Charles River Announces Second-Quarter 2012 Results from Continuing Operations

Charles River Announces Second-Quarter 2012 Results from Continuing Operations

<0> Charles River Laboratories International, Inc.Investor Contact:Susan E. Hardy, 781-222-6190Corporate Vice President, Investor RelationsorMedia Contact:Amy Cianciaruso, 781-222-6168Director, Public Relations </0>

Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the second quarter of 2012. For the quarter, net sales from continuing operations were $284.7 million, a decrease of 1.2% from $288.3 million in the second quarter of 2011. Excluding foreign currency translation, which reduced reported sales by 3.1%, second-quarter 2012 sales increased by 1.9%. On a segment basis, sales increased in the Preclinical Services (PCS) segment, but declined in the Research Models and Services (RMS) segment due primarily to foreign currency translation.

On a GAAP basis, net income from continuing operations for the second quarter of 2012 was $30.5 million, or $0.63 per diluted share, compared to $34.2 million, or $0.66 per diluted share, for the second quarter of 2011. In 2011, the second-quarter results included a $7.7 million gain ($0.15 per share both before and after tax) on the settlement of a life insurance policy.

On a non-GAAP basis, net income from continuing operations was $36.4 million for the second quarter of 2012, an increase of 1.2% from $35.9 million for the same period in 2011. Second-quarter 2012 diluted earnings per share on a non-GAAP basis were $0.75, an increase of 7.1% compared to $0.70 per share in the second quarter of 2011. Non-GAAP earnings per share benefited primarily from stock repurchases.

James C. Foster, Chairman, President and Chief Executive Officer, said, “We are very pleased to report another strong quarter for non-GAAP earnings per share, and to increase both our GAAP and non-GAAP earnings per share guidance for 2012. The PCS segment led the quarter’s sales growth, benefiting from the strategic partnership which was initiated with a global pharmaceutical company in the fourth quarter of 2011, as well as improved demand for regulated safety assessment. We believe that biopharmaceutical companies continue to move forward with outsourcing as a cornerstone of their goal to improve efficiency and enhance productivity of the drug development pipeline. Our continuing discussions with multiple large clients concerning strategic relationships indicate to us that they value Charles River’s broad portfolio of early-stage products and services, our scientific expertise, and our flexible solutions to their drug development challenges.”

The Company reports results from continuing operations, which excludes results of the Phase I clinical business that was divested in 2011. The Phase I business is reported as a discontinued operation.

Net sales for the RMS segment were $173.6 million in the second quarter of 2012, a decrease of 2.6% from $178.2 million in the second quarter of 2011. Excluding foreign exchange, which reduced reported sales by 3.8%, RMS sales increased by 1.2%. On a sequential basis, sales declined primarily due to lower sales of research models, reflecting seasonal softness in Europe and Japan, as well as the unfavorable impact from foreign exchange.

In the second quarter of 2012, the RMS segment’s GAAP operating margin was 32.0% compared to 31.3% for the second quarter of 2011. On a non-GAAP basis, the operating margin increased to 32.8% from 32.6% in the second quarter of 2011. The non-GAAP operating margin improvement was primarily attributable to receipt of an insurance settlement related to last year’s disaster in Japan.

Second-quarter 2012 net sales from continuing operations for the PCS segment were $111.1 million, an increase of 0.9% from $110.1 million in the second quarter of 2011. Foreign currency translation reduced reported sales by 2.1%. Excluding foreign exchange, constant-currency sales growth of 3.0% was primarily driven by increased demand for non-GLP discovery services. On a sequential basis, sales growth was also driven by improved demand for regulated safety assessment services and biopharmaceutical services (BPS).

In the second quarter of 2012, the PCS segment’s GAAP operating margin increased to 9.7% from 7.2% in the second quarter of 2011. On a non-GAAP basis, the operating margin declined to 13.1% from 14.0% in the second quarter of 2011. The non-GAAP operating margin decline was primarily attributable to the initial transfer of client protocols under the strategic partnership.

During the second quarter of 2012, the Company repurchased approximately 458,000 shares for $15.3 million. As of June 30, 2012, Charles River had $88.5 million remaining on its $750 million stock repurchase authorization.

For the first six months of 2012, net sales decreased by 0.6% to $570.7 million from $574.1 million in the same period in 2011. Foreign currency translation reduced reported sales by 2.0%.

On a GAAP basis, net income from continuing operations for the first half of 2012 was $57.0 million, or $1.17 per diluted share, compared to $69.5 million, or $1.30 per diluted share, for the same period in 2011.

On a non-GAAP basis, net income from continuing operations for the first half of 2012 was $70.3 million, or $1.45 per diluted share, compared to $69.1 million, or $1.30 per diluted share, for the same period in 2011.

For the first six months of 2012, RMS net sales were $356.8 million, an increase of 1.5% from $351.5 million in the same period in 2011. Foreign currency translation reduced reported sales by 2.3%. On a GAAP basis, the RMS segment operating margin was 32.2% in the first half of 2012, compared to 30.6% for the prior-year period. On a non-GAAP basis, the operating margin was 33.1% in the first half of 2012, compared to 31.9% for the same period in 2011.

For the first six months of 2012, PCS net sales were $213.9 million, a decrease of 3.9% from $222.6 million in the same period in 2011. Foreign currency translation reduced reported sales by 1.6%. On a GAAP basis, the PCS segment operating margin was 7.0% in the first half of 2012, compared to 7.7% for the prior-year period. On a non-GAAP basis, the operating margin was 11.1% in the first half of 2012, compared to 14.0% for the same period in 2011.

Items excluded from non-GAAP results in the second quarter of 2012 and 2011 were as follows:

(1) In the second quarter of 2011, these items were related primarily to an asset impairment associated with the Company’s RMS large model operations and a gain related to the disposition of its RMS Discovery Research Services facility in Michigan.

Items excluded from non-GAAP results in the first half of 2012 and 2011 were as follows:

(1) In the first half of 2011, these items were related primarily to an asset impairment associated with the Company’s RMS large model operations and a gain related to the disposition of its RMS Discovery Research Services facility in Michigan, as well as exiting a defined benefit plan in RMS Japan.

The Company is updating its forward-looking guidance based on continuing operations for 2012. The Company has revised its reported sales guidance to reflect a more significant impact from foreign currency translation, which is now expected to reduce reported sales by approximately 2%. The Company’s constant-currency sales outlook remains unchanged.

The Company has raised its GAAP and non-GAAP earnings per share guidance for 2012 to reflect the strong first-half performance and expectation for relatively stable trends in the second half of the year, partially offset by the impact of foreign exchange. RMS sales and operating margin are expected to be slightly lower in the second half than in the first half of the year, reflecting normal seasonal patterns.

(1) These costs relate primarily to the Company’s PCS facility in Massachusetts.

(2) Other items primarily include costs associated with the evaluation of acquisitions and a loss on the sale of auction rate securities.

Charles River Laboratories has scheduled a live webcast on Wednesday, August 8, at 8:30 a.m. ET to discuss matters relating to this press release. The webcast will continue through 12:00 p.m. to broadcast an investor meeting hosted by the Company. To participate in either event, please go to ir.criver.com and select the webcast link. At the meeting, Company management is planning to discuss a strategic overview of the business. You can find the associated slide presentations and reconciliations of non-GAAP financial measures to comparable GAAP financial measures on the website.

This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, which exclude the amortization of intangible assets and other charges related to our acquisitions, expenses associated with evaluating acquisitions, charges and operating losses attributable to our businesses we plan to close or divest, severance costs associated with our cost-savings actions, taxes associated with the disposition of our Phase I clinical business, the gain on the settlement of a life insurance policy, fees and tax costs associated with corporate subsidiary restructuring, and the additional interest recorded as a result of the adoption in 2009 of an accounting standard related to our convertible debt accounting which increased interest and depreciation expense. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. This press release also refers to our sales in both a GAAP and non-GAAP (constant currency) basis. There are limitations in using non-GAAP financial measures, as they are not prepared in accordance with generally accepted accounting principles, and may be different than non-GAAP financial measures used by other companies. In particular, we believe that the inclusion of supplementary non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of our core operating results and future prospects without the effect of these often-one-time charges, and is consistent with how management measures and forecasts the Company's performance, especially when comparing such results to prior periods or forecasts. We believe that the financial impact of our acquisitions (and in certain cases, the evaluation of such acquisitions, whether or not ultimately consummated) is often large relative to our overall financial performance, which can adversely affect the comparability of our results on a period-to-period basis. In addition, certain activities, such as business acquisitions, happen infrequently and the underlying costs associated with such activities do not recur on a regular basis. Presenting sales on a constant currency basis allows investors to measure our organic sales growth net of foreign currency exchange fluctuations more clearly. Non-GAAP results also allow investors to compare the Company’s operations against the financial results of other companies in the industry who similarly provide non-GAAP results. The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules and regulations. Reconciliations of the non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures are set forth in the text of this press release, and can also be found on the Company’s website at ir.criver.com.

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 2012 financial performance including sales, earnings per share, and the expected impact of foreign exchange rates; the future demand for drug discovery and development products and services; including our expectations for revenue trends for 2012; 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 present spending trends by our customers; the impact of specific actions intended to more accurately align our infrastructure to the current operating environment, and to improve overall operating efficiencies and profitability; and Charles River’s future performance as delineated in our forward-looking guidance, and particularly our expectations with respect to sales and foreign exchange impact. Forward-looking statements are based on Charles River’s current expectations and beliefs, and involve a number of risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking statements. Those risks and uncertainties include, but are not limited to: the ability to successfully integrate businesses we acquire; the ability to execute our cost-savings actions on an effective and timely basis (including divestitures and site closures); the timing and magnitude of our share repurchases; negative trends in research and development spending, negative trends in the level of outsourced services, or other cost reduction actions by our customers; the ability to convert backlog to sales; special interest groups; contaminations; industry trends; new displacement technologies; USDA and FDA regulations; changes in law; continued availability of products and supplies; loss of key personnel; interest rate and foreign currency exchange rate fluctuations; changes in tax regulation and laws; changes in generally accepted accounting principles; and any changes in business, political, or economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas. A further description of these risks, uncertainties, and other matters can be found in the Risk Factors detailed in Charles River's Annual Report on Form 10-K as filed on February 27, 2012, 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.

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

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