CHARLES RIVER LABORATORIES INTERNATIONAL, INC. [CRL] Filings

10-Q 1 crl-20240629.htm 10-Q crl-20240629

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 June 29, 2024


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

Commission File No. 001-15943

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

06-1397316

(State or Other Jurisdiction of
Incorporation or Organization)

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

251 Ballardvale Street

Wilmington, Massachusetts 01887

(Address of Principal Executive Offices) (Zip Code)

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


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

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

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

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


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

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

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

As of July 27, 2024, there were 51,630,726 shares of the Registrant’s common stock outstanding.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 29, 2024

TABLE OF CONTENTS


Item		Page
PART I - FINANCIAL INFORMATION
1	Financial Statements
	Condensed Consolidated Statements of Income (Unaudited) for the three and six months ended June 29, 2024 and July 1, 2023	3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended June 29, 2024 and July 1, 2023	4
	Condensed Consolidated Balance Sheets (Unaudited) as of June 29, 2024 and December 30, 2023	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 29, 2024 and July 1, 2023	6
	Condensed Consolidated Statements of Changes in Equity and Redeemable Noncontrolling Interests (Unaudited) for the three and six months ended June 29, 2024 and July 1, 2023	7
	Notes to Unaudited Condensed Consolidated Financial Statements	9
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
	Overview	27
	Results of Operations	29
	Liquidity and Capital Resources	35
	Critical Accounting Policies and Estimates	38
	Recent Accounting Pronouncements	38
3	Quantitative and Qualitative Disclosure About Market Risk	38
4	Controls and Procedures	38
PART II - OTHER INFORMATION
1	Legal Proceedings	39
1A	Risk Factors	40
2	Unregistered Sales of Equity Securities and Use of Proceeds	40
5	Other Information	40
6	Exhibits	41

Signatures		42

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 availability of non-human primates and our ability to diversify our non-human primate (NHP) supply chain; the outcome of (1) the U.S. government investigations and inquiries related to the NHP supply chain (including shipments of non-human primates from Cambodia received by the Company, (2) the putative securities class action lawsuit filed against us and certain current/former officers on May 19, 2023, (3) the derivative lawsuit filed against members of the Board of Directors and certain current/former officers on November 8, 2023, and (4) the derivative lawsuit filed against certain current/former members of the Board of Directors and certain current/former officers on August 2, 2024; the timing and impact of the development and implementation of enhanced procedures to reasonably ensure that non-human primates we source are purpose-bred; changes and 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 two Cambodian officials had been criminally charged in connection with illegally importing non-human primates into the United States; client demand, particularly future demand for drug discovery and development products and services, including the outsourcing of these services; our expectations with respect to our ability to meet financial targets; our expectations regarding stock repurchases, including the number of shares to be repurchased, expected timing and duration, the amount of capital that may be expended and the treatment of repurchased shares; our ability to successfully execute our business strategy; our ability to timely build infrastructure to satisfy capacity needs and support business growth, our ability to fund our operations for the foreseeable future, the impact of unauthorized access into our information systems, including the timing and effectiveness of any enhanced security and monitoring 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 and the impact of those conditions, including on our allowances for credit losses; our strategic relationships with leading pharmaceutical and biotechnology companies, venture capital investments, and opportunities for future similar arrangements; our cost structure; our expectations regarding our acquisitions and 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, particularly with respect to our CDMO business); the nature, timing and impact of specific actions intended to improve overall operating efficiencies and profitability (and our ability to accommodate future demand with our infrastructure), including actions to optimize our global footprint, and gains and losses attributable to businesses we plan to close, consolidate, divest or repurpose and the impact of operations and restructuring actions (including as estimated on an annualized basis); our expectations with respect to our study cancellation rates and the impact of such cancellations; our expectations with respect to tax benefits; 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 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 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 30, 2023, 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				Six Months Ended
	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Service revenue	$	842,900	$	874,891	$	1,659,762	$	1,732,257
Product revenue	183,217		185,046		377,915		357,053
Total revenue	1,026,117		1,059,937		2,037,677		2,089,310
Costs and expenses:
Cost of services provided (excluding amortization of intangible assets)	577,383		578,099		1,155,547		1,143,576
Cost of products sold (excluding amortization of intangible assets)	95,021		82,861		183,574		169,103
Selling, general and administrative	169,791		199,758		356,082		374,604
Amortization of intangible assets	32,270		34,274		64,845		69,190
Operating income	151,652		164,945		277,629		332,837
Other income (expense):
Interest income	3,010		1,426		5,212		2,232
Interest expense	(32,769)		(35,044)		(67,770)		(69,424)
Other income (expense), net	(2,240)		(2,663)		3,593		(5,940)
Income before income taxes	119,653		128,664		218,664		259,705
Provision for income taxes	25,392		29,221		49,921		56,308
Net income	94,261		99,443		168,743		203,397
Less: Net income attributable to noncontrolling interests	180		2,423		1,702		3,246
Net income available to Charles River Laboratories International, Inc.	$	94,081	$	97,020	$	167,041	$	200,151

Calculation of net income per share attributable to common shareholders of Charles River Laboratories International, Inc.
Net income available to Charles River Laboratories International, Inc.	$	94,081	$	97,020	$	167,041	$	200,151
Less: Adjustment of redeemable noncontrolling interest	301		—		702		—
Less: Incremental dividends attributable to noncontrolling interest holders	3,792		—		9,022		—
Net income available to Charles River Laboratories International, Inc. common shareholders	$	89,988	$	97,020	$	157,317	$	200,151

Earnings per common share
Net income attributable to common shareholders:
Basic	$	1.75	$	1.89	$	3.06	$	3.91
Diluted	$	1.74	$	1.89	$	3.04	$	3.90

Weighted-average number of common shares outstanding:
Basic	51,551		51,216		51,494		51,157
Diluted	51,846		51,467		51,810		51,382

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				Six Months Ended
	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Net income	$	94,261	$	99,443	$	168,743	$	203,397
Other comprehensive income (loss):
Foreign currency translation adjustment	(21,678)		23,227		(84,518)		46,540
Amortization of net loss, settlement losses, and prior service benefit included in total cost for pension and other post-retirement benefit plans	342		174		686		344
Unrealized gains (losses) on hedging instruments	(396)		6,046		372		4,644
Other comprehensive income (loss), before income taxes	(21,732)		29,447		(83,460)		51,528
Less: Income tax expense (benefit) related to items of other comprehensive income	(2,027)		937		(7,500)		(101)
Comprehensive income, net of income taxes	74,556		127,953		92,783		255,026
Less: Comprehensive income (loss) related to noncontrolling interests, net of income taxes	265		78		(976)		1,087
Comprehensive income attributable to Charles River Laboratories International, Inc., net of income taxes	$	74,291	$	127,875	$	93,759	$	253,939







See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share amounts)


	June 29, 2024		December 30, 2023
Assets
Current assets:
Cash and cash equivalents	$	179,213	$	276,771
Trade receivables and contract assets, net of allowances for credit losses of $24,951 and $25,722, respectively	762,221		780,375
Inventories	349,111		380,259
Prepaid assets	97,892		87,879
Other current assets	110,836		83,378
Total current assets	1,499,273		1,608,662
Property, plant and equipment, net	1,613,895		1,639,741
Venture capital and strategic equity investments	231,859		243,811
Operating lease right-of-use assets, net	386,147		394,029
Goodwill	3,079,693		3,095,045
Intangible assets, net	800,129		864,051
Deferred tax assets	36,109		40,279
Other assets	301,178		309,383
Total assets	$	7,948,283	$	8,195,001
Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Accounts payable	$	133,101	$	168,937
Accrued compensation	176,667		213,290
Deferred revenue	247,177		241,820
Accrued liabilities	192,156		227,825
Other current liabilities	198,418		203,210
Total current liabilities	947,519		1,055,082
Long-term debt, net and finance leases	2,409,380		2,647,147
Operating lease right-of-use liabilities	428,587		419,234
Deferred tax liabilities	165,183		191,349
Other long-term liabilities	224,520		223,191
Total liabilities	4,175,189		4,536,003
Commitments and contingencies (Notes 2, 11, 13, and 15)
Redeemable noncontrolling interest	46,076		56,722
Equity:
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; 51,696 shares issued and 51,613 shares outstanding as of June 29, 2024, and 51,338 shares issued and outstanding as of December 30, 2023	517		513
Additional paid-in capital	1,956,629		1,905,578
Retained earnings	2,053,557		1,887,218
Treasury stock, at cost, 83 and zero shares, as of June 29, 2024 and December 30, 2023, respectively	(18,265)		—
Accumulated other comprehensive loss	(269,709)		(196,427)
Total Charles River Laboratories International, Inc. equity	3,722,729		3,596,882
Nonredeemable noncontrolling interests	4,289		5,394
Total equity	3,727,018		3,602,276
Total liabilities, noncontrolling interests and equity	$	7,948,283	$	8,195,001
See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Six Months Ended
	June 29, 2024		July 1, 2023
Cash flows relating to operating activities
Net income	$	168,743	$	203,397
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	171,439		154,740
Stock-based compensation	33,325		29,730

Deferred income taxes	(13,073)		(16,555)
Long-lived asset impairment charges	14,250		10,453
(Gain) loss on venture capital & strategic equity investments, net	(6,305)		5,176
Provision for credit losses	4,719		9,849
Loss on divestitures, net	659		563

Other, net	9,090		3,229
Changes in assets and liabilities:
Trade receivables and contract assets, net	1,072		(48,249)
Inventories	9,750		(32,671)
Accounts payable	(6,436)		(24,985)
Accrued compensation	(33,153)		(7,648)
Deferred revenue	8,151		(6,796)
Customer contract deposits	7,849		(17,519)
Other assets and liabilities, net	(46,657)		(5,209)
Net cash provided by operating activities	323,423		257,505
Cash flows relating to investing activities
Acquisition of businesses and assets, net of cash acquired	(5,479)		(50,166)
Capital expenditures	(118,630)		(174,258)
Purchases of investments and contributions to venture capital investments	(35,538)		(22,689)
Proceeds from sale of investments	12,359		2,943

Other, net	(370)		(1,057)
Net cash used in investing activities	(147,658)		(245,227)
Cash flows relating to financing activities
Proceeds from long-term debt and revolving credit facility	741,200		281,796
Proceeds from exercises of stock options	22,331		15,719
Payments on long-term debt, revolving credit facility, and finance lease obligations	(987,344)		(317,049)
Purchase of treasury stock	(18,265)		(23,978)
Payments of contingent consideration	—		(2,711)
Purchases of additional equity interests, net	(12,000)		—
Other, net	(13,434)		—
Net cash used in financing activities	(267,512)		(46,223)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(11,729)		1,508
Net change in cash, cash equivalents, and restricted cash	(103,476)		(32,437)
Cash, cash equivalents, and restricted cash, beginning of period	284,480		241,214
Cash, cash equivalents, and restricted cash, end of period	$	181,004	$	208,777











See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS (UNAUDITED)

(in thousands)


	Redeemable Noncontrolling Interests		Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Charles River Laboratories, Inc. Equity		Noncontrolling Interest		Total Equity
			Shares	Amount								Shares	Amount
December 30, 2023	$	56,722	51,338	$	513	$	1,905,578	$	1,887,218	$	(196,427)	—	$	—	$	3,596,882	$	5,394	$	3,602,276
Net income	1,201		—	—		—		72,960		—		—	—		72,960		321		73,281
Other comprehensive (loss), net of tax	(2,763)		—	—		—		—		(53,492)		—	—		(53,492)		—		(53,492)
Adjustment of redeemable noncontrolling interests to redemption value	4,807		—	—		(4,406)		(401)		—		—	—		(4,807)		—		(4,807)
Dividends to noncontrolling interests	(2,192)		—	—		—		—		—		—	—		—		—		—
Issuance of stock under employee compensation plans	—		214	2		21,503		—		—		—	—		21,505		—		21,505
Purchase of treasury shares	—		—	—		—		—		—		42	(9,351)		(9,351)		—		(9,351)
Stock-based compensation	—		—	—		16,738		—		—		—	—		16,738		—		16,738
March 30, 2024	57,775		51,552	515		1,939,413		1,959,777		(249,919)		42	(9,351)		3,640,435		5,715		3,646,150
Net income	(332)		—	—		—		94,081		—		—	—		94,081		512		94,593
Other comprehensive income (loss), net of tax	85		—	—		—		—		(19,790)		—	—		(19,790)		—		(19,790)
Adjustment of redeemable noncontrolling interest to redemption value	496		—	—		(195)		(301)		—		—	—		(496)		—		(496)
Dividends to noncontrolling interests	—		—	—		—		—		—		—	—		—		(1,938)		(1,938)
Purchase of remaining equity interest of other redeemable noncontrolling interest	(12,000)		—	—		—		—		—		—	—		—		—		—
Adjustment of purchase price of Noveprim redeemable noncontrolling interest	52		—	—		—		—		—		—	—		—		—		—
Issuance of stock under employee compensation plans	—		144	2		824		—		—		—	—		826		—		826
Purchase of treasury shares	—		—	—		—		—		—		41	(8,914)		(8,914)		—		(8,914)
Stock-based compensation	—		—	—		16,587		—		—		—	—		16,587		—		16,587
June 29, 2024	$	46,076	51,696	$	517	$	1,956,629	$	2,053,557	$	(269,709)	83	$	(18,265)	$	3,722,729	$	4,289	$	3,727,018









See Notes to Unaudited Condensed Consolidated Financial Statements.


	Redeemable Noncontrolling Interests		Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Charles River Laboratories, Inc. Equity		Noncontrolling Interest		Total Equity
			Shares	Amount								Shares	Amount
December 31, 2022	$	42,427	50,944	$	509	$	1,804,940	$	1,432,901	$	(262,057)	—	$	—	$	2,976,293	$	4,785	$	2,981,078
Net income	322		—	—		—		103,131		—		—	—		103,131		501		103,632
Other comprehensive income, net of tax	186		—	—		—		—		22,933		—	—		22,933		—		22,933

Issuance of stock under employee compensation plans	—		316	3		11,789		—		—		—	—		11,792		—		11,792
Purchase of treasury shares	—		—	—		—		—		—		78	(19,012)		(19,012)		—		(19,012)
Stock-based compensation	—		—	—		13,460		—		—		—	—		13,460		—		13,460
April 1, 2023	42,935		51,260	512		1,830,189		1,536,032		(239,124)		78	(19,012)		3,108,597		5,286		3,113,883
Net income	1,857		—	—		—		97,020		—		—	—		97,020		566		97,586
Other comprehensive income, net of tax	(2,345)		—	—		—		—		30,855		—	—		30,855		—		30,855

Issuance of stock under employee compensation plans	—		110	1		3,926		—		—		—	—		3,927		—		3,927
Purchase of treasury shares	—		—	—		—		—		—		26	(4,966)		(4,966)		—		(4,966)
Stock-based compensation	—		—	—		16,270		—		—		—	—		16,270		—		16,270
July 1, 2023	$	42,447	51,370	$	513	$	1,850,385	$	1,633,052	$	(208,269)	104	$	(23,978)	$	3,251,703	$	5,852	$	3,257,555








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 2023 as filed with the SEC on February 14, 2024. Certain reclassifications of prior year amounts have been made to conform to the current year presentation. 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 Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, “Improvements to Reportable Segment Disclosures (Topic 280)”. ASU 2023-07 modifies reportable segment disclosure requirements, primarily through enhanced disclosures about segment expenses categorized as significant or regularly provided to the Chief Operating Decision Maker (CODM). In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, and contain other disclosure requirements. The purpose of the amendments is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the amendments in this update are required to be applied on a retrospective basis. The Company is currently evaluating the impact this new standard will have on the related disclosures in the annual consolidated financial statements, but does not believe there will be a material impact.

In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures (Topic 740)”. ASU 2023-09 requires enhanced disclosures on income taxes paid, adds disaggregation of continuing operations before income taxes between foreign and domestic earnings and defines specific categories for the reconciliation of jurisdictional tax rate to effective tax rate. This ASU is effective for fiscal years beginning after December 15, 2024, and can be applied on a prospective basis. The Company is currently evaluating the impact this new standard will have on the related disclosures on the consolidated financial statements.

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 2023 as filed with the SEC on February 14, 2024.

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 require the Company to purchase 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.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 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: Insourcing Solutions (IS), which provides colony management of clients’ research operations (including recruitment, training, staffing, and management services) within the clients’ facilities and utilizing the Charles River Accelerator and Development Lab (CRADL™) offering, which provides vivarium space to clients, Genetically Engineered Models and Services (GEMS), which performs contract breeding and other services associated with genetically engineered models, and Research Animal Diagnostic Services (RADS), which provides health monitoring and diagnostics services related to research models; and Cell Solutions, which supplies controlled, consistent, customized primary cells and blood components derived from normal and mobilized peripheral blood and bone marrow.

The Company’s DSA reportable segment includes two businesses: Discovery Services and Safety Assessment. The Company provides regulated and non-regulated DSA services to support the research, development, and regulatory-required safety 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.

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 and Biologics Solutions (Biologics), which performs specialized testing of biologics (Biologics Testing Solutions) as well as contract development and manufacturing products and services (CDMO).

2. ACQUISITIONS AND DIVESTITURES

Fiscal 2023 Acquisition

Noveprim Group

On November 30, 2023, the Company completed the acquisition of an additional 41% equity interest of Noveprim Group (Noveprim), a leading supplier of non-human primates (NHPs) located in Mauritius, resulting in a 90% controlling interest. The Company had previously acquired a 49% equity interest in 2022 for $90.0 million plus additional contingent payments up to $5.0 million based on future performance. The total consideration allocable to the Noveprim acquisition is $392.4 million, which includes $144.6 million additional cash paid for the 41% equity interest, elimination of historical activity and intercompany balances of $209.5 million which includes a remeasurement gain on the 49% equity investment of $113.0 million, contingent consideration of $33.3 million, deferred purchase price of $12.0 million payable from 2024 through 2027, offset by estimated post-closing adjustments for working capital of $7.0 million. The purchase price reflected a preliminary agreement with seller on working capital and debt, which was adjusted from $13.8 million to $7.0 million during the quarter ended June 29, 2024. As a result of measurement period adjustments to the purchase price, goodwill and remeasurement gains on the previous 49% equity investment for the quarter ended June 29, 2024, were increased by $17.6 million and $9.8 million, respectively. The contingent consideration fair value is estimated using a Monte Carlo Simulation model and the maximum contingent contractual payments are up to $55.0 million based on future performance and milestone achievements in fiscal years 2023 through 2025. The Company has the call option right to purchase the remaining 10% equity interest up until one month after the sixth anniversary of closing the 41% equity interest. On the first anniversary of the expiration of the call option, a 12-month put option will be triggered giving the seller the right to require the Company to acquire the remaining shares of the seller. The redemption price for the call/put is fixed and ranges from $47.0 million to $54.0 million depending on when exercised. The noncontrolling interest is classified as a redeemable noncontrolling interest in the mezzanine section of the unaudited condensed consolidated balance sheet. 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 for NHPs vertically integrated into the DSA supply chain and the RMS reportable segment for those NHPs sold to third party customers. The Company incurred transaction and integration costs in connection with the acquisition of $0.7 million and $1.4 million for the three months ended June 29, 2024 and July 1, 2023, respectively, which was primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income. The Company incurred transaction and integration costs in connection with the acquisition of $0.9 million and $2.2 million for six months ended June 29, 2024 and July 1, 2023, respectively, which was primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 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. No significant transaction and integration costs were incurred with the acquisition for the three and six months ended June 29, 2024. The Company incurred transaction and integration costs in connection with the acquisition of $0.3 million for the three and six months ended July 1, 2023, respectively, which was primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.

Purchase price information

The purchase price allocation was as follows:


	Noveprim Group(1)		SAMDI Tech, Inc.
	November 30, 2023		January 27, 2023
	(in thousands)
Trade receivables	$	1,308	$	513
Inventories	66,500		—
Other current assets (excluding cash)	3,261		75
Property, plant and equipment	36,154		593
Operating lease right-of-use asset, net	104		—
Goodwill (2)	190,024		37,129
Definite-lived intangible assets	9,500		33,070
Other long-term assets (3)	167,907		6
Deferred revenue	—		(43)
Other current liabilities	(16,268)		(351)
Operating lease right-of-use liabilities (Long-term)	(97)		—
Deferred tax liabilities	(12,984)		(8,191)
Other long-term liabilities	(7,579)		—
Redeemable noncontrolling interest (4)	(45,426)		—
Total purchase price allocation	$	392,404	$	62,801

(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, obligations, and finalization of any working capital adjustments. 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 or synergies to be realized from acquiring an internal supplier servicing the DSA business and the assembled workforce of the acquirees, thus is not deductible for tax purposes.
(3) Other long-term assets acquired from the Noveprim acquisition include $167.8 million of biological assets, which will be amortized over an estimated eight-year useful life.
(4) Refer to Note 12. Equity and Noncontrolling Interests for further a description of the 10% noncontrolling interest fair value.

The definite-lived intangible assets acquired were as follows:


	Noveprim Group		SAMDI Tech, Inc.
Definite-Lived Intangible Assets	(in thousands)
Client relationships	$	—	$	23,400
Other intangible assets	9,500		9,670
Total definite-lived intangible assets	$	9,500	$	33,070

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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				Six Months Ended
	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
	(in thousands)
Timing of Revenue Recognition:
RMS
Services and products transferred over time	$	95,299	$	94,458	$	192,348	$	188,097
Services and products transferred at a point in time	111,090		115,490		234,948		221,617
Total RMS revenue	206,389		209,948		427,296		409,714
DSA
Services and products transferred over time	626,785		662,653		1,230,910		1,324,489
Services and products transferred at a point in time	634		804		1,961		1,321
Total DSA revenue	627,419		663,457		1,232,871		1,325,810
Manufacturing
Services and products transferred over time	104,481		100,460		204,539		186,546
Services and products transferred at a point in time	87,828		86,072		172,971		167,240
Total Manufacturing revenue	192,309		186,532		377,510		353,786
Total revenue	$	1,026,117	$	1,059,937	$	2,037,677	$	2,089,310

Contract Balances from Contracts with Customers

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


	June 29, 2024		December 30, 2023
	(in thousands)
Assets from contracts with customers
Client receivables	$	568,283	$	578,077
Unbilled revenue	218,889		228,020
Total	787,172		806,097
Less: Allowance for credit losses	(24,951)		(25,722)
Trade receivables and contract assets, net	$	762,221	$	780,375

Liabilities from contracts with customers
Current deferred revenue	$	247,177	$	241,820
Long-term deferred revenue (included in Other long-term liabilities)	29,139		30,919
Customer contract deposits (included in Other current liabilities)	92,032		85,554

Approximately 85% of unbilled revenue as of December 30, 2023, which was $228 million, was billed during the six months ended June 29, 2024. Approximately 85% of unbilled revenue as of December 31, 2022, which was $204 million, was billed during the six months ended July 1, 2023.

Approximately 70% of contract liabilities as of December 30, 2023, which was $273 million, were recognized as revenue during the six months ended June 29, 2024. Approximately 75% of contract liabilities as of December 31, 2022, which was $290 million, were recognized as revenue during the six months ended July 1, 2023.

When the Company does not have the unconditional right to advanced billings, both advanced client payments and unpaid advanced client billings are excluded from deferred revenue, with the advanced billings also being excluded from client

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

receivables. The Company excluded approximately $46 million and $41 million of unpaid advanced client billings from both client receivables and deferred revenue in the accompanying unaudited condensed consolidated balance sheets as of June 29, 2024 and December 30, 2023, respectively.

Allowance for Credit Losses

The following is a summary of the activity of the Company’s allowance for credit losses:


	Six Months Ended
		June 29, 2024		July 1, 2023
		(in thousands)
Beginning balance		$	25,722	$	11,278
Provisions		4,719		9,849
Reductions		(5,490)		(3,087)
Ending balance		$	24,951	$	18,040

Net provision expenses were $4.1 million and $9.2 million during the six months ended June 29, 2024 and July 1, 2023, respectively and include recoveries of balances previously written off, which are excluded from the table above.

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 June 29, 2024. Excluded from the disclosure is the value of unsatisfied performance obligations for contracts with an original expected length of one year or less, contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed, and service revenue recognized in accordance with ASC 842, “Leases”. The aggregate amount of transaction price allocated to the remaining performance obligations for all open customer contracts as of June 29, 2024 was $856.6 million. The Company will recognize revenues for these performance obligations as they are satisfied, approximately 50% of which is expected to occur within the next twelve months and the remainder recognized thereafter during the remaining contract term.

Other Performance Obligations

As part of the Company’s service offerings, 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.


	Three Months Ended				Six Months Ended
	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
	(in thousands)								Affected Line Item in the Unaudited Condensed Consolidated Statements of Income
Lease revenue	$	16,716	$	23,891	$	37,690	$	47,981	Service revenue

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. SEGMENT AND GEOGRAPHIC INFORMATION

The Company operates in three reportable segments, RMS, DSA and Manufacturing. Asset information on a reportable segment basis is not disclosed as this information is not separately identified and internally reported to the Company’s Chief Operating Decision Maker (CODM). The following table presents the results of operations by reportable segment:


	Three Months Ended				Six Months Ended
	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
	(in thousands)
RMS
Revenue	$	206,389	$	209,948	$	427,296	$	409,714
Cost of revenue (excluding amortization of intangible assets)	142,942		127,888		283,867		254,692
Selling, general and administrative	27,597		27,653		58,490		54,711
Amortization of intangible assets	5,902		5,489		11,842		10,984
Operating income	$	29,948	$	48,918	$	73,097	$	89,327


DSA
Revenue	$	627,419	$	663,457	$	1,232,871	$	1,325,810
Cost of revenue (excluding amortization of intangible assets)	418,964		420,551		836,876		832,074
Selling, general and administrative	54,479		63,709		111,338		125,707
Amortization of intangible assets	15,600		17,659		31,442		35,060
Operating income	$	138,376	$	161,538	$	253,215	$	332,969


Manufacturing
Revenue	$	192,309	$	186,532	$	377,510	$	353,786
Cost of revenue (excluding amortization of intangible assets)	110,498		112,522		218,378		225,914
Selling, general and administrative	33,813		38,481		66,660		78,218
Amortization of intangible assets	10,768		11,126		21,561		23,145
Operating income	$	37,230	$	24,403	$	70,911	$	26,509


Unallocated Corporate
Selling, general and administrative	$	53,902	$	69,914	$	119,594	$	115,968
Operating income (1)	$	(53,902)	$	(69,914)	$	(119,594)	$	(115,968)

Consolidated
Revenue	$	1,026,117	$	1,059,937	$	2,037,677	$	2,089,310
Cost of revenue (excluding amortization of intangible assets)	672,404		660,960		1,339,121		1,312,679
Selling, general and administrative	169,791		199,758		356,082		374,604
Amortization of intangible assets	32,270		34,274		64,845		69,190
Operating income	$	151,652	$	164,945	$	277,629	$	332,837


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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Capital expenditures and depreciation and amortization (related to both intangible assets and certain assets acquired in business combinations) by reportable segment are as follows:


	RMS		DSA		Manufacturing		Unallocated Corporate		Consolidated
	(in thousands)
Capital Expenditures
Three Months Ended:
June 29, 2024	$	9,313	$	19,444	$	10,583	$	146	$	39,486
July 1, 2023	7,493		48,326		10,862		702		67,383
Six Months Ended:
June 29, 2024	$	29,357	$	68,403	$	19,445	$	1,425	$	118,630
July 1, 2023	26,577		113,510		32,600		1,571		174,258

Depreciation and amortization
Three Months Ended:
June 29, 2024	$	16,538	$	47,729	$	20,073	$	1,742	$	86,082
July 1, 2023	13,949		43,124		19,523		1,075		77,671
Six Months Ended:
June 29, 2024	$	34,661	$	93,518	$	39,878	$	3,382	$	171,439
July 1, 2023	27,438		85,574		39,607		2,121		154,740

Revenue by geographic area is as follows:


	U.S.		Europe		Canada		Asia Pacific		Other		Consolidated
	(in thousands)
Three Months Ended:
June 29, 2024	$	571,427	$	271,377	$	125,244	$	50,387	$	7,682	$	1,026,117
July 1, 2023	606,775		272,976		117,647		59,864		2,675		1,059,937

Six Months Ended:
June 29, 2024	$	1,133,744	$	547,696	$	235,645	$	96,159	$	24,433	$	2,037,677
July 1, 2023	1,212,216		540,679		228,253		102,677		5,485		2,089,310

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

Long-lived assets by geographic area are as follows:


	U.S.		Europe		Canada		Asia Pacific		Other		Consolidated
	(in thousands)
Long-lived assets
June 29, 2024	$	950,254	$	405,429	$	153,945	$	68,868	$	35,399	$	1,613,895
December 30, 2023	964,176		407,375		157,483		74,605		36,102		1,639,741

Long-lived assets consist of property, plant, and equipment, net.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. SUPPLEMENTAL CASH FLOW INFORMATION


	Six Months Ended
	June 29, 2024		July 1, 2023
	(in thousands)
Cash paid for income taxes	$	71,722	$	61,816
Cash paid for interest	65,630		66,563
Non-cash investing activities:
Purchases of Property, plant and equipment included in Accounts payable and Accrued liabilities	$	25,278	$	47,850
Assets acquired under finance leases	3,159		154

Cash, cash equivalents and restricted cash is included in the accompanying unaudited balance sheet as follows:


	June 29, 2024		December 30, 2023
	(in thousands)
Supplemental cash flow information:
Cash and cash equivalents	$	179,213	$	276,771

Restricted cash included in Other current assets	325		5,803
Restricted cash included in Other assets	1,466		1,906
Cash, cash equivalents, and restricted cash, end of period	$	181,004	$	284,480

6. INVENTORY

Inventories

The composition of inventories is as follows:


	June 29, 2024		December 30, 2023
	(in thousands)
Raw materials and supplies	$	43,238	$	42,296
Work in process	57,923		59,727
Finished products	247,950		278,236
Inventories	$	349,111	$	380,259

Inventory step up amortization expense incurred for the three and six months ended June 29, 2024 was $3.5 million and $10.6 million, respectively.

7. PROPERTY, PLANT AND EQUIPMENT, NET

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


	June 29, 2024		December 30, 2023
	(in thousands)
Land	$	78,812	$	79,546
Buildings (1)	1,061,408		1,053,915
Machinery and equipment (1)	1,007,210		984,867
Leasehold improvements	381,879		366,556
Furniture and fixtures	32,060		31,284
Computer hardware and software (1)	259,889		254,413
Vehicles (1)	7,149		6,746
Construction in progress	182,823