Ladies and gentlemen, thank you for standing by. Welcome to the Charles River Laboratories Second Quarter 2014 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Susan Hardy, Corporate Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome, to Charles River Laboratories Second Quarter 2014 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 update guidance for 2014. 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 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 324004. The replay will be available through August 22. You may also access an archived version of the webcast on our Investor Relations website.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 in our annual report on Form 10-K, which was filed on February 25, 2014, 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 on 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 Information link. Before turning the call over to Jim Foster, I'd like to mention our upcoming Investor Day on August 12, in New York. If you would like to attend, please call or send an e-mail. My contact information is on the press release. Jim, Please go ahead.

Good morning. I'd Like to begin by providing a summary of our second quarter results before commenting on our business prospects. My comments address the new business segment, on which Tom will give you more details shortly. We reported sales of $341.2 million in the second quarter of 2014, a 15.9% increase over the prior year. The acquisition of Argenta and BioFocus contributed 8% to second quarter revenue and foreign exchange, 1.4%. All 3 business segments reported sales increases. In constant currency, RMS gained 30 basis points, DSA gained 31.4% and Manufacturing gained 15.2%. In addition to the benefit of the acquisition, we saw improved sales to many of our global accounts. And as they did in the first quarter, mid-tier clients again generated a double-digit sales increase. Sales to academic and government clients also increased, primarily due to Research Model sales in China. I'm very pleased to tell you that year-over-year, the consolidated operating margin improvement -- improved by 170 basis points to 19%. Margins increased in all 3 segments, due primarily to a combination of leverage from higher sales and benefits from our efficiency initiative. Earnings per share were $0.97 in the second quarter, an increase of 32.9% from $0.73 in the second quarter of 2013. Our limited partnership investments contributed $0.04 in the quarter. Once again, we are increasing our non-GAAP earnings per share guidance by $0.10 to a range of $3.25 to $3.35. This increase reflects both the outstanding second quarter performance, as well as the gain from our limited partnership investments. We remain confident that successful execution of our sales strategies and integration of Argenta and BioFocus will enable us to achieve this guidance. Like the first quarter, the second quarter results continue to demonstrate 3 over-arching strategies that are fundamental to the positioning Charles…

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. Before discussing the business segment revisions, I will provide a brief summary of the financial results of our former RMS and PCS segments, so that you're able to compare your models. Going forward, we will not provide financial results for our former segments. On a constant-currency basis, legacy RMS segment revenue increased 3.5% in the second quarter, while the former PCS segment gained a robust 11.2%. This performance was driven by a particularly strong quarter for our Safety Assessment business, on which Jim has already commented. The non-GAAP operating margin also expanded in both of our former segments, as the legacy RMS margin increased 90 basis points to 30.9% and PCS gained 600 basis points to 18.2%. Following the acquisition of Argenta and BioFocus on April 1, we reviewed our financial reporting segments to ensure alignment with our view of the company. As a result of this thorough review, we determined that we should report 3 business segments. Research Models and Services, Discovery and Safety Assessment, and Manufacturing Support. We believe that, in aggregate, the business and financial profiles, end customers and go-to-market strategies are now more closely aligned for the businesses within each segment. The RMS segment now consists of the Research Models in Research Models Service businesses, including GEMS, RADS and Insourcing Solutions. All our Discovery Service businesses, including Argenta and BioFocus, are now being reported in the Discovery and Safety Assessment segment or DSA. The segment also includes our Safety Assessment business, which Wall Street commonly refers to as toxicology or preclinical services. The third segment, Manufacturing Support, is made up of Endotoxin and Microbial Detection business or EMD, as…

That concludes our comments. The operator will take your questions now.

[Operator Instructions] We'll go to David Windley with Jefferies.

I want to focus around DSA in the Safety Assessment business. I'm, first of all, curious if your views on the second half and comments on the third quarter are based on kind of a level of caution after a really strong second quarter? Or are they driven by kind of actual bookings in hand and level of backlog? Are you seeing some moderation in the bookings activity for Safety Assessment headed into the second half?

Dave, we're seeing pretty much all of that. So the second quarter was, obviously, a terrific quarter, it was particularly strong. So kind of all things hitting on multiple cylinders. Lots of studies with larger animals, a fair amount of specialty work and a fair amount of long-term work. Some work which happens often, but you never know when. Some large studies that were originally contemplated for the first quarter ended up moving into the second quarter. So we had a big bolus of work. The margin, obviously, is driven by having a great quarter, having a great mix of work like that and that's driving efficiency. So the margin is a combination of all of the above. We're expecting a really good third quarter and fourth quarter, where as we step back from the second quarter and kind of look at industry and the demand and the competition, and particularly the pricing, we're very cognizant of the fact that this is feeling, at least at the moment, very much because of the price, like kind of a mid-single-digit growing business for us. And maybe we'll get to high single, but that's not what we're guiding to. So we're expecting a strong quarter that will appear to moderate off of the second only because it was unusually strong. We're trying to get others besides us to look at the Safety Assessment business on an annual basis, because as you know pretty well, since you're familiar with the space, studies don't start and conclude commensurate with our corporate reporting quarters. They have different durations. And so taking a holistic view of it -- notwithstanding the quarterly conversations like this one -- we just think is a much better view. So we don't feel -- just to get to the essence of your question, we don't feel like we are being inappropriately or overly conservative. The back half of the year for all of our businesses tends to be somewhat adversely impacted by the holidays and summer slowdowns and sometimes running out of budget. It's not some overly cautious response. It's just cognizance of, while demand is very good and obviously we had a really strong quarter and so have others in the industry, and all systems point positively, given the fact that there's still a bit too much capacity in the system, we still don't have the level of pricing that should be commensurate with the volume and demand. And if and as we do, both the top and bottom line will begin to move much more quickly. So I guess, in a lot of ways, we continue to be cautious about pricing, and while we're delighted with the quarter, I would say that studies are still quite competitively bid and, yes, we talked about the fact that we win some studies where we're not the lowest price point, but price is still an important part of the evaluation process.

And my follow-up is kind on the same topic and on capacity that you just touched on. The demand does seem to be rising around the industry. It seems that all the major competitors' capacity is filling, at least, if not full. And there is some discussion of trying to move price up a little bit. So I'm curious about your comments about efficiency initiatives to stretch your existing capacity and openings and just your thoughts around how much additional work can you take on by squeezing work into your existing footprint versus your thoughts about further additions to capacity?

So first off, we don't think that the dialogue that you're hearing in any way jives with day-to-day, week-to-week, month-to-month pricing negotiations that we have with clients when other competitors are at the table bidding. And trust me, as soon as that changes, you'll be one of the first to know. Because we still don't feel that we're getting paid well for the quality of our services, although we're trying to make up for that by being as efficient as possible. But clearly it will have some pricing -- obviously will have some significant relationship to capacity being very utilized. So I suspect there's more capacity in the system than people are letting on. In our case, we are getting full, and we said that now several calls in a row. We have, depending on the quarter you speak to us, a facility or maybe a couple of facilities that are functionally full. For us, that means 85%-ish. We have a little bit of space at several sites that we have and will continue to open. And by that, I mean, a room that's built and not caged, a room that's shelved but not totally finished. Not major happenings to get it done. At multiple sites we'll be able to subtly bring those online. When I mean subtly, without adversely impacting our operating margins but providing additional capacity for our clients, which of course, is our job. So I think we could do that for 1 year or 2. Could be 1 year, but 1 year or 2. We're concluding a 5-year strategic plan. We're talking a lot about capacity. We have several buildings, like one in Canada in Sherbrooke, which was built for the express purpose of continuing to add onto it. It was built in a modular fashion,…

We'll go to the line of John Kreger with William Blair. John Kreger - William Blair & Company L.L.C., Research Division: Jim, can you talk about the historical correlation, if any, that you've seen between your core model business and the tox business? And the real question here is, as the tox business begins to gradually get better, do you think that will eventually be enough to sort of cause the model business to flatten out and start to grow again on a unit basis?

Really good question. The answer is we would have thought so, historically, for sure. So here's the facts. I was thinking about this kind of last 24 hours in preparation for this call. Demand is definitely better for everyone in the CRO safety assessment space, particularly for us, but it's just better. Our North American Research Model business has had 2 good quarters in a row. Not increasing sales but flat sales as opposed to declining sales, and escalating operating margins. So 2 really good metrics. And we used to talk a lot about the correlation that you're asking about and so, on the one hand, there obviously is a correlation. Outbred rats are the model of principal, small animal model of choice and the Charles River CD rat is the principal model of choice within the outbred rat. So, yes, we should see it. I think we're actually not seeing it yet, and I think what's happening is the following: One, is that you have an overall focused reduction in the number of drugs in the pipeline. So that drug companies can spend more money getting the ones with the highest probability of getting to market, to market. So that's definitely a significant issue. The other is that a lot of the work that we're doing, and I suspect that our competitors are doing, used to be done by our clients in their facilities. So they're not doing the work. We used to sell them the animals, now we sell them to ourselves or we sell them to our competitors. So you have a net increase in work. I would just say, anecdotally, and then we should watch it and you can ask me again in 1 year, a lot of people at Charles River are spending a lot…

And we'll go to the line of Eric Coldwell with Robert W. Baird. Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division: I'm going to take that to 2 questions. I have many, actually. But first, with Research Models. You kind of hit on this with John, but North America flattish for 2 quarters, China up, Europe and Japan tend to lag. You've lagged for a couple of quarters now. Are you getting any signs in Europe and Japan that perhaps demand could pick up? And I guess as a corollary to that, you're consolidating some sites in Japan. That might be your signal that you really haven't, but I'm curious on the reasoning for the consolidation of the facilities there now.

Great question. Historically, for whatever reason -- you're a student of the pharmaceutical industry as well -- geographically, Europe and Japan have always lagged the U.S., pretty much with regard to everything. All the ways that we've interfaced with them, we see this. So we're not surprised. Europe tends to come right after the U.S. and then Japan typically follows. It tends to be a more insular environment, obviously. So it looks like the U.S., at least for the moment, has kind of stabilized from their capacity reduction. And of course, we have reduced our capacity both in California and currently at our Michigan facility. And so we feel really good about utilization of capacity and the resulting margins that will be derived from there in the States. And we're trying to manage that same process overseas, so we will continue to look carefully at the capacity that we have and refine it as necessary, commensurate with the demand. And we're in the process of doing some of that refinement, a little bit in Japan right now. So no, I wouldn't say that we've seen it stabilize, but we expect that it will -- probably going to be another year, maybe another year or 2. But I would continue to point you and everyone else listening to the fact that while sales have not been increasing in that business, we have some very creative, very aggressive initiatives in process right now to drive efficiencies through capacity utilization, automation and doing things much less manually. And we, like we just showed this quarter, believe we can and intend to continue to drive operating margins up in that business. And we will continue, definitely, to take share in the U.S. in the mid-tier and academics. And we do think that China will obviously grow indefinitely, given how nascent that market is. Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division: And I'm going to ask a follow-up or shift gears a little bit. You've talked about seasonality for the firm in total, and the major themes, which is a recurring theme. No surprise there. But with the new reporting structure, the 3 segments and some of the mix shift, could you speak specifically to the segments in terms of whether Manufacturing Services, perhaps, has a different seasonal pattern now than we might see in Safety Assessment or Research Models? Just trying to get a better sense of the revenue and EBITDA flow by new reporting segment based on the changes in mix.

Well, it's a good question. I would say that Manufacturing is probably slightly less seasonally impacted. So it's got 3 pieces, it's got the EMD business, the Avian business and Biologics. I would say that the EMD business is pretty much not impacted by the season. I would say that the Egg business, where we have, I'm knocking wood, historically been sold out of eggs year after year after year, is pretty much not seasonally impacted. I would say Biologics could be. That's a really tough business for us to call. It's very short-term work, and you don't have much backlog, you don't have much predictability. Although the business is doing much better, very much tied to large -- entirely tied to large molecules. So I'd say that will probably follow some of the ebbs and flows in just the pharma and biotech industry spendings. So somewhat in Manufacturing Support, but less impacted by the seasonality that we're seeing in kind of classic RMS or in the Safety Assessment business.

Eric, I would add to that one comment, because we don't think about it in those seasonal terms. But in the vaccine business, we have several clients who peak production around the vaccine periods, which tend to be oriented at different times of the year. So we actually do see a little falloff in the second half of the year because it's lower [ph] , and given overall demand, we do try to place those eggs at many other customers and sometimes we're successful and sometimes we're not. So it's a little different from other seasonal trends that we talk about, that are more related to summer vacations and things like that. This relates to some of our clients' productivity cycles.

And we'll go to the line of Greg Bolan with Sterne Agee Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division: Tom, going to the -- I know we're not going to be talking about this on a go-forward basis. But just given kind of the very exceptional results this quarter for legacy PCS, I think you had mentioned a 600-basis point rise in legacy PCS operating margin to around 18.2%. Can you give us a sense as to how much of that was driven by the tax credit, as well as FX and then just what the underlying kind of pull-through margin was from just the general improvement in volume?

Yes. We did say, in DSA I believe, that it was about 200-plus basis points for those couple of items. So it would probably be a little bit more than that in the legacy PCS business because it's a smaller size versus adding the Discovery Services to it. So clearly a good percentage of it, probably around half or better, really driven by volume and the flow-through of operating margin, contributed margin, however you'd like to state it, that you guys have sort of been asking about. So we did see a nice flow through of incremental margin on the pickup in volume. Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division: And then, Jim, just thinking about your comments on the North American outbred rat market -- outbred model business. I guess as you think about the spot pricing market for that particular model, your CD rat. I guess one of your primary competitors has kind of gone through some changes. And I guess one of the things that I was wondering is -- is there any indication that the pricing for that particular model is starting to get somewhat of a lift after say, 9 to 12 months of maybe some irrational behavior by some of your competition? Is there any indication of that at all?

No. This is not a model or price sort of variable and changing from time to time anyway. We have an annual price increase that affects different clients in different ways. Sometimes our competition follows us, sometimes they don't. Sometimes they're higher. It's a bit unpredictable. Notwithstanding whatever your conclusions are about the volumes, the volumes are still very significant for this animal model. I suspect they're still the highest of anything we do just in terms of share unit. The margins are very, very good just because we produce so many and we're so efficient. And we do get a meaningful price increase throughout the world. And I think we'll be able to continue to do so just because of the fundamental importance of the animal model. We're not seeing anything particularly unusual from a competitive point of view. And even if we did -- even if competition were to be aggressive in a positive way -- in other words, raising their prices. We would do what made the most sense for our clients, given the relationships that we have with them. But that's a product line that we're still really happy with.

We'll go to line of Tycho Peterson with JPMorgan. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: Want to understand some of the gives and takes on the margin line, in particular, just sustainability of the tox margins. You obviously had a onetime benefit from the U.K. tax law change and then some from FX, and I know tox margins are going to be down a bit, sequentially. But what do you think the underlying run rate is on tox margins over the next couple of quarters? And then similarly, where do you see Argenta and BioFocus margins going from here?

We did say that the Argenta and BioFocus to work [ph] Backwards [ph] , Tycho, we're sort of in the mid-teens. We don't necessarily see that changing a lot this year. We are working through the integration, efficiencies and what not. But really, we're looking to leverage that as we exit 2014 and into 2015 and beyond. Whether we can get there or not, our target would be to really try to get that up in line with our corporate target, somewhere up in the 20% range. So that would be our objective. We have reasons to think that that's possible, but obviously that's not a commitment that we would make at this particular point in time. I think we basically want to raise them as much as we can without impacting the business negatively from a quality of service standpoint. And with regard to sort of the legacy PCS, I think, the overall DSA, we'll continue to see it move sideways, I think, in the mid-teens to maybe a little bit better than that. Which is sort of where the legacy PCS business has been and it's kind of where AB is. So I think mid-teens to slightly better is probably a good number to be looking at for DSA. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: Okay. And then just a follow up on Jim's comment earlier about capacity. I'm just trying to put the comments on Shrewsbury in context. I mean, have you had discussions with clients about potentially opening that in the coming year? And how do we think about how you would potentially do that? Would it be in pieces or -- I'm just trying to understand how actively you're thinking about taking that step.

I wouldn't say we're having serious conversations. What I did say is, I've had a whole range of Cambridge, Boston-based biotech, large and small, ask me recently about what our plans are for Shrewsbury. So they're starting to think about how they could benefit from that being open. And as I said earlier, that was built as a very sophisticated toxicology facility and could be reopened as one. But I think it's more likely to be reopened with several different services going on at the same time, perhaps regulated safety assessment, some sort of in vivo pharmacology, DMPK, maybe, activity. And then some vivarium utilization by clients, where either we manage or they manage some combination of those. But in any event, we would want some commitments by clients in advance. And I think, typically, at least the last half dozen years or so, people are reluctant to give those commitments. But as they run out of their own space or get out of their own space or failed to want to increase it, we're likely to be able to negotiate some deals like that. And when we do, we'll be happy to open it. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: Is there any discussion of dedicated space? I mean, this was a topic 10 years ago, but we haven't heard about it a lot recently.

Yes. And that would be exactly the sort of conversation that we would want. The perfect scenario that we always thought is that we'd have 3 kind of big biotech companies take a third, a third, a third or small pharma take a third, a third, a third. And kind of own the corridors, own the space and get to know the people and have them be dedicated. I don't think that's an impossibility either. So we have a team working on this right now in terms of what do we need financially, what are the best combinations, what are the most likely clients and we're working this because Cambridge continues to expand. Big pharma is adding buildings all the time, there's more biotech companies with [ph] rodents [ph] Et cetera, et cetera. It continues to flourish, and we put that site there for a reason. We wanted to be proximate to where all the work is being done. So we're really desirous of getting it open. But the clients will have to drive that.

And we have a question from Jeff Bailin with Crédit Suisse. Jeffrey Bailin - Crédit Suisse AG, Research Division: Jim, you mentioned earlier that you're not quite yet satisfied with the prices you're getting on the safety assessment side. But could you give us any color on you'd characterize the spot pricing environment right now? Are you seeing any increases and are there any geographic differences worth calling out? I know one of your primary competitors has discussed the trends in European being a little softer, so curious if that's similar to your experience?

I would say that the geography is not particularly relevant. It's very client-dependent. We have clients where we have the enterprise deals. We have clients that are one-offs. We have clients that are very price sensitive and some that will pay up for great science. So it's all over the place. We don't think we're even close to being paid for the quality of work or the level of investment that we're making. Having said that, because capacity is filling, because the mix of work is being enhanced, the margins are improving, and we're proud and pleased with that trend. But we're pretty full. And we're running pretty lean and doing really great quality work and the clients are experiencing a 30% to 50% reduction in what they would be spending internally, at least. And so there's definitely -- and if you consider the fact there we're still probably 25% or 30% below 2008, which was sort of the industry high. There's a lot of room for pricing improvement where the client still feels good about the value that they are getting, and that we feel a lot better, the work that we're doing. And the other thing that's going to invariably happen here is that clients have gone from literally waiting 6 months. In other words, calling us up and they say, how fast can you start the study? And we tell, them 6 months; and they say, okay. And they plan for that, they get their molecule in the queue. Literally, for the last 4 or 5 years, clients could start a study in less than a month or sometimes in a couple weeks. They've grown accustomed to doing that, which I think is not good for any of us. I don't think they plan well, it's really…

And our next question will go to the line of Sandy Draper with SunTrust.

Maybe just a general observation, and Jim I'd love to get your comment on this. When I listened to your commentary about where you are, talking about where you'd be, your portfolio, the way the market is. If I rewind 12 months ago, I would look at it and say your tone sounds more positive. You feel better about where Charles River is sitting today than 12, 18, 24 months ago. But when I look at the sort of your full year guidance this year in the 3 segments versus last year, if you exclude the acquisitions, there's not a whole lot of difference from the growth rate. And I'm just trying to see if I'm misreading anything about your overall positive tone. As you said, we need to focus on this stuff annually, not quarterly, which I can appreciate. But just trying to see if you really do feel that better, but you're just trying to keep a conservative outlook. You said not overly conservative but just generally, due to the lumpiness, you want to make sure that you're not getting ahead of yourselves. Just would love some comments on that.

Tom and I could both take shot at this, I guess. Again, we don't feel that we're being conservative. We really are trying hard to be realistic. Yes, obviously, some of the history is in our present, of course. And there's some unpredictability in this marketplace and availability of funds, and the competitive scenario continues to be challenging. It's okay that it's challenging. But it's more challenging than it was many, many years ago. Having said that, we're quite pleased with the growth rate in the preclinical business versus the last few years. We're very pleased with the engagement with many more clients. We're very pleased with our facilities filling and the mix of business. And the only thing that we're not pleased with is price point, and it sure feels like we ought to be getting some level of relief in the not-too-distant future -- although that continues to be elusive from our ability to call that. With regard to growth rates elsewhere besides our most recent acquisition, the Research Model business has flattened but operating margins are growing. Our Discovery businesses are growing, our EMD business is growing very rapidly, as we reported, for I dunno how many quarters in a row, and we just finished almost a 20% growth quarter -- last 2 quarters we're almost 20%. And we've kind of showcased biologics as a business, which we've been growing and investing in for several years now, and it's beginning to kind of break out and make a difference. So we're generally pleased with the overall demand for our businesses. It's becoming a big complex portfolio. The acquisition the we just did should grow faster than many of our other segments. It should continue to enhance our top line growth. And we think, with some modest amount of M&A going forward, we can get the company back to double-digit growth, which is our goal.

Yes, just to add to that. If you think about our guidance this year, excluding the acquisition of Argenta and BioFocus, we're essentially in the mid-single-digits. Last year, we grew low single-digits. So, clearly, the topline numbers on a "pro forma" basis will be better. That's really being driven principally by the Safety Assessment activity. What we're now calling Manufacturing Support, which includes EMD, continues to grow quite nicely. I think the in-life/safety assessment is actually going to be up year-over-year in terms of the growth rate, which we've talked about. And the new or the old RMS segment, principally the models area itself, continues to be challenged, as we talked, by in large part the consolidations that we continue to see in the industry. So, overall, I do think we're in a better environment, particularly in the in life. I think the businesses that have been doing pretty well continue to do well, like EMD, in life's doing better. And we're continuing to work through challenges in the models business.

And we'll go to Robert Jones with Goldman Sachs.

I guess, just on the RMS side, Jim. The efficiency efforts there, you obviously continue to pay dividends on the margin side of that business. And yet, on the top line, and you guys have touched on some of the challenges here, it looks like, on a constant-currency basis, it's been relatively flat. So I guess just 2 quick ones, how much room is left on the efficiency side to kind of improve operations? And then on the top line, you've called out a few specific things. But I'm just wondering from a higher level, how much of this slowdown, if you will, in growth there do you characterize as structural versus more market-specific in the current environment?

So I think it's early days on driving efficiency. We said on several calls, this is an old business that we've been in for a long time. We're the world's leader. We're really good at it. The margins are terrific, and things are way too manual. And we're rethinking everything that we do. And we're driving efficiency all over the world in multiple aspects of this business. So I'm quite confident that the operating margins will continue to expand in a meaningful way. So that's really good news. I think that we can and will continue to grow our share in the academic and the mid-tier sectors in the U.S. And I think we can continue to grow share once things stabilize overseas as well. And, certainly, China will continue to be a high-growth vehicle for us. So we've been saying for a couple years, the business will probably shake out as a low single-digit growth business. We're saying that the products and services piece now are high-20s margin. And we'll continue to drive that as hard as we can, try to get it as close to 30 as possible. And it's a very big business. It provides an entrée to literally almost every research enterprise in the world. It helps us build the rest our businesses. It's an extraordinary source of free cash. And we do also have some continuing opportunities to participate by creating or licensing in or somehow getting access to specialty models. Which has been our goal for a long time, which should help enhance the value proposition even if the units are relatively small.

That's helpful. And then I guess just one quick follow-up and don't want to be a spoiler here. But looking ahead to the Analyst Day next week, curious if you'll be providing an update on the long-term targets, particularly on the margin side, in light of the change to the reporting structure that you guys gave today.

We'll take that under advisement.

And we'll go to the line of Rafael Tejada with Bank of America.

Just a quick one here on an earlier question. Just for the full year guidance on operating margin. Can you just comment on how much is really being driven just by the business improvement factors as opposed to the other charges that are being recognized?

That would be looking at the whole year or the rest of the year?

Yes, the whole year.

Well, if we go back to our original guidance -- we obviously increased guidance for Argenta and BioFocus. We increased it for a combination, both venture capital money and performance of the business, and then we've just increased it again. If you think about the second quarter, we outperformed by -- by consensus I guess, to use that data point by $0.15, $0.16, we had $0.04 from venture capital. Everybody's got a different take on whether the shares were a little bit better or not. I mean, they were marginally better. Obviously not meaningfully, same with the tax rate. We did mention a couple of hundred basis points with foreign exchange and the tax pickup versus last year. Although, from a perspective basis, I mean we knew about the tax change so we had kind of put that into our forecast, and the currency worked to our favor. So the truth of the matter is, without scratching it out on paper there's a good portion of it that's clearly from operations, clearly some of it is from venture capital. We talked about that being $0.12, and some of it's clearly from the acquisition. Not much I would say, really, from one-time activity at this point in time. Other [indiscernible] activity.

Okay. And then just a quick follow-up to that then, just thinking -- and maybe this is something you'll discuss next week. But longer-term, on the potential EPS growth, I think I'm just trying to get a better handle on the contribution from efficiency savings since these have been changing a bit on a quarterly basis. So what sort of non-GAAP EPS growth do you think is realistic on a year-over-year basis once you're still factoring in all these charges? I mean, can we -- is it something in the high single-digits, low double-digits? And that'll be it for me.

Thanks for the clarification to your question. And what I would say is as Jim just mentioned in reference to a question a few moments ago. We are planning to give a little bit more color on our longer-term growth rates next week at the Investor Day. But in terms of your question now, we still think there's room to improve, relative to efficiencies. We do have a robust program working on that. We've worked through a number of businesses historically, particularly, probably the in-life Safety Assessment business. And as we talked about earlier in the call, we did take some charges relative to our business in Japan. We hope to yield results from that starting next year. So, as Jim said, I think there's a lot of room still to make improvements in efficiency in a number of our businesses. And we continue to do that so that we do think that we can continue to grow earnings as well as the top line going forward.

And we have time for one final question, and we'll go to Doug Schenkel with Cowen and Company.

This is Chris on for Doug today. So maybe a longer-term strategy question. Drug development in China continues to grow at a rapid pace, but I think your presence there is largely limited to Vital River. Can you talk about if expanding services and products to China is priority for Charles River and what steps are being taken to drive growth?

Sure. Good question. Our goal is to do as much of our current portfolio -- provide as much of our current portfolio in China, probably for China, as quickly as possible in the areas that makes sense. So, for instance, we've already opened and closed a GLP tox facility that we opened in Shanghai in 2006. And there was insufficient business to warrant using it. Also, we opened it at a time when there was too much space in the U.S. and Europe at low price points. So, at some point, we want to back in the Safety Assessment business, but I can't see that for a while. We have a small EMD business that we've had there for a long time. We sourced a fair amount of our larger animal models from that geographical account [ph]. And obviously we have a robust growth engine with our animal business, which will have a related diagnostic laboratory and probably GEMS business associated with it. So we're looking at that locale for possibly doing everything else we do. So that would be our avian business. That would be in vivo pharmacology, that would be in vitro pharmacology. That could always be chemistry. So we want to be able to participate in that market, which is growing disproportionally fast from a funding point of view to the rest of the world. And we think we have a lot to offer. But we're going to do that cautiously, and we're continuing to assemble a strong management team in China as we do that. So we're looking at several acquisition opportunities and several organic growth opportunities. And depending on priorities around here and what deserves the most funding and where we think we get the best returns, we'll continue to proceed on those. But China remains an important part of our growth strategy.

There were a few more people in queue today, we'll follow up with you. But for the time being, this concludes the conference call. Thank you for joining us this morning.

Ladies and gentlemen, that does conclude your conference. You may now disconnect.