UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q
(Mark One)
☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~March 26, 2022~~April 1, 2023


OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO

Commission File No. 001-15943

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

06-1397316

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

251 Ballardvale Street

Wilmington

Massachusetts

01887

(Address of Principal Executive Offices)

(Zip Code)

(Registrant’s telephone number, including area code): (781) 222-6000


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Ticker symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	CRL	New York Stock Exchange

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes ☑ No ☐

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


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of April ~~22, 2022,~~28, 2023, there were ~~50,804,860~~51,182,939 shares of the Registrant’s common stock outstanding.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~MARCH 26, 2022~~APRIL 1, 2023

TABLE OF CONTENTS


Item	Item		Page	Item		Page
PART I - FINANCIAL INFORMATION	PART I - FINANCIAL INFORMATION			PART I - FINANCIAL INFORMATION
1	1	Financial Statements		1	Financial Statements
		Condensed Consolidated Statements of Income (Unaudited) for the three months ended March 26, 2022 and March 27, 2021	3		Condensed Consolidated Statements of Income (Unaudited) for the three months ended April 1, 2023 and March 26, 2022	3
		Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 26, 2022 and March 27, 2021	4		Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended April 1, 2023 and March 26, 2022	4
		Condensed Consolidated Balance Sheets (Unaudited) as of March 26, 2022 and December 25, 2021	5		Condensed Consolidated Balance Sheets (Unaudited) as of April 1, 2023 and December 31, 2022	5
		Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 26, 2022 and March 27, 2021	6		Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended April 1, 2023 and March 26, 2022	6
		Condensed Consolidated Statements of Changes in Equity (Unaudited) for the three months ended March 26, 2022 and March 27, 2021	7		Condensed Consolidated Statements of Changes in Equity (Unaudited) for the three months ended April 1, 2023 and March 26, 2022	7
		Notes to Unaudited Condensed Consolidated Financial Statements	8		Notes to Unaudited Condensed Consolidated Financial Statements	8
2	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
3	3	Quantitative and Qualitative Disclosure About Market Risk	32	3	Quantitative and Qualitative Disclosure About Market Risk	29
4	4	Controls and Procedures	33	4	Controls and Procedures	29
PART II - OTHER INFORMATION	PART II - OTHER INFORMATION			PART II - OTHER INFORMATION
1	1	Legal Proceedings	34	1	Legal Proceedings	30
1A	1A	Risk Factors	34	1A	Risk Factors	30
2	2	Unregistered Sales of Equity Securities and Use of Proceeds	34	2	Unregistered Sales of Equity Securities and Use of Proceeds	30

6	6	Exhibits	35	6	Exhibits	31

Signatures	Signatures		36	Signatures		32

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. that are based on our current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expect,” “anticipate,” “target,” “goal,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,” “likely,” “may,” “designed,” “would,” “future,” “can,” “could,” and other similar expressions which are predictions of, indicate future events and trends or which do not relate to historical matters, are intended to identify such forward-looking statements. These statements are based on our current expectations and beliefs and involve a number of risks, uncertainties and assumptions that are difficult to predict.

For example, we may use forward-looking statements when addressing topics such as: our expectations regarding the ~~COVID-19 pandemic, its duration, its impact on~~availability of non-human primates and our business, results of operations, financial condition, liquidity, use of our borrowings, business practices, operations, suppliers, inventory and supplies, third party service providers, customers, employees, industry, ability to ~~meet future performance obligations, ability~~diversify our non-human primate supply chain; the outcome of the U.S. Department of Justice investigations related to ~~timely account for assets on our balance sheet, ability~~shipments of non-human primates from Cambodia received by the Company; the timing of the development and implementation of additional procedures to ~~efficiently implement advisable safety precautions,~~reasonably ensure that non-human primates imported to the United States from Cambodia are purpose-bred; changes and ~~internal controls over financial reporting; the COVID-19 pandemic’s impact on demand,~~uncertainties in the global economy and financial markets, including any changes in business, political, or economic conditions due to the November 16, 2022 announcement by the U.S. Department of Justice through the U.S. Attorney’s Office for the Southern District of Florida that a Cambodian non-human primate supplier and ~~uncertainties~~two Cambodian officials had been criminally charged in connection with illegally importing non-human primates into the ~~global economy;~~United States; client demand, particularly future demand for drug discovery and development products and services, including the outsourcing of these services; our expectations with respect to our ability to meet financial targets; our expectations regarding stock repurchases, including the number of shares to be repurchased, expected timing and duration, the amount of capital that may be expended and the treatment of repurchased shares; our ability to successfully execute our business strategy; our ability to timely build infrastructure to satisfy capacity needs and support business growth, our ability to fund our operations for the foreseeable future, the impact of unauthorized access into our information systems, including the timing and effectiveness of any enhanced security and ~~monitoring;~~monitoring present spending trends and other cost reduction activities by our clients; future actions by our management; the outcome of contingencies; changes in our business strategy, business practices and methods of generating revenue; the development and performance of our services and products; market and industry conditions, including competitive and pricing trends; our strategic relationships with leading pharmaceutical and biotechnology companies, venture capital investments, and opportunities for future similar arrangements; our cost structure; the impact of acquisitions and divestitures; our expectations with respect to revenue growth and operating synergies (including the impact of specific actions intended to cause related ~~improvements)~~improvements, particularly with respect to our CDMO business); ~~the impact of implementing newly issued accounting pronouncements;~~ the impact of specific actions intended to improve overall operating efficiencies and profitability (and our ability to accommodate future demand with our infrastructure), including gains and losses attributable to businesses we plan to close, consolidate, divest or repurpose; changes in our expectations regarding future stock option, restricted stock, performance share units and other equity grants to employees and directors; expectations with respect to foreign currency exchange; assessing (or changing our assessment of) our tax positions for financial statement purposes; and our liquidity. In addition, these statements include the impact of economic and market conditions on us and our clients, the effects of our ~~cost saving~~cost-saving actions and the steps to optimize returns to shareholders on an effective and timely basis; and our ability to withstand the current market conditions.

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. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document, or in the case of statements incorporated by reference, on the date of the document incorporated by reference.

Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December ~~25, 2021,~~31, 2022, under the sections entitled “Our Strategy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in this Quarterly Report on Form 10-Q, under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” in our press releases, and other financial filings with the Securities and Exchange Commission. We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or risks. New information, future events, or risks may cause the forward-looking events we discuss in this report not to occur.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)


		Three Months Ended							Three Months Ended
				March 26, 2022		March 27, 2021				April 1, 2023		March 26, 2022
Service revenue	Service revenue			$	720,485	$	626,581	Service revenue		$	857,366	$	720,485
Product revenue	Product revenue			193,444		197,985		Product revenue		172,007		193,444
Total revenue	Total revenue			913,929		824,566		Total revenue		1,029,373		913,929
Costs and expenses:	Costs and expenses:							Costs and expenses:
Cost of services provided (excluding amortization of intangible assets)	Cost of services provided (excluding amortization of intangible assets)			486,864		423,975		Cost of services provided (excluding amortization of intangible assets)		565,477		486,864
Cost of products sold (excluding amortization of intangible assets)	Cost of products sold (excluding amortization of intangible assets)			90,247		92,313		Cost of products sold (excluding amortization of intangible assets)		86,242		90,247
Selling, general and administrative	Selling, general and administrative			150,033		155,733		Selling, general and administrative		174,846		150,033
Amortization of intangible assets	Amortization of intangible assets			38,007		28,842		Amortization of intangible assets		34,916		38,007
Operating income	Operating income			148,778		123,703		Operating income		167,892		148,778
Other income (expense):	Other income (expense):							Other income (expense):
Interest income	Interest income			127		35		Interest income		806		127
Interest expense	Interest expense			(9,434)		(29,719)		Interest expense		(34,380)		(9,434)
Other expense, net	Other expense, net			(28,625)		(27,717)		Other expense, net		(3,277)		(28,625)
Income before income taxes	Income before income taxes			110,846		66,302		Income before income taxes		131,041		110,846
Provision for income taxes	Provision for income taxes			15,620		2,367		Provision for income taxes		27,087		15,620
Net income	Net income			95,226		63,935		Net income		103,954		95,226
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests			2,204		2,405		Less: Net income attributable to noncontrolling interests		823		2,204
Net income attributable to common shareholders	Net income attributable to common shareholders			$	93,022	$	61,530	Net income attributable to common shareholders		$	103,131	$	93,022

Earnings per common share	Earnings per common share							Earnings per common share
Net income attributable to common shareholders:	Net income attributable to common shareholders:							Net income attributable to common shareholders:
Basic	Basic			$	1.84	$	1.23	Basic		$	2.02	$	1.84
Diluted	Diluted			$	1.81	$	1.20	Diluted		$	2.01	$	1.81

Weighted-average number of common shares outstanding:	Weighted-average number of common shares outstanding:							Weighted-average number of common shares outstanding:
Basic	Basic			50,640		49,980		Basic		51,097		50,640
Diluted	Diluted			51,325		51,075		Diluted		51,428		51,325

See Notes to Unaudited Condensed Consolidated Financial Statements.	See Notes to Unaudited Condensed Consolidated Financial Statements.		See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


		Three Months Ended							Three Months Ended
				March 26, 2022		March 27, 2021				April 1, 2023		March 26, 2022
Net income	Net income			$	95,226	$	63,935	Net income		$	103,954	$	95,226
Other comprehensive income (loss):	Other comprehensive income (loss):							Other comprehensive income (loss):
Foreign currency translation adjustment				(12,952)		9,829
Amortization of net loss and prior service benefit included in net periodic cost for pension and other post-retirement benefit plans				746		988
Comprehensive income, before income taxes related to items of other comprehensive income				83,020		74,752
Foreign currency translation adjustment and other								Foreign currency translation adjustment and other		23,313		(12,952)
Amortization of net loss, settlement losses, and prior service benefit included in total cost for pension and other post-retirement benefit plans								Amortization of net loss, settlement losses, and prior service benefit included in total cost for pension and other post-retirement benefit plans		170		746
Unrealized gains (losses) on hedging instruments								Unrealized gains (losses) on hedging instruments		(1,402)		—
Comprehensive income, before income taxes								Comprehensive income, before income taxes		126,035		83,020
Less: Income tax benefit related to items of other comprehensive income	Less: Income tax benefit related to items of other comprehensive income			(2,018)		(1,025)		Less: Income tax benefit related to items of other comprehensive income		(1,038)		(2,018)
Comprehensive income, net of income taxes	Comprehensive income, net of income taxes			85,038		75,777		Comprehensive income, net of income taxes		127,073		85,038
Less: Comprehensive income related to noncontrolling interests, net of income taxes	Less: Comprehensive income related to noncontrolling interests, net of income taxes			2,209		2,390		Less: Comprehensive income related to noncontrolling interests, net of income taxes		1,009		2,209
Comprehensive income attributable to common shareholders, net of income taxes	Comprehensive income attributable to common shareholders, net of income taxes			$	82,829	$	73,387	Comprehensive income attributable to common shareholders, net of income taxes		$	126,064	$	82,829

See Notes to Unaudited Condensed Consolidated Financial Statements.	See Notes to Unaudited Condensed Consolidated Financial Statements.		See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share amounts)


		March 26, 2022		December 25, 2021			April 1, 2023		December 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	241,869	$	241,214	Cash and cash equivalents	$	201,587	$	233,912
Trade receivables and contract assets, net of allowances for credit losses of $6,154 and $7,180, respectively		697,843		642,881
Trade receivables and contract assets, net of allowances for credit losses of $16,694 and $11,278, respectively						Trade receivables and contract assets, net of allowances for credit losses of $16,694 and $11,278, respectively	788,309		752,390
Inventories	Inventories	221,175		199,146		Inventories	262,584		255,809
Prepaid assets	Prepaid assets	90,496		93,543		Prepaid assets	104,162		89,341
Other current assets	Other current assets	81,703		97,311		Other current assets	91,713		107,580
Total current assets	Total current assets	1,333,086		1,274,095		Total current assets	1,448,355		1,439,032
Property, plant and equipment, net	Property, plant and equipment, net	1,321,618		1,291,068		Property, plant and equipment, net	1,494,080		1,465,655
Venture capital and strategic equity investments						Venture capital and strategic equity investments	293,787		311,602
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	304,758		292,941		Operating lease right-of-use assets, net	408,464		391,762
Goodwill	Goodwill	2,695,994		2,711,881		Goodwill	2,901,627		2,849,903
Client relationships, net		948,830		981,398
Other intangible assets, net		70,707		79,794
Intangible assets, net						Intangible assets, net	958,119		955,275
Deferred tax assets	Deferred tax assets	43,404		40,226		Deferred tax assets	41,017		41,262
Other assets	Other assets	356,652		352,889		Other assets	153,990		148,279
Total assets	Total assets	$	7,075,049	$	7,024,292	Total assets	$	7,699,439	$	7,602,770
Liabilities, Redeemable Noncontrolling Interests and Equity	Liabilities, Redeemable Noncontrolling Interests and Equity					Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of long-term debt and finance leases		$	2,642	$	2,795
Accounts payable	Accounts payable	225,977		198,130		Accounts payable	120,004		205,915
Accrued compensation	Accrued compensation	165,224		246,119		Accrued compensation	176,053		197,078
Deferred revenue	Deferred revenue	228,260		219,703		Deferred revenue	262,226		264,259
Accrued liabilities	Accrued liabilities	227,203		228,797		Accrued liabilities	221,370		219,758
Other current liabilities	Other current liabilities	144,533		137,641		Other current liabilities	201,739		204,575
Total current liabilities	Total current liabilities	993,839		1,033,185		Total current liabilities	981,392		1,091,585
Long-term debt, net and finance leases	Long-term debt, net and finance leases	2,676,165		2,663,564		Long-term debt, net and finance leases	2,743,774		2,707,531
Operating lease right-of-use liabilities	Operating lease right-of-use liabilities	264,356		252,972		Operating lease right-of-use liabilities	418,202		389,745
Deferred tax liabilities	Deferred tax liabilities	230,949		239,720		Deferred tax liabilities	212,278		215,582
Other long-term liabilities	Other long-term liabilities	239,015		242,859		Other long-term liabilities	186,975		174,822
Total liabilities	Total liabilities	4,404,324		4,432,300		Total liabilities	4,542,621		4,579,265
Commitments and contingencies (Notes 2, 9, 11 and 13)		0		0
Redeemable noncontrolling interests		55,819		53,010
Commitments and contingencies (Notes 2, 8, 10, and 12)						Commitments and contingencies (Notes 2, 8, 10, and 12)
Redeemable noncontrolling interest						Redeemable noncontrolling interest	42,935		42,427
Equity:	Equity:					Equity:
Preferred stock, $0.01 par value; 20,000 shares authorized; no shares issued and outstanding	Preferred stock, $0.01 par value; 20,000 shares authorized; no shares issued and outstanding	—		—		Preferred stock, $0.01 par value; 20,000 shares authorized; no shares issued and outstanding	—		—
Common stock, $0.01 par value; 120,000 shares authorized; 50,911 shares issued and 50,800 shares outstanding as of March 26, 2022, and 50,480 shares issued and outstanding as of December 25, 2021		509		505
Common stock, $0.01 par value; 120,000 shares authorized; 51,260 shares issued and 51,182 shares outstanding as of April 1, 2023, and 50,944 shares issued and outstanding as of December 31, 2022						Common stock, $0.01 par value; 120,000 shares authorized; 51,260 shares issued and 51,182 shares outstanding as of April 1, 2023, and 50,944 shares issued and outstanding as of December 31, 2022	512		509
Additional paid-in capital	Additional paid-in capital	1,744,829		1,718,304		Additional paid-in capital	1,830,189		1,804,940
Retained earnings	Retained earnings	1,073,773		980,751		Retained earnings	1,536,032		1,432,901
Treasury stock, at cost, 111 and 0 shares, as of March 26, 2022 and December 25, 2021, respectively		(33,994)		—
Treasury stock, at cost, 78 and zero shares, as of April 1, 2023 and December 31, 2022, respectively						Treasury stock, at cost, 78 and zero shares, as of April 1, 2023 and December 31, 2022, respectively	(19,012)		—
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(174,933)		(164,740)		Accumulated other comprehensive loss	(239,124)		(262,057)
Total equity attributable to common shareholders	Total equity attributable to common shareholders	2,610,184		2,534,820		Total equity attributable to common shareholders	3,108,597		2,976,293
Noncontrolling interest		4,722		4,162
Noncontrolling interests (nonredeemable)						Noncontrolling interests (nonredeemable)	5,286		4,785
Total equity	Total equity	2,614,906		2,538,982		Total equity	3,113,883		2,981,078
Total liabilities, redeemable noncontrolling interests and equity	Total liabilities, redeemable noncontrolling interests and equity	$	7,075,049	$	7,024,292	Total liabilities, redeemable noncontrolling interests and equity	$	7,699,439	$	7,602,770
See Notes to Unaudited Condensed Consolidated Financial Statements.	See Notes to Unaudited Condensed Consolidated Financial Statements.					See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


		Three Months Ended					Three Months Ended
		March 26, 2022		March 27, 2021			April 1, 2023		March 26, 2022
Cash flows relating to operating activities	Cash flows relating to operating activities					Cash flows relating to operating activities
Net income	Net income	$	95,226	$	63,935	Net income	$	103,954	$	95,226
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	75,299		61,508		Depreciation and amortization	77,069		75,299
Stock-based compensation	Stock-based compensation	14,619		13,189		Stock-based compensation	13,460		14,619
Loss on debt extinguishment and other financing costs		1,028		26,907

Deferred income taxes	Deferred income taxes	(7,563)		(9,125)		Deferred income taxes	(11,584)		(7,563)
Loss on venture capital and strategic equity investments, net	Loss on venture capital and strategic equity investments, net	13,903		16,719		Loss on venture capital and strategic equity investments, net	3,282		13,903
Contingent consideration, fair value changes		(3,450)		—

Gain on divestitures, net						Gain on divestitures, net	(441)		—
Changes in fair value of contingent consideration arrangements						Changes in fair value of contingent consideration arrangements	—		(3,450)
Other, net	Other, net	5,211		496		Other, net	15,587		6,239
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Trade receivables and contract assets, net	Trade receivables and contract assets, net	(57,942)		5,598		Trade receivables and contract assets, net	(33,831)		(57,942)
Inventories	Inventories	(23,164)		(11,404)		Inventories	(8,587)		(23,164)
Accounts payable	Accounts payable	40,932		9,622		Accounts payable	(41,313)		40,932
Accrued compensation	Accrued compensation	(79,795)		(37,360)		Accrued compensation	(21,469)		(79,795)
Deferred revenue	Deferred revenue	12,078		5,006		Deferred revenue	(481)		12,078
Customer contract deposits	Customer contract deposits	4,750		(5,446)		Customer contract deposits	1,509		4,750
Other assets and liabilities, net	Other assets and liabilities, net	11,498		30,584		Other assets and liabilities, net	12,228		11,498
Net cash provided by operating activities	Net cash provided by operating activities	102,630		170,229		Net cash provided by operating activities	109,383		102,630
Cash flows relating to investing activities	Cash flows relating to investing activities					Cash flows relating to investing activities
Acquisition of businesses and assets, net of cash acquired	Acquisition of businesses and assets, net of cash acquired	—		(94,197)		Acquisition of businesses and assets, net of cash acquired	(50,166)		—
Capital expenditures	Capital expenditures	(80,464)		(28,030)		Capital expenditures	(106,875)		(80,464)
Purchases of investments and contributions to venture capital investments	Purchases of investments and contributions to venture capital investments	(13,296)		(16,550)		Purchases of investments and contributions to venture capital investments	(12,570)		(13,296)
Proceeds from sale of investments	Proceeds from sale of investments	205		—		Proceeds from sale of investments	1,953		205
Other, net	Other, net	(4,450)		781		Other, net	(960)		(4,450)
Net cash used in investing activities	Net cash used in investing activities	(98,005)		(137,996)		Net cash used in investing activities	(168,618)		(98,005)
Cash flows relating to financing activities	Cash flows relating to financing activities					Cash flows relating to financing activities
Proceeds from long-term debt and revolving credit facility	Proceeds from long-term debt and revolving credit facility	962,005		1,954,011		Proceeds from long-term debt and revolving credit facility	192,500		962,005
Proceeds from exercises of stock options	Proceeds from exercises of stock options	12,199		19,612		Proceeds from exercises of stock options	11,792		12,199
Payments on long-term debt, revolving credit facility, and finance lease obligations	Payments on long-term debt, revolving credit facility, and finance lease obligations	(948,267)		(1,714,195)		Payments on long-term debt, revolving credit facility, and finance lease obligations	(157,328)		(948,267)
Purchase of treasury stock	Purchase of treasury stock	(33,994)		(36,028)		Purchase of treasury stock	(19,012)		(33,994)
Payment of debt extinguishment and financing costs		—		(28,680)
Payments of contingent consideration						Payments of contingent consideration	(2,711)		(3,356)

Other, net	Other, net	(5,226)		—		Other, net	—		(1,870)
Net cash (used in) provided by financing activities		(13,283)		194,720
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	25,241		(13,283)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	5,740		10,953		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	1,671		5,740
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	(2,918)		237,906		Net change in cash, cash equivalents, and restricted cash	(32,323)		(2,918)
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	246,314		233,119		Cash, cash equivalents, and restricted cash, beginning of period	241,214		246,314
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	243,396	$	471,025	Cash, cash equivalents, and restricted cash, end of period	$	208,891	$	243,396

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash and cash equivalents	Cash and cash equivalents	$	241,869	$	465,411	Cash and cash equivalents	$	201,587	$	241,869

Restricted cash included in Other current assets	Restricted cash included in Other current assets	413		4,012		Restricted cash included in Other current assets	6,162		413
Restricted cash included in Other assets	Restricted cash included in Other assets	1,114		1,602		Restricted cash included in Other assets	1,142		1,114
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	243,396	$	471,025	Cash, cash equivalents, and restricted cash, end of period	$	208,891	$	243,396

Non-cash investing activities:						Non-cash investing activities:
Purchases of Property, plant and equipment included in Accounts payable and Accrued liabilities						Purchases of Property, plant and equipment included in Accounts payable and Accrued liabilities	$	43,116	$	58,993

See Notes to Unaudited Condensed Consolidated Financial Statements.	See Notes to Unaudited Condensed Consolidated Financial Statements.					See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(in thousands)


																												Common Stock							Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)				Treasury Stock						Total Equity Attributable to Common Shareholders				Noncontrolling Interest				Total Equity
																												Shares				Amount							Shares						Amount
December 31, 2022																											December 31, 2022	50,944				$	509			$	1,804,940				$	1,432,901			$	(262,057)			—		$	—			$	2,976,293			$	4,785			$	2,981,078
Net income																											Net income	—				—			—			103,131			—				—				—		103,131				501				103,632
Other comprehensive income																											Other comprehensive income	—				—			—			—			22,933				—				—		22,933				—				22,933

Issuance of stock under employee compensation plans																											Issuance of stock under employee compensation plans	316				3			11,789			—			—				—				—		11,792				—				11,792
Purchase of treasury shares																											Purchase of treasury shares	—				—			—			—			—				78				(19,012)		(19,012)				—				(19,012)
Stock-based compensation																											Stock-based compensation	—				—			13,460			—			—				—				—		13,460				—				13,460
April 1, 2023																											April 1, 2023	51,260				512			1,830,189			1,536,032			(239,124)				78				(19,012)		3,108,597				5,286				3,113,883

		Common Stock			Additional Paid-In Capital				Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Treasury Stock				Total Equity Attributable to Common Shareholders			Noncontrolling Interest				Total Equity			Common Stock							Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)				Treasury Stock						Total Equity Attributable to Common Shareholders				Noncontrolling Interest				Total Equity
		Shares	Amount								Shares			Amount						Shares								Amount								Shares							Amount
December 25, 2021	December 25, 2021	50,480	$	505			$	1,718,304				$	980,751	$	(164,740)	—		$	—		$	2,534,820			$	4,162			$	2,538,982	December 25, 2021	50,480				$	505		$	1,718,304			$	980,751			$	(164,740)		—			$	—			$	2,534,820			$	4,162			$	2,538,982
Net income	Net income	—	—		—				93,022			—		—		—		93,022			560				93,582		Net income	—				—			—			93,022			—				—				—		93,022				560				93,582
Other comprehensive loss	Other comprehensive loss	—	—		—				—			(10,193)		—		—		(10,193)			—				(10,193)		Other comprehensive loss	—				—			—			—			(10,193)				—				—		(10,193)				—				(10,193)
Adjustment of redeemable noncontrolling interest to redemption value	Adjustment of redeemable noncontrolling interest to redemption value	—	—		(1,161)				—			—		—		—		(1,161)			—				(1,161)		Adjustment of redeemable noncontrolling interest to redemption value	—				—			(1,161)			—			—				—				—		(1,161)				—				(1,161)
Issuance of stock under employee compensation plans	Issuance of stock under employee compensation plans	431	4		13,067				—			—		—		—		13,071			—				13,071		Issuance of stock under employee compensation plans	431				4			13,067			—			—				—				—		13,071				—				13,071
Purchase of treasury shares	Purchase of treasury shares	—	—		—				—			—		111		(33,994)		(33,994)			—				(33,994)		Purchase of treasury shares	—				—			—			—			—				111				(33,994)		(33,994)				—				(33,994)
Stock-based compensation	Stock-based compensation	—	—		14,619				—			—		—		—		14,619			—				14,619		Stock-based compensation	—				—			14,619			—			—				—				—		14,619				—				14,619
March 26, 2022	March 26, 2022	50,911	$	509	$	1,744,829			$	1,073,773		$	(174,933)	111		$	(33,994)	$	2,610,184		$	4,722			$	2,614,906	March 26, 2022	50,911				509			1,744,829			1,073,773			(174,933)				111				(33,994)		2,610,184				4,722				2,614,906

		Common Stock			Additional Paid-In Capital				Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Treasury Stock				Total Equity Attributable to Common Shareholders			Noncontrolling Interest				Total Equity
		Shares	Amount								Shares			Amount
December 26, 2020		49,767	$	498			$	1,627,564				$	625,414	$	(138,874)	—		$	—				$	2,114,602					$	3,567			$	2,118,169
Net income		—	—		—				61,530			—		—		—		61,530			690				62,220
Other comprehensive income		—	—		—				—			11,857		—		—		11,857			—				11,857
Adjustment of redeemable noncontrolling interest to redemption value		—	—		(835)				—			—		—		—		(835)			—				(835)
Issuance of stock under employee compensation plans		583	6		19,606				—			—		—		—		19,612			—				19,612
Purchase of treasury shares		—	—		—				—			—		134		(36,028)		(36,028)			—				(36,028)
Stock-based compensation		—	—		13,189				—			—		—		—		13,189			—				13,189
March 27, 2021		50,350	$	504	$	1,659,524			$	686,944		$	(127,017)	134		$	(36,028)	$	2,183,927		$	4,257			$	2,188,184

See Notes to Unaudited Condensed Consolidated Financial Statements.	See Notes to Unaudited Condensed Consolidated Financial Statements.																										See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Charles River Laboratories International, Inc. (the Company) in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The year-end condensed consolidated balance sheet data was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for fiscal year ~~2021.~~2022. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position and results of operations.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires that the Company make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, judgments, and methodologies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known.

Newly ~~Issued~~Adopted Accounting Pronouncements

In ~~November 2021,~~September 2022, the FASB issued ASU ~~2021-10, “Government Assistance (Topic 832)~~2022-04, “Liabilities – Supplier Finance Programs (Subtopic 405-50): ~~Disclosures by Business Entities About Government Assistance.~~Disclosure of Supplier Finance Program Obligations.” ASU ~~2021-10~~2022-04 requires quantitative and qualitative disclosures about ~~transactions with a government that have been accounted for by a grant or contribution accounting model to increase transparency about~~ the ~~types~~use of ~~transactions, the accounting for the transactions, and the effect on the financial statements.~~supplier finance programs. The ASU is ~~an annual disclosure~~ effective for fiscal years beginning after December 15, ~~2021~~2022, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years for selected disclosures, and will be applied on a prospective basis. The Company ~~is currently evaluating~~participates in certain supplier finance programs that are immaterial to the ~~impact this new standard will have on the~~unaudited condensed consolidated financial statements and related ~~disclosures, but does not believe there will be a material impact.~~disclosures.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1, “Description of Business and Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for fiscal year ~~2021.~~2022.

Consolidation

The Company’s unaudited condensed consolidated financial statements reflect its financial statements and those of its subsidiaries in which the Company holds a controlling financial interest. For consolidated entities in which the Company owns or is exposed to less than 100% of the economics, the Company records net income (loss) attributable to noncontrolling interests in its unaudited condensed consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Redeemable noncontrolling interests, where the noncontrolling interest holders have the ability to sell the remaining interests, are classified in the mezzanine section of the unaudited condensed consolidated balance sheets, which is presented above the equity section and below liabilities. Intercompany balances and transactions are eliminated in consolidation.

The Company’s fiscal year is typically based on 52-weeks, with each quarter composed of 13 weeks ending on the last Saturday on, or closest to, March 31, June 30, September 30, and December 31. A 53rd week in the fourth quarter of the fiscal year is occasionally necessary to align with a December 31 calendar year-end, which ~~will occur~~occurred in ~~this~~ fiscal year 2022.

Segment Reporting

The Company reports its results in 3three reportable segments: Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Solutions (Manufacturing).

The Company’s RMS reportable segment includes the Research Models, Research Model Services, and ~~Research and GMP-Compliant Cells~~Cell Solutions businesses. Research Models includes the commercial production and sale of small research models, as well as the supply of large research models. Research Model Services includes: Genetically Engineered Models and Services (GEMS), which performs contract breeding and other services associated with genetically engineered models; Research Animal Diagnostic Services (RADS), which provides health monitoring and diagnostics services related to research models; Insourcing Solutions (IS), which provides colony management of its clients’ research operations (including recruitment, training, staffing, and management services); within our clients’ facilities and ~~Research~~utilizing both our Charles River Accelerator and ~~GMP-Compliant Cells,~~Development Lab (CRADL™) and our Explora BioLabs options, in which we provide vivarium space to our clients; and Cell Solutions, which

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

supplies controlled, consistent, customized primary cells and blood components derived from normal and mobilized peripheral blood, bone marrow, and cord blood.

The Company’s DSA reportable segment includes ~~services required to take a drug through the early development process including discovery services, which are~~two businesses: Discovery Services and Safety Assessment. The Company provides regulated and non-regulated DSA services to ~~assist clients with~~support the ~~identification, screening, and selection of a lead compound for drug~~research, development, and ~~regulated~~regulatory-required safety testing of potential new drugs, including therapeutic discovery and ~~nonregulated (GLP~~optimization plus in vitro and ~~non-GLP) safety assessment services.~~ in vivo studies, laboratory support services, and strategic non-clinical consulting and program management to support product development.

The Company’s Manufacturing reportable segment includes

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification ~~services;~~services and Biologics Solutions (Biologics), which performs specialized testing of biologics (Biologics Testing Solutions) as well as contract development and manufacturing products and services (CDMO);. In December of 2022, the Company sold the Avian Vaccine Services business (Avian), previously reported in the Manufacturing segment, which ~~supplies~~supplied specific-pathogen-free chicken eggs and chickens.

2. ACQUISITIONS AND DIVESTITURES

Fiscal 2023 Acquisition

SAMDI Tech, Inc.

On January 27, 2023, the Company acquired SAMDI Tech, Inc., (SAMDI), a leading provider of high-quality, label-free high-throughput screening (HTS) solutions for drug discovery research. The acquisition of SAMDI will provide clients with seamless access to the premier, label-free HTS MS platform and create a comprehensive, library of drug discovery solutions. The preliminary purchase price of SAMDI was $62.8 million, net of $0.4 million in cash, inclusive of a 20% strategic equity interest previously owned by the Company of $12.6 million. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment.

Fiscal 2022 Acquisition

Explora BioLabs Holdings, Inc.

On April 5, 2022, the Company acquired Explora BioLabs Holdings, Inc. (Explora BioLabs), a provider of contract vivarium research services, providing biopharmaceutical clients with turnkey in vivo vivarium facilities, management and related services to efficiently conduct their early-stage research activities. The acquisition of Explora BioLabs complements the Company’s existing Insourcing Solutions business, specifically the CRADL (Charles River Accelerator and Development Lab) footprint, and offers incremental opportunities to partner with an emerging client base, many of which are engaged in cell and gene therapy development. The ~~preliminary~~ purchase price of Explora BioLabs was ~~approximately $295~~$284.5 million, net of $6.6 million in ~~cash, subject to customary closing adjustments.~~cash. The acquisition was funded through proceeds from the Company’s credit facility (Credit Facility). This business ~~will be~~is reported as part of the Company’s RMS segment. Due to the limited time between the acquisition date and the filing of this Quarterly Report on Form 10-Q, it is not practicable for the Company to disclose the preliminary allocation of the purchase price to assets acquired and liabilities assumed.

~~Fiscal 2021 Acquisitions~~

~~Vigene Biosciences, Inc.~~

On June 28, 2021, the Company acquired Vigene Biosciences, Inc. (Vigene), a gene therapy contract development and manufacturing organization (CDMO), providing viral vector-based gene delivery solutions. The acquisition enables clients to seamlessly conduct analytical testing, process development, and manufacturing for advanced modalities with the same scientific partner. The purchase price of Vigene was $323.9 million, net of $2.7 million in cash. Included in the purchase price are contingent payments fair valued at $34.5 million, which was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $57.5 million based on future performance). The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s Manufacturing reportable segment.

~~Retrogenix Limited~~

On March 30, 2021, the Company acquired Retrogenix Limited (Retrogenix), an early-stage contract research organization providing specialized bioanalytical services utilizing its proprietary cell microarray technology. The acquisition of Retrogenix enhances the Company’s scientific expertise with additional large molecule and cell therapy discovery capabilities. The purchase price of Retrogenix was $53.9 million, net of $8.5 million in cash. Included in the purchase price are contingent payments fair valued at $6.9 million, which is the maximum potential payout, and was based on a probability-weighted approach. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment.

~~Cognate BioServices, Inc.~~

On March 29, 2021, the Company acquired Cognate BioServices, Inc. (Cognate), a cell and gene therapy CDMO offering comprehensive manufacturing solutions for cell therapies, as well as for the production of plasmid DNA and other inputs in the CDMO value chain. The acquisition of Cognate establishes the Company as a scientific partner for cell and gene therapy development, testing, and manufacturing, providing clients with an integrated solution from basic research and discovery through cGMP production. The purchase price of Cognate was $877.9 million, net of $70.5 million in cash, subject to certain post-closing adjustments and includes $15.7 million of consideration for an approximate 2% ownership interest not acquired, which was redeemed in April 2022 with the ultimate payout tied to performance in 2021. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility and senior notes (Senior Notes) issued in fiscal 2021. This business is reported as part of the Company’s Manufacturing reportable segment.

~~Distributed Bio, Inc.~~

On December 31, 2020, the Company acquired Distributed Bio, Inc. (Distributed Bio), a next-generation antibody discovery company with technologies specializing in enhancing the probability of success for delivering high-quality, readily formattable antibody fragments to support antibody and cell and gene therapy candidates to biopharmaceutical clients. The acquisition of Distributed Bio expands the Company’s capabilities with an innovative, large-molecule discovery platform, and creates an integrated, end-to-end platform for therapeutic antibody and cell and gene therapy discovery and development. The purchase price of Distributed Bio was $97.0 million, net of $0.8 million in cash. The total consideration includes $80.8 million cash paid, settlement of $3.0 million in convertible promissory notes previously issued by the Company during prior fiscal years, and $14.1 million of contingent consideration, which was estimated using a Monte Carlo Simulation model (the maximum

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

contingent contractual payments are up to $21.0 million based on future performance and milestone achievements over a one-year period). The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment.

~~Other Acquisition~~

On March 3, 2021, the Company acquired certain assets from a distributor that supports the Company’s DSA reportable segment. The purchase price was $35.4 million, which includes $19.5 million in cash paid ($5.5 million of which was paid in fiscal 2020), and $15.9 million of contingent consideration, which was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $17.5 million based on future performance over a three-year period). The fair value of the net assets acquired included $17.3 million of goodwill, $15.2 million attributed to supplier relationships (to be amortized over a 4-year period), and $3.0 million of property, plant, and equipment. The business is reported as part of the Company’s DSA reportable segment.

Purchase price information

The purchase price allocation was as follows:


		Vigene (3)		Retrogenix		Cognate		Distributed Bio			SAMDI (1)		Explora BioLabs
		June 28, 2021		March 30, 2021		March 29, 2021		December 31, 2020			January 27, 2023		April 5, 2022
		(in thousands)									(in thousands)
Trade receivables	Trade receivables	$	3,548	$	2,266	$	18,566	$	2,722	Trade receivables	$	513	$	7,679
Other current assets (excluding cash)	Other current assets (excluding cash)	1,657		209		14,128		221		Other current assets (excluding cash)	75		1,067
Property, plant and equipment	Property, plant and equipment	7,649		400		52,082		2,382		Property, plant and equipment	593		37,369
Operating lease right-of-use asset, net	Operating lease right-of-use asset, net	22,507		1,385		34,349		1,586		Operating lease right-of-use asset, net	—		48,613
Goodwill ~~(1)~~(2)	Goodwill ~~(1)~~(2)	239,681		34,489		611,555		71,585		Goodwill ~~(1)~~(2)	37,129		215,752
Definite-lived intangible assets	Definite-lived intangible assets	93,900		22,126		270,900		24,540		Definite-lived intangible assets	33,070		70,100
Other long-term assets	Other long-term assets	694		—		6,098		469		Other long-term assets	6		556
Deferred revenue	Deferred revenue	(4,260)		(434)		(20,539)		(1,319)		Deferred revenue	(43)		(3,507)
Other current liabilities ~~(2)~~	Other current liabilities ~~(2)~~	(6,319)		(1,141)		(45,388)		(1,504)		Other current liabilities ~~(2)~~	(351)		(15,507)
Operating lease right-of-use liabilities (Long-term)	Operating lease right-of-use liabilities (Long-term)	(21,220)		(1,205)		(31,383)		(1,123)		Operating lease right-of-use liabilities (Long-term)	—		(57,193)
Deferred tax liabilities	Deferred tax liabilities	(13,958)		(4,174)		(32,503)		(2,529)		Deferred tax liabilities	(8,191)		(18,601)

Other long-term liabilities										Other long-term liabilities	—		(1,807)
Total purchase price allocation	Total purchase price allocation	$	323,879	$	53,921	$	877,865	$	97,030	Total purchase price allocation	$	62,801	$	284,521

(1) The goodwill resulting from these transactions is primarily attributable to the potential growth of the Company’s segments from new customers introduced to the acquired businesses and the assembled workforce of the acquirees. The goodwill attributable to these entities is not deductible for tax purposes.
(2) In connection with its acquisitions of businesses, the Company routinely records liabilities related to indirect state and local taxes for preacquisition periods when such liabilities are estimable and deemed probable. The Company may or may not be indemnified for such indirect tax liabilities under terms of the acquisitions. As these indirect tax contingencies are resolved, actual obligations, and any indemnifications, may differ from the recorded amounts and any differences are reflected in reported results in the period in which these are resolved. As of March 26, 2022, the Company estimates that it is reasonably possible that these recorded liabilities of $17 million may decrease over the next twelve month period as the Company seeks a favorable ruling from tax authorities on certain indirect tax positions.
(3) Purchase price allocation is preliminary and subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.
(1) Purchase price allocation is preliminary and subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.										(1) Purchase price allocation is preliminary and subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.
(2) The goodwill resulting from these transactions is primarily attributable to the potential growth of the Company’s segments from new customers introduced to the acquired businesses and the assembled workforce of the acquirees, thus is not deductible for tax purposes. Explora BioLabs had $5.0 million of goodwill due to a prior asset acquisition that is deductible for tax purposes.										(2) The goodwill resulting from these transactions is primarily attributable to the potential growth of the Company’s segments from new customers introduced to the acquired businesses and the assembled workforce of the acquirees, thus is not deductible for tax purposes. Explora BioLabs had $5.0 million of goodwill due to a prior asset acquisition that is deductible for tax purposes.

The definite-lived intangible assets acquired were as follows:


	SAMDI		Explora BioLabs
Definite-Lived Intangible Assets	(in thousands)
Client relationships	$	23,400	$	64,000
Other intangible assets	9,670		6,100
Total definite-lived intangible assets	$	33,070	$	70,100

Weighted Average Amortization Life	(in years)
Client relationships	15		13
Other intangible assets	7		4
Total definite-lived intangible assets	12		12


	Three Months Ended
		April 1, 2023		March 26, 2022
		(in thousands)
Transaction and Integration Costs
Selling, general and administrative expenses		$	1,064	$	7,113

Divestitures

The Company routinely evaluates the strategic fit and fundamental performance of its global businesses, divesting operations that do not meet key business criteria. As part of this ongoing assessment, the Company determined that certain capital could be better deployed in other long-term growth opportunities.

Avian Vaccine Services

On December 20, 2022, the Company sold its Avian Vaccine Services business (Avian) to a private investor group for a preliminary purchase price of $168.6 million in cash, subject to certain customary closing adjustments. The Company may also earn up to $30.0 million of contingent payments, which are tied to certain annual results of the Avian business from January 2024 through December 2027. The contingent payments have been fair valued at $10.3 million using a discounted probability

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

weighted model. The ~~definite-lived intangible assets acquired were as follows:~~

Vigene Retrogenix Cognate Distributed Bio
Definite-Lived Intangible Assets (in thousands)
Client relationships $ 87,500 $ 17,340 $ 257,200 $ 16,080
Other intangible assets 6,400 4,786 13,700 8,460
Total definite-lived intangible assets $ 93,900 $ 22,126 $ 270,900 $ 24,540
Weighted Average Amortization Life (in years)
Client relationships 12 13 13 9
Other intangible assets 2 3 2 4
Total definite-lived intangible assets 11 11 13 7

The company incurred transaction and integration costs in connection with its acquisitions of $7.1 million and $8.7 million, which were included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income for the three months ended March 26, 2022 and March 27, 2021, respectively.

~~Pro forma information~~

The following selected unaudited pro forma consolidated results of operations are presented as if the Cognate and Vigene acquisitions had occurred as of the beginning of the period immediately preceding the period of acquisition, which is December 29, 2019, after giving effect to certain adjustments. For the three months ended March 26, 2021, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $9.2 million, additional interest expense on borrowing of $3.4 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments. All other acquisitions have not been included because that information is not material to the consolidated financial statements.


	~~Three Months Ended~~
	~~March 27, 2021~~
	~~(in thousands)~~
	~~(unaudited)~~
~~Revenue~~	$	~~858,800~~
~~Net income attributable to common shareholders~~	~~37,575~~

These unaudited pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the dates indicated or that may result in the future. No effect has been given for synergies, if any, that may be realized through the acquisition.

~~RMS Japan Divestiture~~

On October 12, 2021, the Company sold its RMS Japan operations to The Jackson Laboratory for a preliminary purchase price of $73.1 million, which included $7.9 million in cash, $3.8 million pension over funding, and certain post-closing adjustments.

~~The RMS Japan~~Avian business was reported in the Company’s RMS reportable segment. The Company determined that the RMS Japan business was not optimized within the Company’s portfolio at its current scale, and that the capital could be better deployed in other long-term growth opportunities.

~~CDMO Sweden Divestiture~~

On October 12, 2021, the Company sold its gene therapy CDMO site in Sweden to a private investor group for a preliminary purchase price of $59.6 million, net of $0.2 million in cash and other post-closing adjustments that may impact the purchase price. Included in the purchase price are contingent payments fair valued at $15.3 million, which were estimated using a probability weighted model (the maximum contingent contractual payments are up to $25.0 million based on future performance), as well as a purchase obligation of approximately $10.0 million between the parties.

~~The CDMO Sweden business was acquired in March 2021 as part of the acquisition of Cognate and~~ was reported in the Company’s Manufacturing reportable segment. ~~The Company routinely evaluates the strategic fit and fundamental performance of our acquisitions integrated within our global infrastructure. As part of this assessment,~~During fiscal year 2022, the Company ~~determined that this capital could be better deployed in other long-term growth opportunities.~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

recorded a gain on the divestiture of Avian of $123.4 million within Other income (expense) on the Company’s condensed consolidated statements of income.

The carrying amounts of the major classes of assets and liabilities associated with the divestitures of the businesses were as follows:

October 12, 2021
RMS Japan CDMO Sweden
(in thousands)
Assets
Current assets $ 26,524 $ 8,187
Property, plant, and equipment, net 17,379 14,339
Operating lease right-of-use assets, net — 19,733
Goodwill 4,129 27,764
Intangible assets, net — 14,089
Other assets 3,695 —
Total assets $ 51,727 $ 84,112
Liabilities
Current liabilities $ 8,705 $ 6,386
Operating lease right-of-use liabilities — 18,221
Long-term liabilities 94 —
Total liabilities $ 8,799 $ 24,607


	December 19, 2022
	Avian
	(in thousands)
Assets
Current assets	$	30,545
Property, plant, and equipment, net	24,602
Operating lease right-of-use assets, net	611
Goodwill	3,168
Intangible assets, net	1,629
Other assets	10
Total assets	$	60,565

Liabilities
Current liabilities	$	8,139
Operating lease right-of-use liabilities	331
Total liabilities	$	8,470

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following table disaggregates the Company’s revenue by major business line and timing of transfer of products or services:

Three Months Ended
March 26, 2022 March 27, 2021
(in thousands)
Timing of Revenue Recognition:
RMS
Services and products transferred over time $ 69,924 $ 64,896
Services and products transferred at a point in time 106,618 112,014
Total RMS revenue 176,542 176,910
DSA
Services and products transferred over time 542,336 500,468
Services and products transferred at a point in time 1,923 710
Total DSA revenue 544,259 501,178
Manufacturing
Services and products transferred over time 95,009 50,568
Services and products transferred at a point in time 98,119 95,910
Total Manufacturing revenue 193,128 146,478
Total revenue $ 913,929 $ 824,566

~~RMS~~

The RMS business generates revenue through the commercial production and sale of research models, research and GMP-compliant cells (cell supply), and the provision of services related to the maintenance and monitoring of research models and management of clients’ research operations. Revenue from the sale of research models and cell supply is recognized at a point in time when the customer obtains control of the product, which may be upon shipment or upon delivery based on the shipping terms of a contract. Revenue generated from research models services is recognized over time and is typically based on a right-to-invoice measure of progress (output method) as invoiced amounts correspond directly to the value of the Company’s performance to date.


	Three Months Ended
		April 1, 2023		March 26, 2022
		(in thousands)
Timing of Revenue Recognition:
RMS
Services and products transferred over time		$	93,639	$	69,924
Services and products transferred at a point in time		106,127		106,618
Total RMS revenue		199,766		176,542
DSA
Services and products transferred over time		661,836		542,336
Services and products transferred at a point in time		517		1,923
Total DSA revenue		662,353		544,259
Manufacturing
Services and products transferred over time		86,086		95,009
Services and products transferred at a point in time		81,168		98,119
Total Manufacturing revenue		167,254		193,128
Total revenue		$	1,029,373	$	913,929

1211

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~DSA~~

The DSA business provides a full suite of integrated drug discovery services directed at the identification, screening and selection of a lead compound for drug development and offers a full range of safety assessment services including bioanalysis, drug metabolism, pharmacokinetics, toxicology and pathology. DSA services revenue is generally recognized over time using the cost-to-cost or right to invoice measures of progress, primarily representing fixed fee service contracts and per unit service contracts, respectively.

~~Manufacturing~~

~~The Manufacturing business includes Microbial Solutions, which provides~~ in~~vitro~~ (non-animal) lot-release testing products, microbial detection products, and species identification services; Biologics Solutions (Biologics), which performs specialized testing of biologics (Biologics Testing Solutions) as well as contract development and manufacturing products and services (CDMO); and Avian Vaccine Services (Avian), which supplies specific-pathogen-free chicken eggs and chickens. Species identification service revenue is generally recognized at a point in time as identifications are completed by the Company. Biologics service revenue is generally recognized over time using the cost-to-cost measure of progress. Microbial Solutions and Avian product sales are generally recognized at a point in time when the customer obtains control of the product, which may be upon shipment or upon delivery based on the contractual shipping terms of a contract.

~~Transaction Price Allocated to Future Performance Obligations~~

The Company discloses the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of March 26, 2022. Excluded from the disclosure is the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed and (iii) service revenue recognized in accordance with ASC 842, “Leases” (see additional disclosure for Other Performance Obligations).

~~The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) as of March 26, 2022:~~

Revenue Expected to be Recognized in Future Periods
Less than 1 Year 1 to 3 Years 4 to 5 Years Beyond 5 Years Total
(in thousands)
DSA $ 404,549 $ 414,174 $ 36,670 $ 1,752 $ 857,145
Manufacturing 1,875 — — — 1,875
Total $ 406,424 $ 414,174 $ 36,670 $ 1,752 $ 859,020

Contract Balances from Contracts with Customers

The timing of revenue recognition, billings and cash collections results in billed receivables (client receivables), contract assets (unbilled revenue), and contract liabilities (current and long-term deferred revenue and customer contract deposits) on the unaudited condensed consolidated balance sheets. The Company’s payment terms are generally 30 days in the United States and consistent with prevailing practice in international markets. A contract asset is recorded when a right to consideration in exchange for goods or services transferred to a customer is conditioned other than the passage of time. Client receivables are recorded separately from contract assets since only the passage of time is required before consideration is due. A contract liability is recorded when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.

The following table provides information about client receivables, contract assets, and contract liabilities from contracts with customers:

March 26, 2022 December 25, 2021
(in thousands)
Balances from contracts with customers:
Client receivables $ 526,736 $ 489,452
Contract assets (unbilled revenue) 177,261 160,609
Contract liabilities (current and long-term deferred revenue) 251,182 240,281
Contract liabilities (customer contract deposits) 63,985 59,512


	April 1, 2023		December 31, 2022
	(in thousands)
Assets from contracts with customers
Client receivables	$	587,706	$	559,410
Unbilled revenue	217,297		204,258
Total	805,003		763,668
Less: Allowance for credit losses	(16,694)		(11,278)
Trade receivables and contract assets, net	$	788,309	$	752,390

Liabilities from contracts with customers
Current deferred revenue	262,226		264,259
Long-term deferred revenue (included in Other long-term liabilities)	29,286		25,795
Customer contract deposits (included in Other current-liabilities)	93,362		91,640

~~When the Company does not have the unconditional right to advanced billings, both advanced client payments and unpaid~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~advanced client billings are excluded from deferred~~Approximately 70% of unbilled revenue with the advanced billings also being excluded from client receivables. The Company excluded approximately $44 million and $36 million of unpaid advanced client billings from both client receivables and deferred revenue in the accompanying unaudited condensed consolidated balance sheets as of ~~March 26,~~December 31, 2022, ~~and December 25, 2021, respectively. Advanced client payments of approximately $64~~which was $204 million, and $60 million have been presented as customer contract deposits within other current liabilities in the accompanying unaudited condensed consolidated balance sheets as of March 26, 2022 and December 25, 2021, respectively.

~~Other changes in the contract asset and the contract liability balances~~was billed during the three months ended ~~March 26, 2022 and March 27, 2021 were as follows:~~

~~(i) Changes due to acquisitions and divestitures:~~

~~See Note 2. “Acquisitions and Divestitures” for the Company’s recent acquisitions.~~

(ii) Cumulative catch-up adjustments to revenue that affect the corresponding contract asset or contract liability, including adjustments arising from a change in the measure of progress, a change in an estimate of the transaction price (including any changes in the assessment of whether an estimate of variable consideration is constrained), or a contract modification:

~~During the three months ended March 26, 2022 and March 27, 2021, immaterial cumulative catch-up adjustments to revenue were recorded.~~

~~(iii) A change in the time frame for a right to consideration to become unconditional (that is, for a contract asset to be recorded as a client receivable):~~

April 1, 2023. Approximately 60% of unbilled revenue as of December 25, 2021, which was $161 million, was billed during the three months ended March 26, 2022.

Approximately ~~60%~~65% of ~~unbilled revenue~~contract liabilities as of December ~~26, 2020,~~31, 2022, which was ~~$135~~$290 million, ~~was billed~~were recognized as revenue during the three months ended ~~March 27, 2021.~~

~~(iv) A change in the time frame for a performance obligation to be satisfied (that is, for the recognition of revenue arising from a contract liability):~~

April 1, 2023. Approximately 65% of contract liabilities as of December 25, 2021, which was $240 million, were recognized as revenue during the three months ended March 26, 2022. ~~Approximately 60%~~

When the Company does not have the unconditional right to advanced billings, both advanced client payments and unpaid advanced client billings are excluded from deferred revenue, with the advanced billings also being excluded from client receivables. The Company excluded approximately $45 million and $54 million of ~~contract liabilities~~unpaid advanced client billings from both client receivables and deferred revenue in the accompanying unaudited condensed consolidated balance sheets as of April 1, 2023 and December ~~26, 2020, which was $227~~31, 2022, respectively. Net provisions (recoveries) of $3.2 million and $(0.6) million were ~~recognized as revenue during~~recorded to the allowance for credit losses for the three months ended April 1, 2023 and March ~~27, 2021.~~26, 2022, respectively.

Transaction Price Allocated to Future Performance Obligations

The Company discloses the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of April 1, 2023. Excluded from the disclosure is the value of unsatisfied performance obligations for contracts with an original expected length of one year or less, contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed and service revenue recognized in accordance with ASC 842, “Leases”.The aggregate amount of transaction price allocated to the remaining performance obligations for all open customer contracts as of April 1, 2023 was $1,113.5 million. The Company will recognize revenues for these performance obligations as they are satisfied, approximately 50% of which is expected to occur within the next twelve months and the remainder recognized thereafter during the remaining contract term.

Other Performance Obligations

As part of the Company’s service offerings, ~~primarily in the Manufacturing segment,~~ the Company has identified performance obligations related to leasing Company owned assets. In certain arrangements, customers obtain substantially all of the economic benefits of the identified assets, which may include manufacturing suites and related equipment, and have the right to direct the assets’ use over the term of the contract. The associated revenue is recognized on a straight-line basis over the term of the lease, which is generally less than one year. For the three months ended March 26, 2022, the Company recognized lease revenue of $7.9 million, which is recorded within service revenue, which is transferred over time, within the unaudited condensed consolidated statements of income. Due to the nature of these arrangements and timing of the contractual lease term, the remaining revenue to be recognized related to these lease performance obligations is not material to the unaudited condensed consolidated financial statements.


	April 1, 2023		March 26, 2022
	(in thousands)				Affected Line Item in the Unaudited Condensed Consolidated Statements of Income
Lease revenue	$	24,090	$	7,856	Service revenue

1412

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. SEGMENT AND GEOGRAPHIC INFORMATION

The following table presents revenue and other financial information by reportable segment:

Three Months Ended
March 26, 2022 March 27, 2021
(in thousands)
RMS
Revenue $ 176,542 $ 176,910
Operating income 47,882 44,935
Depreciation and amortization 9,469 9,679
Capital expenditures 8,646 2,983
DSA
Revenue $ 544,259 $ 501,178
Operating income 104,986 90,949
Depreciation and amortization 46,789 44,608
Capital expenditures 48,930 17,040
Manufacturing
Revenue $ 193,128 $ 146,478
Operating income 46,368 49,437
Depreciation and amortization 18,482 6,569
Capital expenditures 22,828 7,110

~~The following tables present reconciliations of segment operating income, depreciation and amortization, and capital expenditures to the respective consolidated amounts:~~

Operating Income Depreciation and Amortization Capital Expenditures
March 26, 2022 March 27, 2021 March 26, 2022 March 27, 2021 March 26, 2022 March 27, 2021
(in thousands)
Three Months Ended:
Total reportable segments $ 199,236 $ 185,321 $ 74,740 $ 60,856 $ 80,404 $ 27,133
Unallocated corporate (50,458) (61,618) 559 652 60 897
Total consolidated $ 148,778 $ 123,703 $ 75,299 $ 61,508 $ 80,464 $ 28,030

~~Revenue for each significant product or service offering is as follows:~~

Three Months Ended
March 26, 2022 March 27, 2021
(in thousands)
RMS $ 176,542 $ 176,910
DSA 544,259 501,178
Manufacturing 193,128 146,478
Total revenue $ 913,929 $ 824,566

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~A summary of unallocated corporate expense consists of the following:~~

Three Months Ended
March 26, 2022 March 27, 2021
(in thousands)
Stock-based compensation $ 8,503 $ 7,642
Compensation, benefits, and other employee-related expenses 28,636 27,362
External consulting and other service expenses 4,319 7,356
Information technology 2,474 4,095
Depreciation 559 652
Acquisition and integration 5,826 10,560
Other general unallocated corporate 141 3,951
Total unallocated corporate expense $ 50,458 $ 61,618

Other general unallocated corporate expense consists of costs associated with departments such as senior executives, corporate accounting, legal, tax, human resources, treasury, and investor relations.


	Three Months Ended
		April 1, 2023		March 26, 2022
		(in thousands)
RMS
Revenue		$	199,766	$	176,542
Operating income		40,409		47,882
Depreciation and amortization		13,489		9,469
Capital expenditures		19,084		8,646
DSA
Revenue		$	662,353	$	544,259
Operating income		171,431		104,986
Depreciation and amortization		42,450		46,789
Capital expenditures		65,184		48,930
Manufacturing
Revenue		$	167,254	$	193,128
Operating income		2,106		46,368
Depreciation and amortization		20,084		18,482
Capital expenditures		21,738		22,828
Unallocated Corporate
Operating income (1)		$	(46,054)	$	(50,458)
Depreciation and amortization		1,046		559
Capital expenditures		869		60
Consolidated
Revenue		$	1,029,373	$	913,929
Operating income		167,892		148,778
Depreciation and amortization		77,069		75,299
Capital expenditures		106,875		80,464

(1) Operating income for unallocated corporate expense consists of costs associated with departments such as senior executives, corporate accounting, legal, tax, human resources, treasury, and investor relations.

Revenue by geographic area is as follows:


		U.S.		Europe		Canada		Asia Pacific		Other		Consolidated			U.S.		Europe		Canada		Asia Pacific		Other		Consolidated
		(in thousands)													(in thousands)

Three Months Ended:	Three Months Ended:													Three Months Ended:
April 1, 2023														April 1, 2023	$	605,441	$	267,703	$	110,606	$	42,813	$	2,810	$	1,029,373
March 26, 2022	March 26, 2022	$	526,549	$	251,087	$	85,246	$	48,946	$	2,101	$	913,929	March 26, 2022	526,549		251,087		85,246		48,946		2,101		913,929
March 27, 2021		448,482		237,535		77,107		59,446		1,996		824,566

Included in the Other category above are operations located in Brazil and Israel. Revenue represents sales originating in entities physically located in the identified geographic area.

~~5. SUPPLEMENTAL BALANCE SHEET INFORMATION~~

~~The composition of trade receivables and contract assets, net is as follows:~~

March 26, 2022 December 25, 2021
(in thousands)
Client receivables $ 526,736 $ 489,452
Unbilled revenue 177,261 160,609
Total 703,997 650,061
Less: Allowance for credit losses (6,154) (7,180)
Trade receivables and contract assets, net $ 697,843 $ 642,881

~~The composition of inventories is as follows:~~

March 26, 2022 December 25, 2021
(in thousands)
Raw materials and supplies $ 34,763 $ 33,118
Work in process 35,651 40,268
Finished products 150,761 125,760
Inventories $ 221,175 $ 199,146

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. INVENTORY

Inventories

The composition of ~~other current assets~~inventories is as follows:

March 26, 2022 December 25, 2021
(in thousands)
Prepaid income tax $ 71,272 $ 84,725
Short-term investments 1,065 1,063
Restricted cash 413 4,023
Other receivables 8,953 7,500
Other current assets $ 81,703 $ 97,311

~~The composition of other assets is as follows:~~

March 26, 2022 December 25, 2021
(in thousands)
Venture capital investments $ 137,689 $ 149,640
Strategic equity investments 60,576 51,712
Life insurance policies 47,262 51,048
Other long-term income tax assets 18,195 18,690
Restricted cash 1,114 1,077
Long-term pension assets 39,626 39,582
Other 52,190 41,140
Other assets $ 356,652 $ 352,889

~~The composition of other current liabilities is as follows:~~

March 26, 2022 December 25, 2021
(in thousands)
Current portion of operating lease right-of-use liabilities $ 37,758 $ 33,267
Accrued income taxes 29,838 26,161
Customer contract deposits 63,985 59,512
Other 12,952 18,701
Other current liabilities $ 144,533 $ 137,641

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

March 26, 2022 December 25, 2021
(in thousands)
U.S. Transition Tax $ 43,057 $ 43,057
Long-term pension liability, accrued executive supplemental life insurance retirement plan and deferred compensation plans 107,000 104,944
Long-term deferred revenue 22,922 20,578
Other 66,036 74,280
Other long-term liabilities $ 239,015 $ 242,859


	April 1, 2023		December 31, 2022
	(in thousands)
Raw materials and supplies	$	42,770	$	38,892
Work in process	34,830		48,367
Finished products	184,984		168,550
Inventories	$	262,584	$	255,809

6. VENTURE CAPITAL AND STRATEGIC EQUITY INVESTMENTS

Venture capital investments were $137.7 million and $149.6 million as of March 26, 2022 and December 25, 2021, respectively. The Company’s total commitment to the venture capital funds as of March 26, 2022 was $173.9 million, of which the Company funded $116.6 million through that date. The Company received distributions totaling $1.3 million and $9.3 million for the three months ended March 26, 2022 and March 27, 2021, respectively.are summarized below:

The Company recognized net losses on venture capital investments of $13.4 million for the three months ended March 26, 2022, driven by the decrease in the fair value of publicly-held investments offset by increases from private investments, and net losses of $16.4 million for the three months ended March 27, 2021, driven by both publicly-held and private investments.


	April 1, 2023		March 26, 2022
	(in thousands)
Beginning balance	$	129,012	$	149,640
Capital contributions	3,214		3,265
Distributions	(7,217)		(1,347)
Loss	(6,848)		(13,403)
Foreign currency translation	260		(463)
Ending balance	$	118,421	$	137,692

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

The Company also invests, with minority positions, directly in equity of predominantly ~~privately-held~~privately held companies. Strategic ~~equity~~ investments were $60.6 million and $51.7 million as of March 26, 2022 and December 25, 2021, respectively. The Company purchased $10 million of an interest in a strategic equity investment for the three months ended March 26, 2022 and recognized insignificant gains and losses for the three months ended March 26, 2022 and March 27, 2021. Additionally, the Company has a $25 million commitment to purchase an additional interest in an existing strategic equity investment.are summarized below:

In April 2022, the Company acquired a 49% equity interest in a supplier supporting the DSA reportable segment (the Investee) for approximately $90 million up front and an additional future contingent payment of up to $5 million based upon the Investee’s future performance. Due to the limited time between the acquisition date and the filing of this Quarterly Report on Form 10-Q, it is not practicable for the Company to disclose the preliminary allocation of purchase price between the fair value of the investment and the proportional interest in the Investee’s underlying net assets.


	April 1, 2023		March 26, 2022
	(in thousands)
Beginning balance	$	182,590	$	51,712
Purchase of investments	9,266		10,000
Distributions	(4,146)		—
Gain (loss)	3,566		(500)
Reduction for acquisition of entity	(12,635)		—
Foreign currency translation	(3,275)		(636)
Ending balance	$	175,366	$	60,576

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. FAIR VALUE

~~The Company has certain financial assets and liabilities recorded at fair value, which have been classified as Level 1, 2, or 3 within the fair value hierarchy.~~ Assets and liabilities measured at fair value on a recurring basis are summarized below:


		March 26, 2022									April 1, 2023
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Current assets measured at fair value:	Current assets measured at fair value:	(in thousands)								Current assets measured at fair value:	(in thousands)
Cash equivalents	Cash equivalents	$	—	$	2,030	$	—	$	2,030	Cash equivalents	$	—	$	78	$	—	$	78
Other assets:	Other assets:									Other assets:
Life insurance policies	Life insurance policies	—		40,045		—		40,045		Life insurance policies	—		36,202		—		36,202
Total assets measured at fair value	Total assets measured at fair value	$	—	$	42,075	$	—	$	42,075	Total assets measured at fair value	$	—	$	36,280	$	—	$	36,280

Other current liabilities measured at fair value:
Accrued liabilities measured at fair value:										Accrued liabilities measured at fair value:
Contingent consideration	Contingent consideration	$	—	$	—	$	13,515	$	13,515	Contingent consideration	$	—	$	—	$	10,543	$	10,543
Other long-term liabilities measured at fair value:	Other long-term liabilities measured at fair value:									Other long-term liabilities measured at fair value:
Contingent consideration		—		—		16,644		16,644
Interest rate swap										Interest rate swap	—		2,925		—		2,925
Total liabilities measured at fair value	Total liabilities measured at fair value	$	—	$	—	$	30,159	$	30,159	Total liabilities measured at fair value	$	—	$	2,925	$	10,543	$	13,468

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. During the three months ended ~~March 26,~~April 1, 2023, there were no transfers between levels.


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Current assets measured at fair value:	(in thousands)
Cash equivalents	$	—	$	78	$	—	$	78
Other assets:
Life insurance policies	—		34,527		—		34,527
Total assets measured at fair value	$	—	$	34,605	$	—	$	34,605

Accrued liabilities measured at fair value:
Contingent consideration	$	—	$	—	$	13,431	$	13,431
Other long-term liabilities measured at fair value:
Interest rate swap	—		1,523		—		1,523
Total liabilities measured at fair value	$	—	$	1,523	$	13,431	$	14,954

During the year ended December 31, 2022, there were no transfers between levels.

December 25, 2021
Level 1 Level 2 Level 3 Total
Current assets measured at fair value: (in thousands)
Cash equivalents $ — $ 893 $ — $ 893
Other assets:
Life insurance policies — 42,918 — 42,918
Total assets measured at fair value $ — $ 43,811 $ — $ 43,811
Other current liabilities measured at fair value:
Contingent consideration $ — $ — $ 11,794 $ 11,794
Other long-term liabilities measured at fair value:
Contingent consideration — — 25,450 25,450
Total liabilities measured at fair value $ — $ — $ 37,244 $ 37,244

~~During the year ended December 25, 2021, there were no transfers between levels.~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

Contingent Consideration

The following table provides a rollforward of the contingent consideration related to the Company’s acquisitions.


		Three Months Ended					Three Months Ended
		March 26, 2022		March 27, 2021			April 1, 2023		March 26, 2022
		(in thousands)					(in thousands)
Beginning balance	Beginning balance	$	37,244	$	2,328	Beginning balance	$	13,431	$	37,244
Additions		—		29,990

Payments	Payments	(3,301)		—		Payments	(2,711)		(3,301)
Total gains or losses (realized/unrealized):	Total gains or losses (realized/unrealized):					Total gains or losses (realized/unrealized):
Adjustment of previously recorded contingent liability	Adjustment of previously recorded contingent liability	(3,450)		917		Adjustment of previously recorded contingent liability	—		(3,450)
Foreign currency translation	Foreign currency translation	(334)		(72)		Foreign currency translation	(177)		(334)
Ending balance	Ending balance	$	30,159	$	33,163	Ending balance	$	10,543	$	30,159

The Company estimates the fair value of contingent consideration obligations through valuation models, such as probability-weighted and option pricing models, that incorporate probability adjusted assumptions and simulations related to the achievement of the milestones and the likelihood of making related payments. The unobservable inputs used in the fair value measurements include the probabilities of successful achievement of certain financial targets, forecasted results or targets, volatility, and discount rates. The remaining maximum potential payments are approximately ~~$73~~$54 million, of which the value

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

accrued as of ~~March 26, 2022~~April 1, 2023 is approximately ~~$30~~$11 million. The weighted average probability of achieving the maximum target is approximately ~~42%~~20%. The average volatility and weighted average cost of capital are approximately ~~47%~~40% and 16%, respectively. Increases or decreases in these assumptions may result in a higher or lower fair value measurement, respectively.

Cash Flow Hedge

The Company is exposed to market fluctuations in interest rates as well as variability in foreign exchange rates. In November 2022, the Company entered into an interest rate swap with a notional amount of $500 million to manage interest rate fluctuation related to floating rate borrowings under the Credit Facility, at a fixed rate of 4.700%.

In March 2023 and in conjunction with an amendment of the Credit Agreement (Second Amendment), the Company modified the variable rate on its interest rate swap from 1-month LIBOR to 1-month adjusted term SOFR. Effective with the modification, the Company will pay a fixed rate of 4.65% on its swap maturing November 2, 2024. The Company elected to apply the optional expedient in ASC 848, Reference Rate Reform, in connection with modifying its interest rate swap from LIBOR to SOFR that enabled it to consider the modification a continuation of the existing contract. As a result, the transition did not have an impact on the Company’s hedge accounting or a material impact to the Company’s financial statements.

Debt Instruments

The book value of the Company’s ~~term and~~ revolving loans, which are variable rate loans carried at amortized cost, approximates the fair value based on current market pricing of similar debt. As the fair value is based on significant other observable inputs, including current interest and foreign currency exchange rates, it is deemed to be Level 2 within the fair value hierarchy.

The book value of the Company’s Senior Notes are fixed rate obligations carried at amortized cost. Fair value is based on quoted market prices as well as borrowing rates available to the Company. As the fair value is based on significant other observable outputs, it is deemed to be Level 2 within the fair value hierarchy. The book value and fair value of the Company’s Senior Notes is summarized below:


											April 1, 2023				December 31, 2022
		March 26, 2022				December 25, 2021					Book Value		Fair Value		Book Value		Fair Value
		Book Value		Fair Value		Book Value		Fair Value			(in thousands)
4.25% Senior Notes due 2028	4.25% Senior Notes due 2028	$	500,000	$	483,100	$	500,000	$	521,250	4.25% Senior Notes due 2028	$	500,000	$	466,650	$	500,000	$	460,450
3.75% Senior Notes due 2029	3.75% Senior Notes due 2029	500,000		466,250		500,000		506,700		3.75% Senior Notes due 2029	500,000		443,750		500,000		442,200
4.0% Senior Notes due 2031		500,000		466,850		500,000		507,500
4.00% Senior Notes due 2031										4.00% Senior Notes due 2031	500,000		436,250		500,000		432,500

8. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table provides a rollforward of the Company’s goodwill:

Adjustments to Goodwill
December 25, 2021 Acquisition Related Foreign Exchange March 26, 2022
(in thousands)
RMS $ 283,524 $ — $ (150) $ 283,374
DSA 1,472,506 — (9,505) 1,463,001
Manufacturing 955,851 (592) (5,640) 949,619
Goodwill $ 2,711,881 $ (592) $ (15,295) $ 2,695,994


	RMS		DSA (1)		Manufacturing		Total
	(in thousands)
December 31, 2022	$	497,710	$	1,433,601	$	918,592	$	2,849,903
Acquisitions	—		37,129		—		37,129

Foreign exchange	131		8,016		6,448		14,595
April 1, 2023	$	497,841	$	1,478,746	$	925,040	$	2,901,627
(1) DSA includes accumulated impairment losses of $1 billion, which were recognized in fiscal years 2008 and 2010.

The increase in goodwill during the three months ended April 1, 2023 related primarily to the acquisition of SAMDI in the DSA reportable segment.

1916

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Intangible Assets, Net

The following table displays intangible assets, net by major class:


		March 26, 2022						December 25, 2021							April 1, 2023						December 31, 2022
		Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net			Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
		(in thousands)													(in thousands)
Client relationships														Client relationships	$	1,523,373	$	(624,820)	$	898,553	$	1,491,926	$	(591,417)	$	900,509
Technology														Technology	140,448		(104,438)		36,010		129,626		(101,655)		27,971
Backlog	Backlog	$	12,513	$	(10,712)	$	1,801	$	12,577	$	(9,517)	$	3,060	Backlog	15,320		(13,474)		1,846		15,236		(12,512)		2,724
Technology		134,544		(98,281)		36,263		135,764		(95,454)		40,310
Trademarks and trade names	Trademarks and trade names	13,018		(3,893)		9,125		13,086		(3,448)		9,638		Trademarks and trade names	12,707		(4,704)		8,003		12,617		(4,410)		8,207
Other	Other	35,319		(11,801)		23,518		35,231		(8,445)		26,786		Other	38,007		(24,300)		13,707		37,985		(22,121)		15,864
Other intangible assets		195,394		(124,687)		70,707		196,658		(116,864)		79,794
Client relationships		1,471,872		(523,042)		948,830		1,475,757		(494,359)		981,398
Intangible assets	Intangible assets	$	1,667,266	$	(647,729)	$	1,019,537	$	1,672,415	$	(611,223)	$	1,061,192	Intangible assets	$	1,729,855	$	(771,736)	$	958,119	$	1,687,390	$	(732,115)	$	955,275

The ~~decrease~~increase in intangible assets, net during the three months ended ~~March 26, 2022~~April 1, 2023 related primarily to the acquisition of SAMDI, offset by normal amortization over the useful lives.

9. DEBT AND OTHER FINANCING ARRANGEMENTS

Long-term debt, net and finance leases consists of the following:


		March 26, 2022		December 25, 2021
		(in thousands)					April 1, 2023		December 31, 2022
							(in thousands)
Revolving facility	Revolving facility	$	1,174,169	$	1,161,431	Revolving facility	$	1,233,453	$	1,197,586
4.25% Senior Notes due 2028	4.25% Senior Notes due 2028	500,000		500,000		4.25% Senior Notes due 2028	500,000		500,000
3.75% Senior Notes due 2029	3.75% Senior Notes due 2029	500,000		500,000		3.75% Senior Notes due 2029	500,000		500,000
4.00% Senior Notes due 2031	4.00% Senior Notes due 2031	500,000		500,000		4.00% Senior Notes due 2031	500,000		500,000
Other debt	Other debt	366		368		Other debt	4,245		1,594
Finance leases	Finance leases	25,955		27,223		Finance leases	30,521		30,646
Total debt and finance leases	Total debt and finance leases	2,700,490		2,689,022		Total debt and finance leases	2,768,219		2,729,826
Less:	Less:					Less:
Current portion of long-term debt	Current portion of long-term debt	99		101		Current portion of long-term debt	3,997		1,347
Current portion of finance leases	Current portion of finance leases	2,543		2,694		Current portion of finance leases	2,822		2,330
Current portion of long-term debt and finance leases	Current portion of long-term debt and finance leases	2,642		2,795		Current portion of long-term debt and finance leases	6,819		3,677
Long-term debt and finance leases	Long-term debt and finance leases	2,697,848		2,686,227		Long-term debt and finance leases	2,761,400		2,726,149
Debt discount and debt issuance costs	Debt discount and debt issuance costs	(21,683)		(22,663)		Debt discount and debt issuance costs	(17,626)		(18,618)
Long-term debt, net and finance leases	Long-term debt, net and finance leases	$	2,676,165	$	2,663,564	Long-term debt, net and finance leases	$	2,743,774	$	2,707,531

As of ~~March 26, 2022~~April 1, 2023 and December ~~25, 2021,~~31, 2022, the weighted average interest rate on the Company’s debt was ~~2.87%~~4.78% and ~~2.78%~~4.58%, respectively. During the three months ended March 27, 2021, the Company prepaid $500 million of Senior Notes due in 2026 along with $21 million of related debt extinguishment costs and $13 million of accrued interest using proceeds from additional senior notes issued on the same day. The payment of the 2026 Senior Notes was accounted for as a debt extinguishment. Approximately $21 million of debt extinguishment costs and $5 million of deferred financing costs write-offs were recorded in Interest expense for the three months ended March 27, 2021.

~~Cross currency loans~~

During the three months ended March 26, 2022, ~~and March 27, 2021,~~ the Company had multiple U.S. dollar denominated loans borrowed by a non-U.S. Euro functional currency entity under the Credit Facility, which were approximately $400 million each. ~~This resulted in~~To limit this foreign currency ~~losses recognized in Other (expense) income, net of $11.1 million and $13.4 million during~~exposure, the ~~three months ended March 26, 2022 and March 27, 2021, respectively, related to the remeasurement of the underlying debt. As of March 26, 2022, the~~Company entered into foreign exchange forward contracts, which are not designated as hedging instruments. The Company did not have any ~~outstanding borrowings in a currency different than its respective functional currency.~~

~~The Company periodically enters into foreign exchange forward contracts to limit its foreign currency exposure related to~~ U.S. dollar denominated loans borrowed by a non-U.S. Euro functional currency entity under the ~~Company’s~~ Credit ~~Facility. These~~Facility during the three months ended April 1, 2023.

The gains and losses incurred on these transactions were as follows:

Three Months Ended

March 26, 2022

Affected Line Item in the Unaudited Condensed Consolidated Statements of Income

(in thousands)

Loss on foreign debt remeasurement

(11,101)

Other expense, net

Gain on foreign exchange forward contract

11,784

Interest expense

2017

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

contracts are not designated as hedging instruments. This resulted in gains recognized within Interest expense of $11.8 million and $14.0 million during the three months ended March 26, 2022 and March 27, 2021, respectively, related to these forward contracts. The Company had no open forward contracts related to a U.S. dollar denominated loan borrowed by a non-U.S. Euro functional currency a~~t March 26, 2022~~ ~~or December 25, 2021.~~

Letters of Credit

As of ~~March 26, 2022~~April 1, 2023 and December ~~25, 2021,~~31, 2022, the Company had ~~$17.7~~$21.6 million and $18.6 million, respectively, in outstanding letters of credit.

10. EQUITY AND NONCONTROLLING INTERESTS

Earnings Per Share

The following table reconciles the numerator and denominator in the computations of basic and diluted earnings per share:

Three Months Ended
March 26, 2022 March 27, 2021
(in thousands)
Numerator:
Net income $ 95,226 $ 63,935
Less: Net income attributable to noncontrolling interests 2,204 2,405
Net income attributable to common shareholders $ 93,022 $ 61,530
Denominator:
Weighted-average shares outstanding - Basic 50,640 49,980
Effect of dilutive securities:
Stock options, restricted stock units and performance share units 685 1,095
Weighted-average shares outstanding - Diluted 51,325 51,075

Options to purchase 0.2 million and less than 0.1 million shares for the three months ended March 26, 2022 and March 27, 2021, respectively, as well as a non-significant number of restricted stock units (RSUs) and performance share units (PSUs), 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 months ended March 26, 2022 and March 27, 2021 excluded the impact of 0.4 million and 0.6 million shares, respectively, of non-vested RSUs and PSUs.


	Three Months Ended
		April 1, 2023		March 26, 2022
		(in thousands)
Numerator:
Net income		$	103,954	$	95,226
Less: Net income attributable to noncontrolling interests		823		2,204
Net income attributable to common shareholders		$	103,131	$	93,022

Denominator:
Weighted-average shares outstanding - Basic		51,097		50,640
Effect of dilutive securities:
Stock options, restricted stock units and performance share units		331		685
Weighted-average shares outstanding - Diluted		51,428		51,325

Anti-dilutive common stock equivalents (1)		405		152

(1) These common stock equivalents were outstanding for the periods presented, but were not included in the computation of diluted EPS for those periods because their inclusion would have had an anti-dilutive effect.

Treasury Shares

~~During the three months ended March 26, 2022 and March 27, 2021, the Company did not repurchase any shares under its~~The Company’s Board of Directors has authorized a $1.3 billion stock repurchase program. As of ~~March 26, 2022,~~April 1, 2023, the Company had $129.1 million remaining on the authorized stock repurchase program.

The Company’s stock-based compensation plans permit the netting of common stock upon vesting of RSUs and PSUs in order to satisfy individual statutory tax withholding requirements. ~~During~~The Company acquired shares of 0.1 million in the three months ended April 1, 2023 and three months ended March 26, 2022, ~~and March 27, 2021, the Company acquired 0.1 million shares~~ for ~~$34.0~~$19.0 million and ~~0.1 million shares for $36.0~~$34.0 million, respectively, from such netting.

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

Accumulated Other Comprehensive Income (Loss)

Changes to each component of accumulated other comprehensive income (loss), net of income taxes, are as follows:

Foreign Currency Translation Adjustment
and Other Pension and Other Post-Retirement Benefit Plans Total
(in thousands)
December 25, 2021 $ (98,173) $ (66,567) $ (164,740)
Other comprehensive loss before reclassifications (12,957) — (12,957)
Amounts reclassified from accumulated other comprehensive income — 746 746
Net current period other comprehensive (loss) income (12,957) 746 (12,211)
Income tax (benefit) expense (2,200) 182 (2,018)
March 26, 2022 $ (108,930) $ (66,003) $ (174,933)


	Foreign Currency Translation Adjustment and Other		Pension and Other Post-Retirement Benefit Plans		Net Unrealized Loss on Cash Flow Hedge		Total
	(in thousands)
December 31, 2022	$	(217,785)	$	(43,114)	$	(1,158)	$	(262,057)
Other comprehensive loss before reclassifications	23,127		170		(1,402)		21,895

Net current period other comprehensive income (loss)	23,127		170		(1,402)		21,895
Income tax (benefit) expense	(834)		133		(337)		(1,038)
April 1, 2023	$	(193,824)	$	(43,077)	$	(2,223)	$	(239,124)

Nonredeemable Noncontrolling Interest

The Company has an investment in an entity whose financial results are consolidated in the Company’s unaudited condensed consolidated financial statements, as it has the ability to exercise control over this entity. The interest of the noncontrolling party in this entity has been recorded as noncontrolling interest within Equity in the accompanying unaudited condensed consolidated balance sheets. The activity within the nonredeemable noncontrolling interest was not significant during the three months ended April 1, 2023 and March 26, ~~2022 and March 27, 2021.~~2022.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Redeemable Noncontrolling Interests

The Company ~~has~~holds a 92% ~~equity~~ownership interest in Vital River, ~~with an 8% redeemable noncontrolling interest.~~a commercial provider of research models and related services in China as of December 31, 2022. The ~~Company~~company has the right to purchase, and the noncontrolling interest holders have the right to sell, the remaining 8% equity interest at a contractually defined redemption value, subject to a redemption floor, which represents a derivative embedded within the equity instrument. The redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the contractually defined redemption value ($~~24.3 million~~24.4 million) as of ~~March 26, 2022)~~April 1, 2023 and the carrying amount adjusted for net income (loss) attributable to the noncontrolling interest. As the noncontrolling interest holders have the ability to require the Company to purchase the remaining 8% interest, the noncontrolling interest is classified in the mezzanine section of the unaudited condensed consolidated balance sheets, which is presented above the equity section and below liabilities. The amount that the Company could be required to pay to purchase the remaining 8% equity interest is not limited. During the fourth quarter of fiscal 2022, the Company exercised its option to acquire the remaining 8%; however, has not yet closed the purchase of the remaining equity interest.

~~The~~In 2019, the Company ~~has~~acquired an 80% equity interest in a subsidiary ~~with~~that is fully consolidated under the voting interest model, which includes a 20% redeemable noncontrolling interest. In ~~August~~June 2022, the Company ~~will have~~purchased an additional 10% interest in the subsidiary for $15.0 million, resulting in a remaining noncontrolling interest of 10%. Beginning in 2024, the Company has the right to purchase, and the noncontrolling interest holders have the right to sell (Put/call option), the remaining ~~20%~~10% equity interest at its appraised value ($~~31.5~~17.0 million as of ~~March 26, 2022)~~April 1, 2023). The redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the appraised value and the carrying amount adjusted for net income (loss) attributable to the noncontrolling interest or a predetermined floor value. As the noncontrolling interest holders have the ability to require the Company to purchase the remaining 20% interest, the noncontrolling interest is classified in the mezzanine section of the unaudited condensed consolidated balance sheets, which is presented above the equity section and below liabilities. The amount that the Company could be required to pay to purchase the remaining ~~20%~~10% equity interest is not limited.

The following table provides a rollforward of the activity related to the Company’s redeemable noncontrolling interests:


		Three Months Ended					Three Months Ended
		March 26, 2022		March 27, 2021			April 1, 2023		March 26, 2022
		(in thousands)					(in thousands)
Beginning balance	Beginning balance	$	53,010	$	25,499	Beginning balance	$	42,427	$	53,010
Adjustment of noncontrolling interest to redemption value		1,161		835
Net income attributable to noncontrolling interests		1,644		1,716
Adjustments to redemption value						Adjustments to redemption value	—		1,161

Net income (loss)						Net income (loss)	322		1,644

Foreign currency translation	Foreign currency translation	4		(15)		Foreign currency translation	186		4
Ending balance	Ending balance	$	55,819	$	28,035	Ending balance	$	42,935	$	55,819

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

11. INCOME TAXES

The Company’s effective tax rates for the three months ended April 1, 2023 and March 26, 2022 were 20.7% and ~~March 27, 2021 were~~ 14.1% ~~and 3.6%~~, respectively. The increase in the three month effective tax ~~rate~~rates from the prior year period was primarily attributable to a decreased tax benefit from stock-based compensation deductions in thethree months ended ~~March 26, 2022.~~April 1, 2023.

For the three months ended ~~March 26, 2022,~~April 1, 2023, the Company’s unrecognized tax benefits increased by ~~$1.6~~$1.3 million to ~~$34.2~~$24.5 million, primarily due to increases in research &and development tax credit reserves. For the three months ended ~~March 26, 2022,~~April 1, 2023, the amount of unrecognized income tax benefits that would impact the effective tax rate ~~increased~~decreased by ~~$1.1~~$0.9 million to ~~$31.1~~$21.2 million for the same reasons discussed above. The accrued interest on unrecognized tax benefits was ~~$1.7~~$1.6 million as of ~~March 26, 2022.~~April 1, 2023. The Company estimates that it is reasonably possible that the unrecognized tax benefits will decrease by approximately ~~$11.3~~$4 million over the next twelve-month period, primarily due to audit settlements and expiring statutes of limitations.

The Company’s prepaid and accrued tax positions are as follows:


	April 1, 2023		December 31, 2022		Affected Line Item in the Unaudited Condensed Consolidated Balance Sheets
	(in thousands)
Prepaid income tax	$	71,382	$	88,550	Other current assets
Accrued income taxes	38,420		39,854		Other current liabilities

The Company conducts business in a number of tax jurisdictions. As a result, it is subject to tax audits on a regular basis including, but not limited to, such major jurisdictions as the U.S., the U.K., China, France, Germany, and Canada. With few exceptions, the Company is no longer subject to U.S. and international income tax examinations for years before ~~2018.~~2019.

The Company and certain of its subsidiaries have ongoing tax controversies in the U.S., Canada, France, ~~the Netherlands,~~ and India. The Company does not anticipate resolution of these audits will have a material impact on its consolidated financial statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. ~~RESTRUCTURING AND ASSET IMPAIRMENTS~~

In recent fiscal years, the Company has undertaken productivity improvement initiatives within all reportable segments at various locations across the U.S., Canada, Europe, and China. This includes workforce right-sizing and scalability initiatives, resulting in severance and transition costs; and cost related to the consolidation of facilities, resulting in asset impairment and accelerated depreciation charges. The Company does not have any significant remaining lease obligations for facilities associated with restructuring activities. The following table presents a summary of restructuring costs related to these initiatives within the unaudited condensed consolidated statements of income:

Three Months Ended
March 26, 2022 March 27, 2021
(in Thousands)
Restructuring Costs:
RMS $ 674 $ 7
DSA 143 559
Manufacturing 107 334
Unallocated corporate 1,087 (151)
Total $ 2,011 $ 749

As of March 26, 2022 and March 27, 2021, $4.2 million and $2.2 million, respectively, of severance and other personnel related costs liabilities and lease obligation liabilities were included in accrued compensation and accrued liabilities within the Company’s unaudited condensed consolidated balance sheets.

~~13.~~ COMMITMENTS AND CONTINGENCIES

Litigation

~~Various lawsuits, claims~~On February 16, 2023, the Company was informed by the U.S. Department of Justice (DOJ) that in conjunction with the U.S. Fish and ~~proceedings~~Wildlife Service (USFWS), it had commenced an investigation into the Company’s conduct regarding several shipments of non-human primates from Cambodia. On February 17, 2023 the Company received a grand jury subpoena requesting certain documents related to such investigation. The Company is aware of a ~~nature considered normal~~parallel civil investigation being undertaken by the DOJ and USFWS. The Company is cooperating with the DOJ and the USFWS and believes that the concerns raised with respect to ~~its business~~the Company’s conduct are without merit. The Company maintains a global supplier onboarding and oversight program incorporating risk-based due diligence, auditing, and monitoring practices to help ensure the quality of our supplier relationships and compliance with applicable U.S. and international laws and regulations, and has operated under the belief that all shipments of non-human primates it received satisfied the material requirements, documentation and related processes and procedures of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) documentation and related processes and procedures, which guides the release of each import by USFWS. Notwithstanding our efforts and good-faith belief, in connection with the civil investigation, the Company has voluntarily suspended future shipments of non-human primates from Cambodia to the United States until such time that the Company and USFWS can agree upon and implement additional procedures to reasonably ensure that non-human primates imported from Cambodia are purpose-bred. The Company continues to care for the Cambodia-sourced non-human primates from certain recent shipments in the United States. The carrying value of the inventory related to these shipments is approximately $20 million. We are not able to predict what action, if any, might be taken in the future by the DOJ, USFWS or other governmental authorities as a result of the investigations. Neither the DOJ nor USFWS has provided the Company with any specific timeline or indication as to when these investigations or discussions regarding future processes and procedures will be concluded or resolved. Because it is in the early stages, the Company cannot predict the timing, outcome or possible impact of the investigations, including without limitation any potential fines, penalties or liabilities.

Aside from the matter above, the Company believes there are no other matters pending against the ~~Company. While the outcome of any of these proceedings cannot be accurately predicted, the~~ Company ~~does not believe the ultimate resolution of any of these existing matters would~~that could have a material ~~adverse effect~~impact on the Company’s business, financial condition, or ~~financial condition.~~results of operations.

2320

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

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

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes of this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for fiscal year ~~2021.~~2022. The following discussion contains forward-looking statements. Actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in Item 1A, “Risk Factors” included elsewhere within this Form 10-Q. Certain percentage changes may not recalculate due to rounding.

Overview

We are a full service, leading, non-clinical ~~contract~~global drug development partner. For over 75 years, we have been in the business of providing the research ~~organization (CRO). We~~models required in the research and development of new drugs, devices, and therapies. Over this time, we have built upon our original core competency of laboratory animal medicine and science (research model technologies) to develop a diverse portfolio of discovery and safety assessment services, both Good Laboratory Practice (GLP) and non-GLP, ~~which is able to support~~that supports our clients from target identification through non-clinical development. We also provide a suite of products and services to support our clients’ manufacturing activities, including our ~~recently acquired~~ contract development and manufacturing organization (CDMO) business. Utilizing our broad portfolio of products and services enables our clients to create a more efficient and flexible drug development model, which reduces their costs, enhances their productivity and effectiveness, and increases speed to market.

Our client base includes major global ~~biopharmaceutical~~pharmaceutical companies, many biotechnology companies; agricultural and industrial chemical, life science, veterinary medicine, medical device, diagnostic and consumer product companies; contract research and contract manufacturing organizations; and other commercial entities, as well as leading hospitals, academic institutions, and government agencies around the world.

Segment Reporting

Our three reportable segments are Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Solutions (Manufacturing).

Our RMS reportable segment includes the Research Models, Research Model Services, and ~~Research and GMP-Compliant Cells~~Cell Solutions businesses. Research Models includes the commercial production and sale of small research models, as well as the supply of large research models. Research Model Services includes: Genetically Engineered Models and Services (GEMS), which performs contract breeding and other services associated with genetically engineered models; Research Animal Diagnostic Services (RADS), which provides health monitoring and diagnostics services related to research models; and Insourcing Solutions (IS), which provides colony management of our clients’ research operations (including recruitment, training, staffing, and management services)~~. Research~~ within our clients’ facilities as well as our own vivarium space, utilizing both our Charles River Accelerator and ~~GMP-Compliant Cells supplies~~Development Lab (CRADL) and our Explora BioLabs options. Cell Solutions provides controlled, consistent, customized primary cells and blood components derived from normal and mobilized peripheral blood, bone marrow, and cord blood.

Our DSA ~~reportable~~ segment ~~includes services required to take a drug through the early development process including discovery services, which are non-regulated services to assist clients with the identification, screening,~~is comprised of two businesses: Discovery Services and ~~selection of a lead compound for drug development, and~~Safety Assessment. We provide regulated and non-regulated ~~(GLP~~DSA services to support the research, development, and ~~non-GLP)~~regulatory-required safety ~~assessment services.~~ testing of potential new drugs, including therapeutic discovery and optimization plus in vitro and in vivo studies, laboratory support services, and strategic non-clinical consulting and program management to support product development.

Our Manufacturing reportable segment includes Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification ~~services;~~services and Biologics Solutions (Biologics), which performs specialized testing of biologics (Biologics Testing Solutions) as well as contract development and manufacturing products and services (CDMO)~~; and~~. In December of 2022, we sold the Avian Vaccine Services (Avian), business, reported in the Manufacturing segment, which ~~supplies~~supplied specific-pathogen-free chicken eggs and chickens.

~~Russia-Ukraine Conflict~~U.S. Department of Justice Investigation into Non-Human Primate Supply Chain

On February 16, 2023, we were informed by the U.S. Department of Justice (DOJ) that in conjunction with the U.S. Fish and Wildlife Service (USFWS), it had commenced an investigation into our conduct regarding several shipments of non-human primates from Cambodia. On February 17, 2023 we received a grand jury subpoena requesting certain documents related to such investigation. We are aware of a parallel civil investigation being undertaken by the DOJ and USFWS. We are cooperating with the DOJ and the USFWS and believe that the concerns raised with respect to our conduct are without merit. We maintain a global supplier onboarding and oversight program incorporating risk-based due diligence, auditing, and monitoring practices to help ensure the quality of our supplier relationships and compliance with applicable U.S. and international laws and regulations, and has operated under the belief that all shipments of non-human primates we received satisfied the material requirements, documentation and related processes and procedures of the Convention on International Trade in Endangered Species of Wild

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Fauna and Flora (CITES) documentation and related processes and procedures, which guides the release of each import by USFWS. Notwithstanding our efforts and good-faith belief, in connection with the civil investigation, we have voluntarily suspended future shipments of non-human primates from Cambodia until such time that we and USFWS can agree upon and implement additional procedures to reasonably ensure that non-human primates imported to the United States from Cambodia are purpose-bred. We continue to care for the Cambodia-sourced non-human primates from certain recent shipments in the United States. The carrying value of the inventory related to these shipments is approximately $20 million. We are not able to predict what action, if any, might be taken in the future by the DOJ, USFWS or other governmental authorities as a result of the investigations. Neither the DOJ nor USFWS has provided us with any specific timeline or indication as to when these investigations or discussions regarding future processes and procedures will be concluded or resolved. Because it is in the early stages, we cannot predict the timing, outcome or possible impact of the investigations, including without limitation any potential fines, penalties or liabilities. For our assessment of risk factors surrounding the aforementioned matter refer to Item 1A, “Risk Factors” and Item 3, “Legal Proceedings” of our Annual Report on Form 10-K for fiscal year 2022.

Global Economic Environment

In March 2023, the global economy experienced a series of banking crises, which sparked a period of widespread investor concerns regarding the U.S. and international financial systems, particularly access to capital. We do not hold cash deposits or securities at any of the impacted banks. Our banking relationships are assessed as we believe necessary and appropriate and our access to cash and funding is secure and diversified. We believe there are no material impacts to our Company as of April 1, 2023 based on the current situation. We will continue to monitor the global banking markets as they evolve for potential impacts to our operating and financial results such as increased interest rates, commercial financing terms or costs, and liquidity concerns in the broader market or business partners.

The biopharmaceutical end market is slightly less robust than last year with clients appearing to assess the timing and level of spending. Clients are not booking work as far in advance as in previous years and we believe this is the result of their evaluation of pipeline priorities and scheduling with nearer-term focus. We are seeing a normalization of demand trends towards pre-pandemic levels, with a modest decrease in DSA backlog to $3.0 billion as of April 1, 2023 from $3.15 billion as of December 31, 2022, but continue to see strength and stability in our client’s drug development activity as they are moving their promising drug candidates forward. We will continue to monitor the market trends carefully for potential impacts to our operating and financial results and there are no material impacts to our Company as of April 1, 2023.

In February 2022, the Russian Federation launched an invasion of the country of Ukraine resulting in conflict in the region and a variety of sanctions against the Russian Federation enacted by several governments, including the U.S, ~~United Kingdom,~~U.K., Canada and European Union. The conflict has had and continues to have, direct and indirect adverse effects on financial markets and global supply chain disruptions. We do not have any direct operations in either Russia or Ukraine and there were no material impacts to our financial statements ~~for the three months ended March 26,~~during fiscal year 2022 as a result of the situation. We will continue to monitor the situation as it evolves for potential impacts to our operating and financial results such as increased ~~inflationary,~~inflation, supply chain, or cybersecurity risks in subsequent periods. Refer to Item 1A, ~~Risk Factors disclosed herein and in~~“Risk Factors” of our Annual Report on Form 10-K for fiscal ~~2021~~year 2022 for our assessment of risk factors surrounding inflationary, supply chain and cybersecurity risks.

Recent Acquisitions

Our strategy is to augment internal growth of existing businesses with complementary acquisitions. Our recent acquisitions are described below.

Fiscal Year 2023 Acquisition

On January 27, 2023, we acquired SAMDI Tech, Inc., (SAMDI), a leading provider of high-quality, label-free high-throughput screening (HTS) solutions for drug discovery research. The acquisition of SAMDI will provide clients with seamless access to the premier, label-free HTS MS platform and create a comprehensive, library of drug discovery solutions. The preliminary purchase price of SAMDI was $62.8 million, inclusive of a 20% strategic equity interest previously owned by us. The acquisition was funded through a combination of available cash and proceeds from our Credit Facility. This business is reported as part of our DSA reportable segment.

Fiscal Year 2022 Acquisition

On April 5, 2022, we acquired Explora BioLabs Holdings, Inc. (Explora BioLabs), a provider of contract vivarium research

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

services, providing biopharmaceutical clients with turnkey in vivo vivarium facilities, management and related services to efficiently conduct their early-stage research activities. The acquisition of Explora BioLabs complements our existing IS business, specifically our CRADL (Charles River Accelerator and Development Lab) footprint, and offers incremental opportunities to partner with an emerging client base, many of which are engaged in cell and gene therapy development. The ~~preliminary~~ purchase price of Explora BioLabs was ~~approximately $295~~$284.5 million, net of $6.6 million in ~~cash, subject to customary closing adjustments.~~cash. The acquisition was funded through ~~proceeds from our Credit Facility. This business will be reported as part of our RMS segment.~~

~~Fiscal Year 2021 Acquisitions~~

On June 28, 2021, we acquired Vigene Biosciences, Inc. (Vigene), a gene therapy contract development and manufacturing organization (CDMO), providing viral vector-based gene delivery solutions. The acquisition enables clients to seamlessly conduct analytical testing, process development, and manufacturing for advanced modalities with the same scientific partner. The purchase price of Vigene was $323.9 million, net of $2.7 million in cash, and includes $34.5 million of contingent consideration (maximum contingent payments of up to $57.5 million based on future performance). The acquisition was funded through a combination of available cash and proceeds from our Credit Facility. This business is reported as part of our ~~Manufacturing~~RMS reportable segment.

On March 30, 2021, we acquired Retrogenix Limited (Retrogenix), an early-stage CRO providing specialized bioanalytical services utilizing its proprietary cell microarray technology. The acquisition of Retrogenix enhances our scientific expertise with additional large molecule and cell therapy discovery capabilities. The purchase price of Retrogenix was $53.9 million, net of $8.5 million in cash. Included in the purchase price are additional payments up to $6.9 million, which are contingent on future performance. The acquisition was funded through a combination of available cash and proceeds from our Credit Facility. This business is reported as part of our DSA reportable segment.

On March 29, 2021, we acquired Cognate BioServices, Inc. (Cognate), a cell and gene therapy CDMO offering comprehensive manufacturing solutions for cell therapies, as well as for the production of plasmid DNA and other inputs in the CDMO value chain. The acquisition of Cognate establishes us as a scientific partner for cell and gene therapy development, testing, and manufacturing, providing clients with an integrated solution from basic research and discovery through cGMP production. The purchase price of Cognate was $877.9 million, net of $70.5 million in cash, subject to certain post-closing adjustments and includes $15.7 million of consideration for an approximate 2% ownership interest not acquired. The acquisition was funded through a combination of available cash and proceeds from our Credit Facility and Senior Notes issued in fiscal 2021. This business is reported as part of our Manufacturing reportable segment.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

On March 3, 2021, we acquired certain assets from a distributor that supports our DSA reportable segment. The purchase price was $35.4 million, which includes $19.5 million in cash paid ($5.5 million of which was paid in fiscal 2020), and $15.9 million of contingent consideration (the maximum contingent contractual payments are up to $17.5 million). The business is reported as part of our DSA reportable segment.

On December 31, 2020, we acquired Distributed Bio, Inc. (Distributed Bio), a next-generation antibody discovery company with technologies specializing in enhancing the probability of success for delivering high-quality, readily formattable antibody fragments to support antibody and cell and gene therapy candidates to biopharmaceutical clients. The acquisition of Distributed Bio expands our capabilities with an innovative, large-molecule discovery platform, and creates an integrated, end-to-end platform for therapeutic antibody and cell and gene therapy discovery and development. The purchase price of Distributed Bio was $97.0 million, net of $0.8 million in cash. The total consideration includes $80.8 million cash paid, settlement of $3.0 million in convertible promissory notes previously issued by us during prior fiscal years, and $14.1 million of contingent consideration (the maximum contingent contractual payments are up to $21.0 million). The acquisition was funded through a combination of available cash and proceeds from our Credit Facility. This business is reported as part of our DSA reportable segment.

Recent Divestitures

We routinely evaluate strategic fit and fundamental performance of our global infrastructure and divest operations that do not meet key business criteria or where we believe capital could be better deployed in long-term growth opportunities. On ~~October 12, 2021,~~December 20, 2022, we completed ~~two separate divestitures. We sold~~the sale of our RMS Japan operations to The Jackson Laboratory for a preliminary purchase price of $73.1 million, which included $7.9 million in cash, $3.8 million pension over funding, and certain post-closing adjustments. We also sold our gene therapy CDMO site in SwedenAvian Vaccine Services (Avian) business to a private investor group for a preliminary purchase price of ~~$59.6 million, net of $0.2~~$169 million in cash, subject to certain customary closing adjustments, and ~~certain post-closing adjustments. Included in the purchase price are~~future contingent payments ~~fair valued at $15.3 million, (the maximum contingent contractual payments are~~ up to ~~$25.0 million based on future performance), as well as a purchase obligation of approximately $10 million between the parties. We routinely evaluate the strategic fit and fundamental performance of~~an additional $30 million. This business was reported in our ~~acquisitions integrated within our global infrastructure. As part of this assessment, we determined that the above capital could be better deployed in other long-term growth opportunities.~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

Manufacturing reportable segment.

Fiscal Quarters

Our fiscal year is typically based on 52-weeks, with each quarter composed of 13 weeks ending on the last Saturday on, or closest to, March 31, June 30, September 30, and December 31. A 53rd week in the fourth quarter of the fiscal year is occasionally necessary to align with a December 31 calendar year-end, which ~~will occur~~occurred in ~~this~~ fiscal year 2022.

Overview of Results of Operations and Liquidity

Revenue for the three months ended ~~March 26, 2022~~April 1, 2023 increased ~~$89.3~~$115.4 million, or ~~10.8%~~12.6%, to ~~$913.9~~$1,029.4 million compared to ~~$824.6~~$913.9 million in the corresponding period in ~~2021.~~2022. The increase in revenue was primarily due to ~~increases in our DSA segment, as well as the recent acquisitions, principally~~increased demand and pricing within our ~~Manufacturing segment;~~Safety Assessment business and recent acquisition of Explora BioLabs; partially offset by the divestiture of ~~RMS Japan~~our Avian business and the negative effect of changes in foreign currency exchange rates when compared to the corresponding three month period in ~~2021.~~2022.

In the three months ended ~~March 26, 2022,~~April 1, 2023, our operating income and operating income margin were ~~$148.8~~$167.9 million and 16.3%, respectively, compared with ~~$123.7~~$148.8 million and ~~15.0%~~16.3%, respectively, in the corresponding period of ~~2021.~~2022. The increases in operating income ~~and operating income margin~~ for the three months ended ~~March 26, 2022~~April 1, 2023 was primarily due to the contribution of higher revenue described ~~above compared to the corresponding period in 2021.~~above; partially offset by higher operating costs associated with our Manufacturing segment, principally our Biologics Solutions businesses.

Net income attributable to common shareholders increased to ~~$93.0~~$103.1 million in the three months ended ~~March 26, 2022,~~April 1, 2023, from ~~$61.5~~$93.0 million in the corresponding period of ~~2021.~~2022. The increase in Net income attributable to common shareholders was primarily due to the increase in operating income described above, ~~and~~partially offset by higher provision for income taxes compared to the ~~absence~~corresponding period of ~~debt extinguishment costs associated with the repayment of the 2026 Senior Notes and related write-off of deferred financing costs incurred in 2021.~~2022, due to decreased tax benefits from stock-based compensation deductions.

During the ~~first~~ three months ~~of 2022,~~ended April 1, 2023, our cash flows from operations was ~~$102.6~~$109.4 million compared with ~~$170.2~~$102.6 million for the same period in ~~2021.~~2022. The ~~decrease~~increase was driven by timing and amount of our working capital balances, principally variable compensation payments, ~~and~~ collections of net contract balances from customers (collectively trade receivables and contract assets, net; deferred revenue; and customer contract deposits); partially offset by ~~favorable~~ timing of our vendor and supplier payments compared to the same period in ~~2021.~~2022.

Results of Operations

Three Months Ended ~~March 26, 2022~~April 1, 2023 Compared to ~~the~~ Three Months Ended March ~~27, 2021~~26, 2022

Revenue and Operating Income

The following tables present consolidated revenue by type and by reportable segment:


		Three Months Ended									Three Months Ended
		March 26, 2022		March 27, 2021		$ change		% change			April 1, 2023		March 26, 2022		$ change		% change
		(in millions, except percentages)									(in thousands, except percentages)
Service revenue	Service revenue	$	720.5	$	626.6	$	93.9	15.0	%	Service revenue	$	857,366	$	720,485	$	136,881	19.0	%
Product revenue	Product revenue	193.4		198.0		(4.6)		(2.3)	%	Product revenue	172,007		193,444		(21,437)		(11.1)	%
Total revenue		$	913.9	$	824.6	$	89.3	10.8	%
											$	1,029,373	$	913,929	$	115,444	12.6	%


		Three Months Ended											Three Months Ended
		March 26, 2022		March 27, 2021		$ change		% change		Impact of FX			April 1, 2023		March 26, 2022		$ change		% change		Impact of FX
		(in millions, except percentages)											(in thousands, except percentages)
RMS	RMS	$	176.5	$	176.9	$	(0.4)	(0.2)	%	(1.2)	%	RMS	$	199,766	$	176,542	$	23,224	13.2	%	(2.5)	%
DSA	DSA	544.3		501.2		43.1		8.6	%	(1.6)	%	DSA	662,353		544,259		118,094		21.7	%	(2.1)	%
Manufacturing	Manufacturing	193.1		146.5		46.6		31.8	%	(2.7)	%	Manufacturing	167,254		193,128		(25,874)		(13.4)	%	(1.9)	%
Total revenue	Total revenue	$	913.9	$	824.6	$	89.3	10.8	%	(1.7)	%	Total revenue	$	1,029,373	$	913,929	$	115,444	12.6	%	(2.1)	%

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The following table presents operating income by reportable segment:


		Three Months Ended											Three Months Ended
		March 26, 2022			March 27, 2021			$ change		% change			April 1, 2023			March 26, 2022			$ change		% change		Impact of FX
		(in millions, except percentages)											(in thousands, except percentages)
RMS	RMS	$	47.9		$	44.9		$	3.0	6.6	%	RMS	$	40,409		$	47,882		$	(7,473)	(15.6)	%	(2.7)	%
DSA	DSA	105.0			91.0			14.0		15.4	%	DSA	171,431			104,986			66,445		63.3	%	2.7	%
Manufacturing	Manufacturing	46.4			49.4			(3.0)		(6.2)	%	Manufacturing	2,106			46,368			(44,262)		(95.5)	%	(2.0)	%
Unallocated corporate	Unallocated corporate	(50.5)			(61.6)			11.1		(18.1)	%	Unallocated corporate	(46,054)			(50,458)			4,404		(8.7)	%	(1.1)	%
Total operating income	Total operating income	$	148.8		$	123.7		$	25.1	20.3	%	Total operating income	$	167,892		$	148,778		$	19,114	12.8	%	0.7	%
Operating income % of revenue	Operating income % of revenue	16.3		%	15.0		%			130 bps		Operating income % of revenue	16.3		%	16.3		%			0 bps

The following presents and discusses our consolidated financial results by each of our reportable segments:

RMS


		Three Months Ended													Three Months Ended
		March 26, 2022			March 27, 2021			$ change		% change		Impact of FX			April 1, 2023			March 26, 2022			$ change		% change		Impact of FX
		(in millions, except percentages)													(in thousands, except percentages)
Revenue	Revenue	$	176.5		$	176.9		$	(0.4)	(0.2)	%	(1.2)	%	Revenue	$	199,766		$	176,542		$	23,224	13.2	%	(2.5)	%
Cost of revenue (excluding amortization of intangible assets)	Cost of revenue (excluding amortization of intangible assets)	102.4			105.3			(2.9)		(2.7)	%			Cost of revenue (excluding amortization of intangible assets)	126,804			102,460			24,344		23.8	%
Selling, general and administrative	Selling, general and administrative	22.4			22.6			(0.2)		(0.9)	%			Selling, general and administrative	27,058			22,363			4,695		21.0	%
Amortization of intangible assets	Amortization of intangible assets	3.8			4.1			(0.3)		(5.7)	%			Amortization of intangible assets	5,495			3,837			1,658		43.2	%
Operating income	Operating income	$	47.9		$	44.9		$	3.0	6.6	%			Operating income	$	40,409		$	47,882		$	(7,473)	(15.6)	%	(2.7)	%
Operating income % of revenue	Operating income % of revenue	27.1		%	25.4		%			170 bps				Operating income % of revenue	20.2		%	27.1		%			(690) bps

RMS revenue ~~decreased $0.4~~increased $23.2 million ~~compared to the corresponding period in 2021. The reduction of revenue was~~ due primarily to higher small research model services revenue, specifically the ~~divestiture~~Insourcing Solutions business, which included the acquisition of ~~RMS Japan, which decreased~~Explora BioLabs contributing $15.6 million and higher research model product revenue in North America and Europe, higher revenue in the Cell Solutions business; partially offset by ~~$12.7 million~~the lower sales of large research models in China, principally due to timing of shipments, and the effect of changes in foreign currency exchange rates; partially offset by higher research model product revenue in North America; and higher research model services revenue, principally our Insourcing Solutions business compared to the corresponding period in 2021.rates.

RMS operating income ~~increased $3.0~~decreased $7.5 million compared to the corresponding period in ~~2021.~~2022. RMS operating income as a percentage of revenue for the three months ended ~~March 26, 2022~~April 1, 2023 was ~~27.1%~~20.2%, ~~an increase~~a decrease of ~~170~~690 bpsfrom ~~25.4%~~27.1% for the corresponding period in ~~2021.~~2022. Operating income and operating income as a percentage of revenue ~~increased~~decreased primarily due to the ~~contribution~~timing of ~~higher~~large research model ~~revenue described above as well as lower~~sales in China and higher amortization, ~~of intangible assets related to our acquisitions during the three months ended March 26, 2022 compared~~operating, and staffing costs due to the ~~same period in 2021.~~recent acquisition of Explora BioLabs; partially offset by foreign exchange impact discussed above.

DSA


		Three Months Ended													Three Months Ended
		March 26, 2022			March 27, 2021			$ change		% change		Impact of FX			April 1, 2023			March 26, 2022			$ change		% change		Impact of FX
		(in millions, except percentages)													(in thousands, except percentages)
Revenue	Revenue	$	544.3		$	501.2		$	43.1	8.6	%	(1.6)	%	Revenue	$	662,353		$	544,259		$	118,094	21.7	%	(2.1)	%
Cost of revenue (excluding amortization of intangible assets)	Cost of revenue (excluding amortization of intangible assets)	373.1			340.1			33.0		9.7	%			Cost of revenue (excluding amortization of intangible assets)	411,523			373,141			38,382		10.3	%
Selling, general and administrative	Selling, general and administrative	43.9			47.6			(3.7)		(7.9)	%			Selling, general and administrative	61,998			43,860			18,138		41.4	%
Amortization of intangible assets	Amortization of intangible assets	22.3			22.5			(0.2)		(1.3)	%			Amortization of intangible assets	17,401			22,272			(4,871)		(21.9)	%
Operating income	Operating income	$	105.0		$	91.0		$	14.0	15.4	%			Operating income	$	171,431		$	104,986		$	66,445	63.3	%	2.7	%
Operating income % of revenue	Operating income % of revenue	19.3		%	18.1		%			120 bps				Operating income % of revenue	25.9		%	19.3		%			660 bps

DSA revenue increased ~~$43.1~~$118.1 million due primarily to service revenue which increased in ~~both~~ the Safety Assessment ~~and Discovery Services businesses~~business due ~~principally~~ to increased demand, principally biotechnology clients, pricing of services; ~~and the acquisition of Retrogenix which contributed $3.1 million to Discovery Services revenue;~~ partially offset by the effect of changes in foreign currency exchange rates.

DSA operating income increased ~~$14.0~~$66.4 million ~~during the three months ended March 26, 2022~~ compared to the corresponding period in ~~2021.~~2022. DSA operating income as a percentage of revenue for the three months ended ~~March 26, 2022~~April 1, 2023 was ~~19.3%~~25.9%, an increase of 660 bps from 19.3% for the

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~~increase of 120 bps from 18.1% for the~~ corresponding period in ~~2021.~~2022. Operating income and operating income as a percentage of revenue increased primarily due to the contribution of higher revenue described above as well as lower acquisition related costs and adjustments to contingent consideration arrangements related to certain acquisitions; offset by higher staffing costs compared to the same period in 2021.above.

Manufacturing


		Three Months Ended													Three Months Ended
		March 26, 2022			March 27, 2021			$ change		% change		Impact of FX			April 1, 2023			March 26, 2022			$ change		% change		Impact of FX
		(in millions, except percentages)													(in thousands, except percentages)
Revenue	Revenue	$	193.1		$	146.5		$	46.6	31.8	%	(2.7)	%	Revenue	$	167,254		$	193,128		$	(25,874)	(13.4)	%	(1.9)	%
Cost of revenue (excluding amortization of intangible assets)	Cost of revenue (excluding amortization of intangible assets)	101.5			70.9			30.6		43.2	%			Cost of revenue (excluding amortization of intangible assets)	113,392			101,512			11,880		11.7	%
Selling, general and administrative	Selling, general and administrative	33.3			24.0			9.3		38.8	%			Selling, general and administrative	39,737			33,350			6,387		19.2	%
Amortization of intangible assets	Amortization of intangible assets	11.9			2.2			9.7		437.4	%			Amortization of intangible assets	12,019			11,898			121		1.0	%
Operating income	Operating income	$	46.4		$	49.4		$	(3.0)	(6.2)	%			Operating income	$	2,106		$	46,368		$	(44,262)	(95.5)	%	(2.0)	%
Operating income % of revenue	Operating income % of revenue	24.0		%	33.8		%			(980) bps				Operating income % of revenue	1.3		%	24.0		%			(2,270) bps

Manufacturing revenue ~~increased $46.6~~decreased $25.9 million due primarily to the divestiture of our Avian business, which decreased revenue by $19.2 million, lower services revenue from our Biologics Solutions business, which ~~included~~includes both the ~~CDMO business acquisitions of Cognate and Vigene, which collectively contributed $35.8 million, and higher service revenue within our~~ Biologics Testing ~~Solutions business, as well as Microbial Solutions revenue also increasing; partially offset by~~and CDMO businesses, and the effect of changes in foreign currency exchange ~~rates.~~rates; partially offset by increased revenue in our Microbial Solutions business.

Manufacturing operating income decreased ~~$3.0~~$44.3 million ~~during the three months ended March 26, 2022~~ compared to the corresponding period in ~~2021.~~2022. Manufacturing operating income as a percentage of revenue for the three months ended ~~March 26, 2022~~April 1, 2023 was ~~24.0%~~1.3%, a decrease of ~~(980)~~2,270 bps from ~~33.8%~~24.0% for the corresponding period in ~~2021.~~2022. Operating income and operating income as a percentage of revenue decreased ~~principally due to higher amortization of intangible assets and acquisition related costs during the three months ended March 26, 2022 compared to the corresponding period in 2021 and~~primarily due to higher operating costs associated with our Biologics Solutions business, including both the Biologics Testing and CDMO ~~acquisitions.~~businesses, the divestiture of our Avian business, an asset impairment, higher administrative costs, and the foreign exchange impact discussed above.

Unallocated Corporate


		Three Months Ended											Three Months Ended
		March 26, 2022			March 27, 2021			$ change		% change			April 1, 2023			March 26, 2022			$ change		% change
		(in millions, except percentages)											(in thousands, except percentages)
Unallocated corporate	Unallocated corporate	$	50.5		$	61.6		$	(11.1)	(18.1)	%	Unallocated corporate	$	46,054		$	50,458		$	(4,404)	(8.7)	%
Unallocated corporate % of revenue	Unallocated corporate % of revenue	5.5		%	7.5		%			(200) bps		Unallocated corporate % of revenue	4.5		%	5.5		%			(100) bps

Unallocated corporate costs consist of selling, general and administrative expenses that are not directly related or allocated to the reportable segments. The decrease in unallocated corporate costs of ~~$11.1~~$4.4 million, or ~~(18.1)%~~8.7%, compared to the corresponding period in ~~2021~~2022 is primarily related to decreased costs associated with the evaluation and integration of our ~~recent~~ acquisition activity. Costs as a percentage of revenue for the three months ended ~~March 26, 2022~~April 1, 2023 was ~~5.5%~~4.5%, a decrease of ~~(200)~~100 bps from ~~7.5%~~5.5% for the corresponding period in ~~2021.~~2022.

~~Interest~~Other Income (Expense)











	Three Months Ended
	April 1, 2023		March 26, 2022		$ change		% change
	(in thousands, except percentages)
Other income (expense):
Interest income	$	806	$	127	$	679	534.6	%
Interest expense	(34,380)		(9,434)		(24,946)		264.4	%
Other income (expense), net	(3,277)		(28,625)		25,348		(88.6)	%
Total other expense, net	$	(36,851)	$	(37,932)	$	1,081	(2.8)	%

Interest ~~income, which represents earnings on cash, cash equivalents, and time deposits was approximately $0.1 million~~expense for ~~both~~ the three months ended ~~March 26, 2022 and~~April 1, 2023 was $34.4 million, an increase of $24.9 million, or 264.4%, compared to $9.4 million in the corresponding period in ~~2021.~~

~~Interest Expense~~

~~Interest expense for thethree months ended March 26, 2022 was $9.4 million, a decrease of $20.3 million, or 68.3%, compared to $29.7 million for the corresponding period in 2021.~~2022. The ~~decrease~~increase was due primarily to ~~$26~~higher interest rates, and the absence of $11.8 million of debt extinguishment costs associated with the repayment of the 2026 Senior Notes and related write-off of deferred financing costs incurred in the three months ended March 27, 2021, partially offset by a lower foreign currency gaingains recognized in connection with a debt-related foreign exchange forward contract ~~and higher interest rates on our variable debt~~ in the corresponding period in 2022.

Other expense, net for the three months ended ~~March 26, 2022~~April 1, 2023 was $3.3 million, a decrease of $25.3 million, or 88.6%, compared to Other expense, net of $28.6 million for the corresponding period in ~~2021.~~2022. The decrease was due primarily to the absence of

2825

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

~~Other Expense, Net~~

~~Other expense, net, was $28.6~~$11.1 million ~~for the three months ended March 26, 2022, an increase~~ of $0.9 million compared to $27.7 million for the corresponding period in 2021. The increase was due primarily to losses on our life insurance investments for the three months ended March 26, 2022 as compared to gains incurred during the corresponding period in 2021; partially offset by lower foreign currency losses recognized in connection with a U.S. dollar denominated loan borrowed by a non-U.S. entity with a different functional currency, ~~in the three months ended March 26, 2022~~and lower net losses incurred on our venture capital investments as compared to ~~the corresponding period in 2021 and lower venture capital investment losses in the three months ended March 26, 2022 as compared to the corresponding period in 2021.~~fiscal year 2022.

Income Taxes


	Three Months Ended
	April 1, 2023			March 26, 2022			$ change		% change
	(in thousands, except percentages)
Provision for income taxes	$	27,087		$	15,620		$	11,467	73.4	%
Effective tax rate	20.7		%	14.1		%			660 bps

Income tax expense for the three months ended ~~March 26, 2022~~April 1, 2023 was ~~$15.6~~$27.1 million, an increase of ~~$13.2~~$11.5 million compared to ~~$2.4~~$15.6 million for the corresponding period in ~~2021.~~2022. Our effective tax rate was ~~14.1%~~20.7% for the three months ended ~~March 26, 2022~~April 1, 2023 compared to ~~3.6%~~14.1% for the corresponding period in ~~2021.~~2022. The increase in our effective tax rate in the ~~2022 period~~three months ended April 1, 2023 compared to the ~~2021~~corresponding period in 2022 was primarily attributable to a decreased tax benefit from stock-based compensation deductions in the three months ended ~~March 26, 2022.~~April 1, 2023. Our global operations make the effective tax rate sensitive to significant tax law changes. Several countries have begun to enact legislation to implement the Organization for Economic Cooperation and Development’s (OECD) international tax framework, including the Pillar II global minimum tax regime with effect from January 1, 2024 or later. We are currently monitoring these developments and are in the process of evaluating the potential impact on our results of operations.

Liquidity and Capital Resources

Liquidity and Cash Flows

We currently require cash to fund our working capital needs, capital expansion, acquisitions, and to pay our debt, lease, venture capital investment, and pension obligations. Our principal sources of liquidity have been our cash flows from operations, supplemented by long-term borrowings. Based on our current business plan, we believe that our existing funds, when combined with cash generated from operations and our access to financing resources, are sufficient to fund our operations for the foreseeable future.

The following table presents our cash, cash equivalents and short-term investments:

March 26, 2022 December 25, 2021
(in millions)
Cash and cash equivalents:
Held in U.S. entities $ 15.1 $ 28.2
Held in non-U.S. entities 226.8 213.0
Total cash and cash equivalents 241.9 241.2
Short-term investments:
Held in non-U.S. entities 1.1 1.1
Total cash, cash equivalents and short-term investments $ 243.0 $ 242.3

~~Borrowings~~

~~Amounts outstanding under our Credit Facility and our Senior Notes were as follows:~~
March 26, 2022 December 25, 2021
(in millions)
Revolving facility $ 1,174.2 $ 1,161.4
4.25% Senior Notes due 2028 500.0 500.0
3.75% Senior Notes due 2029 500.0 500.0
4.00% Senior Notes due 2031 500.0 500.0
Total $ 2,674.2 $ 2,661.4

~~Our off-balance sheet commitments related to our outstanding letters of credit as of March 26, 2022 were $17.7 million.~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

~~Repurchases of Common Stock~~

During the three months ended March 26, 2022, we did not repurchase any shares under our authorized stock repurchase program. As of March 26, 2022, we had $129.1 million remaining on the authorized $1.3 billion stock repurchase program and we do not intend to repurchase shares for the remainder of 2022. Our stock-based compensation plans permit the netting of common stock upon vesting of restricted stock, restricted stock units, and performance share units in order to satisfy individual statutory tax withholding requirements. During the three months ended March 26, 2022, we acquired 0.1 million shares for $34.0 million through such netting.

~~Cash Flows~~


	April 1, 2023		December 31, 2022
	(in thousands)
Cash and cash equivalents:
Held in U.S. entities	$	1,488	$	15,813
Held in non-U.S. entities	200,099		218,099
Total cash and cash equivalents	201,587		233,912
Short-term investments:
Held in non-U.S. entities	1,001		998
Total cash, cash equivalents and short-term investments	$	202,588	$	234,910

The following table presents our net cash provided by operating activities:


		Three Months Ended					Three Months Ended
		March 26, 2022		March 27, 2021			April 1, 2023		March 26, 2022
		(in millions)					(in thousands)
Net income	Net income	$	95.2	$	63.9	Net income	$	103,954	$	95,226
Adjustments to reconcile net income to net cash provided by operating activities	Adjustments to reconcile net income to net cash provided by operating activities	99.0		109.7		Adjustments to reconcile net income to net cash provided by operating activities	97,373		99,047
Changes in assets and liabilities	Changes in assets and liabilities	(91.6)		(3.4)		Changes in assets and liabilities	(91,944)		(91,643)
Net cash provided by operating activities	Net cash provided by operating activities	$	102.6	$	170.2	Net cash provided by operating activities	$	109,383	$	102,630

Net cash provided by cash flows from operating activities represents the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net income for (1) non-cash operating items such as depreciation and amortization, stock-based compensation, loss on debt extinguishment and other financing costs, deferred income taxes, gains and/or losses on venture capital and strategic equity investments, gains and/or losses on divestitures, contingent consideration, as well as (2) changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in our results of

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

operations. For the three months ended April 1, 2023, compared to the three months ended March 26, 2022, ~~compared to~~ the ~~three months ended March 27, 2021, the decrease~~increase in net cash provided by operating activities was driven by timing and amount of our working capital balances, principally variable compensation payments, ~~and~~ collections of net contract balances from customers (collectively trade receivables and contract assets, net; deferred revenue; and customer contract deposits); partially offset by ~~favorable~~ timing of our vendor and supplier payments compared to the same period in ~~2021.~~2022.

The following ~~tab~~letable presents our net cash used in investing activities:


		Three Months Ended					Three Months Ended
		March 26, 2022		March 27, 2021			April 1, 2023		March 26, 2022
		(in millions)					(in thousands)
Acquisition of businesses and assets, net of cash acquired	Acquisition of businesses and assets, net of cash acquired	$	—	$	(94.2)	Acquisition of businesses and assets, net of cash acquired	$	(50,166)	$	—
Capital expenditures	Capital expenditures	(80.5)		(28.0)		Capital expenditures	(106,875)		(80,464)
Investments, net	Investments, net	(13.1)		(16.6)		Investments, net	(10,617)		(13,091)
Other, net	Other, net	(4.4)		0.8		Other, net	(960)		(4,450)
Net cash used in investing activities	Net cash used in investing activities	$	(98.0)	$	(138.0)	Net cash used in investing activities	$	(168,618)	$	(98,005)

For the three months ended April 1, 2023, the primary use of cash used in investing activities related to capital expenditures to support the growth of the business, the acquisition of SAMDI, and investments in certain venture capital and strategic equity investments. For the three months ended March 26, 2022, the primary use of cash used in investing activities related to capital expenditures to support the growth of the business and investments in certain venture capital and strategic equity investments.

The following table presents our net cash provided by financing activities:


	Three Months Ended
	April 1, 2023		March 26, 2022
	(in thousands)
Proceeds from long-term debt and revolving credit facility	$	192,500	$	962,005
Payments on long-term debt, revolving credit facility, and finance lease obligations	(157,328)		(948,267)
Proceeds from exercises of stock options	11,792		12,199
Purchase of treasury stock	(19,012)		(33,994)


Payment of contingent considerations	(2,711)		(3,356)
Other, net	—		(1,870)
Net cash provided by (used in) financing activities	$	25,241	$	(13,283)

For the three months ended March 27, 2021, the primary use of cash used in investing activities related to the acquisition of Distributed Bio and certain assets from a distributor, capital expenditures to support the growth of the business, and investments in certain venture capital and strategic equity investments.

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

~~The following table presents our~~April 1, 2023, net cash ~~(used in)~~ provided by financing ~~activities:~~activities reflected the net proceeds of $35.2 million on our Credit Facility, Senior Notes, and finance lease obligations. Included in the net proceeds are net borrowings of $33 million from our Credit Facility throughout the three months ended April 1, 2023.

Three Months Ended
March 26, 2022 March 27, 2021
(in millions)
Proceeds from long-term debt and revolving credit facility $ 962.0 $ 1,954.0
Payments on long-term debt, revolving credit facility, and finance lease obligations (948.3) (1,714.2)
Proceeds from exercises of stock options 12.2 19.6
Purchase of treasury stock (34.0) (36.0)
Payment of debt extinguishment and financing costs — (28.7)
Other, net (5.2) —
Net cash (used in) provided by financing activities $ (13.3) $ 194.7
Net cash provided by financing activities also reflected treasury stock purchases of $19.0 million made due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements, and $2.7 million of contingent consideration payments; partially offset by proceeds from exercises of employee stock options of $11.8 million.

For the three months ended March 26, 2022, net cash used in financing activities reflected the net proceeds of $13.7 million on our Credit Facility, Senior Notes, ~~and~~and finance lease obligations. Included in the net proceeds are the following amounts:

•Net borrowings of $52 million made to our Credit Facility throughout the three months ended March 26, 2022;

•Payments of $796 million partially offset by $759 million of proceeds in connection with a non-U.S. Euro functional currency entity repaying Euro loans and replacing the Euro loans with U.S. dollar denominated loans. A series of forward currency contracts were executed to mitigate any foreign currency gains or losses on the U.S. dollar denominated loans. These proceeds and payments are presented as gross financing activities.

Net cash used in financing activities also reflected treasury stock purchases of $34.0 million made due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements, partially offset by proceeds from exercises of employee stock options of $12.2 million.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Financing and Market Risk

We are exposed to market risk from changes in interest rates and currency exchange rates, which could affect our future result of operations and financial condition. We manage our exposure to these risks through our regular operating and financing activities.

Amounts outstanding under our Credit Facility and our Senior Notes were as follows:


	April 1, 2023		December 31, 2022
	(in thousands)
Revolving facility	$	1,233,453	$	1,197,586
4.25% Senior Notes due 2028	500,000		500,000
3.75% Senior Notes due 2029	500,000		500,000
4.00% Senior Notes due 2031	500,000		500,000
Total	$	2,733,453	$	2,697,586

The interest rates applicable to the Credit Facility are equal to (A) for revolving loans denominated in U.S. dollars, at our option, either the base rate (which is the higher of (1) the prime rate, (2) the federal funds rate plus 0.50%, or (3) the one-month adjusted term SOFR rate plus 1%) or the adjusted term SOFR rate, (B) for revolving loans denominated in euros, the adjusted EURIBOR rate and (C) for revolving loans denominated in sterling, the daily simple SONIA rate, in each case, plus an interest rate margin based upon our leverage ratio. In March 2023 and in conjunction with the Second Amendment we modified the variable rate on our Credit Facility from adjusted LIBOR to adjusted term SOFR. All outstanding U.S. dollar borrowings remained at adjusted LIBOR through their respective interest reset periods in April 2023 and were then set to term SOFR.

During the fourth fiscal quarter of 2022, we entered into an interest rate swap with a notional amount of $500 million to manage interest rate fluctuation related to our floating rate borrowings under the Credit Facility, at a fixed rate of 4.700%. In March 2023 and in conjunction with the Second Amendment, we modified the variable rate on our interest rate swap from 1-month LIBOR to 1-month term SOFR. Effective with the modification we will pay a fixed rate of 4.65% on our swap maturing November 2, 2024. The transition did not have an impact on our hedge accounting or a material impact to our financial statements.

Our off-balance sheet commitments related to our outstanding letters of credit as of April 1, 2023 and December 31, 2022 were $21.6 million and $18.6 million, respectively.

Foreign Currency Exchange Rate Risk

We operate on a global basis and have exposure to some foreign currency exchange rate fluctuations for our financial position, results of operations, and cash flows.

While the financial results of our global activities are reported in U.S. dollars, our foreign subsidiaries typically conduct their operations in their respective local currency. The principal functional currencies of the Company’s foreign subsidiaries are the Euro, British Pound and Canadian Dollar. During the three months ended April 1, 2023, the most significant drivers of foreign currency translation adjustment the Company recorded as part of Other comprehensive income (loss) were the British Pound, Euro, Hungarian Forint, and Canadian Dollar.

Fluctuations in the foreign currency exchange rates of the countries in which we do business will affect our financial position, results of operations, and cash flows. As the U.S. dollar strengthens against other currencies, the value of our non-U.S. revenue, expenses, assets, liabilities, and cash flows will generally decline when reported in U.S. dollars. The impact to net income as a result of a U.S. dollar strengthening will be partially mitigated by the value of non-U.S. expenses, which will decline when reported in U.S. dollars. As the U.S. dollar weakens versus other currencies, the value of the non-U.S. revenue, expenses, assets, liabilities, and cash flows will generally increase when reported in U.S. dollars. For the three months ended ~~March 27, 2021, net cash provided~~April 1, 2023, our revenue would have decreased by ~~financing activities reflected~~$30.8 million and our operating income would have decreased by $1.1 million, if the ~~net proceeds of $239.8 million on~~U.S. dollar exchange rate had strengthened by 10%, with all other variables held constant.

We attempt to minimize this exposure by using certain financial instruments in accordance with our ~~Credit Facility, Senior Notes,~~overall risk management and ~~finance lease obligations. Included in the net proceeds are the following amounts:~~our hedge policy. We do not enter into speculative derivative agreements.

•~~Proceeds of $1 billion from the issuance of the 2029 and 2031 Senior Notes, which were used to prepay our $500 million 2026 Senior Notes;~~

•~~Payments of approximately $147 million on our term loan and net payments of $85 million to our revolving credit facility throughout~~During the three months ended March ~~27, 2021;~~

•~~Payments of $766 million partially offset~~26, 2022, we entered into foreign exchange forward contracts to limit our foreign currency exposure related to both intercompany loans and a U.S. dollar denominated loan borrowed by ~~$739 million of proceeds in connection with~~ a non-U.S. Euro functional currency entity ~~repaying Euro loans~~under our Credit Facility. Refer to Note 9, “Debt and ~~replacing the Euro loans with U.S. dollar denominated loans. A series~~Other Financing Arrangements” in this Quarterly Report on Form 10-Q for additional information regarding these types of forward ~~currency contracts were executed to mitigate~~contracts.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Repurchases of Common Stock

During the three months ended April 1, 2023, we did not repurchase any ~~foreign currency gains or losses~~shares under our authorized stock repurchase program. As of April 1, 2023, we had $129.1 million remaining on the ~~U.S. dollar denominated loans. These proceeds and payments are presented as gross financing activities.~~

~~Net cash provided by financing activities also reflected proceeds from exercises of employee~~authorized $1.3 billion stock ~~options of $19.6 million, offset by treasury stock purchases of $36.0 million made due to~~repurchase program. Our stock-based compensation plans permit the netting of common stock upon vesting of ~~stock-based awards~~restricted stock, restricted stock units, and performance share units in order to satisfy individual statutory tax withholding requirements. ~~Additionally~~During the three months ended April 1, 2023, we ~~paid $21~~acquired 0.1 million ~~of debt extinguishment costs associated with the 2026 Senior Notes repayment and $8 million of debt financing costs associated with the 2029 and 2031 Senior Notes issuances.~~

~~Off-Balance Sheet and Other Arrangements~~

~~There have been no material changes from the off-balance sheet and other arrangements previously disclosed in our Annual Report on Form 10-K~~shares for fiscal 2021 other than the changes described in Note 2, “Acquisitions and Divestitures,” Note 7, “Fair Value,” Note 9, “Debt and Other Financing Arrangements,”, and Note 13, “Commitments and Contingencies,” in our notes to the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

~~Venture Capital Investments~~

We invest in several venture capital funds that invest in start-up companies, primarily in the life sciences industry. Our total commitment to the funds as of March 26, 2022 was $173.9 million, of which we funded $116.6$19.0 million through ~~March 26, 2022. Refer to Note 6, “Venture Capital and Strategic Equity Investments” in this Quarterly Report on Form 10-Q for additional information.~~such netting.

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements prepared in accordance with generally accepted accounting principles in the U.S. The preparation of these financial statements requires us to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reported periods and related disclosures. These estimates and assumptions are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on our historical experience, trends in the industry, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.

We believe that the application of our accounting policies, each of which require significant judgments and estimates on the part of management, are the most critical to aid in fully understanding and evaluating our reported financial results. Our significant accounting policies are more fully described in ~~Note 1, “Description~~Item 7, “Management’s Discussion and Analysis of ~~Business~~Financial Condition and ~~Summary~~Results of ~~Significant Accounting Policies” to~~Operations” of our Annual Report on Form 10-K for fiscal year ~~2021.~~2022.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements please refer to Note 1, “Basis of Presentation,” in this Quarterly Report on Form 10-Q. Other than as discussed in Note 1, “Basis of Presentation,” we did not adopt any other new accounting pronouncements during the three months ended ~~March 26, 2022~~April 1, 2023 that had a significant effect on our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

~~We are exposed~~The Company’s exposure to market risk from changes in interest rates and currency exchange rates ~~which could affect our future results of operations and financial condition. We manage our~~has not changed materially from its exposure ~~to these risks through our regular operating and financing activities.~~

~~Interest Rate Risk~~

~~We are exposed to changes~~discussed in ~~interest rates while conducting normal business operations as a result of ongoing financing activities. As of March 26, 2022, our debt portfolio was comprised primarily of floating~~the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Our interest rate ~~borrowings. A 100-basis point increase in interest rates would increase our annual pre-tax interest expense by $11.7 million.~~

~~Foreign Currency Exchange Rate Risk~~

~~We operate on a global basis~~ and ~~have exposure to some foreign~~ currency exchange rate ~~fluctuations for our financial position, results~~risks are fully described in Item 7, “Management’s Discussion and Analysis of ~~operations,~~Financial Condition and ~~cash flows.~~

~~While the financial results~~Results of Operations - Liquidity and Capital Resources” of our global activities are reported in U.S. dollars, our foreign subsidiaries typically conduct their operations in their respective local currency. The principal functional currencies of the Company’s foreign subsidiaries are the Euro, British Pound and Canadian Dollar. During the three months ended March 26, 2022, the most significant drivers of foreign currency translation adjustment the Company recorded as part of Other comprehensive income (loss) were the Euro, Canadian Dollar, British Pound, and Hungarian Forint.

Fluctuations in the foreign currency exchange rates of the countries in which we do business will affect our financial position, results of operations, and cash flows. As the U.S. dollar strengthens against other currencies, the value of our non-U.S. revenue, expenses, assets, liabilities, and cash flows will generally decline when reported in U.S. dollars. The impact to net income as a result of a U.S. dollar strengthening will be partially mitigated by the value of non-U.S. expenses, which will decline when reported in U.S. dollars. As the U.S. dollar weakens versus other currencies, the value of the non-U.S. revenue, expenses, assets, liabilities, and cash flows will generally increase when reported in U.S. dollars. For the three months ended March 26, 2022, our revenue would have decreased by $28.7 million and our operating income would have decreased by $0.3 million, if the U.S. dollar exchange rate had strengthened by 10%, with all other variables held constant.

~~We attempt to minimize this exposure by using certain financial instruments in accordance with our overall risk management and our hedge policy. We do not enter into speculative derivative agreements.~~

During the three months ended March 26, 2022, we entered into foreign exchange forward contracts to limit our foreign currency exposure related to both intercompany loans and a U.S. dollar denominated loan borrowed by a non-U.S. Euro functional currency entity under our Credit Facility. Refer to Note 9, “Debt and Other Financing Arrangements” in this QuarterlyAnnual Report on Form ~~10-Q~~10-K for ~~additional information regarding these types~~fiscal year 2022 and in Item 2, “Management’s Discussion and Analysis of ~~forward contracts.~~

Financial Condition and Results of Operations - Liquidity and Capital Resources” herein.

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

Item 4. Controls and Procedures

(a) Evaluation of Disclosure 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, as amended (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, at a reasonable assurance level, as of ~~March 26, 2022,~~April 1, 2023, 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. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures.

(b) Changes in Internal Controls Over Financial Reporting

~~The Company continued to execute a plan to centralize certain accounting transaction processing functions to internal shared service centers during the three months ended March 26, 2022.~~ There were no ~~other~~ material changes in the Company’s internal control 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 ~~March 26, 2022~~April 1, 2023 that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.

3329

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~Please refer~~On February 16, 2023, the Company was informed by the U.S. Department of Justice (DOJ) that in conjunction with the U.S. Fish and Wildlife Service (USFWS), it had commenced an investigation into the Company’s conduct regarding several shipments of non-human primates from Cambodia. On February 17, 2023 the Company received a grand jury subpoena requesting certain documents related to ~~Note 13, “Commitments~~such investigation. The Company is aware of a parallel civil investigation being undertaken by the DOJ and ~~Contingencies” in our notes~~USFWS. The Company is cooperating with the DOJ and the USFWS and believes that the concerns raised with respect to the ~~unaudited condensed consolidated financial statements~~Company’s conduct are without merit. The Company maintains a global supplier onboarding and oversight program incorporating risk-based due diligence, auditing, and monitoring practices to help ensure the quality of our supplier relationships and compliance with applicable U.S. and international laws and regulations, and has operated under the belief that all shipments of non-human primates it received satisfied the material requirements, documentation and related processes and procedures of the Convention on International Trade in ~~this Quarterly Report on Form 10-Q.~~Endangered Species of Wild Fauna and Flora (CITES) documentation and related processes and procedures, which guides the release of each import by USFWS. Notwithstanding our efforts and good-faith belief, in connection with the civil investigation, the Company has voluntarily suspended future shipments of non-human primates from Cambodia to the United States until such time that the Company and USFWS can agree upon and implement additional procedures to reasonably ensure that non-human primates imported from Cambodia are purpose-bred. The Company continues to care for the Cambodia-sourced non-human primates from certain recent shipments in the United States. The carrying value of the inventory related to these shipments is approximately $20 million. We are not able to predict what action, if any, might be taken in the future by the DOJ, USFWS or other governmental authorities as a result of the investigations. Neither the DOJ nor USFWS has provided the Company with any specific timeline or indication as to when these investigations or discussions regarding future processes and procedures will be concluded or resolved. Because it is in the early stages, the Company cannot predict the timing, outcome or possible impact of the investigations, including without limitation any potential fines, penalties or liabilities.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for fiscal year ~~2021,~~2022, which could materially affect our business, financial condition, and/or future results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for fiscal year ~~2021, except as disclosed below.~~

~~Our business, results of operations, or financial condition could be adversely affected by disruptions in the global economy caused by the ongoing conflict between the Russian Federation and Ukraine.~~

In February 2022, the Russian Federation launched an invasion of the country of Ukraine, resulting in negative impacts to the global economy. Furthermore, governments in the U.S., Canada, the United Kingdom, and European Union have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia. Although we have no operations in Russia or Ukraine, we have ceased doing business with our Russian customers and distributors. Additional risks to our business that may emerge as a result of the armed conflict include, among others, shortages in materials; increased costs for transportation, energy, and raw materials; increased trade barriers or restrictions on global trade; cyberattacks; supply disruptions; lower consumer demand; and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain.2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information relating to the purchases of shares of our common stock during the three months ended ~~March 26, 2022.~~April 1, 2023.
Total Number
of Shares
Purchased Average
Price Paid
per Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs Approximate Dollar
Value of Shares
That May Yet Be
Purchased Under
the Plans or Programs
(in thousands)
December 26, 2021 to January 22, 2022 — $ — — $ 129,105
January 23, 2022 to February 19, 2022 84,127 312.35 — 129,105
February 20, 2022 to March 26, 2022 26,720 291.68 — 129,105
Total 110,847 —


	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
					(in thousands)
January 1, 2023 to January 28, 2023	62	$	244.29	—	$	129,105
January 29, 2023 to February 25, 2023	14	243.79		—	129,105
February 26, 2023 to April 1, 2023	2	221.52		—	129,105
Total	78			—

Our Board of Directors have authorized up to an aggregate amount of $1.3 billion for our stock repurchase program. During the three months ended ~~March 26, 2022,~~April 1, 2023, we did not repurchase any shares of common stock under our stock repurchase program or in open market trading. As of ~~March 26, 2022,~~April 1, 2023, we had $129.1 million remaining on the authorized stock repurchase program.

Additionally, our stock-based compensation plans permit the netting of common stock upon vesting of restricted stock, restricted stock units, and performance share units in order to satisfy individual statutory tax withholding requirements.

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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Item 6. Exhibits


(a) Exhibits			Description of Exhibits
10.1+			~~Employment Offer Letter between~~Second Amendment to the Ninth Amended and Restated Credit Agreement, dated March 30, 2023, among Charles River Laboratories International, Inc., the Subsidiary Borrowers party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and ~~Flavia Pease, dated as of March 4, 2022~~the other agents party thereto
31.1+			Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2+			Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1+			Certification of the Principal Executive Officer and the Principal Financial Officer required by Rule 13a-14(a) of 15d-14(a) of the Exchange Act
101.INS			eXtensible Business Reporting Language (XBRL) Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Calculation Linkbase Document
101.DEF			XBRL Taxonomy Definition Linkbase Document
101.LAB			XBRL Taxonomy Label Linkbase Document
101.PRE			XBRL Taxonomy Presentation Linkbase Document

+ Furnished herein.

3531

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

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.

			May ~~4, 2022~~11, 2023			/s/ JAMES C. FOSTER
						James C. Foster Chairman, President and Chief Executive Officer

			May ~~4, 2022~~11, 2023			/s/ ~~DAVID R. SMITH~~FLAVIA H. PEASE
						~~David R. Smith~~Flavia H. Pease Corporate Executive Vice President and Chief Financial Officer

3632


	Vigene		Retrogenix		Cognate		Distributed Bio
Definite-Lived Intangible Assets	(in thousands)
Client relationships	$	87,500	$	17,340	$	257,200	$	16,080
Other intangible assets	6,400		4,786		13,700		8,460
Total definite-lived intangible assets	$	93,900	$	22,126	$	270,900	$	24,540

Weighted Average Amortization Life	(in years)
Client relationships	12		13		13		9
Other intangible assets	2		3		2		4
Total definite-lived intangible assets	11		11		13		7


	October 12, 2021
	RMS Japan		CDMO Sweden
	(in thousands)
Assets
Current assets	$	26,524	$	8,187
Property, plant, and equipment, net	17,379		14,339
Operating lease right-of-use assets, net	—		19,733
Goodwill	4,129		27,764
Intangible assets, net	—		14,089
Other assets	3,695		—
Total assets	$	51,727	$	84,112

Liabilities
Current liabilities	$	8,705	$	6,386
Operating lease right-of-use liabilities	—		18,221
Long-term liabilities	94		—
Total liabilities	$	8,799	$	24,607


	Revenue Expected to be Recognized in Future Periods
	Less than 1 Year		1 to 3 Years		4 to 5 Years		Beyond 5 Years		Total
	(in thousands)
DSA	$	404,549	$	414,174	$	36,670	$	1,752	$	857,145
Manufacturing	1,875		—		—		—		1,875
Total	$	406,424	$	414,174	$	36,670	$	1,752	$	859,020


			Adjustments to Goodwill
	December 25, 2021		Acquisition Related		Foreign Exchange		March 26, 2022
	(in thousands)
RMS	$	283,524	$	—	$	(150)	$	283,374
DSA	1,472,506		—		(9,505)		1,463,001
Manufacturing	955,851		(592)		(5,640)		949,619
Goodwill	$	2,711,881	$	(592)	$	(15,295)	$	2,695,994