Edgar Filing: CHARLES RIVER LABORATORIES INTERNATIONAL INC

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission file number 001-15943

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

(Exact Name of Registrant as specified in its Charter)

DELAWARE		06-1397316
(State of Incorporation)		(I.R.S. Employer Identification No.)

251 BALLARDVALE STREET, WILMINGTON, MASSACHUSETTS 01887

(Address of Principal Executive Offices) (Zip Code)

978-658-6000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer x

Accelerated Filer o

Non-accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of August 1, 2007, there were 67,906,564 shares of the registrant’s common stock outstanding.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
FORM 10-Q
For the Quarterly Period Ended June 30, 2007
Table of Contents

			Page
Part I.	Financial Information
	Item 1.	Financial Statements		4
		Condensed Consolidated Statements of Income (Unaudited) for the three months ended June 30, 2007 and July 1, 2006		4
		Condensed Consolidated Statements of Income (Unaudited) for the six months ended June 30, 2007 and July 1, 2006		5
		Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2007 and December 30, 2006		6
		Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2007 and July 1, 2006		7
		Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited) for the six months ended June 30, 2007		8
		Notes to Unaudited Condensed Consolidated Interim Financial Statements		9
	Item 2.	Management’ Dicussion and Analysis of Financial Condition and Results of Operations		28
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		37
	Item 4.	Controls and Procedures		38
Part II.	Other Information
	Item 1A.	Risk Factors		39
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		39
	Item 4.	Submission of Matters to a Vote of Security Holders		40
	Item 6.	Exhibits		40

Special Note on Factors Affecting Future Results

This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and the future results of Charles River Laboratories International, Inc. (“Charles River”) that are based on current expectations, estimates, forecasts, and projections about the industries in which Charles River operates and the beliefs and assumptions of our management. Words such as “expect,” “anticipate,” “target,” “goal,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,” “likely,” “may,” “designed,” “would,” “future,” “can,” “could” and other similar expressions that are predictions of or indicate future events and trends or which do not relate to historical matters are intended to identify such forward-looking statements. These statements are based on current expectations and beliefs of Charles River and involve a number of risks, uncertainties, and assumptions that are difficult to predict. For example, we may use forward-looking statements when addressing topics such as: future demand for drug discovery and development products and services, including the outsourcing of these services; future actions by our management; the outcome of contingencies; changes in our business strategy; changes in our business practices and methods of generating revenue; the development and performance of our services and products; market and industry conditions, including competitive and pricing trends; changes in the composition or level of our revenues; our cost structure; the impact of acquisitions and dispositions; the timing of the opening of new and expanded facilities; our expectations with respect to sales growth, efficiency improvements and operating synergies; changes in our expectations regarding future stock

option, restricted stock and other equity grants to employees and directors; changes in our expectations regarding our stock repurchases; assessing (or changing our assessment of) our tax positions for financial statement purposes; and our cash flow and liquidity. You should not rely on forward-looking statements because they are predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document or in the case of statements incorporated by reference, on the date of the document incorporated by reference. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 30, 2006 under the section entitled “Risks Related to Our Business and Industry,” the section of this Quarterly Report on Form 10-Q entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our press releases and other financial filings with the Securities and Exchange Commission. We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or risks. New information, future events or risks may cause the forward-looking events we discuss in this report not to occur.

Part I. Financial Information

Item 1. Financial Statements

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share amounts)

	Three Months Ended
	June 30, 2007			July 1, 2006
Net sales related to products	$	111,008		$	96,593
Net sales related to services	196,427			171,266
Total net sales	307,435			267,859
Costs and expenses
Cost of products sold	60,689			53,411
Cost of services provided	125,790			107,338
Selling, general and administrative	56,092			50,031
Amortization of intangibles	8,139			9,377
Operating income	56,725			47,702
Other income (expense)
Interest income	2,304			957
Interest expense	(4,899		)	(4,618		)
Other, net	(1,069		)	(736		)
Income before income taxes and minority interests	53,061			43,305
Provision for income taxes	15,101			9,870
Income before minority interests	37,960			33,435
Minority interests	(119		)	(654		)
Income from continuing operations	37,841			32,781
Income (loss) from operations of discontinued businesses, net of taxes	115			(7,032		)
Net income	$	37,956		$	25,749
Basic earnings (loss) per common share:
Continuing operations	$	0.57		$	0.46
Discontinued operations	—			(0.10		)
Net income	$	0.57		$	0.36
Diluted earnings (loss) per common share:
Continuing operations	$	0.55		$	0.46
Discontinued operations	—			(0.10		)
Net income	$	0.55		$	0.36

See Notes to Condensed Consolidated Interim Financial Statements

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share amounts)

	Six Months Ended
	June 30, 2007			July 1, 2006
Net sales related to products	$	216,485		$	191,908
Net sales related to services	382,149			330,092
Total net sales	598,634			522,000
Costs and expenses
Cost of products sold	116,823			104,235
Cost of services provided	245,282			215,150
Selling, general and administrative	109,109			92,765
Amortization of intangibles	15,994			18,452
Operating income	111,426			91,398
Other income (expense)
Interest income	4,591			1,735
Interest expense	(9,245		)	(8,412		)
Other, net	(920		)	(688		)
Income before income taxes and minority interests	105,852			84,033
Provision for income taxes	30,411			21,681
Income before minority interests	75,441			62,352
Minority interests	(373		)	(1,056		)
Income from continuing operations	75,068			61,296
Income (loss) from operations of discontinued businesses, net of taxes	(349		)	(135,662		)
Net income (loss)	$	74,719		$	(74,366	)
Basic earnings (loss) per common share:
Continuing operations	$	1.13		$	0.86
Discontinued operations	(0.01		)	(1.89		)
Net income (loss)	$	1.12		$	(1.04	)
Diluted earnings (loss) per common share:
Continuing operations	$	1.10		$	0.84
Discontinued operations	(0.01		)	(1.86		)
Net income (loss)	$	1.10		$	(1.02	)

See Notes to Condensed Consolidated Interim Financial Statements

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands, except per share amounts)

	June 30, 2007			December 30 2006
Assets
Current assets
Cash and cash equivalents	$	162,050		$	175,380
Trade receivables, net	228,622			202,658
Inventories	77,169			72,362
Other current assets	58,583			44,363
Current assets of discontinued operations	1,123			6,330
Total current assets	527,547			501,093
Property, plant and equipment, net	622,492			534,745
Goodwill, net	1,119,350			1,119,309
Other intangibles, net	158,442			160,204
Deferred tax asset	96,121			107,498
Other assets	135,910			133,944
Long term assets of discontinued operations	4,217			751
Total assets	$	2,664,079		$	2,557,544
Liabilities and Shareholders’ Equity
Current liabilities
Current portion of long-term debt and capital lease obligations	$	24,098		$	24,977
Accounts payable	35,707			28,223
Accrued compensation	42,804			41,651
Deferred revenue	94,963			93,197
Accrued liabilities	53,976			41,991
Other current liabilities	18,017			25,625
Current liabilities of discontinued operations	116			3,667
Total current liabilities	269,681			259,331
Long-term debt and capital lease obligations	511,816			547,084
Other long-term liabilities	149,294			146,695
Total liabilities	930,791			953,110
Commitments and contingencies
Minority interests	3,420			9,223
Shareholders’ equity
Preferred stock, $0.01 par value; 20,000,000 shares authorized; no shares issued and outstanding	—			—
Common stock, $0.01 par value; 120,000,000 shares authorized; 74,674,428 shares issued and 67,987,228 outstanding at June 30, 2007 and 73,416,303 issued and 66,919,634 shares outstanding at December 30, 2006	747			734
Capital in excess of par value	1,865,868			1,818,138
Accumulated earnings	97,842			23,123
Treasury stock, at cost, 6,687,200 and 6,496,669 shares at June 30, 2007 and December 30, 2006, respectively	(276,930		)	(267,955		)
Accumulated other comprehensive income	42,341			21,171
Total shareholders’ equity	1,729,868			1,595,211
Total liabilities and shareholders’ equity	$	2,664,079		$	2,557,544

See Notes to Condensed Consolidated Interim Financial Statements

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)

	Six Months Ended
	June 30, 2007			July 1, 2006
Cash flows relating to operating activities
Net income (loss)	$	74,719		$	(74,366	)
Less: Loss from discontinued operations	(349		)	(135,662		)
Income from continuing operations	75,068			61,296
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Depreciation and amortization	41,145			40,185
Impairment charge	1,583			1,960
Amortization of debt issuance costs and discounts	1,319			907
Amortization of premiums on marketable securities	17			24
Provision for doubtful accounts	75			16
Minority interests	373			1,056
Deferred income taxes	(584		)	2,373
(Gain) loss on disposal of property, plant, and equipment	(144		)	58
Net purchase, proceeds and gains on trading securities	4,065			—
Non-cash compensation	12,531			11,349
Changes in assets and liabilities:
Trade receivables	(21,082		)	(780		)
Inventories	(4,253		)	(2,554		)
Other current assets	(8,650		)	(8,287		)
Other assets	(8,277		)	5,147
Accounts payable	(103		)	(2,752		)
Accrued compensation	496			(3,966		)
Deferred revenue	1,766			(13,206		)
Accrued liabilities	4,913			(8,412		)
Other current liabilities	(8,624		)	(19,422		)
Other long-term liabilities	1,754			(4,818		)
Net cash provided by operating activities	93,388			60,174
Cash flows relating to investing activities
Acquisition of businesses, net of cash acquired	(11,404		)	—
Capital expenditures	(87,336		)	(56,790		)
Purchases of marketable securities	(161,660		)	(47,557		)
Proceeds from sales of property, plant and equipment	—			19
Proceeds from sale of marketable securities	167,343			13,968
Net cash used in investing activities	(93,057		)	(90,360		)
Cash flows relating to financing activities
Proceeds from long-term debt and revolving credit agreement	—			440,196
Payments on long-term debt, capital lease obligation and revolving credit agreement	(38,003		)	(132,616		)
Purchase of call option	—			(98,108		)
Proceeds from exercises of warrants	—			79
Proceeds from issuance of warrants	—			65,423
Proceeds from exercises of employee stock options	30,585			17,533
Excess tax benefit from exercises of employee stock options	2,639			2,542
Dividends paid to minority interests	(1,357		)	(1,916		)
Purchase of treasury stock	(8,975		)	(171,426		)
Payment of deferred financing costs	—			(7,591		)
Net cash (used in) provided by financing activities	(15,111		)	114,116
Discontinued operations
Net cash (used in) provided by operating activities	(2,157		)	473
Net cash provided by investing activities	—			1,450
Net cash used in financing activities	—			(182		)
Net cash (used in) provided by discontinued operations	(2,157		)	1,741
Effect of exchange rate changes on cash and cash equivalents	3,607			(7,425		)
Net change in cash and cash equivalents	(13,330		)	78,246
Cash and cash equivalents, beginning of period	175,380			114,821
Cash and cash equivalents, end of period	$	162,050		$	193,067
Supplemental cash flow information
Capitalized interest	$	2,578		$	1,626

See Notes to Condensed Consolidated Interim Financial Statements

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
(dollars in thousands)

	Total			Accumulated Earnings			Accumulated Other Comprehensive Income				Common Stock			Capital in Excess of Par		Treasury Stock
Balance at December 30, 2006	$	1,595,211			$	23,123		$	21,171			$	734	$	1,818,138	$	(267,955	)
Components of comprehensive income, net of tax:
Net income	$	74,719			$	74,719		$	—			$	—	$	—	$	—
Foreign currency translation adjustment	20,837				—			20,837				—		—		—
Amortization of pension gains (losses) and prior service (cost) credits	401				—			401				—		—		—
Unrealized gain on marketable securities	(68		)		—			(68		)		—		—		—
Total comprehensive income	95,889				—			—				—		—		—
Tax benefit associated with stock issued under employee compensation plans	4,627				—			—				—		4,627		—
Issuance of stock under employee compensation plans	30,585				—			—				13		30,572		—
Acquisition of treasury shares	(8,975		)		—			—				—		—		(8,975		)
Stock-based compensation	11,436				—			—				—		11,436		—
Performance based compensation	1,095				—			—				—		1,095		—
Balance at June 30, 2007	$	1,729,868			$	97,842		$	42,341			$	747	$	1,865,868	$	(276,930	)

See Notes to Condensed Consolidated Interim Financial Statements

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

1. Basis of Presentation

The condensed consolidated interim financial statements are unaudited, and certain information and footnote disclosures related thereto normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been omitted in accordance with Rule 10-01 of Regulation S-X. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying unaudited condensed consolidated financial statements were prepared following the same policies and procedures used in the preparation of the audited financial statements and reflect all adjustments (consisting of normal recurring adjustments) considered necessary to state fairly the financial position and results of operations of Charles River Laboratories International, Inc. (the “Company”). The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 30, 2006.

Certain amounts in prior year financial statements and related notes have been reclassified to conform with the current year presentation.

2. Discontinued Operations

The consolidated financial statements have been reclassified to segregate, as discontinued operations, the assets and liabilities, operating results and cash flows, of the businesses being discontinued for all periods presented. Operating results from discontinued operations are as follows:

	Three Months Ended							Six Months Ended
	June 30, 2007			July 1, 2006				June 30, 2007				July 1, 2006
Net sales		$	174		$	30,927			$	546		$	60,556
Income (loss) from operations of discontinued businesses, before income taxes		$	169		$	(6,668	)		$	(510	)	$	(135,070	)
Provision for income taxes		54			364				(161		)	592
Income (loss) from operations of discontinued businesses, net of taxes		$	115		$	(7,032	)		$	(349	)	$	(135,662	)

Assets and liabilities of discontinued operations at June 30, 2007 and December 30, 2006 consisted of the following:

	June 30, 2007			December 30, 2006
Current assets		$	1,123		$	6,330
Long-term assets		4,217			751
Total assets		$	5,340		$	7,081
Current liabilities		$	116		$	3,667
Total liabilities		$	116		$	3,667

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

Current assets included accounts receivable, prepaid income taxes and other current assets. Non-current assets included property, plant and equipment, goodwill and other intangible assets. Current liabilities consisted of accounts payable, deferred income and accrued expenses.

During 2006, the Company sold Phase II-IV of its clinical services business. Actions to initiate this sale began during the first quarter of fiscal 2006. Accordingly, management performed appropriate goodwill impairment and asset impairment tests for the clinical business segment. As a result, the Company recorded charges of $129,187 to write down the value of the goodwill associated with the clinical business in the first quarter of 2006.

In the second quarter of 2006, taking into account the planned divestiture of the Phase II-IV Clinical Services business, the Company performed an impairment test on the long-lived assets of the Clinical Phase II-IV business. Based on this analysis, the Company determined that the book value of assets assigned to the Clinical Phase II-IV business exceeded its future cash flows, which included the proceeds from the sale of the business, and therefore, recorded an impairment of the assets of $3,900 in the second quarter of 2006.

In addition, during the second quarter of 2006 the Company made a decision to close its Interventional and Surgical Services (ISS) business, which was formerly included in the Preclinical Services segment. The Company performed an impairment test on the long-lived assets of the ISS business and based on that analysis, determined that the book value of the ISS assets exceeded the future cash flows of the ISS business. Accordingly, an impairment charge of $1,070 was recorded in the second quarter of 2006.

3. Impairment and Other Charges

During the second quarter of 2006, the Company recorded charges of $5,300 associated with actions designed to improve operating efficiency and profitability. In the Research Models and Services segment the charges were $2,334 for closure of two small vaccine facilities and a management consolidation in the Transgenic Services business. In the Preclinical Services segment, the charges were $2,966 for headcount reductions, primarily in the Montréal facility and closure of a small Interventional and Surgical Services operation in Ireland.

4. Business Acquisitions

On June 14, 2007, the Company closed its joint venture with Shanghai BioExplorer Co., Ltd., a Shanghai, China-based provider of preclinical services, to form Charles River Laboratories Preclinical Services—China. The Company paid $2,400 in cash for a 75% ownership interest in the joint venture. Additionally, as part of the agreement, the joint venture purchased the net assets of Shanghai BioExoplorer for a purchase price of $1,350 including transaction costs of $550. Intangible assets of $870 were recorded by the joint venture based on the preliminary purchase price allocation.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

On January 4, 2007, the Company acquired the remaining 15% of the equity (319,199 common shares) of Charles River Laboratories Japan, Inc. from Ajinomoto Company, Inc., the minority interest partner. As of the effective date of this transaction, the Company owns 100% of Charles River Japan. The purchase price for the equity was 1.3 billion yen, or approximately $10,899, which was paid in cash. The preliminary purchase price allocation is as follows:

Minority interest acquired	$	5,624
Property, plant and equipment	3,394
Deferred tax liability	(4,187		)
Intangible asset (customer relationships with 15 year estimated amortization life)	6,068
	$	10,899

On October 30, 2006, the Company acquired all of the capital stock of privately held Tacoma, Washington based Northwest Kinetics for $29,500 in cash. Northwest Kinetics runs clinical trials, primarily in Phase I, in a 150 bed facility with a focus on high-end clinical pharmacology studies.

The preliminary purchase price allocation associated with the Northwest Kinetics acquisition, including transaction costs of $265 incurred by the Company and net of $812 of cash acquired, is as follows:

Current assets (excluding cash)	$	6,741
Property, plant and equipment	2,983
Non-current assets	100
Current liabilities	(6,378		)
Non-current liabilities	(7,493		)
Goodwill and other intangibles acquired	32,857
Total purchase price allocation	$	28,810

In conjunction with the purchase of Northwest Kinetics, the Company utilized $2,076 of available cash to prepay Northwest Kinetics’ existing debt.

The breakout of goodwill and other intangibles acquired with the Northwest Kinetics acquisition was as follows:

			Weighted average amortization life (years)
Customer relationships	$	13,700		12
Participant list	1,300			12
Non-compete covenants	200			5
Trademarks and trade names	40			1
Goodwill	17,617			—
Total goodwill and other intangibles	$	32,857

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

The following selected unaudited pro forma consolidated results of operations are presented as if the above acquisitions had occurred as of the beginning of the period immediately preceding the period of acquisition after giving effect to certain adjustments including the amortization of intangibles. The pro forma data is for informational purposes only and does not necessarily reflect the results of operations had the companies operated as one during the periods reported. No effect has been given for synergies, if any, that may have been realized through the acquisitions.

	Three Months Ended						Six Months Ended
	June 30, 2007			July 1, 2006			June 30, 2007			July 1, 2006
	(as reported)			(proforma)			(as reported)			(proforma)
Net sales		$	307,435		$	271,746		$	598,634		$	528,699
Operating income		56,725			47,446			111,426			90,194
Income from continuing operations		37,841			32,447			75,068			60,335
Earnings per common share for continuing operations
Basic		$	0.57		$	0.46		$	1.13		$	0.84
Diluted		$	0.55		$	0.45		$	1.10		$	0.83

Refer to Note 9 for further discussion of the method of computation of earnings per share.

5. Supplemental Balance Sheet Information

The composition of trade receivables is as follows:

	June 30, 2007			December 30, 2006
Customer receivables	$	175,915			$	156,411
Unbilled revenue	55,913				49,356
Total	231,828				205,767
Less allowance for doubtful accounts	(3,206		)		(3,109		)
Net trade receivables	$	228,622			$	202,658

The composition of inventories is as follows:

	June 30, 2007		December 30, 2006
Raw materials and supplies	$	12,769		$	11,715
Work in process	8,026			6,107
Finished products	56,374			54,540
Inventories	$	77,169		$	72,362

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

The composition of other current assets is as follows:

	June 30, 2007		December 30, 2006
Prepaid assets	$	28,708		$	19,686
Deferred tax asset	15,925			10,176
Prepaid income tax	10,530			7,051
Marketable securities	3,330			7,450
Restricted cash	90			—
Other current assets	$	58,583		$	44,363

The composition of net property, plant and equipment is as follows:

	June 30, 2007			December 30, 2006
Land	$	23,916			$	16,173
Buildings	456,071				339,786
Machinery and equipment	310,192				280,126
Leasehold improvements	17,036				16,248
Furniture and fixtures	7,627				6,790
Vehicles	4,946				4,843
Construction in progress	146,397				186,105
Total	966,185				850,071
Less accumulated depreciation	(343,693		)		(315,326		)
Net property, plant and equipment	$	622,492			$	534,745

Depreciation expense for the six months ended June 30, 2007 and July 1, 2006 was $25,151 and $21,733, respectively.

The composition of other assets is as follows:

	June 30, 2007		December 30, 2006
Deferred financing costs	$	9,824		$	11,120
Cash surrender value of life insurance policies	21,896			14,360
Long-term marketable securities	98,920			103,922
Other assets	5,270			4,542
Other assets	$	135,910		$	133,944

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

The composition of other current liabilities is as follows:

	June 30, 2007		December 30, 2006
Accrued income taxes	$	15,363		$	23,048
Current deferred tax liability	2,149			2,149
Accrued interest	505			428
Other current liabilities	$	18,017		$	25,625

The composition of other long-term liabilities is as follows:

	June 30, 2007		December 30, 2006
Deferred tax liability	$	56,847		$	56,372
Long-term pension liability	47,557			49,553
Accrued Executive Supplemental Life Insurance Retirement Plan	30,297			29,262
Other long-term liabilities	14,593			11,508
Other long-term liabilities	$	149,294		$	146,695

6. Marketable Securities

The amortized cost, gross unrealized gains, gross unrealized losses and fair value for marketable securities by major security type were as follows:

	June 30, 2007
	Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
Auction rate securities	$	91,400		$	—		$	—		$	91,400
Mutual funds	2,105			340			—			2,445
Government securities and obligations	3,478			—			(80		)	3,398
Corporate debt securities	5,105			—			(98		)	5,007
	$	102,088		$	340		$	(178	)	$	102,250

	December 30, 2006
	Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
Auction rate securities	$	96,976		$	—		$	—		$	96,976
Mutual funds	5,069			101			(47		)	5,123
Government securities and obligations	5,958			54			(108		)	5,904
Corporate debt securities	3,392			2			(25		)	3,369
	$	111,395		$	157		$	(180	)	$	111,372

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

Maturities of corporate debt securities and government securities and obligations were as follows:

	June 30, 2007					December 30, 2006
	Amortized Cost			Fair Value		Amortized Cost			Fair Value
Due less than one year		$	3,032	$	3,330		$	7,416	$	7,450
Due after one year through five years		99,056		98,920			103,979		103,922
		$	102,088	$	102,250		$	111,395	$	111,372

Marketable securities due after one year are included in other assets on the consolidated balance sheets.

7. Goodwill and Other Intangible Assets

The following table displays goodwill and other intangible assets not subject to amortization and other intangible assets that continue to be subject to amortization:

	June 30, 2007						December 30, 2006
	Gross Carrying Amount		Accumulated Amortization				Gross Carrying Amount		Accumulated Amortization
Goodwill	$	1,132,142		$	(12,792	)	$	1,132,074		$	(12,765	)
Other intangible assets not subject to amortization:
Research models	3,438			—			3,438			—
Other intangible assets subject to amortization:
Backlog	58,551			(58,521		)	54,734			(54,718		)
Customer relationships	213,856			(65,347		)	197,302			(47,407		)
Customer contracts	1,655			(1,655		)	1,655			(1,655		)
Trademarks and trade names	3,278			(2,148		)	3,278			(2,012		)
Standard operating procedures	1,357			(1,313		)	1,357			(1,263		)
Other identifiable intangible assets	11,135			(5,844		)	10,599			(5,104		)
Total other intangible assets	$	293,270		$	(134,828	)	$	272,363		$	(112,159	)

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

The changes in the gross carrying amount and accumulated amortization of goodwill are as follows:

	Balance at December 30,				Adjustments to Goodwill							Balance at
	2006				Acquisitions			Other				June 30, 2007
Research Models and Services
Gross carrying amount		$	16,924			$	—		$	(201	)		$	16,723
Accumulated amortization		(4,837		)		—			(27		)		(4,864		)
Preclinical Services
Gross carrying amount		1,115,150				—			269				1,115,419
Accumulated amortization		(7,928		)		—			—				(7,928		)
Total
Gross carrying amount		$	1,132,074			$	—		$	68			$	1,132,142
Accumulated amortization		(12,765		)		—			(27		)		(12,792		)

8. Long-Term Debt

On July 31, 2006, the Company amended and restated its $660,000 credit agreement to reduce the current interest rate, modify certain restrictive covenants and extend the term. The amount of debt outstanding under the original $660,000 credit agreement remained the same at the time of amendment. The now $428,000 credit agreement provides for a $156,000 U.S. term loan facility, a $200,000 U.S. revolving facility, a C$57,800 term loan facility and a C$12,000 revolving facility for a Canadian subsidiary, and a GBP 6,000 revolving facility for a U.K. subsidiary. The $156,000 term loan facility matures in 20 quarterly installments with the last installment due June 30, 2011. The $200,000 U.S. revolving facility matures on July 31, 2011 and requires no scheduled payment before that date. Under specified circumstances, the $200,000 U.S. revolving facility may be increased by $100,000. The Canadian term loan is repayable in full by June 30, 2011 and requires no scheduled prepayment before that date. The Canadian and U.K. revolving facilities mature on July 31, 2011 and require no scheduled prepayment before that date. The interest rate applicable to the Canadian term loan and the Canadian and U.K. revolving loans under the credit agreement is the adjusted LIBOR rate in its relevant currency plus an interest rate margin based upon the Company’s leverage ratio. The interest rates applicable to term loans and revolving loans under the credit agreement are, at the Company’s option, equal to either the base rate (which is the higher of the prime rate or the federal funds rate plus 0.50%) or the adjusted LIBOR rate plus an interest rate margin based upon the Company’s leverage ratio. Based on the Company’s leverage ratio, the margin range for LIBOR based loans is 0.625% to 0.875%. The interest rate margin was 0.75% as of June 30, 2007 and is secured by the stock of certain subsidiaries as well as certain U.S. assets. The $428,000 credit agreement includes certain customary representations and warranties, events of default and negative and affirmative covenants including the ratio of consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) to consolidated interest expense, for any period of four consecutive fiscal quarters, of no less than 3.5 to 1.0. The Company had $5,388 outstanding under letters of credit as of June 30, 2007 and December 30, 2006.

During the first six months of 2007, the Company did not borrow under its revolving credit facility. As of June 30, 2007, there was no outstanding balance on the revolving facility.

On July 27, 2005 the Company entered into a $50,000 credit agreement (“$50,000 credit agreement”), which was subsequently amended on December 20, 2005 and again on July 31, 2006 to reflect substantially

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

the same modifications made to the covenants in the $660,000 and $428,000 credit agreements, respectively. On June 15, 2007, the Company executed a third amendment to the $50,000 credit agreement to extend the maturity date and reduce the interest rate. The $50,000 credit agreement provides for a $50,000 term loan facility which matures on June 22, 2010. Prior to the amendment, the interest rate applicable to term loans under the credit agreement was, at the Company’s option, equal to either the base rate (which was the higher of the prime rate or the federal funds rate plus 0.50%) or the LIBOR rate plus 0.75%. Between June 15, 2007 through June 21, 2008, the interest rates applicable to term loans under the credit agreement was, at the Company’s option, equal to either the base rate (which is the higher of the prime rate or the federal funds rate plus 0.50%) minus 2.25% or the LIBOR rate plus 0.50%. Commencing June 22, 2008 through June 22, 2010, the applicable interest rates are equal to either the base rate (which is the higher of the prime rate or the federal funds rate plus 0.50%) or the adjusted LIBOR rate plus an interest rate margin based on the Company’s leverage ratio. The $50,000 credit agreement includes certain customary representations and warranties, negative and affirmative covenants and events of default. As of June 30, 2007, the entire balance of the $50,000 credit agreement was outstanding and classified as long-term debt.

On June 12, 2006, the Company issued $300,000 aggregate principal amount of convertible senior notes (“the 2013 Notes”) in a private placement with net proceeds to the Company of approximately $294,000. On June 20, 2006, the initial purchasers associated with this convertible debt offering exercised an option to purchase an additional $50,000 of the 2013 Notes for additional net proceeds to the Company of approximately $49,000. The 2013 Notes bear interest at 2.25% per annum, payable semi-annually, and mature on June 15, 2013. The 2013 Notes are convertible into cash and shares of the Company’s common stock (or, at the Company’s election, cash in lieu of some or all of such common stock), if any, based on an initial conversion rate, subject to adjustment, of 20.4337 shares of the Company’s common stock per $1,000 principal amount of notes (which represents an initial conversion price of $48.94 per share), only in the following circumstances and to the following extent: (i) during any fiscal quarter beginning after July 1, 2006 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is more than 130% of the conversion price on the last day of such preceding fiscal quarter; (ii) during the five business-day period after any five consecutive trading-day period, or the measurement period, in which the trading price per note for each day of that measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such day; (iii) upon the occurrence of specified corporate transactions, as described in the indenture for the 2013 Notes; and (iv) at the option of the holder at any time beginning on the date that is two months prior to the stated maturity date and ending on the close of business on the second trading-day immediately preceding the maturity date. Upon conversion, the Company will pay cash and shares of its common stock (or, at its election, cash in lieu of some or all of such common stock), if any. As of June 30, 2007, no conversion triggers were met. If the Company undergoes a fundamental change as described in the indenture for the 2013 Notes, holders will have the option to require the Company to purchase all or any portion of their notes for cash at a price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest, including any additional interest to, but excluding, the purchase date. The related debt issuance costs of $7,000 were deferred and are being amortized on a straight-line basis over a seven-year term.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

Concurrently with the sale of the 2013 Notes, the Company entered into convertible note hedge transactions with respect to its obligation to deliver common stock under the notes. The convertible note hedges give the Company the right to receive, for no additional consideration, the number of shares of common stock that it is obligated to deliver upon conversion of the notes (subject to anti-dilution adjustments substantially identical to those in the 2013 Notes), and expire on June 15, 2013. The aggregate cost of these convertible note hedges was $98,293.

Separately and concurrently with the pricing of the 2013 Notes, the Company issued warrants for approximately 7.2 million shares of its common stock. The warrants give the holders the right to receive, for no additional consideration, cash or shares (at the option of the Company) with a value equal to the appreciation in the price of the Company’s shares above $59.925, and expire between September 13, 2013 and January 22, 2014 over 90 equal increments. The total proceeds from the issuance of the warrants was $65,423.

In accordance with Emerging Issues Task Force Issue (“EITF”) No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF No. 00-19”), SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” the Company recorded both the purchase of the convertible note hedges and the sale of the warrants as adjustments to additional paid in capital, and will not recognize subsequent changes in fair value of the agreement. At June 30, 2007, the fair value of the outstanding 2013 Notes was approximately $421,750, based on their quoted market value.

9. Shareholders’ Equity

Earnings (Loss) per Share

Basic earnings per share for the three and six months ended June 30, 2007 and July 1, 2006 were computed by dividing earnings available to common shareholders for these periods by the weighted average number of common shares outstanding in the respective periods. Diluted earnings per share was computed upon the weighted average number of common shares outstanding in the three months ended June 30, 2007 and July 1, 2006 and the six months ended June 30, 2007 and July 1, 2006 and dilutive common stock equivalents outstanding. Potential common shares outstanding principally include stock options under our stock option plans, warrants and the assumed conversion of our 2013 Notes.

Options to purchase 1,439,767 and 2,403,536 shares were outstanding in each of the three respective months ended June 30, 2007 and July 1, 2006, but were not included in computing diluted earnings per share because their inclusion would have been anti-dilutive. Options to purchase 2,174,418 and 1,479,150 shares were outstanding in each of the respective six months ended June 30, 2007 and July 1, 2006, but were not included in computing diluted earnings per share because their inclusion would have been anti-dilutive.

Basic weighted average shares outstanding for the three and six months ended June 30, 2007 and July 1, 2006 excluded the weighted average impact of 1,066,410 and 393,840 shares, respectively, of non-vested fixed restricted stock awards.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

The following table illustrates the reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share computations for income from continuing operations and income (loss) from operations of discontinued businesses:

	Three Months Ended					Six Months Ended
	June 30, 2007		July 1, 2006			June 30, 2007			July 1, 2006
Numerator:
Income from continuing operations for purposes of calculating earnings per share	$	37,841	$	32,781		$	75,068		$	61,296
Income (loss) from discontinued businesses	$	115	$	(7,032	)	$	(349	)	$	(135,662	)
Denominator:
Weighted average shares outstanding— Basic	66,830,155		70,851,430			66,587,863			71,615,867
Effect of dilutive securities:
2.25% senior convertible debentures	203,034		—			—			—
Stock options and contingently issued restricted stock	1,350,004		851,925			1,250,385			1,043,535
Warrants	134,464		131,811			133,650			139,430
Weighted average shares outstanding—Diluted	68,517,657		71,835,166			67,971,898			72,798,832
Basic earnings per share from continuing operations	$	0.57	$	0.46		$	1.13		$	0.86
Basic loss per share from discontinued operations	$	—	$	(0.10	)	$	(0.01	)	$	(1.89	)
Diluted earnings per share from continuing operations	$	0.55	$	0.46		$	1.10		$	0.84
Diluted loss per share from discontinued operations	$	—	$	(0.10	)	$	(0.01	)	$	(1.86	)

The sum of the earnings per share from continuing operations and the loss per share from discontinued operations does not necessarily equal the earnings (loss) per share from net income in the condensed consolidation statements of operations for the three and six months ended June 30, 2007 and July 1, 2006 due to rounding.

Treasury Shares

On July 27, 2005, the Board of Directors authorized a share repurchase program to acquire up to $50,000 of common stock. On October 26, 2005, the Board of Directors authorized increasing the share repurchase program by $50,000 to a total of $100,000. On May 9, 2006, the Board of Directors authorized an additional increase of the Company’s share repurchase program by $200,000 to acquire up to a total of $300,000 of common stock. On August 1, 2007, the Board of Directors authorized an additional increase of

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

the Company’s share repurchase program by $100,000. The program does not have a fixed expiration date. In order to facilitate these share repurchases, the Company entered into Rule 10b5-1 Purchase Plans.

As of June 30, 2007, approximately $28,563 remained authorized for share repurchases prior to the new $100,000 authorization.

Share repurchases during the three and six months ended June 30, 2007 and July 1, 2006 were as follows:

	Three Months Ended				Six Months Ended
	June 30, 2007		July 1, 2006		June 30, 2007		July 1, 2006
Number of shares of common stock repurchased	48,000		3,921,300		143,200		4,168,200
Total cost of repurchase	$	2,538	$	157,458	$	6,748	$	168,886

Additionally, the Company’s 2000 Incentive Plan and 2007 Incentive Plan permits the netting of common stock upon vesting of restricted stock awards in order to satisfy individual tax withholding requirements. During the six months ended June 30, 2007 and July 1, 2006, the Company acquired 47,331 shares for $2,227 and 52,020 shares for $2,539, respectively, as a result of such withholdings. During the three months ended June 30, 2007 and July 1,2006, the Company acquired 2,991 shares for $143 and 4,319 shares for $202, respectively.

The timing and amount of any future repurchases will depend on market conditions and corporate considerations.

Warrants

As part of the recapitalization of the Company in 1999, the Company issued 150,000 units, each comprised of a $1,000 senior subordinated note and a warrant to purchase 7.6 shares of common stock of the Company for total proceeds of $150,000. The Company allocated the $150,000 offering proceeds between the senior subordinated notes ($147,872) and the warrants ($2,128), based upon the estimated fair value. The portion of the proceeds allocated to the warrants is reflected as capital in excess of par in the accompanying consolidated financial statements. Each warrant entitles the holder, subject to certain conditions, to purchase 7.6 shares of common stock of the Company at an exercise price of $5.19 per share of common stock, subject to adjustment under some circumstances. Upon exercise, the holders of warrants would be entitled to purchase 149,910 shares of common stock of the Company as of June 30, 2007. The warrants expire on October 1, 2009.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

10. Income Taxes

The following table provides a reconciliation of the provision for income taxes on the condensed consolidated statement of income:

	Three Months Ended						Six Months Ended
	June 30, 2007			July 1, 2006			June 30, 2007			July 1, 2006
Income before income taxes and minority interest	$	53,061		$	43,305		$	105,852		$	84,033
Effective tax rate	28.5		%	22.8		%	28.7		%	25.8		%
Provision for income tax	$	15,101		$	9,870		$	30,411		$	21,681

The Company’s overall effective tax rate was 28.5% in the second quarter of 2007. The increase from the 22.8% effective tax rate in the second quarter of 2006 is primarily due to the recording of a favorable discrete tax event related to Canadian federal tax rate reduction during the second quarter of 2006.

The Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN48”), an interpretation of FASB Statement No. 109 (“SFAS 109”) on December 31, 2006. As a result of the implementation of FIN48, the Company recognized no adjustment in the liability for unrecognized income tax benefits. The total amount of unrecognized tax benefits as of the date of adoption was $17,514. At June 30, 2007 the amount recorded for income tax uncertainties was $20,236. The increase from the date of adoption is primarily due to the continuing evaluation of uncertain tax positions conducted in the current period. The amount of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate was $8,260 at the date of adoption and $10,671 as of June 30, 2007.

The Company continues to recognize interest and penalties related to uncertain tax positions in income tax expense. The total amount of accrued interest relating to uncertain tax positions as of December 31, 2006 and June 30, 2007 was $617 and $1,163, respectively. The Company has not recorded a provision for penalties associated with uncertain tax positions.

The Company conducts business globally and, as a result, the Company and its subsidiaries file income tax returns in the U.S. and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including but not limited to such major jurisdictions as Canada, the United Kingdom and the United States. With few exceptions the Company is no longer subject to U.S. and international income tax examinations for years before 2002.

The Company and certain of its subsidiaries are currently under audit by Canada Revenue Agency and the Internal Revenue Service in the United States. In regards to the Internal Revenue Service examinations of the 2004 tax returns of the Company and an acquired subsidiary, the Company filed its formal protests of certain proposed income tax adjustments with the Appeals Division on July 2, 2007. The Company does not believe that the ultimate settlement of these proposed adjustments will have a material impact to the financial statements. It is likely that the examination phase of the Canadian audit may conclude in 2007. The Company believes it has appropriately provided for all uncertain tax positions.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

During the period ended June 30, 2007, the Company settled audits with HM Revenue and Customs in the United Kingdom. The settlements had no significant impact to the uncertain tax positions or effective tax rate.

Due to the extensive protocol involved in finalizing audits with the relevant tax authorities including potential formal legal proceedings, it is not possible to estimate the impact of any amount of change to previously recorded uncertain tax positions.

11. Employee Benefits

The following table provides the components of net periodic benefit cost for the Company’s defined benefit plans:

Pension Benefits

	Three Months Ended						Six Months Ended
	June 30, 2007			July 1, 2006			June 30, 2007			July 1, 2006
Service cost	$	2,345		$	1,211		$	3,875		$	2,767
Interest cost	4,880			2,095			7,716			4,496
Expected return on plan assets	(5,393		)	(1,744		)	(8,473		)	(4,128		)
Amortization of prior service cost	(342		)	(210		)	(474		)	(336		)
Amortization of net loss (gain)	108			42			215			231
Net periodic benefit cost	$	1,598		$	1,394		$	2,859		$	3,030
Company contributions	$	2,253		$	2,185		$	4,456		$	4,099

Supplemental Retirement Benefits

	Three Months Ended						Six Months Ended
	June 30, 2007			July 1, 2006			June 30, 2007			July 1, 2006
Service cost		$	220		$	290		$	440	$	580
Interest cost		396			334			791		651
Amortization of prior service cost		125			38			249		76
Amortization of net loss (gain)		143			230			286		460
Net periodic benefit cost		$	884		$	892		$	1,766	$	1,767

The Company expects to contribute $11,313 to these plans during 2007.

12. Stock-Based Compensation Plans

Effective January 1, 2006, the Company adopted, on a modified prospective basis, the provisions of SFAS No. 123(R), “Share-Based Payment (Revised 2004),” (“SFAS No. 123(R)”) and related guidance which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and restricted stock awards

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

based on estimated fair values. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period.

The estimated fair value of the Company’s stock-based awards, less expected forfeitures, is amortized over the awards’ vesting period on a straight-line basis. The effect of recording stock-based compensation for the three and six months ended June 30, 2007 and July 1, 2006 was as follows:

	Three Months Ended								Six Months Ended
	June 30, 2007				July 1, 2006				June 30, 2007				July 1, 2006
Stock-based compensation expense by type of award:
Stock options		$	2,835			$	3,495			$	5,373			$	6,671
Restricted stock		4,241				2,013				7,158				4,070
Share-based compensation expense before tax		7,076				5,508				12,531				10,741
Income tax benefit		(2,268		)		(2,071		)		(3,966		)		(4,006		)
Reduction to income from continuing operations		4,808				3,437				8,565				6,735
Share-based compensation expense of discontinued businesses, net of tax		—				212				—				453
Reduction to net income		$	4,808			$	3,649			$	8,565			$	7,188
Reduction to earnings per share:
Basic		$	0.07			$	0.05			$	0.13			$	0.10
Diluted		$	0.07			$	0.05			$	0.13			$	0.10
Effect on income by line item:
Cost of sales		$	2,178			$	1,731			$	3,966			$	3,705
Selling and administration		4,898				3,777				8,565				7,036
Share based compensation expense before tax		7,076				5,508				12,531				10,741
Income tax benefit		(2,268		)		(2,071		)		(3,966		)		(4,006		)
Operations of discontinued businesses, net of tax		—				212				—				453
Reduction to net income		$	4,808			$	3,649			$	8,565			$	7,188

The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key inputs and assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the risk-free interest rate over the option’s expected term, the expected annual dividend yield and the expected stock price volatility. The expected stock price volatility assumption was determined using the historical volatility of the Company’s common stock over the expected life of the option. The risk-free interest rate was based on the market yield for the five year U.S. Treasury security. The expected life of options was determined using historical option exercise activity. Management believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options granted. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

The fair values of stock-based awards granted were estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions:

		Options Granted In:
		2007					2006 &