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CHARLES RIVER LABORATORIES INTERNATIONAL, INC. FORM 10-Q For the Quarterly Period Ended June 26, 2004 Table of Contents

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 26, 2004
OR
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 333-92383

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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)

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        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 ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

        As of July 23, 2004, there were 46,205,337 shares of the registrant's common stock outstanding.

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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
FORM 10-Q
For the Quarterly Period Ended June 26, 2004
Table of Contents

						Page
Part I.		Financial Information
		Item 1.		Financial Statements
				Condensed Consolidated Statements of Income (Unaudited) for the three months ended June 26, 2004 and June 28, 2003		3
				Condensed Consolidated Statements of Income (Unaudited) for the six months ended June 26, 2004 and June 28, 2003		4
				Condensed Consolidated Balance Sheets (Unaudited) as of June 26, 2004 and December 27, 2003		5
				Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 26, 2004 and June 28, 2003		6
				Notes to Unaudited Condensed Consolidated Interim Financial Statements		7
		Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		21
		Item 3.		Quantitative and Qualitative Disclosures About Market Risk		29
		Item 4.		Controls and Procedures		29
Part II.		Other Information
		Item 4.		Submission of Matters to a Vote of Security Holders		30
		Item 6.		Exhibits and Reports on Form 8-K		31

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 the management of Charles River. Words such as "expect," "anticipate," "target," "goal," "project," "intend," "plan," "believe," "seek," "estimate," and similar expressions are intended to identify such forward-looking statements. These forward-looking statements 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. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Charles River's Annual Report on Form 10-K for the year ended December 27, 2003 under the section entitled "Risks Related to Our Business and Industry." Charles River undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

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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 26, 2004			June 28, 2003
Net sales related to products			$	86,692		$	78,066
Net sales related to services				93,501			76,298
Total net sales				180,193			154,364
Costs and expenses
	Cost of products sold			45,354			42,559
	Cost of services provided			60,218			52,220
	Selling, general and administrative			29,220			23,349
	Amortization of intangibles			1,198			1,230
Operating income				44,203			35,006
Other income (expense)
	Interest income			809			457
	Interest expense			(2,119	)		(2,170	)
	Other, net			(73	)		434
Income before income taxes and minority interests				42,820			33,727
Provision for income taxes				16,058			12,985
Income before minority interests				26,762			20,742
Minority interests				(462	)		(181	)
Net income			$	26,300		$	20,561
Earnings per common share
	Basic		$	0.57		$	0.45
	Diluted		$	0.52		$	0.42

See Notes to Condensed Consolidated Financial Statements

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			Six Months Ended
			June 26, 2004			June 28, 2003
Net sales related to products			$	174,712		$	156,606
Net sales related to services				178,118			149,883
Total net sales				352,830			306,489
Costs and expenses
	Cost of products sold			92,423			83,911
	Cost of services provided			116,958			105,011
	Selling, general and administrative			57,340			45,488
	Other operating expenses, net			—			747
	Amortization of intangibles			2,389			2,478
Operating income				83,720			68,854
Other income (expense)
	Interest income			1,510			911
	Interest expense			(4,235	)		(4,210	)
	Other, net			127			416
Income before income taxes and minority interests				81,122			65,971
Provision for income taxes				36,210			25,399
Income before minority interests				44,912			40,572
Minority interests				(1,018	)		(657	)
Net income			$	43,894		$	39,915
Earnings per common share
	Basic		$	0.96		$	0.88
	Diluted		$	0.88		$	0.82

See Notes to Condensed Consolidated Financial Statements

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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(dollars in thousands)

				June 26, 2004			December 27, 2003
Assets
Current assets
	Cash and cash equivalents			$	224,153		$	182,331
	Marketable securities				10,506			13,156
	Trade receivables, less allowances of $1,614 and $1,644, respectively				124,978			111,514
	Inventories				54,676			52,370
	Other current assets				10,297			11,517
		Total current assets			424,610			370,888
Property, plant and equipment, net					205,885			203,458
Goodwill, net					113,691			105,308
Other intangibles, net					32,158			30,415
Deferred tax asset					53,126			61,603
Other assets					32,914			27,882
		Total assets		$	862,384		$	799,554
Liabilities and Shareholders' Equity
Current liabilities
	Accounts payable			$	16,451		$	19,433
	Accrued compensation				29,811			27,251
	Deferred income				33,603			30,846
	Accrued liabilities				32,382			28,843
	Other current liabilities				10,114			7,978
		Total current liabilities			122,361			114,351
Long-term debt and capital lease obligations					186,137			185,683
Other long-term liabilities					25,340			24,721
		Total liabilities			333,838			324,755
Commitments and contingencies (Note 12)
Minority interests					9,484			10,176
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; 46,191,854 and 45,801,211 shares issued and outstanding at June 26, 2004 and December 27, 2003, respectively				462			458
	Capital in excess of par value				622,177			609,781
	Retained earnings (deficit)				(108,991	)		(152,885	)
	Unearned compensation				(2,137	)		(1,985	)
	Accumulated other comprehensive income				7,551			9,254
		Total shareholders' equity			519,062			464,623
		Total liabilities and shareholders' equity		$	862,384		$	799,554

See Notes to Condensed Consolidated Financial Statements

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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(dollars in thousands)

				Six Months Ended
				June 26, 2004			June 28, 2003
Cash flows relating to operating activities
	Net income			$	43,894		$	39,915
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				15,533			14,056
	Amortization of debt issuance costs and discounts				654			576
	Amortization of premiums on marketable securities				132			—
	Provision for doubtful accounts				545			1,112
	Minority interests				1,018			657
	Deferred income taxes				9,865			4,998
	Tax benefit from exercise of employee stock options				2,737			1,780
	Loss (gain) on disposal of property, plant, and equipment				503			32
	Asset impairment charge				—			3,655
	Litigation settlement				—			(2,908	)
	Non-cash compensation				1,589			412
Changes in assets and liabilities:
	Restricted cash				—			5,000
	Trade receivables				(12,958	)		(10,220	)
	Inventories				(2,801	)		(1,471	)
	Other current assets				1,132			(1,846	)
	Other assets				(1,857	)		1,167
	Accounts payable				(3,420	)		(1,295	)
	Accrued compensation				2,646			(6,186	)
	Deferred income				2,507			322
	Accrued liabilities				3,573			133
	Other current liabilities				2,099			(3,209	)
	Other long-term liabilities				800			2,618
		Net cash provided by operating activities			68,191			49,298
Cash flows relating to investing activities
	Acquisition of businesses, net of cash acquired				(16,972	)		(10,841	)
	Capital expenditures				(11,867	)		(14,454	)
	Purchases of marketable securities				(9,243	)		—
	Proceeds from sale of marketable securities				7,362			—
	Proceeds from sale of property, plant and equipment				—			306
		Net cash used in investing activities			(30,720	)		(24,989	)
Cash flows relating to financing activities
	Proceeds from long-term debt and revolving credit agreement				94,000			2,496
	Payments on long-term debt, capital lease obligation and revolving credit agreement				(94,196	)		(5,945	)
	Proceeds from exercises of employee stock options				7,922			1,282
	Proceeds from exercises of warrants				—			907
	Dividends paid to minority interests				(1,513	)		(1,862	)
	Payment of deferred financing costs				(100	)		(778	)
		Net cash provided by (used in) financing activities			6,113			(3,900	)
Effect of exchange rate changes on cash and cash equivalents					(1,762	)		1,423
Net change in cash and cash equivalents					41,822			21,832
Cash and cash equivalents, beginning of period					182,331			122,509
Cash and cash equivalents, end of period				$	224,153		$	144,341

See Notes to Condensed Consolidated Financial Statements

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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. 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 present 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 27, 2003.

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

2. Business Acquisitions

        On January 8, 2004, the Company acquired River Valley Farms, Inc. (RVF), a privately held medical device contract research business. Consideration, including acquisition expenses, was $16,972, net of cash acquired of $347. RVF was acquired to strengthen service offerings of the Company's existing development and safety testing (DST) segment. The acquisition was recorded as a purchase business combination in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations."

        The preliminary purchase price allocations associated with the RVF acquisition are as follows:

        Effective January 2, 2003, the Company acquired an additional 19% of the equity (404,321 common shares) of Charles River Japan from Ajinomoto Company, Inc., the minority interest partner, which increased the Company's ownership to 85% of the outstanding shares. The purchase price for the

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equity was 1.3 billion yen, or $10,841, which was paid in cash. The Company recorded goodwill of $2,553 based on the preliminary purchase price allocation in the first quarter of 2003. The Company reallocated this amount to fixed assets based on an independent valuation of these fixed assets, which was completed during the second quarter of 2003. Charles River Japan is an extension of the Company's research models and services (RMS) segment.

        The following selected unaudited pro forma consolidated results of operations are presented as if each acquisition had occurred as of the beginning of 2003, after giving effect to certain adjustments for additional interest expense and related income tax effects. 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 period. No effect has been given for synergies, if any, that may have been realized through the acquisitions.

			Three Months Ended						Six Months Ended
			June 26, 2004			June 28, 2003			June 26, 2004			June 28, 2003
			(as reported)			(pro forma)			(as reported)			(pro forma)
Net sales			$	180,193		$	156,388		$	352,830		$	310,669
Operating income				44,203			34,849			83,720			68,843
Net income				26,300			20,453			43,894			39,874
Earnings per common share
	Basic		$	0.57		$	0.45		$	0.96		$	0.88
	Diluted		$	0.52		$	0.42		$	0.88		$	0.82

        Refer to Note 8 for further discussion of the method of computation of earnings per share.

3. Restructuring and Other Charges

Restructuring Charges

        During the fourth quarter of 2001, the Company recorded restructuring charges of $1,788, including asset disposals of $1,041, employee separation of $477 and other charges of $270, associated with the closure of a facility in San Diego, California. The restructuring plan included the termination of approximately 40 employees and the exit of a facility utilized under an operating lease. During 2002, the Company recorded an additional $292 charge relating to the facility's lease obligation based on the Company's revised estimate of expected sublease income generated over the remaining lease term. During the third quarter of 2003, the Company recorded an additional $404 charge relating to the remaining lease obligation at the facility due to adverse rental market conditions in the San Diego area. The San Diego facility was included in the DST segment.

        During the fourth quarter of 2000, the Company recorded restructuring charges of $1,290, including asset disposal of $212, associated with the closure of a facility in France. During 2001, the Company recorded additional charges of $1,915, which included a write down of assets held for sale of $400 and additional severance payments and other related expenses of $1,515, relating to the settlement of labor disputes which originated during the first quarter of 2001. Approximately 60 employees were terminated as a result of the restructuring. The French facility was included in the RMS segment.

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Other Charges

        During the second and third quarters of 2003, the Company recorded a total charge of $954, included in the DST segment, for severance to employees who were terminated as part of a cost savings program. The Company recorded $690 of the charge in cost of services provided and $264 in selling, general and administrative expenses in the condensed consolidated statements of income. Approximately 100 employees, mainly technicians, technical support and administrative staff, were terminated as part of the cost savings program.

        During the first quarter of 2003, the Company re-evaluated the marketability of certain long-lived assets related to a biopharmaceutical production facility in Maryland, which is included in the DST segment, due to a significant decline in market interest in purchasing these assets. Since the Company was unable to locate a buyer for these assets, an impairment charge was recognized because future undiscounted cash flows were estimated to be insufficient to recover the related book value. The Company recorded an asset impairment charge of $3,655 for the write-down of those assets including a net write-down of leasehold improvements of $2,195 and machinery and equipment of $1,460. The charge was recorded as other operating expenses in the condensed consolidated statements of income. The Company closed the Maryland facility during 2003.

        A summary of the activities associated with the above restructuring and other charges and the related liabilities balance is as follows:

        The Company has closed both the San Diego facility and the French facility and expects the reserves to be fully utilized by the end of 2005. All terminated employees had separated from the Company by the end of the third quarter of 2002.

4. Litigation Settlement

        On March 28, 2003, the Company's French subsidiaries, which are included in the RMS segment, settled a pending breach of contract claim against a customer. The Company's French subsidiaries had previously been awarded damages of approximately $4,600 by the Commercial Court of Lyon and the damages award was stayed pending appeal by the customer at the French Supreme Court. The final settlement of this dispute was for a gross value of approximately $3,750, resulting in the retention by the Company's French subsidiaries of that amount previously deposited by the customer, pursuant to the order of the Commercial Court of Lyon, and recorded in deferred income in the condensed consolidated balance sheet. During 2000, the Company recognized approximately $350 of the damages

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award to offset a portion of subcontractor costs incurred based on the indemnification clause in the original customer agreement. After legal and related expenses, the Company's French subsidiaries recorded a net gain for the retained settlement amount of $2,908, which was recorded in the first quarter of 2003 as other operating income in the condensed consolidated statements of income.

5. Supplemental Balance Sheet Information

        The composition of inventories is as follows:

        The composition of other current assets is as follows:

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

        Depreciation expense for the six months ended June 26, 2004 and June 28, 2003 was $13,144 and $11,578, respectively.

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        The composition of other assets is as follows:

        The composition of other current liabilities is as follows:

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

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6. 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 26, 2004						December 27, 2003
				Gross Carrying Amount			Accumulated Amortization			Gross Carrying Amount			Accumulated Amortization
Goodwill				$	126,387		$	(12,696	)	$	118,014		$	(12,706	)
Other intangible assets not subject to amortization				$	3,438		$	—		$	3,438		$	—
Other intangible assets subject to amortization:
	Customer relationships				30,441			(7,195	)		26,818			(5,752	)
	Customer contracts				3,585			(3,221	)		3,585			(3,078	)
	Trademarks and trade names				3,217			(1,074	)		3,224			(913	)
	Standard operating procedures				1,350			(763	)		1,353			(637	)
	Other identifiable intangible assets				5,983			(3,603	)		5,531			(3,154	)
Total other intangible assets				$	48,014		$	(15,856	)	$	43,949		$	(13,534	)
		Total goodwill and other intangible assets		$	174,401		$	(28,552	)	$	161,963		$	(26,240	)

        The changes in the gross carrying amount and accumulated amortization of goodwill from December 27, 2003 to June 26, 2004 are as follows:

			Research Models and Services						Development and Safety Testing						Total
			Gross Carrying Amount			Accumulated Amortization			Gross Carrying Amount			Accumulated Amortization			Gross Carrying Amount			Accumulated Amortization
Balance at December 27, 2003			$	16,309		$	(2,865	)	$	101,705		$	(9,841	)	$	118,014		$	(12,706	)
Adjustments to goodwill:
	Acquisitions			—			—			9,107			—			9,107			—
	Other			(113	)		32			(621	)		(22	)		(734	)		10
Balance at June 26, 2004			$	16,196		$	(2,833	)	$	110,191		$	(9,863	)	$	126,387		$	(12,696	)

        Estimated amortization expense for each of the next five fiscal years is as follows:

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7. Long-Term Debt

        On March 31, 2003, the Company entered into a revolving credit agreement which matures on March 31, 2006. The agreement permits the Company to borrow up to $100,000 at an interest rate based on, at the Company's option, the greater of either the Prime Rate, the Base CD Rate plus 1% and the Federal Funds Effective Rate plus 0.5%, or LIBOR multiplied by the Statutory Reserve Rate plus a spread of 1.25% to 2.50% based on the leverage ratio of the Company and the aggregate borrowing under the revolving credit agreement. Interest is payable based on the Company's selected interest rate, which ranges from monthly to semi-annually. The credit agreement requires the Company to pay a quarterly commitment fee which ranges from 25 through 50 basis points annually on the undrawn balance based on the leverage of the Company. The agreement also requires the Company to remain in compliance with certain financial ratios as well as other restrictive covenants. There were no amounts outstanding under the credit agreement as of June 26, 2004.

8. Shareholders' Equity

Earnings per Share

        Basic earnings per share for the three and six months ended June 26, 2004 and June 28, 2003 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 adjusted for contingently issuable shares. The weighted average number of common shares outstanding in the three and six months ended June 26, 2004 and June 28, 2003 have been adjusted to include common stock equivalents for the purpose of calculating diluted earnings per share for this period.

        Options to purchase 26,800 and 1,888,065 shares were outstanding in each of the respective three months ended June 26, 2004 and June 28, 2003 but were not included in computing diluted earnings per share because their inclusion would have been anti-dilutive. Options to purchase 1,320,600 and 1,868,065 shares were outstanding in each of the respective six months ended June 26, 2004 and June 28, 2003 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 26, 2004 and June 28, 2003 excluded the weighted average impact of 20,000 shares of contingently issuable shares. In addition, basic weighted average shares outstanding for the three and six months ended June 26, 2004 and June 28, 2003 excluded the weighted average impact of 90,839 and 61,669 shares, respectively, of non-vested fixed restricted stock awards.

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        The following table illustrates the reconciliation of the numerator and denominator of the basic and diluted earnings per share computations:

			Three Months Ended						Six Months Ended
			June 26, 2004			June 28, 2003			June 26, 2004			June 28, 2003
Numerator:
Net income for purposes of calculating earnings per share			$	26,300		$	20,561		$	43,894		$	39,915
After-tax equivalent of interest expense on 3.5% senior convertible debentures				995			995			1,991			1,991
Income for purposes of calculating diluted earnings per share			$	27,295		$	21,556		$	45,885		$	41,906
Denominator:
Weighted average shares outstanding—Basic				46,046,675			45,319,310			45,950,897			45,248,913
Effect of dilutive securities:
	3.5% senior convertible debentures			4,759,455			4,759,455			4,759,455			4,759,455
	Stock options and contingently issued restricted stock			1,440,297			747,095			1,294,509			775,189
	Warrants			339,860			413,749			337,175			437,429
Weighted average shares outstanding—Diluted				52,586,287			51,239,609			52,342,036			51,220,986
Basic earnings per share			$	0.57		$	0.45		$	0.96		$	0.88
Diluted earnings per share			$	0.52		$	0.42		$	0.88		$	0.82

Comprehensive Income

        The components of comprehensive income for the three and six months ended June 26, 2004 and June 28, 2003 are set forth below:

			Three Months Ended						Six Months Ended
			June 26, 2004			June 28, 2003			June 26, 2004			June 28, 2003
Net income			$	26,300		$	20,561		$	43,894		$	39,915
Foreign currency translation adjustment, net of tax				(4,998	)		7,910			(1,579	)		10,032
Net unrealized gain on marketable securities, net of tax				(98	)		—			(124	)		—
	Comprehensive income		$	21,204		$	28,471		$	42,191		$	49,947

9. Income Taxes

        In the first quarter of 2004, the Company reorganized its European operations. The purpose of the reorganization was to streamline the legal entity structure in order to improve operating efficiency and

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cash management, facilitate acquisitions and provide tax benefits. The reorganization, which did not involve reductions of personnel or facility closures, resulted in a one-time, non-cash charge to earnings in the first quarter of 2004 of $7,900 due primarily to the write-off of a deferred tax asset.

        In light of this reorganization, the Company reassessed the valuation allowance associated with its foreign tax credit carryforwards. As a result of this reassessment, $2,111 of the valuation allowance was released and recorded as a tax benefit in the first quarter of 2004.

        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 26, 2004			June 28, 2003			June 26, 2004			June 28, 2003
Income before income taxes and minority interest			$	42,820		$	33,727		$	81,122		$	65,971
Effective tax rate				37.5	%		38.5	%		37.5	%		38.5	%
Provision at effective tax rate			$	16,058		$	12,985		$	30,421		$	25,399
Effect of:
	Deferred tax asset write-off			—			—			7,900			—
	Valuation allowance release			—			—			(2,111	)		—
Provision for income taxes			$	16,058		$	12,985		$	36,210		$	25,399

10. Employee Benefits

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

Pension Benefits

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Supplemental Retirement Benefits

        The Company contributed $193 and $383 to its pension plans during the three and six months ended June 26, 2004.

11. Stock-Based Compensation Plans

        SFAS No. 123, "Accounting for Stock-Based Compensation," requires the presentation of certain pro forma information as if the Company had accounted for its employee stock options under the fair value method. For purposes of this disclosure, the fair value of the fixed option grants was estimated using the Black-Scholes option-pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility and expected life of the options. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimates, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. However, for each period presented, management believes the Black-Scholes model is the most appropriate option valuation model for the Company's options.

        Had compensation expense for the Company's option grants been determined consistent with the provision of SFAS No. 123, as amended by SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure, an Amendment of FASB Statement No. 123," the

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Company's net income for the three and six months ended June 26, 2004 and June 28, 2003 would have been reduced to the pro forma amounts indicated below:

		Three Months Ended						Six Months Ended
		June 26, 2004			June 28, 2003			June 26, 2004			June 28, 2003
Reported net income		$	26,300		$	20,561		$	43,894		$	39,915
Add: Stock-based employee compensation included in reported net income, net of tax			619			193			993			253
Less: Total stock-based employee compensation expense determined under the fair value method for all awards, net of tax			(5,255	)		(2,168	)		(9,467	)		(4,236	)
Pro forma net income		$	21,664		$	18,586		$	35,420		$	35,932
Reported basic earnings per share		$	0.57		$	0.45		$	0.96		$	0.88
Pro forma basic earnings per share		$	0.47		$	0.41		$	0.77		$	0.79
Reported diluted earnings per share		$	0.52		$	0.42		$	0.88		$	0.82
Pro forma diluted earnings per share		$	0.43		$	0.38		$	0.71		$	0.74

Restricted Common Stock and Performance Based Plans

        Under the Company's 2000 Incentive Plan, restricted common stock of the Company may be granted at no cost to officers and key employees. Plan participants are entitled to cash dividends, if declared, and to vote their respective shares. Restrictions limit the sale or transfer of these shares until they vest, which is typically over a three-year period. Upon issuance of restricted stock awards under the plan, unearned compensation equivalent to the market value at the date of grant is charged to shareholders' equity and subsequently amortized to expense over the vesting period. On February 13, 2004, the Company granted 18,700 restricted stock awards and recorded $805 as unearned compensation in shareholders' equity. During the three months ended June 26, 2004 and June 28, 2003, the Company recorded $505 and $315, respectively, and during the six months ended June 26, 2004 and June 28, 2003, the Company recorded $927 and $412, respectively, in compensation expense for restricted stock awards.

        In the first quarter of 2004, the Company's Board of Directors initiated a new performance-based management incentive program (Mid-Term Incentive (MTI) Program), as a carve-out from the shareholder approved 2000 Incentive Plan. For 2004, the MTI Program provides that up to a maximum of 218,000 performance units may be granted to senior executives and certain other key employees of the Company based on achieving financial performance targets for 2006. The MTI Program units, which equal the value of one share of Company stock, will be paid out to participating employees in the form of cash and restricted stock. Management anticipates that following the planned merger with Inveresk, the 2006 revenue and operating income targets that trigger the maximum unit payments are likely to be achieved. For a participant to be eligible to receive payment for 2004 MTI units, the

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employee must remain employed with the Company until at least the beginning of 2007. The restricted stock, which requires continued employment beyond 2007, vests over the ensuing two-year period.

        The Company will accrue compensation expense for the 2004 MTI Program obligations over the period the participating employees are required to be employed by the Company. During the three and six months ended June 26, 2004, the Company recorded $1,022 and $1,316, respectively, as compensation expense for the 2004 MTI Program. In each of the respective three and six months ended June 26, 2004, $486 and $662 was recorded as capital in excess of par value in shareholders' equity, and the remaining $536 and $654 was recorded as accrued compensation. The accrual for the MTI Program is marked to market on a quarterly basis. Accordingly, changes in the market value of Company stock could materially affect this compensation expense. Based upon our share price of $47.25 as of June 25, 2004 our maximum payment obligation under the 2004 MTI Program would be approximately $10 million.

12. Commitments and Contingencies

        Various lawsuits, claims and proceedings of a nature considered normal to its business are pending against the Company. In the opinion of management, the outcome of such proceedings and litigation currently pending will not materially affect the Company's consolidated financial statements.

        As of June 26, 2004 and December 27, 2003, the Company had $4,763 and $5,313 under letters of credit outstanding, respectively.

13. Business Segment Information

        The following table presents sales to unaffiliated customers and other financial information by product line segment for the three and six months ended June 26, 2004 and June 28, 2003.

			Three Months Ended						Six Months Ended
			June 26, 2004			June 28, 2003			June 26, 2004			June 28, 2003
Research Models and Services
	Net sales		$	113,334		$	102,500		$	226,800		$	205,623
	Gross margin			49,401			43,054			98,289			87,939
	Operating income			38,007			31,798			74,486			69,036
	Depreciation and amortization			4,144			3,940			8,286			7,530
	Capital expenditures			4,319			2,363			7,490			4,527
Development and Safety Testing
	Net sales		$	66,859		$	51,864		$	126,030		$	100,866
	Gross margin			25,220			16,531			45,160			29,628
	Operating income			14,431			7,320			24,277			8,251
	Depreciation and amortization			3,552			3,191			7,247			6,526
	Capital expenditures			3,023			6,855			4,377			9,927

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        A reconciliation of segment operating income to consolidated operating income is as follows:

		Three Months Ended						Six Months Ended
		June 26, 2004			June 28, 2003			June 26, 2004			June 28, 2003
Total segment operating income		$	52,438		$	39,118		$	98,763		$	77,287
Unallocated corporate overhead			(8,235	)		(4,112	)		(15,043	)		(8,433	)
Consolidated operating income		$	44,203		$	35,006		$	83,720		$	68,854

        A summary of unallocated corporate overhead consists of the following:

		Three Months Ended						Six Months Ended
		June 26, 2004			June 28, 2003			June 26, 2004			June 28, 2003
Restricted and performance based stock compensation expense		$	1,527		$	315		$	2,243		$	412
Bonus expense			1,509			139			2,242			279
Audit, tax and related expenses			1,066			312			2,146			625
US pension expense			641			673			1,741			1,471
Executive officers' salary			396			382			799			764
Other general unallocated corporate expenses			3,096			2,291			5,872			4,882
		$	8,235		$	4,112		$	15,043		$	8,433

        Other general unallocated corporate expenses consist of various departmental costs including corporate accounting, legal and investor relations.

        During the fourth quarter of 2003, the Company revised its consolidated financial reporting segments to better reflect the manner in which the Company's operating units are managed. The Company believed the revision was required because in 2003 a number of changes were made to align related businesses, to focus sales force responsibilities and to simplify management structure. The Company continues to report two segments, now called Research Models and Services (RMS) segment and Development and Safety Testing (DST) segment. The research models business continues to be reported in the RMS segment and transgenic services, laboratory services, contract staffing services and vaccine support services are now reported in the RMS segment. The Company reports development services, including drug safety testing, pathology services and interventional and surgical services, and in vitro technology in the DST segment. The changes in segment presentation have no effect on consolidated revenues or net income. Management believes that the new business segments better reflect results of operations and facilitate investors' understanding of the Company's business. Prior year segment information has been reclassified to reflect current year presentation.

14. Recently Issued Accounting Standards

        In January 2003, FASB issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities," which clarifies the application of Accounting Research Bulletin (ARB) No. 51, "Consolidated

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Financial Statements," relating to consolidation of certain entities. First, FIN 46 will require identification of the Company's participation in variable interest entities (VIE), which are defined as entities with a level of invested equity that is not sufficient to fund future activities to permit them to operate on a stand alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. Then, for entities identified as VIE, FIN 46 sets forth a model to evaluate potential consolidation based on an assessment of which party to the VIE, if any, bears a majority of the exposure to its expected losses, or stands to gain from a majority of its expected returns. In December 2003, the FASB issued a revised FIN 46 to defer the effective date and provide further clarification on the interpretation. FIN 46R is effective for public companies in the first fiscal period after December 15, 2003. The adoption of FIN 46 did not have a material effect on the Company's results of operations and financial condition.

15. Subsequent Events

        On June 30, 2004, the Company and Inveresk Research Group, Inc. (Inveresk) entered into a definitive merger agreement. Inveresk is a leading provider of drug development services to companies in the pharmaceutical and biotechnology industry. Under the terms of the agreement, Inveresk shareholders will receive 0.48 shares of the Company's common stock and $15.15 in cash for each share of Inveresk common stock they own, representing a total consideration of $38.61 per common share, or a transaction value of approximately $1.5 billion, based on the Company's closing price on June 30, 2004, of $48.87 per share. Following the close of the transaction, the Company's shareholders will own approximately 73% of the fully diluted shares of the new company, and Inveresk shareholders will own approximately 27%. The Company entered into the merger agreement to combine and expand the service portfolios of the two companies and strengthen its global presence in the growing market for pharmaceutical research and development products and services. On July 20, 2004, the Federal Trade Commission granted early termination of the waiting period required by the Hart-Scott-Rodino Antitrust Improvement Act in connection with the proposed merger. The transaction is subject to customary closing conditions, including additional regulatory and shareholder approvals. The merger is expected to close in the fourth quarter of 2004. As of June 26, 2004, the Company capitalized $1.6 million of external audit, legal and other related service costs associated with the merger. The capitalized costs were recorded in other assets in the condensed consolidated balance sheet.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes.

Overview

        We are a leading provider of critical research tools and integrated support services that enable innovative and efficient drug discovery and development. We are a global leader in providing the animal research models and services required in research and development for new drugs, devices and therapies and have been in business since 1947. We have two segments for financial reporting purposes: Research Models and Services (RMS) and Development and Safety Testing (DST).

        On June 30, 2004, we signed a definitive merger agreement with Inveresk Research Group, Inc. (Inveresk) which would create a leading global partner in providing essential preclinical and clinical drug development services and products to the pharmaceutical and biotechnology industry. The strategic combination will significantly expand our service portfolio and strengthen our global footprint in the growing market for pharmaceutical research and development products and services. A copy of the merger agreement is filed as an exhibit to this report. The combination with Inveresk will create a company with approximately $920 million in revenues based upon the twelve months ended March 2004, with substantial profitability and strong cash flow, giving it the size and financial stability to support the growing demand for outsourced development services from international pharmaceutical and biotechnology companies. The combined company will have operations throughout the United States, Canada, Europe and Japan. Under the terms of the merger agreement, Inveresk shareholders will receive 0.48 shares of Charles River common stock and $15.15 in cash for each share of Inveresk common stock they own. On July 20, 2004, the Federal Trade Commission granted early termination of the waiting period required by the Hart-Scott-Rodino Antitrust Improvement Act in connection with the proposed merger. The transaction is subject to customary closing conditions, including additional regulatory and shareholder approvals. The merger is expected to close in the fourth quarter of 2004.

        Our second quarter sales reflect the continued strong spending by major pharmaceuticals, biotechnology companies and academic institutions on our global products and services which aid in their development of new drugs and products. Total net sales in the second quarter of 2004 were $180.2 million, an increase of 16.7% over the same period last year. Our gross margin increased to 41.4% of net sales in the second quarter of 2004, compared to 38.6% of net sales for the same period last year, due to improved utilization as a result of the increased sales in the DST segment. Last year, we implemented a cost savings program for our DST segment which resulted in a severance charge of $0.9 million during the second quarter of 2003. Operating income increased 26.3% to $44.2 million in the second quarter of 2004 from $35.0 million for the same period last year. The operating margin increased to 24.5% in the second quarter of 2004 compared to 22.7% last year. Net income was $26.3 million in the second quarter of 2004, a 27.9% increase compared to $20.6 million for the same period last year. Diluted earnings per share for the second quarter of 2004 were $0.52 compared to $0.42 for the same period last year.

        On a year to date basis, total net sales were $352.8 million, an increase of 15.1% over the same period last year due to growth in both DST and RMS. Our gross margin increased to 40.7% of total net sales, compared to 38.4% of total net sales for the same period last year. Operating income on a year to date basis increased 21.6% over last year. On a year to date basis, the operating margin increased to 23.7% compared to 22.5% for last year. In the first quarter of 2004, we reorganized our European operations to streamline the legal entity structure in order to improve operating efficiency and cash management, facilitate acquisitions and provide tax benefits. The reorganization, which did not involve reductions of personnel or facility closures, resulted in a one-time, non-cash charge to earnings in the first quarter of 2004 of $7.9 million due to the write-off of a deferred tax asset. In light of this reorganization, we reassessed the valuation allowance associated with our foreign tax credit

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carryforwards and released $2.1 million as a tax benefit. Net income on a year to date basis was $43.9 million, including the write-off of the deferred tax asset and the reversal of a valuation allowance, compared to $39.9 million for the same period last year.

        Our RMS business segment represented 62.9% of net sales in the second quarter of 2004. Net sales for this segment increased 10.6% over the same period last year. The primary contributors to this growth were price increases and volume with foreign exchange accounting for a small portion of the increase. We are in the process of adding and evaluating capacity for RMS worldwide. Operating income as a percent of net sales increased to 33.5% compared to 31.0% for last year.

        Sales on a year to date basis for our RMS business segment increased 10.3% over the same period last year. The net sales increase drove an improvement in operating income. Operating income was $74.5 million, an increase of $5.5 million from last year's second quarter. Operating income from last year's second quarter included a favorable litigation settlement of $2.9 million.

        Our DST segment represented 37.1% of net sales in the second quarter of 2004. Sales for this segment increased 28.9% over the same period last year. Our development services business continued to recover from the slower demand for toxicology services that we experienced in 2003. We believe the market for toxicology services, which was at a low point during early 2003, continues to recover, particularly in high-end specialty services. Our efforts to integrate and harmonize the development services business and to focus its sales efforts positioned it to benefit from stronger customer demand for outsourced services, particularly in general and specialty toxicology. The market improvement has reduced the excess capacity and moderated the price sensitivity for services. We added capacity in two of our facilities in 2003, and based on our projected demand for these services, we expect to add both general and specialty toxicology capacity to accommodate market growth in 2005 and beyond. The acquisition of RVF contributed 5.1% to the net sales growth in the second quarter of 2004. The DST operating margin improved significantly for the second quarter of 2004 to 21.6%, compared to 14.1% for the same period last year. The increase was primarily due to higher sales and improved capacity utilization.

        Sales on a year to date basis for our DST segment increased 24.9% over the same period last year. Operating income increased to 19.3% of net sales through the second quarter of 2004, compared to 8.2% through the second quarter of 2003. Operating income for the six months ending June 28, 2003 included the impairment charge of $3.7 million for our contract manufacturing facility and the $0.9 million severance charge.

        During the first quarter of 2004 we adopted a mid-term incentive (MTI) program in which performance units are paid to senior executives and certain other employees in the form of cash and restricted stock based upon achieving financial performance targets for the Company in 2006. We recorded expense in the first and second quarters to reflect management's expectations for performance under this program, including the favorable impact of the proposed combination with Inveresk. See Footnote 11 for additional information on the MTI Program.

Three Months Ended June 26, 2004 Compared to Three Months Ended June 28, 2003

        Net Sales.    Net sales for the three months ended June 26, 2004 were $180.2 million, an increase of $25.8 million, or 16.7%, from $154.4 million for the three months ended June 28, 2003. The increase in net sales was primarily due to continued strong spending by pharmaceutical and biotechnology companies for our global products and services. Favorable foreign currency translation contributed approximately 2% to our net sales gain. River Valley Farms, Inc. (RVF), which we acquired on January 8, 2004, contributed 1.7% to our net sales growth.

        Research Models & Services.    For the three months ended June 26, 2004, RMS net sales were $113.3 million, an increase of $10.8 million, or 10.6%, compared to $102.5 million for the three months ended June 28, 2003. RMS prices increased at certain geographical locations in a range up to 8% with

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an average increase of approximately 5%. RMS segment volume increased but was negatively impacted by the following factors: the loss of a significant contract for contract staffing services in the fourth quarter of 2003, the bankruptcy of a biotechnology customer and the merger of two customers in the second quarter of 2003. Net sales to these customers in the second quarter of 2004 declined by more than $2 million from the second quarter of last year. Favorable foreign currency translation contributed approximately 3% to our net sales gain.

        Development & Safety Testing.    For the three months ended June 26, 2004, DST net sales were $66.9 million, an increase of $15.0 million, or 28.9%, from $51.9 million for the three months ended June 28, 2003. DST sales increased in 2004 primarily due to our development services group recovering from the slower demand for toxicology services we experienced during 2003. Customer demand has increased from the low point we experienced in the first quarter of 2003. We believe the market capacity is in line with customer demand moderating price sensitivity for specialty services. The acquisition of RVF contributed 5.1% to the net sales growth and favorable foreign currency translation contributed approximately 1%.

        Cost of Products Sold and Services Provided.    Cost of products sold and services provided for the three months ended June 26, 2004 was $105.6 million, an increase of $10.8 million, or 11.4%, from $94.8 million for the three months ended June 28, 2003. Cost of products sold and services provided for the three months ended June 26, 2004 was 58.6% of net sales, compared to 61.4% for the three months ended June 28, 2003. The decrease in cost of products sold and services provided as a percent of sales was due primarily to increased capacity utilization in DST and RMS.

        Research Models & Services.    Cost of products sold and services provided for RMS for the three months ended June 26, 2004 was $63.9 million, an increase of $4.5 million, or 7.5%, compared to $59.4 million for the three months ended June 28, 2003. Cost of products sold and services provided as a percentage of net sales decreased to 56.4% for the three months ended June 26, 2004 from 58.0% for the three months ended June 28, 2003. The decrease in cost of product sold and services provided as a percentage of net sales was primarily due to improved capacity utilization and greater operating efficiencies.

        Development & Safety Testing.    Cost of products sold and services provided for DST for the three months ended June 26, 2004 was $41.6 million, an increase of $6.3 million, or 17.8%, compared to $35.3 million for the three months ended June 28, 2003. Cost of products sold and services provided for the three months ended June 26, 2004 decreased to 62.3% of net sales compared to 68.1% of net sales for the three months ended June 28, 2003. The decrease in cost of products sold and services provided as a percentage of net sales was due primarily to improved capacity utilization from the increased sales of toxicology services.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses for the three months ended June 26, 2004 were $29.2 million, an increase of $5.9 million, or 25.1%, from $23.3 million for the three months ended June 28, 2003. Selling, general and administrative expenses for the three months ended June 26, 2004 and were 16.2% of net sales, compared to 15.1% of net sales for the three months ended June 28, 2003. The increase in selling, general and administrative expenses for the three months ended June 26, 2004 was due primarily to higher anticipated bonuses and stock based compensation, as well as, increased professional fees including compliance with the internal control certification requirements of Sarbanes-Oxley.

        Research Models & Services.    Selling, general and administrative expenses for RMS for the three months ended June 26, 2004 were $11.4 million, an increase of $0.4 million, or 2.8%, compared to $11.0 million for the three months ended June 28, 2003. Selling, general and administrative expenses for the three months ended June 26, 2004 decreased to 10.0% of net sales, compared to 10.8% of net sales for the three months ended June 28, 2003. The decrease in selling, general and administrative

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expenses as a percentage of net sales for the three months ended June 26, 2004 was primarily due to greater economies of scale.

        Development & Safety Testing.    Selling, general and administrative expenses for DST for the three months ended June 26, 2004 were $9.6 million, an increase of $1.4 million, or 17.6%, compared to $8.2 million for the three months ended June 28, 2003. Selling, general and administrative expenses for the three months ended June 26, 2004 were 14.4% of net sales, compared to 15.8% for the three months ended June 28, 2003. The decrease in selling, general and administrative expenses as a percent of sales for the three months ended June 26, 2004 was primarily due to our continued ability to manage costs in line with our sales increase.

        Unallocated Corporate Overhead.    Unallocated corporate overhead, which consists of various corporate expenses including those associated with pension, executive salaries and departments such as corporate accounting, legal and investor relations, was $8.2 million for the three months ended June 26, 2004, compared to $4.1 million for the three months ended June 28, 2003. The increase in unallocated corporate overhead for the three months ended June 26, 2004 was due mainly to costs associated with increased anticipated bonuses and stock based compensation, as well as, increased professional fees including compliance with the internal control certification requirements of Sarbanes-Oxley.

        Amortization of Other Intangibles.    Amortization of other intangibles for the three months ended June 26, 2004 was $1.2 million, which was essentially flat compared to the three months ended June 28, 2003.

        Operating Income.    Operating income for the three months ended June 26, 2004 was $44.2 million, an increase of $9.2 million, or 26.3%, from $35.0 million for the three months ended June 28, 2003. Operating income for the three months ended June 26, 2004 was 24.5% of net sales, compared to 22.7% of net sales for the three months ended June 28, 2003.

        Research Models & Services.    For the three months ended June 26, 2004, operating income from our RMS segment was $38.0 million, an increase of $6.2 million, or 19.5%, from $31.8 million for the three months ended June 28, 2003. Operating income for the three months ended June 26, 2004 increased to 33.5% of net sales, compared to 31.0% of net sales for the three months ended June 28, 2003. The increase in operating income for the three months ended June 26, 2004 was primarily due to increased sales and higher gross margins.

        Development & Safety Testing.    For the three months ended June 26, 2004, operating income from our DST segment was $14.4 million, an increase of $7.1 million, from $7.3 million for the three months ended June 28, 2003. Operating income for the three months ended June 26, 2004 was 21.6% of net sales, compared to 14.1% for the three months ended June 28, 2003. The increase in operating income for the three months ended June 26, 2004 was primarily due to the continued recovery of the market for outsourced development services which resulted in higher sales and greater utilization.

        Interest Expense.    Interest expense for the three months ended June 26, 2004 was $2.1 million, which was essentially flat compared to the three months ended June 28, 2003.

        Income Taxes.    Income tax expense for the three months ended June 26, 2004 was $16.1 million, an increase of $3.1 million compared to $13.0 million last year. Our effective tax rate for the three months ended June 26, 2004 was 37.5% compared to the second quarter rate of 38.5% in 2003, due to the benefit of the reorganization of our European operations.

        Net Income.    Net income for the three months ended June 26, 2004 was $26.3 million, a increase of $5.7 million, or 27.9%, from $20.6 million for the three months ended June 28, 2003.

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Six Months Ended June 26, 2004 Compared to Six Months Ended June 28, 2003

        Net Sales.    Net sales for the six months ended June 26, 2004 were $352.8 million, an increase of $46.3 million, or 15.1%, from $306.5 million for the six months ended June 28, 2003. The increase in net sales was primarily due to continued strong spending by pharmaceutical and biotechnology companies on our global products and services. Favorable foreign currency translation contributed approximately 3% to our net sales gain. River Valley Farms, Inc. (RVF), which we acquired on January 8, 2004, contributed 1.7% to our net sales growth.

        Research Models & Services.    For the six months ended June 26, 2004, RMS net sales were $226.8 million, an increase of $21.2 million, or 10.3%, compared to $205.6 million for the six months ended June 28, 2003. RMS prices increased at certain geographical locations in a range up to 8% with an average increase of approximately 5%. RMS segment volume increased but was negatively impacted by the following factors: the loss of a significant contract for contract staffing services in the fourth quarter of 2003, the bankruptcy of a biotechnology customer and the merger of two customers in the second quarter of 2003. Net sales to these customers in the six months ended June 26, 2004 declined by more than $6 million from the six months ended June 28, 2003. Favorable foreign currency translation contributed approximately 4% to our net sales gain.

        Development & Safety Testing.    For the six months ended June 26, 2004, DST net sales were $126.0 million, an increase of $25.1 million, or 24.9%, from $100.9 million for the six months ended June 28, 2003. DST sales increased in 2004 primarily due to our development services business recovering from the slower demand for toxicology services we experienced during 2003. Customer demand has increased from the low point we experienced in the first quarter of 2003. We believe the market capacity is in line with customer demand, moderating price sensitivity. The acquisition of RVF contributed 5.2% to the net sales growth and favorable foreign currency translation contributed approximately 1%.

        Cost of Products Sold and Services Provided.    Cost of products sold and services provided for the six months ended June 26, 2004 was $209.4 million, an increase of $20.5 million, or 10.8%, from $188.9 million for the six months ended June 28, 2003. Cost of products sold and services provided for the six months ended June 26, 2004 was 59.3% of net sales, compared to 61.6% for the six months ended June 28, 2003. The decrease in cost of products sold and services provided as a percent of sales was due primarily to increased capacity utilization in DST and RMS.

        Research Models & Services.    Cost of products sold and services provided for RMS for the six months ended June 26, 2004 was $128.5 million, an increase of $10.8 million, or 9.2%, compared to $117.7 million for the six months ended June 28, 2003. Cost of products sold and services provided as a percentage of net sales decreased to 56.7% for the six months ended June 26, 2004 from 57.2% for the six months ended June 28, 2003. The decrease in cost of product sold and services provided as a percentage of net sales was primarily due to improved capacity utilization and greater operating efficiencies.

        Development & Safety Testing.    Cost of products sold and services provided for DST for the six months ended June 26, 2004 was $80.9 million, an increase of $9.7 million, or 13.5%, compared to $71.2 million for the six months ended June 28, 2003. Cost of products sold and services provided for the six months ended June 26, 2004 decreased to 64.2% of net sales compared to 70.6% of net sales for the six months ended June 28, 2003. The decrease in cost of products sold and services provided as a percentage of net sales was due primarily to improved capacity utilization from the increased sales of toxicology services.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses for the six months ended June 26, 2004 were $57.3 million, an increase of $11.8 million, or 26.1%, from $45.5 million for the six months ended June 28, 2003. Selling, general and administrative expenses for

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the six months ended June 26, 2004 were 16.3% of net sales, compared to 14.8% of net sales for the six months ended June 28, 2003. The increase in selling, general and administrative expenses for the six months ended June 26, 2004 was due primarily to one-time costs associated with the European reorganization, increased bonus and stock based compensation expense, severance costs in Europe not related to the European reorganization and increased professional fees including compliance with the internal control certification requirements of Sarbanes-Oxley.

        Research Models & Services.    Selling, general and administrative expenses for RMS for the six months ended June 26, 2004 were $23.7 million, an increase of $2.3 million, or 10.9%, compared to $21.4 million for the six months ended June 28, 2003. Selling, general and administrative expenses for the six months ended June 26, 2004 increased to 10.5% of net sales, compared to 10.4% of net sales for the six months ended June 28, 2003. The increase in selling, general and administrative expenses for the six months ended June 26, 2004 was primarily due to severance costs in Europe and the impact of foreign exchange, partially offset by cost savings due to greater economies of scale.

        Development & Safety Testing.    Selling, general and administrative expenses for DST for the six months ended June 26, 2004 were $18.6 million, an increase of $2.9 million, or 18.6%, compared to $15.7 million for the six months ended June 28, 2003. Selling, general and administrative expenses for the six months ended June 26, 2004 were 14.7% of net sales, compared to 15.5% for the six months ended June 28, 2003. The decrease in selling, general and administrative expenses as a percent of sales for the six months ended June 26, 2004 was primarily due to our continued ability to manage costs in line with our sales increase.

        Unallocated Corporate Overhead.    Unallocated corporate overhead, which consists of various corporate expenses including those associated with pension, executive salaries and departments such as corporate accounting, legal and investor relations, was $15.0 million for the six months ended June 26, 2004, compared to $8.4 million for the six months ended June 28, 2003. The increase in unallocated corporate overhead for the six months ended June 26, 2004 was due to costs associated with the European reorganization, increased bonus and stock based compensation expense and increased professional fees including compliance with the internal control certification requirements of Sarbanes-Oxley.

        Other Operating Expenses, Net.    During the first quarter of 2003, we recorded a $3.7 million charge associated with the closure of a contract manufacturing facility. Also during 2003, our French subsidiaries settled a breach of contract claim they had asserted against a customer. After legal and related expenses, the net settlement amounted to a gain of approximately $2.9 million.

        Amortization of Other Intangibles.    Amortization of other intangibles for the six months ended June 26, 2004 was $2.4 million, which was essentially flat compared to the six months ended June 28, 2003.

        Operating Income.    Operating income for the six months ended June 26, 2004 was $83.7 million, an increase of $14.8 million, or 21.6%, from $68.9 million for the six months ended June 28, 2003. Operating income for the six months ended June 26, 2004 was 23.7% of net sales, compared to 22.5% of net sales for the six months ended June 28, 2003.

        Research Models & Services.    For the six months ended June 26, 2004, operating income from our RMS segment was $74.5 million, an increase of $5.5 million, or 7.9%, from $69.0 million for the six months ended June 28, 2003. Operating income for the six months ended June 26, 2004 decreased to 32.8% of net sales, compared to 33.6% of net sales for the six months ended June 28, 2003. The decrease in operating income for the six months ended June 26, 2004 was primarily due to the prior year gain on the settlement of a breach of contract claim of $2.9 million, or 1.4% of sales.

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        Development & Safety Testing.    For the six months ended June 26, 2004, operating income from our DST segment was $24.3 million, an increase of $16.0 million, almost double the $8.3 million for the six months ended June 28, 2003. Operating income for the six months ended June 26, 2004 was 19.3% of net sales, compared to 8.2% for the six months ended June 28, 2003. The increase in operating income for the six months ended June 26, 2004 was primarily due to the continued recovery of the market for outsourced development services and the prior year charge associated with the closure of a contract manufacturing facility of $3.7 million, or 3.7% of sales.

        Interest Expense.    Interest expense for the six months ended June 26, 2004 was $4.2 million, essentially flat compared to the six months ended June 28, 2003.

        Income Taxes.    Income tax expense for the six months ended June 26, 2004 was $36.2 million, an increase of $10.8 million compared to $25.4 million last year. Our effective tax rate for the six months ended June 26, 2004 was 44.6%. Excluding charges associated with the deferred tax write-off and the benefit from the reversal of the valuation allowance, the effective tax rate for the six months ended June 26, 2004 was 37.5%, compared to the six months ended June 28, 2003 rate of 38.5%, due to the benefit of the reorganization of our European operations.

        Net Income.    Net income for the six months ended June 26, 2004 was $43.9 million, an increase of $4.0 million, or 10.0%, from $39.9 million for the six months ended June 28, 2003. Net income for the six months ended June 26, 2004 included charges associated with the write-off of the deferred tax asset of $7.9 million and the benefit from the reversal of a valuation allowance of $2.1 million.

Liquidity and Capital Resources

        The following discussion analyzes liquidity and capital resources by operating, investing and financing activities as presented in our condensed consolidated statements of cash flows.

        Our principal sources of liquidity have been our cash flows from operations, our revolving line of credit arrangements, and proceeds from our debt and equity offerings.

        On June 30, 2004, we signed a definitive merger agreement with Inveresk Research Group, Inc. Under the terms of the merger agreement, Inveresk shareholders will receive 0.48 shares of Charles River common stock and $15.15 in cash for each share of Inveresk common stock they own. We expect the cash portion of the transaction, including fees and expenses, will be approximately $600 million as of June 30, 2004. We will utilize some of our existing cash and proceeds from additional borrowing to fund the cash portion of the transaction. We currently have a commitment from our lenders for $500 million of financing subject to customary conditions.

        On January 8, 2004, we acquired River Valley Farms, Inc. (RVF), a privately held medical device contract research business. Consideration, including acquisition expenses, was $17.0 million, net of cash acquired of $0.3 million. RVF was acquired to strengthen the service offerings of our DST segment.

        On March 31, 2003, we entered into a revolving credit agreement which matures on March 31, 2006. The agreement permits us to borrow up to $100.0 million at an interest rate based on, at the Company's option, the greater of either the Prime Rate, the Base CD Rate plus 1%, and the Federal Funds Effective Rate plus 0.5%, or LIBOR multiplied by the Statutory Reserve Rate plus a spread of 1.25% to 2.50% based on our leverage ratio and the aggregate borrowing under the revolving credit agreement. Interest is payable based on our selected interest rate, which ranges from monthly to semi-annually. The credit agreement requires us to pay a quarterly commitment fee which ranges from 25 through 50 basis points on the undrawn balance based on our leverage ratio. The agreement also requires us to remain in compliance with certain financial ratios as well as other restrictive covenants. Some of the restrictive covenants limit our ability to acquire companies, increase our debt and pay dividends. The revolving credit agreement will be terminated upon closing of the Inveresk transaction. There were no amounts outstanding under the credit agreement as of June 26, 2004.

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        Effective January 2, 2003, we acquired an additional 19% of the equity (404,321 common shares) of our then 66% equity joint venture company, Charles River Japan, from Ajinomoto Company, Inc. The purchase price for the equity was 1.3 billion yen, or $10.8 million, which was paid in cash.

        In connection with the acquisition of Springborn Laboratories, Inc. in 2002, we entered into a $6.0 million three-year unsecured subordinated note. The note was payable in three equal annual installments of principal, together with interest accrued in arrears commencing on October 1, 2003. The note was repaid in full during 2003.

        We anticipate that our operating cash flows will be sufficient to meet our anticipated future operating expenses, capital expenditures and debt service obligations as they become due. We currently intend to retain any earnings to finance future operations, expansion and acquisitions. Charles River Laboratories International, Inc. is a holding company with ownership of 100% of the common stock of its subsidiary, Charles River Laboratories, Inc.

        Cash and cash equivalents totaled $224.2 million at June 28, 2004, compared to $182.3 million at December 27, 2003.

        Net cash provided by operating activities for the six months ended June 26, 2004 and June 28, 2003 was $68.2 million and $49.3 million, respectively. The increase in cash provided by operating activities was primarily due to increased net income, the non-cash write-off of the deferred tax asset in the first quarter and increased accrued compensation. Our days sales outstanding remained flat at 64 days as of June 26, 2004 compared to June 28, 2003, but improved from 67 days as of December 27, 2003.

        Net cash used in investing activities for the six months ended June 26, 2004 and June 28, 2003 was $30.7 million and $25.0 million, respectively. For the six months ended June 26, 2004, we used $11.9 million for capital expenditures and $17.0 million to acquire RVF. This compared to 2003 during which we paid $10.8 million for the acquisition of an additional 19% of the equity of Charles River Japan and $14.5 million for capital expenditures. In 2004, we made capital expenditures in RMS and DST which were $7.5 million and $4.4 million, respectively. We anticipate that future capital expenditures will be funded by cash provided by operating activities. For fiscal 2004, we project capital expenditure to be approximately $40 million.

        Net cash provided by and (used in) financing activities for the six months ended June 26, 2004 and June 28, 2003 was $6.1 million and ($3.9) million, respectively. Proceeds from exercises of employee stock options amounted to $7.9 million and $1.3 million for the six months ended June 26, 2004 and June 28, 2003, respectively. During the first quarter of 2004, we borrowed and repaid $94.0 million as part of our European reorganization. In 2003, payments and proceeds on long term debt were ($5.9) million and $2.5 million, respectively, for the six months ended June 28, 2003.

Off-Balance Sheet Arrangements

        We had no off-balance sheet arrangements during the six months ended June 26, 2004.

Recently Issued Accounting Pronouncements

        In January 2003, FASB issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities," which clarifies the application of Accounting Research Bulletin (ARB) No. 51, "Consolidated Financial Statements," relating to consolidation of certain entities. First, FIN 46 will require identification of the Company's participation in variable interest entities (VIE), which are defined as entities with a level of invested equity that is not sufficient to fund future activities to permit them to operate on a stand alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. Then, for entities identified as VIE, FIN 46 sets forth a model to evaluate potential consolidation based on an assessment of which party to the VIE, if any, bears a majority of the exposure to its expected losses, or stands to gain from a majority of its expected returns. In

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December 2003, the FASB issued a revised FIN 46 to defer the effective date and provide further clarification on the interpretation. FIN 46R is effective for public companies in the first fiscal period after December 15, 2003. The adoption of FIN 46 did not have a material effect on the Company's results of operations and financial condition.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

        Certain of our financial instruments are subject to market risks, including interest rate risk and foreign currency exchange rates. We generally do not use financial instruments for trading or other speculative purposes.

Interest Rate Risk

        The fair value of our marketable securities is subject to interest rate risk and will fall in value if market interest rates increase. If market rates were to increase immediately and uniformly by 100 basis points from levels at June 26, 2004, then the fair value of the portfolio would decline by approximately $0.1 million.

        The fair value of long-term fixed interest rate debt is subject to interest rate risk. In addition, the fair value of our senior convertible debentures would be impacted by our stock price. The estimated fair value of our long-term debt at June 26, 2004 was $233.6 million. Fair values were determined from available market prices, using current interest rates and terms to maturity.

        Our senior convertible debentures accrue interest at an initial rate of 3.5%, which will be reset (but not below the initial rate of 3.5% or above 5.25%) on August 1, 2007, August 1, 2012 and August 1, 2016. Fluctuations in interest rates will not affect the interest payable on the senior convertible debentures, which is fixed through August 1, 2007.

Foreign Currency Exchange Rate

        We also have exposures to some foreign currency exchange rate fluctuations for the cash flows received from our foreign affiliates. This risk is mitigated by the fact that their operations are principally conducted in their respective local currencies. Currently, we do not engage in any foreign currency hedging activities.

Item 4. Controls and Procedures

        Based on their evaluation, required by paragraph (b) of Rules 13a-15 or 15d-15, promulgated by the Securities Exchange Act of 1934 (the "Exchange Act"), the Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act are effective as of June 26, 2004 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

        There were no changes in the Company's internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of the Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended June 26, 2004 that materially affected, or were reasonably likely to materially affect, the Company's internal control over financial reporting.

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Part II. Other Information

Item 4. Submission of Matters to a Vote of Security Holders

        At the Company's Annual Meeting of Shareholders held on May 12, 2004, the following proposals were adopted by the votes specified below:

(a)

The following directors were elected to serve until the Company's 2004 Annual Meeting of Shareholders and received the number of votes listed opposite each of their names below:

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*

Dr. Milne, currently the Chair of the Science and Technology Committee of the Company's Board of Directors, and a member of the Compensation Committee, received $3,000 in consulting fees in 2003 for his support to the Company's Scientific Advisory Board, and as a result, a certain shareholder advisory firm recommended a "withhold" vote to its institutional clients owning Charles River shares. Dr. Milne, who receives a fee for his Committee service, no longer receives consulting payments. Dr. Milne and Dr. Thier are current members of the Science and Technology Committee of the Board of Directors.

(b)

The ratification of the appointment of PricewaterhouseCoopers LLP as the Company's independent auditors for fiscal 2004. A total of 42,731,674 shares voted in favor of the ratification, 224,706 shares voted against the ratification, and 29,756 shares abstained from voting.

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Item 6. Exhibits and Reports on Form 8-K

        (a)   Exhibits.

	2.1		Agreement and Plan of Merger, dated as of June 30, 2004, among Charles River Laboratories International, Inc., Inveresk Research Group, Inc., Indigo Merger I Corp., and Indigo Merger II Corp.*
	10.1		Agreement and Plan of Merger, dated as of June 30, 2004, among Charles River Laboratories International, Inc., Inveresk Research Group, Inc., Indigo Merger I Corp., and Indigo Merger II Corp.*
	10.2		Senior Secured Credit Facilities Commitment Letter, dated June 30, 2004, among Charles River Laboratories International Inc., J.P. Morgan Securities Inc., JPMorgan Chase Bank and Credit Suisse First Boston. Filed herewith.
	31.1		Certification of the Principal Executive Officer required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act. Filed herewith.
	31.2		Certification of the Principal Financial Officer required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act. Filed herewith.
	32.1		Certification of the Principal Executive Officer and Principal Financial Officer required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act. Filed herewith.

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*

Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed July 1, 2004.

        (b)   Reports on Form 8-K.

On April 29, 2004, the Company furnished a current report on Form 8-K under Item 12 (Results of Operations and Financial Condition) containing a copy of a press release providing financial results for the fiscal quarter ended March 27, 2004.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
August 4, 2004	/s/  JAMES C. FOSTER       James C. Foster Chairman, Chief Executive Officer and President
August 4, 2004	/s/  THOMAS F. ACKERMAN       Thomas F. Ackerman Senior Vice President and Chief Financial Officer

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                                                                    EXHIBIT 10.2

                                                                  EXECUTION COPY

J.P. MORGAN SECURITIES INC.                       CREDIT SUISSE FIRST BOSTON
270 Park Avenue                                   11 Madison Avenue, 22nd Floor
New York, New York 10017                          New York, New York  10010

JPMORGAN CHASE BANK
270 Park Avenue
New York, New York 10017

                                                                  June 30, 2004

                                  $500,000,000
                        SENIOR SECURED CREDIT FACILITIES
                                COMMITMENT LETTER

Charles River Laboratories International Inc.
251 Ballardvale Street
Wilmington, Massachusetts 01887

Attention: Thomas F. Ackerman
           Senior Vice President & Chief Financial Officer

Ladies and Gentlemen:

         Charles River Laboratories International Inc., a Delaware corporation
("HOLDINGS" or "YOU"), has advised J.P. Morgan Securities Inc. ("JPMORGAN"),
JPMorgan Chase Bank and Credit Suisse First Boston ("CSFB"; together with
JPMorgan Chase Bank, the "COMMITTING BANKS"; and together with JPMorgan and
JPMorgan Chase Bank, the "COMMITTING PARTIES") that it intends to acquire (the
"ACQUISITION") Inveresk Research Group, Inc., a Delaware corporation (the
"COMPANY"), in a transaction that will involve the merger of a wholly owned
subsidiary of Holdings with and into the Company, followed by the merger of the
resulting corporation with and into a second wholly owned subsidiary of
Holdings, with such second subsidiary surviving (such surviving subsidiary, the
"BORROWER"). In connection with such mergers, the common stock of the Company
will be converted into rights to receive shares of the common stock of Holdings
and aggregate cash consideration of approximately $570,400,000. You have also
advised us that you intend to finance such cash consideration and the fees and
expenses related to the Acquisition, and to refinance your existing credit
facilities and certain outstanding indebtedness of the Company, with, in part,
new senior secured credit facilities consisting of a term loan facility of
$350,000,000 and a revolving credit facility of $150,000,000 (the "CREDIT
FACILITIES"). A description of the sources and uses for the cash used for the
Acquisition and the related refinancings (collectively, the "TRANSACTION") are
described in the Sources and Uses Table attached as Schedule 1.

         JPMorgan and CSFB are pleased to advise you that they are willing to
act as joint lead arrangers and joint bookrunners for the Credit Facilities.

         Furthermore, each of JPMorgan Chase Bank and CSFB is pleased to advise
you of its commitment to provide 50% of the Credit Facilities upon the terms and
subject to the conditions set forth



                                                                               2

or referred to in this commitment letter (the "COMMITMENT LETTER") and in the
Summary of Terms and Conditions attached hereto as Exhibit A (the "TERM SHEET").

         It is agreed that JPMorgan and CSFB will act as the joint lead
arrangers and joint bookrunners (in such capacities, the "ARRANGERS"), and that
JPMorgan Chase Bank will act as the sole administrative agent and CSFB will act
as the sole syndication agent, for the Credit Facilities. You agree that no
other agents, co-agents or arrangers will be appointed, no other titles will be
awarded and no compensation (other than that expressly contemplated by the Term
Sheet and the Fee Letter referred to below) will be paid in connection with the
Credit Facilities unless you and we shall so agree.

         We intend to syndicate the Credit Facilities to a group of financial
institutions (together with the Committing Banks, the "LENDERS") identified by
us in consultation with you. The Arrangers intend to commence syndication
efforts promptly, and you agree actively to assist the Arrangers in completing a
syndication satisfactory to them. Such assistance shall include (a) your using
commercially reasonable efforts to ensure that the syndication efforts benefit
materially from your existing lending relationships, (b) direct contact between
senior management and advisors of the Holdings and the Company and the proposed
Lenders, (c) assistance in the preparation of a Confidential Information
Memorandum and other marketing materials to be used in connection with the
syndication and (d) the hosting, with the Arrangers, of one or more meetings of
prospective Lenders.

         The Arrangers will manage all aspects of the syndication, including
decisions as to the selection of institutions to be approached and when they
will be approached, when their commitments will be accepted, which institutions
will participate, the allocation of the commitments among the Lenders and the
amount and distribution of fees among the Lenders, in each case in consultation
with you. To assist the Arrangers in their syndication efforts, you agree
promptly to prepare and provide to the Committing Parties all information with
respect to Holdings, the Company and the Transaction, including all financial
information and projections (the "PROJECTIONS"), as we may reasonably request in
connection with the arrangement and syndication of the Credit Facilities. At the
request of the Arrangers, Holdings agrees to assist in the preparation of a
version of the information package and presentation consisting exclusively of
information and documentation that is publicly available. You hereby represent
and covenant that (a) all information other than the Projections (the
"INFORMATION") that has been or will be made available to any Committing Party
by you or any of your representatives is or will be, when furnished and taken as
a whole, complete and correct in all material respects and does not or will not,
when furnished and taken as a whole, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained therein not materially misleading in light of the circumstances under
which such statements are made; PROVIDED, that with respect to Information
relating to the Company and its affiliates, such representation and covenant is
made to the best of your knowledge, and (b) the Projections that have been or
will be made available to any Committing Party by you or any of your
representatives have been or will be prepared in good faith based upon
reasonable assumptions at the time of delivery thereof. You understand that in
arranging and syndicating the Credit Facilities we may use and rely on the
Information and Projections without independent verification thereof.

         As consideration for the commitments and agreements of the Committing
Parties hereunder, you agree to pay the nonrefundable fees described in the Fee
Letter dated the date hereof and delivered herewith (the "FEE LETTER").

         The commitment of each Committing Bank and the agreements of each
Committing Party, hereunder are subject to (a) there not occurring any event,
development or circumstance that has had or could reasonably be expected to have
a material adverse effect on the business, operations,



                                                                               3

property or condition (financial or otherwise) of Holdings and its subsidiaries
(which for this purpose shall include the Company and its subsidiaries), taken
as a whole, (b) such Committing Party not becoming aware after the date hereof
of any information or other matter (including any matter relating to financial
models and underlying assumptions relating to the Projections) (a "NEW MATTER")
affecting Holdings, the Company or the Transaction that in such Committing
Party's judgment is inconsistent in a material and adverse manner with any such
information or other matter disclosed to such Committing Party prior to the date
hereof, so long as such New Matter could reasonably be expected to have a
material adverse effect on the ability of the Company to repay the Credit
Facilities, (c) such Committing Party's satisfaction that prior to and during
the syndication of the Credit Facilities there shall be no competing offering,
placement or arrangement of any debt securities or bank financing by or on
behalf of Holdings, the Company or their respective subsidiaries, (d) your
having obtained a rating of the Credit Facilities from each of Standard and
Poor's and Moody's Investors Service, Inc., (e) the negotiation, execution and
delivery on or before March 31, 2005 of definitive documentation with respect to
the Credit Facilities satisfactory to such Committing Party and (f) the other
conditions set forth or referred to in the Term Sheet. The terms and conditions
of commitments hereunder and of the Credit Facilities are not limited to those
set forth herein and in the Term Sheet. Those matters that are not covered by
the provisions hereof and of the Term Sheet are subject to the approval and
agreement of the Committing Parties and you.

         You agree (a) to indemnify and hold harmless each Committing Party, its
affiliates and their respective officers, directors, employees, advisors, and
agents (each, an "INDEMNIFIED PERSON") from and against any and all losses,
claims, damages and liabilities to which any such indemnified person may become
subject arising out of or in connection with this Commitment Letter, the Credit
Facilities, the use of the proceeds thereof, the Transaction or any claim,
litigation, investigation or proceeding relating to any of the foregoing,
regardless of whether any indemnified person is a party thereto, and to
reimburse each indemnified person upon demand for any legal or other expenses
incurred in connection with investigating or defending any of the foregoing,
PROVIDED that the foregoing indemnity will not, as to any indemnified person,
apply to losses, claims, damages, liabilities or related expenses to the extent
(x) they are found by a final, non-appealable judgment of a court to arise from
the willful misconduct or gross negligence of such indemnified person or (y)
they result from breach by a Committing Party of any of its obligations
hereunder, and (b) to reimburse each Committing Party and its affiliates on
demand for all out-of-pocket expenses (including due diligence expenses,
syndication expenses, consultant's fees and expenses, travel expenses, and
reasonable fees, charges and disbursements of counsel) incurred in connection
with the Credit Facilities and any related documentation (including this
Commitment Letter, the Term Sheet, the Fee Letter and the definitive financing
documentation) or the administration, amendment, modification or waiver thereof.
No indemnified person shall be liable for any damages arising from the use by
unauthorized persons of Information or other materials sent through electronic,
telecommunications or other information transmission systems that are
intercepted by such persons or for any special, indirect, consequential or
punitive damages in connection with the Credit Facilities.

         You acknowledge that each Committing Party and its affiliates (the term
"Committing Party" as used below in this paragraph being understood to include
such affiliates) may be providing debt financing, equity capital or other
services (including financial advisory services) to other companies in respect
of which you may have conflicting interests regarding the Transaction and
otherwise. No Committing Party will use confidential information obtained from
you by virtue of the Transaction or its other relationships with you in
connection with the performance by such Committing Party of services for other
companies, and such Committing Party will not furnish any such information to
other companies. You also acknowledge that a Committing Party has no obligation
to use in connection with the Transaction, or to furnish to you, confidential
information obtained from other companies.



                                                                               4

         This Commitment Letter shall not be assignable by you without the prior
written consent of each Committing Party (and any purported assignment without
such consent shall be null and void), is intended to be solely for the benefit
of the parties hereto and is not intended to confer any benefits upon, or create
any rights in favor of, any person other than the parties hereto and the
indemnified persons. This Commitment Letter may not be amended or waived except
by an instrument in writing signed by you and each Committing Party. This
Commitment Letter may be executed in any number of counterparts, each of which
shall be an original, and all of which, when taken together, shall constitute
one agreement. Delivery of an executed signature page of this Commitment Letter
by facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. This Commitment Letter and the Fee Letter are the only
agreements that have been entered into among us with respect to the Credit
Facilities and set forth the entire understanding of the parties with respect
thereto. This Commitment Letter shall be governed by, and construed in
accordance with, the laws of the State of New York.

         This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter, the Term Sheet or the Fee Letter nor any of
their terms or substance shall be disclosed, directly or indirectly, to any
other person except (a) to the officers, agents and advisors of Holdings and the
Company who are directly involved in the consideration of this matter or (b) as
may be compelled in a judicial or administrative proceeding or as otherwise
required by law (in which case you agree to inform us promptly thereof),
PROVIDED, that the foregoing restrictions shall cease to apply (except in
respect of the Fee Letter and its terms and substance) after this Commitment
Letter has been accepted by you.

         The reimbursement, indemnification and confidentiality provisions
contained herein and in the Fee Letter shall remain in full force and effect
regardless of whether definitive financing documentation shall be executed and
delivered and notwithstanding the termination of this Commitment Letter or any
commitment hereunder; PROVIDED, that your obligations under this Commitment
Letter, other than those arising under the fourth [co-agents], fifth
[syndication help], sixth [information and projections] and twelfth
[confidentiality] paragraphs hereof, shall automatically terminate and be
superseded by the provisions of the definitive documentation relating to the
Credit Facilities upon the initial funding thereunder, and you shall
automatically be released from all liability in connection therewith at such
time.

         If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof and of the Term Sheet and the Fee Letter by
returning to us executed counterparts hereof and of the Fee Letter not later
than 5:00 p.m., New York City time, on July 1, 2004. The commitments and
agreements of the Committing Parties hereunder will expire at such time in the
event we have not received such executed counterparts in accordance with the
preceding sentence. In addition, such commitments and agreements shall terminate
upon receipt by us of written notice from you that you are electing to terminate
such commitments, such termination to be effective as of the date specified in
such notice; PROVIDED that the reimbursement and indemnification provisions
contained herein shall survive any such termination.



                                                                               5

         We are pleased to have been given the opportunity to assist you in
connection with this important financing.

                                     Very truly yours,

                                     J.P. MORGAN SECURITIES INC.

                                     By: /s/ Cornelius J. Droogan
                                         --------------------------------------
                                         Name:  Cornelius J. Droogan
                                         Title:    Vice President

                                     JPMORGAN CHASE BANK

                                     By: /s/ John C. Riordan
                                         --------------------------------------
                                         Name: John C. Riordan
                                         Title: Vice President

                                     CREDIT SUISSE FIRST BOSTON,
                                     acting through its Cayman Islands Branch

                                     By: /s/ James P. Moran
                                         --------------------------------------
                                         Name:  James P. Moran
                                         Title: Director

                                     By: /s/ Denise L. Alvarez
                                         --------------------------------------
                                         Name: Denise L. Alvarez
                                         Title: Associate



                                                                               6

Accepted and agreed to as of the date first written above by:

CHARLES RIVER LABORATORIES INTERNATIONAL INC.

By: /s/ James C. Foster
    --------------------------------
     Name: James C. Foster
     Title: Chairman, Vice President and CEO



                                                                     Schedule 1

                             SOURCES AND USES TABLE
                                  (in million)



SOURCES                                                                    USES
                                                                                  
Cash on hand........................    $     223.2     Cash Consideration..............   $    570.4
Revolving Facility*.................           90.3     Refinancings....................         53.1
Term Facility.......................          350.0     Fees and Expenses...............         40.0
                                        -----------                                        ----------
                                        $     663.5                                        $    663.5
                                        ===========                                        ==========








- -----------------------------------
* Remaining balance of $150,000,000 Revolving Facility will be available for
  letters of credit or be unused on the Closing Date.

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Exhibit 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
AND RULE 13a-14(a)/15d-14(a) OF THE EXCHANGE ACT OF 1934

I, James C. Foster, Chief Executive Officer of Charles River Laboratories International, Inc. (the Company) certify that:

1.

I have reviewed this quarterly report on Form 10-Q of the Company;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.

designed such disclosure controls and procedures, or caused such disclosure controls and proceeds to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.

[Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];

c.

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a.

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: July 29, 2004

/s/  JAMES C. FOSTER       James C. Foster Chairman, Chief Executive Officer and President Charles River Laboratories International, Inc.

---

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Exhibit 31.1

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Exhibit 31.2

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
AND RULE 13a-14(a)/15d-14(a) OF THE EXCHANGE ACT OF 1934

I, Thomas F. Ackerman, Senior Vice President and Chief Financial Officer of Charles River Laboratories International, Inc. (the Company) certify that:

1.

I have reviewed this quarterly report on Form 10-Q of the Company;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.

[Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];

c.

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d.

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a.

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: July 29, 2004

/s/  THOMAS F. ACKERMAN       Thomas F. Ackerman Senior Vice President and Chief Financial Officer Charles River Laboratories International, Inc.

---

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Exhibit 31.2

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Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the quarterly report on Form 10-Q for the period ended June 26, 2004 of Charles River Laboratories International, Inc. (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, James C. Foster, the Chairman, Chief Executive Officer and President, and Thomas F. Ackerman, Senior Vice President and Chief Financial Officer, each hereby certifies, to the best of his knowledge and pursuant to 18 U.S.C. Section 1350, that:

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 29, 2004		/s/  JAMES C. FOSTER       James C. Foster Chairman, Chief Executive Officer & President Charles River Laboratories International, Inc.
Dated: July 29, 2004		/s/  THOMAS F. ACKERMAN       Thomas F. Ackerman Senior Vice President & Chief Financial Officer Charles River Laboratories International, Inc.

---

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Exhibit 32.1