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.com and select the webcast link. You can also find the associated slide presentation and reconciliations of non-GAAP financial measures to comparable GAAP financial measures on the website.

Non-GAAP Reconciliations/Discontinued Operations

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

Use of Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, which exclude the amortization of intangible assets and other charges related to our acquisitions; expenses associated with evaluating and integrating acquisitions; charges, gains and losses attributable to businesses or properties we plan to close, consolidate or divest; severance costs associated with our efficiency initiatives; accelerated depreciation charges related to the consolidation of research model production operations 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 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 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 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 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 million and $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 million related 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 our Shrewsbury, 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 in France.

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

Contacts

Charles River Laboratories International, Inc.
Investor Contact:
Susan E. Hardy, 781-222-6190
Corporate Vice President, Investor Relations
susan.hardy@crl.com
or
Media Contact:
Amy Cianciaruso, 781-222-6168
Executive Director, Public Relations
amy.cianciaruso@crl.com

Release Summary

Charles River Laboratories reported second-quarter 2014 financial results

Contacts

Charles River Laboratories International, Inc.
Investor Contact:
Susan E. Hardy, 781-222-6190
Corporate Vice President, Investor Relations
susan.hardy@crl.com
or
Media Contact:
Amy Cianciaruso, 781-222-6168
Executive Director, Public Relations
amy.cianciaruso@crl.com