Charles River Laboratories Announces Third-Quarter 2015 Results from Continuing Operations

     – Third-Quarter Revenue of $349.5 Million –

     – Third-Quarter GAAP Earnings per Share of $0.79 and Non-GAAP Earnings per Share of $1.03 –

     – Updates 2015 Guidance –

WILMINGTON, Mass.--()--Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the third quarter of 2015. For the quarter, revenue from continuing operations was $349.5 million, an increase of 6.7% from $327.6 million in the third quarter of 2014. Foreign currency translation reduced reported revenue growth by 5.5%. On a constant-currency basis, revenue growth of 12.2% was driven primarily by the Discovery and Safety Assessment and Manufacturing Support segments. The acquisitions of Celsis, ChanTest, and Sunrise Farms contributed 3.3% to consolidated third-quarter revenue growth, both on a reported basis and in constant currency.

On a GAAP basis, net income from continuing operations for the third quarter of 2015 was $37.9 million, or $0.79 per diluted share, compared to $32.3 million, or $0.68 per diluted share, for the third quarter of 2014.

On a non-GAAP basis, net income from continuing operations was $48.7 million for the third quarter of 2015, an increase of 20.4% from $40.4 million for the same period in 2014. Third-quarter diluted earnings per share on a non-GAAP basis were $1.03, an increase of 19.8% compared to $0.86 per share in the third quarter of 2014. The increase was driven primarily by higher revenue and operating margin improvement, as well as a gain from the Company's limited partnership investments. The gain from these investments totaled $0.04 per share in the third quarter of 2015, compared to a loss of $0.01 per share for the same period in 2014.

James C. Foster, Chairman, President and Chief Executive Officer, said, "We are very pleased with our outstanding third-quarter results. On a consolidated basis, we delivered high single digit, constant-currency organic revenue growth, and a non-GAAP operating margin above our 20% target. Each of our business segments reported organic revenue growth and improved non-GAAP operating margins. These results demonstrate the strength of our unique portfolio, the success of our targeted sales strategies, and our initiatives to increase operating effectiveness and efficiency. We have differentiated ourselves from the competition, and are gaining market share because clients appreciate the value we bring to their research efforts and the emphasis we place on individualized service."

"Based on our third-quarter results and our expectations for the fourth quarter, we are increasing our 2015 full-year revenue and non-GAAP earnings per share guidance. We now expect revenue growth in a range from 9.5% to 10% in constant currency, and non-GAAP earnings per share in a range from $3.69 to $3.74," Mr. Foster concluded.

Third-Quarter Segment Results

Research Models and Services (RMS)

Revenue for the RMS segment was $118.5 million in the third quarter of 2015, a decrease of 4.5% from $124.0 million in the third quarter of 2014. Foreign currency translation reduced reported revenue growth by 6.5%. On a constant-currency basis, revenue growth of 2.0% was driven primarily by higher sales of research models.

In the third quarter of 2015, the RMS segment's GAAP operating margin was 26.6% compared to 22.6% in the third quarter of 2014. On a non-GAAP basis, the operating margin increased to 27.5% from 25.4% in the third quarter of 2014. The RMS operating margin improvement was primarily attributable to benefits from the Company's global efficiency initiatives.

Discovery and Safety Assessment (DSA)

Revenue from continuing operations for the DSA segment was $158.3 million in the third quarter of 2015, an increase of 12.4% from $140.9 million in the third quarter of 2014. Foreign currency translation reduced reported revenue growth by 3.8%. On a constant-currency basis, revenue growth of 16.2% was driven primarily by the Company's Safety Assessment business, which generated double-digit revenue growth. Discovery Services revenue increased in the third quarter of 2015, both on an organic basis and due to the ChanTest acquisition, which contributed 2.5% to DSA revenue growth. Sales to mid-tier biotechnology clients continued to drive DSA revenue growth.

In the third quarter of 2015, the DSA segment's GAAP operating margin was 21.0% compared to 13.7% in the third quarter of 2014. On a non-GAAP basis, the operating margin increased to 24.2% from 18.3% in the third quarter of 2014. The non-GAAP operating margin improvement was driven by higher capacity utilization and pricing for safety assessment services, as well as a foreign exchange benefit due to a weaker Canadian dollar, which contributed approximately 270 basis points to the improvement.

Manufacturing Support (Manufacturing)

Revenue for the Manufacturing segment was $72.7 million in the third quarter of 2015, an increase of 16.0% from $62.7 million in the third quarter of 2014. Foreign currency translation reduced reported revenue growth by 7.7%. On a constant-currency basis, revenue growth was 23.7%. The acquisitions of Celsis and Sunrise Farms contributed 11.8% to Manufacturing revenue growth in the third quarter or 2015. Robust revenue growth in both the legacy Microbial Solutions business (formerly Endotoxin and Microbial Detection, or EMD) and the Biologics Testing Solutions (Biologics) business also drove the third-quarter increase.

In the third quarter of 2015, the Manufacturing segment's GAAP operating margin was 25.3% compared to 30.7% in the third quarter of 2014. The GAAP decline was primarily related to the inclusion of amortization expense for intangible assets and associated costs related to the Celsis acquisition, which was completed on July 24, 2015. On a non-GAAP basis, the operating margin increased to 33.4% from 33.0% in the third quarter of 2014, primarily as a result of higher sales volume in the Biologics business.

Stock Repurchase Update

During the third quarter of 2015, the Company repurchased approximately 242,000 shares for a total of $17.9 million. As of September 26, 2015, the Company had $69.7 million remaining on its stock repurchase authorization.

Updates 2015 Guidance

The Company is updating its forward-looking guidance based on continuing operations for 2015.

Revenue growth is now expected to be 9.5% to 10.0% on a constant-currency basis, compared to the prior range of 8.0% to 9.5%. Based on current rates, the Company continues to expect that foreign currency translation will reduce revenue growth by approximately 5.0%, which would result in reported revenue growth of 4.5% to 5.0% (the prior range was 3.0% to 4.5%).

Foreign currency translation is expected to reduce earnings per share by $0.07 in 2015, compared to the Company's previous estimate of approximately $0.10 per share.

Guidance for non-GAAP earnings per share in 2015 was increased due primarily to the strong third-quarter performance. The Company also reduced its GAAP earnings per share guidance primarily to reflect the inclusion of amortization expense for intangible assets and associated charges related to the Celsis acquisition.

The Company's updated earnings per share guidance is as follows:

2015 GUIDANCE (from continuing operations)       REVISED       PRIOR
GAAP EPS estimate       $3.19 - $3.24       $3.25 - $3.35
Amortization of intangible assets and inventory purchase accounting adjustment (1)       $0.45       $0.32
Operating losses (2)       $0.06       $0.06

Charges related to global efficiency initiatives and other items (3)

      $0.09       $0.06
Acquisition-related adjustments (4)       $0.10-$0.12       $0.10-$0.12
Bargain purchase gain associated with Avian Vaccine acquisition       ($0.21)       ($0.21)
Non-GAAP EPS estimate       $3.69 - $3.74       $3.60 - $3.70

(1) Amortization of intangibles assets includes the estimated impact of the Celsis acquisition based on the preliminary purchase price allocation. These charges also include an inventory purchasing accounting adjustment related to the Celsis acquisition of $0.08 per share.

(2) These costs relate primarily to the Charles River Massachusetts (Shrewsbury) facility, including costs associated with the Company's plan to re-open the facility.

(3) These charges relate primarily to the Company's planned efficiency initiatives in 2015, including site consolidation costs, asset impairments, and severance. Other projects in support of the global productivity and efficiency initiatives are expected, but these charges reflect only the decisions that have already been finalized. These charges also include executive transition costs.

(4) These adjustments are related to the evaluation and integration of acquisitions, which primarily include transaction, third-party integration, and certain compensation costs, and fair value adjustments associated with contingent consideration.

Webcast

Charles River has scheduled a live webcast on Wednesday, November 4, at 8:30 a.m. ET to discuss matters relating to this press release. To participate, please go to ir.criver.com and select the webcast link. You can also find the associated slide presentation and reconciliations of non-GAAP financial measures to comparable GAAP financial measures on the website.

Non-GAAP Reconciliations/Discontinued Operations

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

Use of Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, which exclude the amortization of intangible assets, inventory purchase accounting adjustments, and other charges related to our acquisitions; expenses associated with evaluating and integrating acquisitions, as well as fair value adjustments associated with contingent consideration; charges, gains and losses attributable to businesses or properties we plan to close, consolidate or divest; the gain related to the bargain purchase of Sunrise Farms; severance and other costs associated with our efficiency initiatives; executive transition costs; site consolidation costs; a reversal of indemnification assets associated with acquisitions and corresponding interest; the write-off of deferred financing costs and fees related to debt refinancing; and costs related to a U.S. government billing adjustment and related expenses. 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. Commencing in the third quarter of 2015, following the acquisition of Celsis, we revised our approach to calculating non-GAAP integration costs to include third-party integration costs incurred post-acquisition. 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," "intend," "will," "may," "estimate," "plan," "outlook," and "project," and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These statements also include statements regarding our projected future financial performance including revenue (on both a reported and constant-currency basis), operating margins, earnings per share, the expected impact of foreign exchange rates, and the expected benefit of our limited partnership investments; the future demand for drug discovery and development products and services, including our expectations for future revenue trends; our plans to reopen the Charles River Massachusetts (Shrewsbury) facility; our expectations with respect to the impact of acquisitions on the Company, our service offerings, strategic relationships, revenue, revenue growth rates, and earnings; the development and performance of our services and products; market and industry conditions including the outsourcing of 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 17, 2015, 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, visitwww.criver.com.

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

September 26,
2015

   

September 27,
2014

     

September 26,
2015

   

September 27,
2014

                             
Total revenue       $ 349,465       $ 327,567         $ 1,009,452       $ 968,114  
Cost of revenue       $ 211,390       $ 209,299         $ 618,934       $ 615,399  
Gross margin       $ 138,075       $ 118,268         $ 390,518       $ 352,715  
Selling, general and administrative       $ 76,225       $ 64,476         $ 218,953       $ 196,999  
Amortization of intangible assets       $ 6,410       $ 7,620         $ 17,385       $ 18,813  
Operating income       $ 55,440       $ 46,172         $ 154,180       $ 136,903  
Interest income (expense), net       $ (3,674 )     $ (2,621 )       $ (10,493 )     $ (8,368 )
Other income (expense), net       $ 1,390       $ 331         $ 1,749       $ 8,874  
Income from continuing operations before income taxes       $ 53,156       $ 43,882         $ 145,436       $ 137,409  
Provision for income taxes       $ 15,255       $ 11,582         $ 26,662       $ 36,021  
Income from continuing operations, net of income taxes       $ 37,901       $ 32,300         $ 118,774       $ 101,388  
Income (loss) from discontinued operations, net of income taxes       $ (34 )     $ 52         $ (48 )     $ (862 )
Net income       $ 37,867       $ 32,352         $ 118,726       $ 100,526  
Less: Net income attributable to noncontrolling interests       $ (488 )     $ (316 )       $ (1,297 )     $ (994 )
Net income attributable to common shareholders       $ 37,379       $ 32,036         $ 117,429       $ 99,532  
                             
Earnings (loss) per common share                            
Basic:                            
Continuing operations       $ 0.81       $ 0.70         $ 2.52       $ 2.15  
Discontinued operations       $ -       $ -         $ -       $ (0.02 )
Net       $ 0.81       $ 0.70         $ 2.52       $ 2.13  
Diluted:                            
Continuing operations       $ 0.79       $ 0.68         $ 2.47       $ 2.11  
Discontinued operations       $ -       $ -         $ -       $ (0.02 )
Net       $ 0.79       $ 0.68         $ 2.47       $ 2.09  
                             
Weighted average number of common shares outstanding                            
Basic         46,290         46,016           46,572         46,683  
Diluted         47,245         46,878           47,584         47,566  

 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
 
 
        September 26, 2015       December 27, 2014
Assets                
Current assets:                
Cash and cash equivalents       $ 74,032       $ 160,023
Trade receivables, net         288,836         257,991
Inventories         98,097         89,043
Prepaid assets         33,593         26,900
Other current assets         84,103         72,941
Total current assets         578,661         606,898
Property, plant and equipment, net         671,673         676,797
Goodwill         418,245         321,077
Other intangible assets, net         277,686         178,875
Deferred tax asset         21,026         23,193
Other assets         65,552         72,951
Total assets       $ 2,032,843       $ 1,879,791
                 
Liabilities, Redeemable Noncontrolling Interest and Equity                
Current liabilities:                
Current portion of long-term debt and capital leases       $ 16,599       $ 31,904
Accounts payable         31,629         33,815
Accrued compensation         71,518         71,569
Deferred revenue         76,019         78,124
Accrued liabilities         94,692         67,380
Other current liabilities         21,347         11,079
Current liabilities of discontinued operations         2,300         2,299
Total current liabilities         314,104         296,170
Long-term debt, net and capital leases         835,800         740,557
Other long-term liabilities         139,756         130,361
Long-term liabilities of discontinued operations         7,139         8,357
Total liabilities         1,296,799         1,175,445
Redeemable noncontrolling interest         27,447         28,419
Total equity attributable to common shareholders         704,359         672,203
Noncontrolling interests         4,238         3,724
Total liabilities, equity and redeemable noncontrolling interest       $ 2,032,843       $ 1,879,791

 

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

September 26,
2015

   

September 27,
2014

     

September 26,
2015

   

September 27,
2014

Research Models and Services                      
  Revenue $ 118,451       $ 124,021         $ 358,506       $ 389,636  
  Gross margin   47,841         45,295           143,352         149,392  
  Gross margin as a % of revenue   40.4 %       36.5 %         40.0 %       38.3 %
  Operating income   31,494         28,056           93,800         97,734  
  Operating income as a % of revenue   26.6 %       22.6 %         26.2 %       25.1 %
  Depreciation and amortization   5,319         7,277           16,712         20,277  
  Capital expenditures   3,022         4,110           12,111         11,528  
                         
Discovery and Safety Assessment                      
  Revenue $ 158,272       $ 140,862         $ 451,659       $ 388,614  
  Gross margin   53,721         39,968           146,660         105,084  
  Gross margin as a % of revenue   33.9 %       28.4 %         32.5 %       27.0 %
  Operating income   33,191         19,329           84,856         48,840  
  Operating income as a % of revenue   21.0 %       13.7 %         18.8 %       12.6 %
  Depreciation and amortization   11,509         13,340           35,060         33,867  
  Capital expenditures   4,277         3,436           13,756         11,330  
                         
Manufacturing Support                      
  Revenue $ 72,742       $ 62,684         $ 199,287       $ 189,864  
  Gross margin   36,513         33,005           100,506         98,239  
  Gross margin as a % of revenue   50.2 %       52.7 %         50.4 %       51.7 %
  Operating income   18,424         19,220           55,653         58,091  
  Operating income as a % of revenue   25.3 %       30.7 %         27.9 %       30.6 %
  Depreciation and amortization   5,139         3,513           12,034         10,625  
  Capital expenditures   2,139         1,463           5,475         5,444  
                         
Unallocated Corporate Overhead $ (27,669 )     $ (20,433 )       $ (80,129 )     $ (67,762 )
                         
Total                      
  Revenue $ 349,465       $ 327,567         $ 1,009,452       $ 968,114  
  Gross margin   138,075         118,268           390,518         352,715  
  Gross margin as a % of revenue   39.5 %       36.1 %         38.7 %       36.4 %
  Operating income   55,440         46,172           154,180       $ 136,903  
  Operating income as a % of revenue   15.9 %       14.1 %         15.3 %       14.1 %
  Depreciation and amortization   23,814         26,084           69,330         70,435  
  Capital expenditures   10,452         9,402           35,008         29,907  

 

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

September 26, 2015

   

September 27, 2014

     

September 26, 2015

   

September 27, 2014

 
Research Models and Services                              
    Revenue       $ 118,451       $ 124,021         $ 358,506       $ 389,636    
    Operating income         31,494         28,056           93,800         97,734    
    Operating income as a % of revenue         26.6 %       22.6 %         26.2 %       25.1 %  
    Add back:                              
    Amortization of intangible assets related to acquisitions         757         470           2,291         2,015    
    Severance         167         379           1,166         3,974    
    Government billing adjustment and related expenses         45         214           336         294    
    Site consolidation costs, impairments and other items         57         2,402           1,415         5,134    
    Operating income, excluding specified charges (Non-GAAP)       $ 32,520       $ 31,521         $ 99,008       $ 109,151    
    Non-GAAP operating income as a % of revenue         27.5 %       25.4 %         27.6 %       28.0 %  
                                   
Discovery and Safety Assessment                              
    Revenue       $ 158,272       $ 140,862         $ 451,659       $ 388,614    
    Operating income         33,191         19,329           84,856         48,840    
    Operating income as a % of revenue         21.0 %       13.7 %         18.8 %       12.6 %  
    Add back:                              
    Amortization of intangible assets related to acquisitions         3,412         5,789           10,632         12,652    
    Severance         239         69           714         1,118    
    Operating losses (2)         1,319         606           2,863         1,981    
    Acquisition related adjustments (3)         135         (7 )         160         196    
    Operating income, excluding specified charges (Non-GAAP)       $ 38,296       $ 25,786         $ 99,225       $ 64,787    
    Non-GAAP operating income as a % of revenue         24.2 %       18.3 %         22.0 %       16.7 %  
                                   
Manufacturing Support                              
    Revenue       $ 72,742       $ 62,684         $ 199,287       $ 189,864    
    Operating income         18,424         19,220           55,653         58,091    
    Operating income as a % of revenue         25.3 %       30.7 %         27.9 %       30.6 %  
    Add back:                              
    Amortization of intangible assets and inventory step-up related to acquisitions         4,429         1,361           6,650         4,146    
    Severance         961         126           1,256         150    
    Acquisition related adjustments (3)         483         -           1,011         -    
    Operating income, excluding specified charges (Non-GAAP)       $ 24,297       $ 20,707         $ 64,570       $ 62,387    
    Non-GAAP operating income as a % of revenue         33.4 %       33.0 %         32.4 %       32.9 %  
                                   
Unallocated Corporate Overhead       $ (27,669 )     $ (20,433 )       $ (80,129 )     $ (67,762 )  
    Add back:                              
    Severance and executive transition costs         1,054         -           2,031         121    
    Acquisition related adjustments (3)         3,055         580           6,649         5,256    
    Unallocated corporate overhead, excluding specified charges (Non-GAAP)       $ (23,560 )     $ (19,853 )       $ (71,449 )     $ (62,385 )  
                                   
Total                              
    Revenue       $ 349,465       $ 327,567         $ 1,009,452       $ 968,114    
    Operating income         55,440         46,172           154,180         136,903    
    Operating income as a % of revenue         15.9 %       14.1 %         15.3 %       14.1 %  
    Add back:                              
    Amortization of intangible assets and inventory step-up related to acquisitions         8,598         7,620           19,573         18,813    
    Severance and executive transition costs         2,421         574           5,167         5,363    
    Site consolidation costs, impairments and other items         57         2,402           1,415         5,134    
    Operating losses (2)         1,319         606           2,863         1,981    
    Acquisition related adjustments (3)         3,673         573           7,820         5,452    
    Government billing adjustment and related expenses         45         214           336         294    
    Operating income, excluding specified charges (Non-GAAP)       $ 71,553       $ 58,161         $ 191,354       $ 173,940    
    Non-GAAP operating income as a % of non-GAAP revenue         20.5 %       17.8 %         19.0 %       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) This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.

(3) These adjustments are related to the evaluation and integration of acquisitions, which primarily include transaction, third-party integration, and certain compensation costs, and fair value adjustments associated with contingent consideration.

 

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.  
RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS (UNAUDITED)(1)  
(in thousands, except per share data)  
   
        Three Months Ended       Nine Months Ended  
        September 26, 2015     September 27, 2014       September 26, 2015     September 27, 2014  
                               
Net income attributable to common shareholders       $ 37,379       $ 32,036         $ 117,429       $ 99,532  
Less: Discontinued operations         34         (52 )         48         862  
Net income from continuing operations attributable to common shareholders         37,413         31,984           117,477         100,394  
Add back:                              
Amortization of intangible assets and inventory step-up related to acquisitions         8,598         7,620           19,573         18,813  
Severance and executive transition costs         2,421         574           5,167         5,363  
Site consolidation costs, impairments and other items         57         2,402           1,415         5,134  
Operating losses (2)         1,319         606           2,863         1,981  
Acquisition related adjustments (3)         3,673         573           7,820         5,452  
Government billing adjustment and related expenses         45         214           336         294  
Reversal of an indemnification asset associated with acquisition and corresponding interest (4)         -         -           10,411         -  
Write-off of deferred financing costs and fees related to debt refinancing         (12 )       -           721         -  
Gain on bargain purchase (5)         (55 )       -           (9,933 )       -  
Tax effect of non-GAAP adjustments:                              
Reversal of uncertain tax position associated with acquisition and corresponding interest (4)         -         -           (10,411 )       -  
Tax effect of the remaining non-GAAP adjustments         (4,804 )       (3,553 )         (13,422 )       (11,481 )
Net income from continuing operations attributable to common shareholders, excluding specified charges (Non-GAAP)       $ 48,655       $ 40,420         $ 132,017       $ 125,950  
                               
Weighted average shares outstanding - Basic         46,290         46,016           46,572         46,683  
Effect of dilutive securities:                              
Stock options, restricted stock units, performance stock units, and contingently issued restricted stock         955         862           1,012         883  
Weighted average shares outstanding - Diluted         47,245         46,878           47,584         47,566  
                               
Basic earnings per share from continuing operations       $ 0.81       $ 0.70         $ 2.52       $ 2.15  
Diluted earnings per share from continuing operations       $ 0.79       $ 0.68         $ 2.47       $ 2.11  
                               
Basic earnings per share from continuing operations, excluding specified charges (Non-GAAP)       $ 1.05       $ 0.88         $ 2.83       $ 2.70  
Diluted earnings per share from continuing operations, excluding specified charges (Non-GAAP)       $ 1.03       $ 0.86         $ 2.77       $ 2.65  

 

 

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

(3) These adjustments are related to the evaluation and integration of acquisitions, which primarily include transaction, third-party integration, and certain compensation costs, and fair value ad