Ladies and gentlemen, we'd like to thank you for standing by, and welcome to the Charles River Laboratories First Quarter 2012 Conference Call. [Operator Instructions] As a reminder, today's conference call will be recorded. I would like to turn the conference over to your hostess and conference facilitator, as well as your Corporate Vice President of Investor Relations, Ms. Susan Hardy. Please go ahead, ma'am.

Thank you. Good morning, and welcome to Charles River Laboratories' First Quarter 2012 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 first quarter results and review guidance for 2012. Following the presentation, we will respond to questions. There's 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 243794. The replay will be available through May 17. You may also access an archived version of the webcast on our Investor Relations website. I'd 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 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 on our annual report on Form 10-K, which was filed on February 27, 2012, as well as other filings we make with the Securities and Exchange Commission. During this call, we will be primarily discussing results from continuing operations and 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 reconciliations to those GAAP measures on the Investor Relations section of our website through the Financial Reconciliations link. Now I'd like to turn the call over to Jim Foster.

Good morning. I'd like to begin by providing a summary of our first quarter results before providing commentary on our business prospects. We reported sales of $286 million in the first quarter of 2012, unchanged from the same period in 2011. The RMS business delivered an exceptionally strong performance in the first quarter. As was the case in the fourth quarter of 2011, both businesses in the segment reported higher year-over-year sales on both a reported and constant currency basis, driving the best quarterly results since the end of 2008 and better than the fourth quarter. The majority of these businesses also reported higher operating margins. The PCS segment was moderately weaker than expected. Although the In-Life business was in line with our expectations, our Biopharmaceutical or BPS business performed significantly less well than expected. The operating margin declined 30 basis points from the first quarter of 2011 but improved 60 basis points sequentially to 17.7%. The increase was due primarily to the RMS margin, which improved on both a year-over-year and a sequential basis to 33.3%. Higher sales volume and process efficiency initiatives were the primary drivers of the improvement. Earnings per diluted share increased 14.8% in the first quarter of 2012 to $0.70 per share from $0.61 in the first quarter of 2011. The increase in earnings per share was driven primarily by the lower number of shares outstanding. We continued to return value to shareholders in the first quarter through our share repurchase plan with the purchase of approximately 348,000 shares for $12.5 million. We are reaffirming our sales and EPS guidance for 2012. Although we have yet to see sustained signs of improvement from our large biopharma client base, we believe that demand for regulated safety assessment continues to remain relatively stable. Furthermore, the growth drivers…

Thank you, Jim, and good morning. Before I recap our financial performance, let me remind you that I'll be speaking primarily to non-GAAP results from continuing operations. A reconciliation of non-GAAP items can be found in our press release and on our website. Looking at the first quarter results, we experienced a continuation of the stable to improving trends across most of our businesses. Pressure from a limited number of businesses restrained sales growth and operating margins, resulting in sales growth of approximately 1% on a constant currency basis and a 30 basis point decline in our consolidated operating margin to 17.7% when compared to the first quarter of last year. RMS had a tremendous quarter with 6.5% constant currency sales growth and a 210 basis improvement in the operating margin to 33.3%. Most RMS businesses posted higher sales and margins when compared to the first quarter of last year. On a sequential basis, the RMS margin improved by 450 basis points, about half of which was due to the inclusion of a $4 million inventory write-down for the large model business which we recorded in the fourth quarter of 2011. At first glance, it appears that PCS had a difficult quarter. PCS sales were down approximately 1% sequentially when adjusted for the 53rd week last year, and the segment reported an 8.9% operating margin. But as Jim said, our In-Life business, which includes both GLP safety assessment and non-GLP Discovery Services, continued to be stable, posting a $1 million first quarter sales increase on a sequential basis when excluding the impact of the 53rd week. This was more than offset by softness in Biopharmaceutical Services or BPS, which posted lower sales and reduced the overall PCS operating margin by approximately 180 basis points in the first quarter. Normalizing for…

That concludes our comments. Operator, would you please take questions now?

[Operator Instructions] Our first question'll come from the line of Dave Windley of Jefferies. David H. Windley - Jefferies & Company, Inc., Research Division: Jim, you've talked for a few quarters now about strategic acquisitions in the RMS part of the business. I was hoping you could dig into that a little bit more, give us a sense of the pipeline for that, and perhaps what the cycle times are on those or what -- why we haven't heard anything about acquisitions closing yet.

Dave, the pipeline's improving, I would say, nicely. We have a full-time staff dedicated to this and are really ramping it up. There's a fair amount of properties available for sale. They're not always in our wheelhouse and some of the price expectations are a little unreasonable, unrealistic, I would say, and disappointing. Having said that, there are several things that we're seriously looking at and talking to sellers about, and they would improve both the portfolio and our capabilities to support clients in ways that they want and we currently, perhaps, fall short in a couple of areas. So we're pretty optimistic about that. We're quite focused on what we're looking at. I would say the deal flow is improving to the point where we're actually looking at several things a week, at least, superficially and then drilling down on a bunch of them. So we are interested. We are looking carefully. I think we have the funding and the management capability to absorb and integrate these businesses. We're very, very focused on remaining upstream and having something that's accretive to both operating margins and particularly the EPS. Sometimes these things just take longer than one would like, particularly in instances where we're dealing with small or private enterprises where due diligence is sometimes a little more complicated. But the lack of announcements is not an indication of lack of involvement or looking. David H. Windley - Jefferies & Company, Inc., Research Division: If they'll let me sneak one more in, I'll just ask real quickly. If you could comment on the change in the Canadian SR&ED tax credit on -- potentially on the Montréal operation.

Dave, it's Tom. The change that's proposed in Canada at the federal level, which is actually a smaller part of the credit that we received [indiscernible], but the bulk of that is at the provincial level. So that's something that we're obviously looking at closely. I don't remember exactly [indiscernible] it will take effect for a couple of years. And while it would be a negative indicator, as I said, it's really a smaller portion of all the credits we receive in Canada.

[Operator Instructions]. Our next question will come from the line of Mr. Eric Coldwell of Robert W. Baird. Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division: Looking back now on your closure of the Shrewsbury facility and your experience since then, I'm curious if you have any initial thoughts on what impact you could see from the large capacity reduction announced at your largest peer last night.

Eric, we got on with our capacity reductions much earlier obviously and pretty aggressively given the current market conditions, which to some extent, have continued. I think that additional capacity reductions either by our large competitor who's gone ahead and done so and clients themselves will continue to be beneficial to the value proposition here. While it's not necessarily evident in the operating results, the conversations with clients about outsourcing and/or shutting space and reducing people and particularly these days in some of the discovery applications are certainly increasing. The timing around that is never something we can predict with certainty, but just the nature and the increase in the number of conversations, I think, is quite interesting and probably telling. So this is an industry that, for reasons that we've all talked about previously, structurally ended up with too much capacity. And I think that alone, in combination with these pipeline reductions has had a dramatically adverse impact on pricing. And so any opportunity -- anytime anybody takes out a significant amount of space, I think that's directionally good for all of us as a whole. And as you've heard us say before, the continued reduction in capacity, particularly by our clients, I do think is critical. We have seen capacity utilization improvement steadily throughout the last, I don't know, 2 or 3 years. And while it's not optimal yet, it's certainly moving in that direction, and we do have a couple of sites where capacity utilization actually is optimal. So less space, I think, improves the value proposition for all of the CROs. Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division: Great. If I could just get -- sneak in one quick follow-up. You mentioned some large clients looking at their own resources and infrastructure. I think we all know that there are at least a couple or a few large pharmas considering making bigger outsourcing moves. I'm just curious what you think those moves might look like. Are there specific geographies or services? Are you thinking that the new deals coming out would be sole source or multi-source in nature? And also do you consider even a remote possibility of any [ph] asset transfers in the industry over the next year or 2?

So we have several conversations going on right now. They're all slightly different and they're all in various stages of development. So some, I think, are potentially much more near term than others, but you can see a change, you can see sort of an inflection point in the marketplace that's [ph] commensurate with drugs rolling off the patent [ph]. We have a situation or 2 where people are looking at asset transfers. We have looked. Facilities are often very nice. They're often in geographic locales where we are not. The sort of simple, fundamental response, kind of visceral response that we have to all of them is, those are great, and maybe 5 or 6 years ago, we would be all over them, but it just doesn't seem to make any rational sense either to us or the industry or, in fact, to the client because they tend not to be overly productive. So we would hope that they would get on with their own business of shutting and repurposing the site and dealing with the social issues related to their internal staff. I think that we're seeing all of the large pharma companies aggressively reduce the number of research partners that they have. I don't know one pharma company that isn't doing that right now. They want to have a small number of partners that they can depend on who will provide a better value proposition, and there's a close working relationship as if we, we the CRO, was the client. In a couple of conversations we have going on there's some anecdotal -- apparent anecdotal interest in sole sourcing. I would be surprised if that happens, but I think it's likely that big drug companies, I'm just talking about on the tox side, now will have a predominant provider, 70%, 80% of their work, and a minority provider that provides 20% to 30% of their work. And that gives the client the sleep factor of knowing that they're not sole sourced and also the ability, I'm sure, to get that better value proposition. But we're really not seeing clients want to have 5 or 6 or 7 or 10 preclinical providers. And some of the very small one, we've had conversations recently with clients who have said, "Some of these small players actually have good science, but it's not a working relationship that we want to bet the future on, so we're uncomfortable with it." We've actually had some clients recommend and suggest that we look at these companies for acquisition purposes. And by the way, we typically do look when requested or suggested by clients because I can't think of a better way to get M&A targets than through our clients who use and are happy with some of these small players but think they're too fragile to have any long-term success.

[Operator Instructions] Our next question will come from the line of Greg Bolan of Sterne Agee. Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division: So just looking at the year-on-year decremental margin for PCS, it looks like only about 28%. So it would just appear to me that the PCS infrastructure has been reduced to absorb some fairly significant shocks like this quarter. I mean, Tom, how should we be thinking about incremental margins on incremental preclinical sales these days?

Thank you, Greg. We have, as you've said, taken on a number of costs that have -- or mitigate a lot of the activities we're seeing such as changes in volume, and of course, changes in study mix and composition, which ultimately affects revenue. So I do think we're better positioned. As I said, and I think Jim said in his comments, we do expect a slight uptick in activity, in part from improvements in BPS, as well some of our non-GLP activity, and we do expect that to bring revenue to the top line. I think in a broader sense, if revenue were to invigorate more dramatically, I still think that we would see a good flow-through on operating margin depending on the nature and mix of that type of work.

Our next question will come from the line of Mr. John Kreger of William Blair.

This is Beth Rose in for John Kreger. We had a quick question on the status of strategic partnerships. Are those trending as expected? And then also to follow on that, how do these compare with the demand you're seeing in nonstrategic clients?

So as I said before, there's a fair number of conversations that certainly directionally, that are about strategic partnerships and I think directionally are probable where we have clients who are looking to outsource the more routine assays in their development capabilities, both GLP and non-GLP, in favor of keeping the very complex assays as part of their core. So we're seeing that as a dialogue. And whether they end up as a large strategic deal where there's a commitment toward certain amounts of time and/or volume, we can see most of the clients moving that way. Obviously, that's happening at the same time these clients are reducing their infrastructures and being quite sensitive about cost, which is reflected in the P&L. So look, I think strategic deals are a good thing, are potentially a good thing if you get the value proposition right and it's a strong client who will adhere to the relationship. The other really positive things about them that we've seen with the big deal that we did recently is that we have signed up a fair amount of additional work with our client aside from the 4 corners of the big strategic deal that we did because they have confidence in us, respect for us, work closely with us. And, of course, the value proposition benefits them and is attributable towards their discount as they increase their volume. So you can't paint them all with the same brush. The clients are all totally different. I think it's nice to have them when you start a quarter to know that x amount of sales are there. It's nice to exclude competition if you get a deal for multiple years. It's nice to be closer to the client, but it only works if the value proposition works and they're sensitive to the needs of the CRO to make an appropriate level of profit.

Our next question will come from the line of Timothy Evans of Wells Fargo.

Tom, would you be willing to talk about the options that are on the table for dealing with the convertible debt that comes new next year, maybe how we should be thinking about interest expense in 2013 and beyond?

Sure. I can give you a little bit of color at this moment, and we're obviously continuing to work that. We've perhaps $350 million available on our credit facility. A little bit of it's the revolver, a little bit of it's actually drawn or committed to letters of credit but not really that much. And, of course, we do have an accordion feature. So at the moment, we have an ability to maintain a portion of our converts long-term status, so we're looking at that. Beyond that, we are looking at what the market's doing and senior notes and converts as well, and the rates do continue to be low. If we could write the script, we would obviously wait longer to do something. But I think in the meantime, we'll continue to look at current market trends and look at activity. And I think the positive thing is we do have good credit ratings. We do have good cash flow, and so I think it affords us a good ability to pick and choose what we think is in the best interest of the company.

Our next question will come from the line of Tycho Peterson of JPMorgan. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: Question on RMS. It seems like a lot of the upside relative to your expectations there was on the model side, and obviously you called out Europe and Japan as being points of strength. Can you maybe just talk about what you're thinking about in terms of the underlying growth rate for RMS going forward? I know you talked about some of that European and Japanese business rolling off a little bit in the second quarter, but are you seeing a bit of an inflection here? And can you also talk about how price is factoring into the dynamic?

Sure. I'm not sure it's an inflection point. It's a strong business where we continue to be the prominent player in the industry. On the model side, at the moment, Europe and Japan are a bit stronger than the U.S. Europe, we have a totally different mix of clients, sort of small drug companies and government, and we're definitely taking share. We're also taking share in Japan. We've been in that business in Japan since 1975, and I would say this is -- while we've always held our own, this is the first time where we are aggressively taking share and improving operating margins. And we're certainly holding our own in the U.S. So I'd say that the Models business is solid. The service businesses are the most, in some ways, a positive surprise. If I were to go back a decade and think about it, we're getting very large service lines of business with very, very good operating margins and good growth rates. We told you in the prepared remarks that we're growing that, the service entity, around 9%. We told you that In Vitro, which is reported in the RMS business, is performing at above 10%. So really good mix. You can see it in the operating margin, which is the best since 2008. And I believe the 2008 number was actually the best ever, so it's probably the best operating margin that we've ever seen. We have said directionally that we believe that assuming you just take the current portfolio products and services, RMS is tracking to its high single digit. FX adjusted, it's at [ph] 6.5%. There's no reason why that can't continue to gravitate upward. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: Okay. And then if I can just ask a quick follow-up on BPS. You talked about, you think that business will pick up a little bit in the second quarter. What gives you the confidence? And as you think about your portfolio of services there, do you have everything you need? And also are there things you can do to improve the margin profile of the Biopharma Services business?

Yes. I mean, look, it's a strategically an important business. It's all about biologics, large molecule services, testing, process development, validation and scale-up. We have quite a large business in it. We have 4 locations, we have new GMs, we have enhanced facilities, and we have much more of a complementary service offering where we offer this in addition with other products and services that we can offer to the client. The first quarter was definitely a sorting out quarter for our clients, definitely a reprioritization process, a little bit of slippage. And the confidence that we have is based primarily on feedback from clients as we see the demand strengthening as we move into the second quarter. It has to strategically increasingly be an important business given the intensified investment in large molecules that we're seeing by our clients and a reluctance by virtually all of them except very big drug companies, to bring the sort of expertise, which is very complex, in-house. So we remain really optimistic about it as a service line.

Our next question will come from the line of Douglas Tsao of Barclays.

Jim, just could you provide some perspective on how much of your PCS capacity is now utilized in strategic deals? And do you have a sense of where you would like to take that? And what's a reasonable target in the near term?

Doug, I think that's actually a really good question, not necessarily the one I know the answer to. I think as a general proposition, as I said earlier, it would certainly be good to have some meaningful portion of your preclinical revenue booked and visible as you go into a quarter. I don't know what that is. If it's not a margin trade-off, then I'd like it to have as much as possible. You want to have some flexibility to be able to use your space for others, so you don't want all of it -- I'm trying to think back, when we first bought Inveresk, we had a take on that. And I think in those days, we were saying, what was it, like, kind of 30% would be...

20% to 30%, yes.

Yes, 25% to 30% would be kind of good. You have that cooked as a stable base. So that's probably an okay number to resurrect. I would say it's modest now, but directionally and potentially improving if and as we continue to do deals with larger companies.

Yes, I would just add, and I would echo what Jim said, Doug, that because the largest biopharma has been our weakest sector, that's where traditionally we've had the stability in those types of agreements, so I do think it's trended down. But with the activity that we're looking at, hopefully, it'll trend back up.

And then just in terms of the -- your current capacity and your study rooms, what percent are being used in DMPK and non-GLP, other non-GLP studies right now versus the standard regulated studies?

Well, I think rather than give you runs of capacity, what we've said is that, that business is looking to do what, 10%? That's looking to be about 10% of our revenue. So I would say, definitely a meaningful portion of our business. It's growing way faster than -- well, it's continuing to grow quite quickly. We have some really strong therapeutic area capabilities particularly in oncology and CNS. Certainly, on the oncology side, that's at a time where so many drug companies are focusing in on that. It requires and utilizes exactly the same space as the regulated studies, albeit, you can have multiple studies in the same room, so you actually have a little more flexibility, and it's helping with the process of enhancing capacity utilization. So I think we will see that increasingly constitute a larger proportion, both of our revenue and capacity utilization.

And just one really quick follow-up. That 10% number, where is [ph] that relative to where you would have been, say, 3, 4 years ago?

Without specifically quantifying, it's dramatically higher. It's certainly in the area that clients are beginning to focus on and let go of these things, things that they've embraced as core and not outsourceable. So much more significant and growing pretty much faster than many other things that we do.

Our next question will come from the line of Mr. John Sullivan of Leerink Swann.

Just a quick question about the way the tox testing services business slowed over the quarter. First quarter is often difficult to figure as drug companies are slow to get out of the gate. Any meaningful difference between the third month of the quarter and the first in that business?

Not really. I mean, the good news about tox, and we're starting to use the term in-life, the real classic regulated tox studies, has been fairly consistent for about 3 quarters in a row. And as you heard in our prepared remarks, we're actually up $1 million if you normalize the 53rd week. And while that's not, certainly not dramatic growth, it's stable growth. So it does seem like the regulated studies have reached a point of some stability and the non-regulated stuff has reached a point of potentially consistent increased outsourcing. There should be some balance there, some offset in terms of growth rate and hopefully margin. And as I said a few moments ago, both of them will continue to utilize our excess capacity.

Our next question will come from the line of Garen Sarafian of Citigroup.

I wanted to just drill down a little bit on the market share comments in RMS. Just trying to find out, has the demand from the market shifted in your favor? Is that these market share gains are occurring in Europe and Japan? Or is it more of some of your competitors stumbling and Charles River not or -- it could be more temporary in nature?

I think it's a combination of both. We have competitors in both locales. I wouldn't say, stumbling and then temporary. I would say sort of consistent underperformance, lack of consistent service, often irrational pricing policies, lack of investment facilities, lack of scientific depth, on and on and on. So I think a lot of the things we're seeing are systemic. The Japanese one is a bit unusual because that's a culture that historically has been egalitarian with the way it's provided business to its suppliers and sort of liked everyone to be -- have the same percentage, and we're not seeing that any more. So I think the worldwide phenomenon is have less partners, go to the best-quality provider who can provide you -- also provide you with attractive pricing. So I think it's the quality of the work, the science, the turnaround time, a more flexible pricing strategy at a time where competitors are just not executing as well as they used to.

Got it. And just a follow-up question. In terms of toxicology, when capacity utilization goes down in an industry, do prices adjust in a linear fashion? Or does it -- is it more of a hockey stick where until the industry reaches its optimal or near-optimal utilization levels, pricing is sort of suboptimal?

I would say -- this is Tom, I would say, that it's not necessarily linear, and also it's not really just about capacity but also about demand as well from our clients that has also affected or could affect pricing.

Our next question will come from the line of Todd Van Fleet of First Analyst.

Guys, just a quick follow-on to that market share question. Just thinking about the timing of which you can really push to make those inroads and gaining the share. Is there -- as you guys think about it internally, is there kind of a push to get new contracts signed for the beginning of year? Is it possible to see really gains from a market share perspective kind of over the course of the year as well? Just trying to understand kind of timing-wise, is it more of a kind of a bulge at the beginning of the year versus kind of spread ratably over the year?

I'd say we're always pushing, so -- we're not necessarily pushing to fit into one quarter or at the beginning of the year nor can we necessarily push clients away from the competition. I think it's continuous and concerted. On the RMS side, it's been several years. It's not a quarter phenomenon. We've said the Japan thing's a little bit new, so that's kind of the back half of '11. And also remember that we had this oddity where most fiscal years -- the fiscal year of most of Japanese companies, particularly our clients, is April 1 when ours is January 1. So, yes, we had a little bit of a push, expenditure push at the end of their fiscal year in Japan, which was helpful to us. So we're always pushing on it hard. We are making significant progress. We've made progress on the RMS side both in the U.S. over the last few years and in Europe over the last 2 or 3. I'd like to think that we can continue to gain share in Japan as that marketplace begins to attempt to act like the rest of the world, both in terms of relationships between client and supplier, and Japanese pharma companies desire to sell internationally.

Our next question will come from the line of Zach Sopcak of Morgan Stanley.

In for Ricky. And I had a question about your client mix actually. When you look at the big global biopharma and mid-tier, it sounds like throughout the year, you're expecting to see a continued mix shift away from the big biopharma towards the mid-tier. I was just wondering if you see that trend continuing throughout the year. And then also, with your sales force allocation to line up with that, do you believe there's any chance that you'll miss perhaps some of the turnaround in big pharma if you have less sales, resources allocated towards it?

We have a very good structure for the big global accounts. We have very senior people with responsibility for a very small number of the global accounts, and we have multiple touch points with every account. So we're quite happy with our interface. They're really big companies who are taking a lot of work offline and refining their pipelines. A couple have temporarily kept work in-house. So there's not a whole lot we can do except to continue to distinguish ourselves from our clients and periodically sign up a big strategic deal. So no, I don't think anything we do elsewhere will steal from big pharma. We definitely have more people on the mid-tier accounts, which I told you was up 5%, and in the academic and government accounts, which are up high single digit. Those are definitely areas of growth for this company. For us to be the scientific provider at rational price points is definitely winning share for us in the academic sector where we historically were not that strong. Mid-tier is an awful -- there's a lot of different types of companies covered by that sort of description. But lots of them are growing nicely, and many of them don't have any internal capacity. So I think we have the right sales component. I think we are flexible and thoughtful about our pricing. I'd be disappointed if we didn't continue to grow both of those sectors in a meaningful way without having to steal people from the big drug companies to work on them.

There are no further questions in queue at this time. I would like to turn the call back over to Ms. Hardy and the panelists for any closing remarks.

Thank you for joining us this morning. We will be presenting at a number of conferences in May and June, and look forward to meeting with you then. This concludes the conference call.

Ladies and gentlemen, we'd like to thank you for your participation in today's conference call. Thank you for using AT&T. Have a wonderful day. You may now disconnect.