Market Overview

Charles River Laboratories Announces Second-Quarter 2018 Results from Continuing Operations

Share:

– Second-Quarter Revenue of $585.3 Million –

– Second-Quarter GAAP Earnings per Share of $1.06 and Non-GAAP
Earnings per Share of $1.62 –

– Increases 2018 Revenue Growth and Earnings per Share Guidance –

Charles River Laboratories International, Inc. (NYSE:CRL) today
reported its results for the second quarter of 2018. For the quarter,
revenue from continuing operations was $585.3 million, an increase of
24.8% from $469.1 million in the second quarter of 2017. Revenue growth
was driven by all three business segments, particularly the Discovery
and Safety Assessment segment.

The acquisitions of MPI Research, Brains On-Line, and KWS BioTest
contributed 15.1% to consolidated second-quarter revenue growth. The
impact of foreign currency translation benefited reported revenue growth
by 2.6%. Excluding the effect of these items, organic revenue growth was
7.1%.

On a GAAP basis, second-quarter net income from continuing operations
attributable to common shareholders was $52.2 million, a decrease of
3.4% from net income of $54.0 million for the same period in 2017.
Second-quarter diluted earnings per share on a GAAP basis were $1.06, a
decrease of 5.4% from $1.12 for the second quarter of 2017. The lower
GAAP net income and earnings per share were driven primarily by
acquisition and integration costs, including amortization of intangible
assets, primarily related to MPI Research.

On a non-GAAP basis, net income from continuing operations was $79.3
million for the second quarter of 2018, an increase of 27.2% from $62.4
million for the same period in 2017. Second-quarter diluted earnings per
share on a non-GAAP basis were $1.62, an increase of 25.6% from $1.29
per share for the second quarter of 2017. The non-GAAP net income and
earnings per share increases were driven primarily by the contribution
from the MPI acquisition, as well as gains on the Company's venture
capital investments and a lower tax rate. The gains on the Company's
venture capital investments were $0.17 per share in the second quarter
of 2018, compared to gains of $0.03 for the same period in 2017.

James C. Foster, Chairman, President and Chief Executive Officer, said,
"We believe our robust second-quarter revenue growth is indicative of an
extremely healthy market environment, and our position as the premier,
early-stage CRO with a unique ability to support our clients from target
discovery through non-clinical development. Our clients, both large and
small, are intensifying investments in their pipelines, which is
creating new business opportunities for Charles River. At this critical
time, we believe that it is incumbent upon us to invest in our
portfolio, our people, and our infrastructure to solidify our position
as our clients' early-stage partner of choice, and to enhance
shareholder value. We are pleased with our second-quarter performance,
and optimistic about the opportunities for growth in 2018 and beyond. As
a result, we are increasing our revenue and earnings per share guidance
for the year."

Second-Quarter Segment Results

Research Models and Services (RMS)

Revenue for the RMS segment was $130.4 million in the second quarter of
2018, an increase of 5.2% from $124.0 million in the second quarter of
2017. Organic revenue growth was 2.0%, driven primarily by increased
demand for research models in China, as well as higher revenue for
research model services.

In the second quarter of 2018, the RMS segment's GAAP operating margin
decreased to 26.3% from 27.1% in the second quarter of 2017. On a
non-GAAP basis, the operating margin decreased to 26.8% from 27.4% in
the second quarter of 2017. The non-GAAP operating margin decline was
driven primarily by research model services.

Discovery and Safety Assessment (DSA)

Revenue from continuing operations for the DSA segment was $346.4
million in the second quarter of 2018, an increase of 37.4% from $252.1
million in the second quarter of 2017. Acquisitions contributed 28.1% to
DSA revenue growth, due primarily to the revenue contribution from MPI
Research. Organic revenue growth of 7.3% was driven by both the Safety
Assessment and Discovery Services businesses. By client segment, the DSA
revenue increase was driven primarily by robust demand from both
biotechnology and global biopharmaceutical clients.

In the second quarter of 2018, the DSA segment's GAAP operating margin
decreased to 16.3% from 20.4% in the second quarter of 2017. The GAAP
operating margin decline was driven primarily by acquisition and
integration costs, principally amortization of intangible assets related
to MPI Research. On a non-GAAP basis, the operating margin decreased to
21.5% from 23.5% in the second quarter of 2017. The GAAP and non-GAAP
operating margin declines were driven primarily by study mix and foreign
exchange. Foreign exchange reduced the DSA operating margin by
approximately 60 basis points.

Manufacturing Support (Manufacturing)

Revenue for the Manufacturing segment was $108.5 million in the second
quarter of 2018, an increase of 16.6% from $93.0 million in the second
quarter of 2017. Organic revenue growth was 13.1%, driven primarily by
robust demand across all businesses: Microbial Solutions, Biologics
Testing Solutions, and Avian Vaccine Services.

In the second quarter of 2018, the Manufacturing segment's GAAP
operating margin increased to 31.5% from 31.2% in the second quarter of
2017. On a non-GAAP basis, the operating margin decreased to 33.6% from
34.2% in the second quarter of 2017. The non-GAAP operating margin
decline was driven primarily by cost associated with capacity
expansions, principally in the Biologics Testing Solutions business.

Increases 2018 Guidance

The Company is updating its 2018 financial guidance, which was
previously provided on May 10, 2018.

The Company is increasing its guidance for both reported and organic
revenue growth, due primarily to its belief that the strong demand
trends in the second quarter are expected to continue in the second half
of the year. Foreign exchange is now expected to contribute
approximately 2% to reported revenue growth, compared to the Company's
prior outlook of an approximate 3% benefit.

The Company is increasing its guidance for GAAP and non-GAAP earnings
per share, due primarily to higher-than-expected gains from venture
capital investments. The Company has not included any venture capital
investment gains in its outlook for the remainder of the year, since its
initial, full-year estimate of $0.14 per share was exceeded during the
first half of the year.

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

                 
2018 GUIDANCE (from continuing operations)       REVISED       PRIOR
Revenue growth, reported       19% - 21%       18% - 20%
Less: Contribution from acquisitions (1) (10% - 11%) (9.5% - 10.5%)
Less: Favorable impact of foreign exchange       (~2%)       (~3%)
Revenue growth, organic (2)       7% - 8%       5.7% - 6.7%
GAAP EPS estimate $4.30-$4.45 $4.22-$4.37
Amortization of intangible assets (3) $1.00-$1.10 $1.00-$1.10
Charges related to global efficiency initiatives (4) $0.05 $0.09
Acquisition-related adjustments (5)       $0.44       $0.41
Non-GAAP EPS estimate       $5.85 - $6.00       $5.77 - $5.92

Footnotes to Guidance Table:

 
(1) The contribution from acquisitions reflects only those acquisitions
which have been completed.
 
(2) Organic revenue growth is defined as reported revenue growth
adjusted for acquisitions, the divestiture of the CDMO business, and
foreign currency translation. Divestiture of the CDMO business did
not have a material impact on the revenue growth rate in 2018.
 
(3) Amortization of intangible assets includes an estimate of
$0.40-$0.50 for the impact of the MPI Research acquisition based on
the preliminary purchase price allocation.
 
(4) These charges relate primarily to the Company's planned efficiency
initiatives. These charges primarily include severance and other
costs. Other projects in support of global productivity and
efficiency initiatives are expected, but these charges reflect only
the decisions that have already been finalized.
 
(5) These adjustments are related to the evaluation and integration of
acquisitions, and primarily include transaction, advisory, and
certain third-party integration costs, as well as certain costs
associated with acquisition-related efficiency initiatives, and the
write-off of deferred financing costs and fees related to debt
financing.
 

Webcast

Charles River has scheduled a live webcast on Wednesday, August 8, 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 GAAP financial measures to non-GAAP
financial measures on the website.

Investor Day

Charles River will host a Meeting with Management on Tuesday, August 14,
from 8:00 a.m. to 12:30 p.m. ET in New York. The meeting will also be
webcast live on the Investor Relations section of the Company's website
at ir.criver.com.

Non-GAAP Reconciliations/Discontinued Operations

The Company reports non-GAAP results in this press release, which
exclude often-one-time charges and other 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;
bargain gains associated with our acquisitions; expenses associated with
evaluating and integrating acquisitions and divestitures, 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; severance and other costs
associated with our efficiency initiatives; gain on and tax effect of
the divestiture of the CDMO business; the write-off of deferred
financing costs and fees related to debt financing; and costs related to
a U.S. government billing adjustment and related expenses. This press
release also refers to our revenue in both a GAAP and non-GAAP basis:
"constant currency," which we define as reported revenue growth adjusted
for the impact of foreign currency translation, and "organic revenue
growth," which we define as reported revenue growth adjusted for foreign
currency translation, acquisitions, and divestitures. We exclude these
items from the non-GAAP financial measures because they are outside our
normal operations. 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 divestitures (and in certain cases, the
evaluation of such acquisitions and divestitures, 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 and their
underlying associated costs, such as business acquisitions, generally
occur periodically but on an unpredictable basis. We calculate non-GAAP
integration costs to include third-party integration costs incurred
post-acquisition. Presenting revenue on an organic basis allows
investors to measure our revenue growth exclusive of acquisitions,
divestitures, and 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 the projected future financial performance of Charles River
and our specific businesses, including revenue (on both a reported,
constant-currency, and organic growth basis), operating margins,
earnings per share, the expected impact of foreign exchange rates, and
the expected benefit of our life science venture capital investments;
the future demand for drug discovery and development products and
services, including our expectations for future revenue trends; our
expectations with respect to the impact of acquisitions on the Company,
our service offerings, client perception, strategic relationships,
revenue, revenue growth rates, and earnings; our expected operational
synergies with MPI; 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; the impact of U.S. tax reform enacted in the
fourth quarter of 2017; 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, such as our Maryland research model production site); 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 13, 2018, 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.

 

SCHEDULE 1
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME (UNAUDITED)
(1)
(in thousands, except
for per share data)

           
Three Months Ended Six Months Ended
June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017
 
Total revenue $ 585,301 $ 469,129 $ 1,079,271 $ 914,892
Cost of revenue (excluding amortization of intangible assets) 369,320 283,804 681,821 558,215
Selling, general and administrative 120,531 93,820 223,903 184,729
Amortization of intangible assets   18,740     9,819     29,008     20,556  
Operating income 76,710 81,686 144,539 151,392
Interest income 182 161 464 363
Interest expense (18,643 ) (7,403 ) (29,834 ) (14,386 )
Other income, net   12,039     2,472     18,159     17,594  
Income from continuing operations, before income taxes 70,288 76,916 133,328 154,963
Provision for income taxes   17,438     22,243     27,210     53,327  
Income from continuing operations, net of income taxes 52,850 54,673 106,118 101,636
Income (loss) from discontinued operations, net of income taxes   1,529     (71 )   1,506     (75 )
Net income 54,379 54,602 107,624 101,561
Less: Net income attributable to noncontrolling interests   670     650     1,284     831  
Net income attributable to common shareholders $ 53,709   $ 53,952   $ 106,340   $ 100,730  
 
Earnings per common share
Basic:
Continuing operations attributable to common shareholders $ 1.08 $ 1.14 $ 2.18 $ 2.12
Discontinued operations $ 0.03 $ $ 0.03 $
Net income attributable to common shareholders $ 1.11 $ 1.13 $ 2.22 $ 2.12
Diluted:
Continuing operations attributable to common shareholders $ 1.06 $ 1.12 $ 2.14 $ 2.08
Discontinued operations $ 0.03 $ $ 0.03 $
Net income attributable to common shareholders $ 1.10 $ 1.12 $ 2.17 $ 2.08
 
Weighted average number of common shares outstanding
Basic 48,198 47,591 47,992 47,569
Diluted 49,043 48,342 48,966 48,404
 
(1)   Effective in the first quarter of 2018, the Company adopted new
accounting standard ASU 2017-07, "Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost."
Prior-year income statement amounts were recast to reflect the
retrospective adoption of the new pension accounting standard.
 

 

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

 

SCHEDULE 2
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(in thousands)

       
 
June 30, 2018 December 30, 2017
Assets
Current assets:
Cash and cash equivalents $ 192,300 $ 163,794
Trade receivables, net 478,735 430,016
Inventories 124,131 114,956
Prepaid assets 44,531 36,544
Other current assets   49,833   81,315
Total current assets 889,530 826,625
Property, plant and equipment, net 896,273 781,973
Goodwill 1,254,444 804,906
Client relationships, net 553,277 301,891
Other intangible assets, net 95,859 67,871
Deferred tax assets 27,230 22,654
Other assets   149,270   124,002
Total assets $ 3,865,883 $ 2,929,922
 
Liabilities, Redeemable Noncontrolling Interest and Equity
Current liabilities:
Current portion of long-term debt and capital leases $ 31,346 $ 30,998
Accounts payable 67,481 77,838
Accrued compensation 104,547 101,044
Deferred revenue 130,393 117,569
Accrued liabilities 110,770 89,780
Other current liabilities 73,603 44,460
Current liabilities of discontinued operations     1,815
Total current liabilities 518,140 463,504
Long-term debt, net and capital leases 1,796,451 1,114,105
Deferred tax liabilities 152,785 89,540
Other long-term liabilities 196,640 194,815
Long-term liabilities of discontinued operations     3,942
Total liabilities 2,664,016 1,865,906
Redeemable noncontrolling interest 16,662 16,609
Total equity attributable to common shareholders 1,181,966 1,045,080
Noncontrolling interest   3,239   2,327
Total liabilities, redeemable noncontrolling interest and equity $ 3,865,883 $ 2,929,922
 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
 
SCHEDULE 3
RECONCILIATION OF GAAP TO NON-GAAP
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)(1)(2)
(in thousands, except percentages)
                 
Three Months Ended Six Months Ended
June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017
Research Models and Services
Revenue $ 130,426 $ 124,002 $ 264,384 $ 251,163
Operating income 34,245 33,594 72,772 71,284
Operating income as a % of revenue 26.3 % 27.1 % 27.5 % 28.4 %
Add back:
Amortization related to acquisitions 408 369 817 805
Severance 220 743
Government billing adjustment and related expenses 57 150
Site consolidation costs, impairments and other items   69         584      
Total non-GAAP adjustments to operating income $ 697   $ 426   $ 2,144   $ 955  
Operating income, excluding non-GAAP adjustments $ 34,942 $ 34,020 $ 74,916 $ 72,239
Non-GAAP operating income as a % of revenue 26.8 % 27.4 % 28.3 % 28.8 %
 
Depreciation and amortization $ 4,901 $ 4,945 $ 9,754 $ 10,037
Capital expenditures $ 5,314 $ 4,404 $ 9,939 $ 7,007
 
Discovery and Safety Assessment
Revenue $ 346,416 $ 252,092 $ 606,408 $ 479,850
Operating income 56,623 51,335 97,482 89,670
Operating income as a % of revenue 16.3 % 20.4 % 16.1 % 18.7 %
Add back:
Amortization related to acquisitions 16,051 6,905 23,592 14,505
Severance 1,197 76 943 272
Acquisition related adjustments (3) 767 824 1,197 1,527
Site consolidation costs, impairments and other items       150     (143 )   559  
Total non-GAAP adjustments to operating income $ 18,015   $ 7,955   $ 25,589   $ 16,863  
Operating income, excluding non-GAAP adjustments $ 74,638 $ 59,290 $ 123,071 $ 106,533
Non-GAAP operating income as a % of revenue 21.5 % 23.5 % 20.3 % 22.2 %
 
Depreciation and amortization $ 31,043 $ 18,965 $ 51,830 $ 38,334
Capital expenditures $ 10,894 $ 7,102 $ 23,696 $ 15,425
 
Manufacturing Support
Revenue $ 108,459 $ 93,035 $ 208,479 $ 183,879
Operating income 34,115 29,043 62,638 55,643
Operating income as a % of revenue 31.5 % 31.2 % 30.0 % 30.3 %
Add back:
Amortization related to acquisitions 2,281 2,544 4,599 5,246
Severance 247 870 1,068
Acquisition related adjustments (3) 15 15 26
Site consolidation costs, impairments and other items           159      
Total non-GAAP adjustments to operating income $ 2,296   $ 2,791   $ 5,643   $ 6,340  
Operating income, excluding non-GAAP adjustments $ 36,411 $ 31,834 $ 68,281 $ 61,983
Non-GAAP operating income as a % of revenue 33.6 % 34.2 % 32.8 % 33.7 %
 
Depreciation and amortization $ 5,868 $ 5,787 $ 11,604 $ 11,749
Capital expenditures $ 3,188 $ 1,939 $ 10,022 $ 4,231
 
Unallocated Corporate Overhead $ (48,273 ) $ (32,286 ) $ (88,353 ) $ (65,205 )
Add back:
Severance 659 659
Acquisition related adjustments (3)   11,033     1,192     13,897     1,213  
Total non-GAAP adjustments to operating expense $ 11,692   $ 1,192   $ 14,556   $ 1,213  
Unallocated corporate overhead, excluding non-GAAP adjustments $ (36,581 ) $ (31,094 ) $ (73,797 ) $ (63,992 )
 
Total
Revenue $ 585,301 $ 469,129 $ 1,079,271 $ 914,892
Operating income $ 76,710 $ 81,686 $ 144,539 $ 151,392
Operating income as a % of revenue 13.1 % 17.4 % 13.4 % 16.5 %
Add back:
Amortization related to acquisitions 18,740 9,818 29,008 20,556
Severance 2,076 323 3,215 1,340
Acquisition related adjustments (3) 11,815 2,016 15,109 2,766
Government billing adjustment and related expenses 57 150
Site consolidation costs, impairments and other items   69     150     600     559  
Total non-GAAP adjustments to operating income $ 32,700   $ 12,364   $ 47,932   $ 25,371  
Operating income, excluding non-GAAP adjustments $ 109,410 $ 94,050 $ 192,471 $ 176,763
Non-GAAP operating income as a % of revenue 18.7 % 20.0 % 17.8 % 19.3 %
 
Depreciation and amortization $ 43,396 $ 31,799 $ 76,606 $ 64,210
Capital expenditures $ 21,213 $ 15,997 $ 48,939 $ 31,917
 
(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 often-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 U.S. GAAP. The
Company intends to continue to assess the potential value of
reporting non-GAAP results consistent with applicable rules,
regulations and guidance.
 
(2) Effective in the first quarter of 2018, the Company adopted new
accounting standard ASU 2017-07, "Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost."
Prior-year income statement amounts were recast to reflect the
retrospective adoption of the new pension accounting standard.
 
(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.
           
SCHEDULE 4
RECONCILIATION OF GAAP EARNINGS TO
NON-GAAP EARNINGS (UNAUDITED)(1)

(in thousands, except
per share data)
 
Three Months Ended Six Months Ended
June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017
 
Net income attributable to common shareholders $ 53,709 $ 53,952 $ 106,340 $ 100,730
Less: Income (loss) from discontinued operations, net of income taxes   1,529     (71 )   1,506     (75 )
Net income from continuing operations attributable to common
shareholders
52,180 54,023 104,834 100,805
Add back:
Non-GAAP adjustments to operating income (Refer to Schedule 3) 32,700 12,364 47,932 25,371
Write-off of deferred financing costs and fees related to debt
refinancing
1,799 5,060
Gain on divestiture of CDMO business (10,577 )
Tax effect of non-GAAP adjustments:
Tax effect from divestiture of CDMO business 18,005
Tax effect of the remaining non-GAAP adjustments   (7,341 )   (4,035 )   (10,992 )   (8,699 )
Net income from continuing operations attributable to common
shareholders, excluding non-GAAP adjustments
$ 79,338   $ 62,352   $ 146,834   $ 124,905  
 
Weighted average shares outstanding - Basic 48,198 47,591 47,992 47,569
Effect of dilutive securities:
Stock options, restricted stock units, performance share units and
restricted stock
  845     751     974     835  
Weighted average shares outstanding - Diluted   49,043     48,342     48,966     48,404  
 
Earnings per share from continuing operations attributable to common
shareholders
Basic $ 1.08 $ 1.14 $ 2.18 $ 2.12
Diluted $ 1.06 $ 1.12 $ 2.14 $ 2.08
 
Basic, excluding non-GAAP adjustments $ 1.65 $ 1.31 $ 3.06 $ 2.63
Diluted, excluding non-GAAP adjustments $ 1.62 $ 1.29 $ 3.00 $ 2.58
 
(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 often-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 U.S. GAAP. The
Company intends to continue to assess the potential value of
reporting non-GAAP results consistent with applicable rules,
regulations and guidance.
 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
           
SCHEDULE 5
RECONCILIATION OF GAAP REVENUE GROWTH
TO
NON-GAAP REVENUE GROWTH, ORGANIC (UNAUDITED)
(1)
 
 
For the three months ended June 30, 2018 Total CRL RMS Segment DSA Segment MS Segment
 
Revenue growth, reported 24.8 % 5.2 % 37.4 % 16.6 %
Increase due to foreign exchange (2.6 )% (3.2 )% (2.0 )% (3.5 )%
Contribution from acquisitions (2) (15.1 )% % (28.1 )% %
Non-GAAP revenue growth, organic (4) 7.1 % 2.0 % 7.3 % 13.1 %
 
For the six months ended June 30, 2018 Total CRL RMS Segment DSA Segment MS Segment
 
Revenue growth, reported 18.0 % 5.3 % 26.4 % 13.4 %
Increase due to foreign exchange (3.7 )% (4.2 )% (2.9 )% (4.7 )%
Contribution from acquisitions (2) (8.2 )% % (15.7 )% %
Impact of CDMO divestiture (3) 0.2 % % % 1.1 %
Non-GAAP revenue growth, organic (4) 6.3 % 1.1 % 7.8 % 9.8 %
 
(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 often-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 U.S. GAAP. The
Company intends to continue to assess the potential value of
reporting non-GAAP results consistent with applicable rules,
regulations and guidance.
 
(2) The contribution from acquisitions reflects only completed
acquisitions.
 
(3) The CDMO business, which was acquired as part of WIL Research on
April 4, 2016, was divested on February 10, 2017. This adjustment
represents the revenue from the CDMO business.
 
(4) Organic revenue growth is defined as reported revenue growth
adjusted for acquisitions, the divestiture of the CDMO business, and
foreign exchange.
 

 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
       
SCHEDULE 6
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (UNAUDITED)

(in thousands)
 
Six Months Ended
June 30, 2018 July 1, 2017
 
Cash flows relating to operating activities $ 183,923 $ 134,353
Cash flows relating to investing activities (851,036 ) 14,026
Cash flows relating to financing activities 704,575 (155,064 )
Cash flows used in discontinued operations (3,731 ) (997 )

Effect of exchange rate changes on cash, cash equivalents, and
restricted cash

  (4,697 )   6,808  
Net change in cash, cash equivalents, and restricted cash 29,034 (874 )
Cash, cash equivalents, and restricted cash, beginning of period   166,331     119,894  
Cash, cash equivalents, and restricted cash, end of period $ 195,365   $ 119,020  

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