10-Q 1 crl-20220326.htm 10-Q crl-20220326
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 26, 2022
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
crl-20220326_g1.jpg
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 StreetWilmingtonMassachusetts01887
(Address of Principal Executive Offices)(Zip Code)
(Registrant’s telephone number, including area code): (781222-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTicker symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueCRLNew 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 filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
As of April 22, 2022, there were 50,804,860 shares of the Registrant’s common stock outstanding.



CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 26, 2022

TABLE OF CONTENTS
Item Page
PART I - FINANCIAL INFORMATION
1Financial Statements
Condensed Consolidated Statements of Income (Unaudited) for the three months ended March 26, 2022 and March 27, 2021
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 26, 2022 and March 27, 2021
Condensed Consolidated Balance Sheets (Unaudited) as of March 26, 2022 and December 25, 2021
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 26, 2022 and March 27, 2021
Condensed Consolidated Statements of Changes in Equity (Unaudited) for the three months ended March 26, 2022 and March 27, 2021
Notes to Unaudited Condensed Consolidated Financial Statements
2Management’s Discussion and Analysis of Financial Condition and Results of Operations
3Quantitative and Qualitative Disclosure About Market Risk
4Controls and Procedures
PART II - OTHER INFORMATION
1Legal Proceedings
1ARisk Factors
2Unregistered Sales of Equity Securities and Use of Proceeds
6Exhibits
Signatures

1


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: the COVID-19 pandemic, its duration, its impact on 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 to timely account for assets on our balance sheet, ability to efficiently implement advisable safety precautions, and internal controls over financial reporting; the COVID-19 pandemic’s impact on demand, the global economy and financial markets, changes and uncertainties in the global economy; client demand, particularly future demand for drug discovery and development products and services, including the outsourcing of these services; 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; our strategic relationships with leading pharmaceutical and biotechnology companies, venture capital investments, and opportunities for future similar arrangements; our cost structure; the impact of acquisitions and divestitures; our expectations with respect to revenue growth and operating synergies (including the impact of specific actions intended to cause related improvements); the impact of implementing newly issued accounting pronouncements; the impact of specific actions intended to improve overall operating efficiencies and profitability (and our ability to accommodate future demand with our infrastructure), including gains and losses attributable to businesses we plan to close, consolidate, divest or repurpose; changes in our expectations regarding future stock option, restricted stock, performance share units, and other equity grants to employees and directors; expectations with respect to foreign currency exchange; assessing (or changing our assessment of) our tax positions for financial statement purposes; and our liquidity. In addition, these statements include the impact of economic and market conditions on us and our clients, the effects of our cost saving 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, 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.



2


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
 March 26, 2022March 27, 2021
Service revenue$720,485 $626,581 
Product revenue193,444 197,985 
Total revenue913,929 824,566 
Costs and expenses:
Cost of services provided (excluding amortization of intangible assets) 486,864 423,975 
Cost of products sold (excluding amortization of intangible assets)90,247 92,313 
Selling, general and administrative150,033 155,733 
Amortization of intangible assets38,007 28,842 
Operating income148,778 123,703 
Other income (expense):
Interest income127 35 
Interest expense(9,434)(29,719)
Other expense, net(28,625)(27,717)
Income before income taxes110,846 66,302 
Provision for income taxes15,620 2,367 
Net income95,226 63,935 
Less: Net income attributable to noncontrolling interests2,204 2,405 
Net income attributable to common shareholders$93,022 $61,530 
Earnings per common share
Net income attributable to common shareholders:
Basic$1.84 $1.23 
Diluted$1.81 $1.20 
Weighted-average number of common shares outstanding:
Basic50,640 49,980 
Diluted51,325 51,075 
See Notes to Unaudited Condensed Consolidated Financial Statements.
3


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
Three Months Ended
March 26, 2022March 27, 2021
Net income$95,226 $63,935 
Other comprehensive income (loss):
Foreign currency translation adjustment(12,952)9,829 
Amortization of net loss and prior service benefit included in net periodic cost for pension and other post-retirement benefit plans746 988 
Comprehensive income, before income taxes related to items of other comprehensive income
83,020 74,752 
Less: Income tax benefit related to items of other comprehensive income(2,018)(1,025)
Comprehensive income, net of income taxes85,038 75,777 
Less: Comprehensive income related to noncontrolling interests, net of income taxes2,209 2,390 
Comprehensive income attributable to common shareholders, net of income taxes$82,829 $73,387 
See Notes to Unaudited Condensed Consolidated Financial Statements.
4


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share amounts)
March 26, 2022December 25, 2021
Assets 
Current assets:  
Cash and cash equivalents$241,869 $241,214 
Trade receivables and contract assets, net of allowances for credit losses of $6,154 and $7,180, respectively
697,843 642,881 
Inventories221,175 199,146 
Prepaid assets90,496 93,543 
Other current assets81,703 97,311 
Total current assets1,333,086 1,274,095 
Property, plant and equipment, net1,321,618 1,291,068 
Operating lease right-of-use assets, net304,758 292,941 
Goodwill2,695,994 2,711,881 
Client relationships, net948,830 981,398 
Other intangible assets, net70,707 79,794 
Deferred tax assets43,404 40,226 
Other assets356,652 352,889 
Total assets$7,075,049 $7,024,292 
Liabilities, Redeemable Noncontrolling Interests and Equity  
Current liabilities:  
Current portion of long-term debt and finance leases$2,642 $2,795 
Accounts payable225,977 198,130 
Accrued compensation165,224 246,119 
Deferred revenue228,260 219,703 
Accrued liabilities227,203 228,797 
Other current liabilities144,533 137,641 
Total current liabilities993,839 1,033,185 
Long-term debt, net and finance leases2,676,165 2,663,564 
Operating lease right-of-use liabilities264,356 252,972 
Deferred tax liabilities230,949 239,720 
Other long-term liabilities239,015 242,859 
Total liabilities4,404,324 4,432,300 
Commitments and contingencies (Notes 2, 9, 11 and 13)
Redeemable noncontrolling interests 55,819 53,010 
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; 50,911 shares issued and 50,800 shares outstanding as of March 26, 2022, and 50,480 shares issued and outstanding as of December 25, 2021
509 505 
Additional paid-in capital1,744,829 1,718,304 
Retained earnings1,073,773 980,751 
Treasury stock, at cost, 111 and 0 shares, as of March 26, 2022 and December 25, 2021, respectively
(33,994) 
Accumulated other comprehensive loss(174,933)(164,740)
Total equity attributable to common shareholders2,610,184 2,534,820 
Noncontrolling interest4,722 4,162 
Total equity2,614,906 2,538,982 
Total liabilities, redeemable noncontrolling interests and equity$7,075,049 $7,024,292 
See Notes to Unaudited Condensed Consolidated Financial Statements.
5


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 Three Months Ended
 March 26, 2022March 27, 2021
Cash flows relating to operating activities  
Net income$95,226 $63,935 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization75,299 61,508 
Stock-based compensation14,619 13,189 
Loss on debt extinguishment and other financing costs1,028 26,907 
Deferred income taxes(7,563)(9,125)
Loss on venture capital and strategic equity investments, net13,903 16,719 
Contingent consideration, fair value changes(3,450) 
Other, net5,211 496 
Changes in assets and liabilities:  
Trade receivables and contract assets, net(57,942)5,598 
Inventories(23,164)(11,404)
Accounts payable40,932 9,622 
Accrued compensation(79,795)(37,360)
Deferred revenue12,078 5,006 
Customer contract deposits4,750 (5,446)
Other assets and liabilities, net11,498 30,584 
Net cash provided by operating activities102,630 170,229 
Cash flows relating to investing activities  
Acquisition of businesses and assets, net of cash acquired (94,197)
Capital expenditures(80,464)(28,030)
Purchases of investments and contributions to venture capital investments(13,296)(16,550)
Proceeds from sale of investments205  
Other, net(4,450)781 
Net cash used in investing activities(98,005)(137,996)
Cash flows relating to financing activities  
Proceeds from long-term debt and revolving credit facility962,005 1,954,011 
Proceeds from exercises of stock options12,199 19,612 
Payments on long-term debt, revolving credit facility, and finance lease obligations(948,267)(1,714,195)
Purchase of treasury stock(33,994)(36,028)
Payment of debt extinguishment and financing costs (28,680)
Other, net(5,226) 
Net cash (used in) provided by financing activities(13,283)194,720 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash5,740 10,953 
Net change in cash, cash equivalents, and restricted cash(2,918)237,906 
Cash, cash equivalents, and restricted cash, beginning of period246,314 233,119 
Cash, cash equivalents, and restricted cash, end of period$243,396 $471,025 
Supplemental cash flow information:
Cash and cash equivalents$241,869 $465,411 
Restricted cash included in Other current assets413 4,012 
Restricted cash included in Other assets1,114 1,602 
Cash, cash equivalents, and restricted cash, end of period$243,396 $471,025 
See Notes to Unaudited Condensed Consolidated Financial Statements.
6


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
    (in thousands)
Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Equity Attributable to Common ShareholdersNoncontrolling InterestTotal Equity
SharesAmountSharesAmount
December 25, 202150,480 $505 $1,718,304 $980,751 $(164,740) $ $2,534,820 $4,162 $2,538,982 
Net income— — — 93,022 — — — 93,022 560 93,582 
Other comprehensive loss— — — — (10,193)— — (10,193)— (10,193)
Adjustment of redeemable noncontrolling interest to redemption value— — (1,161)— — — — (1,161)— (1,161)
Issuance of stock under employee compensation plans431 4 13,067 — — — — 13,071 — 13,071 
Purchase of treasury shares— — — — — 111 (33,994)(33,994)— (33,994)
Stock-based compensation— — 14,619 — — — — 14,619 — 14,619 
March 26, 202250,911 $509 $1,744,829 $1,073,773 $(174,933)111 $(33,994)$2,610,184 $4,722 $2,614,906 
Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Equity Attributable to Common ShareholdersNoncontrolling InterestTotal Equity
SharesAmountSharesAmount
December 26, 202049,767 $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 plans583 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, 202150,350 $504 $1,659,524 $686,944 $(127,017)134 $(36,028)$2,183,927 $4,257 $2,188,184 
See Notes to Unaudited Condensed Consolidated Financial Statements.
7

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. 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 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.
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.
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 consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. 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 in this fiscal year 2022.
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 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); and Research and GMP-Compliant Cells, which 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 non-regulated services to assist clients with the identification, screening, and selection of a lead compound for drug development, and regulated and nonregulated (GLP and non-GLP) safety assessment services. The Company’s Manufacturing reportable segment includes
8

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification services; Biologics Solutions (Biologics), which performs specialized testing of biologics (Biologics Testing Solutions) as well as contract development and manufacturing products and services (CDMO); Avian Vaccine Services (Avian), which supplies specific-pathogen-free chicken eggs and chickens.
2. ACQUISITIONS AND DIVESTITURES
Fiscal 2022 Acquisition
On April 5, 2022, the Company acquired Explora BioLabs Holdings, Inc. (Explora BioLabs), a provider of contract vivarium research services, providing biopharmaceutical clients with turnkey in vivo vivarium facilities, management and related services to efficiently conduct their early-stage research activities. The acquisition of Explora BioLabs complements the Company’s existing Insourcing Solutions business, specifically the CRADL (Charles River Accelerator and Development Lab) footprint, and offers incremental opportunities to partner with an emerging client base, many of which are engaged in cell and gene therapy development. The preliminary purchase price of Explora BioLabs was approximately $295 million in cash, subject to customary closing adjustments. The acquisition was funded through proceeds from the Company’s credit facility (Credit Facility). This business will be reported as part of the Company’s RMS segment. Due to the limited time between the acquisition date and the filing of this Quarterly Report on Form 10-Q, it is not practicable for the Company to disclose the preliminary allocation of the purchase price to assets acquired and liabilities assumed.
Fiscal 2021 Acquisitions
Vigene Biosciences, Inc.
On June 28, 2021, the Company acquired Vigene Biosciences, Inc. (Vigene), a gene therapy contract development and manufacturing organization (CDMO), providing viral vector-based gene delivery solutions. The acquisition enables clients to seamlessly conduct analytical testing, process development, and manufacturing for advanced modalities with the same scientific partner. The purchase price of Vigene was $323.9 million, net of $2.7 million in cash. Included in the purchase price are contingent payments fair valued at $34.5 million, which was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $57.5 million based on future performance). The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s Manufacturing reportable segment.
Retrogenix Limited
On March 30, 2021, the Company acquired Retrogenix Limited (Retrogenix), an early-stage contract research organization providing specialized bioanalytical services utilizing its proprietary cell microarray technology. The acquisition of Retrogenix enhances the Company’s scientific expertise with additional large molecule and cell therapy discovery capabilities. The purchase price of Retrogenix was $53.9 million, net of $8.5 million in cash. Included in the purchase price are contingent payments fair valued at $6.9 million, which is the maximum potential payout, and was based on a probability-weighted approach. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment.
Cognate BioServices, Inc.
On March 29, 2021, the Company acquired Cognate BioServices, Inc. (Cognate), a cell and gene therapy CDMO offering comprehensive manufacturing solutions for cell therapies, as well as for the production of plasmid DNA and other inputs in the CDMO value chain. The acquisition of Cognate establishes the Company as a scientific partner for cell and gene therapy development, testing, and manufacturing, providing clients with an integrated solution from basic research and discovery through cGMP production. The purchase price of Cognate was $877.9 million, net of $70.5 million in cash, subject to certain post-closing adjustments and includes $15.7 million of consideration for an approximate 2% ownership interest not acquired, which was redeemed in April 2022 with the ultimate payout tied to performance in 2021. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility and senior notes (Senior Notes) issued in fiscal 2021. This business is reported as part of the Company’s Manufacturing reportable segment.
Distributed Bio, Inc.
On December 31, 2020, the Company acquired Distributed Bio, Inc. (Distributed Bio), a next-generation antibody discovery company with technologies specializing in enhancing the probability of success for delivering high-quality, readily formattable antibody fragments to support antibody and cell and gene therapy candidates to biopharmaceutical clients. The acquisition of Distributed Bio expands the Company’s capabilities with an innovative, large-molecule discovery platform, and creates an integrated, end-to-end platform for therapeutic antibody and cell and gene therapy discovery and development. The purchase price of Distributed Bio was $97.0 million, net of $0.8 million in cash. The total consideration includes $80.8 million cash paid, settlement of $3.0 million in convertible promissory notes previously issued by the Company during prior fiscal years, and $14.1 million of contingent consideration, which was estimated using a Monte Carlo Simulation model (the maximum
9

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
contingent contractual payments are up to $21.0 million based on future performance and milestone achievements over a one-year period). The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment.
Other Acquisition
On March 3, 2021, the Company acquired certain assets from a distributor that supports the Company’s DSA reportable segment. The purchase price was $35.4 million, which includes $19.5 million in cash paid ($5.5 million of which was paid in fiscal 2020), and $15.9 million of contingent consideration, which was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $17.5 million based on future performance over a three-year period). The fair value of the net assets acquired included $17.3 million of goodwill, $15.2 million attributed to supplier relationships (to be amortized over a 4-year period), and $3.0 million of property, plant, and equipment. The business is reported as part of the Company’s DSA reportable segment.
Purchase price information
The purchase price allocation was as follows:
Vigene (3)
RetrogenixCognateDistributed Bio
June 28, 2021March 30, 2021March 29, 2021December 31, 2020
(in thousands)
Trade receivables$3,548 $2,266 $18,566 $2,722 
Other current assets (excluding cash)1,657 209 14,128 221 
Property, plant and equipment7,649 400 52,082 2,382 
Operating lease right-of-use asset, net22,507 1,385 34,349 1,586 
Goodwill (1)
239,681 34,489 611,555 71,585 
Definite-lived intangible assets93,900 22,126 270,900 24,540 
Other long-term assets694  6,098 469 
Deferred revenue(4,260)(434)(20,539)(1,319)
Other current liabilities (2)
(6,319)(1,141)(45,388)(1,504)
Operating lease right-of-use liabilities (Long-term)(21,220)(1,205)(31,383)(1,123)
Deferred tax liabilities(13,958)(4,174)(32,503)(2,529)
Total purchase price allocation$323,879 $53,921 $877,865 $97,030 
(1) The goodwill resulting from these transactions is primarily attributable to the potential growth of the Company’s segments from new customers introduced to the acquired businesses and the assembled workforce of the acquirees. The goodwill attributable to these entities is not deductible for tax purposes.
(2) In connection with its acquisitions of businesses, the Company routinely records liabilities related to indirect state and local taxes for preacquisition periods when such liabilities are estimable and deemed probable. The Company may or may not be indemnified for such indirect tax liabilities under terms of the acquisitions. As these indirect tax contingencies are resolved, actual obligations, and any indemnifications, may differ from the recorded amounts and any differences are reflected in reported results in the period in which these are resolved. As of March 26, 2022, the Company estimates that it is reasonably possible that these recorded liabilities of $17 million may decrease over the next twelve month period as the Company seeks a favorable ruling from tax authorities on certain indirect tax positions.
(3) Purchase price allocation is preliminary and subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.
10

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The definite-lived intangible assets acquired were as follows:
VigeneRetrogenixCognateDistributed Bio
Definite-Lived Intangible Assets(in thousands)
Client relationships$87,500 $17,340 $257,200 $16,080 
Other intangible assets6,400 4,786 13,700 8,460 
Total definite-lived intangible assets$93,900 $22,126 $270,900 $24,540 
Weighted Average Amortization Life(in years)
Client relationships1213139
Other intangible assets2324
Total definite-lived intangible assets1111137
The company incurred transaction and integration costs in connection with its acquisitions of $7.1 million and $8.7 million, which were included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income for the three months ended March 26, 2022 and March 27, 2021, respectively.
Pro forma information
The following selected unaudited pro forma consolidated results of operations are presented as if the Cognate and Vigene acquisitions had occurred as of the beginning of the period immediately preceding the period of acquisition, which is December 29, 2019, after giving effect to certain adjustments. For the three months ended March 26, 2021, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $9.2 million, additional interest expense on borrowing of $3.4 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments. All other acquisitions have not been included because that information is not material to the consolidated financial statements.
Three Months Ended
March 27, 2021
(in thousands)
(unaudited)
Revenue$858,800 
Net income attributable to common shareholders37,575 
These unaudited pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the dates indicated or that may result in the future. No effect has been given for synergies, if any, that may be realized through the acquisition.
RMS Japan Divestiture
On October 12, 2021, the Company sold its RMS Japan operations to The Jackson Laboratory for a preliminary purchase price of $73.1 million, which included $7.9 million in cash, $3.8 million pension over funding, and certain post-closing adjustments.
The RMS Japan business was reported in the Company’s RMS reportable segment. The Company determined that the RMS Japan business was not optimized within the Company’s portfolio at its current scale, and that the capital could be better deployed in other long-term growth opportunities.
CDMO Sweden Divestiture
On October 12, 2021, the Company sold its gene therapy CDMO site in Sweden to a private investor group for a preliminary purchase price of $59.6 million, net of $0.2 million in cash and other post-closing adjustments that may impact the purchase price. Included in the purchase price are contingent payments fair valued at $15.3 million, which were estimated using a probability weighted model (the maximum contingent contractual payments are up to $25.0 million based on future performance), as well as a purchase obligation of approximately $10.0 million between the parties.
The CDMO Sweden business was acquired in March 2021 as part of the acquisition of Cognate and was reported in the Company’s Manufacturing reportable segment. The Company routinely evaluates the strategic fit and fundamental performance of our acquisitions integrated within our global infrastructure. As part of this assessment, the Company determined that this capital could be better deployed in other long-term growth opportunities.

11

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 JapanCDMO Sweden
(in thousands)
Assets
Current assets
$26,524 $8,187 
Property, plant, and equipment, net17,379 14,339 
Operating lease right-of-use assets, net 19,733 
Goodwill4,129 27,764 
Intangible assets, net 14,089 
Other assets3,695  
Total assets$51,727 $84,112 
Liabilities
Current liabilities$8,705 $6,386 
Operating lease right-of-use liabilities 18,221 
Long-term liabilities94  
Total liabilities$8,799 $24,607 
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
The following table disaggregates the Company’s revenue by major business line and timing of transfer of products or services:
Three Months Ended
March 26, 2022March 27, 2021
(in thousands)
Timing of Revenue Recognition:
RMS
Services and products transferred over time$69,924 $64,896 
Services and products transferred at a point in time106,618 112,014 
Total RMS revenue176,542 176,910 
DSA
Services and products transferred over time542,336 500,468 
Services and products transferred at a point in time1,923 710 
Total DSA revenue544,259 501,178 
Manufacturing
Services and products transferred over time95,009 50,568 
Services and products transferred at a point in time98,119 95,910 
Total Manufacturing revenue193,128 146,478 
Total revenue$913,929 $824,566 
RMS
The RMS business generates revenue through the commercial production and sale of research models, research and GMP-compliant cells (cell supply), and the provision of services related to the maintenance and monitoring of research models and management of clients’ research operations. Revenue from the sale of research models and cell supply is recognized at a point in time when the customer obtains control of the product, which may be upon shipment or upon delivery based on the shipping terms of a contract. Revenue generated from research models services is recognized over time and is typically based on a right-to-invoice measure of progress (output method) as invoiced amounts correspond directly to the value of the Company’s performance to date.
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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DSA
The DSA business provides a full suite of integrated drug discovery services directed at the identification, screening and selection of a lead compound for drug development and offers a full range of safety assessment services including bioanalysis, drug metabolism, pharmacokinetics, toxicology and pathology. DSA services revenue is generally recognized over time using the cost-to-cost or right to invoice measures of progress, primarily representing fixed fee service contracts and per unit service contracts, respectively.
Manufacturing
The Manufacturing business includes Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification services; Biologics Solutions (Biologics), which performs specialized testing of biologics (Biologics Testing Solutions) as well as contract development and manufacturing products and services (CDMO); and Avian Vaccine Services (Avian), which supplies specific-pathogen-free chicken eggs and chickens. Species identification service revenue is generally recognized at a point in time as identifications are completed by the Company. Biologics service revenue is generally recognized over time using the cost-to-cost measure of progress. Microbial Solutions and Avian product sales are generally recognized at a point in time when the customer obtains control of the product, which may be upon shipment or upon delivery based on the contractual shipping terms of a contract.
Transaction Price Allocated to Future Performance Obligations
The Company discloses the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of March 26, 2022. Excluded from the disclosure is the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed and (iii) service revenue recognized in accordance with ASC 842, “Leases” (see additional disclosure for Other Performance Obligations).
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) as of March 26, 2022:
Revenue Expected to be Recognized in Future Periods
Less than 1 Year1 to 3 Years4 to 5 YearsBeyond 5 YearsTotal
(in thousands)
DSA$404,549 $414,174 $36,670 $1,752 $857,145 
Manufacturing1,875    1,875 
Total$406,424 $414,174 $36,670 $1,752 $859,020 
Contract Balances from Contracts with Customers
The timing of revenue recognition, billings and cash collections results in billed receivables (client receivables), contract assets (unbilled revenue), and contract liabilities (current and long-term deferred revenue and customer contract deposits) on the unaudited condensed consolidated balance sheets. The Company’s payment terms are generally 30 days in the United States and consistent with prevailing practice in international markets. A contract asset is recorded when a right to consideration in exchange for goods or services transferred to a customer is conditioned other than the passage of time. Client receivables are recorded separately from contract assets since only the passage of time is required before consideration is due. A contract liability is recorded when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.
The following table provides information about client receivables, contract assets, and contract liabilities from contracts with customers:
March 26, 2022December 25, 2021
(in thousands)
Balances from contracts with customers:
Client receivables$526,736 $489,452 
Contract assets (unbilled revenue)177,261 160,609 
Contract liabilities (current and long-term deferred revenue)251,182 240,281 
Contract liabilities (customer contract deposits)63,985 59,512 
When the Company does not have the unconditional right to advanced billings, both advanced client payments and unpaid
13

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 $44 million and $36 million of unpaid advanced client billings from both client receivables and deferred revenue in the accompanying unaudited condensed consolidated balance sheets as of March 26, 2022 and December 25, 2021, respectively. Advanced client payments of approximately $64 million and $60 million have been presented as customer contract deposits within other current liabilities in the accompanying unaudited condensed consolidated balance sheets as of March 26, 2022 and December 25, 2021, respectively.
Other changes in the contract asset and the contract liability balances during the three months ended March 26, 2022 and March 27, 2021 were as follows:
(i) Changes due to acquisitions and divestitures:
See Note 2. “Acquisitions and Divestitures” for the Company’s recent acquisitions.
(ii) Cumulative catch-up adjustments to revenue that affect the corresponding contract asset or contract liability, including adjustments arising from a change in the measure of progress, a change in an estimate of the transaction price (including any changes in the assessment of whether an estimate of variable consideration is constrained), or a contract modification:
During the three months ended March 26, 2022 and March 27, 2021, immaterial cumulative catch-up adjustments to revenue were recorded.
(iii) A change in the time frame for a right to consideration to become unconditional (that is, for a contract asset to be recorded as a client receivable):
Approximately 60% of unbilled revenue as of December 25, 2021, which was $161 million, was billed during the three months ended March 26, 2022. Approximately 60% of unbilled revenue as of December 26, 2020, which was $135 million, was billed during the three months ended March 27, 2021.
(iv) A change in the time frame for a performance obligation to be satisfied (that is, for the recognition of revenue arising from a contract liability):
Approximately 65% of contract liabilities as of December 25, 2021, which was $240 million, were recognized as revenue during the three months ended March 26, 2022. Approximately 60% of contract liabilities as of December 26, 2020, which was $227 million, were recognized as revenue during the three months ended March 27, 2021.
Other Performance Obligations
As part of the Company’s service offerings, primarily in the Manufacturing segment, the Company has identified performance obligations related to leasing Company owned assets. In certain arrangements, customers obtain substantially all of the economic benefits of the identified assets, which may include manufacturing suites and related equipment, and have the right to direct the assets’ use over the term of the contract. The associated revenue is recognized on a straight-line basis over the term of the lease, which is generally less than one year. For the three months ended March 26, 2022, the Company recognized lease revenue of $7.9 million, which is recorded within service revenue, which is transferred over time, within the unaudited condensed consolidated statements of income. Due to the nature of these arrangements and timing of the contractual lease term, the remaining revenue to be recognized related to these lease performance obligations is not material to the unaudited condensed consolidated financial statements.
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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. SEGMENT INFORMATION
The following table presents revenue and other financial information by reportable segment:
Three Months Ended
March 26, 2022March 27, 2021
(in thousands)
RMS
Revenue$176,542 $176,910 
Operating income47,882 44,935 
Depreciation and amortization9,469 9,679 
Capital expenditures8,646 2,983 
DSA
Revenue$544,259 $501,178 
Operating income104,986 90,949 
Depreciation and amortization46,789 44,608 
Capital expenditures48,930 17,040 
Manufacturing
Revenue$193,128 $146,478 
Operating income46,368 49,437 
Depreciation and amortization18,482 6,569 
Capital expenditures22,828 7,110 
The following tables present reconciliations of segment operating income, depreciation and amortization, and capital expenditures to the respective consolidated amounts:
Operating IncomeDepreciation and AmortizationCapital Expenditures
March 26, 2022March 27, 2021March 26, 2022March 27, 2021March 26, 2022March 27, 2021
(in thousands)
Three Months Ended:
Total reportable segments$199,236 $185,321 $74,740 $60,856 $80,404 $27,133 
Unallocated corporate (50,458)(61,618)559 652 60 897 
Total consolidated$148,778 $123,703 $75,299 $61,508 $80,464 $28,030 

Revenue for each significant product or service offering is as follows:
 Three Months Ended
March 26, 2022March 27, 2021
(in thousands)
RMS$176,542 $176,910 
DSA544,259 501,178 
Manufacturing193,128 146,478 
Total revenue$913,929 $824,566 
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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of unallocated corporate expense consists of the following:
Three Months Ended
March 26, 2022March 27, 2021
(in thousands)
Stock-based compensation$8,503 $7,642 
Compensation, benefits, and other employee-related expenses28,636 27,362 
External consulting and other service expenses4,319 7,356 
Information technology
2,474 4,095 
Depreciation559 652 
Acquisition and integration5,826 10,560 
Other general unallocated corporate141 3,951 
Total unallocated corporate expense$50,458 $61,618 
Other general unallocated corporate expense consists of costs associated with departments such as senior executives, corporate accounting, legal, tax, human resources, treasury, and investor relations.
Revenue by geographic area is as follows:
U.S.EuropeCanadaAsia PacificOtherConsolidated
(in thousands)
Three Months Ended:
March 26, 2022$526,549 $251,087 $85,246 $48,946 $2,101 $913,929 
March 27, 2021448,482 237,535 77,107 59,446 1,996 824,566 
Included in the Other category above are operations located in Brazil and Israel. Revenue represents sales originating in entities physically located in the identified geographic area.
5. SUPPLEMENTAL BALANCE SHEET INFORMATION
The composition of trade receivables and contract assets, net is as follows:
March 26, 2022December 25, 2021
(in thousands)
Client receivables$526,736 $489,452 
Unbilled revenue177,261 160,609 
Total703,997 650,061 
Less: Allowance for credit losses(6,154)(7,180)
Trade receivables and contract assets, net$697,843 $642,881 
The composition of inventories is as follows:
March 26, 2022December 25, 2021
(in thousands)
Raw materials and supplies$