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Charles River Laboratories International Inc. (NYSE:CRL)

2012 Guidance Call

December 14, 2011 8:30 am ET

Executives

Jim Foster – Chairman, President, Chief Executive Officer

Tom Ackerman – Executive Vice President, Chief Financial Officer

Susan Hardy – Corporate Vice President, Investor Relations

Analysts

Dave Windley – Jefferies

Douglas Tsao – Barclays Capital

Tycho Peterson – JP Morgan

John Kreger – William Blair

Robert Jones – Goldman Sachs

Greg Bolan – Sterne, Agee

John Sullivan – Leerink Swann

Garen Sarafian – Citigroup

Tim Evans – Wells Fargo

Operator

Ladies and gentlemen, thank you for standing by and we do apologize for the technical difficulty. Welcome to the Charles River Laboratories 2012 Guidance Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call, please press star then zero. As a reminder, this conference is being recorded.

I’d now like to turn the conference over to your host, Susan Hardy, Corporate Vice President of Investor Relations. Please go ahead.

Susan Hardy

Thank you. Good morning and welcome to Charles River Laboratories 2012 Guidance 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 progress on four key initiatives to drive shareholder value and provide guidance for 2012 and update guidance for 2011. 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 tape 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 226703. The replay will be available through December 28. You may also access an archived version of the webcast on our Investor Relations website.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 statement 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 23, 2011, 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’ll turn the call over to Jim Foster.

Jim Foster

Good morning. I’d like to begin by discussing the progress we’ve made in 2011 on our four key initiatives to drive shareholder value before commenting on our outlook and guidance for 2012. We were able to make significant progress in 2011 on our key initiatives, which include operating margin expansion, improved free cash flow generation, disciplined investment in existing businesses with the greatest potential for growth, and returning value to shareholders. We anticipate that the operating margin in 2011 based on our expectations for the full year will be at least 17% primarily due to an increase in the RMS margin and stable corporate costs.

Cost savings actions we implemented at the end of 2010 combined with Six Sigma and other process improvement initiatives have contributed to the margin increase. For 2012, we expect the margin will be similar to 2011, and over the long term we maintain our belief that we can improve the consolidated operating margins at 20% through a combination of continued rigorous cost management and a return to at least mid-single digit revenue growth.

Growth should be driven by the large pharma outsourcing trend particularly as they identify more capabilities such as non-regulated efficacy testing that are no longer core to their process. Demand from biotechnology companies and academic institutions benefiting from funding by large pharma is also expected to drive growth.

Our second initiative is to improve free cash flow generation. Historically, we have been a strong cash flow generator and free cash flow has been increasing steadily since we completed our primarily pre-clinical infrastructure investments in 2008. In 2011, we expect free cash flow in the range of 165 to 175 million, or an increase of between 6 and 13% compared to 155 million in 2010. On a per-share basis, the midpoint of the 2011 range would equal more than $3 per share or a yield of approximately 13%, which we believe is the highest in the public CRO space. We expect to generate a similar level of free cash flow in 2012. We will continue to focus on this initiative and believe that we will generate increasing cash flow as revenue growth returns to at least a mid-single digit level.

The third initiative focuses on disciplined deployment of capital and identifying the appropriate balance between share repurchases, debt repayment, investment in infrastructure, and targeted acquisitions. In 2011, we allocated the largest amount of capital to share repurchases, buying back 7.6 million shares through the third quarter of the year for a total purchase price of approximately 256 million. We also set a goal to reduce our leverage below 3 times, which we accomplished through a debt reduction of 116 million since the first quarter of this year, invested in those areas of our existing business with the greatest potential for growth. Capital projects included construction of a new diagnostic laboratory which we expect to open in 2012, a new production facility in China for our in-vitro business, and the capacity expansion for our C&S discovery services business in Finland.

We have not made any acquisitions to date in 2011. Acquisitions are an integral part of our growth strategy but we have stringent criteria which must be met, typically including the achievement of a hurdle rate to return our invested capital which is above our weighted average cost of capital. We identified and evaluated a number of opportunities in 2011 but chose not to pursue some and are still considering others. We do expect to make select acquisitions in 2012 which are targeted at expanding our technical capabilities and global footprint. We have not included the impact of any potential acquisitions in our 2012 guidance.

Our fourth initiative is returning value to shareholders. The share repurchases which we made in 2010 and 2011 were one of the principal vehicles we used to create value and were a primary driver of the increase in EPS in 2011, which we expect will exceed 20%. We plan to continue to repurchase shares in 2012 as a component of our initiative to increase shareholder value.

We were very pleased with the progress we made on our goals in 2011 and expect to maintain our focus on these key initiatives in 2012. We continue to believe that the breadth of our integrated portfolio, our deep scientific expertise in in vivo biology, rigorous management of our business and intensive focus on these four initiatives have enabled and will continue to enable us to manage our performance during this period when our clients are undergoing such significant change. Our lean cost structure is allowing us to deliver improved operating results despite only a modest increase in revenue in 2011.

At this point, I’d like to summarize our guidance from continuing operations for 2012. We view 2012 as a more stable year in which sales growth begins to strengthen and we maintain operating margin. At the low end of our non-GAAP earnings per share guidance range, we benefit primarily from share repurchases, and at the high end also from increased sales and operating margin expansion. We remain committed to driving process efficiencies to effectively manage our cost structure and enhance our ability to deliver more flexible solutions to our clients. We anticipate that on a constant currency basis, 2012 sales will increase between 1 and 3% from 2011 levels. Also in constant currency, we expect RMS sales growth to be slightly higher than the consolidated range and PCS growth to be slightly lower. As a result of our continuing efforts to tightly manage our infrastructure, we expect to improve operating margins slightly above 2011 levels. The improvement will be driven primarily by PCS due to the cost savings actions we took in the fourth quarter of 2011. We expect the RMS margin to be approximately at the same level of 2011.

We expect EPS to be in the range of $2.60 to $2.70 in 2012, an increase of between 7 and 11% from the midpoint of our estimated 2011 range. Operating cash flow is expected to be in a range of 210 to 220 million. We anticipate that capital spending will be approximately 50 million with the majority of that amount invested in our growth businesses; therefore, free cash flow is expected to be in the range of 160 to 170 million, similar to 2011.

On our third quarter conference call, I spoke about the change our large biopharmaceutical clients have undergone and the continuing evolution of their drug development models. We have observed two very visible differences in their models: first, they increasingly emphasize shorter term efficacy studies aimed at eliminating non-viable molecules earlier and taking a more limited number through the regulated safety assessment process. This has led to a greater focus on discovery services, which include non-regulated testing such as drug metabolism and pharmacokinetics, or DMPK, and in vivo pharmacology. These efficacy tests are pivotal to the clients’ ability to screen large numbers of molecules to determine which of those are viable, enabling them to make informed decisions earlier about which molecules should progress to regulated safety assessment studies.

The second major difference in approach we have observed is that these companies are choosing to outsource more discovery services in order to increase the efficiency and effectiveness of the drug research processes. They already know and respect us as one of the premier providers of regulated pre-clinical testing, so it’s logical that they would also choose to partner with us for discovery services. The same attributes that enable us to provide expert high-quality regulated services – our expertise in in vivo biology, global footprint, focus on customer service, and flexibility – make us an ideal strategic partner for the short-term, high throughput testing.

Furthermore, as large biopharmaceutical companies reduce the number of providers from whom they purchase in favor of larger partners who can support a broader portion of the drug development pipeline, the essential role we can play expands. Our award of an expanded five-year preferred provider agreement with a leading global pharmaceutical company, which we announced in November, is a prime example of our clients’ recognition of the distinct value we can provide and a testament to our flexible approach to working with clients.

Going forward in 2012 and later years, we believe that the four highest growth business opportunities are discovery services, genetically engineered models and services, or GEMS, in-sourcing solutions, and in vitro. Clearly, outsourced discovery testing is a significant growth area. We estimate that DMPK and in vivo pharmacology alone represent a market of approximately $2 billion, which is currently outsourced in a range of approximately 20%. Discovery services represented approximately of our last 12 months’ net sales through September 2011 with about a third reported in RMS and two-thirds reported in PCS. We expect our discovery services business to increase significantly in 2012 as a result of the expanded preferred provider agreement. Furthermore, since announcing the expanded preferred provider agreement, we have had meetings with seven large pharmaceutical companies at which we have discussed the opportunity to outsource a more significant portion of the discovery services that each currently performs in-house. It will take time for all of these companies to move towards more substantial strategic outsourcing of discovery services, but feedback from these meetings has been very positive.

Our GEMS business is also expected to expand. Genetically altered research models have increasingly become critical predictive discovery tools, but they present a unique set of challenges when being used in research. Many of our clients’ outsourced breeding and other services associated with the genetically engineered model (inaudible) to us for a variety of reasons, most significant of those being access to our substantial scientific expertise. The expertise we have acquired over years of working with models in many therapeutic areas is very difficult for our clients to duplicate in-house and unnecessary when we can provide these services in a highly efficient and cost-effective manner. We believe that GEMS has a significant growth opportunity because the business supports early discovery research which is performed by large biopharma and mid-tier biotech companies as well as academic and government organizations.

We also expect that the demand for in-sourcing solutions, the business we formally refer to as consulting and staffing services, is poised to grow. Through this business, we provide research model colony management services, which enable our clients to maintain their colonies on-site but benefit from our in vivo biology expertise. Now that clients are more open to outsourcing, we have had an increasing number of discussions about outsourcing their entire colony management process to us and expanding our role to include both non-regulated testing and regulated safety assessments that they current perform. Our ability to provide this specific combination of services is unique among all of our competitors, which is why we believe that in-sourcing solutions now has a more significant growth opportunity. Additionally, and especially in view of the investment large pharma is making in academic research, we believe we can increase our penetration with academic institutions.

The fourth growth area is our in vitro business. As you know, in vitro has been growing at or about 10% for the last few years as we take share with a portable testing system, or PTS. We continue to drive growth through a number of approaches, the most significant of which is live central laboratories. We believe that the addressable central lab market is approximately 300 million and estimate our current penetration at about 10%, which affords us a significant growth opportunity. Converting large pharmaceutical manufacturers’ central laboratories to the PTS requires a device which can provide higher throughput, so we have continued to invest in the PTS family of products. As you know, we launched a multi-cartridge system, or MCS, earlier this year, a multi-cartridge pack in the fourth quarter, and expect to launch the automated MCS in the second quarter of 2012.

Another growth avenue for the PTS products is time-sensitive users with limited personnel resources, such as small manufacturers, nuclear pharmacies, and dialysis clinics. We have been very successful in penetrating these markets and continue to pursue these and other opportunities for the PTS product line. These four opportunities – discovery services, GEMS, in-sourcing solutions, and in vitro – are the primary contributors to our expected revenue growth of 1% to 3% in 2012.

We expect regulated safety assessment will decline modestly in 2012 due to pharma consolidation and a continuation of the trend toward earlier elimination of molecules from the pipeline. We also expect declining demand for large models due to the reduction in regulated safety assessment and cost considerations; however, small model production will increase modestly primarily as a result of price increases which are expected to average between 2 and 3%.

Looking at growth from a client perspective, we believe there are opportunities with all three client segments – large biopharma, mid-tier biotech, and academic and government. We have worked closely with our large biopharmaceutical clients to strengthen our relationships at the most senior levels and support their efforts to outsource more services. As you know, our large clients represent half of PCS sales, so the reduction in the volume of regulated safety assessments that they outsource has been challenging to offset. We expect the sales declines we have experienced from this group since 2008 will level off in 2012 and we will focus on rebuilding sales through a combination of increased outsourcing of discovery services and share gains.

Building on our more focused sales effort, we have also forged new or stronger relationships with mid-tier companies, many of whom are benefiting from funding by big pharma. Most of these large companies maintain limited in-house capability and require the services of a CRO like us to help them through the pre-clinical development phase. We are beginning to see the benefit of our sales efforts, having signed more than 250 new clients in the first nine months of 2011, representing more than $10 million of new business. Turnover in the mid-tier is considerable because of smaller pipelines; however, we view the mid-tier as a significant opportunity to drive sales growth.

The most robust growth in 2011 has come from our academic and government clients, and we expect that this will continue to be the case in 2012. A significant portion of our sales to this segment are based on long-term contracts which mitigates the effect of funding constraints. Furthermore, the fact that research models are a very low-cost tool compared to large equipment, represent a small percentage of the research spend, and are a tool without which research cannot proceed, makes these products less likely to be a focus on funding cuts. Through the third quarter of 2011, sales to our academic and government clients increased by approximately 10%.

We believe we can achieve a comparable result in 2012 as a result of focused sales efforts which highlight our advantage over the competition - high quality products and services at marginal price premium, access to unmatched scientific expertise, a greater company stability then some of our small competitors.

There are three primary reasons that we believe we have and will continue to gain market share – scientific expertise, quality, and flexibility, and we are delivering all three. Our focus on science has been the foundation of our business since its inception nearly 65 years ago. We have continued to invest in our capabilities in order to maintain and enhance our position as the leader in in vivo biology. Quality of our products and services is exceptional and we ensure that we maintain our high standards through rigorous management of key performance indicators. Clients recognize and rely on our expertise and the quality of our work, which are two of the reasons they cite most often for choosing to work with us. In addition, clients often come to us when studies placed with competitors are performed incorrectly and need to be redone or rescued. In 2011 alone, 12 clients, including five global pharmas, placed a total of 18 rescue studies with us. The original studies had been performed by multiple CRO competitors.

Finally, flexibility is pivotal when working with our clients. Each of them – large global biopharma, mid-tier biotechs, and academic and government institutions – has individual requirements which need to be addressed. We do not believe that a one-size-fits-all strategy is responsive to their respective needs. Every day, we demonstrate to our clients that we have the flexibility to work with them in the format that is best suited to them, that we can configure our essential products and services across our portfolio to provide them with a customized support they need to accelerate their drug development efforts, and that as their strategic partner they can rely on us to help them achieve the efficiency and cost effectiveness necessary to bring new drugs to market faster and at a lower cost. We believe that this flexibility was a critical decision factor that motivated a leading pharmaceutical company to choose Charles River as its strategic partner.

Through this challenging time, we have continued to build our broad portfolio of essential products and services and enhance processes to improve our operating efficiency and cost effectiveness. Our portfolio supports the entire spectrum of our clients’ in vivo biology processes and makes us a logical strategic partner as they increasingly choose to outsource services which are no longer efficient or economical for them to maintain in-house.

The expanded partnership agreement we finalized in November as well as continuing discussion with clients about similar partnerships underscore our confidence that the business environment for our products and services is improving. We’ve seen an improved level of predictability as large biopharmaceutical clients move closer to completing the process of rationalizing pipelines and restructuring operations. As their outsourcing patterns become less volatile, pricing has become more stable; and though still a focus for virtually all clients, we have seen less of the severe price discounting that was so prevalent in 2009 and early 2010.

As our guidance indicates, we view 2012 as a more stable year in which we will focus on two critical paths: our continued focus on four key initiatives and partnering with clients to leverage the value of our in vivo biology portfolio.

In conclusion, I’d like to thank our employees for their exceptional work, commitment and resilience, and our shareholders for their support. Now I’ll turn the call over to Tom Ackerman.

Tom Ackerman

Thank you, Jim, and good morning. As Jim discussed in detail, we have made excellent progress in 2011 on the four key initiatives that we re-emphasized one year ago. Looking ahead to 2012, we will continue to focus on these key tenets to improve shareholder value and generate EPS growth despite the challenging market environment. I will focus the majority of my comments on the assumptions supporting our 2012 financial guidance. I will be speaking primarily to our non-GAAP outlook from continuing operations, which excludes acquisition-related amortization expense, non-cash interest expense, and certain other items in 2012.

Our top line outlook for 2012 reflects the benefits from several growth opportunities, both existing growth drivers such as in vitro and GEMS and emerging growth areas such as in vivo pharmacology and in-sourcing solutions. However, we expect sales growth to continue to be impacted by the challenging early-stage market environment, particularly the regulated safety assessment studies, leading to constant currency sales growth of 1% to 3% in 2012. This range assumes that pricing will contribute 100 to 150 basis points to sales growth. We expect to recognize an average RMS price increase of 2% to 3% in 2012 which is a combination of higher increases in the U.S., moderate in Europe, and minimal in Japan. PCS pricing is expected to be relatively stable.

We also expect that sales volume will be flat to slightly higher in 2012 driven primarily by incremental sales from our expanded in vivo biology partnership. The absence of the 53rd week in 2012 reduces the sales growth rate by approximately 1% which on a comparable basis correlates to organic constant currency sales growth of 2% to 4% in 2012.

Our sales outlook for 2012 excludes the impact from foreign exchange, which is expected to reduce reported sales growth by approximately 1% at current rates. FX is expected to have a slightly greater impact on the RMS segment than PCS in 2012. You may recall that our currency exposure is primarily related to the euro, British pound, Canadian dollar and Japanese yen. As a result of the European debt crisis, foreign exchange rates may be more volatile in 2012. From a modeling perspective, a 5% movement in foreign exchange rates would be expected to translate into a $25 million sales impact which would then drop to operating income at approximately the margin rate in 2012.

We expect the expanded in vivo biology partnership that we announced on our November call to add approximately 1% to sales growth and be profitable in 2012. This incremental work will be split between the discovery services business, which is reported in the RMS segment, and PCS. As we said, we do not expect the agreement to be at a full run rate until 2013 as the client plans to transition programs to us over the first half of 2012. Once fully ramped, we expect our business with this client to double to more than 5% of total sales and profitability to be commensurate with the overall margins. While we believe this agreement has generated interest in similar strategic partnerships with other clients, we have not included any potential impact of future partnerships in our 2012 guidance.

We expect the consolidated operating margin to be flat to slightly higher than the anticipated 2011 operating margin. We expect our process efficiency and related projects to generate more than 25 million of profit improvement for 2012, including the 7.5 million in annual savings from the recent November actions. These savings are expected to be largely offset by annual cost increases primarily related to merit-based salary increases averaging 3% to 3.5% in 2012, general inflationary cost increases of 2% to 3% for items such as feed, bedding and utilities, and to a lesser extent the performance-based bonuses.

As part of our continuous improvement efforts, we have identified and begun to implement new initiatives in 2011 to further enhance process efficiency and stimulate revenue growth. Our profit improvement program currently involves over 30 ongoing projects. The new ERP system which we implemented in 2010 is playing a critical role in driving this program through enhanced access to information. The three key elements of this program – process efficiency, global sourcing, and sales optimization – expand the scope of our earlier efforts to streamline our operations and unify our portfolio. The profit improvement program takes a more targeted comprehensive approach, often using new tools including the ERP system to identify additional savings. The largest contribution in 2012 is expected to come from process efficiency projects. For example, we have implemented projects to harmonize labor utilization. We are using enhanced KPIs captured in the ERP system to analyze labor utilization trends by product or service type and are in the process of adopting best practices across the organization. This expands upon the progress that we had previously under the PCS matrix organization in which we standardized study protocols and reporting requirements across our pre-clinical sites.

Another element of the program is global sourcing where we expect to generate additional savings by further consolidating procurement activities in areas ranging from lab supplies to utility contracts. We also plan to implement new initiatives to optimize on our sales efforts that will focus on enhanced selling strategies, measuring sales effectiveness, and continuing to build upon the success of our sales force realignment in 2010. These sales strategies will have only a limited impact on 2012 as we expect more meaningful benefits once initiatives are in place and gain traction with our clients.

We expect the RMS operating margin to be similar to the 2011 level and are forecasting some margin improvement in PCS due primarily to the anticipated benefit from the cost savings initiatives. While margins on the expanded in vivo biology agreement are expected to ramp commensurate with sales, this new business is not expected to have a material impact on the segment margins in 2012. Unallocated corporate expense is expected to be approximately 6% of 2012 sales, which is comparable to this year’s level.

I will now move to the non-operating items that affect our earnings per share outlook for 2012. Net interest expense is expected to range between 5 and 6 million per quarter in 2012, or 22 to 24 million for the year. This reflects the benefit of the September amendment to our credit agreement that lowered our interest rate and our expectation that we will continue to repay debt in 2012. You may also recall that we do not forecast other income, which primarily relates to investment gains or losses associated with our deferred compensation plan.

We expect a near 200 basis point increase in our 2012 tax rate to a range of 26.5% to 27.5%. This increase is primarily driven by an anticipated decrease in R&D tax credits in Canada and discrete items in 2011 that will not repeat in 2012. We continue to focus on stimulating top line growth to drive further margin and EPS improvement; but in light of the challenging market environment, we are pleased to be within striking distance of double-digit earnings per share growth for a second straight year.

Earnings per share in 2012 are expected to increase nearly 10% at the midpoint to a range of 2.60 to 2.70. The narrower range compared to prior years reflects our view of enhanced visibility and stability in our markets. Although we are not seeing signs of improvement in the regulated safety assessment market, we believe market conditions, including pricing, are more stable. Many of our clients have completed their pipeline rationalization initiatives and are working on a more targeted pipeline of higher potential molecules.

The most significant driver of this EPS increase is expected to be the contribution from stock repurchases, including repurchases made during 2011 and those which we expect for 2012. At the high end of our guidance range, we also expect operating margin improvement to contribute meaningfully to EPS growth, while the higher tax rate should offset lower interest and other expense.

The re-emphasis of our four key initiatives highlighted two of the underlying strengths of our shareholder value proposition – our strong free cash flow generation and ability to invest this capital in projects with the greatest potential return. As Jim discussed, we expect to generate 160 to 170 million of free cash flow in 2012. This is approximately 5 million below our 2011 range of 165 to 175 million as a result of an expected 10 million increase in capital expenditures to approximately 50 million in 2012. The increased capital spending is primarily attributable to the timing of expenditures as many of the larger projects commenced in 2011 are expected to be completed in 2012. Approximately half of our CAPEX is invested in growth businesses, including RADs, in vitro and discovery, and the balance is related to maintenance projects.

Our capital priorities for 2012 are unchanged from those discussed last month on our third quarter earnings call. We expect to allocate the cash that we generate in 2012 to a combination of stock repurchases, debt repayment, and potential smaller acquisitions. Not all cash generation will be available for corporate use because a portion of our foreign earnings may be trapped overseas.

We currently expect to repurchase between 1 and 2 million shares in 2012 as we rebalance our goal to return value to shareholders through stock repurchases with appropriately managing our liquidity and leverage. At the end of third quarter, we had 141 million remaining on our current stock repurchase authorization, which provides sufficient availability based on our current plans for 2012.

Regarding debt repayment, we are currently targeting a leverage ratio of approximately 2.5 times total debt to EBITDA by the end of 2012, which is about one-quarter of a turn below where we expect to be at the end of this year. This is subject to change based on our regular review of our capital allocation strategy as well as any potential acquisition activity which could impact the amount of deleveraging. We believe debt repayment accomplishes several important objectives, including reduced interest rates when our leverage ratio moves below certain thresholds as stipulated by the terms in our credit agreement, providing us with added flexibility to manage future liquidity needs, and maintaining and improving our credit ratings.

Free cash flow based metrics are increasingly important as we measure our progress in improving returns to shareholders. As Jim discussed, we have steadily increased our free cash flow since completing our major infrastructure investments in 2008 and are poised to generate free cash flow of $3.20 to $3.40 per share in 2011 with a free cash flow yield of approximately 13%, which we believe is the highest in the public CRO sector. We also believe that return measures focused on cash profitability in comparisons to funds invested in the business, such as free cash flow to net operating assets and free cash flow to invested capital, are more accurate benchmarks to evaluate the performance of each of our businesses and the Company overall as well as to assess our progress on value creation.

We have made significant progress on our four key initiatives to enhance shareholder value as demonstrated by improving our free cash flow to net operating asset return from 10% in 2010 to an outlook of 14% to 15% in 2011, and we expect further improvement in 2012. Improving cash flow metrics are a basic tenet of Charles River’s investment thesis.

In summary, we believe that our outlook for 2012 signals that our business environment is beginning to improve. Top line pressure from our regulated safety assessment business is expected to subside, enabling our growth businesses, including in vitro, discovery, in-sourcing solutions and GEMS, to begin to drive sales improvement. We expect to continue to make progress on our four key initiatives to drive shareholder value by continuing to manage costs, generate strong free cash flow, and appropriately allocate capital. We will also take advantage of the emerging opportunities to stimulate sales growth.

Susan Hardy

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

Question and Answer Session

Operator

Sure. Ladies and gentlemen, if you wish to ask a question, please press star the one on your touchtone phone. You may remove yourself from queue by pressing the pound key. It has been requested that you limit yourself to one question. For any additional questions, you will need to queue again; so once again, if you have a question, please press star then one at this time.

We’ll go to Dave Windley of Jefferies. Please go ahead.

Dave Windley – Jefferies

Hi, good morning. Thank you for the detail. Wanted to focus a little bit more on the partnership, and I believe you described that you would be recording this evenly. Should I interpret evenly in RMS and PCS – was that the commentary? As you ramp it, I mean.

Jim Foster

Well, we didn’t actually say that. I think it’s a little bit more in PCS, you know, a little bit greater than 50%. But both companies do share quite actively. Both segments do participate extensively.

Dave Windley – Jefferies

Okay, and so then focusing from that on PCS, you’ve had from third quarter to fourth quarter some FX trend reversal. The third quarter was about 106 million and change, so if I take that and take the FX headwinds in the fourth quarter and going forward, and make some mild assumption that you enter 2012 at a level that’s maybe something around the neighborhood of 5% below where you were in the first quarter in 2011 in PCS sales, could you talk about how you see the PCS segment advancing through 2012 to get to what is more like a—I think you characterized more of a flat sales performance year-over-year?

Jim Foster

Well, excluding foreign exchange, Dave, if that’s part of your question – we can come back to that at the end, we did say that regulated safety assessment, while continuing to stabilize, will actually be down a little bit next year, and where we’re really getting the growth in areas is really in non-GLP, including the partnership that we referred to specifically. So we’re seeing some general areas of growth in non-GLP at other clients and of course the partnership is a little bit more transcending in the nature of our work in pre-clinical. Some of that, as we said and you asked, is in the RMS segment also.

Dave Windley – Jefferies

So for PCS, mildly—I guess my interpretation of your comments was kind of down zero to one. Would you agree, then, that that does assume a decent amount of acceleration in the revenue levels as you move through 2012?

Jim Foster

Not necessarily. I mean, we are experiencing a little bit of a headwind in foreign exchange, as we said and as you paraphrased. The growth rate that we ascribed overall to PCS was really slightly below our overall rates, which was 1 to 3; so down a little bit from there, right? And then we said regulated safety assessment would be down a little bit and offset by our activities in the non-GLP area, including our safety assessment area. We don’t really see anything dramatic in the quarters. We touched on that briefly in terms of what we’ve seen historically, so we do expect things to trend up a little bit but not dramatically, and part of that will be in the partnership transaction that we have.

Dave Windley – Jefferies

Okay, great. Thank you.

Jim Foster

All right, Dave. Thank you.

Operator

We’ll go to the line of Douglas Tsao with Barclays Capital. Please go ahead.

Douglas Tsao – Barclays Capital

Thanks for taking the question. Just wondering if you could provide a little bit more detail in terms of your thinking around the progression or the trends that we should expect to see in terms of PCS on a quarter basis. Are you looking for it to start the year softer and then pick up, or are you expecting some things to sort of solidify pretty early on, or perhaps even the beginning of the fourth quarter of 2011, and then proceed at a steady state during next year?

Tom Ackerman

Doug, this is Tom. We don’t see anything dramatically different in Q1 versus Q4 in pre-clinical, to your question; and I think looking out beyond that, we should see some improvement particularly from our strategic partnership.

Douglas Tsao – Barclays Capital

Okay, and so that improvement is largely going to be based in the partnership and not on other things that you’re seeing in the market today?

Tom Ackerman

I would say that’s probably correct.

Douglas Tsao – Barclays Capital

Okay, great. Thank you very much.

Tom Ackerman

All right.

Operator

We have a question from Tycho Peterson with JP Morgan. Please go ahead.

Tycho Peterson – JP Morgan

Hey, good morning. Maybe a slightly different take on Dave’s question earlier about the guidance, but where do you see the biggest sensitivities to the 1 to 3% on the top line that you laid out? I mean, it looks like you’re not projecting any volume growth in RMS, so is there a chance you could see some there or could GLP tox actually grow a little bit? I’m just curious what the sensitivities are to the 1 to 3%.

Jim Foster

As we’ve said, we’re looking at these four areas to generate most of our growth next year, and we’re looking for our core RMS business to have a strong year primarily driven by price, principally in Europe. We’re anticipating that our regulated talks will be down a bit. Could it be higher? I suppose, but it’s not what we’re guiding to. We’re talking about large animals being down a bit as well, and we do think that—or we do know that the new deal that we just signed will continue to expand and grow throughout the year as the client transitions the activities to Charles River; and of course, that’s been very much in process right now. So we think in vitro will continue to be a strong contributor as it has been historically. Same with GEMS. Discovery, we obviously think is sort of an area where we’re seeing greater client emphasis to cull these molecules out earlier with acknowledgment that they don’t have to do the work in-house. And we talked about in our prepared remarks that we’re having conversation with more than half a dozen big drug companies about outsourcing some of this work. We think it will take a while to transform those relationships, but one never knows. So certainly, the rate at which those grow, I think can make a significant difference to our top line as well.

Tycho Peterson – JP Morgan

And Jim, can you just on that note talk about your bandwidth for additional preferred deals and how we think about that in light of some of the capacity that you haven’t yet reopened in areas like Ohio or Shrewsbury or places like that?

Jim Foster

So capacity bandwidth is fine. We have a substantial amount of space in actually multiple facilities on a global basis. Whether we fill it with regulated studies or non-regulated studies, the work will actually—the space will actually fill nicely. The non-regulated studies, by definition, kind of take up less space. You can do multiple studies in the same room and there’s a little more flexibility, but I wouldn’t anticipate any shortages in capacity any time soon, certainly for the next few years. I think we have the right senior staff to manage these relationships both in terms of therapeutic area, expertise, and folks to oversee things like reporting and understand the needs of the client. As this continues to crank up, I’m sure we’ll have to obviously add additional technicians and maybe continue to flush out our therapeutic area expertise as we move into other therapeutic areas. But I’d say the infrastructure is in very good shape right now to take on more of these deals.

Tycho Peterson – JP Morgan

But do you envision reopening some of the capacity that you already have that is not currently being used in Ohio and Reno, and some of these other sites?

Jim Foster

That would be great. We don’t anticipate having any need to reopen any of those in the short term to accommodate the work that we anticipate coming down the line, certainly for ’12.

Tycho Peterson – JP Morgan

Okay, thank you.

Jim Foster

Sure.

Operator

And we’ll go to the line of John Kreger with William Blair. Please go ahead.

John Kreger – William Blair

Thanks very much. Jim, a follow-up question to that same topic. If you think about—it sounds like the business that you’re getting from large pharma is shifting a bit from the kind of traditional GLP tox to more discovery work. Do you need to reconfigure any of your space – is that going to be a CAPEX burden in the next year or two, or can you use the space as-is? And on a normalized basis, do you think that business is more or less profitable than the traditional GLP tox work?

Jim Foster

Well, the first part is no, we don’t believe we have to reconfigure any of the space. The space we do the regulated trials in, these are study rooms. There’s actually more flexibility with the non-regulated stuff, as I said a moment ago, inasmuch as you can do—they’re relatively short term studies, so you can do multiple ones in the same room with multiple clients. So the space as built, both new and old, will be fine for that, and we won’t have any lag time or additional cost.

I’m not sure we have a totally definitive answer on the second part of your question now, but directionally I think our feeling is from some of the work that we’ve done for one client in particular as we’ve been able to ramp up volumes of the non-regulated work, that at significant volumes as we drive efficiency, notwithstanding the fact that this is work that’s moving in and out constantly, I guess the corollary to the fact that you’ve got very short-term studies is the fact that you kind of set up for them in a specific way, and we’re able with increased volume to drive better efficiency. So I think directionally we think this is an area that could enhance the profitability of the pre-clinical sector. It’s likely to be slightly more profitable than the regulated studies just because of the high throughput nature of them; and as I said, we have early anecdotal information that that’s accurate and obviously we’ll be proving that out over the next year or two as we get the current large deal to it’s maximum level and hopefully have signed additional ones as well.

Tom Ackerman

John, what I would add to Jim’s comment on the cost side, if you had asked us two or three years ago if we thought non-GLP work could be as profitable or at the same level of margin as GLP work, we would have said probably no. And the primary reason I think why we feel differently today is of course because we’ve done a lot of things to improve our efficiency overall, but also I think our view of how we would have approached non-GLP work at that time would have been more consistent with how we approach GLP work. So I think our view on how we do that work and how it can be done to satisfy our client is a lot different and that, in addition to the other efficiencies we’ve made, is clearly a reason in my mind why that work can be as profitable. So our view on and our process about doing non-GLP is different from what it would have been three years ago, for sure.

Jim Foster

Just to continue to add to that, the nature of the work is all about speed. It’s all about efficiency, it’s all about getting the answer back to the client as quickly as possible, and so the clients are very much collaboratively working with us to drive efficiency, to transfer protocols, and to continuously improve them. So it’s in both of our best interests to be looking for efficiency gains all the time. That will very much please the client from a speed of answer point of view and should continue to drive margin improvements at Charles River.

John Kreger – William Blair

Very helpful. Thank you.

Operator

We’ll go to the line of Robert Jones with Goldman Sachs. Please go ahead.

Robert Jones – Goldman Sachs

Thanks. So Jim, I was just curious on tox – there’s been some speculation in the marketplace around some share shift. You’ve talked about in your prepared remarks gaining share as we go forward. I was curious – did you see any movement in share in the back half of ’11 or are the share gains or expected share gains in ’12 incremental to the current business?

Jim Foster

You know, share is sort of a continuous process, and I would say that we trade a little bit of share with several of the large players on a constant basis. Our feeling is, though, that with our large clients we did pick up share in this year. I don’t know whether it’s greater emphasis in the back half of the year or not. I don’t know; I think it’s probably more consistent than that.

Just a larger point, though – while I think we’re doing very well with share and while we’re sort of competing with the usual suspects on most of the major studies, our principle focus has been and continues to be, both on the regulated side and on the non-regulated side a la the contract we just signed, our ability to garner incremental work from the client that’s never been outsourced before. So yes, we’re often competing with someone for that, but it’s much less about share gain from competitors and much more about de novo work being available. And as we indicated in our remarks and we’ve indicated actually for several years on the regulated side, on the non-regulated side only about 20% of that work is outsourced, and you can see from our conversation that clients are becoming quite interested and comfortable in doing that, so that’s likely to pick up nicely.

And even on the regulated side, there’s only about 40% of the work being outsourced, and of course price points have gotten so low that I think people have lost sight of how much work is actually outsourced. I think there’s more than what meets the eye, so we’re continuing to have the highest level conversations with our clients about the most expansive relationships. I guess that’s another thing that I just would want to highlight – on this big deal that we signed, while it’s incremental and it’s terrific in terms of unlocking new pieces of business for us, it enhances a larger deal that we already had for a client who is like other large drug companies who wants to do much more work with a smaller number of strategic partners, and it’s clear to us that that’s very much the way the majority of these clients want to work going forward.

Robert Jones – Goldman Sachs

]

Got it, that’s helpful. And then just switching gears, you talked about acquisitions playing a more important part in the growth strategy. Could you maybe just talk a little bit more specifically about what areas of early development you are targeting, and then maybe how you’re thinking about those acquisitions from a geographic standpoint?

Jim Foster

Sure. You know, we’ve had kind of a three-year hiatus here, so I guess I would remind you and others that are listening that small strategic acquisitions has always been an integral part of our growth strategy for the last decade or so. We’re looking pretty much exclusively in what I would call upstream, so we’re now looking down towards the clinic – we’re looking more in the discovery area as drugs are discovered, and different technologies that provide greater throughout and analysis to the client to determine whether they’re worth pursuing or not, and many of those are services. We actually have some product things that we’re looking at in our core business, and we clearly have several possibilities that would expand our geographic reach. So you will feel, assuming that things we’re talking about now come to fruition, that they’re very much in our wheelhouse, that you would expect us to do deals in that space. Some of them are simply expanding what we already do geographically and some of them are expanding the upstream portfolio.

As we’ve said previously, most of our ideas for general areas of growth, and to some extent some of our ideas for specific targets to pursue, are increasingly coming directly from our clients who say we really need or would like to see you get into this area; oh, and by the way, we’re working with a company in such-and-such a field or in such-and-such a geography who is quite good scientifically but they’re kind of small, we’re concerned about their longevity and financial structure, and we’d like to see them as part of Charles River. So we’re trying not to build it and they will come, but have a client say we’d like you to buy it or build it or add it, and those are the things we’re looking at.

Robert Jones- Goldman Sachs

Okay, that makes sense. Thanks.

Operator

And we’ll go to Greg Bolan with Sterne Agee. Please go ahead.

Greg Bolan – Sterne, Agee

Hi guys. So just to cut to the chase, as I look across the industry as it relates to GLP, safety assessment, I think broadly speaking this year most of the pre-clinical CROs are seeing growth in their revenues. I guess I’m looking at your business this year and it’s quite a bit different performance, and I know that you guys are obviously trying to gain share; but what are the efforts that you’re taking to try and take back that share? Is it price, is it retention of existing talent, is it recruitment of talent from other pre-clinical CROs? And how do you feel about your—I guess the dichotomy between your performance and those of your peers, and do you think that possibly this could be a function of potentially attrition of talent or the layoffs that you guys had started in the back half of ’08, the beginning of ’09, and there’s somewhat of a brain drain. I guess, ultimately, are you trying to retain that talent at this point or recruit new talent? That’s a longwinded question, but do you think that you can gain back share?

Jim Foster

We don’t acknowledge any share loss, so I’m not sure what the dichotomy is; but we’re continuing to do what we’ve been doing for a while, which is really strengthen our relationships at the top of the companies with our very large clients, which we’ve done. We know the leadership personally and by name, and we’re spending a lot more time with them and we have global account managers managing all of those accounts. Similarly, we’re spending a lot of time with the senior leadership of our mid-tier or biotech clients, and I think doing a nice job. We talked about 250 additional clients for $10 million of additional revenue with these clients. We also talked a lot about rescue studies, so those are studies that our competitors have done poorly and the clients have come back to us to review those studies, so that’s share gain, not share loss. We talked about 18 of those.

So we have certainly seen an increase in share in our large clients. We’re beginning to see an increase in the mid-tier. We’re actually seeing a shift in one of our sites in particular that was historically large pharma and now is becoming very much sort of a large biotech operation.

No, I don’t think we’re doing anything unusual with regard to price except being thoughtful and flexible, given volumes of purchases both in the safety assessment and other activities that we perform with our clients. Our senior staff, notwithstanding our workforce reductions over the last two and a half or three years, has remained essentially intact. Our comments from our clients are consistently complimentary on the quality of our science and the quality of our service. So we feel good about the situation in ’11. We feel very good about the increasing emphasis and focus on the non-GLP work that we’re seeing by many of our clients, certainly from a conversation point of view and beginning to get a work point of view, and we think the emphasis will be in that area from a growth perspective very much in ’12 and thereafter.

Greg Bolan – Sterne, Agee

That’s helpful. And just real quick – I guess on the other side of the table, are you gaining share in academia with your RMS business?

Jim Foster

Yeah, we are. We’ve had a really good—to at least three and maybe four years, we’re up 10%. It’s a combination of a multiplicity of factors. Our price points have come down, so we are selling at much less of a premium. We have a larger, more focused sales organization. We have more sort of academic and government contracts that we’ve signed, and some of the money going into academia is coming directly from big pharma and some of that work, I think, gets directed back to us. So yeah, we continue to be pleased with growth in that area. We would hope to continue to see that as our emphasis on that part of our business, we’ll remain focused on.

Greg Bolan – Sterne, Agee

Thanks.

Operator

We’ll go to the line of John Sullivan with Leerink Swann. Please go ahead.

John Sullivan – Leerink Swann

Morning. I had a question regarding the MCS PTS business, and you mentioned that there’s an opportunity that you’re relatively unpenetrated in regarding central labs, only 10% penetration. Can you just talk a little bit about the competitive landscape there? You talk about throughput being the differentiating factor for you in the PTS business. Can you just help us understand your competitor advantages in that business?

Jim Foster

Yeah, so our PTS technology is pretty much a generation or two ahead of our competitors in terms of the speed with which you get the information, so it’s minutes or hours as opposed to a day or two – very, very important when you’re waiting to release a batch of drug that’s just been manufactured, so accuracy and speed. So we’ve had these units which are out in the plants, as it were, testing ingredients that go into the drug; so the next phase for us is to be able to use the same technology when you need large numbers of samples in the QC lab. We now have two things—three things, actually. We have a multi-cartridge system which we have been selling into the QC lab – that’s great, but as you heard in the remarks, we only have 10% penetration there. We now have a multi-pack so you can five or 10 cartridges in a pack instead of one. That’s really powerful. And most importantly, we’re going to launch an automated PTS version in the second quarter this year, so you load up the samples and walk away, and it would do them without any labor being there, so it has the additional benefit of cutting down labor costs.

So we have competitors that have much more manual systems. We have a couple of competitors that have very sort of overly complex, extraordinarily expensive systems that are supposed to enhance throughput, but don’t appear to be selling very well. We do think we have a sustainable technological lead in this area that we’ll be able to maintain and hopefully enhance. For us, it’s a continual process of R&D and improving our technology, so this will be a big year for us in terms of driving greater penetration into the central labs.

John Sullivan – Leerink Swann

Can I just ask you to clarify one thing? So automated PTS comes in second half of ’11 or second half of ’12?

Jim Foster

Sorry – second quarter ’12.

John Sullivan – Leerink Swann

Thanks so much.

Operator

We’ll go to the line of Garen Sarafian with Citigroup. Please go ahead.

Garen Sarafian – Citigroup

Hi guys. Thank you for taking the questions. In keeping of the spirit of one question, I guess my one question is on clients, split into two parts, though. The first being the mid-tier clients, the last few months there’s been chatter of funding concerns and just the relative strength in the last three or four months, but you highlighted that it’s a significant growth opportunity. So have you seen any change recently, or have you just not seen what others have mentioned?

Jim Foster

We talked a little bit on our last call that we had seen a little bit of softness in that area, but just a little bit. I would say that our business with the mid-tier/biotech companies continues to be strong, continues to increase kind of mid-single digit levels. The funding for the really good companies who have compounds that everyone thinks are really novel and have a pretty high likelihood of getting to market increasingly is coming from big pharma, and we anticipate that that will just increase. All of the big drug companies are telling us that they’re continuing to place very big bets with the biotechs as discovery engines for them.

So yeah, we think they’re an important segment. There’s a lot of churn in the segment, as we’ve said. We have 250 new ones – that’s really great. We have incremental revenue from them, which is great. We’re focused on a large number of them, and I think we’re doing a better job understanding those clients and developing strong working relationships with them. And again, as we’ve said before, we do think that the delineation between biotechs and the pharma companies is very much blurring and graying since it’s primarily the same source of funding. So I think the churn will continue, but we don’t think that’s going to be a beleaguered client base going forward. It’s one that’s increasingly more important in finding some of the solutions to the discovery of new compounds.

Garen Sarafian – Citigroup

Okay, that’s helpful. And then the second part is around partnerships. Last year this time, you had mentioned the last maybe two or three years, you had focused on the top 25 clients in developing very strong relationships with them, and I think it was six meetings about long-term partnerships. So moving forward to November, one of those—there’s a new partnership so I’m assuming perhaps it was one of those six meetings that occurred. Now, you mentioned seven, so I’m just—maybe we’re reading too much into it, but I’m just wondering what happened to the first six? Have those concluded or are those ongoing? And how much overlap is there to the seven discussions that you’re in the midst of now? I’m just trying to anticipate how do these partnerships work and the timeline involved?

Jim Foster

I’m not sure what the reference to the six was. I guess we said that last time? You know, the nature of these deals is quite diverse, and so we have a lot of preferred partnership agreements with many of those 25 clients across all of what we do. The deal that we announced recently was very large for us and moving into a new area, and it was on top of the work that we already have with this client so we wanted to call that out as being very strategic, very significant, and we believe portending the future of what we’re going to see with other clients.

The seven conversations that we just pointed to have been quite recent, very much focused on this non-regulated tox work specifically, following on the heels of our announcement. And even though the other companies don’t necessarily know who the client is, we indicated it was a big drug company and they were moving aggressively to do these sorts of work externally, and we’ve clearly gotten people’s attention as to why—you know, they’re asking themselves why aren’t they doing this? So we’re having some intensified calls.

So look – our goal is to have a meaningful strategic relationship with all 25 of the companies that we’re focusing on. They’ll be varying sizes and for varying durations and for different types of work. The one we signed recently, we do think is unique in terms of its scale and complexity and opportunity, and we do believe that others will follow.

Garen Sarafian – Citigroup

Got it. So maybe if I ask it another way – acknowledging that these conversations are always ongoing, it never really concludes, how many months do they typically take to—in that round of meetings and discussions before it’s determined that it’s not a good time right now and to revisit it at a later date? Is it months, is it weeks?

Jim Foster

It’s a difficult question and it’s a different conversation with every client. The one that we just signed was probably a year-long discussion, but it followed a prior period where we were doing some very early DMPK work for that client and them getting comfortable. I do think that things feel like they’re accelerating, so the combination of a multiplicity of factors. You’ve got drugs rolling off patents, you’ve got pipelines that are a little thinner than they would like. You’ve got infrastructure reductions. I think those are all sort of urging our clients to look at a deal like we signed with this other company recently and kind of figure out if and when it works for them. I’d say the conversations we have going on now, every client is at a different place. I also think that any of them could accelerate at any time.

So it would certainly be probably multiple quarters, but it’s not unlikely that we could get something else done in 2012. We’ll certainly push to do that and we certainly have clients thinking about that. These are very big organizations and all we can do is provide the information and give them a template of how we’re working with others, which clearly has gotten their attention; but they have to make the determination to pull the trigger.

Garen Sarafian – Citigroup

Very helpful. Thank you for taking the questions and happy holidays.

Jim Foster

You too.

Operator

And our final question will come from Tim Evans with Wells Fargo. Please go ahead.

Tim Evans - Wells Fargo

Hi, thanks. So I too want to go back to some comments that were made last year and kind of compare and contrast. Last year, it seems like the focus on the weakness in the tox market was the fact that large pharmaceutical customers were hanging onto internal capacity and trying to utilize that capacity, and therefore not outsourcing. This time, your comments seem a little bit different. You talked about how some of these restructuring programs are set to conclude. That’s consistent with some work that I’ve done, and so my expectation would have been to hear that tox could grow next year. I’m thinking GLP tox here could grow next year, basically just from moving some of that business from in-sourced to outsourced. That doesn’t seem to be the case, and I’m just kind of curious – are you seeing some of these facilities being closed now, and can you talk to me why the commentary this year is not better than it is?

Jim Foster

Well, I think the factors, to some extent, have remained; in other words, there’s still a fair amount of work being done, regulated work being done by the clients in their own facilities. Now, the deal that we signed recently was with a company that has had some infrastructure reductions and they’ve made the determination to do that with the knowledge that they can get the work done as well and for a lower price point externally. So I would say that we haven’t seen an increase in compounds being kept inside, or we haven’t seen them move drugs back inside; but they’ve still been somewhat slow and reluctant to outsource but clearly considering it, and clearly considering it now not just for the regulated stuff but for the non-regulated stuff.

But I would say a year ago was barely on the table, and two years ago it was not on the table, so it’s a new opportunity for the client. So depending on what they do in their space, whether their regulated or non-regulated stuff are done in the same facilities, and oftentimes they are, I do think that it provides some opportunity.

We’re reluctant to predict or guide to an uptick or some dramatic change in the outsourcing trend from those facilities only because we tried to do that in 2010 and we didn’t call it accurately, and it’s not something that we can call. So we have to—all we can do is work hard with these clients to try to show them the benefits of closing space and outsourcing, and tell you folks when that has happened or when it’s close to happening. We tried to do that all year and certainly tried to do that today as well.

Tim Evans – Wells Fargo

Okay, thanks.

Operator

Do you have any closing comments?

Susan Hardy

Just like to say thank you for joining us this morning and we look forward to speaking with you soon.

Operator

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.

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