Ladies and gentlemen thank you for standing by. Welcome to the Charles River Laboratories second quarter 2008 Earnings Call. At this time all participants are in listen-only mode. Later, we will conduct a question-and-answer session; instructions will be given at that time. (Operator Instructions). I would now like to turn the conference over to your host, Corporate Vice President of Investor Relations, Ms. Susan Hardy. Please go ahead.

Thank you. Good morning and welcome to Charles River Laboratories' second quarter 2008 conference call and webcast. This morning, Jim Foster, Chairman, President and Chief Executive Officer, and Tom Ackerman, Executive Vice President and Chief Financial Officer will comment on our second quarter results and review guidance for 2008. Following the presentation, we will respond to questions. There is a slide presentation associated with today's remarks, which is posted on the Investor Relations section of our website at ir.criver.com. A taped replay of this call will be available beginning at noon today, and can be accessed by calling 800-475-6701. The international access number is 320-365-3844. The access code in either case is 952140. The replay will be available through August 20th. You may also access an archived version of the webcast on our Investor Relations website. I would like to remind you of our Safe Harbor. Any remarks that we may make about future expectations, plans, and prospects for the company, constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by any forward-looking statements, as a result of various important factors including, but not limited to those discussed in our Annual Report on Form 10-K, which was filed on February 20th, 2008, as well as other filings we make with the Securities and Exchange Commission. During this call, we will be primarily discussing non-GAAP financial measures. We believe that these non-GAAP financial measures help investors to gain a meaningful understanding of our core operating results and future prospects, consistent with the manner in which management measures and forecasts the company's performance. The non-GAAP financial measures are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. In accordance with Regulation G, you can find the comparable GAAP measures and reconciliation to those GAAP measures on the Investor Relations section of our website through the financial reconciliations link. Now I will turn the call over to Jim Foster.

Good morning. I am very pleased to report to you today on another strong quarter for Charles River. We reported robust sales of $352.1 million in the second quarter of '08, growth rate of 14.5% from $307.4 million in the second quarter of '07. The Research Models and Services, or RMS, increased an impressive 20.2% to $172.8 million. Preclinical Services, or PCS, increased 9.6% to $179.3 million, 6% on a sequential basis. Foreign exchange contributed 7.1% and 1.4%, respectively to the segments. Operating income for the quarter was $76.5 million, and the operating margin was 21.7% compared to $65.7 million and 21.4% reported for the second quarter of '07. Operating income growth of 16.3% was primarily driven by higher sales and improved capacity utilization in the RMS segment and stable corporate costs. The operating margin gained 30 basis points year over year as a result of very strong RMS performance, which more than offset the decrease in the PCS margin which, as you recall, reflects a significant costs associated with the transition to our new preclinical facility in Nevada. On a sequential basis, the operating margin increased 50 basis points, due in part to an impressive improvement in the PCS margin. Earnings per share increased 23.4% to $0.79 from $0.64. Again, the driver was strong sales growth and improved operating efficiency in the RMS segment that more than offset the costs associated with the Nevada transition and a higher share count due to dilution from our convertible debt. Finally, we announced that we are raising our '08 guidance to sales growth in a range of 12% to 14%, and non-GAAP earnings per share in a range of $2.94 to $3.00. Now I will provide more in-depth review of our business segment results. Sales for our RMS segment rose 20.2% in…

Thank you, Jim and good morning. Before I recap our second quarter financial results, let me remind you that I will be speaking primarily to non-GAAP results, which exclude acquisition-related amortization, asset impairment charges and other items. Sales and operating income grew at strong double-digit rates in the second quarter, led by continued robust sales growth in our RMS business. Solid EPS growth of 23.4% outpaced sales growth of 14.5% as a result of operating margin improvement from lower unallocated corporate expense, as well as the lower tax rate and net interest expense. As Jim said, the second quarter RMS operating margin of 30.9% declined by 80 basis points year-over-year. The decline was primarily due to an asset write-off in Japan of approximately $1.6 million, which we do not expect to repeat. We installed a new management team in Japan in 2007 and higher expenses were the result of comprehensive review which led to a write-down of certain assets. These expenses lowered the RMS operating margin by approximately 90 basis points in the second quarter, and excluding these expenses, the RMS margin would have increased slightly. Foreign exchange continues to benefit top line growth, but reduces the PCS operating margin. FX contributed 4.1% to sales growth, or $12.5 million in the second quarter, which was comparable to the first quarter. The RMS segment benefited by 7.1%, due primarily to the continued strength of the Euro. The PCS segment gained only 1.4% from FX compared to 2.1% in the first quarter, primarily as a result of the impact of a weaker British pound on our facility in Edinburgh. For the second half of the year, as we anniversary the significant weakening of the US dollar, we expect an FX benefit to consolidated sales growth of just 1% to 2%, based on…

(Operator Instructions). Our first question we go to the line of David Windley with Jefferies & Company. David Windley - Jefferies & Company: Hi. Good morning. Thanks for taking the questions. Congratulations on another good quarter. Wanted to, Jim, drill in on RMS. You have had a couple of very, very good top-line growth quarters in RMS. You mentioned that all the major business units are growing double-digits. Would it be possible to call out maybe one or two of the ones that are really blowing numbers out? What is driving that growth rate to such a high level?

Well, actually, the primary drivers, Dave are continued substantial growth in our In Vitro business, sales of PTS, which are growing at a greater than 20% clip. We continue to have this growth rate, and given the penetration into the market and the acceptance of both the device and the cartridges that go with it, we are comfortable that we are going to continue to see growth there. The core animal business, just the production business has been very strong, both in Europe and the United States all year. As we said, we expect to see a continuation of that, principally driven by the drug companies intend to focus on discovering new compounds. Thirdly, our services business, albeit it a smaller business than the production business, continues to grow nicely, both on the consulting and staffing services side and on the GEMs side. Again, both of those service businesses are driven by the same factors that drive our preclinical business, which is a desire on the clients' part to utilize our capabilities on a strategic basis instead of continuing to do the work internally. I am happy to say it is hard to call out one or two, because it really is pretty much across the board. It is nice to see it internationally, and it is also nice to see the blend between the products and services, which is something that we do, and think is sustainable. David Windley - Jefferies & Company: Right. That is encouraging. So second question then, moving over to PCS. The margin improvement there was impressive. The surprising metric to me was the revenue growth being a little bit on the slow side, and yet the margins did improve there. So it would seem that your utilization in the newer facilities did improve pretty significantly. As you described, the slower activity came away from those facilities. I think the press release mentioned some capacity constraint, and your prepared remarks sounded a little bit more like, say, softer demand. I was hoping you could help me to understand some of the dynamics that allowed you to improve margin while not necessarily seeing the utilization away from the new facilities that you would have hoped for.

Well, as we talked about, we are really pleased with the uptake in Nevada and Massachusetts. A lot of moving parts and pieces in both places. In Mass, we have been focusing on shifting the mix towards more higher-value, larger-GLP studies, and we are getting that, and building a backlog and filling capacity nicely. Nevada, literally, we have been moving into that building, the portion that we are building out was just finished in July. Notwithstanding that, business has been coming in nicely. Nevada tends to be a higher margin offering anyway, so that has contributed to the margin improvement very nicely. Also, I would remind you that we were also assisted by the very strong growth both in top line and bottom line at Northwest Kinetics, our relatively recent Phase 1 operation. The capacity constraint issue was principally, just a reminder about Montreal; we entered the year with tight capacity. You may recall that the physical space is literally maxed out; we can not build any further. Yet we have some very loyal, very large pharma clients who really think of Montreal as their own adjunct facility. We are going ahead and building out the Sherbrooke facility to accommodate those clients faster than anticipated; it will be ready in '09. So we are bucking up against capacity constraints there, hoping that we would have an attractive mix. While we often have an attractive mix, it is something that we cannot necessarily engineer or manage. So clients for whom we do specialty work will eventually and do eventually require us to do longer-term, more general studies. So we are seeing more of that now. We also had a little bit of study slippage in the quarter as well. We had some similar metrics in Edinburgh, principally around study slippage. Study…

Thank you. We have a question from the line of Douglas Tsao with Lehman Brothers. Please go ahead.

Hi. Good morning. Just drilling down a little bit again on the RMS segment where the results were very strong. I have just been wondering, Jim, if you could provide some color around the growth rate that you saw for disease specific models relative to the standard outbred rat, which has historically been a much higher proportion of your overall sales mix?

The disease model growth rate continues to be faster, particularly in immunodeficient mice which you have heard us talk about for multiple quarters now, widely utilized and respected model for oncological work and infectious disease work. We are continuing to see significant unit growth there this year. Size of that product offering is still substantially below our classic outbred rat offering. So it is extremely beneficial, but it is not the same order of magnitude or driver. Now, we also saw good growth in our outbred rat business as well. So, again, we saw very nice growth across the board. Unlike years previously, not so much '07 but years before that, we were very pleased with the growth rate particularly in Europe, where we have, as you recall, extremely high market shares, which means that in addition to getting some price and a positive mix a la the diseased models, we are also continuing to take share probably from our major competitor over there. There have been some facility closures by our major competitor over there, and we have been able to take advantage of that, both in geographic locales where we have large share and a couple that we have a smaller share.

Then turning to the PCS business; and you noted there is some delay with China coming online. I know originally you had indicated that you were going to offer non-GLP services in; I think it was the third quarter. Then, you know, that began to offer GLP services to accelerate around that time. I was just wondering if sort the initial shift in direction might have impacted the construction of the facility and led to this delay.

That is a bit of an imponderable. I think a very simple answer is that construction of facilities like this, which is probably unique in terms of its makeup and sophistication, is not usual for Chinese construction companies. We have spent an awful lot of time managing that facility by sending our own people over there to do that. We are very pleased with the way it is shaping up and we are quite confident it will be a first-class Charles River quality facility. Yet we are just enduring basic construction delays having to do with regulatory approvals and the building methodologies over there. So, I do not think it was a shift in schedule that did it; I think it is their reference point or historical relationship to this building. We will feel much more confident when we build the next facility, which is likely to be larger, having gotten greater experience with the local contractors over there. I think we will be able to structure it and schedule it better. Having said that, we are really just talking about shifting things one quarter. We have been in contact with our clients who are driving the construction of the operation, because they are desirous of us being able to provide the services. We are happy to be able to provide the non-GLP stuff before the end of the year and the GLP stuff right after the beginning of the year. So, it is really only a slight delay.

Okay. Then, just if I can just get one final, quick follow-up question in terms of China. Should we expect to see an additional ramp-up of operating costs in the third quarter and fourth quarter that might affect PCS operating margins? Or has the spending level reached a level that will remain constant through the rest of the year?

You will see some additional costs in the back half of the year, with, obviously, less revenue than we had originally forecasted because the facility will not be done. It is not a huge number, but it does have an adverse impact on certainly operating margin and a slight amount on revenues in the second half.

Okay, great. Thank you. I will step out.

Thank you. We have a question from line of Eric Coldwell with Robert W. Baird. Please go ahead.

Thanks. Good morning. Sorry if I missed this, but I did not see any mention of the Endosafe multi-cartridge system in the prepared comments. Can you give us an update on the status of that? Then my follow-up question relates to the Japanese assets. Can you just be a little more specific on what was written down and what the impact of that was, please?

Yes, the multi-cartridge system, Eric, is selling quite nicely. It is not a huge product offering for us, so it is not something we would necessarily cull out. We just had a review of that business recently, and we are selling those units at or ahead of our budgeted levels, with very positive response and acceptance by the quality control people. So, we are pleased with the way that is going. I will let Tom to answer the second question.

Sure. Eric, the fixed assets we referred to were a handful of facility related assets that had been in place for a number of years, probably over 20 years, that had not been fully depreciated but that were no longer being utilized fully. So, in our review of a number of aspects of the operations and things like that and as we were going through recycles and upgrades, the management team felt it appropriate to write those assets down to zero essentially.

Great, thank you very much.

You are welcome.

Thank you. We have a question from line of Sandy Draper with Raymond James. Please go ahead.

Thank you. Two questions. One, just looking at the EPS guidance and first half and second half ramp, I am may be missing something really obvious here, but if you annualize your first half, you get to the upper end of the range. Looking back at the past couple of years, your second half has tended to be as good if not better than the first half. What would you say is key drivers that would push the earnings lower in the second half versus the first half?

Couple of the things that Jim already mentioned, a couple of questions ago, which is additional expenses in China, as an example, as we ramp up that facility.

So that could be material? Okay.

Well I am not sure I would characterize it exactly as material. I would characterize it as a contributing factor. Like that, Nevada, while we opened the facility in the first half of the year, the beginning of the year actually, we have actually expanded into the larger portion of the facility really at mid-year. So, we will see an additional ramp in depreciation as well as additional fixed costs associated with that, such as utilities and things like that. As we historically have seen, the RMS margins in the latter part of the year will decline also due to seasonality. So, those would be the three major contributing factors, I would say.

Okay, great. Just the follow-up question. I do not know if you have seen it, but it was just announced that one of your competitors announced an asset transfer deal with Eli Lilly. I just wanted to get your thoughts, not necessary specifically on that deal, but just what your interest level is in some of these asset transfer deals where you are actually taking over or buying out the actual assets from pharma and entering in long-term. Is that something you are interested in? What do you think about the economic model there? Just any thoughts there would be helpful. Thanks.

We are generally open to exploring relationships like that, and have explored several in the past. It obviously depends specifically on the proximity of the asset, the design of the asset and whether it is appropriate for the contract work that we do, as opposed to single use for one specific company. It also has to do with the ongoing relationship that you are able to craft with the seller. It is obviously better to get a running start and get some rational book of business along with that. Then it goes to price. So, we would be open at a rational price, and a lot of the price points of these facilities are higher than ours, not just from the capital acquisition point of view, but the ongoing running costs are higher. So, if we can get one that is costed out appropriately and helps us support that client and/or others in the right geographic locale, we would love to do that. Obviously, that is faster than building a place from scratch. If you could get business with a client, you have a much closer relationship and a running start. So, we think generally it is a good idea. As I have said, we have looked at several and none of those have met the criterion that I just outlined.

Great. Thank you.

Thank you. We have a question from line of Randall Stanicky with Goldman Sachs. Please go ahead.

Great, thanks for taking the question. I just have two. First, can you maybe help us on the RMS margin, Tom, even if we adjust for the Japan impact, the current guidance implies moderation. Consistent with historical trends, but maybe a little bit more than expected in the back half. Is there something that we should think about, given the acceleration in top line, as we think about leverage in the RMS business in general?

I do not really think so. If you look back to 2007, for example, you will see that the RMS margin moved along nicely and almost linear for the first three quarters and then it fell off in the fourth quarter. The model activity itself, which is the largest driver of the profitability in that segment, tends to fall off dramatically in the very end of the fourth quarter, really from Thanksgiving through the New Year's holiday, and it creates quite a little bit of a drag on the RMS margin in the fourth quarter. Even if Services are doing better, as Jim alluded to earlier, the Service margin just does not have quite the contribution that the models do. The other thing I should comment, which I also mentioned earlier, but following up on, I think, Eric's question, we will also see a slightly higher tax rate in the second half of the year. Even though we expect it to be a little bit below our prior guidance, it will be a little bit higher in the second half versus the first half and that will create a little bit of drag on the EPS as well.

So, just in terms of RMS, that should, at this point at least, mimic last year in terms of that trend for 3Q and 4Q?

Yes, without necessarily saying that the impact would be the same from Q3 to Q4, directionally speaking, you will definitely see a trend.

Okay. Then, just my last question. You announced a pretty sizable increase to your share buyback authorization. How should we think about your plans for share buybacks relative to the current guidance as we think about the remainder of 2008?

Yes, we do buy under a Corporate 10b51 program. It is a grid of volume and price, which we haven't disclosed the specifics of. However, what we have said over the last period is that that would probably give us a year and a half, two years, depending, and I think if you looked at our more recent activity, we should be in a band somewhere in line with that, again, obviously depending on stock price and things like that.

So in terms of that, roughly now $230 million available in the authorization, we should think about that being exhausted over the year to year and a half to two years in a ratable fashion?

Yes, I would say that is probably a good way to state it, essentially.

Okay, great. Thank you.

Thank you. We have a question from the line of Isaac Ro with Leerink Swann. Please go ahead.

Hi. Thanks for taking the question. Just first off, Tom, could you maybe talk for a minute about how you manage higher shipping cost for the models business, and maybe how higher energy costs could impact margins in the PCS business?

Sure. Well, we do have a surcharge in place. So of course, we try to do the best that we can to manage efficiency. However, of course, some of the rate increases that we have seen in fuel and whatnot obviously run outside of that. So we do have a surcharge in place for our ground transportation globally, and we will continue to adjust that as appropriate.

Okay. Then maybe just going a little bit deeper into cost of goods, how do you think about labor, raw materials and freight as components within cost of goods?

In terms of what we have seen from higher cost more recently?

Yes, or cost of goods. What are the components there on a percentage basis for those three items?

Can you be a little more specific? Do you mean what we are seeing year-over-year, or --?

Sure, year-over-year would be fine.

Sure. In terms of labor in the models business, I mean, it is tending to run more in line with our sales growth. That is similar in PCS as well, except for our expansion activities, where, because of training and things like that, we tend to run a little bit ahead on some of our major expansions. The other expenses have really run in line. Utilities are obviously a little bit problematic for us at this point in time because of the oil costs that have driven that up. We are obviously looking to be as efficient as we can, and looking at a number of areas where we can try to reduce the actual utilization to have somewhat of an offset to the actual increases. Feed is an area that has impacted us on some of our businesses where we do not have longer-term pricing arrangements with our vendors in the US. However, we have been insulated from increase in the commodities markets because we do have contracts that protect us at least through 2008. However, as we turn the page on 2009, I do expect we will see some above-average increases in some of our feed commodities because of that.

Okay, great. Thank you very much. Then just lastly on CapEx, for that $220 million to $240 million, can you remind us how that is broken out between investment and maintenance CapEx?

I believe it is 60/40, growth versus maintenance. Is that right, Susan?

I think the maintenance was about 25% to 30%.

Okay, so 75% to 25%, expansion versus maintenance.

Great. Thanks very much.

Thank you.

Here we have a question fron the line of John Kreger with William Blair. Please go ahead.

Good morning. This is actually Robbie Fatta in for John today. Thanks for taking the question. As we think about consolidated margins, can you give us an update on your other initiatives to improve them, such as IT efficiencies and Six Sigma? Then, perhaps more broadly, have your longer-term expectations for margin improvement beyond 2008 changed in any way?

Well, our margin improvement efforts, you touched on a couple of the areas. We recently embarked on a Six Sigma program; we have focused that in PCS. In fact, we have focused it more narrowly on one site, but are beginning to expand that to other sites. So we are very optimistic about the results that we can yield from that. We haven't made specific margin impact comments yet because we are still in the early stages and would like to be pretty accurate when we make comments like that. However, we are very positive about what we have seen so far and how we think we can improve margin. With respect to ERP, we also expect to be able to yield a lot of efficiencies, both in PCS and, to some extent in RMS. Again, we have not made specific comments with respect to how much it would improve the margin. However, based on where we are to date, we do think that it will give us benefits over the longer term. It may not necessarily impact us immediately when we turn the switches on because it will take some time to inculcate those new operations and practices into our main stream facilities, but we are optimistic about the benefits of that longer term. I do not think anything that we have seen nearer term has changed our outlook for where we think we will be with margins longer term. We still do think we can improve the PCS margins over the long haul. We still have an operating margin goal of 25% which of course is a goal that we expect to achieve, but over a multi-year period not in the next couple of years. So I do not think we have seen anything in the nearer term that would change our view long term. Things like sales growth, capacity utilization, Six Sigma and ERP are all mechanisms to help us get there.

Great. Thanks. Then just a quick follow-up on the RMS side. As we look at the organic growth, can you help us figure out how much is attributable to volume growth versus price increases?

For margin growth in 2008?

Actually, organic revenue growth, I am sorry.

Organic revenue growth.

In the quarter. So it was 13%, how much of that was volume versus price?

Price is probably 3% to 4%; the rest is volume and mix.

Great. Thank you very much.

Thank you. We have time for one last question. We will go to the line of Doug Schenkel with Cowen & Company. Please go ahead. Doug Schenkel - Cowen & Company: Hi. Good morning and thanks for taking my questions. First question is, on the Q1 call, you said that PCS had rebounded from a light start in January. I believe you suggested that momentum had picked up throughout the quarter, and it actually continued into the second quarter. I know you have spent a lot of time talking about some of the reasons for what worked and what did not work in PCS this quarter. However, other than capacity constraints, was there anything of note that really changed over the last eight to ten weeks of the quarter? I points to this timeframe just keeping in mind that the Q1 call was held in early May.

Nothing besides what we have already told you. We had very good demand and very good capacity utilization across almost all of our facilities. Yes, in the back half of the quarter we had study slip. We had studies booked and we were about to start them and they slipped. We had a mix that was slightly less desirable than we had anticipated. It is almost impossible to call, but historically, the mix has been a little bit richer than that. That will in time shift back to a more positive mix. Doug Schenkel - Cowen & Company: Okay. To be a little bit more straightforward, I just want to make sure there is no real change in how basically invisibility quarter-to-quarter here relative to how it has tracked the last couple of quarters.

No, we do not think there is any change. Doug Schenkel - Cowen & Company: Okay. Maybe just one quick follow-up on that; RMS is clearly doing better than you expected coming into the year. PCS came up a bit light. Recognizing that pharma outsourcing remains a very favorable dynamic for you and that quarter-to-quarter performance can be a bit volatile, any chance you would be willing to share any thoughts on what you think is a realistic one to three year organic sales growth target for RMS and PCS?

What we have said is that, I think we have talked about it in the aggregate, which is that we are looking at low double-digit growth rates collectively for our business. Up until recently we have been looking at the RMS as a high single digit grower. To some extent, I do not want to say we would be pleased with that, but to some extent, given its historical metrics, we would be pleased with that. There is certainly a possibility we will hit low double-digit growth in that business in the next three to five years. We would expect PCS over the long term to be in the low double-digit growth levels as well. So, it could be similar; it could be that PCS has slightly higher growth rate. However, in the aggregate our goal has been to grow this business organically at low double digits levels, with buttressed by these strategic bolt-on acquisitions like the one we just announced. We continue to be quite confident in our ability to deliver that level of growth.

Stacey, are we all clear on the line?

Yes, we are.

We did not know if we were --

Do you have any closing comments, actually?

Yes, thank you. Thank you for joining us this morning. This concludes the conference call. Have a nice day.

Thank you, ladies and gentlemen. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.