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 ~~September 24, 2022~~July 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)~~

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 ~~October 21, 2022,~~July 28, 2023, there were ~~50,878,656~~51,271,357 shares of the Registrant’s common stock outstanding.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER 24, 2022~~JULY 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 and nine months ended September 24, 2022 and September 25, 2021	3		Condensed Consolidated Statements of Income (Unaudited) for the three and six months ended July 1, 2023 and June 25, 2022	3
		Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 24, 2022 and September 25, 2021	4		Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended July 1, 2023 and June 25, 2022	4
		Condensed Consolidated Balance Sheets (Unaudited) as of September 24, 2022 and December 25, 2021	5		Condensed Consolidated Balance Sheets (Unaudited) as of July 1, 2023 and December 31, 2022	5
		Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 24, 2022 and September 25, 2021	6		Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended July 1, 2023 and June 25, 2022	6
		Condensed Consolidated Statements of Changes in Equity (Unaudited) for the three and nine months ended September 24, 2022 and September 25, 2021	7		Condensed Consolidated Statements of Changes in Equity (Unaudited) for the three and six months ended July 1, 2023 and June 25, 2022	7
		Notes to Unaudited Condensed Consolidated Financial Statements	9		Notes to Unaudited Condensed Consolidated Financial Statements	8
2	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
					Overview	21
					Results of Operations	24
					Liquidity and Capital Resources	30
					Critical Accounting Policies and Estimates	32
					Recent Accounting Pronouncements	33
3	3	Quantitative and Qualitative Disclosure About Market Risk	39	3	Quantitative and Qualitative Disclosure About Market Risk	33
4	4	Controls and Procedures	39	4	Controls and Procedures	33
PART II - OTHER INFORMATION	PART II - OTHER INFORMATION			PART II - OTHER INFORMATION
1	1	Legal Proceedings	41	1	Legal Proceedings	34
1A	1A	Risk Factors	41	1A	Risk Factors	34
2	2	Unregistered Sales of Equity Securities and Use of Proceeds	41	2	Unregistered Sales of Equity Securities and Use of Proceeds	35

5				5	Other Information	35
6	6	Exhibits	42	6	Exhibits	36

Signatures	Signatures		43	Signatures		37

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 (1) the U.S. government investigations and inquiries related to ~~timely account for assets~~the NHP supply chain (including shipments of non-human primates from Cambodia received by the Company) and (2) the putative securities class action lawsuit filed against us and three current/former officers on ~~our balance sheet, ability~~May 19, 2023; 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 meet contingent consideration financial targets;~~growth, our ability to fund our operations for the foreseeable ~~future;~~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~~our expectations regarding acquisitions and ~~divestitures;~~divestitures, including their impact and projected timing; 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; our liquidity; and the impact of litigation, including our ~~liquidity.~~ability to successfully defend litigation against us. 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				Nine Months Ended					Three Months Ended				Six Months Ended
		September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021			July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Service revenue	Service revenue	$	812,894	$	703,859	$	2,316,206	$	2,045,760	Service revenue	$	874,891	$	782,827	$	1,732,257	$	1,503,312
Product revenue	Product revenue	176,263		192,078		560,011		589,350		Product revenue	185,046		190,304		357,053		383,748
Total revenue	Total revenue	989,157		895,937		2,876,217		2,635,110		Total revenue	1,059,937		973,131		2,089,310		1,887,060
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)	530,706		468,659		1,540,193		1,369,396		Cost of services provided (excluding amortization of intangible assets)	578,099		522,623		1,143,576		1,009,487
Cost of products sold (excluding amortization of intangible assets)	Cost of products sold (excluding amortization of intangible assets)	88,228		90,051		272,257		278,188		Cost of products sold (excluding amortization of intangible assets)	82,861		93,782		169,103		184,029
Selling, general and administrative	Selling, general and administrative	183,714		148,573		465,458		475,807		Selling, general and administrative	199,758		131,711		374,604		281,744
Amortization of intangible assets	Amortization of intangible assets	35,533		32,852		111,144		94,664		Amortization of intangible assets	34,274		37,604		69,190		75,611
Operating income	Operating income	150,976		155,802		487,165		417,055		Operating income	164,945		187,411		332,837		336,189
Other income (expense):	Other income (expense):									Other income (expense):
Interest income	Interest income	122		137		437		343		Interest income	1,426		188		2,232		315
Interest expense	Interest expense	(11,375)		(16,455)		(24,512)		(62,364)		Interest expense	(35,044)		(3,703)		(69,424)		(13,137)
Other expense, net	Other expense, net	(16,616)		(16,214)		(85,024)		(37,966)		Other expense, net	(2,663)		(39,783)		(5,940)		(68,408)
Income before income taxes	Income before income taxes	123,107		123,270		378,066		317,068		Income before income taxes	128,664		144,113		259,705		254,959
Provision for income taxes	Provision for income taxes	25,495		18,111		74,564		58,058		Provision for income taxes	29,221		33,449		56,308		49,069
Net income	Net income	97,612		105,159		303,502		259,010		Net income	99,443		110,664		203,397		205,890
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	1,139		1,733		4,686		5,606		Less: Net income attributable to noncontrolling interests	2,423		1,343		3,246		3,547
Net income attributable to common shareholders	Net income attributable to common shareholders	$	96,473	$	103,426	$	298,816	$	253,404	Net income attributable to common shareholders	$	97,020	$	109,321	$	200,151	$	202,343

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	$	1.90	$	2.05	$	5.88	$	5.04	Basic	$	1.89	$	2.15	$	3.91	$	3.99
Diluted	Diluted	$	1.88	$	2.01	$	5.83	$	4.93	Diluted	$	1.89	$	2.13	$	3.90	$	3.94

Weighted-average number of common shares outstanding:	Weighted-average number of common shares outstanding:									Weighted-average number of common shares outstanding:
Basic	Basic	50,870		50,425		50,778		50,234		Basic	51,216		50,823		51,157		50,732
Diluted	Diluted	51,283		51,558		51,285		51,360		Diluted	51,467		51,283		51,382		51,293

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 Nine Months Ended
September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021
Net income $ 97,612 $ 105,159 $ 303,502 $ 259,010
Other comprehensive income (loss):
Foreign currency translation adjustment (151,294) (28,909) (258,103) 1,747
Amortization of net loss and prior service benefit included in net periodic cost for pension and other post-retirement benefit plans 731 991 2,218 2,972
Comprehensive (loss) income, before income taxes related to items of other comprehensive income (52,951) 77,241 47,617 263,729
Less: Income tax benefit related to items of other comprehensive income (11,201) (3,140) (20,095) (1,716)
Comprehensive (loss) income, net of income taxes (41,750) 80,381 67,712 265,445
Less: Comprehensive (loss) income related to noncontrolling interests, net of income taxes (1,170) 1,713 (236) 5,946
Comprehensive (loss) income attributable to common shareholders, net of income taxes $ (40,580) $ 78,668 $ 67,948 $ 259,499
See Notes to Unaudited Condensed Consolidated Financial Statements.


	Three Months Ended				Six Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Net income	$	99,443	$	110,664	$	203,397	$	205,890
Other comprehensive income (loss):
Foreign currency translation adjustment and other	23,227		(93,857)		46,540		(106,809)
Amortization of net loss, settlement losses, and prior service benefit included in total cost for pension and other post-retirement benefit plans	174		741		344		1,487
Unrealized gains on hedging instruments	6,046		—		4,644		—
Other comprehensive income (loss), before income taxes	29,447		(93,116)		51,528		(105,322)
Less: Income tax expense (benefit) related to items of other comprehensive income	937		(6,876)		(101)		(8,894)
Comprehensive income, net of income taxes	127,953		24,424		255,026		109,462
Less: Comprehensive income (loss) related to noncontrolling interests, net of income taxes	78		(1,275)		1,087		934
Comprehensive income attributable to common shareholders, net of income taxes	$	127,875	$	25,699	$	253,939	$	108,528







See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share amounts)


		September 24, 2022		December 25, 2021			July 1, 2023		December 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	193,701	$	241,214	Cash and cash equivalents	$	200,445	$	233,912
Trade receivables and contract assets, net of allowances for credit losses of $9,827 and $7,180, respectively		770,776		642,881
Trade receivables and contract assets, net of allowances for credit losses of $18,040 and $11,278, respectively						Trade receivables and contract assets, net of allowances for credit losses of $18,040 and $11,278, respectively	800,646		752,390
Inventories	Inventories	261,522		199,146		Inventories	285,280		255,809
Prepaid assets	Prepaid assets	92,266		93,543		Prepaid assets	105,020		89,341
Other current assets	Other current assets	97,087		97,311		Other current assets	113,389		107,580
Total current assets	Total current assets	1,415,352		1,274,095		Total current assets	1,504,780		1,439,032
Property, plant and equipment, net	Property, plant and equipment, net	1,380,568		1,291,068		Property, plant and equipment, net	1,529,640		1,465,655
Venture capital and strategic equity investments						Venture capital and strategic equity investments	300,281		311,602
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	373,410		292,941		Operating lease right-of-use assets, net	397,192		391,762
Goodwill	Goodwill	2,776,005		2,711,881		Goodwill	2,916,593		2,849,903
Client relationships, net		909,899		981,398
Other intangible assets, net		58,121		79,794
Intangible assets, net						Intangible assets, net	929,890		955,275
Deferred tax assets	Deferred tax assets	39,721		40,226		Deferred tax assets	38,540		41,262
Other assets	Other assets	429,693		352,889		Other assets	155,465		148,279
Total assets	Total assets	$	7,382,769	$	7,024,292	Total assets	$	7,772,381	$	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		$	2,079	$	2,795
Accounts payable	Accounts payable	181,629		198,130		Accounts payable	140,204		205,915
Accrued compensation	Accrued compensation	200,365		246,119		Accrued compensation	190,802		197,078
Deferred revenue	Deferred revenue	251,473		219,703		Deferred revenue	257,396		264,259
Accrued liabilities	Accrued liabilities	196,754		228,797		Accrued liabilities	220,704		219,758
Other current liabilities	Other current liabilities	181,894		137,641		Other current liabilities	198,517		204,575
Total current liabilities	Total current liabilities	1,014,194		1,033,185		Total current liabilities	1,007,623		1,091,585
Long-term debt, net and finance leases	Long-term debt, net and finance leases	2,937,056		2,663,564		Long-term debt, net and finance leases	2,678,472		2,707,531
Operating lease right-of-use liabilities	Operating lease right-of-use liabilities	368,851		252,972		Operating lease right-of-use liabilities	401,628		389,745
Deferred tax liabilities	Deferred tax liabilities	196,014		239,720		Deferred tax liabilities	207,404		215,582
Other long-term liabilities	Other long-term liabilities	194,710		242,859		Other long-term liabilities	177,252		174,822
Total liabilities	Total liabilities	4,710,825		4,432,300		Total liabilities	4,472,379		4,579,265
Commitments and contingencies (Notes 2, 9, 11 and 13)
Redeemable noncontrolling interests		39,206		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	42,447		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; 51,006 shares issued and 50,877 shares outstanding as of September 24, 2022, and 50,480 shares issued and outstanding as of December 25, 2021		510		505
Common stock, $0.01 par value; 120,000 shares authorized; 51,370 shares issued and 51,266 shares outstanding as of July 1, 2023, and 50,944 shares issued and outstanding as of December 31, 2022						Common stock, $0.01 par value; 120,000 shares authorized; 51,370 shares issued and 51,266 shares outstanding as of July 1, 2023, and 50,944 shares issued and outstanding as of December 31, 2022	513		509
Additional paid-in capital	Additional paid-in capital	1,780,876		1,718,304		Additional paid-in capital	1,850,385		1,804,940
Retained earnings	Retained earnings	1,279,567		980,751		Retained earnings	1,633,052		1,432,901
Treasury stock, at cost, 129 and 0 shares, as of September 24, 2022 and December 25, 2021, respectively		(38,492)		—
Treasury stock, at cost, 104 and zero shares, as of July 1, 2023 and December 31, 2022, respectively						Treasury stock, at cost, 104 and zero shares, as of July 1, 2023 and December 31, 2022, respectively	(23,978)		—
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(395,608)		(164,740)		Accumulated other comprehensive loss	(208,269)		(262,057)
Total equity attributable to common shareholders	Total equity attributable to common shareholders	2,626,853		2,534,820		Total equity attributable to common shareholders	3,251,703		2,976,293
Noncontrolling interest		5,885		4,162
Noncontrolling interests (nonredeemable)						Noncontrolling interests (nonredeemable)	5,852		4,785
Total equity	Total equity	2,632,738		2,538,982		Total equity	3,257,555		2,981,078
Total liabilities, redeemable noncontrolling interests and equity	Total liabilities, redeemable noncontrolling interests and equity	$	7,382,769	$	7,024,292	Total liabilities, redeemable noncontrolling interests and equity	$	7,772,381	$	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)


		Nine Months Ended					Six Months Ended
		September 24, 2022		September 25, 2021			July 1, 2023		June 25, 2022
Cash flows relating to operating activities	Cash flows relating to operating activities					Cash flows relating to operating activities
Net income	Net income	$	303,502	$	259,010	Net income	$	203,397	$	205,890
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	226,325		198,299		Depreciation and amortization	154,740		151,720
Stock-based compensation	Stock-based compensation	51,548		52,289		Stock-based compensation	29,730		29,549
Loss on debt extinguishment and amortization of other financing costs	Loss on debt extinguishment and amortization of other financing costs	3,054		28,972		Loss on debt extinguishment and amortization of other financing costs	—		1,987
Deferred income taxes	Deferred income taxes	(26,323)		(13,757)		Deferred income taxes	(16,555)		(14,684)
Loss on venture capital and strategic equity investments, net	Loss on venture capital and strategic equity investments, net	20,068		17,277		Loss on venture capital and strategic equity investments, net	5,176		23,515
Contingent consideration, fair value changes		(15,420)		(10,360)

Loss on divestitures, net						Loss on divestitures, net	563		—
Changes in fair value of contingent consideration arrangements						Changes in fair value of contingent consideration arrangements	1,810		(15,420)
Other, net	Other, net	31,574		928		Other, net	21,721		13,520
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	(174,169)		(35,592)		Trade receivables and contract assets, net	(48,249)		(117,642)
Inventories	Inventories	(76,283)		(5,639)		Inventories	(32,671)		(63,725)
Accounts payable	Accounts payable	5,979		11,431		Accounts payable	(24,985)		31,466
Accrued compensation	Accrued compensation	(32,734)		18,210		Accrued compensation	(7,648)		(38,173)
Deferred revenue	Deferred revenue	53,565		(9,394)		Deferred revenue	(6,796)		27,641
Customer contract deposits	Customer contract deposits	16,234		4,850		Customer contract deposits	(17,519)		16,100
Other assets and liabilities, net	Other assets and liabilities, net	(2,037)		15,017		Other assets and liabilities, net	(5,209)		360
Net cash provided by operating activities	Net cash provided by operating activities	384,883		531,541		Net cash provided by operating activities	257,505		252,104
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	(283,392)		(1,292,093)		Acquisition of businesses and assets, net of cash acquired	(50,166)		(283,392)
Capital expenditures	Capital expenditures	(235,709)		(129,997)		Capital expenditures	(174,258)		(163,316)
Purchases of investments and contributions to venture capital investments	Purchases of investments and contributions to venture capital investments	(129,363)		(31,963)		Purchases of investments and contributions to venture capital investments	(22,689)		(108,842)
Proceeds from sale of investments	Proceeds from sale of investments	3,104		5,960		Proceeds from sale of investments	2,943		205
Other, net	Other, net	(6,945)		854		Other, net	(1,057)		(4,774)
Net cash used in investing activities	Net cash used in investing activities	(652,305)		(1,447,239)		Net cash used in investing activities	(245,227)		(560,119)
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	2,798,665		6,119,671		Proceeds from long-term debt and revolving credit facility	281,796		2,180,511
Proceeds from exercises of stock options	Proceeds from exercises of stock options	17,710		43,314		Proceeds from exercises of stock options	15,719		15,571
Payments on long-term debt, revolving credit facility, and finance lease obligations	Payments on long-term debt, revolving credit facility, and finance lease obligations	(2,524,387)		(5,190,394)		Payments on long-term debt, revolving credit facility, and finance lease obligations	(317,049)		(1,856,262)
Purchase of treasury stock	Purchase of treasury stock	(38,492)		(40,440)		Purchase of treasury stock	(23,978)		(38,468)
Payment of debt extinguishment and financing costs		—		(38,253)
Payments of contingent consideration						Payments of contingent consideration	(2,711)		(10,356)
Purchases of additional equity interests, net	Purchases of additional equity interests, net	(30,533)		—		Purchases of additional equity interests, net	—		(15,438)
Payment of contingent considerations		(10,356)		(2,328)
Other, net	Other, net	(6,048)		—		Other, net	—		(17,405)
Net cash provided by financing activities		206,559		891,570
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(46,223)		258,153
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	10,726		17,514		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	1,508		10,756
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	(50,137)		(6,614)		Net change in cash, cash equivalents, and restricted cash	(32,437)		(39,106)
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	$	196,177	$	226,505	Cash, cash equivalents, and restricted cash, end of period	$	208,777	$	207,208

Supplemental cash flow information:
Cash and cash equivalents		$	193,701	$	212,539
Cash classified within current assets held for sale		—		8,612
Restricted cash included in Other current assets		1,376		4,275
Restricted cash included in Other assets		1,100		1,079
Cash, cash equivalents, and restricted cash, end of period		$	196,177	$	226,505

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
Net income																									Net income	—				—		—				97,020				—				—				—			97,020				566				97,586
Other comprehensive income																									Other comprehensive income	—				—		—				—				30,855				—				—			30,855				—				30,855

Issuance of stock under employee compensation plans																									Issuance of stock under employee compensation plans	110				1		3,926				—				—				—				—			3,927				—				3,927
Purchase of treasury shares																									Purchase of treasury shares	—				—		—				—				—				26				(4,966)			(4,966)				—				(4,966)
Stock-based compensation																									Stock-based compensation	—				—		16,270				—				—				—				—			16,270				—				16,270
July 1, 2023																									July 1, 2023	51,370				$	513	$	1,850,385			$	1,633,052			$	(208,269)			104				$	(23,978)		$	3,251,703			$	5,852			$	3,257,555

		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
Net income	Net income	—	—		—				109,321			—		—		—		109,321			499		109,820		Net income	—				—		—				109,321				—				—				—			109,321				499				109,820
Other comprehensive income		—	—		—				—			(83,622)		—		—		(83,622)			—		(83,622)
Other comprehensive loss																									Other comprehensive loss	—				—		—				—				(83,622)				—				—			(83,622)				—				(83,622)
Adjustment of redeemable noncontrolling interest to redemption value	Adjustment of redeemable noncontrolling interest to redemption value	—	—		(1,132)				—			—		—		—		(1,132)			—		(1,132)		Adjustment of redeemable noncontrolling interest to redemption value	—				—		(1,132)				—				—				—				—			(1,132)				—				(1,132)
Issuance of stock under employee compensation plans	Issuance of stock under employee compensation plans	79	1		2,498				—			—		—		—		2,499			—		2,499		Issuance of stock under employee compensation plans	79				1		2,498				—				—				—				—			2,499				—				2,499
Purchase of treasury shares	Purchase of treasury shares	—	—		—				—			—		18		(4,474)		(4,474)			—		(4,474)		Purchase of treasury shares	—				—		—				—				—				18				(4,474)			(4,474)				—				(4,474)
Stock-based compensation	Stock-based compensation	—	—		14,930				—			—		—		—		14,930			—		14,930		Stock-based compensation	—				—		14,930				—				—				—				—			14,930				—				14,930
June 25, 2022	June 25, 2022	50,990	510		1,761,125				1,183,094			(258,555)		129		(38,468)		2,647,706			5,221		2,652,927		June 25, 2022	50,990				$	510	$	1,761,125			$	1,183,094			$	(258,555)			129				$	(38,468)		$	2,647,706			$	5,221			$	2,652,927
Net income		—	—		—				96,473			—		—		—		96,473			664		97,137
Other comprehensive loss		—	—		—				—			(137,053)		—		—		(137,053)			—		(137,053)
Adjustment of redeemable noncontrolling interest to redemption value		—	—		(4,388)				—			—		—		—		(4,388)			—		(4,388)
Issuance of stock under employee compensation plans		16	—		2,140				—			—		—		—		2,140			—		2,140
Purchase of treasury shares		—	—		—				—			—		—		(24)		(24)			—		(24)
Stock-based compensation		—	—		21,999				—			—		—		—		21,999			—		21,999
September 24, 2022		51,006	$	510	$	1,780,876			$	1,279,567		$	(395,608)	129		$	(38,492)	$	2,626,853		$	5,885	$	2,632,738

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

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
Net income — — — 88,448 — — — 88,448 583 89,031
Other comprehensive income — — — — 18,996 — — 18,996 — 18,996
Adjustment of redeemable noncontrolling interest to redemption value — — (1,506) — — — — (1,506) — (1,506)
Issuance of stock under employee compensation plans 188 1 15,766 — — — — 15,767 — 15,767
Purchase of treasury shares — — — — — 13 (4,269) (4,269) — (4,269)
Stock-based compensation — — 17,077 — — — — 17,077 — 17,077
June 26, 2021 50,538 505 1,690,861 775,392 (108,021) 147 (40,297) 2,318,440 4,840 2,323,280
Net income — — — 103,426 — — — 103,426 659 104,085
Other comprehensive loss — — — — (24,758) — — (24,758) — (24,758)
Adjustment of redeemable noncontrolling interest to redemption value — — (702) — — — — (702) — (702)
Issuance of stock under employee compensation plans 69 1 8,279 — — — — 8,280 — 8,280
Purchase of treasury shares — — — — — — (143) (143) — (143)
Stock-based compensation — — 22,023 — — — — 22,023 — 22,023
September 26, 2021 50,607 $ 506 $ 1,720,461 $ 878,818 $ (132,779) 147 $ (40,440) $ 2,426,566 $ 5,499 $ 2,432,065
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 September 2022, the FASB issued ASU 2022-04, “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” ASU 2022-04 requires quantitative and qualitative disclosures about the use of supplier finance programs. The ASU is effective for fiscal years beginning after December 15, 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 the impact this new standard will have on the related disclosures of the consolidated financial statements, but does not believe there will be a material impact.~~

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 sets disclosure requirements for equity securities subject to contractual sale restrictionsparticipates in certain supplier finance programs that are measured at fair value. The ASU also clarifies that contractual sale restrictions should not be considered when measuring fair value of equity securities. The ASU is effective for fiscal years beginning after December 15, 2023 and will be applied on a prospective basis. The Company is currently evaluatingimmaterial 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.~~

In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance.” ASU 2021-10 requires disclosures about transactions with a government that have been accounted for by a grant or contribution accounting model to increase transparency about the types of transactions, the accounting for the transactions, and the effect on the financial statements. The ASU is an annual disclosure effective for fiscal years beginning after December 15, 2021 and will be applied on a prospective basis. The Company is currently evaluating the impact this new standard will have on the 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.

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

Segment Reporting

The Company reports its results in three 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

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 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 purchase price of Explora BioLabs was $284.5 million, net of $6.6 million in cash. The acquisition was funded through proceeds from the Company’s credit facility (Credit Facility). This business is reported as part of the Company’s RMS reportable segment.

~~Fiscal 2021 Acquisitions~~

~~Vigene Biosciences, Inc.~~

On June 28, 2021, the Company acquired Vigene Biosciences, Inc. (Vigene), a gene therapy 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. As of September 24, 2022, the fair value of the contingent consideration was zero as certain financial targets have not and are not expected to be achieved.

~~Retrogenix Limited~~

On March 30, 2021, the Company acquired Retrogenix Limited (Retrogenix), an outsourced discovery services provider specializing in 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

109

CHARLES RIVER LABORATORIES INTERNATIONAL, ~~INC.NOTES~~INC.

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

through cGMP production. The purchase price of Cognate was $877.9 million, net of $70.5 million in cash 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 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. During the nine months ended September 24, 2022, $7.0 million of contingent consideration was paid as certain operational milestones were achieved. As of September 24, 2022, other financial targets associated with the contingent consideration were not met and the fair value of the remaining contingent consideration is zero.

~~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. As of September 24, 2022, the fair value of the contingent consideration was zero as certain operational targets were not achieved.

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

Purchase price information

The purchase price allocation was as follows:


		Explora BioLabs (1)		Vigene		Retrogenix		Cognate		Distributed Bio			SAMDI (1)		Explora BioLabs
		April 5, 2022		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	$	7,679	$	3,548	$	2,266	$	18,566	$	2,722	Trade receivables	$	513	$	7,679
Other current assets (excluding cash)	Other current assets (excluding cash)	1,067		1,657		209		14,128		221		Other current assets (excluding cash)	75		1,067
Property, plant and equipment	Property, plant and equipment	37,369		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	48,613		22,507		1,385		34,349		1,586		Operating lease right-of-use asset, net	—		48,613
Goodwill (2)	Goodwill (2)	215,752		239,681		34,489		611,555		71,585		Goodwill (2)	37,129		215,752
Definite-lived intangible assets	Definite-lived intangible assets	70,100		93,900		22,126		270,900		24,540		Definite-lived intangible assets	33,070		70,100
Other long-term assets	Other long-term assets	556		694		—		6,098		469		Other long-term assets	6		556
Deferred revenue	Deferred revenue	(3,507)		(4,260)		(434)		(20,539)		(1,319)		Deferred revenue	(43)		(3,507)
Other current liabilities ~~(3)~~	Other current liabilities ~~(3)~~	(15,507)		(6,319)		(1,141)		(45,388)		(1,504)		Other current liabilities ~~(3)~~	(351)		(15,507)
Operating lease right-of-use liabilities (Long-term)	Operating lease right-of-use liabilities (Long-term)	(57,193)		(21,220)		(1,205)		(31,383)		(1,123)		Operating lease right-of-use liabilities (Long-term)	—		(57,193)
Deferred tax liabilities	Deferred tax liabilities	(18,601)		(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)		—		—		—		—		Other long-term liabilities	—		(1,807)
Total purchase price allocation	Total purchase price allocation	$	284,521	$	323,879	$	53,921	$	877,865	$	97,030	Total purchase price allocation	$	62,801	$	284,521

(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.											(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 not deductible for tax purposes.
(3) 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. Specifically for Cognate, as of March 29, 2021, the Company recorded an estimated liability of $17.0 million pertaining to indirect state sales taxes. During the nine months ended September 24, 2022, the Company received a favorable ruling from the applicable state in which the indirect state sales tax liability arose and, accordingly, this liability was reduced in full, resulting in a gain recorded through selling, general and administrative expenses in the period.
(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:


		Explora BioLabs		Vigene		Retrogenix		Cognate		Distributed Bio			SAMDI		Explora BioLabs
Definite-Lived Intangible Assets	Definite-Lived Intangible Assets	(in thousands)										Definite-Lived Intangible Assets	(in thousands)
Client relationships	Client relationships	$	64,000	$	87,500	$	17,340	$	257,200	$	16,080	Client relationships	$	23,400	$	64,000
Other intangible assets	Other intangible assets	6,100		6,400		4,786		13,700		8,460		Other intangible assets	9,670		6,100
Total definite-lived intangible assets	Total definite-lived intangible assets	$	70,100	$	93,900	$	22,126	$	270,900	$	24,540	Total definite-lived intangible assets	$	33,070	$	70,100

Weighted Average Amortization Life	Weighted Average Amortization Life	(in years)										Weighted Average Amortization Life	(in years)
Client relationships	Client relationships	13		12		13		13		9		Client relationships	15		13
Other intangible assets	Other intangible assets	4		2		3		2		4		Other intangible assets	7		4
Total definite-lived intangible assets	Total definite-lived intangible assets	12		11		11		13		7		Total definite-lived intangible assets	12

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


	Three Months Ended				Six Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
	(in thousands)
Transaction and Integration Costs
Selling, general and administrative expenses	$	1,224	$	4,426	$	2,288	$	11,539

Three Months Ended Nine Months Ended
September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021
(in thousands)
Transaction and Integration Costs
Selling, general and administrative expenses $ 3,065 $ 6,343 $ 14,604 $ 29,754

~~Pro forma information~~Divestitures

The ~~following selected unaudited pro forma consolidated results~~Company routinely evaluates the strategic fit and fundamental performance of its global businesses, divesting 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 and nine months ended September 25, 2021, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $4.3 million and $17.6 million, additional interest expense on borrowing of none and $5.6 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.~~

September 25, 2021
Three Months Ended Nine Months Ended
(in thousands)
(unaudited)
Revenue $ 895,937 $ 2,678,596
Net income attributable to common shareholders 106,288 238,775

~~These unaudited pro forma results of operations have been prepared for comparative purposes only, and they~~ do not ~~purport to be indicative~~meet key business criteria. As part of this ongoing assessment, 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 purchase price of $70.9 million, which included $7.9 million in cash, $3.8 million pension over funding, and certain post-closing adjustments.

~~The RMS Japan 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~~certain capital could be better deployed in other long-term growth opportunities.

~~CDMO Sweden Divestiture~~Avian Vaccine Services

On ~~October 12, 2021,~~December 20, 2022, the Company sold its ~~gene therapy CDMO site in Sweden~~Avian Vaccine Services business (Avian) to a private investor group for a preliminary purchase price of ~~$59.6 million, net of $0.2~~$167.3 million in cash, ~~and other post-closing adjustments that~~subject to certain customary closing adjustments. The Company may ~~impact~~also earn up to $30.0 million of contingent payments, which are tied to certain annual results of the ~~purchase price. Included in the purchase price are~~Avian business from January 2024 through December 2027. The contingent payments have been fair valued at ~~$15.3~~$10.3 million ~~which were estimated~~ using a discounted 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. As of September 24, 2022, the fair value of the contingent payments was reduced to $7.5 million as certain financial targets are not expected to be achieved.

model. The ~~CDMO Sweden~~Avian 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, the Company determined that this capital could be better deployed in other long-term growth opportunities.During fiscal year

1310

CHARLES RIVER LABORATORIES INTERNATIONAL, ~~INC.NOTES~~INC.

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

2022, the Company 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 Nine Months Ended
September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021
(in thousands)
Timing of Revenue Recognition:
RMS
Services and products transferred over time $ 88,174 $ 65,805 $ 243,901 $ 197,035
Services and products transferred at a point in time 91,940 105,453 299,165 327,827
Total RMS revenue 180,114 171,258 543,066 524,862
DSA
Services and products transferred over time 618,270 531,637 1,749,977 1,571,895
Services and products transferred at a point in time 1,193 186 5,662 1,200
Total DSA revenue 619,463 531,823 1,755,639 1,573,095
Manufacturing
Services and products transferred over time 89,173 93,473 276,993 240,015
Services and products transferred at a point in time 100,407 99,383 300,519 297,138
Total Manufacturing revenue 189,580 192,856 577,512 537,153
Total revenue $ 989,157 $ 895,937 $ 2,876,217 $ 2,635,110

~~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				Six Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
	(in thousands)
Timing of Revenue Recognition:
RMS
Services and products transferred over time	$	94,458	$	85,803	$	188,097	$	155,727
Services and products transferred at a point in time	115,490		100,607		221,617		207,225
Total RMS revenue	209,948		186,410		409,714		362,952
DSA
Services and products transferred over time	662,653		589,371		1,324,489		1,131,707
Services and products transferred at a point in time	804		2,546		1,321		4,469
Total DSA revenue	663,457		591,917		1,325,810		1,136,176
Manufacturing
Services and products transferred over time	100,460		92,811		186,546		187,820
Services and products transferred at a point in time	86,072		101,993		167,240		200,112
Total Manufacturing revenue	186,532		194,804		353,786		387,932
Total revenue	$	1,059,937	$	973,131	$	2,089,310	$	1,887,060

1411

CHARLES RIVER LABORATORIES INTERNATIONAL, ~~INC.NOTES~~INC.

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

~~DSA~~Contract Balances from Contracts with Customers

The ~~DSA business~~following table provides ~~a full suite~~information about client receivables, contract assets, and contract liabilities from contracts with customers:


	July 1, 2023		December 31, 2022
	(in thousands)
Assets from contracts with customers
Client receivables	$	591,006	$	559,410
Unbilled revenue	227,680		204,258
Total	818,686		763,668
Less: Allowance for credit losses	(18,040)		(11,278)
Trade receivables and contract assets, net	$	800,646	$	752,390

Liabilities from contracts with customers
Current deferred revenue	$	257,396	$	264,259
Long-term deferred revenue (included in Other long-term liabilities)	29,533		25,795
Customer contract deposits (included in Other current-liabilities)	77,422		91,640

Approximately 85% of ~~integrated drug discovery services directed at~~unbilled revenue as of December 31, 2022, which was $204 million, was billed during the ~~identification, screening and selection~~six months ended July 1, 2023. Approximately 75% of ~~a lead compound for drug development and offers a full range~~unbilled revenue as of ~~safety assessment services including bioanalysis, drug metabolism, pharmacokinetics, toxicology and pathology. DSA services~~December 25, 2021, which was $161 million, was billed during the six months ended June 25, 2022.

Approximately 75% of contract liabilities as of December 31, 2022, which was $290 million, were recognized as revenue ~~is generally~~during the six months ended July 1, 2023. Approximately 75% of contract liabilities as of December 25, 2021, which was $240 million, were recognized ~~over time using~~as revenue during the ~~cost-to-cost or~~six months ended June 25, 2022.

When the Company does not have the unconditional right to ~~invoice measures~~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 $42 million and $54 million of ~~progress, primarily representing fixed fee service contracts~~unpaid advanced client billings from both client receivables and ~~per unit service contracts,~~deferred revenue in the accompanying unaudited condensed consolidated balance sheets as of July 1, 2023 and December 31, 2022, respectively.

~~Manufacturing~~

~~The Manufacturing business includes Microbial Solutions, which provides~~ in~~vitro~~ ~~(non-animal) lot-release testing products, microbial detection products,~~ Net provisions of $9.1 million and ~~species identification services; Biologics Solutions (Biologics), which performs specialized testing of biologics (Biologics Testing Solutions) as well as contract development~~$0.4 million were recorded to the allowance for credit losses for the six months ended July 1, 2023 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.June 25, 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 ~~September 24, 2022.~~July 1, 2023. 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~~.The aggregate amount of transaction price allocated to the remaining performance obligations for ~~Other Performance Obligations).~~

all open customer contracts as of July 1, 2023 was $1,029.1 million. The ~~following table includes estimated revenue~~Company will recognize revenues for these performance obligations as they are satisfied, approximately 50% of which is expected to ~~be recognized in~~occur within the ~~future related to performance obligations that are unsatisfied (or partially satisfied) as of September 24, 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 $ 609,960 $ 461,386 $ 72,772 $ 4,130 $ 1,148,248
Manufacturing 113 8 — — 121
Total $ 610,073 $ 461,394 $ 72,772 $ 4,130 $ 1,148,369

~~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:~~

September 24, 2022 December 25, 2021
(in thousands)
Balances from contracts with customers:
Client receivables $ 580,626 $ 489,452
Contract assets (unbilled revenue) 199,977 160,609
Contract liabilities (current and long-term deferred revenue) 275,634 240,281
Contract liabilities (customer contract deposits) 76,904 59,512

~~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 revenue, with the advanced billings also being excluded from client receivables. The Company excluded approximately $52 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 September 24, 2022 and December 25, 2021, respectively. Advanced client payments of approximately $77 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 September 24, 2022 and December 25, 2021, respectively.

~~Other changes in the contract asset~~next twelve months and the ~~contract liability balances~~remainder recognized thereafter during the ~~nine months ended September 24, 2022 and September 25, 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~~remaining 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 nine months ended September 24, 2022 and September 25, 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):~~

Approximately 85% of unbilled revenue as of December 25, 2021, which was $161 million, was billed during the nine months ended September 24, 2022. Approximately 85% of unbilled revenue as of December 26, 2020, which was $135 million, was billed during the nine months ended September 25, 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):~~

Approximately 85% of contract liabilities as of December 25, 2021, which was $240 million, were recognized as revenue during the nine months ended September 24, 2022. Approximately 85% of contract liabilities as of December 26, 2020, which was $227 million, were recognized as revenue during the nine months ended September 25, 2021.term.

Other Performance Obligations

As part of the Company’s service offerings, ~~primarily in the Manufacturing and RMS segments,~~ 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 September 24, 2022 and September 25, 2021, the Company recognized lease revenue of $15.8 million and $5.3 million, which is recorded within service revenue, which is transferred over time, within the unaudited condensed consolidated statements of income. For the nine months ended September 24, 2022 and September 25, 2021, the Company recognized lease revenue of $37.6 million and $11.6 million 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.


	Three Months Ended				Six Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
	(in thousands)								Affected Line Item in the Unaudited Condensed Consolidated Statements of Income
Lease revenue	$	23,891	$	13,912	$	47,981	$	21,768	Service revenue

1612

CHARLES RIVER LABORATORIES INTERNATIONAL, ~~INC.NOTES~~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 Nine Months Ended
September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021
(in thousands)
RMS
Revenue $ 180,114 $ 171,258 $ 543,066 $ 524,862
Operating income 35,891 39,111 123,299 126,626
Depreciation and amortization 13,128 9,927 35,825 29,450
Capital expenditures 10,743 18,026 33,239 29,521
DSA
Revenue $ 619,463 $ 531,823 $ 1,755,639 $ 1,573,095
Operating income 142,143 116,548 375,922 312,011
Depreciation and amortization 43,913 44,072 135,328 132,268
Capital expenditures 43,400 23,270 133,908 60,783
Manufacturing
Revenue $ 189,580 $ 192,856 $ 577,512 $ 537,153
Operating income 31,479 48,563 140,350 154,717
Depreciation and amortization 17,005 13,953 53,487 34,474
Capital expenditures 18,137 13,296 65,396 34,008

~~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
September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021
(in thousands)
Three Months Ended:
Total reportable segments $ 209,513 $ 204,222 $ 74,046 $ 67,952 $ 72,280 $ 54,592
Unallocated corporate (58,537) (48,420) 559 734 113 944
Total consolidated $ 150,976 $ 155,802 $ 74,605 $ 68,686 $ 72,393 $ 55,536
Nine Months Ended
Total reportable segments $ 639,571 $ 593,354 $ 224,640 $ 196,192 $ 232,543 $ 124,312
Unallocated corporate (152,406) (176,299) 1,685 2,107 3,166 5,685
Total consolidated $ 487,165 $ 417,055 $ 226,325 $ 198,299 $ 235,709 $ 129,997

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

Three Months Ended Nine Months Ended
September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021
(in thousands)
RMS $ 180,114 $ 171,258 $ 543,066 $ 524,862
DSA 619,463 531,823 1,755,639 1,573,095
Manufacturing 189,580 192,856 577,512 537,153
Total revenue $ 989,157 $ 895,937 $ 2,876,217 $ 2,635,110

~~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 Nine Months Ended
September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021
(in thousands)
Stock-based compensation $ 13,381 $ 13,258 $ 30,415 $ 31,317
Compensation, benefits, and other employee-related expenses 28,313 17,249 77,456 70,535
External consulting and other service expenses 4,144 6,670 13,190 20,327
Information technology 4,359 4,074 9,912 12,286
Depreciation 559 734 1,685 2,107
Acquisition and integration 1,059 3,392 9,899 28,988
Other general unallocated corporate 6,722 3,043 9,849 10,739
Total unallocated corporate expense $ 58,537 $ 48,420 $ 152,406 $ 176,299

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				Six Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
	(in thousands)
RMS
Revenue	$	209,948	$	186,410	$	409,714	$	362,952
Operating income	48,918		39,526		89,327		87,408
Depreciation and amortization	13,949		13,228		27,438		22,697
Capital expenditures	7,493		13,850		26,577		22,496
DSA
Revenue	$	663,457	$	591,917	$	1,325,810	$	1,136,176
Operating income	161,538		128,793		332,969		233,779
Depreciation and amortization	43,124		44,626		85,574		91,415
Capital expenditures	48,326		41,578		113,510		90,508
Manufacturing
Revenue	$	186,532	$	194,804	$	353,786	$	387,932
Operating income	24,403		62,503		26,509		108,871
Depreciation and amortization	19,523		18,000		39,607		36,482
Capital expenditures	10,862		24,431		32,600		47,259
Unallocated Corporate
Operating income (1)	(69,914)		(43,411)		$	(115,968)	$	(93,869)
Depreciation and amortization	1,075		567		2,121		1,126
Capital expenditures	702		2,993		1,571		3,053
Consolidated
Revenue	1,059,937		973,131		$	2,089,310	$	1,887,060
Operating income	164,945		187,411		332,837		336,189
Depreciation and amortization	77,671		76,421		154,740		151,720
Capital expenditures	67,383		82,852		174,258		163,316

(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
(in thousands)
Three Months Ended:
September 24, 2022 $ 595,265 $ 245,928 $ 101,601 $ 43,803 $ 2,560 $ 989,157
September 25, 2021 493,564 258,353 85,252 56,607 2,161 895,937
Nine Months Ended:
September 24, 2022 $ 1,688,731 $ 760,599 $ 280,541 $ 138,988 $ 7,358 $ 2,876,217
September 25, 2021 1,433,665 771,594 252,924 171,186 5,741 2,635,110


	U.S.		Europe		Canada		Asia Pacific		Other		Consolidated
	(in thousands)
Three Months Ended:
July 1, 2023	$	606,775	$	272,976	$	117,647	$	59,864	$	2,675	$	1,059,937
June 25, 2022	566,917		263,584		93,694		46,239		2,697		973,131

Six Months Ended:
July 1, 2023	$	1,212,216	$	540,679	$	228,253	$	102,677	$	5,485	$	2,089,310
June 25, 2022	1,093,466		514,671		178,940		95,185		4,798		1,887,060

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.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. ~~SUPPLEMENTAL BALANCE SHEET INFORMATION~~INVENTORY

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

September 24, 2022 December 25, 2021
(in thousands)
Client receivables $ 580,626 $ 489,452
Unbilled revenue 199,977 160,609
Total 780,603 650,061
Less: Allowance for credit losses (9,827) (7,180)
Trade receivables and contract assets, net $ 770,776 $ 642,881
Inventories

The composition of inventories is as follows:

September 24, 2022 December 25, 2021
(in thousands)
Raw materials and supplies $ 35,597 $ 33,118
Work in process 41,357 40,268
Finished products 184,568 125,760
Inventories $ 261,522 $ 199,146

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

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

September 24, 2022 December 25, 2021
(in thousands)
Prepaid income tax $ 87,038 $ 84,725
Short-term investments 950 1,063
Restricted cash 1,376 4,023
Other receivables 7,723 7,500
Other current assets $ 97,087 $ 97,311

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

September 24, 2022 December 25, 2021
(in thousands)
Venture capital investments $ 131,515 $ 149,640
Strategic equity investments 158,582 51,712
Life insurance policies 39,938 51,048
Long-term pension assets 33,491 39,582
Other long-term income tax assets 15,088 18,690
Restricted cash 1,100 1,077
Other 49,979 41,140
Other assets $ 429,693 $ 352,889

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

September 24, 2022 December 25, 2021
(in thousands)
Current portion of operating lease right-of-use liabilities $ 44,613 $ 33,267
Customer contract deposits 76,904 59,512
Accrued income taxes 47,036 26,161
Other 13,341 18,701
Other current liabilities $ 181,894 $ 137,641

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

September 24, 2022 December 25, 2021
(in thousands)
Long-term pension liability, accrued executive supplemental life insurance retirement plan and deferred compensation plans $ 100,552 $ 104,944
U.S. Transition Tax 32,324 43,057
Long-term deferred revenue 24,161 20,578
Other 37,673 74,280
Other long-term liabilities $ 194,710 $ 242,859


	July 1, 2023		December 31, 2022
	(in thousands)
Raw materials and supplies	$	42,130	$	38,892
Work in process	40,396		48,367
Finished products	202,754		168,550
Inventories	$	285,280	$	255,809

6. VENTURE CAPITAL AND STRATEGIC EQUITY INVESTMENTS

Venture capital investments were $131.5 million and $149.6 million as of September 24, 2022 and December 25, 2021, respectively. The Company’s total commitment to the venture capital funds as of September 24, 2022 was $190.3 million, of which the Company funded $125.1 million through that date. The Company received distributions totaling $3.7 million and $10.2 million for the three months ended September 24, 2022 and September 25, 2021, respectively. The Company received distributions totaling $7.7 million and $37.7 million for the nine months ended September 24, 2022 and September 25, 2021, respectively.are summarized below:

The Company recognized net gains on venture capital investments of $3.0 million and net losses of $10.3 million for the three months ended September 24, 2022 and September 25, 2021, respectively, both of which were driven primarily by publicly-held investments. The Company recognized net losses on venture capital investments of $20.1 million for the nine months ended


	Six Months Ended
	July 1, 2023		June 25, 2022
	(in thousands)
Beginning balance	$	129,012	$	149,640
Capital contributions	8,702		6,384
Distributions	(9,679)		(4,042)
Losses	(8,429)		(23,050)
Foreign currency translation	466		(1,065)
Ending balance	$	120,072	$	127,867

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

September 24, 2022, driven by the decrease in the fair value of publicly-held investments offset by increases from private investments, and net losses of $15.6 million for the nine months ended September 25, 2021, which were driven by publicly-held and private investments.

The Company also invests, with minority positions, directly in equity of ~~privately-held~~predominantly privately held companies. Strategic ~~equity~~ investments ~~were $158.6 million and $51.7 million as of September 24, 2022 and December 25, 2021, respectively.~~ are summarized below:


	Six Months Ended
	July 1, 2023		June 25, 2022
	(in thousands)
Beginning balance	$	182,590	$	51,712
Purchase of investments	13,710		102,220
Distributions	(4,146)		(151)
Gain (loss)	3,253		(465)
Reduction for acquisition of entity	(12,635)		—
Foreign currency translation	(2,563)		(2,112)
Ending balance	$	180,209	$	151,204

In April 2022, the Company acquired a 49% equity interest in a supplier supporting the DSA reportable segment (the Investee) for $90.0 million up front and an additional future contingent payment of up to $5.0 million based upon the Investee’s future performance. The total allocable basis of the investment exceeds the proportional interest in the Investee’s underlying net assets by $86.7 million, which has been allocated primarily to goodwill, intangible assets (client relationships and backlog), and deferred tax liabilities in the amount of $26.2 million, $71.2 million, and $10.7 ~~million.~~million respectively. On July 28, 2023, the Company signed an agreement to acquire an additional 41% equity stake in the supplier, which upon closing, will result in ownership of 90%. The preliminary purchase price for the 41% equity is $143 million in cash, subject to customary closing adjustments, with additional contingent payments of up to $55 million based on future performance over a 3-year period. The Company ~~recognizes its proportional share~~will have the call option right to purchase the remaining 10% equity up until one month after the sixth anniversary of closing. On the first anniversary of the ~~Investee’s earnings, adjusted for the amortization~~expiration of the ~~intangible assets over their useful lives and any intra-entity eliminations, under~~call option, a 12-month put option will be triggered giving the ~~equity method of accounting on a three-month lag within other income (expense), net in~~seller the ~~accompanying consolidated statements of income. Summarized financial information for this equity method Investee is not presented as such information is not material~~right to the Company’s financial statements. The Company purchased additional strategic equity investments of $33.0 million during the nine months ended September 24, 2022 and recognized insignificant gains and losses for the three and nine months ended September 24, 2022 and September 25, 2021. Additionally, in October 2022require the Company ~~purchased an~~to acquire shares of the Investee from the seller. The consummation of the acquisition of the additional ~~interest in an existing strategic~~41% equity ~~investment for $25 million.~~is subject to regulatory approval and closing conditions being satisfied. Accordingly, the timing of close is uncertain.

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:


		September 24, 2022									July 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	$	—	$	77	$	—	$	77	Cash equivalents	$	—	$	28	$	—	$	28
Other assets:	Other assets:									Other assets:
Life insurance policies	Life insurance policies	—		32,738		—		32,738		Life insurance policies	—		38,308		—		38,308
Interest rate swap										Interest rate swap	—		3,121		—		3,121
Total assets measured at fair value	Total assets measured at fair value	$	—	$	32,815	$	—	$	32,815	Total assets measured at fair value	$	—	$	41,457	$	—	$	41,457

Accrued liabilities measured at fair value:
Contingent consideration		$	—	$	—	$	8,661	$	8,661

Total liabilities measured at fair value		$	—	$	—	$	8,661	$	8,661

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. During the ~~nine~~six months ended ~~September 24,~~July 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
Accrued 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.


		Nine Months Ended					Six Months Ended
		September 24, 2022		September 25, 2021			July 1, 2023		June 25, 2022
		(in thousands)					(in thousands)
Beginning balance	Beginning balance	$	37,244	$	2,328	Beginning balance	$	13,431	$	37,244
Additions		—		72,476

Payments	Payments	(11,476)		(2,889)		Payments	(15,130)		(11,476)
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	(15,340)		(10,360)		Adjustment of previously recorded contingent liability	1,810		(15,340)
Foreign currency translation	Foreign currency translation	(1,767)		(226)		Foreign currency translation	(111)		(878)
Ending balance	Ending balance	$	8,661	$	61,329	Ending balance	$	—	$	9,550

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 ~~$53~~$43 million, of which the value accrued as of ~~September 24, 2022~~July 1, 2023 is ~~approximately $9 million. The weighted average~~zero as the probability of achieving the maximum target is ~~approximately 16%~~estimated to be 0%. The ~~average~~ volatility and weighted average cost of capital ~~are~~is approximately 40% and 16%, respectively. Increases or decreases in these assumptions may result in a higher or lower fair value measurement, respectively.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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:


											July 1, 2023				December 31, 2022
		September 24, 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	$	446,250	$	500,000	$	521,250	4.25% Senior Notes due 2028	$	500,000	$	457,500	$	500,000	$	460,450
3.75% Senior Notes due 2029	3.75% Senior Notes due 2029	500,000		422,500		500,000		506,700		3.75% Senior Notes due 2029	500,000		440,000		500,000		442,200
4.0% Senior Notes due 2031		500,000		413,750		500,000		507,500
4.00% Senior Notes due 2031										4.00% Senior Notes due 2031	500,000		433,750		500,000		432,500

~~Derivative Instrument~~

~~Early~~8. GOODWILL AND INTANGIBLE ASSETS

Goodwill

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


	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	(656)		14,969		15,248		29,561
July 1, 2023	$	497,054	$	1,485,699	$	933,840	$	2,916,593
(1) DSA includes accumulated impairment losses of $1 billion, which were recognized in fiscal years 2008 and 2010.

The increase in ~~November 2022,~~goodwill during the ~~Company entered into an interest rate swap with a notional amount of $500 million to manage interest rate fluctuation~~six months ended July 1, 2023 related to ~~floating rate borrowings under~~ the ~~Credit Facility, at a fixed rate~~acquisition of ~~4.700% making~~SAMDI in the ~~total interest rate 5.825% at our current spread. The Company designated this derivative instrument as a cash flow hedge at the inception of the contract and expects it to be highly effective.~~DSA reportable segment.

2116

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~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 September 24, 2022
(in thousands)
RMS $ 283,524 $ 215,752 $ (2,528) $ 496,748
DSA 1,472,506 — (81,136) 1,391,370
Manufacturing 955,851 (592) (67,372) 887,887
Goodwill $ 2,711,881 $ 215,160 $ (151,036) $ 2,776,005

~~The increase in goodwill during the nine months ended September 24, 2022 related primarily to the acquisition of Explora BioLabs in the RMS reportable segment.~~

Intangible Assets, Net

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


		September 24, 2022						December 25, 2021							July 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	$	1,534,069	$	(659,955)	$	874,114	$	1,491,926	$	(591,417)	$	900,509
Technology														Technology	141,716		(107,312)		34,404		129,626		(101,655)		27,971
Backlog	Backlog	$	14,810	$	(11,800)	$	3,010	$	12,577	$	(9,517)	$	3,060	Backlog	15,441		(13,903)		1,538		15,236		(12,512)		2,724
Technology		123,169		(95,545)		27,624		135,764		(95,454)		40,310
Trademarks and trade names	Trademarks and trade names	12,164		(3,981)		8,184		13,086		(3,448)		9,638		Trademarks and trade names	12,835		(5,021)		7,814		12,617		(4,410)		8,207
Other	Other	37,900		(18,597)		19,303		35,231		(8,445)		26,786		Other	38,079		(26,059)		12,020		37,985		(22,121)		15,864
Other intangible assets		188,043		(129,923)		58,121		196,658		(116,864)		79,794
Client relationships		1,456,032		(546,133)		909,899		1,475,757		(494,359)		981,398
Intangible assets	Intangible assets	$	1,644,075	$	(676,056)	$	968,020	$	1,672,415	$	(611,223)	$	1,061,192	Intangible assets	$	1,742,140	$	(812,250)	$	929,890	$	1,687,390	$	(732,115)	$	955,275

The decrease in intangible assets, net during the ~~nine~~six months ended ~~September 24, 2022~~July 1, 2023 related primarily to normal amortization over the useful lives, offset by the acquisition of ~~Explora BioLabs.~~SAMDI.

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

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

9. DEBT AND OTHER FINANCING ARRANGEMENTS

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


		September 24, 2022		December 25, 2021
		(in thousands)					July 1, 2023		December 31, 2022
							(in thousands)
Revolving facility	Revolving facility	$	1,429,154	$	1,161,431	Revolving facility	$	1,168,052	$	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	239		368		Other debt	1,423		1,594
Finance leases	Finance leases	29,428		27,223		Finance leases	29,354		30,646
Total debt and finance leases	Total debt and finance leases	2,958,821		2,689,022		Total debt and finance leases	2,698,829		2,729,826
Less:	Less:					Less:
Current portion of long-term debt	Current portion of long-term debt	—		101		Current portion of long-term debt	1,188		1,347
Current portion of finance leases	Current portion of finance leases	2,079		2,694		Current portion of finance leases	2,535		2,330
Current portion of long-term debt and finance leases	Current portion of long-term debt and finance leases	2,079		2,795		Current portion of long-term debt and finance leases	3,723		3,677
Long-term debt and finance leases	Long-term debt and finance leases	2,956,742		2,686,227		Long-term debt and finance leases	2,695,106		2,726,149
Debt discount and debt issuance costs	Debt discount and debt issuance costs	(19,686)		(22,663)		Debt discount and debt issuance costs	(16,634)		(18,618)
Long-term debt, net and finance leases	Long-term debt, net and finance leases	$	2,937,056	$	2,663,564	Long-term debt, net and finance leases	$	2,678,472	$	2,707,531

As of ~~September 24, 2022~~July 1, 2023 and December ~~25, 2021,~~31, 2022, the weighted average interest rate on the Company’s debt was ~~3.85%~~4.89% and ~~2.78%~~4.58%, respectively. During the nine months ended September 25, 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 nine months ended September 25, 2021.

~~Foreign currency transactions~~

During the three and ~~nine~~six months ended ~~September 24,~~June 25, 2022, ~~and September 25, 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 ~~between $250 million and~~approximately $400 million each. To limit this foreign currency exposure, the Company entered into foreign exchange forward contracts, which are not designated as hedging instruments. The Company did not have any U.S. dollar denominated loans borrowed by a non-U.S. Euro functional currency entity under the Credit Facility during the three and six months ended July 1, 2023.

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

Three Months Ended Nine Months Ended
September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Affected Line Item in the Consolidated Statements of Income
(in thousands)
Loss on foreign debt remeasurement $ (16,006) $ (4,417) $ (46,529) $ (22,680) Other expense, net
Gain on foreign exchange forward contract 17,406 5,048 49,712 24,380 Interest expense

~~Letters of Credit~~

~~As of September 24, 2022 and December 25, 2021, the Company had $17.7 million in outstanding letters of credit.~~

Three Months Ended

Six Months Ended

June 25, 2022

Affected Line Item in the Unaudited Condensed Consolidated Statements of Income

(in thousands)

Loss on foreign debt remeasurement

(19,423)

(30,523)

Other expense, net

Gain on foreign exchange forward contract

20,522

32,306

Interest expense

2317

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Letters of Credit

As of July 1, 2023 and December 31, 2022, the Company had $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				Nine Months Ended					Three Months Ended				Six Months Ended
		September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021			July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
		(in thousands)									(in thousands)
Numerator:	Numerator:									Numerator:
Net income	Net income	$	97,612	$	105,159	$	303,502	$	259,010	Net income	$	99,443	$	110,664	$	203,397	$	205,890
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	1,139		1,733		4,686		5,606		Less: Net income attributable to noncontrolling interests	2,423		1,343		3,246		3,547
Net income attributable to common shareholders	Net income attributable to common shareholders	$	96,473	$	103,426	$	298,816	$	253,404	Net income attributable to common shareholders	$	97,020	$	109,321	$	200,151	$	202,343

Denominator:	Denominator:									Denominator:
Weighted-average shares outstanding - Basic	Weighted-average shares outstanding - Basic	50,870		50,425		50,778		50,234		Weighted-average shares outstanding - Basic	51,216		50,823		51,157		50,732
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Stock options, restricted stock units and performance share units	Stock options, restricted stock units and performance share units	413		1,133		507		1,126		Stock options, restricted stock units and performance share units	251		460		225		561
Weighted-average shares outstanding - Diluted	Weighted-average shares outstanding - Diluted	51,283		51,558		51,285		51,360		Weighted-average shares outstanding - Diluted	51,467		51,283		51,382		51,293

Anti-dilutive common stock equivalents(1)	Anti-dilutive common stock equivalents(1)	571		154		568		158		Anti-dilutive common stock equivalents (1)	594		597		589		550

(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.	(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.									(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 nine months ended September 24, 2022 and September 25, 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 ~~September 24, 2022,~~July 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 ~~restricted stock units~~RSUs and ~~performance share units~~PSUs in order to satisfy individual statutory tax withholding requirements. ~~During~~The Company acquired shares of 0.1 million in the ~~nine~~six months ended ~~September 24,~~July 1, 2023 and six months ended June 25, 2022, ~~and September 25, 2021, the Company acquired 0.1 million shares~~ for ~~$38.5~~$24.0 million and ~~0.1 million shares for $40.4~~$38.5 million, respectively, from such netting.

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 (253,181) — (253,181)
Amounts reclassified from accumulated other comprehensive income — 2,218 2,218
Net current period other comprehensive (loss) income (253,181) 2,218 (250,963)
Income tax (benefit) expense (20,645) 550 (20,095)
September 24, 2022 $ (330,709) $ (64,899) $ (395,608)


	Foreign Currency Translation Adjustment and Other		Pension and Other Post-Retirement Benefit Plans		Net Unrealized (Loss) Gain on Cash Flow Hedge		Total
	(in thousands)
December 31, 2022	$	(217,785)	$	(43,114)	$	(1,158)	$	(262,057)
Other comprehensive income before reclassifications	48,699		344		4,644		53,687

Net current period other comprehensive income	48,699		344		4,644		53,687
Income tax expense (benefit)	807		209		(1,117)		(101)
July 1, 2023	$	(169,893)	$	(42,979)	$	4,603	$	(208,269)

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 and ~~nine~~six months ended ~~September 24, 2022~~July 1, 2023 and ~~September~~June 25, ~~2021.~~2022.

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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 July 1, 2023. 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 ($~~24.2 million~~24.4 million) as of ~~September 24, 2022)~~July 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.

~~Prior to June~~ During the fourth quarter of fiscal 2022, the Company ~~had~~exercised its option to acquire the remaining 8%, which is subject to customary closing conditions. The Company expects the transaction to close prior to the end of fiscal year 2023.

In 2019, the Company 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 June 2022, the Company purchased an additional 10% interest in the subsidiary for $15.0 ~~million.~~million, resulting in a remaining noncontrolling interest of 10%. Beginning in 2024, the Company has the right to purchase, and the noncontrolling interest holders have the right to sell (Put/call option), the remaining 10% equity interest at its appraised value ($~~15.0~~17.0 million as of ~~September 24, 2022)~~July 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 10% 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 10% equity interest is not limited.

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

Nine Months Ended
September 24, 2022 September 25, 2021
(in thousands)
Beginning balance $ 53,010 $ 25,499
Purchase of a 10% redeemable noncontrolling interest (15,000) —
Adjustments of noncontrolling interests to redemption values 6,681 3,043
Net income attributable to noncontrolling interests 2,963 3,674
Dividend to redeemable noncontrolling interest (3,525) —
Foreign currency translation (4,923) 340
Ending balance $ 39,206 $ 32,556


	Six Months Ended
	July 1, 2023		June 25, 2022
	(in thousands)
Beginning balance	$	42,427	$	53,010
Adjustments to redemption value	—		2,293
Additional purchases	—		(15,000)
Net income (loss)	2,179		2,487

Foreign currency translation	(2,159)		(2,613)
Ending balance	$	42,447	$	40,177

11. INCOME TAXES

The Company’s effective tax rates remained relatively consistent for the three months ended ~~September 24,~~July 1, 2023 and June 25, 2022 at 22.7% and ~~September 25, 2021 were 20.7% and 14.7%~~23.2%, respectively. The Company’s effective tax rates for the ~~nine~~six months ended ~~September 24,~~July 1, 2023 and June 25, 2022 were 21.7% and ~~September 25, 2021 were 19.7% and 18.3%~~19.2%, respectively. The increase in the ~~three~~six month effective tax rates from the prior year period was primarily attributable to a decreased tax benefit from stock-based compensation deductions ~~as well as lower research and development tax credits due to a discrete benefit~~ in the ~~three~~six months ended September 25, 2021. The increase in the nine month effective tax rates is attributable primarily to the same reasons as above, partially offset with the deferred tax impact of tax law changes enacted during the nine months ended September 25, 2021.July 1, 2023.

For the three months ended ~~September 24, 2022,~~July 1, 2023, the Company’s unrecognized tax benefits ~~decreased~~increased by ~~$1.2~~$1.1 million to ~~$33.3~~$25.6 million, primarily due to ~~favorable foreign exchange, and the lapse of~~ ~~statutes of limitations, partially offset by~~ increases in research and development tax credit reserves. For the three months ended ~~September 24, 2022,~~July 1, 2023, the amount of unrecognized income tax benefits that would impact the effective tax rate ~~decreased~~increased by ~~$1.5~~$0.6 million to ~~$29.6~~$21.8 million for the same reasons discussed above. The accrued interest on unrecognized tax benefits was ~~$1.1~~$1.0 million as of ~~September 24, 2022.~~July 1, 2023. The Company estimates that it is reasonably possible that the unrecognized tax benefits will decrease by approximately ~~$10.6~~$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:


	July 1, 2023		December 31, 2022		Affected Line Item in the Unaudited Condensed Consolidated Balance Sheets
	(in thousands)
Prepaid income tax	$	87,718	$	88,550	Other current assets
Accrued income taxes	44,813		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 U.K., Germany, and India. The Company does not anticipate resolution of these audits will have a material impact on its consolidated financial statements.

2519

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. ~~RESTRUCTURING AND ASSET IMPAIRMENTS~~SUPPLEMENTAL CASH FLOW INFORMATION

~~In recent fiscal years, the Company has undertaken productivity improvement initiatives within all reportable segments at various locations across the U.S., Canada,~~


	Six Months Ended
	July 1, 2023		June 25, 2022
	(in thousands)
Non-cash investing activities:
Purchases of Property, plant and equipment included in Accounts payable and Accrued liabilities	$	47,850	$	51,776

Cash, cash equivalents and Europe. 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 Nine Months Ended
September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021
(in thousands)
RMS $ (110) $ — $ 1,017 $ 7
DSA 71 815 687 2,449
Manufacturing 1,165 1,516 1,543 2,385
Unallocated corporate (23) — 1,231 (151)
Total $ 1,103 $ 2,331 $ 4,478 $ 4,690

~~As of September 24, 2022 and September 25, 2021, $1.7 million and $3.4 million, respectively, of severance and other personnel related costs liabilities and lease obligation liabilities were~~restricted cash is included in ~~accrued compensation and accrued liabilities within~~ the ~~Company’s~~accompanying unaudited ~~condensed consolidated~~ balance ~~sheets.~~sheet as follows:


	July 1, 2023		December 31, 2022
	(in thousands)
Supplemental cash flow information:
Cash and cash equivalents	$	200,445	$	233,912

Restricted cash included in Other current assets	7,136		6,192
Restricted cash included in Other assets	1,196		1,110
Cash, cash equivalents, and restricted cash, end of period	$	208,777	$	241,214

13. COMMITMENTS AND CONTINGENCIES

Litigation

~~Various lawsuits,~~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 such investigation. The Company is aware of a 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 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. On May 16, 2023, the Company received an inquiry from the Enforcement Division of the U.S. Securities and Exchange Commission (SEC) requesting it to voluntarily provide information primarily related to the sourcing of non-human primates in Asia, and the Company is cooperating with the request. The Company is not able to predict what action, if any, might be taken in the future by the DOJ, USFWS, SEC or other governmental authorities as a result of the investigations. None of the DOJ, USFWS or SEC has provided the Company with any specific timeline or indication as to when these investigations or, specific to the DOJ and USFWS, discussions regarding future processes and procedures, will be concluded or resolved. The Company cannot predict the timing, outcome or possible impact of the investigations, including without limitation any potential fines, penalties or liabilities.

A putative securities class action was filed on May 19, 2023 against the Company and three of its current/former officers (James Foster, the Chief Executive Officer; David R. Smith, the former Chief Financial Officer; and Flavia Pease, the current Chief Financial Officer) in the United States District Court for the District of Massachusetts. The case, which is captioned Coleman v. Charles River Laboratories International, Inc., et al., Case No. 23-cv-11132, asserts claims under §§ 10(b) and ~~proceedings~~20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") on behalf of a putative class of purchasers of Company securities from May 5, 2020 through February 21, 2023. The Complaint alleges that certain of the Company’s disclosures about its practices with respect to the importation of non-human primates made during the putative class period were materially false or misleading. A lead plaintiff has yet to be appointed and the Company intends to file a motion to dismiss. While the Company cannot predict the outcome of this matter, it believes the class action to be without merit and plans to vigorously defend against it. The Company cannot reasonably estimate the maximum potential exposure or the range of possible loss in excess of amounts accrued for this matter.

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.~~

~~14. SUBSEQUENT EVENT~~

~~Avian Vaccine Services Divestiture~~

On November 1, 2022, the Company signed an agreement with a private investor group to sell its Avian Vaccine Services business (“Avian”) for approximately $170 million in cash, subject to certain customary closing adjustments, and future contingent payments up to an additional $30 million. The Company is in the processresults of ~~evaluating the transaction and its impact on the consolidated financial statements. The proposed transaction is expected to close in the fourth quarter of fiscal 2022.~~operations.

2620

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 global ~~non-clinical~~ drug development partner. WeFor over 75 years, we have been in the business of providing the research 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. Government Investigations into the 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 have 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 Fauna and Flora (CITES) documentation and related processes and procedures, which guides the release of each import by

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

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 to the United States until such time that we and USFWS can agree upon and implement additional procedures to reasonably ensure that non-human primates imported 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. On May 16, 2023, we received an inquiry from the Enforcement Division of the U.S. Securities and Exchange Commission (SEC) requesting to voluntarily provide information primarily related to the sourcing of non-human primates in Asia, and we are cooperating with the request. 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. None of the DOJ, USFWS or SEC has provided us with any specific timeline or indication as to when these investigations or, specific to the DOJ and USFWS, discussions regarding future processes and procedures, will be concluded or resolved. 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 July 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.

We are seeing a more cautious spending environment from biopharmaceutical clients with a decrease in DSA backlog to $2.76 billion as of July 1, 2023 from $3.15 billion as of December 31, 2022, but continue to see 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 July 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.

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 and nine months ended September 24,~~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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

purchase price of Explora BioLabs was $284.5 million, net of $6.6 million in cash. The acquisition was funded through proceeds from our Credit Facility. This business is reported as part of our RMS reportable segment.

~~Fiscal Year 2021 Acquisitions~~

On June 28, 2021, we acquired Vigene Biosciences, Inc. (Vigene), a gene therapy 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 included $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 reportable segment. As of September 24, 2022, the fair value of the contingent consideration was zero as certain financial targets have not and are not expected to be achieved.

On March 30, 2021, we acquired Retrogenix Limited (Retrogenix), an outsourced discovery services provider specializing in 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 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 our Credit Facility and Senior Notes issued in fiscal 2021. This business is reported as part of our Manufacturing reportable segment.

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. As of September 24, 2022, the fair value of the contingent consideration was zero as certain operational targets were not achieved.

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. During the nine months ended September 24, 2022, $7.0 million of contingent consideration was paid as certain operational milestones were achieved. Other financial targets associated with the contingent consideration were not met and the fair value of the remaining contingent consideration is zero as of September 24, 2022.

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 ~~November 1,~~December 20, 2022, we ~~signed an agreement with~~completed the sale of our Avian Vaccine Services (Avian) business to a private investor group ~~to sell our Avian Vaccine Services business (“Avian”)~~ for ~~approximately $170~~a preliminary purchase price of $167 million in cash, subject to certain customary closing adjustments, and future contingent payments up to an additional $30 million. ~~We are~~This business was reported in ~~the process of evaluating the transaction and its impact on the consolidated financial statements. The proposed transaction is expected to close in the fourth quarter of fiscal 2022.~~

~~On October 12, 2021, we completed two separate divestitures. We sold~~ our RMS Japan operations to The Jackson Laboratory for a purchase price of $70.9 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 Sweden to a private investor group for a purchase price of $59.6 million, net of $0.2 million in cash and certain post-closing adjustments. Included in the purchase price are 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. As of September 24, 2022, the

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

fair value of the contingent payments was reduced to $7.5 million as certain financial targets are not expected to be achieved. We routinely evaluate the strategic fit and fundamental performance of our businesses. As part of this assessment, we determined that the above capital could be better deployed in other long-term growth opportunities.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 ~~September 24, 2022~~July 1, 2023 increased ~~$93.3~~$86.8 million, or ~~10.4%~~8.9%, to ~~$989.2~~$1,059.9 million compared to ~~$895.9~~$973.1 million in the corresponding period in ~~2021.~~2022. Revenue for the ~~nine~~six months ended ~~September 24, 2022~~July 1, 2023 increased ~~$241.1~~$202.3 million, or ~~9.1%~~10.7%, to ~~$2.9 billion~~$2,089.3 million compared to ~~$2.6 billion~~$1,887.1 million in the corresponding period in ~~2021.~~2022. The increase in revenue ~~in both periods~~ was primarily due to increased ~~demand~~volume and pricing within our ~~DSA segment~~Safety Assessment business and our recent acquisition of Explora BioLabs; partially offset by the ~~divestitures~~divestiture of ~~RMS Japan and CDMO Sweden~~our Avian business and the negative effect of changes in foreign currency exchange rates when compared to the corresponding three and ~~nine~~six month periods in ~~2021.~~2022.

In the three months ended ~~September 24, 2022,~~July 1, 2023, our operating income and operating income margin were ~~$151.0~~$164.9 million and ~~15.3%~~15.6%, respectively, compared with ~~$155.8~~$187.4 million and ~~17.4%~~19.3%, respectively, in the corresponding period of ~~2021.~~2022. In the ~~nine~~six months ended ~~September 24, 2022,~~July 1, 2023, our operating income and operating income margin were ~~$487.2~~$332.8 million and ~~16.9%,~~15.9% respectively, compared with ~~$417.1~~$336.2 million and ~~15.8%~~17.8%, respectively, in the corresponding ~~period~~ of ~~2021.~~2022. The decreases in operating income and operating margin for the three months ended September 24, 2022 was primarily due to higher operating costs associated with our CDMO business, higher staffing costs and modest inflationary pressures. The increases in operating income and operating income margin for the ~~nine~~three and six months ended ~~September 24, 2022~~July 1, 2023 was primarily due to ~~the contribution~~lower operating income within our Manufacturing segment, principally our Biologics Solutions businesses which included higher operating costs, an asset impairment charge, and income in 2022 from a favorable ruling from tax authorities on certain indirect tax positions which did not reoccur; partially offset by contributions of higher revenue described above, lower acquisition related costs, changes in contingent consideration; partially offset by higher operating costs associated with our CDMO business, higher staffing costs and modest inflationary pressures.above.

Net income attributable to common shareholders decreased to ~~$96.5~~$97.0 million in the three months ended ~~September 24, 2022,~~July 1, 2023, from ~~$103.4~~$109.3 million in the corresponding period of ~~2021.~~2022. Net income attributable to common shareholders decreased to $200.2 million in the six months ended July 1, 2023, from $202.3 million in the corresponding period of 2022. The decrease in Net income attributable to common shareholders was primarily due to ~~decreases in~~lower operating income described above, and ~~a decreased tax benefit from stock-based compensation deductions.~~

Net income attributable to common shareholders increased to $298.8 million in the nine months ended September 24, 2022, from $253.4 million in the corresponding period of 2021. The increase in Net income attributable to common shareholders was primarilyhigher interest expense due to the increase in operating income described above and by the absence of debt extinguishment costs associated with the repayment of the 2026 Senior Notes and related write-off of deferred financing costs incurred in 2021; partially offset by higher ~~provision for income taxes and higher losses~~interest rates on our ~~investments~~variable debt, compared to the corresponding period ~~in 2021.~~of 2022.

During the ~~nine~~six months ended ~~September 24, 2022,~~July 1, 2023, our cash flows from operations was ~~$384.9~~$257.5 million compared with ~~$531.5~~$252.1 million for the same period in ~~2021.~~2022. The ~~decrease~~increase was driven by timing and amount of our working capital balances, principally ~~collections of net contract balances from customers (collectively trade receivables and contract assets, net; deferred revenue; and customer contract deposits), inventory purchases, and~~lower variable compensation ~~payments.~~payments; partially offset by timing of our vendor and supplier payments compared to the same period in 2022.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Results of Operations

Three Months Ended ~~September 24, 2022~~July 1, 2023 Compared to the Three Months Ended ~~September~~June 25, ~~2021~~2022

Revenue and Operating Income

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


		Three Months Ended									Three Months Ended
		September 24, 2022		September 25, 2021		$ change		% change			July 1, 2023		June 25, 2022		$ change		% change
		(in millions, except percentages)									(in thousands, except percentages)
Service revenue	Service revenue	$	812.9	$	703.8	$	109.1	15.5	%	Service revenue	$	874,891	$	782,827	$	92,064	11.8	%
Product revenue	Product revenue	176.3		192.1		(15.8)		(8.2)	%	Product revenue	185,046		190,304		(5,258)		(2.8)	%
Total revenue	Total revenue	$	989.2	$	895.9	$	93.3	10.4	%	Total revenue	$	1,059,937	$	973,131	$	86,806	8.9	%

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~


		Three Months Ended											Three Months Ended
		September 24, 2022		September 25, 2021		$ change		% change		Impact of FX			July 1, 2023		June 25, 2022		$ change		% change		Impact of FX
		(in millions, except percentages)											(in thousands, except percentages)
RMS	RMS	$	180.1	$	171.3	$	8.8	5.2	%	(4.0)	%	RMS	$	209,948	$	186,410	$	23,538	12.6	%	(1.3)	%
DSA	DSA	619.5		531.8		87.7		16.5	%	(4.3)	%	DSA	663,457		591,917		71,540		12.1	%	0.1	%
Manufacturing	Manufacturing	189.6		192.8		(3.2)		(1.7)	%	(5.4)	%	Manufacturing	186,532		194,804		(8,272)		(4.2)	%	—	%
Total revenue	Total revenue	$	989.2	$	895.9	$	93.3	10.4	%	(4.5)	%	Total revenue	$	1,059,937	$	973,131	$	86,806	8.9	%	(0.2)	%

The following table presents operating income by reportable segment:


		Three Months Ended													Three Months Ended
		September 24, 2022			September 25, 2021			$ change		% change		Impact of FX			July 1, 2023			June 25, 2022			$ change		% change		Impact of FX
		(in millions, except percentages)													(in thousands, except percentages)
RMS	RMS	$	35.9		$	39.1		$	(3.2)	(8.2)	%	(4.8)	%	RMS	$	48,918		$	39,526		$	9,392	23.8	%	(3.9)	%
DSA	DSA	142.1			116.5			25.6		22.0	%	(1.6)	%	DSA	161,538			128,793			32,745		25.4	%	2.5	%
Manufacturing	Manufacturing	31.5			48.6			(17.1)		(35.2)	%	(9.3)%		Manufacturing	24,403			62,503			(38,100)		(61.0)	%	0.7	%
Unallocated corporate	Unallocated corporate	(58.5)			(48.4)			(10.1)		20.9	%	(1.7)	%	Unallocated corporate	(69,914)			(43,411)			(26,503)		61.1	%	(0.1)	%
Total operating income	Total operating income	$	151.0		$	155.8		$	(4.8)	(3.1)	%	(5.0)	%	Total operating income	$	164,945		$	187,411		$	(22,466)	(12.0)	%	1.2	%
Operating income % of revenue	Operating income % of revenue	15.3		%	17.4		%			(210) bps				Operating income % of revenue	15.6		%	19.3		%			(370) bps

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

RMS


		Three Months Ended													Three Months Ended
		September 24, 2022			September 25, 2021			$ change		% change		Impact of FX			July 1, 2023			June 25, 2022			$ change		% change		Impact of FX
		(in millions, except percentages)													(in thousands, except percentages)
Revenue	Revenue	$	180.1		$	171.3		$	8.8	5.2	%	(4.0)	%	Revenue	$	209,948		$	186,410		$	23,538	12.6	%	(1.3)	%
Cost of revenue (excluding amortization of intangible assets)	Cost of revenue (excluding amortization of intangible assets)	113.2			103.8			9.4		9.1	%			Cost of revenue (excluding amortization of intangible assets)	127,888			114,788			13,100		11.4	%
Selling, general and administrative	Selling, general and administrative	25.5			24.3			1.2		5.1	%			Selling, general and administrative	27,653			26,623			1,030		3.9	%
Amortization of intangible assets	Amortization of intangible assets	5.5			4.1			1.4		34.2	%			Amortization of intangible assets	5,489			5,473			16		0.3	%
Operating income	Operating income	$	35.9		$	39.1		$	(3.2)	(8.2)	%	(4.8)	%	Operating income	$	48,918		$	39,526		$	9,392	23.8	%	(3.9)	%
Operating income % of revenue	Operating income % of revenue	19.9		%	22.8		%			(290) bps				Operating income % of revenue	23.3		%	21.2		%			210 bps

RMS revenue increased ~~$8.8~~$23.5 million due primarily to ~~higher small~~the timing of large research model ~~product revenue~~sales in ~~North America~~China and ~~China,~~ higher research model services revenue, specifically the Insourcing Solutions ~~business, which included the acquisition of Explora BioLabs contributing $15.1 million;~~business; partially offset by ~~the divestiture of RMS Japan, which decreased product revenue by $12.1 million and~~ the effect of changes in foreign currency exchange rates.

RMS operating income ~~decreased $3.2~~increased $9.4 million compared to the corresponding period in ~~2021.~~2022. RMS operating income as a percentage of revenue for the three months ended ~~September 24, 2022~~July 1, 2023 was ~~19.9%~~23.3%, ~~a decrease~~an increase of ~~290~~210 bps from ~~22.8%~~21.2% for the corresponding period in ~~2021.~~2022. Operating income and operating income as a percentage of revenue ~~decreased~~increased primarily due to ~~revenue mix and~~the timing of large research model sales in China; partially offset by higher operating and staffing costs, ~~in China, as well as expansion costs related to new CRADL~~ and ~~Explora sites in~~ the ~~Insourcing Solutions business.~~foreign exchange impact discussed above.

3024

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

DSA


		Three Months Ended													Three Months Ended
		September 24, 2022			September 25, 2021			$ change		% change		Impact of FX			July 1, 2023			June 25, 2022			$ change		% change		Impact of FX
		(in millions, except percentages)													(in thousands, except percentages)
Revenue	Revenue	$	619.5		$	531.8		$	87.7	16.5	%	(4.3)	%	Revenue	$	663,457		$	591,917		$	71,540	12.1	%	0.1	%
Cost of revenue (excluding amortization of intangible assets)	Cost of revenue (excluding amortization of intangible assets)	400.5			356.6			43.9		12.3	%			Cost of revenue (excluding amortization of intangible assets)	420,551			391,225			29,326		7.5	%
Selling, general and administrative	Selling, general and administrative	56.9			37.8			19.1		50.7	%			Selling, general and administrative	63,709			51,140			12,569		24.6	%
Amortization of intangible assets	Amortization of intangible assets	20.0			20.9			(0.9)		(4.5)	%			Amortization of intangible assets	17,659			20,759			(3,100)		(14.9)	%
Operating income	Operating income	$	142.1		$	116.5		$	25.6	22.0	%	(1.6)	%	Operating income	$	161,538		$	128,793		$	32,745	25.4	%	2.5	%
Operating income % of revenue	Operating income % of revenue	22.9		%	21.9		%			100 bps				Operating income % of revenue	24.3		%	21.8		%			250 bps

DSA revenue increased ~~$87.7~~$71.5 million due primarily to service revenue ~~which increased in both the~~volume and pricing increases within our Safety Assessment business principally in pharmaceutical clients, and ~~Discovery Services businesses due principally~~the acquisition of SAMDI which contributed $1.7 million to ~~increased demand and pricing of services;~~service revenue; partially offset by decrease in the ~~effect of changes in foreign currency exchange rates.~~Discovery Business.

DSA operating income increased ~~$25.6~~$32.7 million during the three months ended ~~September 24, 2022~~July 1, 2023 compared to the corresponding period in ~~2021.~~2022. DSA operating income as a percentage of revenue for the three months ended ~~September 24, 2022~~July 1, 2023 was ~~22.9%~~24.3%, an increase of ~~100~~250 bps from ~~21.9%~~21.8% 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 partially offset by higher staffing costs, modest inflationary pressures, and the absence of adjustments to contingent considerations arrangements related to certain acquisition compared to the same period in 2021.

~~Manufacturing~~

Three Months Ended
September 24, 2022 September 25, 2021 $ change % change Impact of FX
(in millions, except percentages)
Revenue $ 189.6 $ 192.8 $ (3.2) (1.7) % (5.4) %
Cost of revenue (excluding amortization of intangible assets) 105.3 98.2 7.1 7.2 %
Selling, general and administrative 42.7 38.2 4.5 11.9 %
Amortization of intangible assets 10.1 7.8 2.3 28.2 %
Operating income $ 31.5 $ 48.6 $ (17.1) (35.2) % (9.3)%
Operating income % of revenue 16.6 % 25.2 % (860) bps

~~Manufacturing revenue decreased $3.2 million due primarily to the divestiture of the CDMO Sweden business, which decreased revenue by $4.2 million, a reduction within our CDMO business,~~ and the effect of changes in foreign currency ~~exchange~~ rates; partially offset by higher ~~service~~legal costs incurred in connection with the investigations by the U.S. government into the non-human primate supply chain and the absence of certain favorable acquisition-related adjustments to contingent consideration arrangements incurred during 2022, which are recorded in selling, general and administrative cost.

Manufacturing


	Three Months Ended
	July 1, 2023			June 25, 2022			$ change		% change		Impact of FX
	(in thousands, except percentages)
Revenue	$	186,532		$	194,804		$	(8,272)	(4.2)	%	—	%
Cost of revenue (excluding amortization of intangible assets)	112,522			110,390			2,132		1.9	%
Selling, general and administrative	38,481			10,537			27,944		265.2	%
Amortization of intangible assets	11,126			11,374			(248)		(2.2)	%
Operating income	$	24,403		$	62,503		$	(38,100)	(61.0)	%	0.7%
Operating income % of revenue	13.1		%	32.1		%			(1,900) bps

Manufacturing revenue decreased $8.3 million due primarily to the divestiture of our Avian business, which decreased revenue by $19.8 million, and lower services revenue from our Biologics Testing businesses; offset by higher revenue within our ~~Biologics Testing Solutions business,~~CDMO businesses and ~~an increased demand for endotoxin products in our~~ Microbial Solutions ~~business.~~businesses.

Manufacturing operating income decreased ~~$17.1~~$38.1 million during the three months ended ~~September 24, 2022~~July 1, 2023 compared to the corresponding period in ~~2021.~~2022. Manufacturing operating income as a percentage of revenue for the three months ended ~~September 24, 2022~~July 1, 2023 was ~~16.6%~~13.1%, a decrease of ~~860~~1,900 bps from ~~25.2%~~32.1% for the corresponding period in ~~2021. The decrease in operating~~2022. Operating income and operating income as a percentage of revenue ~~was~~decreased primarily due to the divestiture of our Avian business, and lower ~~revenue described above, adjustments to contingent consideration arrangements related to certain acquisitions, and~~ operating income within our Biologics Solutions business, including higher operating costs ~~associated with our~~within both the Biologics Testing and CDMO ~~business.~~businesses, and the absence of a $19 million impact from a favorable ruling from tax authorities on certain indirect tax positions recorded within selling, general and administrative expenses in the corresponding period in 2022.

3125

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Unallocated Corporate


		Three Months Ended													Three Months Ended
		September 24, 2022			September 25, 2021			$ change		% change		Impact of FX			July 1, 2023			June 25, 2022			$ change		% change		Impact of FX
		(in millions, except percentages)													(in thousands, except percentages)
Unallocated corporate	Unallocated corporate	$	58.5		$	48.4		$	10.1	20.9	%	(1.7)	%	Unallocated corporate	$	69,914		$	43,411		$	26,503	61.1	%	(0.1)	%
Unallocated corporate % of revenue	Unallocated corporate % of revenue	5.9		%	5.4		%			50 bps				Unallocated corporate % of revenue	6.6		%	4.5		%			210 bps

Unallocated corporate costs consist of selling, general and administrative expenses that are not directly related or allocated to the reportable segments. The increase in unallocated corporate costs of ~~$10.1~~$26.5 million, or ~~20.9%~~61.1%, compared to the corresponding period in ~~2021~~2022 is primarily related to ~~higher~~timing of variable compensation expenses and ~~benefit expenses.~~digital investments. Costs as a percentage of revenue for the three months ended ~~September 24, 2022~~July 1, 2023 was ~~5.9%~~6.6%, an increase of 50210 bps from ~~5.4%~~4.5% for the corresponding period in ~~2021.~~2022.

~~Interest~~Other Income (Expense)











	Three Months Ended
	July 1, 2023		June 25, 2022		$ change		% change
	(in thousands, except percentages)
Other income (expense):
Interest income	$	1,426	$	188	$	1,238	658.5	%
Interest expense	(35,044)		(3,703)		(31,341)		846.4	%
Other income (expense), net	(2,663)		(39,783)		37,120		(93.3)	%
Total other expense, net	$	(36,281)	$	(43,298)	$	7,017	(16.2)	%

Interest ~~income, which represents earnings on cash, cash equivalents, and time deposits was $0.1 million~~expense for ~~both~~ the three months ended ~~September 24, 2022 and~~July 1, 2023 was $35.0 million, an increase of $31.3 million, or 846.4%, compared to $3.7 million in the corresponding period in ~~2021.~~

~~Interest Expense~~

~~Interest expense for thethree months ended September 24, 2022 was $11.4 million, a decrease of $5.1 million, or 30.9%, compared to $16.5 million for the corresponding period in 2021.~~2022. The ~~decrease~~increase was due primarily to a higher ~~foreign currency gain~~interest rates, and the absence of $20.5 million of gains recognized in connection with a debt-related foreign exchange forward contract in the ~~three months ended September 24, 2022, partially offset by higher interest rates on our variable debt as compared to the~~ corresponding period in ~~2021.~~

~~Other Expense, Net~~2022.

Other expense, net ~~was $16.6 million~~ for the three months ended ~~September 24, 2022, an increase~~July 1, 2023 was $2.7 million, a decrease of ~~$0.4~~$37.1 million, or 93.3%, compared to ~~$16.2~~Other expense, net of $39.8 million for the corresponding period in ~~2021.~~2022. The ~~increase in the three months ended September 24, 2022~~decrease was due primarily to ~~higher~~the absence of $19.4 million of 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, and lower net losses incurred on our venture capital investments as compared to ~~the corresponding period in 2021, offset by venture capital investment gains compared to losses incurred for the corresponding period in 2021.~~fiscal year 2022.

Income Taxes


	Three Months Ended
	July 1, 2023			June 25, 2022			$ change		% change
	(in thousands, except percentages)
Provision for income taxes	$	29,221		$	33,449		$	(4,228)	(12.6)	%
Effective tax rate	22.7		%	23.2		%			(50) bps

Income tax expense for the three months ended ~~September 24, 2022~~July 1, 2023 was ~~$25.5~~$29.2 million, ~~an increase~~a decrease of ~~$7.4~~$4.2 million compared to ~~$18.1~~$33.4 million for the corresponding period in ~~2021.~~2022. Our effective tax rate was ~~20.7%~~22.7% for the three months ended ~~September 24, 2022,~~July 1, 2023, which was relatively consistent compared to ~~14.7%~~23.2% for the corresponding period in 2021. The increase in our effective tax rate in the 2022 period compared to the 2021 period was primarily attributable to decreased tax benefit from stock-based compensation deductions, as well as lower research and development tax credits due to a discrete benefit in the three months ended September 25, 2021.2022.

~~Nine~~Six Months Ended ~~September 24, 2022~~July 1, 2023 Compared to ~~the Nine~~Six Months Ended ~~September~~June 25, ~~2021~~2022

Revenue and Operating Income

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


		Nine Months Ended									Six Months Ended
		September 24, 2022		September 25, 2021		$ change		% change			July 1, 2023		June 25, 2022		$ change		% change
		(in millions, except percentages)									(in thousands, except percentages)
Service revenue	Service revenue	$	2,316.2	$	2,045.8	$	270.4	13.2	%	Service revenue	$	1,732,257	$	1,503,312	$	228,945	15.2	%
Product revenue	Product revenue	560.0		589.3		(29.3)		(5.0)	%	Product revenue	357,053		383,748		(26,695)		(7.0)	%
Total revenue	Total revenue	$	2,876.2	$	2,635.1	$	241.1	9.1	%	Total revenue	$	2,089,310	$	1,887,060	$	202,250	10.7	%

3226

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.


		Nine Months Ended											Six Months Ended
		September 24, 2022		September 25, 2021		$ change		% change		Impact of FX			July 1, 2023		June 25, 2022		$ change		% change		Impact of FX
		(in millions, except percentages)											(in thousands, except percentages)
RMS	RMS	$	543.1	$	524.9	$	18.2	3.5	%	(2.7)	%	RMS	$	409,714	$	362,952	$	46,762	12.9	%	(1.9)	%
DSA	DSA	1,755.6		1,573.1		182.5		11.6	%	(3.1)	%	DSA	1,325,810		1,136,176		189,634		16.7	%	(1.0)	%
Manufacturing	Manufacturing	577.5		537.1		40.4		7.5	%	(4.2)	%	Manufacturing	353,786		387,932		(34,146)		(8.8)	%	(0.9)	%
Total revenue	Total revenue	$	2,876.2	$	2,635.1	$	241.1	9.1	%	(3.2)	%	Total revenue	$	2,089,310	$	1,887,060	$	202,250	10.7	%	(1.1)	%

The following table presents operating income by reportable segment:


		Nine Months Ended													Six Months Ended
		September 24, 2022			September 25, 2021			$ change		% change		Impact of FX			July 1, 2023			June 25, 2022			$ change		% change		Impact of FX
		(in millions, except percentages)													(in thousands, except percentages)
RMS	RMS	$	123.3		$	126.6		$	(3.3)	(2.6)	%	(3.0)	%	RMS	$	89,327		$	87,408		$	1,919	2.2	%	(3.3)	%
DSA	DSA	375.9			312.0			63.9		20.5	%	(1.1)	%	DSA	332,969			233,779			99,190		42.4	%	2.5	%
Manufacturing	Manufacturing	140.4			154.7			(14.3)		(9.3)	%	(6.4)	%	Manufacturing	26,509			108,871			(82,362)		(75.7)	%	(0.5)	%
Unallocated corporate	Unallocated corporate	(152.4)			(176.2)			23.8		(13.6)	%	(0.8)	%	Unallocated corporate	(115,968)			(93,869)			(22,099)		23.5	%	(0.7)	%
Total operating income	Total operating income	$	487.2		$	417.1		$	70.1	16.8	%	(3.8)	%	Total operating income	$	332,837		$	336,189		$	(3,352)	(1.0)	%	1.0	%
Operating income % of revenue	Operating income % of revenue	16.9		%	15.8		%			110 bps				Operating income % of revenue	15.9		%	17.8		%			(190) bps

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

RMS


		Nine Months Ended													Six Months Ended
		September 24, 2022			September 25, 2021			$ change		% change		Impact of FX			July 1, 2023			June 25, 2022			$ change		% change		Impact of FX
		(in millions, except percentages)													(in thousands, except percentages)
Revenue	Revenue	$	543.1		$	524.9		$	18.2	3.5	%	(2.7)	%	Revenue	$	409,714		$	362,952		$	46,762	12.9	%	(1.9)	%
Cost of revenue (excluding amortization of intangible assets)	Cost of revenue (excluding amortization of intangible assets)	330.5			315.2			15.3		4.9	%			Cost of revenue (excluding amortization of intangible assets)	254,692			217,248			37,444		17.2	%
Selling, general and administrative	Selling, general and administrative	74.5			70.9			3.6		5.1	%			Selling, general and administrative	54,711			48,986			5,725		11.7	%
Amortization of intangible assets	Amortization of intangible assets	14.8			12.2			2.6		20.9	%			Amortization of intangible assets	10,984			9,310			1,674		18.0	%
Operating income	Operating income	$	123.3		$	126.6		$	(3.3)	(2.6)	%	(3.0)	%	Operating income	$	89,327		$	87,408		$	1,919	2.2	%	(3.3)	%
Operating income % of revenue	Operating income % of revenue	22.7		%	24.1		%			(140) bps				Operating income % of revenue	21.8		%	24.1		%			(230) bps

RMS revenue increased ~~$18.2~~$46.8 million due primarily to ~~higher research model product revenue in North America and China, however China was negatively impacted by COVID-related restrictions that affected client order activity,~~ higher research model services revenue, specifically the Insourcing Solutions business, which included the acquisition of Explora BioLabs contributing ~~$27.8 million;~~$15.6 million and higher research model product revenue in North America and China, higher revenue in the Cell Solutions business; partially offset ~~by the divestiture of RMS Japan, which decreased product revenue by $36.4 million and~~ the effect of changes inby foreign currency exchange rates.

RMS operating income ~~decreased $3.3~~increased $1.9 million compared to the corresponding period in ~~2021.~~2022, primarily due to the contribution of higher revenue described above. RMS operating income as a percentage of revenue for the ~~nine~~six months ended ~~September 24, 2022~~July 1, 2023 was ~~22.7%~~21.8%, a decrease of ~~140~~230 bpsfrom 24.1% for the corresponding period in ~~2021.~~2022. Operating ~~income and operating~~ income as a percentage of revenue decreased ~~primarily~~due to higher amortization, operating, and staffing costs due to the ~~divestiture~~acquisition of ~~RMS Japan~~Explora BioLabs and ~~the COVID-related revenue~~by foreign exchange impact ~~in China.~~

discussed above.

3327

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

DSA


		Nine Months Ended													Six Months Ended
		September 24, 2022			September 25, 2021			$ change		% change		Impact of FX			July 1, 2023			June 25, 2022			$ change		% change		Impact of FX
		(in millions, except percentages)													(in thousands, except percentages)
Revenue	Revenue	$	1,755.6		$	1,573.1		$	182.5	11.6	%	(3.1)	%	Revenue	$	1,325,810		$	1,136,176		$	189,634	16.7	%	(1.0)	%
Cost of revenue (excluding amortization of intangible assets)	Cost of revenue (excluding amortization of intangible assets)	1,164.8			1,062.6			102.2		9.6	%			Cost of revenue (excluding amortization of intangible assets)	832,074			764,366			67,708		8.9	%
Selling, general and administrative	Selling, general and administrative	151.9			134.0			17.9		13.4	%			Selling, general and administrative	125,707			95,000			30,707		32.3	%
Amortization of intangible assets	Amortization of intangible assets	63.0			64.5			(1.5)		(2.4)	%			Amortization of intangible assets	35,060			43,031			(7,971)		(18.5)	%
Operating income	Operating income	$	375.9		$	312.0		$	63.9	20.5	%	(1.1)	%	Operating income	$	332,969		$	233,779		$	99,190	42.4	%	2.5	%
Operating income % of revenue	Operating income % of revenue	21.4		%	19.8		%			160 bps				Operating income % of revenue	25.1		%	20.6		%			450 bps

DSA revenue increased ~~$182.5~~$189.6 million due primarily to service revenue which increased in ~~both~~ the Safety Assessment ~~and Discovery Services businesses~~business due ~~principally~~ to increased demand, ~~and~~principally pharmaceutical clients, pricing of ~~services;~~services, and the acquisition of ~~Retrogenix which contributed $3.3~~SAMDI contributing $2.8 million to ~~Discovery Services~~service revenue; partially offset by the effect of changes in foreign currency exchange rates.

DSA operating income increased ~~$63.9~~$99.2 million ~~during the nine months ended September 24, 2022~~ compared to the corresponding period in ~~2021.~~2022. DSA operating income as a percentage of revenue for the ~~nine~~six months ended ~~September 24, 2022~~July 1, 2023 was ~~21.4%~~25.1%, an increase of ~~160~~450 bps from ~~19.8%~~20.6% 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~~above; partially offset by higher legal costs incurred in connection with investigations by the U.S government into the non-human primate supply chain and the absence of certain favorable acquisition-related adjustments to contingent consideration arrangements ~~related to certain acquisitions; partially offset by higher staffing costs~~incurred during 2022, which are recorded in selling, general and ~~modest inflationary pressures compared to the same period in 2021.~~administrative costs.

Manufacturing


		Nine Months Ended													Six Months Ended
		September 24, 2022			September 25, 2021			$ change		% change		Impact of FX			July 1, 2023			June 25, 2022			$ change		% change		Impact of FX
		(in millions, except percentages)													(in thousands, except percentages)
Revenue	Revenue	$	577.5		$	537.1		$	40.4	7.5	%	(4.2)	%	Revenue	$	353,786		$	387,932		$	(34,146)	(8.8)	%	(0.9)	%
Cost of revenue (excluding amortization of intangible assets)	Cost of revenue (excluding amortization of intangible assets)	317.2			269.6			47.6		17.7	%			Cost of revenue (excluding amortization of intangible assets)	225,914			211,902			14,012		6.6	%
Selling, general and administrative	Selling, general and administrative	86.6			94.9			(8.3)		(8.8)	%			Selling, general and administrative	78,218			43,887			34,331		78.2	%
Amortization of intangible assets	Amortization of intangible assets	33.3			17.9			15.4		86.4	%			Amortization of intangible assets	23,145			23,272			(127)		(0.5)	%
Operating income	Operating income	$	140.4		$	154.7		$	(14.3)	(9.3)	%	(6.4)	%	Operating income	$	26,509		$	108,871		$	(82,362)	(75.7)	%	(0.5)	%
Operating income % of revenue	Operating income % of revenue	24.3		%	28.8		%			(450) bps				Operating income % of revenue	7.5		%	28.1		%			(2,060) bps

Manufacturing revenue ~~increased $40.4~~decreased $34.1 million due primarily to our Biologics Solutions business, which includes the CDMO business acquisitions of Cognate and Vigene, which collectively contributed $43.9 million, and higher service revenue within our Biologics Testing Solutions business, as well as increased revenue in our Microbial Solutions business; partially offset by the divestiture of ~~the CDMO Sweden~~our Avian business, which decreased revenue by ~~$9.0~~$39.0 million, lower services revenue from our Biologics Testing business, and the effect of changes in foreign currency exchange ~~rates.~~rates; partially offset by increased revenue in our CDMO and Microbial Solutions businesses.

Manufacturing operating income decreased ~~$14.3~~$82.4 million ~~during the nine months ended September 24, 2022~~ compared to the corresponding period in ~~2021, which~~2022. Manufacturing operating income as a percentage of revenue for the six months ended July 1, 2023 was 7.5%, a decrease of 2,060 bps from 28.1% for the corresponding period in 2022. Operating income and operating income as a percentage of revenue decreased primarily due to the divestiture of our Avian business and lower operating income within our Biologics Solutions business which included higher ~~amortization~~operating costs in both our Biologics Testing and CDMO businesses, an asset impairment charge, and absence of ~~intangible asset costs; partially offset by~~ a ~~favorable adjustment related to a contingent consideration arrangement and~~$19 million impact of a favorable ruling from tax authorities on certain indirect tax positions recorded within selling, general and administrative ~~expense. Manufacturing operating income as a percentage of revenue for the nine months ended September 24, 2022 was 24.3%, a decrease of 450 bps from 28.8% for~~expense in the corresponding period in ~~2021, primarily due to~~ ~~higher operating costs associated with our CDMO acquisitions.~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

2022.

Unallocated Corporate


		Nine Months Ended													Six Months Ended
		September 24, 2022			September 25, 2021			$ change		% change		Impact of FX			July 1, 2023			June 25, 2022			$ change		% change		Impact of FX
		(in millions, except percentages)													(in thousands, except percentages)
Unallocated corporate	Unallocated corporate	$	152.4		$	176.2		$	(23.8)	(13.6)	%	(0.8)	%	Unallocated corporate	$	115,968		$	93,869		$	22,099	23.5	%	(0.7)	%
Unallocated corporate % of revenue	Unallocated corporate % of revenue	5.3		%	6.7		%			(140) bps				Unallocated corporate % of revenue	5.6		%	5.0		%			60 bps

Unallocated corporate costs consist of selling, general and administrative expenses that are not directly related or allocated to the reportable segments. The ~~decrease~~increase in unallocated corporate costs of ~~$23.8~~$22.1 million, or ~~13.6%~~23.5%, compared to the

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

corresponding period in ~~2021~~2022 is primarily related to ~~decreased costs associated with the evaluation~~timing of variable compensation expenses and ~~integration of our acquisition activity.~~digital investments. Costs as a percentage of revenue for the ~~nine~~six months ended ~~September 24, 2022~~July 1, 2023 was ~~5.3%~~5.6%, ~~a decrease~~an increase of ~~140~~60 bps from ~~6.7%~~5.0% for the corresponding period in ~~2021.~~2022.

Other Income (Expense)











	Six Months Ended
	July 1, 2023		June 25, 2022		$ change		% change
	(in thousands, except percentages)
Other income (expense):
Interest income	$	2,232	$	315	$	1,917	608.6	%
Interest expense	(69,424)		(13,137)		(56,287)		428.5	%
Other income (expense), net	(5,940)		(68,408)		62,468		(91.3)	%
Total other expense, net	$	(73,132)	$	(81,230)	$	8,098	(10.0)	%

Interest ~~Income~~

~~Interest income, which represents earnings on cash, cash equivalents, and time deposits was $0.4 million and $0.3 million~~expense for the ~~nine~~six months ended ~~September 24, 2022 and~~July 1, 2023 was $69.4 million, an increase of $56.3 million, or 428.5%, compared to $13.1 million in the corresponding period in ~~2021, respectively.~~

~~Interest Expense~~

~~Interest expense for thenine months ended September 24, 2022 was $24.5 million, a decrease of $37.9 million, or 60.7%, compared to $62.4 million for the corresponding period in 2021.~~2022. The ~~decrease~~increase was due primarily to higher interest rates, and the absence of ~~$26~~$32.3 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 nine months ended September 25, 2021, higher foreign currency gains recognized in connection with a debt-related foreign exchange forward contract ~~partially offset by higher interest rates on our variable debt~~ in ~~the nine months ended September 24, 2022 compared to~~ the corresponding period in ~~2021.~~

~~Other Expense, Net~~2022.

Other expense, net ~~was $85.0 million~~ for the ~~nine~~six months ended ~~September 24, 2022, an increase~~July 1, 2023 was $5.9 million, a decrease of ~~$47.0~~$62.5 million, or 91.3%, compared to ~~$38.0~~Other expense, net of $68.4 million for the corresponding period in ~~2021.~~2022. The ~~increase~~decrease was due primarily to ~~higher~~the absence of $30.5 million of 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 nine months ended September 24, 2022 as compared to the corresponding period in 2021~~ and ~~increased~~lower net losses incurred on our venture capital ~~investments,~~and strategic equity investments ~~and life insurance investments for the nine months ended September 24, 2022~~ as compared to ~~the corresponding period in 2021.~~fiscal year 2022.

Income Taxes


	Six Months Ended
	July 1, 2023			June 25, 2022			$ change		% change
	(in thousands, except percentages)
Provision for income taxes	$	56,308		$	49,069		$	7,239	14.8	%
Effective tax rate	21.7		%	19.2		%			250 bps

Income tax expense for the ~~nine~~six months ended ~~September 24, 2022~~July 1, 2023 was ~~$74.6~~$56.3 million, an increase of ~~$16.5~~$7.2 million compared to ~~$58.1~~$49.1 million for the corresponding period in ~~2021.~~2022. Our effective tax rate was ~~19.7%~~21.7% for the ~~nine~~six months ended ~~September 24, 2022~~July 1, 2023 compared to ~~18.3%~~19.2% for the corresponding period in ~~2021.~~2022. The increase in our effective tax rate in the ~~2022 period~~six months ended July 1, 2023 compared to the ~~2021~~corresponding period in 2022 was primarily attributable to a decreased tax benefit from stock-based compensation deductions ~~as well as lower research and development tax credits due to a discrete benefit~~ in the ~~three~~six months ended ~~September 25, 2021; partially offset with the deferred tax impact of tax law changes enacted during the nine months ended September 25, 2021.~~July 1, 2023.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

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.

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

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

September 24, 2022 December 25, 2021
(in millions)
Cash and cash equivalents:
Held in U.S. entities $ 18.3 $ 28.2
Held in non-U.S. entities 175.4 213.0
Total cash and cash equivalents 193.7 241.2
Short-term investments:
Held in non-U.S. entities 1.0 1.1
Total cash, cash equivalents and short-term investments $ 194.7 $ 242.3

~~Borrowings~~

~~Amounts outstanding under our Credit Facility and our Senior Notes were as follows:~~
September 24, 2022 December 25, 2021
(in millions)
Revolving facility $ 1,429.2 $ 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 $ 2,929.2 $ 2,661.4

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 LIBOR rate plus 1%) or the adjusted LIBOR 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.

Early in November 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% making the total interest rate 5.825% at our current spread. We designated this derivative instrument as a cash flow hedge at the inception of the contract and expect it to be highly effective.

~~Our off-balance sheet commitments related to our outstanding letters of credit as of September 24, 2022 were $17.7 million.~~

~~Repurchases of Common Stock~~

During the nine months ended September 24, 2022, we did not repurchase any shares under our authorized stock repurchase program. As of September 24, 2022, we had $129.1 million remaining on the authorized $1.3 billion stock repurchase program. 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 nine months ended September 24, 2022, we acquired 0.1 million shares for $38.5 million through such netting.

~~Cash Flows~~


	July 1, 2023		December 31, 2022
	(in thousands)
Cash and cash equivalents:
Held in U.S. entities	$	16,321	$	15,813
Held in non-U.S. entities	184,124		218,099
Total cash and cash equivalents	200,445		233,912
Short-term investments:
Held in non-U.S. entities	951		998
Total cash, cash equivalents and short-term investments	$	201,396	$	234,910

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


		Nine Months Ended					Six Months Ended
		September 24, 2022		September 25, 2021			July 1, 2023		June 25, 2022
		(in millions)					(in thousands)
Net income	Net income	$	303.5	$	259.0	Net income	$	203,397	$	205,890
Adjustments to reconcile net income to net cash provided by operating activities	Adjustments to reconcile net income to net cash provided by operating activities	290.8		273.6		Adjustments to reconcile net income to net cash provided by operating activities	197,185		190,187
Changes in assets and liabilities	Changes in assets and liabilities	(209.4)		(1.1)		Changes in assets and liabilities	(143,077)		(143,973)
Net cash provided by operating activities	Net cash provided by operating activities	$	384.9	$	531.5	Net cash provided by operating activities	$	257,505	$	252,104

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-~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

~~cash~~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 operations. For the ~~nine~~six months ended ~~September 24, 2022,~~July 1, 2023, compared to the ~~nine~~six months ended ~~September~~June 25, ~~2021,~~2022, the ~~decrease~~increase in net cash provided by operating activities was driven by timing and amount of our working capital balances, principally ~~collections of net contract balances from customers (collectively trade receivables and contract assets, net; deferred revenue; and customer contract deposits), inventory purchases, and~~lower variable compensation ~~payments.~~payments; partially offset by timing of our vendor and supplier payments compared to the same period in 2022.

The following table presents our net cash used in investing activities:


		Nine Months Ended					Six Months Ended
		September 24, 2022		September 25, 2021			July 1, 2023		June 25, 2022
		(in millions)					(in thousands)
Acquisition of businesses and assets, net of cash acquired	Acquisition of businesses and assets, net of cash acquired	$	(283.4)	$	(1,292.1)	Acquisition of businesses and assets, net of cash acquired	$	(50,166)	$	(283,392)
Capital expenditures	Capital expenditures	(235.7)		(130.0)		Capital expenditures	(174,258)		(163,316)
Investments, net	Investments, net	(126.3)		(26.0)		Investments, net	(19,746)		(108,637)
Other, net	Other, net	(6.8)		0.9		Other, net	(1,057)		(4,774)
Net cash used in investing activities	Net cash used in investing activities	$	(652.3)	$	(1,447.2)	Net cash used in investing activities	$	(245,227)	$	(560,119)

For the ~~nine~~six months ended ~~September 24,~~July 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 six months ended June 25, 2022, the primary use of cash used in investing activities related to the acquisition of Explora BioLabs, capital expenditures to support the growth of the business and investments in certain venture capital and strategic equity investments. For the nine months ended September 25, 2021, the primary use of cash used in investing activities related to the acquisitions of Cognate, Vigene, Distributed Bio, Retrogenix, 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 net cash ~~provided by~~used in financing activities:


		Nine Months Ended					Six Months Ended
		September 24, 2022		September 25, 2021			July 1, 2023		June 25, 2022
		(in millions)					(in thousands)
Proceeds from long-term debt and revolving credit facility	Proceeds from long-term debt and revolving credit facility	$	2,798.7	$	6,119.7	Proceeds from long-term debt and revolving credit facility	$	281,796	$	2,180,511
Payments on long-term debt, revolving credit facility, and finance lease obligations	Payments on long-term debt, revolving credit facility, and finance lease obligations	(2,524.4)		(5,190.4)		Payments on long-term debt, revolving credit facility, and finance lease obligations	(317,049)		(1,856,262)
Proceeds from exercises of stock options	Proceeds from exercises of stock options	17.7		43.3		Proceeds from exercises of stock options	15,719		15,571
Purchase of treasury stock	Purchase of treasury stock	(38.5)		(40.4)		Purchase of treasury stock	(23,978)		(38,468)
Payment of debt extinguishment and financing costs		—		(38.3)

Purchases of additional equity interests, net	Purchases of additional equity interests, net	(30.5)		—		Purchases of additional equity interests, net	—		(15,438)
Payment of contingent considerations	Payment of contingent considerations	(10.4)		(2.3)		Payment of contingent considerations	(2,711)		(10,356)
Other, net	Other, net	(6.0)		—		Other, net	—		(17,405)
Net cash provided by financing activities		$	206.6	$	891.6
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	$	(46,223)	$	258,153

For the ~~nine~~six months ended ~~September 24,~~July 1, 2023, net cash used in financing activities reflected the net borrowings of $35.3 million on our Credit Facility and finance lease obligations. Included in the net borrowings are net repayments of $33 million from our Credit Facility throughout the six months ended July 1, 2023.

Net cash used in financing activities also reflected treasury stock purchases of $24.0 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 $15.7 million.

For the six months ended June 25, 2022, net cash provided by financing activities reflected the net proceeds of ~~$274.3~~$324.2 million on our Credit Facility, ~~Senior Notes, and~~and finance lease obligations. Included in the net proceeds are the following amounts:

•Borrowings under our Credit Facility of $300 million, which were used primarily for the acquisition of Explora BioLabs;

•Net borrowings of $153 million ~~from~~made to our Credit Facility throughout the ~~nine~~six months ended ~~September 24,~~June 25, 2022;

•Payments of ~~$2.0~~$1.5 billion partially offset by ~~$1.9~~$1.4 billion 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.

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

Net cash ~~provided by~~used in financing activities also reflected treasury stock purchases of $38.5 million made due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements, approximately $15 million payment to purchase an additional 10% interest in a subsidiary, $15.7 million payment to acquire the remaining 2% ownership interest in Cognate, and $10.4 million of contingent consideration payments; partially offset by proceeds from exercises of employee stock options of ~~$17.7~~$15.6 million.

~~For the nine months ended September 25, 2021, net cash provided by~~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 reflected the net proceeds of $929.3 million our Credit Facility, Senior Notes, and finance lease obligations. Included in the net proceeds are the following amounts:~~activities.

•~~Payments of approximately $147 million on our term loan;~~

•~~Proceeds of $1.0 billion from the issuance of the 2029 and 2031 Senior Notes, which were used to prepay our $500 million 2026 Senior Notes;~~

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


	July 1, 2023		December 31, 2022
	(in thousands)
Revolving facility	$	1,168,052	$	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	$	2,668,052	$	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 ~~$1.2 billion, which were used primarily~~(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 ~~acquisitions of Cognate, Vigene, Distributed Bio, Retrogenix~~adjusted EURIBOR rate and ~~certain assets from a distributor;~~(C) for revolving loans denominated in sterling, the daily simple SONIA rate, in each case, plus an interest

•~~Payments of $544 million made to~~

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

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 ~~throughout~~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 ~~nine~~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 July 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 six months ended ~~September 25, 2021;~~

•~~Gross proceeds and borrowings~~July 1, 2023, the most significant drivers of ~~$1.5 billion, but having a net impact of zero, were incurred~~foreign currency translation adjustment the Company recorded as part of ~~amending~~Other comprehensive income (loss) were the British Pound, Euro, Canadian Dollar, and ~~restating~~Hungarian Forint.

Fluctuations in the foreign currency exchange rates of the countries in which we do business will affect our ~~Credit Facility;~~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 six months ended July 1, 2023, our revenue would have decreased by $63.9 million and our operating income would have decreased by $3.5 million, if the U.S. dollar exchange rate had strengthened by 10%, with all other variables held constant.

•~~Gross proceeds~~We attempt to minimize this exposure by using certain financial instruments in accordance with our overall risk management and ~~payments of approximately $2.2 billion in connection with~~our hedge policy. We do not enter into speculative derivative agreements.

During the three months ended June 25, 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 ~~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.

Repurchases of Common Stock

During the six months ended July 1, 2023, we did not repurchase any ~~foreign currency gains or losses~~shares under our authorized stock repurchase program. As of July 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 $43.3 million, offset by treasury stock purchases of $40.4 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 six months ended July 1, 2023, we ~~paid $21~~acquired 0.1 million ~~of debt extinguishment costs associated with the 2026 Senior Notes repayment and $17 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 September 24, 2022 was $190.3 million, of which we funded $125.1$24.0 million through ~~September 24, 2022. Refer to Note 6, “Venture Capital and Strategic Equity Investments” in this Quarterly Report on Form 10-Q for additional information.~~such netting.

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Condition and ~~Summary~~Results of ~~Significant Accounting Policies” to~~Operations” of our Annual Report on Form 10-K for fiscal year ~~2021.~~2022. There have been no changes in the Company’s critical accounting policies during the six months ended July 1, 2023.

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

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 ~~nine~~six months ended ~~September 24, 2022~~July 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 September 24, 2022, our debt portfolio was comprised of fixed and 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 on our floating rate borrowings would increase our annual pre-tax interest expense by $14.3 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 nine months ended September 24, 2022, the most significant drivers of foreign currency translation adjustment the Company recorded as part of Other comprehensive income (loss) were the Euro, British Pound, Canadian Dollar, 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 nine months ended September 24, 2022, our revenue would have decreased by $86.9 million and our operating income would have decreased by $2.0 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 nine months ended September 24, 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.

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 ~~September 24, 2022,~~July 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.

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

(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 September 24, 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 ~~September 24, 2022~~July 1, 2023 that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.

4033

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 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. On May 16, 2023, the Company received an inquiry from the Enforcement Division of the U.S. Securities and Exchange Commission (SEC) requesting it to voluntarily provide information primarily related to the sourcing of non-human primates in Asia, and the Company is cooperating with the request. We are not able to predict what action, if any, might be taken in the future by the DOJ, USFWS, SEC or other governmental authorities as a result of the investigations. None of the DOJ, USFWS or SEC has provided the Company with any specific timeline or indication as to when these investigations or, specific to the DOJ and USFWS, discussions regarding future processes and procedures, will be concluded or resolved. The Company cannot predict the timing, outcome or possible impact of the investigations, including without limitation any potential fines, penalties or liabilities.

A putative securities class action was filed on May 19, 2023 against the Company and three of its current/former officers (James Foster, the Chief Executive Officer; David R. Smith, the former Chief Financial Officer; and Flavia Pease, the current Chief Financial Officer) in the United States District Court for the District of Massachusetts. The case, which is captioned Coleman v. Charles River Laboratories International, Inc., et al., Case No. 23-cv-11132, asserts claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") on behalf of a putative class of purchasers of Company securities from May 5, 2020 through February 21, 2023. The Complaint alleges that certain of the Company’s disclosures about its practices with respect to the importation of non-human primates made during the putative class period were materially false or misleading. A lead plaintiff has yet to be appointed and the Company intends to file a motion to dismiss. While the Company cannot predict the outcome of this ~~Quarterly Report on Form 10-Q.~~matter, it believes the class action to be without merit and plans to vigorously defend against it. The Company cannot reasonably estimate the maximum potential exposure or the range of possible loss in excess of amounts accrued for this matter.

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.~~2022.

~~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.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

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 ~~September 24, 2022.~~July 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)
June 26, 2022 to July 23, 2022 138 $ 214.41 — $ 129,105
July 24, 2022 to August 20, 2022 6 249.68 — 129,105
August 21, 2022 to September 24, 2022 7 205.25 — 129,105
Total 151 —


	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)
April 2, 2023 to April 29, 2023	—	$	—	—	$	129,105
April 30, 2023 to May 27, 2023	10	194.09		—	129,105
May 28, 2023 to July 1, 2023	16	194.13		—	129,105
Total	26			—

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 ~~September 24, 2022,~~July 1, 2023, we did not repurchase any shares of common stock under our stock repurchase program or in open market trading. As of ~~September 24, 2022,~~July 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.

Item 5. Other Information

During the quarter ended July 1, 2023, none of our officers or directors adopted or terminated any contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c)of Regulation S-K.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Item 6. Exhibits


(a) Exhibits			Description of Exhibits
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.

4236

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.

			~~November 2, 2022~~August 9, 2023			/s/ JAMES C. FOSTER
						James C. Foster Chairman, President and Chief Executive Officer

			~~November 2, 2022~~August 9, 2023			/s/ FLAVIA H. PEASE
						Flavia H. Pease Corporate Executive Vice President and Chief Financial Officer

4337


	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	$	609,960	$	461,386	$	72,772	$	4,130	$	1,148,248
Manufacturing	113		8		—		—		121
Total	$	610,073	$	461,394	$	72,772	$	4,130	$	1,148,369


			Adjustments to Goodwill
	December 25, 2021		Acquisition Related		Foreign Exchange		September 24, 2022
	(in thousands)
RMS	$	283,524	$	215,752	$	(2,528)	$	496,748
DSA	1,472,506		—		(81,136)		1,391,370
Manufacturing	955,851		(592)		(67,372)		887,887
Goodwill	$	2,711,881	$	215,160	$	(151,036)	$	2,776,005