Charles River Laboratories Announces Third-Quarter 2013 Results from Continuing Operations

WILMINGTON, Mass.--Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the third quarter of 2013. For the quarter, net sales from continuing operations were $292.1 million, an increase of 4.8% from$278.7 million in the third quarter of 2012. Foreign currency translation reduced sales by 0.8%. On a segment basis, sales increased in both the Research Models and Services (RMS) and Preclinical Services (PCS) segments.

On a GAAP basis, net income from continuing operations for the third quarter of 2013 was$31.3 million, or $0.64 per diluted share, compared to $22.4 million, or $0.46 per diluted share, for the third quarter of 2012.

On a non-GAAP basis, net income from continuing operations was $38.2 million for the third quarter of 2013, an increase of 22.6% from $31.2 million for the same period in 2012. Third-quarter diluted earnings per share on a non-GAAP basis were $0.79, an increase of 21.5% compared to $0.65 per share in the third quarter of 2012. Higher sales contributed to the earnings per share increase, as did a $0.05 gain on our limited partnership investments and a $0.02 net benefit from certain tax-related items.

James C. Foster, Chairman, President and Chief Executive Officer, said, "The efforts we have made to improve our operating efficiency, to maintain and enhance scientific expertise, to effectively deploy sales resources and to broaden the portfolio through targeted acquisitions have successfully positioned Charles River as the partner of choice for early-stage drug development. Demand trends are more favorable: global pharmaceutical clients are outsourcing more as they reduce infrastructure and the funding environment appears to have improved for biotechnology companies. We are leveraging all of these factors to win market share and drive sales and earnings growth. This is evident in our third-quarter results, which were highlighted by mid-single-digit sales growth for both segments, as well as meaningful margin expansion in our Preclinical Services segment."

Third-Quarter Segment Results

Research Models and Services (RMS)

Net sales for the RMS segment were $173.4 million in the third quarter of 2013, an increase of 4.2% from $166.5 million in the third quarter of 2012. Foreign currency translation reduced reported sales by 0.9%. Higher sales were driven primarily by the acquisitions of Vital Riverand Accugenix, as well as growth in the legacy Endotoxin and Microbial Detection (EMD) business.

In the third quarter of 2013, the RMS segment's GAAP operating margin was 23.2% compared to 26.1% for the third quarter of 2012. On a non-GAAP basis, the operating margin decreased to 29.0% from 29.3% in the third quarter of 2012. The non-GAAP operating margin decline was primarily attributable to lower legacy sales volume for research models.

Preclinical Services (PCS)

Third-quarter 2013 net sales from continuing operations for the PCS segment were $118.7 million, an increase of 5.8% from $112.2 million in the third quarter of 2012. Foreign currency translation reduced reported sales by 0.5%. PCS sales growth was driven by increased sales to both large biopharmaceutical and mid-tier clients, primarily as a result of market share gains and improved client demand.

In the third quarter of 2013, the PCS segment's GAAP operating margin was 15.7% compared to 9.8% in the third quarter of 2012. On a non-GAAP basis, the operating margin increased to 18.2% from 13.0% in the third quarter of 2012. The non-GAAP operating margin improvement was due in part to favorable study mix and increased study volume. In addition, several tax-related items contributed approximately 370 basis points to the PCS third-quarter operating margin including: a multi-year Canadian tax settlement, a real estate tax abatement in Scotland, and a tax law change in the United Kingdom which resulted in reclassification of research and development tax credits to segment operating income.

Stock Repurchase Update

During the third quarter of 2013, the Company repurchased approximately 1.4 million shares of its common stock for $65.5 million. As of September 28, 2013, the Company had $66.3 million remaining on its $850 million stock repurchase authorization.

Nine-Month Results

For the first nine months of 2013, net sales increased by 3.2% to $876.3 million from $849.4 million in the same period in 2012. Foreign currency translation reduced reported sales by 0.9%.

On a GAAP basis, net income from continuing operations for the first nine months of 2013 was $85.9 million, or $1.75 per diluted share, compared to $79.4 million, or $1.63 per diluted share, for the same period in 2012.

On a non-GAAP basis, net income from continuing operations for the first nine months of 2013 was $107.1 million, or $2.20 per diluted share, compared to $101.5 million, or $2.09per diluted share, for the same period in 2012.

Research Models and Services (RMS)

For the first nine months of 2013, RMS net sales were $534.9 million, an increase of 2.2% from $523.2 million in the same period in 2012. Foreign currency translation reduced reported sales by 1.3%. On a GAAP basis, the RMS segment operating margin was 27.1% in the first nine months of 2013, compared to 30.3% for the prior-year period. On a non-GAAP basis, the operating margin was 30.3% in the first nine months of 2013, compared to 31.9% for the same period in 2012.

Preclinical Services (PCS)

For the first nine months of 2013, PCS net sales were $341.4 million, an increase of 4.7% from $326.1 million in the same period in 2012. Foreign currency translation reduced reported sales by 0.4%. On a GAAP basis, the PCS segment operating margin was 11.0% in the first nine months of 2013, compared to 8.0% for the prior-year period. On a non-GAAP basis, the operating margin was 13.8% in the first nine months of 2013, compared to 11.7% for the same period in 2012. The third-quarter tax-related items contributed approximately 130 basis points to the year-to-date PCS operating margin.

2013 Guidance

The Company is updating its 2013 forward-looking guidance based on continuing operations. For 2013, net sales are expected to be at the low end of the prior range. The Company is narrowing its 2013 non-GAAP earnings per share guidance to the high end of the prior range to reflect the strong year-to-date performance. GAAP earnings per share are expected to be lower than the prior range, due primarily to charges associated with the consolidation of research model production operations in California.

2013 GUIDANCE (from continuing operations)       REVISED       PRIOR
Net sales growth, reported       3.0% – 3.5%       3.0% – 5.0%
Negative impact of foreign exchange       Approx. 1%       Approx. 1%
Net sales growth, constant currency       4.0% - 4.5%       4.0% - 6.0%
GAAP EPS estimate (1)       $2.23 - $2.28       $2.40 - $2.50
Amortization of intangible assets related to acquisitions       $0.23       $0.23
Operating losses (2)       $0.04       $0.05
Impairment and other items (3)       $0.24       $0.05
Convertible debt accounting       $0.11       $0.11
Non-GAAP EPS estimate (1)       $2.85 - $2.90       $2.80 - $2.90

(1) GAAP and non-GAAP EPS guidance include limited partnership investment gains and the net benefit from certain tax-related items.

(2) These costs relate primarily to the Company's PCS-Massachusetts facility.

(3) Other items include an accelerated depreciation charge related to the consolidation of research model production operations in California, severance related to cost-savings actions, costs associated with the evaluation of acquisitions, a government contract billing adjustment and related expenses, and the write-off of deferred financing costs and fees related to debt refinancing.

Webcast

Charles River Laboratories has scheduled a live webcast on Wednesday, October 30, at 8:00 a.m. ET to discuss matters relating to this press release. To participate, please go toir.criver.com and select the webcast link. You can also find the associated slide presentation and reconciliations of non-GAAP financial measures to comparable GAAP financial measures on the website.

Non-GAAP Reconciliations/Discontinued Operations

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

Use of Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, which exclude the amortization of intangible assets and other charges related to our acquisitions, expenses associated with evaluating acquisitions, charges and operating losses attributable to businesses we plan to close, consolidate or divest, severance costs associated with our cost-savings actions, accelerated depreciation charges related to the consolidation of research model production operations in California, costs and adjustments related to our ongoing investigation of inaccurate billing with respect to certain government contracts, 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 sales 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 sales on a constant currency basis allows investors to measure our sales growth net 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 sales, 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 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 customers; 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 sales and foreign exchange impact. 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 cost-savings actions 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 customers; the ability to convert backlog to sales; 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 27, 2013, 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

Accelerating Drug Development. Exactly. 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 per share data)
                           
       

Three Months Ended

     

Nine Months Ended

       

September 28, 
2013

   

September 29, 
2012

     

September 28, 
2013

 

September 29, 
2012

                           
Total net sales       $ 292,129       $ 278,686         $ 876,300     $ 849,390  
Cost of products sold and services provided         192,203         185,427           569,593       548,334  
Gross margin         99,926         93,259           306,707       301,056  
Selling, general and administrative         54,903         51,047           167,021       156,924  
Amortization of intangibles         4,180         4,530           12,892       13,436  
Operating income         40,843         37,682           126,794       130,696  
Interest income (expense)         (2,176 )       (8,395 )         (17,667 )     (24,573 )
Other income (expense)         4,059         (892 )         6,094       (2,582 )
Income from continuing operations before income taxes         42,726         28,395           115,221       103,541  
Provision for income taxes         11,390         6,011           29,331       24,140  
Income from continuing operations, net of tax         31,336         22,384           85,890       79,401  
(Loss) income from discontinued operations, net of tax         (113 )       (182 )         (1,183 )     (63 )
Net income         31,223         22,202           84,707       79,338  
Net loss (income) from noncontrolling interests         (356 )       (230 )         (978 )     (459 )
Net income attributable to common shareowners       $ 30,867       $ 21,972         $ 83,729     $ 78,879  
                           
Earnings per common share                          
Basic:                          
Continuing operations       $ 0.65       $ 0.47         $ 1.77     $ 1.64  
Discontinued operations       $ -       $ -         $ (0.02 )   $ -  
Net       $ 0.64       $ 0.46         $ 1.75     $ 1.64  
Diluted:                          
Continuing operations       $ 0.64       $ 0.46         $ 1.75     $ 1.63  
Discontinued operations       $ -       $ -         $ (0.02 )   $ -  
Net       $ 0.64       $ 0.46         $ 1.72     $ 1.63  
                           
Weighted average number of common shares outstanding                          
Basic         47,910,649         47,625,806           47,950,018       48,028,602  
Diluted         48,441,165         48,108,614           48,654,136       48,476,146  
                                           
                                           

 

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

September 28, 
2013

     

December 29, 
2012

Assets                
Current assets                
Cash and cash equivalents       $ 130,454       $ 109,685
Trade receivables, net         224,270         203,001
Inventories         87,146         88,470
Other current assets         105,153         83,601
Current assets of discontinued businesses         758         495
Total current assets         547,781         485,252
Property, plant and equipment, net         690,725         717,020
Goodwill, net         229,271         208,609
Other intangibles, net         87,245         84,922
Deferred tax asset         28,249         38,554
Other assets         57,170         48,659
Long-term assets of discontinued businesses         3,326         3,328
Total assets       $ 1,643,767       $ 1,586,344
                 
Liabilities and Equity                
Current liabilities                
Current portion of long-term debt & capital leases       $ 16,170       $ 139,384
Accounts payable         29,675         31,218
Accrued compensation         57,414         46,951
Deferred revenue         55,357         56,422
Accrued liabilities         53,998         45,208
Other current liabilities         20,613         21,262
Current liabilities of discontinued businesses         1,944         1,802
Total current liabilities         235,171         342,247
Long-term debt & capital leases         624,310         527,136
Other long-term liabilities         101,724         104,966
Long-term liabilities of discontinued businesses         8,531         8,795
Total liabilities         969,736         983,144
Non-controlling interests         17,523         2,395
Total equity         656,508         600,805
Total liabilities and equity       $ 1,643,767       $ 1,586,344
                     
                     

 

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

Three Months Ended

     

Nine Months Ended

        September 28,

2013

    September 29,

2012

      September 28,

2013

    September 29,

2012

Research Models and Services                            
Net sales       $ 173,405       $ 166,484         $ 534,867       $ 523,247  
Gross margin         65,710         65,902           221,916         224,364  
Gross margin as a % of net sales         37.9 %       39.6 %         41.5 %       42.9 %
Operating income         40,260         43,389           145,193         158,398  
Operating income as a % of net sales         23.2 %       26.1 %         27.1 %       30.3 %
Depreciation and amortization         16,876         9,670           37,378         27,697  
Capital expenditures         6,110         7,423           16,464         27,892  
                             
Preclinical Services                            
Net sales       $ 118,724       $ 112,202         $ 341,433       $ 326,143  
Gross margin         34,216         27,358           84,791         76,693  
Gross margin as a % of net sales         28.8 %       24.4 %         24.8 %       23.5 %
Operating income         18,636         10,975           37,631         25,958  
Operating income as a % of net sales         15.7 %       9.8 %         11.0 %       8.0 %
Depreciation and amortization         10,039         10,880           29,957         32,920  
Capital expenditures         2,986         2,819           8,855         5,903  
                             
Unallocated Corporate Overhead       $ (18,053 )     $ (16,682 )       $ (56,030 )     $ (53,660 )
                             
Total                            
Net sales       $ 292,129       $ 278,686         $ 876,300       $ 849,390  
Gross margin         99,926         93,260           306,707         301,057  
Gross margin as a % of net sales         34.2 %       33.5 %         35.0 %       35.4 %
Operating income         40,843         37,682           126,794         130,696  
Operating income as a % of net sales         14.0 %       13.5 %         14.5 %       15.4 %
Depreciation and amortization         26,915         20,550           67,335         60,617  
Capital expenditures         9,096         10,242           25,319         33,795  
                                             
                                             

 

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

Three Months Ended

     

Nine Months Ended

       

September 28, 
2013

   

September 29, 
2012

     

September 28, 
2013

   

September 29, 
2012

Research Models and Services                            
Net sales       $ 173,405       $ 166,484         $ 534,867       $ 523,247  
Add back government billing adjustment         -         -           1,495         -  
Non-GAAP net sales       $ 173,405       $ 166,484         $ 536,362       $ 523,247  
Operating income         40,260         43,389           145,193         158,398  
Operating income as a % of net sales         23.2 %       26.1 %         27.1 %       30.3 %
Add back:                            
Amortization of intangible assets related to acquisitions         1,950         1,611           6,164         4,542  
Severance related to cost-savings actions         429         934           810         934  
Government billing adjustment and related expenses         321         -           2,176         -  
Impairment and other items (2)         7,238         2,927           7,238         2,927  
Operating losses (3)         46         -           255         -  
Operating income, excluding specified charges (Non-GAAP)       $ 50,244       $ 48,861         $ 161,836       $ 166,801  
Non-GAAP operating income as a % of net sales         29.0 %       29.3 %         30.3 %       31.9 %
                             
Preclinical Services                            
Net sales       $ 118,724       $ 112,202         $ 341,433       $ 326,143  
Operating income         18,636         10,975           37,631         25,958  
Operating income as a % of net sales         15.7 %       9.8 %         11.0 %       8.0 %
Add back:                            
Amortization of intangible assets related to acquisitions         2,229         2,917           6,727         8,892  
Severance related to cost-savings actions         46         37           247         948  
Impairment and other items (2)         -         (233 )         -         (233 )
Operating losses (3)         738         837           2,473         2,700  
Operating income, excluding specified charges (Non-GAAP)       $ 21,649       $ 14,533         $ 47,078       $ 38,265  
Non-GAAP operating income as a % of net sales         18.2 %       13.0 %         13.8 %       11.7 %
                             
Unallocated Corporate Overhead       $ (18,053 )     $ (16,682 )       $ (56,030 )     $ (53,660 )
Add back:                            
Severance related to cost-savings actions         -         -           -         -  
Impairment and other items         -         -           -         -  
Costs associated with the evaluation of acquisitions         306         658           986         1,634  
Convertible debt accounting         -         53           107         160  
Unallocated corporate overhead, excluding specified charges (Non-GAAP)       $ (17,747 )     $ (15,971 )       $ (54,937 )     $ (51,866 )
                             
Total                            
Net sales       $ 292,129       $ 278,686         $ 876,300       $ 849,390  
Add back government billing adjustment         -         -           1,495         -  
Non-GAAP net sales       $ 292,129       $ 278,686         $ 877,795       $ 849,390  
Operating income         40,843         37,682           126,794         130,696  
Operating income as a % of net sales         14.0 %       13.5 %         14.5 %       15.4 %
Add back:                            
Amortization of intangible assets related to acquisitions         4,179         4,528           12,891         13,434  
Severance related to cost-savings actions         475         971           1,057         1,882  
Government billing adjustment and related expenses         321         -           2,176         -  
Impairment and other items (2)         7,238         2,694           7,238         2,694  
Operating losses (3)         784         837           2,728         2,700  
Costs associated with the evaluation of acquisitions         306         658           986         1,634  
Convertible debt accounting         -         53           107         160  
Operating income, excluding specified charges (Non-GAAP)       $ 54,146       $ 47,423         $ 153,977       $ 153,200  
Non-GAAP operating income as a % of net sales         18.5 %       17.0 %         17.6 %       18.0 %
                             

(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) The three and nine months ended September 28, 2013 primarily includes accelerated depreciation related to the consolidation of research model production operations inCalifornia.

(3) Includes operating losses related primarily to the Company's PCS-Massachusetts facility.

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

September 28, 
2013

   

September 29, 
2012

     

September 28,

2013

   

September 29, 
2012

                             
Net income attributable to common shareholders       $ 30,867       $ 21,972         $ 83,729       $ 78,879  
Less: Discontinued operations         113         182           1,183         63  
Net income from continuing operations         30,980         22,154           84,912         78,942  
Add back:                            
Amortization of intangible assets related to acquisitions         4,179         4,528           12,891         13,434  
Severance related to cost-savings actions         475         971           1,057         1,882  
Impairment and other items (2)         7,238         2,888           7,238         2,888  
Operating losses (3)         784         1,025           2,728         3,044  
Costs associated with the evaluation of acquisitions         306         658           986         1,634  
Government billing adjustment and related expenses         321         -           2,176         -  
Writeoff of deferred financing costs and fees related to debt refinancing         -         -           645         -  
Loss on sale of auction rate securities         -         -           -         712  
Convertible debt accounting, net (4)         -         3,860           6,710         10,928  
Tax effect of items above         (6,041 )       (4,886 )         (12,207 )       (11,986 )
Net income, excluding specified charges (Non-GAAP)       $ 38,242       $ 31,198         $ 107,136       $ 101,478  
                             
Weighted average shares outstanding - Basic         47,910,649         47,625,806           47,950,018         48,028,602  
Effect of dilutive securities:                            
Stock options and contingently issued restricted stock         530,516         482,808           704,118         447,544  
Weighted average shares outstanding - Diluted         48,441,165         48,108,614           48,654,136         48,476,146  
                             
Basic earnings per share       $ 0.64       $ 0.46         $ 1.75       $ 1.64  
Diluted earnings per share       $ 0.64       $ 0.46         $ 1.72       $ 1.63  
                             
Basic earnings per share, excluding specified charges (Non-GAAP)       $ 0.80       $ 0.66         $ 2.23       $ 2.11  
Diluted earnings per share, excluding specified charges (Non-GAAP)       $ 0.79       $ 0.65         $ 2.20       $ 2.09  
                             

(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) The three and nine months ended September 28, 2013 primarily includes accelerated depreciation related to the consolidation of research model production operations inCalifornia.

(3) Includes operating losses related primarily to the Company's PCS-Massachusetts facility.

(4) The nine months ended September 28, 2013 include the impact of convertible debt accounting adopted at the beginning of 2009, which increased interest expense by $6,603and depreciation expense by $107, respectively. The three and nine months endedSeptember 29, 2012 include the impact of convertible debt accounting adopted at the beginning of 2009, which increased interest expense by $3,807 and $10,768 and depreciation expense by $53 and $160, respectively.

                     
                     
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP TO NON-GAAP NET SALES GROWTH (YEAR-OVER-YEAR)
EXCLUDING THE IMPACT OF FOREIGN EXCHANGE AND GOVERNMENT BILLING ADJUSTMENT
For the Three and Nine Months Ended September 28, 2013
                     
                     
For the three months ended September 28, 2013:      

Total CRL

   

RMS Segment

   

PCS Segment

                     
Net sales growth, reported       4.8 %     4.2 %     5.8 %
Impact of foreign exchange       (0.8 %)     (0.9 %)     (0.5 %)
Non-GAAP net sales growth, constant currency       5.6 %     5.1 %     6.3 %
                     
                     
For the nine months ended September 28, 2013:      

Total CRL

   

RMS Segment

   

PCS Segment

                     
Net sales growth, reported       3.2 %     2.2 %     4.7 %
Impact of foreign exchange       (0.9 %)     (1.3 %)     (0.4 %)
Impact of government billing adjustment       (0.2 %)     (0.3 %)     -  
Non-GAAP net sales growth, constant currency       4.3 %     3.8 %     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, 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.

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