP operating income as a % of revenue     30.6 %     27.5 %     25.7 %     22.9 %     26.8 %     29.5 %
                         
Discovery and Safety Assessment                        
Revenue   $ 101,791     $ 107,490     $ 112,627     $ 110,470     $ 432,378     $ 105,138  
Operating income     8,443       11,261       18,968       8,741       47,413       11,713  
Operating income as a % of revenue     8.3 %     10.5 %     16.8 %     7.9 %     11.0 %     11.1 %
Add back:                        
Amortization of intangible assets related to acquisitions     2,416       2,393       2,383       2,401       9,593       1,972  
Severance related to cost-savings actions     211       102       397       915       1,625       195  

Impairment and other items (2)

    -       -       -       5,829       5,829       -  

Operating losses (3)

    948       787       737       629       3,101       671  
Costs associated with the evaluation and integration of acquisitions     -       -       -       -       -       -  
Operating income, excluding specified charges (Non-GAAP)   $ 12,018     $ 14,543     $ 22,485     $ 18,515     $ 67,561     $ 14,551  
Non-GAAP operating income as a % of revenue     11.8 %     13.5 %     20.0 %     16.8 %     15.6 %     13.8 %
                         
Manufacturing Support                        
Revenue   $ 54,574     $ 55,684     $ 55,266     $ 56,276     $ 221,800     $ 61,735  
Operating income     14,443       16,008       16,125       14,651       61,227       18,416  
Operating income as a % of revenue     26.5 %     28.7 %     29.2 %     26.0 %     27.6 %     29.8 %
Add back:                        
Amortization of intangible assets related to acquisitions     1,341       1,317       1,339       1,438       5,435       1,430  
Severance related to cost-savings actions     -       -       46       123       169       -  

Impairment and other items (2)

    -       -       -       1,874       1,874       -  
Operating income, excluding specified charges (Non-GAAP)   $ 15,784     $ 17,325     $ 17,510     $ 18,086     $ 68,705     $ 19,846  
Non-GAAP operating income as a % of revenue     28.9 %     31.1 %     31.7 %     32.1 %     31.0 %     32.1 %
                         
Unallocated Corporate Overhead   $ (20,600 )   $ (17,377 )   $ (18,053 )   $ (17,946 )   $ (73,976 )   $ (25,867 )
Add back:                        
Severance related to cost-savings actions     -       -       -       -       -       121  
Costs associated with the evaluation and integration of acquisitions     486       194       306       766       1,752       3,305  
Convertible debt accounting     53       54       -       -       107       -  
Unallocated corporate overhead, excluding specified charges (Non-GAAP)   $ (20,061 )   $ (17,129 )   $ (17,747 )   $ (17,180 )   $ (72,117 )   $ (22,441 )
                         
Total                        
Revenue   $ 291,238     $ 292,933     $ 292,129     $ 289,228     $ 1,165,528     $ 299,368  
Add back government billing adjustment     -       1,495       -       -       1,495       -  
Non-GAAP revenue   $ 291,238     $ 294,428     $ 292,129     $ 289,228     $ 1,167,023     $ 299,368  
Operating income     42,763       43,188       40,843       24,607       151,401       39,706  
Operating income as a % of revenue     14.7 %     14.7 %     14.0 %     8.5 %     13.0 %     13.3 %
Add back:                        
Amortization of intangible assets related to acquisitions     4,248       4,464       4,179       4,915       17,806       4,339  
Severance related to cost-savings actions     297       285       475       2,161       3,218       1,900  
Government billing adjustment and related expenses     -       1,855       321       226       2,402       67  

Impairment and other items (2)

    -       -       7,238       14,143       21,381       980  

Operating losses (3)

    1,106       838       784       643       3,371       683  
Costs associated with the evaluation and integration of acquisitions     486       194       306       766       1,752       3,305  
Convertible debt accounting     53       54       -       -       107       -  
Operating income, excluding specified charges (Non-GAAP)   $ 48,953     $ 50,878     $ 54,146     $ 47,461     $ 201,438     $ 50,980  
Non-GAAP operating income as a % of revenue     16.8 %     17.3 %     18.5 %     16.4 %     17.3 %     17.0 %
                         

(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 months ended March 29, 2014, impairment and other items primarily include$1.0 million of asset impairments and accelerated depreciation related to the consolidation of research model production operations. For the year ended December 28, 2013, impairment and other items primarily include: (i) accelerated depreciation of $13.5 million and $1.9 millionrelated to the consolidation of research model production operations and our Biologics Testing Solutions operations, respectively; (ii) an impairment charge of $3.8 million related to ourShrewsbury, Massachusetts facility; (iii) an adjustment to prior-period accrued compensated absences of $1.6 million; and (iv) $0.6 million for the impairment of assets at certain European facilities.

(3) This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SUPPLEMENTAL SCHEDULE: PRIOR PERIODS RECAST FOR BUSINESS SEGMENT REVISION
RECONCILIATION OF GAAP TO NON-GAAP
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (1)
(dollars in thousands)
                     
    Three Months Ended  

Twelve Months
Ended

   

March 31,
2012

 

June 30,
2012

 

September 29,
2012

 

December 29,
2012

 

December 29,
2012

Research Models and Services                    
Revenue   $ 140,875     $ 132,428     $ 124,541     $ 123,789     $ 521,633  
Add back government billing adjustment     -       -       -       -       -  
Non-GAAP revenue   $ 140,875     $ 132,428     $ 124,541     $ 123,789     $ 521,633  
Operating income     44,523       41,131       29,418       28,711       143,783  
Operating income as a % of revenue     31.6 %     31.1 %     23.6 %     23.2 %     27.6 %
Add back:                    
Amortization of intangible assets related to acquisitions     218       219       237       241       915  
Severance related to cost-savings actions     -       -       867       148       1,015  

Impairment and other items (2)

    -       -       2,927       883       3,810  
Operating income, excluding specified charges (Non-GAAP)   $ 44,741     $ 41,350     $ 33,449     $ 29,983     $ 149,523  
Non-GAAP operating income as a % of revenue     31.8 %     31.2 %     26.9 %     24.2 %     28.7 %
                     
Discovery and Safety Assessment                    
Revenue   $ 98,840     $ 103,787     $ 105,080     $ 101,201     $ 408,908  
Operating income     6,344       10,314       10,333       8,697       35,688  
Operating income as a % of revenue     6.4 %     9.9 %     9.8 %     8.6 %     8.7 %
Add back:                    
Amortization of intangible assets related to acquisitions     3,180       3,141       3,112       2,945       12,378  
Severance related to cost-savings actions     911       -       22       561       1,494  

Impairment and other items (2)

    -       -       (233 )     199       (34 )

Operating losses (3)

    1,054       809       837       941       3,641  
Operating income, excluding specified charges (Non-GAAP)   $ 11,489     $ 14,264     $ 14,071     $ 13,343     $ 53,167  
Non-GAAP operating income as a % of revenue     11.6 %     13.7 %     13.4 %     13.2 %     13.0 %
                     
Manufacturing Support                    
Revenue   $ 46,266     $ 48,508     $ 49,065     $ 55,150     $ 198,989  
Operating income     12,774       14,906       14,613       15,226       57,519  
Operating income as a % of revenue     27.6 %     30.7 %     29.8 %     27.6 %     28.9 %
Add back:                    
Amortization of intangible assets related to acquisitions     1,098       1,050       1,179       1,447       4,774  
Severance related to cost-savings actions     -       -       82       (11 )     71  
Operating income, excluding specified charges (Non-GAAP)   $ 13,872     $ 15,956     $ 15,874     $ 16,662     $ 62,364  
Non-GAAP operating income as a % of revenue     30.0 %     32.9 %     32.4 %     30.2 %     31.3 %
                     
Unallocated Corporate Overhead   $ (19,901 )   $ (17,077 )   $ (16,682 )   $ (17,565 )   $ (71,225 )
Add back:                    
Costs associated with the evaluation and integration of acquisitions     232       744       658       2,140       3,774  
Convertible debt accounting     53       54       53       53       213  
Unallocated corporate overhead, excluding specified charges (Non-GAAP)   $ (19,616 )   $ (16,279 )   $ (15,971 )   $ (15,372 )   $ (67,238 )
                     
Total                    
Revenue   $ 285,981     $ 284,723     $ 278,686     $ 280,140     $ 1,129,530  
Add back government billing adjustment     -       -       -       -       -  
Non-GAAP revenue   $ 285,981     $ 284,723     $ 278,686     $ 280,140     $ 1,129,530  
Operating income     43,740       49,274       37,682       35,069       165,765  
Operating income as a % of revenue     15.3 %     17.3 %     13.5 %     12.5 %     14.7 %
Add back:                    
Amortization of intangible assets related to acquisitions     4,496       4,410       4,528       4,633       18,067  
Severance related to cost-savings actions     911       -       971       698       2,580  

Impairment and other items (2)

    -       -       2,694       1,082       3,776  

Operating losses (3)

    1,054       809       837       941       3,641  
Costs associated with the evaluation and integration of acquisitions     232       744       658       2,140       3,774  
Convertible debt accounting     53       54       53       53       213  
Operating income, excluding specified charges (Non-GAAP)   $ 50,486     $ 55,291     $ 47,423     $ 44,616     $ 197,816  
Non-GAAP operating income as a % of revenue     17.7 %     19.4 %     17.0 %     15.9 %     17.5 %
                     

(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 year ended December 29, 2012, impairment and other items primarily include: (i) an impairment charge of $3.5 million for long-lived assets at certain RMS Europe facilities; (ii) $0.6 million for the gain on the sale of land at an RMS facility; and (iii) $0.9 million for the write-off of large model inventory held at a vendor.

(3) This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SUPPLEMENTAL SCHEDULE: PRESENTATION OF FORMER BUSINESS SEGMENT RESULTS
RECONCILIATION OF GAAP TO NON-GAAP
SELECTED FORMER BUSINESS SEGMENT INFORMATION (UNAUDITED) (1)
(dollars in thousands)
         
    Three Months Ended
   

June 28,
2014

 

June 29,
2013

Research Models and Services (former segment)        
Revenue   $ 189,157     $ 178,973  
Add back government billing adjustment     -       1,495  
Non-GAAP revenue   $ 189,157     $ 180,468  
Operating income     52,547       49,630  
Operating income as a % of revenue     27.8 %     27.7 %
Add back:        
Amortization of intangible assets related to acquisitions     2,035       2,228  
Severance related to cost-savings actions     2,031       295  
Government billing adjustment and related expenses     13       1,855  

Impairment and other items (2)

    1,725       -  

Operating losses (3)

    15       51  
Operating income, excluding specified charges (Non-GAAP)   $ 58,366     $ 54,059  
Non-GAAP operating income as a % of revenue     30.9 %     30.0 %
         
Preclinical Services (former segment)        
Revenue   $ 128,509     $ 113,960  
Operating income     19,901       10,935  
Operating income as a % of revenue     15.5 %     9.6 %
Add back:        
Amortization of intangible assets related to acquisitions     1,917       2,236  
Severance related to cost-savings actions     858       (10 )

Operating losses (3)

    704       787  
Operating income, excluding specified charges (Non-GAAP)   $ 23,380     $ 13,948  
Non-GAAP operating income as a % of revenue     18.2 %     12.2 %
         
Acquisition of Argenta and BioFocus        
Revenue   $ 23,513     $ -  
Operating income     39       -  
Operating income as a % of revenue     0.2 %     -  
Add back:        
Amortization of intangible assets related to acquisitions     2,902       -  
Costs associated with the evaluation and integration of acquisitions     203       -  
Operating income, excluding specified charges (Non-GAAP)   $ 3,144     $ -  
Non-GAAP operating income as a % of revenue     13.4 %     -  
         
         
Unallocated Corporate Overhead   $ (21,462 )   $ (17,377 )
Add back:        
Severance related to cost-savings actions     -       -  
Costs associated with the evaluation and integration of acquisitions     1,371       194  
Convertible debt accounting     -       54  
Unallocated corporate overhead, excluding specified charges (Non-GAAP)   $ (20,091 )   $ (17,129 )
         
Total        
Revenue   $ 341,179     $ 292,933  
Add back government billing adjustment     -       1,495  
Non-GAAP revenue   $ 341,179     $ 294,428  
Operating income     51,025       43,188  
Operating income as a % of revenue     15.0 %     14.7 %
Add back:        
Amortization of intangible assets related to acquisitions     6,854       4,464  
Severance related to cost-savings actions     2,889       285  
Government billing adjustment and related expenses     13       1,855  

Impairment and other items (2)

    1,725       -  

Operating losses (3)

    719       838  
Costs associated with the evaluation and integration of acquisitions     1,574       194  
Convertible debt accounting     -       54  
Operating income, excluding specified charges (Non-GAAP)   $ 64,799     $ 50,878  
Non-GAAP operating income as a % of revenue     19.0 %     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 months ended June 28, 2014, impairment and other items primarily include$1.5 million of asset impairments and accelerated depreciation related to the consolidation of research model production operations, a $1.3 million charge related to a dispute with a large model supplier, and a $1.1 million gain related to the sale of a former research model facility inFrance.

(3) This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.

Source: Charles River Laboratories International, Inc.

Charles River Laboratories International, Inc.– Second-Quarter Revenue of $341.2 Million –

– Second-Quarter GAAP Earnings per Share of $0.75 and Non-GAAP Earnings per Share of $0.97 –

– Updates EPS Guidance for 2014 –

– Revises Financial Reporting into Three Segments –

WILMINGTON, Mass.--(BUSINESS WIRE)--Aug. 6, 2014-- Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the second quarter of 2014. For the quarter, revenue from continuing operations was $341.2 million, an increase of 16.5% from$292.9 million in the second quarter of 2013. On a non-GAAP basis, second-quarter revenue increased 15.9%. The acquisition of Argenta and BioFocus, which was completed on April 1, 2014, contributed 8.0% to second-quarter revenue, and foreign currency translation benefited reported revenue by 1.4%.

On a GAAP basis, net income from continuing operations for the second quarter of 2014 was$36.5 million, or $0.75 per diluted share, compared to $28.6 million, or $0.58 per diluted share, for the second quarter of 2013.

On a non-GAAP basis, net income from continuing operations was $46.3 million for the second quarter of 2014, an increase of 29.7% from $35.7 million for the same period in 2013. Second-quarter diluted earnings per share on a non-GAAP basis were $0.97, an increase of 32.9% compared to $0.73 per share in the second quarter of 2013. Higher revenue and operating margin improvement were the primary drivers behind the earnings per share increase. A gain on the Company's limited partnership investments contributed $0.04 per share.

James C. Foster, Chairman, President and Chief Executive Officer, said, "We are very pleased with the second-quarter performance, which is one of the strongest we have ever reported. Double-digit sales growth for the EMD, Biologics, and safety assessment businesses, and the acquisition of Argenta and BioFocus, drove mid-teens revenue growth in the quarter. Leverage from higher sales and our efficiency initiatives combined to generate a 33% increase in non-GAAP earnings per share. As a result, we are increasing our 2014 non-GAAP earnings guidance to a range of $3.25 to $3.35."

"We are continuing our focus on targeted sales efforts, which have been particularly successful with the mid-tier clients. And now that we have broadened our early-stage portfolio with the addition of early discovery capabilities, we are engaging in expanded discussions with existing clients and reaching potential clients who are interested in outsourcing entire drug discovery and development programs to a single provider. We believe these discussions will result in expanded and new strategic relationships across our global, mid-tier, and academic clients," Mr. Foster concluded.

Business Segment Revision

During the second quarter of 2014, following the acquisition of Argenta and BioFocus on April 1, 2014, Charles River revised its financial reporting segments to ensure alignment with its view of the business. The Company reviewed discrete financial information, the new and existing markets addressed by each business, and its recently revised go-to-market strategy. As a result of this review, the Company has determined that its financial results should be reported in three segments: Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Support (Manufacturing).

Management believes that the new business segments reflect results of operations and facilitate investors' understanding of the Company's business. The changes in segment presentation have no effect on consolidated revenue or net income. The business segment details discussed in this press release are based on the new business segments. Comparable prior periods have been recast based on the new business segments since the first quarter of 2012, and this quarterly financial information is provided in the schedules at the end of this press release.

The revised reportable segments are as follows:

             

Research Models
and Services

   

Discovery and
Safety Assessment

   

Manufacturing
Support

Research Models     Discovery Services (2)     Endotoxin and Microbial Detection
Research Model Services (1)     Safety Assessment     Avian Vaccine Services
            Biologics Testing Solutions

(1) The Research Models Services business currently includes Genetically Engineered Models and Services (GEMS), Research Animal Diagnostic Services (RADS), and Insourcing Solutions (IS).
(2) The Discovery Services business includes the legacy Discovery Research Services operations (formerly reported in the RMS segment), discovery services which were formerly reported in Preclinical Services, and Argenta and BioFocus.

Prior to recasting the reportable segments, the businesses were reported in two segments as follows:

       

Research Models
and Services

   

Preclinical
Services

Research Models     Discovery Services
(including Avian Vaccine Services)     Safety Assessment
Research Model Services (1)     Biologics Testing Solutions
Endotoxin and Microbial Detection      

(1) The Research Models Services business previously included Genetically Engineered Models and Services (GEMS), Research Animal Diagnostic Services (RADS), Insourcing Solutions (IS), and Discovery Research Services.

Second-Quarter Segment Results

Research Models and Services (RMS)

Revenue for the RMS segment was $133.1 million in the second quarter of 2014, an increase of 2.6% from $129.8 million in the second quarter of 2013. On a non-GAAP basis, second-quarter RMS revenue increased 1.4%. Foreign currency translation benefited reported revenue by 1.1%. The RMS revenue increase was primarily driven by research model services.

In the second quarter of 2014, the RMS segment's GAAP operating margin was unchanged at 25.7% compared to the second quarter of 2013. On a non-GAAP basis, the operating margin increased to 29.0% from 27.5% in the second quarter of 2013. Benefits from the Company's global efficiency initiatives drove the operating margin improvement.

Discovery and Safety Assessment (DSA)

Second-quarter 2014 revenue from continuing operations for the DSA segment was $142.6 million, an increase of 32.7% from $107.5 million in the second quarter of 2013. Foreign currency translation benefited reported revenue by 1.3%. DSA revenue growth was driven by the acquisition of Argenta and BioFocus, which contributed 21.9% to DSA revenue in the second quarter. Robust demand for the Company's safety assessment services from mid-tier clients also contributed to the second-quarter revenue increase.

In the second quarter of 2014, the DSA segment's GAAP operating margin was 12.5% compared to 10.5% in the second quarter of 2013. On a non-GAAP basis, the operating margin increased to 17.1% from 13.5% in the second quarter of 2013. The non-GAAP operating margin improvement was due primarily to leverage from higher sales of safety assessment services. In addition, a foreign exchange benefit from a weaker Canadian dollar and the U.K. tax law change adopted in the third quarter of 2013, which reclassified research and development tax credits, also contributed to the operating margin improvement.

Manufacturing Support (Manufacturing)

Revenue for the Manufacturing segment was $65.4 million in the second quarter of 2014, an increase of 17.5% from $55.7 million in the second quarter of 2013. Foreign currency translation benefited reported revenue by 2.3%. Manufacturing revenue was driven by broad-based growth across all businesses, including a double-digit growth rate for both the Endotoxin and Microbial Detection, and Biologics Testing Solutions businesses.

In the second quarter of 2014, the Manufacturing segment's GAAP operating margin was 31.3% compared to 28.7% for the second quarter of 2013. On a non-GAAP basis, the operating margin increased to 33.4% from 31.1% in the second quarter of 2013. The operating margin improvement was primarily driven by improved utilization for the Biologics business.

Stock Repurchase Update

During the second quarter of 2014, the Company repurchased approximately 1.5 million shares of its common stock for $80.5 million. As of June 28, 2014, the Company had $48.8 million remaining on its stock repurchase authorization.

Six-Month Results

For the first six months of 2014, revenue increased by 9.7% to $640.5 million from $584.2 million in the same period in 2013. On a non-GAAP basis, first-half revenue increased 9.4%. The acquisition of Argenta and BioFocus contributed 4.0% to first-half revenue, and foreign currency translation benefited reported revenue by 1.0%.

On a GAAP basis, net income from continuing operations for the first half of 2014 was $69.1 million, or $1.43 per diluted share, compared to $54.6 million, or $1.11 per diluted share, for the same period in 2013.

On a non-GAAP basis, net income from continuing operations for the first half of 2014 was$85.5 million, or $1.79 per diluted share, compared to $68.9 million, or $1.42 per diluted share, for the same period in 2013.

Research Models and Services (RMS)

For the first six months of 2014, RMS revenue was $265.6 million, an increase of 0.4% from$264.6 million in the same period in 2013. On a non-GAAP basis, first-half RMS revenue declined by 0.2%. Foreign currency translation benefited reported revenue by 0.6%. On a GAAP basis, the RMS segment operating margin was 26.2% in the first half of 2014, compared to 27.9% for the prior-year period. On a non-GAAP basis, the operating margin was 29.2% in the first half of 2014, compared to 29.1% for the same period in 2013.

Discovery and Safety Assessment (DSA)

For the first six months of 2014, DSA revenue was $247.8 million, an increase of 18.4% from$209.3 million in the same period in 2013. The acquisition of Argenta and BioFocus contributed 11.2% to first-half revenue, and foreign currency translation benefited reported revenue by 0.9%. On a GAAP basis, the DSA segment operating margin was 11.9% in the first half of 2014, compared to 9.4% for the prior-year period. On a non-GAAP basis, the operating margin was 15.7% in the first half of 2014, compared to 12.7% for the same period in 2013.

Manufacturing Support (Manufacturing)

For the first six months of 2014, Manufacturing revenue was $127.2 million, an increase of 15.3% from $110.3 million in the same period in 2013. Foreign currency translation benefited reported revenue by 1.9%. On a GAAP basis, the Manufacturing segment operating margin was 30.6% in the first half of 2014, compared to 27.6% for the prior-year period. On a non-GAAP basis, the operating margin was 32.8% in the first half of 2014, compared to 30.0% for the same period in 2013.

2014 Guidance

The Company is updating its 2014 forward-looking guidance based on continuing operations. Guidance for non-GAAP earnings per share has been increased to primarily reflect the strong second-quarter performance, including the gain from limited partnership investments. Primarily as a result of additional charges associated with the Company's global efficiency initiatives, GAAP earnings per share guidance has been reduced. The Company is maintaining its 2014 revenue guidance and continues to expect foreign currency translation to provide only a small benefit to reported revenue. The outlook for the remainder of the year assumes normal seasonality in the RMS segment.

         
2014 GUIDANCE (from continuing operations)   REVISED   PRIOR
Net revenue growth, reported   9.0% – 11.0%   9.0% – 11.0%
Impact of foreign exchange   N/M   N/M
Net revenue growth, constant currency   9.0% - 11.0%   9.0% - 11.0%
GAAP EPS estimate   $2.60 - $2.70   $2.64 - $2.74
Amortization of intangible assets   $0.36   $0.33
Operating losses and other items (1)   $0.06   $0.04
Charges related to global efficiency initiative (2)   $0.16-$0.18   $0.08-$0.10
Costs associated with evaluation and integration of acquisitions   $0.06   $0.05
Non-GAAP EPS estimate   $3.25 - $3.35   $3.15 - $3.25

(1) These costs relate primarily to the Company's Shrewsbury, Massachusetts, facility and a dispute with a large model supplier.
(2) These charges relate primarily to the consolidation of research model production operations and other efficiency initiatives. Other projects in support of the global efficiency initiative are expected, but these charges reflect only the decisions that have already been finalized.

Webcast

Charles River Laboratories has scheduled a live webcast on Thursday, August 7, at 9:00 a.m. ET to discuss matters relating to this press release. To participate, please go to ir.criver.comand 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 and Biologics Testing Solutions operations; a charge related to a dispute with a large model supplier; gains related to the sales of former research model facilities; an adjustment to prior-period accrued compensation 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, 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; the integration of Argenta and BioFocus, and our expectations with respect to their impact on the Company, our service offerings, strategic relationships, revenue, revenue growth rates, and earnings; the development and performance of our services and products, including the impact this can have on our clients' drug development models; 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)
(dollars in thousands, except for share and per share data)
                 
    Three Months Ended   Six Months Ended
   

June 28,
2014

 

June 29,
2013

 

June 28,
2014

 

June 29,
2013

                 
Total revenue   $ 341,179     $ 292,933     $ 640,547     $ 584,171  
Cost of products sold and services provided     215,545       190,363       406,100       377,390  
Gross margin     125,634       102,570       234,447       206,781  
Selling, general and administrative     67,756       54,919       132,523       112,118  
Amortization of intangibles     6,853       4,463       11,193       8,712  
Operating income     51,025       43,188       90,731       85,951  
Interest income (expense)     (3,151 )     (7,308 )     (5,747 )     (15,491 )
Other income (expense)     2,667       967       8,543       2,035  
Income from continuing operations before income taxes     50,541       36,847       93,527       72,495  
Provision for income taxes     14,081       8,219       24,439       17,941  
Income from continuing operations, net of tax     36,460       28,628       69,088       54,554  
Loss from discontinued operations, net of tax     (644 )     (915 )     (914 )     (1,070 )
Net income     35,816       27,713       68,174       53,484  
Income from noncontrolling interests     (552 )     (429 )     (678 )     (622 )
Net income attributable to common shareowners   $ 35,264     $ 27,284     $ 67,496     $ 52,862  
                 
Earnings per common share                
Basic:                
Continuing operations   $ 0.76     $ 0.58     $ 1.46     $ 1.12  
Discontinued operations   $ (0.01 )   $ (0.02 )   $ (0.02 )   $ (0.02 )
Net   $ 0.75     $ 0.57     $ 1.44     $ 1.10  
Diluted:                
Continuing operations   $ 0.75     $ 0.58     $ 1.43     $ 1.11  
Discontinued operations   $ (0.01 )   $ (0.02 )   $ (0.02 )   $ (0.02 )
Net   $ 0.74     $ 0.56     $ 1.41     $ 1.09  
                 
Weighted average number of common shares outstanding                
Basic     46,941,612       48,280,371       47,016,221       47,969,683  
Diluted     47,684,096       48,835,453       47,909,233       48,647,942  
                                 

 

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

June 28,
2014

 

December 28,
2013

Assets        
Current assets        
Cash and cash equivalents   $ 117,012   $ 155,927
Trade receivables, net     274,504     220,630
Inventories     92,621     89,396
Other current assets     107,709     85,847
Current assets of discontinued businesses     856     750
Total current assets     592,702     552,550
Property, plant and equipment, net     687,664     676,182
Goodwill, net     297,005     230,701
Other intangibles, net     181,269     84,537
Deferred tax asset     19,746     23,671
Other assets     81,815     61,964
Long-term assets of discontinued businesses     3,261     3,151
Total assets   $ 1,863,462   $ 1,632,756
         
Liabilities and Equity        
Current liabilities        
Current portion of long-term debt and capital leases   $ 31,932   $ 21,437
Accounts payable     35,218     31,770
Accrued compensation     59,224     58,461
Deferred revenue     61,870     54,177
Accrued liabilities     67,462     56,712
Other current liabilities     13,761     22,546
Current liabilities of discontinued businesses     2,181     1,931
Total current liabilities     271,648     247,034
Long-term debt & capital leases     781,617     642,352
Other long-term liabilities     103,305     70,632
Long-term liabilities of discontinued businesses     8,271     8,080
Total liabilities     1,164,841     968,098
Redeemable non-controlling interest     23,483     20,581
Total shareholders' equity     671,815     640,984
Non-controlling interest     3,323     3,093
Total liabilities and equity   $ 1,863,462   $ 1,632,756
             

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(dollars in thousands)
                   
      Three Months Ended   Six Months Ended
     

June 28,
2014

 

June 29,
2013

 

June 28,
2014

 

June 29,
2013

Research Models and Services                
  Revenue   $ 133,120     $ 129,759     $ 265,615     $ 264,632  
  Gross margin     52,450       49,020       104,097       104,476  
  Gross margin as a % of revenue     39.4 %     37.8 %     39.2 %     39.5 %
  Operating income     34,234       33,296       69,678       73,773  
  Operating income as a % of revenue     25.7 %     25.7 %     26.2 %     27.9 %
  Depreciation and amortization     7,165       7,192       14,364       14,094  
  Capital expenditures     2,478       3,991       7,711       6,209  
                   
Discovery and Safety Assessment                
  Revenue   $ 142,614     $ 107,490     $ 247,752     $ 209,281  
  Gross margin     39,457       25,534       65,116       48,051  
  Gross margin as a % of revenue     27.7 %     23.8 %     26.3 %     23.0 %
  Operating income     17,798       11,261       29,511       19,704  
  Operating income as a % of revenue     12.5 %     10.5 %     11.9 %     9.4 %
  Depreciation and amortization     13,241       9,369       22,012       18,783  
  Capital expenditures     4,340       3,064       8,051       4,856  
                   
Manufacturing Support                
  Revenue   $ 65,445     $ 55,684     $ 127,180     $ 110,258  
  Gross margin     33,727       28,016       65,234       54,254  
  Gross margin as a % of revenue     51.5 %     50.3 %     51.3 %     49.2 %
  Operating income     20,455       16,008       38,871       30,451  
  Operating income as a % of revenue     31.3 %     28.7 %     30.6 %     27.6 %
  Depreciation and amortization     3,894       3,849       7,975       7,543  
  Capital expenditures     2,497       2,740       4,743       5,158  
                   
Unallocated Corporate Overhead   $ (21,462 )   $ (17,377 )   $ (47,329 )   $ (37,977 )
                   
Total                
  Revenue   $ 341,179     $ 292,933     $ 640,547     $ 584,171  
  Gross margin     125,634       102,570       234,447       206,781  
  Gross margin as a % of revenue     36.8 %     35.0 %     36.6 %     35.4 %
  Operating income     51,025       43,188       90,731       85,951  
  Operating income as a % of revenue     15.0 %     14.7 %     14.2 %     14.7 %
  Depreciation and amortization     24,300       20,410       44,351       40,420  
  Capital expenditures     9,315       9,795       20,505       16,223  
                                   

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP TO NON-GAAP
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (1)
(dollars in thousands)
                 
    Three Months Ended   Six Months Ended
   

June 28,
2014

 

June 29,
2013

 

June 28,
2014

 

June 29,
2013

Research Models and Services                
Revenue   $ 133,120     $ 129,759     $ 265,615     $ 264,632  
Add back government billing adjustment     -       1,495       -       1,495  
Non-GAAP revenue   $ 133,120     $ 131,254     $ 265,615     $ 266,127  
Operating income     34,234       33,296       69,678       73,773  
Operating income as a % of revenue     25.7 %     25.7 %     26.2 %     27.9 %
Add back:                
Amortization of intangible assets related to acquisitions     608       754       1,545       1,245  
Severance related to cost-savings actions     2,011       183       3,595       269  
Government billing adjustment and related expenses     13       1,855       80       1,855  

Impairment and other items (2)

    1,725       -       2,705       -  

Operating losses (3)

    15       51       27       209  
Operating income, excluding specified charges (Non-GAAP)   $ 38,606     $ 36,139     $ 77,630     $ 77,351  
Non-GAAP operating income as a % of revenue     29.0 %     27.5 %     29.2 %     29.1 %
                 
Discovery and Safety Assessment                
Revenue   $ 142,614     $ 107,490     $ 247,752     $ 209,281  
Operating income     17,798       11,261       29,511       19,704  
Operating income as a % of revenue     12.5 %     10.5 %     11.9 %     9.4 %
Add back:                
Amortization of intangible assets related to acquisitions     4,891       2,393       6,863       4,809  
Severance related to cost-savings actions     854       102       1,049       313  

Operating losses (3)

    704       787       1,375       1,735  
Costs associated with the evaluation and integration of acquisitions     203       -       203       -  
Operating income, excluding specified charges (Non-GAAP)   $ 24,450     $ 14,543     $ 39,001     $ 26,561  
Non-GAAP operating income as a % of revenue     17.1 %     13.5 %     15.7 %     12.7 %
                 
Manufacturing Support                
Revenue   $ 65,445     $ 55,684     $ 127,180     $ 110,258  
Operating income     20,455       16,008       38,871       30,451  
Operating income as a % of revenue     31.3 %     28.7 %     30.6 %     27.6 %
Add back:                
Amortization of intangible assets related to acquisitions     1,355       1,317       2,785       2,658  
Severance related to cost-savings actions     24       -       24       -  
Operating income, excluding specified charges (Non-GAAP)   $ 21,834     $ 17,325     $ 41,680     $ 33,109  
Non-GAAP operating income as a % of revenue     33.4 %     31.1 %     32.8 %     30.0 %
                 
Unallocated Corporate Overhead   $ (21,462 )   $ (17,377 )   $ (47,329 )   $ (37,977 )
Add back:                
Severance related to cost-savings actions     -       -       121       -  
Costs associated with the evaluation and integration of acquisitions     1,371       194       4,676       680  
Convertible debt accounting     -       54       -       107  
Unallocated corporate overhead, excluding specified charges (Non-GAAP)   $ (20,091 )   $ (17,129 )   $ (42,532 )   $ (37,190 )
                 
Total                
Revenue   $ 341,179     $ 292,933     $ 640,547     $ 584,171  
Add back government billing adjustment     -       1,495       -       1,495  
Non-GAAP revenue   $ 341,179     $ 294,428     $ 640,547     $ 585,666  
Operating income     51,025       43,188       90,731       85,951  
Operating income as a % of revenue     15.0 %     14.7 %     14.2 %     14.7 %
Add back:                
Amortization of intangible assets related to acquisitions     6,854       4,464       11,193       8,712  
Severance related to cost-savings actions     2,889       285       4,789       582  
Government billing adjustment and related expenses     13       1,855       80       1,855  

Impairment and other items (2)

    1,725       -       2,705       -  

Operating losses (3)

    719       838       1,402       1,944  
Costs associated with the evaluation and integration of acquisitions     1,574       194       4,879       680  
Convertible debt accounting     -       54       -       107  
Operating income, excluding specified charges (Non-GAAP)   $ 64,799     $ 50,878     $ 115,779     $ 99,831  
Non-GAAP operating income as a % of revenue     19.0 %     17.3 %     18.1 %     17.0 %
                 

(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 six months ended June 28, 2014, impairment and other items primarily include $1.5 million and $2.5 million of asset impairments and accelerated depreciation related to the consolidation of research model production operations, respectively; a $1.3 millioncharge related to a dispute with a large model supplier; and a $1.1 million gain related to the sale of a former research model facility in France.

(3) This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.

 

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

June 28,
2014

 

June 29,
2013

 

June 28,
2014

 

June 29,
2013

                 
Net income attributable to common shareholders   $ 35,264     $ 27,284     $ 67,496     $ 52,862  
Less: Discontinued operations     644       915       914       1,070  
Net income from continuing operations     35,908       28,199       68,410       53,932  
Add back:                
Amortization of intangible assets related to acquisitions     6,854       4,464       11,193       8,712  
Severance related to cost-savings actions     2,889       285       4,789       582  
Impairment and other items (2)     1,725       -       2,705       -  
Operating losses (3)     719       838       1,402       1,944  
Costs associated with the evaluation and integration of acquisitions     1,574       194       4,879       680  
Government billing adjustment and related expenses     13       1,855       80       1,855  
Write-off of deferred financing costs and fees related to debt refinancing     -       645       -       645  
Convertible debt accounting, net (4)     -       2,897       -       6,710  
Tax effect of items above     (3,426 )     (3,709 )     (7,928 )     (6,166 )
Net income from continuing operations, excluding specified charges (Non-GAAP)   $ 46,256     $ 35,668     $ 85,530     $ 68,894  
                 
Weighted average shares outstanding - Basic     46,941,612       48,280,371       47,016,221       47,969,683  
Effect of dilutive securities:                
Stock options and contingently issued restricted stock     742,484       555,082       893,012       678,259  
Weighted average shares outstanding - Diluted     47,684,096       48,835,453       47,909,233       48,647,942  
                 
Basic earnings per share from continuing operations   $ 0.76     $ 0.58     $ 1.46     $ 1.12  
Diluted earnings per share from continuing operations   $ 0.75     $ 0.58     $ 1.43     $ 1.11  
                 
Basic earnings per share from continuing operations, excluding specified charges (Non-GAAP)   $ 0.99     $ 0.74     $ 1.82     $ 1.44  
Diluted earnings per share from continuing operations, excluding specified charges (Non-GAAP)   $ 0.97     $ 0.73     $ 1.79     $ 1.42  
                 

(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 six months ended June 28, 2014, impairment and other items primarily include $1.5 million and $2.5 million of asset impairments and accelerated depreciation related to the consolidation of research model production operations, respectively; a $1.3 millioncharge related to a dispute with a large model supplier; and a $1.1 million gain related to the sale of a former research model facility in France.

(3) This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.

(4) The three and six months ended June 29, 2013 include the impact of convertible debt accounting adopted at the beginning of 2009, which increased interest expense by $2.8 millionand $6.6 million and depreciation expense by $0.1 million and $0.1 million, respectively.

 

 
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 Six Months Ended June 28, 2014
                 
                 
For the three months ended June 28, 2014:  

Total CRL

 

RMS Segment

 

DSA Segment

 

MS Segment

                 
Revenue growth, reported   16.5 %   2.6 %   32.7 %   17.5 %
Impact of foreign exchange   1.4 %   1.1 %   1.3 %   2.3 %
Impact of government billing adjustment   0.6 %   1.2 %   0.0 %   0.0 %
Non-GAAP revenue growth, constant currency   14.5 %   0.3 %   31.4 %   15.2 %
                 
For the six months ended June 28, 2014:  

Total CRL

 

RMS Segment

 

DSA Segment

 

MS Segment

                 
Revenue growth, reported   9.7 %   0.4 %   18.4 %   15.3 %
Impact of foreign exchange   1.0 %   0.6 %   0.9 %   1.9 %
Impact of government billing adjustment   0.3 %   0.6 %   0.0 %   0.0 %
Non-GAAP revenue growth, constant currency   8.4 %   (0.8 %)   17.5 %   13.4 %
                 
                 

Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of one-time charges, consistent with the manner in which management measures and forecasts the Company's performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules and regulations.

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
         
   

Six Months Ended

   

June 28,
2014

 

June 29,
2013

Cash flows relating to operating activities:        
Net income   $ 68,174     $ 53,484  
Less: Loss from discontinued operations     (914 )     (1,070 )
Income from continuing operations     69,088       54,554  
Summary of non-cash adjustments     59,081       66,386  
Changes in assets and liabilities     (42,731 )     (41,997 )
Net cash provided by operating activities     85,438       78,943  
         
Cash flows relating to investing activities:        
Acquisition of businesses, net of cash acquired     (183,151 )     (24,218 )
Capital expenditures     (20,505 )     (16,223 )
Other     1,158       454  
Net cash used in investing activities     (202,498 )     (39,987 )
         
Cash flow relating to financing activities:        
Net cash used in financing activities     78,212       (29,417 )
         
Cash flows used in discontinued operations     (689 )     (946 )
Effect of exchange rate changes on cash and cash equivalents     622       (4,757 )
Net change in cash and cash equivalents     (38,915 )     3,836  
Cash and cash equivalents, beginning of period     155,927       109,685  
Cash and cash equivalents, end of period   $ 117,012     $ 113,521  
                 

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SUPPLEMENTAL SCHEDULE: PRIOR PERIODS RECAST FOR BUSINESS SEGMENT REVISION
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(dollars in thousands)
                           
      Three Months Ended  

Twelve Months
Ended

 

Three Months
Ended

     

March 30,
2013

 

June 29,
2013

 

September 28,
2013

 

December 28,
2013

 

December 28,
2013

 

March 29,
2014

Research Models and Services                        
  Revenue   $ 134,873     $ 129,759     $ 124,236     $ 122,482     $ 511,350     $ 132,495  
  Gross margin     55,456       49,020       39,127       35,889       179,492       51,647  
  Gross margin as a % of revenue     41.1 %     37.8 %     31.5 %     29.3 %     35.1 %     39.0 %
  Operating income     40,477       33,296       23,803       19,161       116,737       35,444  
  Operating income as a % of revenue     30.0 %     25.7 %     19.2 %     15.6 %     22.8 %     26.8 %
  Depreciation and amortization     6,902       7,192       13,548       14,195       41,837       7,199  
  Capital expenditures     2,218       3,991       4,208       6,300       16,717       5,233  
                           
Discovery and Safety Assessment                        
  Revenue   $ 101,791     $ 107,490     $ 112,627     $ 110,470     $ 432,378     $ 105,138  
  Gross margin     22,517       25,534       33,061       25,654       106,766       25,659  
  Gross margin as a % of revenue     22.1 %     23.8 %     29.4 %     23.2 %     24.7 %     24.4 %
  Operating income     8,443       11,261       18,968       8,741       47,413       11,713  
  Operating income as a % of revenue     8.3 %     10.5 %     16.8 %     7.9 %     11.0 %     11.1 %
  Depreciation and amortization     9,414       9,369       9,486       9,451       37,720       8,771  
  Capital expenditures     1,792       3,064       2,459       5,246       12,561       3,711  
                           
Manufacturing Support                        
  Revenue   $ 54,574     $ 55,684     $ 55,266     $ 56,276     $ 221,800     $ 61,735  
  Gross margin     26,238       28,016       27,738       26,651       108,643       31,507  
  Gross margin as a % of revenue     48.1 %     50.3 %     50.2 %     47.4 %     49.0 %     51.0 %
  Operating income     14,443       16,008       16,125       14,651       61,227       18,416  
  Operating income as a % of revenue     26.5 %     28.7 %     29.2 %     26.0 %     27.6 %     29.8 %
  Depreciation and amortization     3,694       3,849       3,881       5,655       17,079       4,081  
  Capital expenditures     2,418       2,740       2,429       2,289       9,876       2,246  
                           
Unallocated Corporate Overhead   $ (20,600 )   $ (17,377 )   $ (18,053 )   $ (17,946 )   $ (73,976 )   $ (25,867 )
                           
Total                        
  Revenue   $ 291,238     $ 292,933     $ 292,129     $ 289,228     $ 1,165,528     $ 299,368  
  Gross margin     104,211       102,570       99,926       88,194       394,901       108,813  
  Gross margin as a % of revenue     35.8 %     35.0 %     34.2 %     30.5 %     33.9 %     36.3 %
  Operating income     42,763       43,188       40,843       24,607       151,401       39,706  
  Operating income as a % of revenue     14.7 %     14.7 %     14.0 %     8.5 %     13.0 %     13.3 %
  Depreciation and amortization     20,010       20,410       26,915       29,301       96,636       20,051  
  Capital expenditures     6,428       9,795       9,096       13,835       39,154       11,190  
                                                   

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SUPPLEMENTAL SCHEDULE: PRIOR PERIODS RECAST FOR BUSINESS SEGMENT REVISION
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(dollars in thousands)
                       
      Three Months Ended  

Twelve Months
Ended

     

March 31,
2012

 

June 30,
2012

 

September 29,
2012

 

December 29,
2012

 

December 29,
2012

Research Models and Services                    
  Revenue   $ 140,875     $ 132,428     $ 124,541     $ 123,789     $ 521,633  
  Gross margin     59,154       53,900       44,364       40,873       198,291  
  Gross margin as a % of revenue     42.0 %     40.7 %     35.6 %     33.0 %     38.0 %
  Operating income     44,523       41,131       29,418       28,711       143,783  
  Operating income as a % of revenue     31.6 %     31.1 %     23.6 %     23.2 %     27.6 %
  Depreciation and amortization     6,597       6,618       6,792       6,718       26,725  
  Capital expenditures     8,039       5,378       5,834       7,826       27,077  
                       
Discovery and Safety Assessment                    
  Revenue   $ 98,840     $ 103,787     $ 105,080     $ 101,201     $ 408,908  
  Gross margin     23,165       25,384       24,961       24,398       97,908  
  Gross margin as a % of revenue     23.4 %     24.5 %     23.8 %     24.1 %     23.9 %
  Operating income     6,344       10,314       10,333       8,697       35,688  
  Operating income as a % of revenue     6.4 %     9.9 %     9.8 %     8.6 %     8.7 %
  Depreciation and amortization     10,286       10,270       10,375       10,070       41,001  
  Capital expenditures     2,984       1,996       2,166       2,905       10,051  
                       
Manufacturing Support                    
  Revenue   $ 46,266     $ 48,508     $ 49,065     $ 55,150     $ 198,989  
  Gross margin     21,893       24,301       23,935       25,753       95,882  
  Gross margin as a % of revenue     47.3 %     50.1 %     48.8 %     46.7 %     48.2 %
  Operating income     12,774       14,906       14,613       15,226       57,519  
  Operating income as a % of revenue     27.6 %     30.7 %     29.8 %     27.6 %     28.9 %
  Depreciation and amortization     3,119       3,177       3,383       3,870       13,549  
  Capital expenditures     3,089       2,067       2,242       3,009       10,407  
                       
Unallocated Corporate Overhead   $ (19,901 )   $ (17,077 )   $ (16,682 )   $ (17,565 )   $ (71,225 )
                       
Total                    
  Revenue   $ 285,981     $ 284,723     $ 278,686     $ 280,140     $ 1,129,530  
  Gross margin     104,212       103,585       93,260       91,024       392,081  
  Gross margin as a % of revenue     36.4 %     36.4 %     33.5 %     32.5 %     34.7 %
  Operating income     43,740       49,274       37,682       35,069       165,765  
  Operating income as a % of revenue     15.3 %     17.3 %     13.5 %     12.5 %     14.7 %
  Depreciation and amortization     20,002       20,065       20,550       20,658       81,275  
  Capital expenditures     14,112       9,441       10,242       13,740       47,535  
                                           

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SUPPLEMENTAL SCHEDULE: PRIOR PERIODS RECAST FOR BUSINESS SEGMENT REVISION
RECONCILIATION OF GAAP TO NON-GAAP
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (1)
(dollars in thousands)
                         
    Three Months Ended  

Twelve Months
Ended

 

Three Months
Ended

   

March 30,
2013

 

June 29,
2013

 

September 28,
2013

 

December 28,
2013

 

December 28,
2013

 

March 29,
2014

Research Models and Services                        
Revenue   $ 134,873     $ 129,759     $ 124,236     $ 122,482     $ 511,350     $ 132,495  
Add back government billing adjustment     -       1,495       -       -       1,495       -  
Non-GAAP revenue   $ 134,873     $ 131,254     $ 124,236     $ 122,482     $ 512,845     $ 132,495  
Operating income     40,477       33,296       23,803       19,161       116,737       35,444  
Operating income as a % of revenue     30.0 %     25.4 %     19.2 %     15.6 %     22.8 %     26.8 %
Add back:                        
Amortization of intangible assets related to acquisitions     491       754       457       1,076       2,778       937  
Severance related to cost-savings actions     86       183       32       1,123       1,424       1,584  
Government billing adjustment and related expenses     -       1,855       321       226       2,402       67  

Impairment and other items (2)

    -       -       7,238       6,440       13,678       980  

Operating losses (3)

    158       51       47       14       270       12  
Operating income, excluding specified charges (Non-GAAP)   $ 41,212     $ 36,139     $ 31,898     $ 28,040     $ 137,289     $ 39,024  
Non-GAAP operating income as a % of revenue     30.6 %     27.5 %     25.7 %     22.9 %     26.8 %     29.5 %
                         
Discovery and Safety Assessment                        
Revenue   $ 101,791     $ 107,490     $ 112,627     $ 110,470     $ 432,378     $ 105,138  
Operating income     8,443       11,261       18,968       8,741       47,413       11,713  
Operating income as a % of revenue     8.3 %     10.5 %     16.8 %     7.9 %     11.0 %     11.1 %
Add back:                        
Amortization of intangible assets related to acquisitions     2,416       2,393       2,383       2,401       9,593       1,972  
Severance related to cost-savings actions     211       102       397       915       1,625       195  

Impairment and other items (2)

    -       -       -       5,829       5,829       -  

Operating losses (3)

    948       787       737       629       3,101       671  
Costs associated with the evaluation and integration of acquisitions     -       -       -       -       -       -  
Operating income, excluding specified charges (Non-GAAP)   $ 12,018     $ 14,543     $ 22,485     $ 18,515     $ 67,561     $ 14,551  
Non-GAAP operating income as a % of revenue     11.8 %     13.5 %     20.0 %     16.8 %     15.6 %     13.8 %
                         
Manufacturing Support                        
Revenue   $ 54,574     $ 55,684     $ 55,266     $ 56,276     $ 221,800     $ 61,735  
Operating income     14,443       16,008       16,125       14,651       61,227       18,416  
Operating income as a % of revenue     26.5 %     28.7 %     29.2 %     26.0 %     27.6 %     29.8 %
Add back:                        
Amortization of intangible assets related to acquisitions     1,341       1,317       1,339       1,438       5,435       1,430  
Severance related to cost-savings actions     -       -       46       123       169       -  

Impairment and other items (2)

    -       -       -       1,874       1,874       -  
Operating income, excluding specified charges (Non-GAAP)   $ 15,784     $ 17,325     $ 17,510     $ 18,086     $ 68,705     $ 19,846  
Non-GAAP operating income as a % of revenue     28.9 %     31.1 %     31.7 %     32.1 %     31.0 %     32.1 %
                         
Unallocated Corporate Overhead   $ (20,600 )   $ (17,377 )   $ (18,053 )   $ (17,946 )   $ (73,976 )   $ (25,867 )
Add back:                        
Severance related to cost-savings actions     -       -       -       -       -       121  
Costs associated with the evaluation and integration of acquisitions     486       194       306       766       1,752       3,305  
Convertible debt accounting     53       54       -       -       107       -  
Unallocated corporate overhead, excluding specified charges (Non-GAAP)   $ (20,061 )   $ (17,129 )   $ (17,747 )   $ (17,180 )   $ (72,117 )   $ (22,441 )
                         
Total                        
Revenue   $ 291,238     $ 292,933     $ 292,129     $ 289,228     $ 1,165,528     $ 299,368  
Add back government billing adjustment     -       1,495       -       -       1,495       -  
Non-GAAP revenue   $ 291,238     $ 294,428     $ 292,129     $ 289,228     $ 1,167,023     $ 299,368  
Operating income     42,763       43,188       40,843       24,607       151,401       39,706  
Operating income as a % of revenue     14.7 %     14.7 %     14.0 %     8.5 %     13.0 %     13.3 %
Add back:                        
Amortization of intangible assets related to acquisitions     4,248       4,464       4,179       4,915       17,806       4,339  
Severance related to cost-savings actions     297       285       475       2,161       3,218       1,900  
Government billing adjustment and related expenses     -       1,855       321       226       2,402       67  

Impairment and other items (2)

    -       -       7,238       14,143       21,381       980  

Operating losses (3)

    1,106       838       784       643       3,371       683  
Costs associated with the evaluation and integration of acquisitions     486       194       306       766       1,752       3,305  
Convertible debt accounting     53       54       -       -       107       -  
Operating income, excluding specified charges (Non-GAAP)   $ 48,953     $ 50,878     $ 54,146     $ 47,461     $ 201,438     $ 50,980  
Non-GAAP operating income as a % of revenue     16.8 %     17.3 %     18.5 %     16.4 %     17.3 %     17.0 %
                         

(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 months ended March 29, 2014, impairment and other items primarily include$1.0 million of asset impairments and accelerated depreciation related to the consolidation of research model production operations. For the year ended December 28, 2013, impairment and other items primarily include: (i) accelerated depreciation of $13.5 million and $1.9 millionrelated to the consolidation of research model production operations and our Biologics Testing Solutions operations, respectively; (ii) an impairment charge of $3.8 million related to ourShrewsbury, Massachusetts facility; (iii) an adjustment to prior-period accrued compensated absences of $1.6 million; and (iv) $0.6 million for the impairment of assets at certain European facilities.

(3) This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SUPPLEMENTAL SCHEDULE: PRIOR PERIODS RECAST FOR BUSINESS SEGMENT REVISION
RECONCILIATION OF GAAP TO NON-GAAP
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (1)
(dollars in thousands)
                     
    Three Months Ended  

Twelve Months
Ended

   

March 31,
2012

 

June 30,
2012

 

September 29,
2012

 

December 29,
2012

 

December 29,
2012

Research Models and Services                    
Revenue   $ 140,875     $ 132,428     $ 124,541     $ 123,789     $ 521,633  
Add back government billing adjustment     -       -       -       -       -  
Non-GAAP revenue   $ 140,875     $ 132,428     $ 124,541     $ 123,789     $ 521,633  
Operating income     44,523       41,131       29,418       28,711       143,783  
Operating income as a % of revenue     31.6 %     31.1 %     23.6 %     23.2 %     27.6 %
Add back:                    
Amortization of intangible assets related to acquisitions     218       219       237       241       915  
Severance related to cost-savings actions     -       -       867       148       1,015  

Impairment and other items (2)

    -       -       2,927       883       3,810  
Operating income, excluding specified charges (Non-GAAP)   $ 44,741     $ 41,350     $ 33,449     $ 29,983     $ 149,523  
Non-GAAP operating income as a % of revenue     31.8 %     31.2 %     26.9 %     24.2 %     28.7 %
                     
Discovery and Safety Assessment                    
Revenue   $ 98,840     $ 103,787     $ 105,080     $ 101,201     $ 408,908  
Operating income     6,344       10,314       10,333       8,697       35,688  
Operating income as a % of revenue     6.4 %     9.9 %     9.8 %     8.6 %     8.7 %
Add back:                    
Amortization of intangible assets related to acquisitions     3,180       3,141       3,112       2,945       12,378  
Severance related to cost-savings actions     911       -       22       561       1,494  

Impairment and other items (2)

    -       -       (233 )     199       (34 )

Operating losses (3)

    1,054       809       837       941       3,641  
Operating income, excluding specified charges (Non-GAAP)   $ 11,489     $ 14,264     $ 14,071     $ 13,343     $ 53,167  
Non-GAAP operating income as a % of revenue     11.6 %     13.7 %     13.4 %     13.2 %     13.0 %
                     
Manufacturing Support                    
Revenue   $ 46,266     $ 48,508     $ 49,065     $ 55,150     $ 198,989  
Operating income     12,774       14,906       14,613       15,226       57,519  
Operating income as a % of revenue     27.6 %     30.7 %     29.8 %     27.6 %     28.9 %
Add back:                    
Amortization of intangible assets related to acquisitions     1,098       1,050       1,179       1,447       4,774  
Severance related to cost-savings actions     -       -       82       (11 )     71  
Operating income, excluding specified charges (Non-GAAP)   $ 13,872     $ 15,956     $ 15,874     $ 16,662     $ 62,364  
Non-GAAP operating income as a % of revenue     30.0 %     32.9 %     32.4 %     30.2 %     31.3 %
                     
Unallocated Corporate Overhead   $ (19,901 )   $ (17,077 )   $ (16,682 )   $ (17,565 )   $ (71,225 )
Add back:                    
Costs associated with the evaluation and integration of acquisitions     232       744       658       2,140       3,774  
Convertible debt accounting     53       54       53       53       213  
Unallocated corporate overhead, excluding specified charges (Non-GAAP)   $ (19,616 )   $ (16,279 )   $ (15,971 )   $ (15,372 )   $ (67,238 )
                     
Total                    
Revenue   $ 285,981     $ 284,723     $ 278,686     $ 280,140     $ 1,129,530  
Add back government billing adjustment     -       -       -       -       -  
Non-GAAP revenue   $ 285,981     $ 284,723     $ 278,686     $ 280,140     $ 1,129,530  
Operating income     43,740       49,274       37,682       35,069       165,765  
Operating income as a % of revenue     15.3 %     17.3 %     13.5 %     12.5 %     14.7 %
Add back:                    
Amortization of intangible assets related to acquisitions     4,496       4,410       4,528       4,633       18,067  
Severance related to cost-savings actions     911       -       971       698       2,580  

Impairment and other items (2)

    -       -       2,694       1,082       3,776  

Operating losses (3)

    1,054       809       837       941       3,641  
Costs associated with the evaluation and integration of acquisitions     232       744       658       2,140       3,774  
Convertible debt accounting     53       54       53       53       213  
Operating income, excluding specified charges (Non-GAAP)   $ 50,486     $ 55,291     $ 47,423     $ 44,616     $ 197,816  
Non-GAAP operating income as a % of revenue     17.7 %     19.4 %     17.0 %     15.9 %     17.5 %
                     

(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 year ended December 29, 2012, impairment and other items primarily include: (i) an impairment charge of $3.5 million for long-lived assets at certain RMS Europe facilities; (ii) $0.6 million for the gain on the sale of land at an RMS facility; and (iii) $0.9 million for the write-off of large model inventory held at a vendor.

(3) This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SUPPLEMENTAL SCHEDULE: PRESENTATION OF FORMER BUSINESS SEGMENT RESULTS
RECONCILIATION OF GAAP TO NON-GAAP
SELECTED FORMER BUSINESS SEGMENT INFORMATION (UNAUDITED) (1)
(dollars in thousands)
         
    Three Months Ended
   

June 28,
2014

 

June 29,
2013

Research Models and Services (former segment)        
Revenue   $ 189,157     $ 178,973  
Add back government billing adjustment     -       1,495  
Non-GAAP revenue   $ 189,157     $ 180,468  
Operating income     52,547       49,630  
Operating income as a % of revenue     27.8 %     27.7 %
Add back:        
Amortization of intangible assets related to acquisitions     2,035       2,228  
Severance related to cost-savings actions     2,031       295  
Government billing adjustment and related expenses     13       1,855  

Impairment and other items (2)

    1,725       -  

Operating losses (3)

    15       51  
Operating income, excluding specified charges (Non-GAAP)   $ 58,366     $ 54,059  
Non-GAAP operating income as a % of revenue     30.9 %     30.0 %
         
Preclinical Services (former segment)        
Revenue   $ 128,509     $ 113,960  
Operating income     19,901       10,935  
Operating income as a % of revenue     15.5 %     9.6 %
Add back:        
Amortization of intangible assets related to acquisitions     1,917       2,236  
Severance related to cost-savings actions     858       (10 )

Operating losses (3)

    704       787  
Operating income, excluding specified charges (Non-GAAP)   $ 23,380     $ 13,948  
Non-GAAP operating income as a % of revenue     18.2 %     12.2 %
         
Acquisition of Argenta and BioFocus        
Revenue   $ 23,513     $ -  
Operating income     39       -  
Operating income as a % of revenue     0.2 %     -  
Add back:        
Amortization of intangible assets related to acquisitions     2,902       -  
Costs associated with the evaluation and integration of acquisitions     203       -  
Operating income, excluding specified charges (Non-GAAP)   $ 3,144     $ -  
Non-GAAP operating income as a % of revenue     13.4 %     -  
         
         
Unallocated Corporate Overhead   $ (21,462 )   $ (17,377 )
Add back:        
Severance related to cost-savings actions     -       -  
Costs associated with the evaluation and integration of acquisitions     1,371       194  
Convertible debt accounting     -       54  
Unallocated corporate overhead, excluding specified charges (Non-GAAP)   $ (20,091 )   $ (17,129 )
         
Total        
Revenue   $ 341,179     $ 292,933  
Add back government billing adjustment     -       1,495  
Non-GAAP revenue   $ 341,179     $ 294,428  
Operating income     51,025       43,188  
Operating income as a % of revenue     15.0 %     14.7 %
Add back:        
Amortization of intangible assets related to acquisitions     6,854       4,464  
Severance related to cost-savings actions     2,889       285  
Government billing adjustment and related expenses     13       1,855  

Impairment and other items (2)

    1,725       -  

Operating losses (3)

    719       838  
Costs associated with the evaluation and integration of acquisitions     1,574       194  
Convertible debt accounting     -       54  
Operating income, excluding specified charges (Non-GAAP)   $ 64,799     $ 50,878  
Non-GAAP operating income as a % of revenue     19.0 %     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 months ended June 28, 2014, impairment and other items primarily include$1.5 million of asset impairments and accelerated depreciation related to the consolidation of research model production operations, a $1.3 million charge related to a dispute with a large model supplier, and a $1.1 million gain related to the sale of a former research model facility inFrance.

(3) This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.

Source: Charles River Laboratories International, Inc.

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

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

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