CRL Charles River Laboratories International Inc

Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the second quarter of 2010. For the quarter, net sales were $292.1 million, a decline of 5.2% from $308.2 million in the second quarter of 2009. Foreign currency translation reduced the sales growth rate by 0.1%. A modest sales increase in the Research Models and Services (RMS) segment was offset by lower sales for the Preclinical Services (PCS) segment.

On a GAAP basis, net income attributable to common shareholders for the second quarter of 2010 was $14.5 million, or $0.22 per diluted share, compared to net income of $34.2 million, or $0.52 per diluted share, for the second quarter of 2009.

On a non-GAAP basis, net income was $32.1 million for the second quarter of 2010, compared to $43.1 million for the same period in 2009, a decrease of 25.5%. Second-quarter diluted earnings per share on a non-GAAP basis were $0.49, a decrease of 25.8% compared to $0.66 per share in the second quarter of 2009. Both the GAAP and non-GAAP results were impacted by lower sales volume and higher costs related to the Company’s enterprise resource planning (ERP) initiative, offset in part by cost-savings actions implemented throughout 2009 and in the first quarter of 2010.

James C. Foster, Chairman, President and Chief Executive Officer, said, “We are disappointed that market demand for outsourced preclinical services did not rebound during the second quarter as we had previously expected. We continue to have extensive discussions with our biopharmaceutical clients, who maintain their intentions to build larger, strategic partnerships with us and increase the amount of outsourced activity. However, the timing of these decisions remains unclear and we do not believe that it is imminent. While our results provide reassurance that preclinical demand appears to have stabilized, positive indications such as the increased number of inquiries and improved June bookings are offset by their value, which is lower due to pricing. Therefore, we now expect PCS sales to be flat sequentially for the remainder of the year, and have tempered our RMS outlook to reflect lower sales of research models associated with preclinical studies. As a result, we have lowered our sales and EPS guidance for 2010.”

Second-Quarter Segment Results

Research Models and Services (RMS)

Sales for the RMS segment were $167.1 million in the second quarter of 2010, an increase of 0.9% from $165.7 million in the second quarter of 2009. Foreign currency translation reduced the sales growth rate by 1.0%. Excluding the effect of foreign exchange, RMS sales improved by 1.9% as strong growth of In Vitro products and contributions from the Piedmont and Cerebricon acquisitions (May and August 2009, respectively) were partially offset by lower sales of large models. The sequential decline in RMS sales from the first quarter of 2010 was driven primarily by foreign exchange, particularly the weakening of the Euro, as well as the large models business.

In the second quarter of 2010, the RMS segment’s GAAP operating margin was 28.3% compared to 30.7% for the second quarter of 2009. On a non-GAAP basis, the operating margin decreased to 29.1% from 31.9% in the second quarter of 2009. The margin decline was primarily attributable to lower sales volume of large models, as well as higher information technology and compensation costs.

Preclinical Services (PCS)

Second-quarter 2010 net sales for the PCS segment were $125.0 million, a decrease of 12.3% from $142.5 million in the second quarter of 2009. The PCS sales decline was due primarily to continued measured demand for our services from large pharmaceutical and biotechnology companies, as well as stable but lower than historical prices. Significantly lower sales of our clinical Phase I services also contributed. The sales decline was partially offset by the positive effect of foreign currency translation, which increased the growth rate by 0.8%.

A greater proportion of short-term, less complex studies in the sales mix, lower sales of clinical Phase I services and the continued impact of lower prices, partially offset by cost-saving actions, resulted in lower operating margins for the PCS segment. The second-quarter 2010 GAAP operating margin declined to 3.8% from 11.5% in the second quarter of 2009. On a non-GAAP basis, the operating margin declined to 12.0% from 17.2% in the second quarter of 2009. The PCS operating margin did improve sequentially by 270 basis points on a non-GAAP basis and 400 basis points on a GAAP basis when compared to the first quarter of 2010, driven primarily by the Company’s plan to suspend operations at its PCS Massachusetts facility and transition clients to other sites within the global PCS network.

Six-Month Results

For the first six months of 2010, net sales decreased by 3.3% to $589.4 million from $609.7 million in the same period in 2009. Foreign currency translation benefited net sales growth by 1.6%.

On a GAAP basis, net income attributable to common shareholders was $31.8 million, or $0.48 per diluted share, for the first half of 2010, compared to $59.6 million, or $0.91 per diluted share, for the same period in 2009.

On a non-GAAP basis, net income for the first six months of 2010 was $61.5 million, or $0.93 per diluted share, compared to $81.3 million, or $1.24 per diluted share, for the same period in 2009.

Research Models and Services (RMS)

For the first six months of 2010, RMS net sales were $339.3 million, an increase of 3.7% from first-half 2009 net sales of $327.2 million, with foreign currency translation contributing 1.0% to the increase. The RMS segment’s GAAP operating margin was 28.7% in the first half of 2010, compared to 30.1% for the prior-year period. On a non-GAAP basis, the operating margin was 29.8% compared to 31.7% in the first six months of 2009.

Preclinical Services (PCS)

For the first six months of 2010, PCS net sales were $250.1 million, a decrease of 11.5% from first-half 2009 net sales of $282.5 million. Foreign currency translation benefited net sales growth by 2.4%. On a GAAP basis, the PCS segment operating margin was 1.8% in the first half of 2010, compared to 9.5% in the prior-year period. On a non-GAAP basis, the operating margin was 10.7% in the first half of 2010 compared to 16.4% for the same period in 2009.

Items Excluded from Non-GAAP Results

Items excluded from non-GAAP results in the second quarter of 2010 and 2009 were as follows:

($ in millions)       2Q10       2Q09 Amortization of intangible assets       $ 6.0       $ 7.2 Severance related to cost-saving actions         2.1         1.7 Impairment and other charges (1)         0.0         0.2

Operating losses for PCS Massachusetts, PCS Arkansas andclinical Phase I Scotland

        3.5         1.1 Costs associated with evaluation of acquisitions         8.3         0.4 Convertible debt accounting         3.2         2.7 Tax expense from cash repatriation         2.7         --

(1) In the second quarter of 2009, these items were related primarily to costs associated with the Company’s divestiture of its clinical Phase I business in Scotland on May 15, 2009.

Items excluded from non-GAAP results in the first half of 2010 and 2009 are as follows:

($ in millions)       1H10       1H09 Amortization of intangible assets       $ 13.2       $ 13.4 Severance related to cost-saving actions         4.8         8.8 Impairment and other charges (1)         0.9         1.8

Operating losses for PCS Massachusetts, PCS Arkansas andclinical Phase I Scotland

        7.0         2.7 Costs associated with evaluation of acquisitions         8.4         0.6 Convertible debt accounting         6.3         5.1 Tax expense from cash repatriation         2.7         --

(1) In the first half of 2010, these items were related primarily to an asset impairment associated with the Company’s planned disposition of its PCS facility in Arkansas. In the first half of 2009, these items were related primarily to an asset impairment charge and costs associated with the Company’s divestiture of its clinical Phase I business in Scotland and additional miscellaneous expenses.

2010 Guidance

The Company is reducing its forward-looking guidance for 2010, which was originally provided on February 8, 2010. This guidance now assumes that PCS sales in the second half of 2010 will remain flat when compared to the first half of the year. RMS sales for the remaining two quarters of the year are expected to decline moderately from the second-quarter 2010 level, due largely to continued softness in demand for research models used in toxicology and normal seasonality. For the full year, RMS sales are expected to remain flat to slightly above the 2009 level. The sales guidance has also been updated to reflect negative movements in foreign currency translation, which is now expected to reduce sales growth by approximately 1.0% compared to 2009.

2010 GUIDANCE     REVISED     PRIOR Net sales     2%-3% decrease    

Low single-digitgrowth

GAAP EPS estimate     $ 0.71 - $0.81     $ 1.57 - $1.77 Amortization of intangible assets     $ 0.27     $ 0.30

Severance costs and operating losses primarilyattributable to suspension of PCS Massachusettsoperations

    $ 0.16     $ 0.20 Impairment and other charges (1)     $ 0.01       -- Costs associated with the evaluation of acquisitions (2)     $ 0.58       -- Convertible debt accounting     $ 0.13     $ 0.13 Tax expense from cash repatriation     $ 0.04       -- Non-GAAP EPS estimate     $ 1.90 - $2.00     $ 2.20 - $2.40

(1) These items are primarily related to an asset impairment in the first half of 2010 associated with the Company’s planned disposition of its PCS facility in Arkansas.

(2) This item is an estimate of the advisory fees, breakup fee and related deal costs primarily associated with the proposed acquisition of WuXi PharmaTech (Cayman) Inc.

Webcast Rescheduled

Charles River Laboratories has rescheduled its live webcast to Monday, August 2, 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.

Use of Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, which exclude amortization of intangible assets and other charges related to our acquisitions, expenses associated with evaluating acquisitions (including costs related to the termination of the proposed acquisition of WuXi), charges and operating losses attributable to our businesses we plan to close or divest, severance costs associated with our 2009 and 2010 cost-saving actions, tax expense associated with the repatriation of cash into the United States, 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. 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. 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 the text of this press release, and can also be found on the Company’s website at ir.criver.com.

Caution Concerning Forward-Looking Statements

This news 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 2010 financial performance including sales and earnings; the future demand for drug discovery and development products and services (particularly in light of the challenging economic environment), our expectations regarding stock repurchases; the development and performance of our services and products; market and industry conditions including the outsourcing of these services and present spending trends by our customers; and Charles River’s future performance as delineated in our forward-looking guidance, and particularly our expectations with respect to sales and foreign exchange impact. Forward-looking statements are based on Charles River’s current expectations and beliefs, and involve a number of risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking statements. Those risks and uncertainties include, but are not limited to: the ability to successfully integrate businesses we acquire; negative trends in research and development spending, negative trends in the level of outsourced services, or other cost reduction actions by our customers; the ability to convert backlog to sales; special interest groups; contaminations; industry trends; new displacement technologies; USDA and FDA regulations; changes in law; continued availability of products and supplies; loss of key personnel; interest rate and foreign currency exchange rate fluctuations; changes in tax regulation and laws; changes in generally accepted accounting principles; and any changes in business, political, or economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas. A further description of these risks, uncertainties, and other matters can be found in the Risk Factors detailed in Charles River's Annual Report on Form 10-K as filed on February 19, 2010, as well as other filings we make with the Securities and Exchange Commission. Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from results and events currently expected by Charles River, and Charles River assumes no obligation and expressly disclaims any duty to update information contained in this news release except as required by law.

About Charles River

Accelerating Drug Development. Exactly. Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our approximately 8,000 employees worldwide are focused on providing clients with exactly what they need to improve and expedite the discovery, development through first-in-human evaluation, and safe manufacture of new therapies for the patients who need them. To learn more about our unique portfolio and breadth of services, visit www.criver.com.

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

Three Months Ended

Six Months Ended

June 26,2010

June 27,2009

June 26,2010

June 27,2009

  Total net sales $ 292,104 $ 308,159 $ 589,449 $ 609,685 Cost of products sold and services provided   191,740     193,696     389,168     387,002   Gross margin 100,364 114,463 200,281 222,683 Selling, general and administrative 66,127 56,582 129,368 118,760 Amortization of intangibles   6,033     7,219     13,207     13,368   Operating income 28,204 50,662 57,706 90,555 Interest income (expense) (6,843 ) (4,942 ) (12,453 ) (9,546 ) Other income (expense)   (736 )   1,565     (1,147 )   1,303   Income before income taxes 20,625 47,285 44,106 82,312 Provision for income taxes   6,530     13,630     13,011     23,788   Net income 14,095 33,655 31,095 58,524 Noncontrolling interests   359     499     741     1,035   Net income attributable to common shareowners $ 14,454   $ 34,154   $ 31,836   $ 59,559     Earnings per common share Basic $ 0.22 $ 0.53 $ 0.49 $ 0.91 Diluted $ 0.22 $ 0.52 $ 0.48 $ 0.91   Weighted average number of common shares outstanding Basic 65,289,617 65,046,023 65,381,634 65,467,929 Diluted 65,874,284 65,222,498 66,017,118 65,615,498 CHARLES RIVER LABORATORIES INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands)            

June 26,2010

December 26,2009

Assets Current assets Cash and cash equivalents $ 219,077 $ 182,574 Trade receivables, net 218,695 196,947 Inventories 96,571 102,723 Other current assets   73,705   113,357 Total current assets 608,048 595,601 Property, plant and equipment, net 837,580 865,743 Goodwill, net 500,585 508,235 Other intangibles, net 144,025 160,292 Deferred tax asset 12,926 18,978 Other assets   53,473   55,244 Total assets $ 2,156,637 $ 2,204,093   Liabilities and Equity Current liabilities Current portion of long-term debt & capital leases $ 26,774 $ 35,413 Accounts payable 29,681 31,232 Accrued compensation 49,215 45,522 Deferred revenue 61,651 72,390 Accrued liabilities 59,570 49,997 Other current liabilities   19,169   15,219 Total current liabilities 246,060 249,773 Long-term debt & capital leases 409,441 457,419 Other long-term liabilities   107,119   123,077 Total liabilities   762,620   830,269 Total equity   1,394,017   1,373,824 Total liabilities and equity $ 2,156,637 $ 2,204,093 CHARLES RIVER LABORATORIES INTERNATIONAL, INC. SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (dollars in thousands)                  

Three Months Ended

Six Months Ended

June 26,2010

June 27,2009

June 26,2010

June 27,2009

Research Models and Services Net sales $ 167,140 $ 165,682 $ 339,345 $ 327,172 Gross margin 71,346 71,206 145,625 139,519 Gross margin as a % of net sales 42.7 % 43.0 % 42.9 % 42.6 % Operating income 47,258 50,894 97,242 98,338 Operating income as a % of net sales 28.3 % 30.7 % 28.7 % 30.1 % Depreciation and amortization 8,811 8,049 18,532 15,722 Capital expenditures 6,245 6,307 11,205 13,931   Preclinical Services Net sales $ 124,964 $ 142,477 $ 250,104 $ 282,513 Gross margin 29,018 43,257 54,656 83,164 Gross margin as a % of net sales 23.2 % 30.4 % 21.9 % 29.4 % Operating income 4,728 16,336 4,465 26,882 Operating income as a % of net sales 3.8 % 11.5 % 1.8 % 9.5 % Depreciation and amortization 14,778 14,851 29,319 29,148 Capital expenditures 2,187 14,130 6,520 31,131     Unallocated Corporate Overhead $ (23,782 ) $ (16,568 ) $ (44,001 ) $ (34,665 )     Total Net sales $ 292,104 $ 308,159 $ 589,449 $ 609,685 Gross margin 100,364 114,463 200,281 222,683 Gross margin as a % of net sales 34.4 % 37.1 % 34.0 % 36.5 % Operating income 28,204 50,662 57,706 90,555 Operating income as a % of net sales 9.7 % 16.4 % 9.8 % 14.9 % Depreciation and amortization 23,589 22,900 47,851 44,870 Capital expenditures 8,432 20,437 17,725 45,062 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 26,2010

June 27,2009

June 26,2010

June 27,2009

Research Models and Services Net sales $ 167,140 $ 165,682 $ 339,345 $ 327,172 Operating income 47,258 50,894 97,242 98,338 Operating income as a % of net sales 28.3 % 30.7 % 28.7 % 30.1 % Add back: Amortization related to acquisitions 1,324 1,745 3,724 2,632 Severance   -     139     -     2,848   Operating income, excluding specified charges (Non-GAAP) $ 48,582 $ 52,778 $ 100,966 $ 103,818 Non-GAAP operating income as a % of net sales 29.1 % 31.9 % 29.8 % 31.7 %   Preclinical Services Net sales $ 124,964 $ 142,477 $ 250,104 $ 282,513 Operating income 4,728 16,336 4,465 26,882 Operating income as a % of net sales 3.8 % 11.5 % 1.8 % 9.5 % Add back: Amortization related to acquisitions 4,710 5,474 9,483 10,735 Severance 2,118 1,535 4,774 4,311 Impairment and other charges (2) (41 ) 85 945 1,612 Operating losses for PCS Arkansas, PCS Massachusetts & Phase 1 Scotland   3,538     1,139     7,009     2,682   Operating income, excluding specified charges (Non-GAAP) $ 15,053 $ 24,569 $ 26,676 $ 46,222 Non-GAAP operating income as a % of net sales 12.0 % 17.2 % 10.7 % 16.4 %     Unallocated Corporate Overhead $ (23,782 ) $ (16,568 ) $ (44,001 ) $ (34,665 ) Add back: Severance 25 5 41 1,653 Impairment and other charges (2) - 86 - 183 Costs associated with the evaluation of acquisitions 7,280 410 7,397 639 Convertible debt accounting (3)   54     53     107     97   Unallocated corporate overhead, excluding specified charges (Non-GAAP) $ (16,423 ) $ (16,014 ) $ (36,456 ) $ (32,093 )     Total Net sales $ 292,104 $ 308,159 $ 589,449 $ 609,685 Operating income 28,204 50,662 57,706 90,555 Operating income as a % of net sales 9.7 % 16.4 % 9.8 % 14.9 % Add back: Amortization related to acquisitions 6,034 7,219 13,207 13,367 Severance 2,143 1,679 4,815 8,812 Impairment and other charges (2) (41 ) 171 945 1,795 Operating losses for PCS Arkansas, PCS Massachusetts & Phase 1 Scotland 3,538 1,139 7,009 2,682 Costs associated with the evaluation of acquisitions 7,280 410 7,397 639 Convertible debt accounting (3)   54     53     107     97   Operating income, excluding specified charges (Non-GAAP) $ 47,212 $ 61,333 $ 91,186 $ 117,947 Non-GAAP operating income as a % of net sales 16.2 % 19.9 % 15.5 % 19.3 %   (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 27, 2009, these items were related primarily to costs associated with the Company’s divestiture of its clinical Phase I business in Scotland on May 15, 2009. For the six months ended June 26, 2010, these items were related primarily to an asset impairment associated with the Company’s planned disposition of its PCS facility in Arkansas. For the six months ended June 27, 2009, these items were related primarily to an asset impairment charge and costs associated with the Company’s divestiture of its clinical Phase I business in Scotland and additional miscellaneous expenses.   (3) This item includes the impact of convertible debt accounting adopted at the beginning of 2009, which increased depreciation expense. CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS (1) (dollars in thousands, except for per share data)  

Three Months Ended

Six Months Ended

June 26,2010

June 27,2009

June 26,2010

June 27,2009

  Net income attributable to common shareholders $ 14,454 $ 34,154 $ 31,836 $ 59,559 Add back: Amortization related to acquisitions 6,034 7,219 13,207 13,367 Severance 2,143 1,679 4,815 8,812 Impairment and other charges (2) (41 ) 171 945 1,795 Operating losses for PCS Arkansas, PCS Massachusetts & Phase 1 Scotland 3,538 1,139 7,009 2,682 Costs associated with the evaluation of acquisitions 8,313 410 8,430 639 Convertible debt accounting, net (3) 3,166 2,688 6,282 5,085 Tax expense from repatriation 2,690 - 2,690 - Tax effect   (8,182 )   (4,331 )   (13,760 )   (10,620 ) Net income, excluding specified charges (Non-GAAP) $ 32,115   $ 43,129   $ 61,454   $ 81,319     Weighted average shares outstanding - Basic 65,289,617 65,046,023 65,381,634 65,467,929 Effect of dilutive securities: Stock options and contingently issued restricted stock 584,667 173,182 635,484 144,342 Warrants   -     3,293     -     3,227   Weighted average shares outstanding - Diluted   65,874,284     65,222,498     66,017,118     65,615,498     Basic earnings per share $ 0.22 $ 0.53 $ 0.49 $ 0.91 Diluted earnings per share $ 0.22 $ 0.52 $ 0.48 $ 0.91   Basic earnings per share, excluding specified charges (Non-GAAP) $ 0.49 $ 0.66 $ 0.94 $ 1.24 Diluted earnings per share, excluding specified charges (Non-GAAP) $ 0.49 $ 0.66 $ 0.93 $ 1.24 (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 27, 2009, these items were related primarily to costs associated with the Company’s divestiture of its clinical Phase I business in Scotland on May 15, 2009. For the six months ended June 26, 2010, these items were related primarily to an asset impairment associated with the Company’s planned disposition of its PCS facility in Arkansas. For the six months ended June 27, 2009, these items were related primarily to an asset impairment charge and costs associated with the Company’s divestiture of its clinical Phase I business in Scotland and additional miscellaneous expenses.   (3) For the three and six months ended June 26, 2010, this includes the impact of convertible debt accounting adopted at the beginning of 2009, which increased interest expense by $3,113 and $6,175 and depreciation expense by $54 and $107, respectively. For the three and six months ended June 27, 2009, this item includes the impact of convertible debt accounting which increased interest expense by $2,906 and $5,766, capitalized interest by $271 and $778 and depreciation expense by $53 and $97, respectively.