Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID 238)			56
Consolidated Statements of Income for fiscal years 2021, 2020 and 2019			59
Consolidated Statements of Comprehensive Income for fiscal years 2021, 2020 and 2019			60
Consolidated Balance Sheets as of December 25, 2021 and December 26, 2020			61
Consolidated Statements of Cash Flows for fiscal years 2021, 2020 and 2019			62
Consolidated Statements of Changes in Equity for fiscal years 2021, 2020 and 2019			64
Notes to Consolidated Financial Statements			65
Note 1. Description of Business and Summary of Significant Accounting			65
Note 2. Acquisitions and Divestitures			73
Note 3. Revenue from Contracts with Customers			82
Note 4. Segment and Geographic Information			84
Note 5. Supplemental Balance Sheet Information			86
Note 6. Venture Capital Investments and Marketable Securities			88
Note 7. Fair Value			89
Note 8. Goodwill and Intangible Assets			90
Note 9. Long-Term Debt and Finance Lease Obligations			91
Note 10. Equity and Noncontrolling Interest			93
Note 11. Income Taxes			95
Note 12. Employee Benefit Plans			97
Note 13. Stock-based Compensation			102
Note 14. Foreign Currency Contracts			104
Note 15. Restructuring and Asset Impairments			105
Note 16. Leases			106
Note 17. Commitments and Contingencies			108

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Charles River Laboratories International, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Charles River Laboratories International, Inc. and its subsidiaries (the “Company”) as of December 25, 2021 and December 26, 2020, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 25, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 25, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 25, 2021 and December 26, 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 25, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 25, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Cognate BioServices, Inc. (Cognate) and Vigene Biosciences, Inc. (Vigene) from its assessment of internal control over financial reporting as of December 25, 2021 because they were acquired by the Company in purchase business combinations during 2021. We have also excluded Cognate and Vigene from our audit of internal control over financial reporting. Cognate and Vigene are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent 2.5% and 3.1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 25, 2021.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Acquisitions of Cognate BioServices, Inc. and Vigene Biosciences, Inc. – Valuation of Customer Relationship Intangible Assets

As described in Notes 1 and 2 to the consolidated financial statements, the Company completed the acquisitions of Cognate BioServices, Inc. (Cognate) and Vigene Biosciences, Inc. (Vigene) in 2021. The preliminary purchase price allocation for Cognate and Vigene included customer relationship intangible assets (also referred to as client relationships) of $257.2 million and $87.5 million, respectively. The determination of the fair value of the intangible assets requires the use of significant judgment using management’s best estimates of inputs and assumptions that a market participant would use. Significant judgments include (i) the fair value; and (ii) the period and the method by which the intangible assets will be amortized. To determine the fair value of the acquired client relationships, management utilized the multiple period excess earnings model (a commonly accepted valuation technique), which relies on the following key assumptions: projections of cash flows from the acquired entities, which includes future revenue growth rates, operating income margins, and customer attrition rates, as well as the discount rates based on an analysis of the acquired entities’ weighted average cost of capital.

The principal considerations for our determination that performing procedures relating to the acquisition of Cognate and Vigene - valuation of acquired customer relationship intangible assets is a critical audit matter are (i) the high degree of auditor judgment and subjectivity in performing procedures relating to the fair value of the customer relationship intangible assets acquired due to the significant amount of judgment by management when developing the estimate, (ii) the significant audit effort in evaluating the significant assumptions related to the future revenue growth rates, operating income margins, customer attrition rates, and discount rates related to the Cognate customer relationship intangible assets and the future revenue growth rate, operating income margin, and discount rate related to the Vigene customer relationship intangible asset and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of acquired customer relationship intangible assets and development of key assumptions related to future revenue growth rates, operating income margins, customer attrition rates, and discount rates related to the Cognate customer relationship intangible assets and the future revenue growth rate, operating income margin, and discount rate related to the Vigene customer relationship intangible asset. These procedures also included, among others, (i) reading the purchase agreement and (ii) testing management’s process for estimating the fair value of customer relationship intangible assets. Testing management’s process included evaluating the appropriateness of the valuation model, testing the completeness and accuracy of data provided by management, and evaluating reasonableness of significant assumptions related to the estimated future revenue growth rates, operating income margins, customer attrition rates, and discount rates related to Cognate and estimated future revenue growth rate, operating income margin, and discount rate related to Vigene. Evaluating the reasonableness of the estimated future revenue growth rates, operating income margins, customer attrition rates, and discount rates assumptions involved considering their consistency with data from external sources, past performance of the acquired businesses, and evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s valuation model and management’s significant assumptions related to customer attrition and discount rates.

Discovery and Safety Assessment Revenue Recognized Over Time

As described in Notes 1 and 3 to the consolidated financial statements, the Company recognized revenue of $2,107.2 million in its Discovery and Safety Assessment (DSA) segment in 2021, of which $2,103.4 million was recognized over time as services are delivered to the customer based on the extent of progress towards completion of the performance obligation using either the cost-to-cost (input method) or right to invoice (output method) measures of progress. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. Management uses the cost-to-cost measure of progress when it best depicts the transfer of value to the customer, which occurs

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

as the Company incurs costs on its contract, generally related to fixed fee service contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. The costs calculation includes variables such as labor hours, allocation of overhead costs, research model costs, and subcontractor costs. Revenue is recorded proportionally as costs are incurred. The right-to-invoice measure of progress is generally related to rate per unit contracts, as the extent of progress towards completion is measured based on discrete service or time-based increments, such as samples tested or labor hours incurred. Revenue is recorded in the amount invoiced since that amount corresponds directly to the value of the Company’s performance to date.

The principal considerations for our determination that performing procedures relating to DSA revenue recognized over time is a critical audit matter are the high degree of auditor subjectivity and effort in performing procedures and in evaluating audit evidence related to the extent of progress towards completion, actual costs incurred, and management’s assumptions used in determining the total estimated costs at completion related to labor hours, allocation of overhead costs, research model costs, and subcontractor costs.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to DSA revenue recognized over time, including controls over the extent of progress towards completion, actual costs incurred and determination of total estimated costs at completion, review of agreements, review of budget versus actual costs incurred and review of revenue recognition. These procedures also included, among others, (i) reading agreements and reports describing the results of services provided for a sample of service contracts, (ii) evaluating and testing management’s process for determining the amount of revenue recognized for a sample of service contracts, which included evaluating the reasonableness of the estimates of costs and management’s assumptions related to labor hours, allocation of overhead costs, research model costs, and subcontractor costs through a comparison of actual current year project costs to historical management cost estimates for completed service contracts, and (iii) testing actual costs incurred for a sample of in-process service contracts by examining evidence of costs incurred.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 16, 2022

We have served as the Company’s auditor since 1999.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

			Fiscal Year
			2021						2020						2019
Service revenue			$	2,755,579					$	2,296,156					$	2,029,371
Product revenue			784,581						627,777						591,855
Total revenue			3,540,160						2,923,933						2,621,226
Costs and expenses:
Cost of services provided (excluding amortization of intangible assets)			1,837,487						1,533,230						1,371,699
Cost of products sold (excluding amortization of intangible assets)			368,035						317,162						291,216
Selling, general and administrative			619,919						528,935						517,622
Amortization of intangible assets			124,857						111,877						89,538
Operating income			589,862						432,729						351,151
Other income (expense):
Interest income			652						834						1,522
Interest expense			(73,910)						(86,433)						(60,882)
Other (expense) income, net			(35,894)						99,984						12,293
Income before income taxes			480,710						447,114						304,084
Provision for income taxes			81,873						81,808						50,023
Net income			398,837						365,306						254,061
Less: Net income attributable to noncontrolling interests			7,855						1,002						2,042
Net income attributable to common shareholders			$	390,982					$	364,304					$	252,019
Earnings per common share
Net income attributable to common shareholders:
Basic			$	7.77					$	7.35					$	5.17
Diluted			$	7.60					$	7.20					$	5.07
Weighted-average number of common shares outstanding:
Basic			50,293						49,550						48,730
Diluted			51,425						50,611						49,693
See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

			Fiscal Year
			2021						2020						2019
Net income			$	398,837					$	365,306					$	254,061
Other comprehensive income (loss):
Foreign currency translation adjustment and other			(29,493)						22,345						14,224
Pension and other post-retirement benefit plans (Note 12):
Prior service cost and (losses) gains arising during the period			(1,193)						15,747						(25,165)
Amortization of net loss, settlement losses, and prior service benefit included in total cost for pension and other post-retirement benefit plans			1,678						17,861						1,772
Comprehensive income, before income taxes			369,829						421,259						244,892
Less: Income tax (benefit) expense related to items of other comprehensive income (Note 10)			(3,965)						15,372						(3,633)
Comprehensive income, net of income taxes			373,794						405,887						248,525
Less: Comprehensive income related to noncontrolling interests, net of income taxes			8,678						2,438						1,822
Comprehensive income attributable to common shareholders, net of income taxes			$	365,116					$	403,449					$	246,703
See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

			December 25, 2021						December 26, 2020
Assets
Current assets:
Cash and cash equivalents			$	241,214					$	228,424
Trade receivables and contract assets, net of allowances for credit losses of $7,180 and $6,702, respectively			642,881						617,740
Inventories			199,146						185,695
Prepaid assets			93,543						96,712
Other current assets			97,311						72,560
Total current assets			1,274,095						1,201,131
Property, plant and equipment, net			1,291,068						1,124,358
Operating lease right-of-use assets, net			292,941						178,220
Goodwill			2,711,881						1,809,168
Client relationships, net			981,398						721,505
Other intangible assets, net			79,794						66,094
Deferred tax assets			40,226						37,729
Other assets			352,889						352,626
Total assets			$	7,024,292					$	5,490,831
Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Current portion of long-term debt and finance leases			$	2,795					$	50,214
Accounts payable			198,130						122,475
Accrued compensation			246,119						206,823
Deferred revenue			219,703						207,942
Accrued liabilities			228,797						149,820
Other current liabilities			137,641						102,477
Total current liabilities			1,033,185						839,751
Long-term debt, net and finance leases			2,663,564						1,929,571
Operating lease right-of-use liabilities			252,972						155,595
Deferred tax liabilities			239,720						217,031
Other long-term liabilities			242,859						205,215
Total liabilities			4,432,300						3,347,163
Commitments and contingencies (Notes 2, 9, 11, 12, 16 and 17)
Redeemable noncontrolling interests			53,010						25,499
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; 50,480 shares issued and outstanding as of December 25, 2021 and 49,767 shares issued and outstanding as of December 26, 2020			505						498
Additional paid-in capital			1,718,304						1,627,564
Retained earnings			980,751						625,414
Treasury stock, at cost, 0 shares as of December 25, 2021 and December 26, 2020			—						—
Accumulated other comprehensive loss			(164,740)						(138,874)
Total equity attributable to common shareholders			2,534,820						2,114,602
Noncontrolling interest			4,162						3,567
Total equity			2,538,982						2,118,169
Total liabilities, redeemable noncontrolling interests and equity			$	7,024,292					$	5,490,831
See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

			Fiscal Year
			2021						2020						2019
Cash flows relating to operating activities
Net income			$	398,837					$	365,306					$	254,061
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			265,540						234,924						198,095
Stock-based compensation			71,474						56,341						57,271
Loss on debt extinguishment and other financing costs			29,964						3,661						4,943
Deferred income taxes			(24,006)						(133)						(21,895)
Loss (gain) on venture capital and strategic equity investments, net			30,420						(100,861)						(20,706)
Gain on sale of businesses			(25,026)						—						—
Contingent consideration			(34,303)						(468)						—
Other, net			4,957						14,080						2,988
Changes in assets and liabilities:
Trade receivables and contract assets, net			(26,633)						(85,627)						(8,323)
Inventories			(25,159)						(18,379)						(21,399)
Accounts payable			44,901						748						29,775
Accrued compensation			44,304						40,481						3,394
Deferred revenue			(13,402)						28,647						(3,620)
Customer contract deposits			16,925						8,955						(10,898)
Other assets and liabilities, net			2,006						(1,100)						17,250
Net cash provided by operating activities			760,799						546,575						480,936
Cash flows relating to investing activities
Acquisition of businesses and assets, net of cash acquired			(1,293,095)						(418,628)						(515,701)
Capital expenditures			(228,772)						(166,560)						(140,514)
Purchases of investments and contributions to venture capital investments			(45,555)						(26,692)						(22,341)
Proceeds from sale of businesses, net			122,694						—						—
Proceeds from sale of investments			6,532						11,401						942
Other, net			264						(1,065)						(3,888)
Net cash used in investing activities			(1,437,932)						(601,544)						(681,502)
Cash flows relating to financing activities
Proceeds from long-term debt and revolving credit facility			6,951,113						2,230,988						3,358,461
Proceeds from exercises of stock options			45,652						46,586						34,546
Payments on long-term debt, revolving credit facility, and finance lease obligations			(6,242,877)						(2,200,400)						(3,124,588)
Payment of debt extinguishment and financing costs			(38,255)						—						(6,593)
Purchase of treasury stock			(40,707)						(23,979)						(18,087)
Other, net			(2,328)						(5,947)						(11,802)
Net cash provided by financing activities			672,598						47,248						231,937
Effect of exchange rate changes on cash, cash equivalents, and restricted cash			17,730						794						11,357
Net change in cash, cash equivalents, and restricted cash			13,195						(6,927)						42,728
Cash, cash equivalents, and restricted cash, beginning of period			233,119						240,046						197,318
Cash, cash equivalents, and restricted cash, end of period			$	246,314					$	233,119					$	240,046
See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

			Fiscal Year
			2021						2020						2019
Supplemental cash flow information:
Cash and cash equivalents			$	241,214					$	228,424					$	238,014
Restricted cash included in Other current assets			4,023						3,074						431
Restricted cash included in Other assets			1,077						1,621						1,601
Cash, cash equivalents, and restricted cash, end of period			$	246,314					$	233,119					$	240,046
Cash paid for income taxes			$	75,441					$	60,059					$	54,060
Cash paid for interest			$	70,775					$	72,461					$	67,813
Non-cash investing and financing activities:
Purchases of Property, plant and equipment included in Accounts payable and Accrued liabilities			$	72,043					$	25,614					$	21,447
Assets acquired under finance leases			$	1,567					$	1,571					$	4,819
See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(in thousands)

			Common stock												Additional Paid-In Capital						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Treasury Stock												Total Equity Attributable to Common Shareholders						Noncontrolling Interest						Total Equity
Shares						Amount															Shares						Amount
December 29, 2018			48,210						$	482					$	1,447,512					$	42,096					$	(172,703)					1						$	(55)					$	1,317,332					$	2,446					$	1,319,778
Net income			—						—						—						252,019						—						—						—						252,019						2,084						254,103
Other comprehensive loss			—						—						—						—						(5,316)						—						—						(5,316)						—						(5,316)
Dividends declared to noncontrolling interest			—						—						—						—						—						—						—						—						(1,286)						(1,286)
Adjustment of redeemable noncontrolling interest to redemption value			—						—						(1,451)						—						—						—						—						(1,451)						—						(1,451)
Purchase of additional equity interest in and modification of Vital River redeemable noncontrolling interest			—						—						(1,870)						—						—						—						—						(1,870)						—						(1,870)
Issuance of stock under employee compensation plans			866						8						34,678						—						—						—						—						34,686						—						34,686
Acquisition of treasury shares			—						—						—						—						—						139						(18,087)						(18,087)						—						(18,087)
Retirement of treasury shares			(140)						(1)						(4,355)						(13,786)						—						(140)						18,142						—						—						—
Stock-based compensation			—						—						57,271						—						—						—						—						57,271						—						57,271
December 28, 2019			48,936						489						1,531,785						280,329						(178,019)						—						—						1,634,584						3,244						1,637,828
Net income			—						—						—						364,304						—						—						—						364,304						1,852						366,156
Other comprehensive income			—						—						—						—						39,145						—						—						39,145						—						39,145
Dividends declared to noncontrolling interest			—						—						—						—						—						—						—						—						(1,529)						(1,529)
Purchase of a 10% redeemable noncontrolling interest and recognition of related contingent consideration			—						—						(2,379)						—						—						—						—						(2,379)						—						(2,379)
Issuance of stock under employee compensation plans			977						10						46,576						—						—						—						—						46,586						—						46,586
Acquisition of treasury shares			—						—						—						—						—						146						(23,979)						(23,979)						—						(23,979)
Retirement of treasury shares			(146)						(1)						(4,759)						(19,219)						—						(146)						23,979						—						—						—
Stock-based compensation			—						—						56,341						—						—						—						—						56,341						—						56,341
December 26, 2020			49,767						498						1,627,564						625,414						(138,874)						—						—						2,114,602						3,567						2,118,169
Net income			—						—						—						390,982						—						—						—						390,982						2,480						393,462
Other comprehensive loss			—						—						—						—						(25,866)						—						—						(25,866)						—						(25,866)
Dividends declared to noncontrolling interest			—						—						—						—						—						—						—						—						(1,885)						(1,885)
Adjustment of redeemable noncontrolling interest to redemption value			—						—						(21,312)						—						—						—						—						(21,312)						—						(21,312)
Issuance of stock under employee compensation plans			861						8						45,639						—						—						—						—						45,647						—						45,647
Acquisition of treasury shares			—						—						—						—						—						148						(40,707)						(40,707)						—						(40,707)
Retirement of treasury shares			(148)						(1)						(5,061)						(35,645)						—						(148)						40,707						—						—						—
Stock-based compensation			—						—						71,474						—						—						—						—						71,474						—						71,474
December 25, 2021			50,480						$	505					$	1,718,304					$	980,751					$	(164,740)					—						$	—					$	2,534,820					$	4,162					$	2,538,982
See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Charles River Laboratories International, Inc. (the Company), together with its subsidiaries, is a full service, non-clinical contract research organization (CRO). The Company has built upon its core competency of laboratory animal medicine and science (research model technologies) to develop a diverse portfolio of discovery and safety assessment services, both Good Laboratory Practice (GLP) and non-GLP, that enable the Company to support its clients from target identification through non-clinical development. The Company also provides a suite of products and services to support its clients’ manufacturing activities.

Principles of Consolidation

The Company’s 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.

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 non-regulated (GLP and non-GLP) safety assessment services. 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; 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.

Use of Estimates

The preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United States (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.

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On March 11, 2020, the World Health Organization declared the outbreak of a strain of novel coronavirus disease, COVID-19, a global pandemic. The COVID-19 pandemic is dynamic, and its ultimate scope, duration and effects are uncertain. This pandemic has and continues to result in, and any future epidemic or pandemic crises may potentially result in, direct and indirect adverse effects on the Company’s industry and customers, which in turn has (with respect to COVID-19) and may (with respect to future epidemics or crises) impact the Company’s business, results of operations and financial condition. Further, the COVID-19 pandemic may also affect the Company’s operating and financial results in a manner that is not presently known to the Company or that the Company currently does not expect to present significant risks to its operations or financial results. As of the date of issuance of these consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s consolidated financial statements.

Cash, Cash Equivalents, and Investments

Cash equivalents include money market funds, time deposits and other investments with remaining maturities at the purchase date of three months or less. Time deposits with original maturities of greater than three months are reported as short-term investments.

Trade Receivables and Contract Assets, Net

The Company records trade receivables and contract assets, net of an allowance for credit losses. An allowance for credit losses is established based on historical collection information, a review of major client accounts receivable balances, current economic conditions in the geographies in which it operates, and the Company’s expectations of future economic conditions that may affect the collectability of the recorded amounts. Amounts determined to be uncollectible are charged or written off against the allowance.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments, trade receivables and contract assets. The Company places cash and cash equivalents and investments in various financial institutions with high credit rating and limits the amount of credit exposure to any one financial institution. Trade receivables and contract assets are primarily from clients in the pharmaceutical and biotechnology industries, as well as academic and government institutions. Concentrations of credit risk with respect to trade receivables and contract assets, which are typically unsecured, are limited due to the wide variety of customers using the Company’s products and services as well as their dispersion across many geographic areas. No single client accounted for more than 5% of revenue in fiscal years 2021, 2020, or 2019 or trade receivables as of December 25, 2021 or December 26, 2020.

Fair Value Measurements

The accounting standard for fair value measurements defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and requires certain disclosures about fair value measurements. Under this standard, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has certain financial assets and liabilities recorded at fair value, which have been classified as Level 1, 2 or 3 within the fair value hierarchy:

• Level 1 - Fair values are determined utilizing prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access,

• Level 2 - Fair values are determined by utilizing quoted prices for identical or similar assets and liabilities in active markets or other market observable inputs such as interest rates, yield curves, and foreign currency spot rates,

• Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The fair value hierarchy level is determined by asset and class based on the lowest level of significant input. The observability of inputs may change for certain assets or liabilities. This condition could cause an asset or liability to be reclassified between levels. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter.

Valuation methodologies used for assets and liabilities measured or disclosed at fair value are as follows:

• Cash equivalents - Valued at market prices determined through third-party pricing services;

• Foreign currency forward contracts - Valued using market observable inputs, such as forward foreign exchange points and foreign exchanges rates;

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• Life insurance policies - Valued at cash surrender value based on the fair value of underlying investments;

• Debt instruments - The book value of the Company’s term and revolving loans, which are variable rate loans carried at amortized cost, approximates the fair value based on current market pricing of similar debt. The book values of the Company’s Senior Notes, which are fixed rate debt, are carried at amortized cost. Fair values of the Senior Notes are based on quoted market prices and on borrowing rates available to the Company; and

• Contingent consideration - Valued based on a probability weighting of the future cash flows associated with the potential outcomes and certain option pricing models.

Inventories

The Company’s inventories consist of raw materials, work in process and finished product related primarily to small models, large models, cell supply, microbial solutions products, and avian related eggs and flocks. Inventories are stated at the lower of cost or net realizable value. Inventory value is generally based on the standard cost method for all businesses except for the Avian business, which is based on an average cost. Standard costs are trued-up to reflect actual cost. For small models inventory, costs include direct materials such as feed and bedding, costs of personnel directly involved in the care of the models, and an allocation of facility overhead. For the large models inventory, costs are primarily the external cost paid to acquire the model along with allocated overhead costs. For cell supply inventory, costs include direct materials, costs of personnel directly involved in the processing of products sold, and an allocation of facility overhead. For the microbial solutions inventory, costs include direct materials, cost of personnel directly involved in the manufacturing and assembly of products sold, and an allocation of facility overhead. For the avian related inventory, costs include direct materials, such as animal feed, cost of personnel directly involved with the care of the eggs and flocks, and an allocation of facility overhead. Inventory costs are charged to cost of revenue in the period the products are sold to an external party. The Company analyzes its inventory levels on a quarterly basis and writes down inventory that is determined to be damaged, obsolete or otherwise unmarketable, with a corresponding charge to cost of products sold.

Property, Plant and Equipment, Net

Property, plant and equipment, net, including improvements that significantly add to productive capacity or extend useful life, are carried at cost and are subject to review for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The cost of normal, recurring, or periodic repairs and maintenance activities related to property, plant and equipment is expensed as incurred. In addition, the Company capitalizes certain internal use computer software development costs. Costs incurred during the preliminary project stage are expensed as incurred, while costs incurred during the application development stage are capitalized and amortized over the estimated useful life of the software. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Maintenance and training costs related to software obtained for internal use are expensed as incurred.

Interest costs incurred during the construction of major capital projects are capitalized until the underlying asset is ready for its intended use, at which point the interest costs are amortized as depreciation expense over the life of the underlying asset.

The Company generally depreciates the cost of its property, plant and equipment using the straight-line method over the estimated useful lives of the respective assets as follow:

			Estimated Useful Lives
			(in years)
Land			Indefinite
Buildings and building improvements			10 - 40
Machinery and equipment			3 - 20
Furniture and fixtures			5 - 10
Computer hardware and software			3 - 8
Vehicles			3 - 5

Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the lease term. Finance lease assets are amortized over the lease term, however, if ownership is transferred by the end of the finance lease, or there is a bargain purchase option, such finance lease assets are amortized over the useful life that would be assigned if such assets were owned.

When the Company disposes of property, plant and equipment, it removes the associated cost and accumulated depreciation from the related accounts on its consolidated balance sheet and includes any resulting gain or loss recorded in Other (expense) income, net in the accompanying consolidated statements of income.

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Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. The Company allocates the amounts that it pays for each acquisition to the assets it acquires and liabilities it assumes based on their fair values at the dates of acquisition, including identifiable intangible assets, which typically represents a significant portion of the purchase price. The determination of the fair value of intangible assets requires the use of significant judgment using management’s best estimates of inputs and assumptions that a market participant would use. Significant judgments include (i) the fair value; and (ii) whether such intangible assets are amortizable or non-amortizable and, if the former, the period and the method by which the intangible asset will be amortized. The Company utilizes commonly accepted valuation techniques, such as the income, cost, and market approaches as appropriate, in establishing the fair value of intangible assets. Typically, key assumptions include projections of cash flows that arise from identifiable intangible assets of acquired businesses as well as discount rates based on an analysis of the weighted average cost of capital, adjusted for specific risks associated with the assets.

In recent acquisitions, customer relationship intangible assets (also referred to as client relationships) are the most significant identifiable asset acquired. To determine the fair value of the acquired client relationships, the Company typically utilizes the multiple period excess earnings model (a commonly accepted valuation technique), which relies on the following key assumptions: projections of cash flows from the acquired entities, which includes future revenue growth rates, operating income margins, and customer attrition rates; as well as discount rates based on an analysis of the acquired entities’ weighted average cost of capital.

Contingent Consideration

The consideration for the Company’s acquisitions may include future payments that are contingent upon the occurrence of a particular event. The Company records an obligation for such contingent payments at fair value on the acquisition date. The Company estimates the fair value of contingent consideration obligations through valuation models, such as probability-weighted and option pricing models, that incorporate probability adjusted assumptions and simulations related to the achievement of the milestones and the likelihood of making related payments. The Company revalues these contingent consideration obligations each reporting period. Changes in the fair value of the contingent consideration obligations are recognized in the Company’s consolidated statements of income as a component of selling, general and administrative expenses. Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates and changes in the assumed probabilities of successful achievement of certain financial targets.

Discount rates in the Company’s valuation models represent a measure of the credit risk associated with settling the liability. The period over which the Company discounts its contingent obligations is typically based on when the contingent payments would be triggered. These fair value measurements are based on significant inputs not observable in the market.

Goodwill and Intangible Assets

Goodwill represents the difference between the purchase price and the fair value of assets acquired and liabilities assumed when accounted for using the acquisition method of accounting. Goodwill is not amortized, but reviewed for impairment on an annual basis, during the fourth quarter, or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of the Company's reporting units below their carrying amounts.

The Company has the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. If the Company elects this option and believes, as a result of the qualitative assessment, that it is more-likely-than-not that the carrying value of goodwill is not recoverable, the quantitative impairment test is required; otherwise, no further testing is required. Alternatively, the Company may elect to not first assess qualitative factors and immediately perform the quantitative impairment test. In the quantitative test, the Company compares the fair value of its reporting units to their carrying values. If the carrying values of the net assets assigned to the reporting units exceed the fair values of the reporting units an impairment loss equal to the difference would be recorded.

Definite-lived intangible assets, including client relationships, are amortized over the pattern in which the economic benefits of the intangible assets are utilized and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset, which requires the use of customer attrition rates and other assumptions. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the definite-lived intangible assets, the definite-lived intangible assets are written-down to their fair values.

Valuation and Impairment of Long-Lived Assets

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable.

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Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written-down to their fair values.

Long-lived assets to be disposed of are carried at fair value less costs to sell.

Venture Capital Investments

The Company invests in several venture capital funds that invest in start-up companies, primarily in the life sciences industry. The Company’s ownership interest in these funds ranges from less than 1% to approximately 12%. The Company accounts for the investments in limited partnerships (LPs), which are variable interest entities, under the equity method of accounting. For publicly-held investments in the LPs, the Company adjusts for changes in fair market value based on reported share holdings at the end of each fiscal quarter. The Company is not the primary beneficiary because it has no power to direct the activities that most significantly affect the LPs’ economic performance.

Under the equity method of accounting, the Company’s portion of the investment gains and losses, as reported in the fund’s financial statements on a quarterly lag each reporting period, is recorded in other (expense) income, net in the accompanying consolidated statements of income. In addition, the Company adjusts the carrying value of these investments to reflect its estimate of changes to fair value since the fund’s financial statements are based on information from the fund’s management team, market prices of known public holdings of the fund, and other information.

Strategic Equity Investments

The Company invests, with minority positions, directly in equity of predominantly privately-held companies that are reported either at fair value or under the equity method of accounting, as appropriate. Equity investments accounted for at fair value that do not have readily determinable fair values are generally recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same investee. Gains and losses from strategic equity investments are recorded in Other (expense) income, net in the accompanying consolidated statements of income.

Life Insurance Contracts

Investments in life insurance contracts are recorded at cash surrender value. The initial investment is remeasured based on fair value of underlying investments or contractual value each reporting period. Gains and losses from life insurance contracts are recorded in Other (expense) income, net in the accompanying consolidated statements of income. Investments in and redemptions of these life insurance contracts are reported as cash flows from investing activities in the consolidated statement of cash flows. The Company held 45 contracts at December 25, 2021 with a face value of $89.8 million and 44 contracts with a face value of $79.1 million at December 26, 2020.

Leases

At inception of a contract, the Company determines if a contract meets the definition of a lease. A lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. The Company determines if the contract conveys the right to control the use of an identified asset for a period of time. The Company assesses throughout the period of use whether the Company has both of the following: (1) the right to obtain substantially all of the economic benefits from use of the identified asset, and (2) the right to direct the use of the identified asset. This determination is reassessed if the terms of the contract are changed. Leases are classified as operating or finance leases based on the terms of the lease agreement and certain characteristics of the identified asset. Right-of-use assets and lease liabilities are recognized at lease commencement date based on the present value of the minimum future lease payments.

The Company leases laboratory, production, and office space (real estate), as well as land, vehicles and certain equipment under non-cancellable operating and finance leases. The carrying value of the Company’s right-of-use lease assets is substantially concentrated in its real estate leases, while the volume of lease agreements is primarily concentrated in vehicles and equipment leases. The Company’s policy is to not record leases with an original term of twelve months or less on the consolidated balance sheets. The Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term.

Certain lease agreements include rental payments that are adjusted periodically for inflation or other variables. In addition to rent, the leases may require the Company to pay additional amounts for taxes, insurance, maintenance and other expenses, which are generally referred to as non-lease components. Such adjustments to rental payments and variable non-lease components are treated as variable lease payments and recognized in the period in which the obligation for these payments was incurred. Variable lease components and variable non-lease components are not measured as part of the right-of-use asset and liability. Only when lease components and their associated non-lease components are fixed are they accounted for as a single lease component and are recognized as part of a right-of-use asset and liability. Total contract consideration is allocated to the

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combined fixed lease and non-lease component. This policy election applies consistently to all asset classes under lease agreements.

Most real estate leases contain clauses for renewal at the Company’s option with renewal terms that generally extend the lease term from 1 to 5 years. Certain lease agreements contain options to purchase the leased property and options to terminate the lease. Payments to be made in option periods are recognized as part of the right-of-use lease assets and lease liabilities when it is reasonably certain that the option to extend the lease will be exercised or the option to terminate the lease will not be exercised, or is not at the Company’s option. The Company determines whether the reasonably certain threshold is met by considering contract-, asset-, market-, and entity-based factors.

A portfolio approach is applied to certain lease contracts with similar characteristics. The Company’s lease agreements do not contain any significant residual value guarantees or material restrictive covenants imposed by the leases.

The Company subleases a limited number of lease arrangements. Sublease activity is not material to the consolidated financial statements.

Stock-Based Compensation

The Company may grant stock options, restricted stock, restricted stock units (RSUs), and performance share units (PSUs) to employees and stock options, restricted stock, and RSUs to non-employee directors under stock-based compensation plans. Stock-based compensation is recognized as an expense in the consolidated statements of income based on the grant date fair value, adjusted for forfeitures when they occur, over the requisite service period.

For stock options, restricted stock and RSUs that vest based on service conditions, the Company uses the straight-line method to allocate compensation expense to reporting periods. Where awards are made with non-substantive vesting periods and a portion of the award continues to vest after the employee’s eligible retirement, the Company recognizes expense based on the period from the grant date to the date on which the employee is retirement eligible. The Company records the expense for PSU grants subject to performance and/or market conditions using the accelerated attribution method over the remaining service period when management determines that achievement of the performance-based milestone is probable.

The fair value of stock options granted is calculated using the Black-Scholes option-pricing model and the fair value of PSUs is estimated using a lattice model with a Monte Carlo simulation, both of which require the use of subjective assumptions including volatility and expected term, among others. The expected volatility assumption is typically determined using the historical volatility of the Company’s common stock over the expected life of the stock-based award. The expected term is determined using historical option exercise activity. The fair value of restricted stock and RSUs is based on the market value of the Company’s common stock on the date of grant.

Revenue Recognition

Revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”).

To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the amount to which the Company expects to be entitled. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Generally, the Company does not extend payment terms beyond one year. Applying the practical expedient, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. The Company’s contracts do not generally contain significant financing components.

Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

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Contracts are often modified to account for changes in contract specifications and requirements. Contract modifications exist when the modification either creates new, or changes existing, enforceable rights and obligations. Generally, when contract modifications create new performance obligations, the modification is considered to be a separate contract and revenue is recognized prospectively. When contract modifications change existing performance obligations, the impact on the existing transaction price and measure of progress for the performance obligation to which it relates is generally recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

Product revenue is generally recognized when the customer obtains control of the Company’s product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract. Service revenue is generally recognized over time as the services are delivered to the customer based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. Depending on which better depicts the transfer of value to the customer, the Company generally measures its progress using either cost-to-cost (input method) or right-to-invoice (output method). The Company uses the cost-to-cost measure of progress when it best depicts the transfer of value to the customer which occurs as the Company incurs costs on its contract, generally related to fixed fee service contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. The costs calculation includes variables such as labor hours, allocation of overhead costs, research model costs, and subcontractor costs. Revenue is recorded proportionally as costs are incurred. The right-to-invoice measure of progress is generally related to rate per unit contracts, as the extent of progress towards completion is measured based on discrete service or time-based increments, such as samples tested or labor hours incurred. Revenue is recorded in the amount invoiced since that amount corresponds directly to the value of the Company’s performance to date.

Income Taxes

The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statements carrying amounts and their respective tax basis. The Company measures deferred tax assets and liabilities using the enacted tax rates in effect when the temporary differences are expected to be settled. The Company evaluates the realizability of its deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized.

The Company accounts for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The Company evaluates uncertain tax positions on a quarterly basis and considers various factors, including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, information obtained during in-process audit activities and changes in facts or circumstances related to a tax position. The Company also accrues for potential interest and penalties related to unrecognized tax benefits in income tax expense.

Foreign Currency Contracts

Foreign currency contracts are recorded at fair value in the Company’s consolidated balance sheets and are not designated as hedging instruments. Any gains or losses on forward contracts associated with intercompany loans are recognized immediately in Other (expense) income, net and are largely offset by the remeasurement of the underlying intercompany loan. Any gains or losses on forward contracts associated with the Company’s U.S. dollar denominated loan borrowed by a non-U.S. entity under the Company’s Credit Facility are recognized immediately in Interest expense. Gains or losses incurred on the remeasurement of the Company’s U.S. dollar denominated loan borrowed by a non-U.S. entity with a different functional currency is recorded in Other (expense) income, net.

Translation of Foreign Currencies

For the Company’s subsidiaries that transact in a functional currency other than the U.S. dollar, assets and liabilities are translated at current rates of exchange as of the balance sheet date. Income and expense items are translated at the average foreign exchange rates for the period. Adjustments resulting from the translation of the financial statements of the Company’s foreign operations into U.S. dollars are excluded from the determination of net income and are recorded in accumulated other comprehensive loss, a separate component of equity.

Pension and Other Post-Retirement Benefit Plans

The Company recognizes the funded status of its defined benefit pension and other post-retirement benefit plans as an asset or liability. This amount is defined as the difference between the fair value of plan assets and the benefit obligation. The Company measures plan assets and benefit obligations as of its fiscal year end.

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The key assumptions used to calculate benefit obligations and related pension costs include expected long-term rate of return on plan assets, withdrawal and mortality rates, expected rate of increase in employee compensation levels and a discount rate. Assumptions are determined based on the Company’s data and appropriate market indicators, and evaluated each year as of the plan’s measurement date.

The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the projected benefit obligations. In determining the expected long-term rate of return on plan assets, the Company considers the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance.

The rate of compensation increase reflects the expected annual salary increases for the plan participants based on historical experience and the current employee compensation strategy.

The Company is required to recognize as a component of other comprehensive income, net of tax, the actuarial gains or losses and prior service costs or credits that arise but were not previously required to be recognized as components of net periodic benefit cost. Other comprehensive income is adjusted as these amounts are later recognized in income as components of net periodic benefit cost.

The Company records the service cost component of the net periodic benefit cost within Cost of services provided and Selling, general, and administrative expenses and all other components of net periodic benefit cost within Other (expense) income, net in the consolidated statements of income.

The Company recognizes pension settlement gains or losses in the period when all of the following settlement criteria are met: there is an irrevocable action, the Company is relieved of primary responsibility for a benefit obligation, and significant risks related to the obligation and the assets used to effect the settlement are eliminated.

Earnings Per Share

Basic earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Except where the result would be anti-dilutive to income from continuing operations, diluted earnings per share is computed using the treasury stock method, assuming the exercise of stock options and the vesting of restricted stock awards, RSUs, or PSUs, as well as their related income tax effects.

Treasury Shares

The Company periodically retires treasury shares acquired through share repurchases and returns those shares to the status of authorized but unissued. The Company accounts for treasury stock transactions under the cost method. For each reacquisition of common stock, the number of shares and the acquisition price for those shares is added to the existing treasury stock count and total value. Thus, the average cost per share is re-averaged each time shares are acquired. When treasury shares are retired, the Company allocates the excess of the repurchase price over the par value of shares acquired to both retained earnings and additional paid-in-capital. The portion allocated to additional paid-in-capital is determined by applying a percentage, determined by dividing the number of shares to be retired by the number of shares issued, to the balance of additional paid-in-capital as of the retirement date.

Newly Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (FASB) issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. ASU 2021-08 improves the accounting for acquired revenue contracts with customers in a business combination by addressing the diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in this ASU require acquirers to recognize and measure contract assets and contract liabilities acquired in the business combination in accordance with Topic 606 as if it had originated the contracts. The Company’s adoption of this standard in fiscal year 2021 did not have a significant impact on the consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU, including subsequently issued updates, offers temporary optional expedients and exceptions for applying U.S. GAAP to modifications to agreements such as loans, debt securities, derivatives, and borrowings which reference LIBOR or another reference rate that will partially discontinue after December 31, 2021 and fully cease by June 30, 2023. The expedients and exceptions provided by the standard do not apply to modifications made and hedging relationships entered into or evaluated after that, except for hedging relationships existing as of the phase-out date that an entity has elected certain optional expedients for and are retained through the end of the hedging relationship. The ASU is effective until the replacement for LIBOR is completed. The interest rate on the Company’s revolving credit facility, which was amended and restated in April 2021 (see Note 9. Long-Term Debt and Finance Lease Obligations) and matures in fiscal year

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2026, is linked to LIBOR and alternative interest rates when LIBOR is discontinued. The Company’s adoption of this standard in fiscal year 2021 did not have a significant impact on the consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU 2020-01, “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815).” ASU 2020-01 states any equity security transitioning from the alternative method of accounting under Topic 321 to the equity method, or vice versa, due to an observable transaction will be remeasured immediately before the transition. In addition, the ASU clarifies the accounting for certain non-derivative forward contracts or purchased call options to acquire equity securities stating such instruments will be measured using the fair value principles of Topic 321 before settlement or exercise. The Company’s adoption of this standard in fiscal year 2021 did not have a significant impact on the consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax), which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company’s adoption of this standard in fiscal year 2021 did not have a significant impact on the consolidated financial statements and related disclosures.

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 effective for fiscal years beginning after December 15, 2021 and will be applied on a prospective basis. Early adoption is permitted. 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.

2. ACQUISITIONS AND DIVESTITURES

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 preliminary 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The preliminary purchase price allocation was as follows:

			June 28, 2021
			(in thousands)
Trade receivables			$	3,548
Other current assets (excluding cash)			1,657
Property, plant and equipment			7,649
Operating lease right-of-use asset, net			22,507
Goodwill			239,681
Definite-lived intangible assets			93,900
Other long-term assets			694
Deferred revenue			(4,260)
Current liabilities			(6,319)
Operating lease right-of-use liabilities			(21,220)
Deferred tax liabilities			(13,958)
Total purchase price allocation			$	323,879

The preliminary purchase price allocation is 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.

The definite-lived intangible assets acquired were as follows:

			Definite-Lived Intangible Assets						Weighted Average Amortization Life
			(in thousands)						(in years)
Client relationships			$	87,500					12
Backlog			2,900						1
Other intangible assets			3,500						4
Total definite-lived intangible assets			$	93,900					11

The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s Manufacturing business from new customers introduced through Vigene and the assembled workforce of the acquired business. The goodwill attributable to Vigene is not deductible for tax purposes.

The Company incurred transaction and integration costs in connection with the acquisition of $5.3 million during fiscal year 2021, which were included in Selling, general and administrative expenses within the consolidated statements of income.

Pro forma financial information as well as the disclosure of actual revenue and operating income (loss) is presented as if it 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. See the bottom of this section for combined pro forma disclosure.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

The preliminary purchase price allocation was as follows:

			March 30, 2021
			(in thousands)
Trade receivables			$	2,266
Other current assets (excluding cash)			209
Property, plant and equipment			400
Goodwill			34,489
Definite-lived intangible assets			22,126
Other long-term assets			1,385
Current liabilities			(1,575)
Deferred tax liabilities			(4,174)
Other long-term liabilities			(1,205)
Total purchase price allocation			$	53,921

The preliminary purchase price allocation is 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. From the date of the acquisition through December 25, 2021, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. 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.

The definite-lived intangible assets acquired were as follows:

			Definite-Lived Intangible Assets						Weighted Average Amortization Life
			(in thousands)						(in years)
Client relationships			$	17,340					13
Developed technology			3,685						3
Other intangible assets			1,101						2
Total definite-lived intangible assets			$	22,126					11

The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s DSA business from new customers introduced through Retrogenix and the assembled workforce of the acquired business. The goodwill attributable to Retrogenix is not deductible for tax purposes.

The Company incurred transaction and integration costs in connection with the acquisition of $1.8 million during fiscal year 2021, which were included in Selling, general and administrative expenses within the consolidated statements of income.

Pro forma financial information as well as the disclosure of actual revenue and operating income (loss) have not been included because Retrogenix’s financial results are not significant when compared to the Company’s consolidated financial results.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 preliminary purchase price of Cognate was $879.0 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 will be redeemed in 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 recently issued Senior Notes. This business is reported as part of the Company’s Manufacturing reportable segment.

The preliminary purchase price allocation was as follows:

			March 29, 2021
			(in thousands)
Trade receivables			$	18,566
Inventories			4,231
Other current assets (excluding cash)			9,816
Property, plant and equipment			52,082
Operating lease right-of-use assets, net			34,349
Goodwill			612,147
Definite-lived intangible assets			270,900
Other long-term assets			6,098
Deferred revenue			(20,539)
Current liabilities			(44,974)
Operating lease right-of-use liabilities			(31,383)
Deferred tax liabilities			(31,847)
Other long-term liabilities			(414)
Total purchase price allocation			$	879,032

The preliminary purchase price allocation is 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. From the date of the acquisition through December 25, 2021, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. 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.

The definite-lived intangible assets acquired were as follows:

			Definite-Lived Intangible Assets						Weighted Average Amortization Life
			(in thousands)						(in years)
Client relationships			$	257,200					13
Other intangible assets			4,800						2
Backlog			8,900						1
Total definite-lived intangible assets			$	270,900					13

The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s Manufacturing business from new customers introduced through Cognate and the assembled workforce of the acquired business. The goodwill attributable to Cognate is not deductible for tax purposes.

The Company incurred transaction and integration costs in connection with the acquisition of $27.1 million during fiscal year 2021, which were included in Selling, general and administrative expenses within the consolidated statements of income.

Pro forma financial information as well as the disclosure of actual revenue and operating income (loss) is presented as if it 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. See the bottom of this section for combined pro forma disclosure.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 $14.0 million of contingent consideration, which is estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $21.0 million based on future performance and milestone achievements over a one-year period). The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment.

The purchase price allocation was as follows:

			December 31, 2020
			(in thousands)
Trade receivables			$	2,722
Other current assets (excluding cash)			221
Property, plant and equipment			2,382
Goodwill			71,585
Definite-lived intangible assets			24,540
Other long-term assets			2,055
Current liabilities			(2,823)
Deferred tax liabilities			(2,529)
Other long-term liabilities			(1,123)
Total purchase price allocation			$	97,030

From the date of the acquisition through March 27, 2021, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.

The definite-lived intangible assets acquired were as follows:

			Definite-Lived Intangible Assets						Weighted Average Amortization Life
			(in thousands)						(in years)
Client relationships			$	16,080					9
Developed technology			3,940						5
Other intangible assets			4,520						4
Total definite-lived intangible assets			$	24,540					7

The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s DSA business from new customers introduced through Distributed Bio and the assembled workforce of the acquired business. The goodwill attributable to Distributed Bio is not deductible for tax purposes.

The Company incurred transaction and integration costs in connection with the acquisition of $1.2 million during both fiscal years 2021 and 2020, which were included in Selling, general and administrative expenses within the consolidated statements of income.

Pro forma financial information as well as the disclosure of actual revenue and operating income (loss) have not been included because Distributed Bio's financial results are not significant when compared to the Company’s consolidated financial results.

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 is 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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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. Pro forma information and transaction and integration costs have not been presented because such information is not material to the consolidated financial statements.

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 fiscal year 2021, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $24.5 million, additional interest expense on borrowing of $5.6 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments. For fiscal year 2020, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $24.2 million, additional interest expense on borrowing of $10.4 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments.

			Fiscal Year
			2021						2020
			(in thousands)
			(unaudited)
Revenue			$	3,583,646					$	3,068,161
Net income attributable to common shareholders			376,152						347,873

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 acquisitions.

Cognate and Vigene have been included in the operating results of the Company since March 29, 2021 and June 28, 2021, respectively. Revenue and operating income for both acquisitions during fiscal year 2021 was $109.9 million and $2.5 million, respectively.

Fiscal 2020 Acquisitions

Cellero, LLC

On August 6, 2020, the Company acquired Cellero, LLC (Cellero), a provider of cellular products for cell therapy developers and manufacturers worldwide. The addition of Cellero enhances the Company’s unique, comprehensive solutions for the high-growth cell therapy market, strengthening the ability to help accelerate clients’ critical programs from basic research and proof-of-concept to regulatory approval and commercialization. It also expands the Company’s access to high-quality, human-derived biomaterials with Cellero’s donor sites in the United States. The purchase price of Cellero was $36.9 million, net of $0.5 million in cash, which was funded through available cash. This business is reported as part of the Company’s RMS reportable segment.

The purchase price allocation was as follows:

			August 6, 2020
			(in thousands)
Trade receivables			$	1,500
Inventories			551
Other current assets (excluding cash)			182
Property, plant and equipment			1,648
Goodwill			19,457
Definite-lived intangible assets			16,230
Other long-term assets			849
Current liabilities			(1,360)
Deferred tax liabilities			(1,467)
Other long-term liabilities			(740)
Total purchase price allocation			$	36,850

From the date of the acquisition through June 26, 2021, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The definite-lived intangible assets acquired were as follows:

			Definite-Lived Intangible Assets						Weighted Average Amortization Life
			(in thousands)						(in years)
Client relationships			$	14,740					13
Other intangible assets			1,490						3
Total definite-lived intangible assets			$	16,230					12

The goodwill resulting from the transaction, $10.8 million of which is deductible for tax purposes due to a prior asset acquisition, is primarily attributable to the potential growth of the Company’s RMS business from new customers introduced to Cellero and the assembled workforce of the acquired business.

The Company incurred transaction and integration costs in connection with the acquisition of $0.7 million and $2.7 million during fiscal years 2021 and 2020, respectively, which were included in Selling, general and administrative expenses within the consolidated statements of income.

Pro forma financial information as well as the disclosure of actual revenue and operating income (loss) have not been included because Cellero's financial results are not significant when compared to the Company’s consolidated financial results.

HemaCare Corporation

On January 3, 2020, the Company acquired HemaCare Corporation (HemaCare), a business specializing in the production of human-derived cellular products for the cell therapy market. The acquisition of HemaCare expands the Company’s comprehensive portfolio of early-stage research and manufacturing support solutions to encompass the production and customization of high-quality, human derived cellular products to better support clients’ cell therapy programs. The purchase price of HemaCare was $376.7 million, net of $3.1 million in cash. 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 RMS reportable segment.

The purchase price allocation was as follows:

			January 3, 2020
			(in thousands)
Trade receivables			$	6,451
Inventories			8,468
Other current assets (excluding cash)			3,494
Property, plant and equipment			10,033
Goodwill			210,196
Definite-lived intangible assets			183,540
Other long-term assets			5,920
Current liabilities			(5,188)
Deferred tax liabilities			(38,529)
Other long-term liabilities			(7,664)
Total purchase price allocation			$	376,721

From the date of the acquisition through December 26, 2020, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.

The definite-lived intangible assets acquired were as follows:

			Definite-Lived Intangible Assets						Weighted Average Amortization Life
			(in thousands)						(in years)
Client relationships			$	170,390					19
Trade name			7,330						10
Other intangible assets			5,820						3
Total definite-lived intangible assets			$	183,540					18

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s RMS business from new customers introduced to HemaCare and the assembled workforce of the acquired business. The goodwill attributable to HemaCare is not deductible for tax purposes.

The Company incurred transaction and integration costs in connection with the acquisition of $0.7 million, $6.1 million and $3.3 million during fiscal years 2021, 2020 and 2019, respectively, which were included in Selling, general and administrative expenses within the consolidated statements of income.

Beginning on January 3, 2020, HemaCare has been included in the operating results of the Company. HemaCare revenue and operating loss during fiscal year 2020 was $43.0 million and $8.1 million, respectively.

Fiscal 2019 Acquisitions

Citoxlab

On April 29, 2019, the Company acquired Citoxlab, a non-clinical CRO, specializing in regulated safety assessment services, non-regulated discovery services, and medical device testing. With operations in Europe and North America, the acquisition of Citoxlab further strengthens the Company’s position as a leading, global, early-stage CRO by expanding its scientific portfolio and geographic footprint, which enhances the Company’s ability to partner with clients across the drug discovery and development continuum. The purchase price of Citoxlab was $490.4 million, net of $36.7 million in cash, which 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.

The purchase price allocation was as follows:

			April 29, 2019
			(in thousands)
Trade receivables			$	35,405
Inventories			5,282
Other current assets (excluding cash)			13,917
Property, plant and equipment			88,605
Goodwill			280,161
Definite-lived intangible assets			162,400
Other long-term assets			20,063
Deferred revenue			(15,278)
Current liabilities			(46,081)
Deferred tax liabilities			(27,458)
Other long-term liabilities			(22,624)
Redeemable noncontrolling interest			(4,035)
Total purchase price allocation			$	490,357

From the date of the acquisition through March 28, 2020, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.

The definite-lived intangible assets acquired were as follows:

			Definite-Lived Intangible Assets						Weighted Average Amortization Life
			(in thousands)						(in years)
Client relationships			$	134,600					13
Developed technology			19,900						3
Backlog			7,900						1
Total definite-lived intangible assets			$	162,400					12

The goodwill resulting from the transaction, $7.2 million of which is deductible for tax purposes due to a prior asset acquisition, is primarily attributable to the potential growth of the Company’s DSA business from new customers introduced to Citoxlab and the assembled workforce of the acquired business.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company incurred transaction and integration costs in connection with the acquisition of $2.3 million, $4.1 million and $20.7 million during fiscal years 2021, 2020 and 2019, respectively, which were included in Selling, general and administrative expenses within the consolidated statements of income.

Other Acquisition

On August 28, 2019, the Company acquired an 80% ownership interest in a supplier that supports the Company’s DSA reportable segment. The purchase price paid was approximately $23 million, net of a $4 million pre-existing relationship. The fair value of the net assets acquired included $13 million of goodwill, $12 million of other long-term assets, and $9 million for a 20% redeemable noncontrolling interest. The business is reported as part of the Company’s DSA reportable segment. Pro forma information and acquisition expenses have not been presented because such information is not material to the financial statements.

Divestitures

RMS Japan Divestiture

On October 12, 2021, the Company sold its RMS Japan operations to The Jackson Laboratory for a preliminary purchase price of $73.5 million, which included $8.2 million in cash, $3.6 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.

During the three months ended December 25, 2021, the Company recorded a gain on the divestiture of the RMS Japan business of $22.7 million, net of costs to sell, a currency translation adjustment, and other adjustments related to certain ongoing arrangements with the buyer, which was included in Other (expense) income, net within the Company’s consolidated statements of income. The carrying amounts of the major classes of assets and liabilities associated with the divestiture of the business were as follows:

			October 12, 2021
			(in thousands)
Assets
Current assets			$	26,524
Property, plant, and equipment, net			17,379
Goodwill			4,129
Other assets			3,695
Total assets			$	51,727
Liabilities
Current liabilities			$	8,705
Long-term liabilities			94
Total liabilities			$	8,799

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 million between the parties.

The Sweden CDMO 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.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Due to the purchase price approximating the carrying value of the disposal group, no gain or loss was recorded during the three months ended December 25, 2021. The carrying amounts of the major classes of assets and liabilities associated with the divestiture of the business were as follows:

			October 12, 2021
			(in thousands)
Assets
Current assets			$	8,187
Property, plant and equipment, net			14,339
Operating lease right-of-use assets, net			19,733
Goodwill			27,764
Intangible assets, net			14,089
Total assets			$	84,112
Liabilities
Current liabilities			$	6,386
Operating lease right-of-use liabilities			18,221
Total liabilities			$	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:

Timing of Revenue Recognition:			2021						2020						2019
			(in thousands)
RMS
Services and products transferred over time			$	263,659					$	240,480					$	227,872
Services and products transferred at a point in time			426,778						330,672						309,217
Total RMS revenue			690,437						571,152						537,089
DSA
Services and products transferred over time			2,103,415						1,836,519						1,618,281
Services and products transferred at a point in time			3,816						909						714
Total DSA revenue			2,107,231						1,837,428						1,618,995
Manufacturing
Services and products transferred over time			335,745						174,254						142,896
Services and products transferred at a point in time			406,747						341,099						322,246
Total Manufacturing revenue			742,492						515,353						465,142
Total revenue			$	3,540,160					$	2,923,933					$	2,621,226

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.

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.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 December 25, 2021. 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 Company has assessed future performance obligations with respect to the COVID-19 pandemic uncertainties and believes there is an insignificant impact on the ability to meet future performance obligations and the amount of revenue to be recognized.

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 December 25, 2021:

			Revenue Expected to be Recognized in Future Periods
			Less than 1 Year						1 to 3 Years						4 to 5 Years						Beyond 5 Years						Total
			(in thousands)
DSA			$	355,127					$	338,685					$	18,250					$	1,683					$	713,745
Manufacturing			2,728						—						—						—						$	2,728
Total			$	357,855					$	338,685					$	18,250					$	1,683					$	716,473

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 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:

			December 25, 2021						December 26, 2020
			(in thousands)
Balances from contracts with customers:
Client receivables			$	489,452					$	489,042
Contract assets (unbilled revenue)			160,609						135,400
Contract liabilities (current and long-term deferred revenue)			240,281						227,417
Contract liabilities (customer contract deposits)			59,512						42,244

When the Company does not have the unconditional right to advanced billings, both advanced client payments and unpaid advanced client billings are excluded from deferred revenue, with the advanced billings also being excluded from client receivables. The Company excluded approximately $36 million and $16 million of unpaid advanced client billings from both client receivables and deferred revenue in the accompanying consolidated balance sheets as of December 25, 2021 and December 26, 2020, respectively. Advanced client payments of approximately $60 million and $42 million have been presented as customer contract deposits within other current liabilities in the accompanying consolidated balance sheets as of December 25, 2021 and December 26, 2020, respectively.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other changes in the contract asset and the contract liability balances during fiscal years 2021 and 2020 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 fiscal years 2021 and 2020, 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 90% of unbilled revenue as of December 26, 2020, which was $135 million, was billed during fiscal year 2021. Approximately 90% of unbilled revenue as of December 28, 2019, which was $122 million, was billed during fiscal year 2020.

(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 90% of contract liabilities as of December 26, 2020, which was $227 million, were recognized as revenue during fiscal year 2021. Approximately 90% of contract liabilities as of December 28, 2019, which was $193 million, were recognized as revenue during fiscal year 2020.

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. During fiscal year 2021, the Company recognized lease revenue of $18.1 million, which is recorded within service revenue, which is transferred over time, within the 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 consolidated financial statements.

4. SEGMENT AND GEOGRAPHIC INFORMATION

The Company’s three reportable segments are Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Solutions (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.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

			2021						2020						2019
			(in thousands)
RMS
Revenue			$	690,437					$	571,152					$	537,089
Operating income			166,814						102,706						133,912
Depreciation and amortization			39,123						37,080						19,197
Capital expenditures			61,188						29,487						26,989
DSA
Revenue			$	2,107,231					$	1,837,428					$	1,618,995
Operating income			406,978						325,959						258,903
Depreciation and amortization			177,254						168,922						151,139
Capital expenditures			101,477						105,653						86,843
Manufacturing
Revenue			$	742,492					$	515,353					$	465,142
Operating income			246,390						181,494						145,420
Depreciation and amortization			46,195						25,904						23,584
Capital expenditures			58,877						26,287						23,617

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

			Operating Income																		Depreciation and Amortization
			2021						2020						2019						2021						2020						2019
			(in thousands)
Total reportable segments			$	820,182					$	610,159					$	538,235					$	262,572					$	231,906					$	193,920
Unallocated corporate			(230,320)						(177,430)						(187,084)						2,968						3,018						4,175
Total consolidated			$	589,862					$	432,729					$	351,151					$	265,540					$	234,924					$	198,095

			Capital Expenditures
			2021						2020						2019
			(in thousands)
Total reportable segments			$	221,542					$	161,427					$	137,449
Unallocated corporate			7,230						5,133						3,065
Total consolidated			$	228,772					$	166,560					$	140,514

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

			2021						2020						2019
			(in thousands)
RMS			$	690,437					$	571,152					$	537,089
DSA			2,107,231						1,837,428						1,618,995
Manufacturing			742,492						515,353						465,142
Total revenue			$	3,540,160					$	2,923,933					$	2,621,226

A summary of unallocated corporate expense consists of the following:

			2021						2020						2019
			(in thousands)
Stock-based compensation			$	43,018					$	34,111					$	37,855
Compensation, benefits, and other employee-related expenses			92,459						73,814						73,893
External consulting and other service expenses			25,374						26,561						16,639
Information technology			18,450						18,912						16,080
Depreciation			2,968						3,018						4,175
Acquisition and integration			30,370						13,995						26,877
Other general unallocated corporate			17,681						7,019						11,565
Total unallocated corporate expense			$	230,320					$	177,430					$	187,084

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 and long-lived assets by geographic area are as follows:

			U.S.						Europe						Canada						Asia Pacific						Other						Consolidated
			(in thousands)
2021
Revenue			$	1,934,404					$	1,036,465					$	339,098					$	222,902					$	7,291					$	3,540,160
Long-lived assets			755,400						323,405						145,274						64,864						2,125						1,291,068
2020
Revenue			$	1,627,149					$	829,312					$	306,259					$	155,086					$	6,127					$	2,923,933
Long-lived assets			627,871						286,229						145,410						62,931						1,917						1,124,358
2019
Revenue			$	1,471,097					$	726,421					$	271,987					$	146,218					$	5,503					$	2,621,226
Long-lived assets			602,654						253,665						127,495						60,213						101						1,044,128

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

5. SUPPLEMENTAL BALANCE SHEET INFORMATION

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

			December 25, 2021						December 26, 2020
			(in thousands)
Client receivables			$	489,452					$	489,042
Unbilled revenue			160,609						135,400
Total			650,061						624,442
Less: Allowance for credit losses			(7,180)						(6,702)
Trade receivables and contract assets, net			$	642,881					$	617,740

Net provisions of $1.7 million, $6.4 million, and $3.0 million were recorded to the allowance for credit losses in fiscal years 2021, 2020, and 2019, respectively.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The composition of inventories is as follows:

			December 25, 2021						December 26, 2020
			(in thousands)
Raw materials and supplies			$	33,118					$	28,317
Work in process			40,268						36,755
Finished products			125,760						120,623
Inventories			$	199,146					$	185,695

The composition of other current assets is as follows:

			December 25, 2021						December 26, 2020
			(in thousands)
Prepaid income tax			$	84,725					$	68,462
Short-term investments			1,063						1,024
Restricted cash			4,023						3,074
Other receivables			7,500						—
Other current assets			$	97,311					$	72,560

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

			December 25, 2021						December 26, 2020
			(in thousands)
Land			$	59,486					$	61,031
Buildings (1)			987,544						1,059,641
Machinery and equipment (1)			760,353						661,124
Leasehold improvements			141,525						104,967
Furniture and fixtures			22,520						31,489
Computer hardware and software (1)			210,582						193,622
Vehicles (1)			6,897						6,152
Construction in progress			205,141						92,325
Total			2,394,048						2,210,351
Less: Accumulated depreciation			(1,102,980)						(1,085,993)
Property, plant and equipment, net			$	1,291,068					$	1,124,358

(1) These balances include assets under finance leases. See Note 16, “Leases.”

Depreciation expense in fiscal years 2021, 2020 and 2019 was $140.7 million, $123.0 million and $108.6 million, respectively.

The composition of other assets is as follows:

			December 25, 2021						December 26, 2020
			(in thousands)
Venture capital investments			$	149,640					$	197,100
Strategic equity investments			51,712						24,704
Life insurance policies			51,048						43,827
Other long-term income tax assets			18,690						23,485
Restricted cash			1,077						1,621
Long-term pension assets			39,582						31,915
Other			41,140						29,974
Other assets			$	352,889					$	352,626

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The composition of other current liabilities is as follows:

			December 25, 2021						December 26, 2020
			(in thousands)
Current portion of operating lease right-of-use liabilities			$	33,267					$	24,674
Accrued income taxes			26,161						24,884
Customer contract deposits			59,512						42,244
Other			18,701						10,675
Other current liabilities			$	137,641					$	102,477

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

			December 25, 2021						December 26, 2020
			(in thousands)
U.S. Transition Tax			$	43,057					$	48,781
Long-term pension liability, accrued executive supplemental life insurance retirement plan and deferred compensation plans			104,944						96,492
Long-term deferred revenue			20,578						19,475
Other			74,280						40,467
Other long-term liabilities			$	242,859					$	205,215

6. VENTURE CAPITAL AND STRATEGIC EQUITY INVESTMENTS

Venture capital investments were $149.6 million and $197.1 million as of December 25, 2021 and December 26, 2020, respectively. The Company’s total commitment to the venture capital funds as of December 25, 2021 was $165.3 million, of which the Company funded $113.3 million through that date. During fiscal years 2021, 2020, and 2019, the Company received distributions totaling $40.2 million, $27.6 million, and $11.4 million, respectively. During fiscal years 2021, 2020, and 2019, the Company recognized gains and losses related to the venture capital investments of $24.2 million loss, $100.4 million gain and $20.7 million gain, respectively. Losses in fiscal year 2021 predominantly resulted from decreases in fair value from publicly-held investments. Gains in fiscal year 2020 predominantly resulted from increases in fair value from publicly-held investments, which included initial public offerings of certain portfolio companies. As of December 25, 2021 and December 26, 2020, the Company’s consolidated retained earnings included $27.1 million and $76.8 million, respectively, of the undistributed earnings related to these investments, net of tax.

The Company also invests, with minority positions, directly in equity of predominantly privately-held companies. Strategic equity investments were $51.7 million and $24.7 million as of December 25, 2021 and December 26, 2020, respectively. Subsequent to December 25, 2021, the Company committed an additional $25 million to an existing strategic equity investment. During fiscal years 2021, 2020, and 2019, the Company recognized net gains and losses related to the Strategic equity investments of $6.2 million loss, $0.5 million gain, and $0.1 million gain, respectively.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. FAIR VALUE

Assets and liabilities measured at fair value on a recurring basis are summarized below:

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

			December 26, 2020
			Level 1						Level 2						Level 3						Total
Current assets measured at fair value:			(in thousands)
Cash equivalents			$	—					$	2,273					$	—					$	2,273
Other assets:
Life insurance policies			—						35,770						—						35,770
Total assets measured at fair value			$	—					$	38,043					$	—					$	38,043
Other current liabilities measured at fair value:
Contingent consideration			—						—						2,328						2,328
Total liabilities measured at fair value			$	—					$	—					$	2,328					$	2,328

During fiscal years 2021 and 2020, there were no transfers between fair value levels.

Contingent Consideration

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

			Fiscal Year
			2021						2020
			(in thousands)
Beginning balance			$	2,328					$	712
Additions			71,559						2,131
Payments			(2,889)						(230)
Total gains or losses (realized/unrealized):
Foreign currency translation			(368)						183
Adjustment of previously recorded contingent liability			(33,386)						(468)
Ending balance			$	37,244					$	2,328

During fiscal year 2021, the majority of the contingent consideration liabilities recognized were in connection with the Company’s recent acquisitions of Distributed Bio, Retrogenix, Vigene, and assets of a distributor. The Company estimates the fair value of contingent consideration obligations through valuation models, such as probability-weighted and option pricing models, that incorporate probability adjusted assumptions and simulations related to the achievement of the milestones and the likelihood of making related payments. The unobservable inputs used in the fair value measurements include the probabilities of successful achievement of certain financial targets, forecasted results or targets, volatility, and discount rates. The total maximum payments due is approximately $110 million, of which the fair value as of December 25, 2021 is approximately $37.2 million. The weighted average probability of achieving the maximum target is approximately 34%. The average volatility

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

and weighted average cost of capital are approximately 36% and 14%, respectively. Increases or decreases in these assumptions may result in a higher or lower fair value measurement, respectively. In the later part of fiscal year 2021, certain financial targets stipulated in the contingent consideration agreements were not achieved, which resulted in a decrease of the contingent consideration, primarily related to the Vigene and Distributed Bio acquisitions.

Debt Instruments

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

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

			December 25, 2021												December 26, 2020
			Book Value						Fair Value						Book Value						Fair Value
5.5% Senior Notes due 2026			$	—					$	—					$	500,000					$	523,100
4.25% Senior Notes due 2028			500,000						521,250						500,000						523,750
3.75% Senior Notes due 2029			500,000						506,700						—						—
4.0% Senior Notes due 2031			500,000						507,500						—						—

8. GOODWILL AND INTANGIBLE ASSETS

Goodwill

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

									Adjustments to Goodwill																		Adjustments to Goodwill
			December 28, 2019						Acquisitions						Foreign Exchange						December 26, 2020						Acquisitions						Divestitures						Foreign Exchange						December 25, 2021
			(in thousands)
RMS			$	56,586					$	229,654					$	1,519					$	287,759					$	—					$	(4,129)					$	(106)					$	283,524
DSA			2,350,223						(629)						33,536						2,383,130						123,091						—						(28,715)						2,477,506
Manufacturing			138,756						—						4,523						143,279						851,828						(27,764)						(11,492)						955,851
Gross carrying amount			2,545,565						229,025						39,578						2,814,168						974,919						(31,893)						(40,313)						3,716,881
Accumulated impairment loss - DSA			(1,005,000)						—						—						(1,005,000)						—						—						—						(1,005,000)
Goodwill			$	1,540,565																	$	1,809,168																							$	2,711,881

Based on the Company’s quantitative goodwill impairment test, which was performed in the fourth quarter for each of the fiscal years 2021, 2020 and 2019, the fair value of each reporting unit exceeded the reporting unit’s book value and, therefore, goodwill was not impaired.

The increase in goodwill during fiscal year 2021 related primarily to the acquisitions of Cognate and Vigene in the Manufacturing reportable segment and Distributed Bio and Retrogenix in the DSA reportable segment. The decreases in the RMS and Manufacturing reportable segments was a result of the sales of RMS Japan and CDMO Sweden, respectively. The increase in goodwill during fiscal year 2020 related primarily to the acquisitions of HemaCare and Cellero in the RMS reportable segment.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Intangible Assets, Net

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

			December 25, 2021																		December 26, 2020
			Gross						Accumulated Amortization						Net						Gross						Accumulated Amortization						Net
			(in thousands)
Backlog			$	12,577					$	(9,517)					$	3,060					$	29,233					$	(29,233)					$	—
Technology			135,764						(95,454)						40,310						130,907						(81,305)						49,602
Trademarks and trade names			13,086						(3,448)						9,638						15,870						(5,648)						10,222
Other			35,231						(8,445)						26,786						20,903						(14,633)						6,270
Other intangible assets			196,658						(116,864)						79,794						196,913						(130,819)						66,094
Client relationships			1,475,757						(494,359)						981,398						1,137,331						(415,826)						721,505
Intangible assets			$	1,672,415					$	(611,223)					$	1,061,192					$	1,334,244					$	(546,645)					$	787,599

The increase in intangible assets, net during fiscal year 2021 related primarily to the acquisitions of Cognate, Distributed Bio, Retrogenix, and Vigene.

Amortization expense of definite-lived intangible assets, including client relationships, for fiscal years 2021, 2020 and 2019 was $124.9 million, $111.9 million and $89.5 million, respectively. As of December 25, 2021, estimated amortization expense for intangible assets for each of the next five fiscal years is expected to be as follows:

Fiscal Year						Amortization Expense
						(in thousands)
2022						$	143,202
2023						131,385
2024						118,295
2025						110,830
2026						103,485

9. LONG-TERM DEBT AND FINANCE LEASE OBLIGATIONS

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

			December 25, 2021						December 26, 2020
			(in thousands)
Term loans			$	—					$	146,875
Revolving facility			1,161,431						814,752
5.5% Senior Notes due 2026			—						500,000
4.25% Senior Notes due 2028			500,000						500,000
3.75% Senior Notes due 2029			500,000						—
4.0% Senior Notes due 2031			500,000						—
Other debt			368						3,457
Finance leases (Note 16)			27,223						29,047
Total debt and finance leases			2,689,022						1,994,131
Less:
Current portion of long-term debt			101						47,196
Current portion of finance leases (Note 16)			2,694						3,018
Current portion of long-term debt and finance leases			2,795						50,214
Long-term debt and finance leases			2,686,227						1,943,917
Debt discount and debt issuance costs			(22,663)						(14,346)
Long-term debt, net and finance leases			$	2,663,564					$	1,929,571

As of December 25, 2021 and December 26, 2020, the weighted average interest rate on the Company’s debt was 2.78% and 3.11%, respectively.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Term Loans and Revolving Facility (Credit Facility)

As of and during the three months ended March 27, 2021, the Company had a Credit Facility consisting of a $750 million term loan and a $2.05 billion multi-currency revolving facility. The term loan facility matured in 19 quarterly installments with the last installment due March 26, 2023. During the three months ended March 27, 2021, the Company prepaid the remaining amount of the term loan, or $146.9 million, with proceeds from an unregistered private offering (see 2029 and 2031 Senior Notes below). The revolving facility had a maturity date of March 26, 2023, and required no scheduled payment before that date. Approximately $0.2 million of deferred financing costs were expensed upon prepayment of the term loan.

During the three months ended June 26, 2021, the Company amended and restated the Credit Facility increasing the capacity of the revolving credit facility and extending the maturity date to April 2026, with no required scheduled payment before that date. The amended and restated Credit Facility provides for a $3.0 billion multi-currency revolving facility. No additional term loan was borrowed. Amendments were made in connection with the prospective discontinuation of LIBOR and other changes in law since the execution of the Company’s existing credit agreement and other amendments were made to certain other covenants and terms.

The interest rates applicable to the amended and restated revolving facility are equal to (A) for revolving loans denominated in U.S. dollars, at the Company’s option, either the base rate (which is the higher of (1) the prime rate, (2) the federal funds rate plus 0.50%, or (3) the one-month adjusted LIBOR rate plus 1.0%) or the adjusted LIBOR rate, (B) for revolving loans denominated in euros, the adjusted EURIBOR rate and (C) for revolving loans denominated in sterling, the daily simple SONIA rate, in each case, plus an interest rate margin based upon the Company’s leverage ratio.

The Credit Facility includes certain customary representations and warranties, events of default, notices of material adverse changes to the Company’s business and negative and affirmative covenants. These covenants include (1) maintenance of a ratio of consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) less capital expenditures to consolidated cash interest expense, for any period of four consecutive fiscal quarters, of no less than 3.50 to 1.0 as well as (2) maintenance of a ratio of consolidated indebtedness to consolidated EBITDA for any period of four consecutive fiscal quarters, of no more than 4.25 to 1.0. As of December 25, 2021, the Company was compliant with all financial covenants under the Credit Facility.

The obligations of the Company under the Credit Facility are collateralized by substantially all of the assets of the Company.

During fiscal years 2021 and 2020, the Company had multiple U.S. dollar denominated loans borrowed by a non-U.S. Euro functional currency entity under the Company’s Credit Facility, which were $400 million each. This resulted in foreign currency losses recognized in Other (expense) income, net of $31.8 million during fiscal 2021 and foreign currency gains of $11.9 million during fiscal year 2020 related to the remeasurement of the underlying debt. The Company entered into foreign exchange forward contracts to limit its foreign currency exposures related to these borrowings and recognized gains of $34.1 million and losses of $9.3 million during fiscal years 2021 and 2020, respectively, within Interest expense. As of December 25, 2021, the Company did not have any outstanding borrowings in a currency different than its respective functional currency. See Note 14, “Foreign Currency Contracts”, for further discussion.

Base Indenture for Senior Notes

The Company periodically enters into indentures in order to issue senior notes and is subject to certain affirmative and negative covenants. The Company has the following Senior Notes in the current and prior fiscal periods.

2026 Senior Notes

In fiscal year 2018, the Company issued $500 million of 5.5% Senior Notes due in 2026 (2026 Senior Notes) in an unregistered offering. Interest on the 2026 Senior Notes was payable semi-annually on April 1 and October 1. During the three months ended March 27, 2021, the Company prepaid the $500 million 2026 Seniors Notes along with $21 million of related debt extinguishment costs and $13 million of accrued interest using proceeds from additional senior notes issued on the same day (see 2029 and 2031 Senior Notes). The payment of the 2026 Senior Notes was accounted for as a debt extinguishment. Approximately $21 million of debt extinguishment costs and $5 million of deferred financing costs write-offs were recorded in Interest expense during the three months ended March 27, 2021.

2028 Senior Notes

In fiscal year 2019, the Company issued $500 million of 4.25% Senior Notes due in 2028 (2028 Senior Notes) in an unregistered offering. Interest on the 2028 Senior Notes is payable semi-annually on May 1 and November 1.

2029 Senior Notes and 2031 Senior Notes

In fiscal year 2021, the Company issued $1 billion of debt split between $500 million of 3.75% Senior Notes due in 2029 (2029 Senior Notes), and $500 million of 4.00% Senior Notes due in 2031 (2031 Senior Notes), in an unregistered offering. Interest on the 2029 and 2031 Senior Notes is payable semi-annually on March 15 and September 15. Approximately $10 million of

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

deferred financing costs were capitalized as part of this debt issuance. Proceeds from the 2029 and 2031 Senior Notes were used as follows: prepay the $500 million 2026 Senior Notes, $21 million of debt extinguishment costs, and $13 million of accrued interest; prepay the $146.9 million remaining term loan; pay down $135 million of the revolving facility; and pay for a portion of the Cognate acquisition, which occurred on March 29, 2021.

Principal Maturities

Principal maturities of existing debt, giving effect to the amended and restated Credit Agreement, for the periods set forth in the table below, are as follows:

			Principal
			(in thousands)
2022			$	101
2023			—
2024			268
2025			—
2026			1,161,430
Thereafter			1,500,000
Total			$	2,661,799

Letters of Credit

As of December 25, 2021 and December 26, 2020, the Company had $17.7 million and $16.0 million, respectively, in outstanding letters of credit.

10. EQUITY AND NONCONTROLLING INTERESTS

Earnings Per Share

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

			Fiscal Year
			2021						2020						2019
			(in thousands)
Numerator:
Net income			$	398,837					$	365,306					$	254,061
Less: Net income attributable to noncontrolling interests			7,855						1,002						2,042
Net income attributable to common shareholders			$	390,982					$	364,304					$	252,019
Denominator:
Weighted-average shares outstanding—Basic			50,293						49,550						48,730
Effect of dilutive securities:
Stock options, restricted stock units and performance share units			1,132						1,061						963
Weighted-average shares outstanding—Diluted			51,425						50,611						49,693

Options to purchase 0.2 million shares, 0.2 million shares, and 0.4 million shares for fiscal years 2021, 2020, and 2019, respectively, as well as a non-significant number of restricted stock units (RSUs) and performance share units (PSUs), were not included in computing diluted earnings per share because their inclusion would have been anti-dilutive. Basic weighted-average shares outstanding for fiscal years 2021, 2020, and 2019 excluded the impact of 0.7 million shares, 0.9 million shares and 1.0 million shares, respectively, of non-vested RSUs and PSUs.

Treasury Shares

The Company’s Board of Directors has authorized a $1.3 billion stock repurchase program. Under its authorized stock repurchase program, the Company did not repurchase any shares in fiscal years 2021, 2020, and 2019. As of December 25, 2021, the Company had $129.1 million remaining on the authorized stock repurchase program.

The Company’s stock-based compensation plans permit the netting of common stock upon vesting of RSUs and PSUs in order to satisfy individual statutory tax withholding requirements. The Company acquired 0.1 million shares for $40.7 million, 0.1 million shares for $24.0 million, and 0.1 million shares for $18.1 million in fiscal years 2021, 2020, and 2019, respectively, from such netting.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In fiscal years 2021, 2020 and 2019, the Company’s Board of Directors approved the cancellation and return to the Company’s authorized and unissued capital stock of 0.1 million treasury shares totaling $40.7 million, 0.1 million treasury shares totaling $24.0 million, and 0.1 million treasury shares totaling $18.1 million, respectively, reducing treasury stock on the Company’s consolidated balance sheet. The Company allocated the excess of the repurchase price over the par value of shares acquired to reduce both retained earnings and additional paid-in capital for $35.6 million and $5.1 million, respectively, in fiscal year 2021, $19.2 million and $4.8 million, respectively, in fiscal year 2020 and $13.8 million and $4.3 million, respectively, in fiscal year 2019.

Accumulated Other Comprehensive Income (Loss)

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

			Foreign Currency Translation Adjustment and Other						Pension and Other Post-Retirement Benefit Plans						Total
			(in thousands)
December 28, 2019			$	(87,578)					$	(90,441)					$	(178,019)
Other comprehensive income before reclassifications (1)			20,909						15,747						36,656
Amounts reclassified from accumulated other comprehensive income			—						17,861						17,861
Net current period other comprehensive income			20,909						33,608						54,517
Income tax expense			7,215						8,157						15,372
December 26, 2020			(73,884)						(64,990)						(138,874)
Other comprehensive loss before reclassifications (1)			(30,316)						(1,193)						(31,509)
Amounts reclassified from accumulated other comprehensive income			—						1,678						1,678
Net current period other comprehensive loss			(30,316)						485						(29,831)
Income tax (benefit) expense			(6,027)						2,062						(3,965)
December 25, 2021			$	(98,173)					$	(66,567)					$	(164,740)
(1) The impact of the foreign currency translation adjustment to other comprehensive income (loss) before reclassifications was primarily due to the effect of changes in foreign currency exchange rates of the Japanese Yen, Euro, British Pound, Canadian Dollar, Chinese Yuan Renminbi, and Hungarian Forint and to a lesser extent due to the impact of changes in the Brazilian Real.

Nonredeemable Noncontrolling Interest

The Company has an investment in an entity whose financial results are consolidated in the Company’s financial statements, as it has the ability to exercise control over this entity. The interest of the noncontrolling party in this entity has been recorded as noncontrolling interest within Equity in the accompanying consolidated balance sheets. The activity within the nonredeemable noncontrolling interest during fiscal years 2021, 2020, and 2019 was not significant.

Redeemable Noncontrolling Interests

The Company holds a 92% ownership interest in Vital River, a commercial provider of research models and related services in China as of December 25, 2021. In 2019, the Company purchased an additional 5% equity interest in Vital River for $7.9 million. The Company recorded a $0.8 million gain in equity equal to the excess fair value of the 5% equity interest over the purchase price. Concurrent with the transaction, the pre-existing agreement was further amended to provide the Company with the right to purchase, and the noncontrolling interest holders with the right to sell, the remaining 8% equity interest (redeemable noncontrolling interest) at a contractually defined redemption value, subject to a redemption floor, which represents a derivative embedded within the equity instrument. These rights are exercisable beginning in 2022. In 2019, the Company recorded a charge of $2.2 million in Selling, general and administrative expenses within the consolidated statements of income, equal to the excess fair value of the hybrid instrument (equity interest with embedded derivative) over the fair value of the 8% equity interest. The redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the contractually defined redemption value ($23.0 million as of December 25, 2021) and the carrying amount adjusted for net income (loss) attributable to the noncontrolling interest. As the noncontrolling interest holders have the ability to require the Company to purchase the remaining 8% interest, the noncontrolling interest is classified in the mezzanine section of the consolidated balance sheets, which is presented above the equity section and below liabilities. The amount that the Company could be required to pay to purchase the remaining 8% equity interest is not limited.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As part of the Citoxlab acquisition in 2019, the Company acquired an approximate 90% equity interest in a subsidiary that was fully consolidated under the voting interest model, which included an approximate 10% redeemable noncontrolling interest. In February 2020, the Company purchased the remaining approximate 10% noncontrolling interest for approximately $4 million and assumption of a contingent consideration liability of approximately $2 million payable to the former shareholders. See Note 7. “Fair Value”.

In 2019, the Company acquired an 80% equity interest in a subsidiary that is fully consolidated under the voting interest model, which includes a 20% redeemable noncontrolling interest. The Company has the right to purchase, and the noncontrolling interest holders have the right to sell, the remaining 20% equity interest at its appraised value ($30.0 million as of December 25, 2021). These rights are exercisable beginning in 2022. The redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the appraised value and the carrying amount adjusted for net income (loss) attributable to the noncontrolling interest or a predetermined floor value. As the noncontrolling interest holders have the ability to require the Company to purchase the remaining 20% interest, the noncontrolling interest is classified in the mezzanine section of the consolidated balance sheets, which is presented above the equity section and below liabilities. The amount that the Company could be required to pay to purchase the remaining 20% equity interest is not limited.

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

			Fiscal Year
			2021						2020
			(in thousands)
Beginning balance			$	25,499					$	28,647
Adjustment of noncontrolling interests to redemption value			21,312						—
Purchase of a 10% redeemable noncontrolling interest			—						(3,732)
Net income (loss) attributable to noncontrolling interests			5,375						(852)
Foreign currency translation			824						1,436
Ending balance			$	53,010					$	25,499

11. INCOME TAXES

The components of income from continuing operations before income taxes and the related provision for income taxes are presented below:

			Fiscal Year
			2021						2020						2019
			(in thousands)
Income before income taxes:
U.S.			$	129,598					$	226,935					$	108,326
Non-U.S.			351,112						220,179						195,758
Total income before income taxes			$	480,710					$	447,114					$	304,084
Income tax provision (benefit):
Current:
Federal			$	32,728					$	38,192					$	18,101
Foreign			60,197						35,410						43,489
State			9,257						6,623						9,915
Total current			102,182						80,225						71,505
Deferred:
Federal			(27,486)						386						(3,226)
Foreign			13,891						5,583						(17,111)
State			(6,714)						(4,386)						(1,145)
Total deferred			(20,309)						1,583						(21,482)
Total provision for income taxes			$	81,873					$	81,808					$	50,023

Included in the fiscal year 2019 income tax expense of $50.0 million is a $20.6 million tax benefit for the recognition of $315.5 million of historical foreign net operating loss deferred tax assets, partially offset by a $294.9 million valuation allowance. Prior to 2019, these deferred tax assets were not recognized as the Company believed the ability to utilize the net operating losses

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

was remote. As a result of both changes to U.S. tax law and European tax legislation, the Company made changes in 2019 to its financing structure, resulting in the ability to utilize a portion of the net operating losses previously considered remote in nature.

Reconciliations of the statutory U.S. federal income tax rate to effective tax rates are as follows:

			Fiscal Year
			2021						2020						2019
U.S. statutory income tax rate			21.0		%				21.0		%				21.0		%
Foreign tax rate differences			0.1						1.2						2.7
State income taxes, net of federal tax benefit			0.8						0.4						2.6
Non-deductible compensation			1.2						1.0						1.7
Research tax credits and enhanced deductions			(5.0)						(3.4)						(4.4)
Stock-based compensation			(4.3)						(2.7)						(2.2)
Enacted tax rate changes			3.0						0.7						(0.4)
Tax on unremitted earnings			1.8						1.3						1.7
Impact of tax uncertainties			0.7						(0.2)						(2.6)
Impact of acquisitions and restructuring			(1.6)						0.5						2.7
Net operating loss deferred tax asset recognition, net of valuation allowance (NOL DTA)			—						(0.1)						(6.8)
Other			(0.7)						(1.4)						0.5
Effective income tax rate			17.0		%				18.3		%				16.5		%

The components of deferred tax assets and liabilities are as follows:

			December 25, 2021						December 26, 2020
			(in thousands)
Deferred tax assets:
Compensation			$	28,900					$	32,118
Accruals and reserves			23,760						17,970
Net operating loss and credit carryforwards			410,156						406,085
Operating lease liability			65,592						43,646
Other			8,323						4,253
Valuation allowance			(315,645)						(334,845)
Total deferred tax assets			221,086						169,227
Deferred tax liabilities:
Goodwill and other intangibles			(280,081)						(202,430)
Depreciation related			(35,514)						(33,277)
Venture capital investments			(16,018)						(32,848)
Tax on unremitted earnings			(21,060)						(27,707)
Right-of-use assets			(64,257)						(43,557)
Other			(3,650)						(8,710)
Total deferred tax liabilities			(420,580)						(348,529)
Net deferred taxes			$	(199,494)					$	(179,302)

The Company has recognized its deferred tax assets on the belief that it is more likely than not that they will be realized. The only exceptions relate to deferred tax assets primarily for net operating losses in Luxembourg, Sweden, certain capital losses, and fixed assets in the U.K.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A reconciliation of the Company’s beginning and ending valuation allowance are as follows:

			Fiscal Year
			2021						2020						2019
Beginning balance			$	334,845					$	309,962					$	9,788
Additions (reductions) charged to income tax provision, net			1,023						(2,707)						299,197
Additions due to acquisitions			7,747						—						924
Reductions due to divestitures, restructuring			(4,706)						—						—
Currency translation and other			(23,264)						27,590						53
Ending balance			$	315,645					$	334,845					$	309,962

As of December 25, 2021, the Company had tax-effected deferred tax assets for net operating loss carryforwards of $368.5 million, as compared to $369.0 million as of December 26, 2020. Of this amount, $24.9 million are definite-lived and begin to expire in 2022, and the remainder of $343.6 million can be carried forward indefinitely. The Company has deferred tax assets for tax credit carryforwards of $41.7 million. Of this amount, $40.4 million are definite-lived and begin to expire after 2038, the remainder of $1.3 million can be carried forward indefinitely. Additionally, the Company records a benefit to operating income for research and development and other credits in Quebec, France, the Netherlands, and the U.K. related to its DSA facilities. Additionally, the Company records a benefit to operating income for research and development and other credits in Quebec, France, the Netherlands, and the U.K. related to its DSA facilities.

A reconciliation of the Company’s beginning and ending unrecognized income tax benefits is as follows:

			Fiscal Year
			2021						2020						2019
			(in thousands)
Beginning balance			$	24,970					$	19,665					$	18,827
Additions to tax positions for current year			9,544						7,044						3,691
Additions to tax positions for prior years			2,476						4,589						5,234
Reductions to tax positions for prior years			(1,330)						(127)						(1,033)
Settlements			(1,870)						(5,859)						(274)
Expiration of statute of limitations			(1,198)						(342)						(6,780)
Ending balance			$	32,592					$	24,970					$	19,665

The $7.6 million increase in unrecognized income tax benefits during fiscal year 2021 as compared to the corresponding period in 2020 is primarily attributable to tax positions associated with our international financing structure, an additional year of Canadian Scientific Research and Experimental Development (SR&ED) credit, and acquired uncertain tax positions.

The amount of unrecognized income tax benefits that, if recognized, would favorably impact the effective tax rate was $30.0 million as of December 25, 2021 and $22.6 million as of December 26, 2020. The $7.4 million increase is primarily due to the same items noted above. It is reasonably possible as of December 25, 2021 that the liability for unrecognized tax benefits for the uncertain tax position will decrease by approximately $10 million over the next twelve-month period. The Company continues to recognize interest and penalties related to unrecognized income tax benefits in income tax expense. The total amount of cumulative accrued interest related to unrecognized income tax benefits as of December 25, 2021 and December 26, 2020 was $1.7 million and $2.4 million, respectively. Interest expense recorded as a component of income taxes was immaterial for all periods. There were no accrued penalties related to unrecognized income tax benefits as of December 25, 2021 or as of December 26, 2020.

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

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

12. EMPLOYEE BENEFIT PLANS

Pension Plans

The Charles River Laboratories, Inc. Pension Plan (U.S. Pension Plan) was a qualified, non-contributory defined benefit plan that covered certain U.S. employees. Effective 2002, the U.S. Pension Plan was amended to exclude new participants from

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

joining and in 2008 the accrual of benefits was frozen. In January 2019, the Company commenced the process to terminate this plan and received regulatory approval in April 2020. In October 2020, the Company settled all remaining benefits directly with vested participants through either lump sum payouts or the purchase of a group annuity contract from a qualified insurance company to administer all future payments. Prior to the settlement, the U.S. Pension Plan was underfunded with a benefit obligation of $93.8 million and plan assets of $93.0 million. In the fourth quarter of fiscal year 2020, the Company made a contribution of $0.8 million to fully fund this plan to cover the lump sum payments, purchase the group annuity contract, and settle remaining termination costs. Upon settlement of the pension liability, the Company recognized a non-cash settlement charge of $10.3 million related to pension losses, reclassified from accumulated other comprehensive loss on the consolidated balance sheet, to other expense in the consolidated statements of income.

The Charles River Pension Plan (U.K. Pension Plan) is a defined contribution and defined benefit pension plan covering certain U.K. employees. Benefits are based on participants’ final pensionable salary and years of service. Participants’ rights vest immediately. Effective December 31, 2002, the plan was amended to exclude new participants from joining the defined benefit section of the plan and a defined contribution section was established for new entrants. Contributions under the defined contribution plan are determined as a percentage of gross salary. In the fourth quarter of 2015, the U.K. Pension Plan was amended such that the members of the defined benefit section of the plan ceased to accrue additional benefits; however, their benefits continue to be adjusted for changes in their final pensionable salary or a specified inflation index, as applicable. During fiscal 2021, the Company made contributions of $8.3 million to the U.K. Pension Plan. As of fiscal 2021 year-end, this plan was in a funded status of $39.6 million.

In addition, the Company has several defined benefit plans in certain other countries in which it maintains an operating presence, including Canada, France, Germany, Italy and Netherlands. On October 12, 2021, the Company sold RMS Japan, which included the related pension plan in Japan. All pension related assets and liabilities were assumed by the buyer. Refer to Note 2. “Acquisitions and Divestitures” for more details on this divestiture.

The net periodic benefit cost (income) associated with these plans for fiscal years 2021, 2020 and 2019 totaled $0.5 million, $1.6 million and $1.5 million, respectively.

Charles River Laboratories Deferred Compensation Plan and Executive Supplemental Life Insurance Retirement Plan

The Company maintains a non-qualified deferred compensation plan, known as the Charles River Laboratories Deferred Compensation Plan (DCP), which allows a select group of eligible employees to defer a portion of their compensation. At the present time, no contributions are credited to the DCP, except as set forth below. Participants must specify the distribution date for deferred amounts at the time of deferral, in accordance with applicable IRS regulations. Generally, amounts may be paid in lump sum or installments upon retirement or termination of employment, or later if the employee terminates employment after age 55 and before age 65. Amounts may also be distributed during employment, subject to a minimum deferral requirement of three years.

The Company provides certain active employees an annual contribution into their DCP account of 10% of the employee’s base salary plus the lesser of their target annual bonus or actual annual bonus.

In addition to the DCP, certain officers and key employees also participate, or in the past participated, in the Company’s Executive Supplemental Life Insurance Retirement Plan (ESLIRP), which is a non-funded, non-qualified arrangement. Annual benefits under this plan will equal a percentage of the highest five consecutive years of compensation, offset by amounts payable under the U.S. Pension Plan and Social Security. In connection with the establishment of the DCP, certain active ESLIRP participants, who agreed to convert their accrued ESLIRP benefit to a comparable deferred compensation benefit, discontinued their direct participation in the ESLIRP. Instead, the present values of the accrued benefits of ESLIRP participants were credited to their DCP accounts, and future accruals are converted to present values and credited to their DCP accounts annually. In fiscal year 2020, one executive officer, who converted their ESLIRP benefit into the DCP, retired resulting in lump sum payment of $8.1 million. Upon settlement of this pension liability, the Company recognized a non-cash settlement charge of $2.1 million related to pension losses, reclassified from accumulated other comprehensive loss on the consolidated balance sheet, to other expense in the consolidated statements of income.

The net periodic benefit cost associated with these plans for fiscal years 2021, 2020 and 2019 totaled $4.3 million, $5.7 million and $2.5 million, respectively.

The Company has invested in several corporate-owned key-person life insurance policies with the intention of using these investments to fund the ESLIRP and the DCP. Participants have no interest in any such investments. As of December 25, 2021 and December 26, 2020, the cash surrender value of these life insurance policies were $51.0 million and $43.8 million, respectively.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table provides a reconciliation of benefit obligations and plan assets of the Company’s pension, DCP and ESLIRP plans:

			December 25, 2021						December 26, 2020
			(in thousands)
Change in projected benefit obligations:
Benefit obligation at beginning of year			$	367,468					$	447,409
Service cost			3,455						3,609
Interest cost			5,492						8,849
Other			—						429
Benefit payments			(7,564)						(8,913)
Settlements			(82)						(101,979)
Transfer out due to divestiture			(11,956)						—
Actuarial loss			18,107						9,816
Administrative expenses paid			—						(808)
Effect of foreign exchange			(2,321)						9,056
Benefit obligation at end of year			$	372,599					$	367,468
Change in fair value of plan assets:
Fair value of plan assets at beginning of year			$	324,752					$	357,181
Actual return on plan assets			24,151						36,551
Employer contributions			11,221						34,092
Settlements			(82)						(101,979)
Transfer out due to divestiture			(15,918)						—
Benefit payments			(7,564)						(8,913)
Administrative expenses paid			—						(808)
Effect of foreign exchange			(929)						8,628
Fair value of plan assets at end of year			$	335,631					$	324,752
Net balance sheet liability			$	36,968					$	42,716
Amounts recognized in balance sheet:
Noncurrent assets			$	39,621					$	31,916
Current liabilities			1,876						1,713
Noncurrent liabilities			74,713						72,919

Actuarial losses are driven mainly by liability losses as a result of changes in economic assumptions, in particular higher inflation related assumptions, offset by liability gains due to higher discount rates and changes in mortality assumptions.

Amounts recognized in accumulated other comprehensive loss related to the Company’s pension, DCP and ESLIRP plans are as follows:

			Fiscal Year
			2021						2020
			(in thousands)
Net actuarial loss			$	82,746					$	82,914
Net prior service cost (credit)			(1,091)						(1,593)
Net amount recognized			$	81,655					$	81,321

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The accumulated benefit obligation and fair value of plan assets for the Company’s pension, DCP and ESLIRP plans with accumulated benefit obligations in excess of plan assets are as follows:

			December 25, 2021						December 26, 2020
			(in thousands)
Accumulated benefit obligation			$	75,133					$	72,940
Fair value of plan assets			12,663						11,543

The projected benefit obligation and fair value of plan assets for the Company’s pension, DCP and ESLIRP plans with projected benefit obligations in excess of plan assets are as follows:

			December 25, 2021						December 26, 2020
			(in thousands)
Projected benefit obligation			$	96,089					$	93,192
Fair value of plan assets			19,500						18,560

Components of total benefit cost for the Company’s pension, DCP and ESLIRP plans are as follows:

			Fiscal Year
			2021						2020						2019
			(in thousands)
Service cost			$	3,455					$	3,609					$	2,833
Interest cost			5,492						8,849						11,583
Expected return on plan assets			(8,058)						(11,348)						(13,005)
Amortization of prior service credit			(531)						(489)						(489)
Amortization of net loss			4,528						6,239						2,250
Other			—						417						850
Net periodic benefit cost			4,886						7,277						4,022
Settlement			(2,320)						12,385						—
Total benefit cost			$	2,566					$	19,662					$	4,022

Assumptions

Weighted-average assumptions used to determine projected benefit obligations are as follows:

			December 25, 2021						December 26, 2020
Discount rate			1.8		%				1.5		%
Rate of compensation increase			3.7		%				3.0		%

The discount rate reflects the rate the Company would have to pay to purchase high-quality investments that would provide cash sufficient to settle its current pension obligations. A 25-basis point change across all discount rates changes the projected benefit obligation by approximately $17 million for all Company plans.

Weighted-average assumptions used to determine net periodic benefit cost are as follows:

			December 25, 2021						December 26, 2020						December 28, 2019
Discount rate			1.5		%				2.1		%				3.2		%
Expected long-term return on plan assets			2.5		%				3.4		%				4.3		%
Rate of compensation increase			3.0		%				3.0		%				3.2		%

A 0.5% decrease in the expected rate of return would increase annual pension expense by $1.7 million.

In fiscal years 2021 and 2020, new mortality improvement scales were issued in the U.S. and the United Kingdom (U.K.) reflecting a decline in longevity projection from previous releases the Company adopted, which decreased the Company’s benefit obligations by $0.5 million and $7.8 million as of December 25, 2021 and December 26, 2020, respectively.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Plan Assets

The Company invests its pension assets with the objective of achieving a total long-term rate of return sufficient to fund future pension obligations and to minimize future pension contributions. The Company is willing to tolerate a commensurate level of risk to achieve this objective. The Company controls its risk by maintaining a diversified portfolio of asset classes. Plan assets did not include any of the Company’s common stock as of December 25, 2021 or December 26, 2020. The weighted-average target asset allocations are 20.7% to equity securities, 13.8% to fixed income securities and 65.5% to other securities.

The fair value of the Company’s pension plan assets by asset category are as follows:

			December 25, 2021																								December 26, 2020
			Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3						Total
			(in thousands)
Cash and cash equivalents			$	8,142					$	4,549					$	—					$	12,691					$	20,163					$	1,466					$	—					$	21,629
Equity securities (1)			—						60,872						—						60,872						8,633						54,832						—						63,465
Debt securities (2)			—						140,082						—						140,082						—						99,188						—						99,188
Mutual funds (3)			7,071						69,269						—						76,340						7,018						65,189						—						72,207
Other (4)			—						44,568						1,078						45,646						508						66,439						1,316						68,263
Total			$	15,213					$	319,340					$	1,078					$	335,631					$	36,322					$	287,114					$	1,316					$	324,752
(1) This category comprises equity investments and securities held by non-U.S. pension plans valued at the quoted closing price and translated into U.S. dollars using a foreign currency exchange rate at year end.
(2) This category comprises debt investments and securities held by non-U.S. pension plans valued at the quoted closing price and translated into U.S. dollars using a foreign currency exchange rate at year end. Holdings primarily include investment-grade corporate bonds and treasuries at various durations.
(3) This category comprises mutual funds valued at the net asset value of shares held by non-U.S. pension plans at year end and translated into U.S. dollars using a foreign currency exchange rate at year end.
(4) This category mainly comprises fixed income securities tied to various U.K. government bond yields held by non-US pension plans valued at the net asset value of shares held at year-end and translated into U.S. dollars using a foreign currency exchange rate at year end.

The activity within the Level 3 pension plan assets was not significant during the periods presented.

During fiscal year 2021, the Company contributed $9.1 million to the pension plans and expects to contribute approximately $0.2 million in fiscal year 2022. During fiscal year 2021, the Company paid $2.1 million directly to certain participants outside of plan assets.

Expected benefit payments are estimated using the same assumptions used in determining the Company’s benefit obligation as of December 25, 2021. Benefit payments will depend on future employment and compensation levels, among other factors, and changes in any of these factors could significantly affect these estimated future benefit payments. Estimated future benefit payments during the next five years and in the aggregate for fiscal years 2027 through 2031, are as follows.

Fiscal Year						Pension Plans
						(in thousands)
2022						$	7,317
2023						6,865
2024						7,475
2025						7,870
2026						53,330
2027-2031						45,604

Post-Retirement Health and Life Insurance Plans

The Company’s Canadian location offers post-retirement life insurance benefits to its employees and post-retirement medical and dental insurance coverage to certain executives. The plan is non-contributory and unfunded. As of December 25, 2021 and December 26, 2020, the accumulated benefit obligation related to the plan was $1.0 million and $1.3 million, respectively. The amounts included in other accumulated comprehensive income as well as expenses related to the plan were not significant for fiscal years 2021, 2020 and 2019.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Charles River Laboratories Employee Savings Plan

The Charles River Laboratories Employee Savings Plan is a defined contribution plan in the form of a qualified 401(k) plan in which substantially all U.S. employees are eligible to participate upon employment. The plan contains a provision whereby the Company matches a percentage of employee contributions. During fiscal years 2021, 2020 and 2019, the costs associated with this defined contribution plan totaled $24.0 million, $14.6 million and $19.1 million, respectively.

13. STOCK-BASED COMPENSATION

The Company has stock-based compensation plans under which employees and non-employee directors may be granted stock-based awards such as stock options, restricted stock, restricted stock units (RSUs), and performance share units (PSUs).

During fiscal years 2021, 2020 and 2019, the primary share-based awards and their general terms and conditions are as follows:

• Stock options, which entitle the holder to purchase a specified number of shares of common stock at an exercise price equal to the closing market price of common stock on the date of grant; typically vest over 4 years; and typically expire 5 or 10 years from date of grant.

• RSUs, which represent an unsecured promise to grant at no cost a set number of shares of common stock upon the completion of the vesting schedule, and typically vest over 2 to 4 years. With respect to RSUs, recipients are not entitled to cash dividends and have no voting rights on the stock during the vesting period.

• PSUs, which entitle the holder to receive at no cost, a specified number of shares of common stock within a range of shares from zero to a specified maximum and typically vest over 3 years. Payout of this award is contingent upon achievement of certain performance and market conditions.

In May 2016, the Company’s shareholders approved the 2016 Incentive Plan (2016 Plan). The 2016 Plan provided no further awards to be granted under preexisting stock option and incentive plans; provided, however, that any shares that have been forfeited or canceled in accordance with the terms of the applicable award under a preexisting plan may be subsequently awarded in accordance with the terms of the preexisting plan. The 2016 Plan allows a maximum of 6.1 million shares to be awarded, of which restricted stock grants, RSUs, and performance-based stock awards count as 2.3 shares and stock options count as 1.0 share. Any stock options and other share-based awards that were granted under prior plans and were outstanding in May 2016 continue in accordance with the terms of the respective plans.

In May 2018, the Company’s shareholders approved the 2018 Incentive Plan, which was amended in 2020 (2018 Plan). The 2018 Plan provided no further awards to be granted under preexisting stock option and incentive plans; provided, however, that any shares that have been forfeited or canceled in accordance with the terms of the applicable award under a preexisting plan may be subsequently awarded in accordance with the terms of the preexisting plan. The 2018 Plan allows a maximum of 8.9 million shares to be awarded, of which restricted stock grants, RSUs, and performance-based stock awards count as 2.3 shares and stock options count as 1.0 share. Any stock options and other share-based awards that were granted under prior plans and were outstanding in May 2018 continue in accordance with the terms of the respective plans.

As of December 25, 2021, approximately 6.2 million shares were authorized for future grants under the Company’s share-based compensation plans. The Company settles employee share-based compensation awards with newly issued shares. The following table provides stock-based compensation by the financial statement line item in which it is reflected:

			Fiscal Year
			2021						2020						2019
			(in thousands)
Cost of revenue			$	13,087					$	10,636					$	9,038
Selling, general and administrative			58,387						45,705						48,233
Stock-based compensation, before income taxes			71,474						56,341						57,271
Provision for income taxes			(10,299)						(8,130)						(9,465)
Stock-based compensation, net of income taxes			$	61,175					$	48,211					$	47,806

No stock-based compensation related costs were capitalized in fiscal years 2021, 2020 and 2019.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Options

The following table summarizes stock option activity under the Company’s stock-based compensation plans:

			Number of shares						Weighted Average Exercise Price						Weighted Average Remaining Contractual Life						Aggregate Intrinsic Value
			(in thousands)												(in years)						(in thousands)
Options outstanding as of December 26, 2020			1,216						$	129.34
Options granted			160						$	337.13
Options exercised			(431)						$	105.80
Options canceled			(28)						$	177.46
Options outstanding as of December 25, 2021			917						$	175.24					4.7						$	177,834
Options exercisable as of December 25, 2021			286						$	127.69					2.6						$	69,111
Options expected to vest as of December 25, 2021			631						$	196.81					5.6						$	108,723

The fair value of stock options granted was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:

			Fiscal Year
			2021						2020						2019
Expected life (in years)			6.0						6.0						3.6
Expected volatility			32		%				30		%				27		%
Risk-free interest rate			1.0		%				0.4		%				2.4		%
Expected dividend yield			0		%				0		%				0		%

The weighted-average grant date fair value of stock options granted was $108.61, $53.37 and $33.97 for fiscal years 2021, 2020 and 2019, respectively.

As of December 25, 2021, the unrecognized compensation cost related to unvested stock options expected to vest was $21.4 million. This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 2.2 years.

The total intrinsic value of options exercised during fiscal years 2021, 2020 and 2019 was $94.4 million, $48.6 million and $27.0 million, respectively, with intrinsic value defined as the difference between the market price on the date of exercise and the exercise price.

Restricted Stock Units

The following table summarizes the restricted stock units activity for fiscal year 2021:

			Restricted Stock Units						Weighted Average Grant Date Fair Value
			(in thousands)
December 26, 2020			466						$	144.03
Granted			103						$	340.42
Vested			(173)						$	131.93
Canceled			(23)						$	194.61
December 25, 2021			373						$	197.45

As of December 25, 2021, the unrecognized compensation cost related to shares of unvested RSUs expected to vest was $46.0 million, which is expected to be recognized over an estimated weighted-average amortization period of 2.4 years. The total fair value of RSU grants that vested during fiscal years 2021, 2020 and 2019 was $22.8 million, $20.0 million and $16.5 million, respectively.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Performance Based Stock Award Program

The Company issues PSUs to certain corporate officers. The number of shares of common stock issued for each PSU is adjusted based on a performance condition linked to the Company’s financial performance. Certain awards are further adjusted based on a market condition, which is calculated based on the Company’s stock performance relative to a peer group over the three-year vesting period. The fair value of the market condition is reflected in the fair value of the award at grant date.

The Company utilizes a Monte Carlo simulation valuation model to value these awards. Information pertaining to the Company’s PSUs and the related estimated weighted-average assumptions used to calculate their fair value were as follows:

			Fiscal Year
			2021						2020						2019
			(shares in thousands)
PSUs granted			64						98						160
Weighted average grant date fair value			$	407.76					$	209.67					$	164.47
Key assumptions:
Expected volatility			37		%				35		%				25		%
Risk-free interest rate			0.2		%				0.2		%				2.4		%
Expected dividend yield			0		%				0		%				0		%
Total shareholder return of 20-trading day average stock price on grant date			39.9		%				21.7		%				17.7		%

The maximum number of common shares to be issued upon vesting of PSUs is 0.1 million. For fiscal years 2021, 2020 and 2019, the Company recognized stock-based compensation related to PSUs of $31.8 million, $22.7 million and $25.3 million, respectively. The total fair value of PSUs that vested during fiscal years 2021, 2020 and 2019 was $26.0 million, $20.9 million and $20.2 million, respectively.

In fiscal years 2021, 2020 and 2019, the Company also issued approximately 5,000, 9,000 and 15,000 PSUs using a weighted-average grant date fair value per share of $477.52, $179.66 and $144.67, respectively. These PSUs vest upon the achievement of financial targets and other performance measures.

14. FOREIGN CURRENCY CONTRACTS

Cross Currency Loans

The Company periodically enters into foreign exchange forward contracts to limit its foreign currency exposure related to U.S. dollar denominated loans borrowed by a non-U.S. Euro functional currency entity under the Company’s Credit Facility. These contracts are not designated as hedging instruments. Any gains or losses on these forward contracts are recognized immediately within Interest expense in the consolidated statements of income. The Company had no such open forward contracts as of December 25, 2021 or December 26, 2020.

The following table summarizes the effect of the foreign exchange forward contracts entered into to limit the Company’s foreign currency exposure related to U.S. dollar denominated loans borrowed by a non-U.S. Euro functional currency entity under the Credit Facility on the Company’s consolidated statements of income:

						Fiscal Year
						2021												2020												2019
Location of gain (loss)						Financial statement caption amount						Amount of gain (loss)						Financial statement caption amount						Amount of gain (loss)						Financial statement caption amount						Amount of gain (loss)
						(in thousands)
Interest expense						$	73,910					$	34,131					$	86,433					$	(9,325)					$	60,882					$	18,672

Intercompany Loans

The Company periodically enters into foreign exchange forward contracts to limit its foreign currency exposure related to certain intercompany loans. These contracts are not designated as hedging instruments. Any gains or losses on forward contracts associated with intercompany loans are recognized immediately in Other (expense) income, net and are largely offset by the remeasurement of the underlying intercompany loans.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company entered into foreign currency forward contracts related to certain intercompany loans during fiscal years 2021 and 2020. The Company had one open forward contracts as of December 25, 2021, with a duration of three months and was recorded at fair value in the Company’s accompanying consolidated balance sheet. The Company did not have any such open contracts as of December 26, 2020. The notional amount and fair value of the open contract is summarized as follows:

December 25, 2021
Notional Amount						Fair Value						Balance Sheet Location
(in thousands)
$	39,211					$	(141)					Other current liabilities

The Company had settled foreign currency forward contract related to certain intercompany loans during fiscal years 2021, 2020 and 2019, and recognized losses in Other (expense) income, net in the consolidated statement of income.

The following table summarizes the effect of the foreign exchange forward contracts in connection with certain intercompany loans on the Company’s consolidated statements of income:

						Fiscal Year
						2021												2020												2019
Location of gain (loss)						Financial statement caption amount						Amount of gain (loss)						Financial statement caption amount						Amount of gain (loss)						Financial statement caption amount						Amount of gain (loss)
						(in thousands)
Other (expense) income, net						$	(35,894)					$	(1,599)					$	99,984					$	(892)					$	12,293					$	(121)

15. RESTRUCTURING AND ASSET IMPAIRMENTS

Global Restructuring Initiatives

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

The following table presents a summary of restructuring costs related to these initiatives within the consolidated statements of income:

			Severance and Transition Costs						Asset Impairments and Other Costs						Total
			(in thousands)
December 25, 2021
Cost of services provided and products sold (excluding amortization of intangible assets)			$	1,898					$	934					$	2,832
Selling, general and administrative			2,819						1,205						4,024
Total			$	4,717					$	2,139					$	6,856
December 26, 2020
Cost of services provided and products sold (excluding amortization of intangible assets)			$	4,453					$	920					$	5,373
Selling, general and administrative			3,137						4,084						7,221
Total			$	7,590					$	5,004					$	12,594
December 28, 2019
Cost of services provided and products sold (excluding amortization of intangible assets)			$	4,348					$	2,367					$	6,715
Selling, general and administrative			7,106						18						7,124
Total			$	11,454					$	2,385					$	13,839

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents restructuring costs by reportable segment for these productivity improvement initiatives:

			Fiscal Year
			2021						2020						2019
			(in thousands)
RMS			$	7					$	845					$	3,110
DSA			3,114						8,605						7,307
Manufacturing			3,663						2,733						3,032
Unallocated corporate			72						411						390
Total			$	6,856					$	12,594					$	13,839

Rollforward of Restructuring Activities

The following table provides a rollforward for all of the Company’s severance and transition costs and certain lease related costs related to all restructuring activities:

			Fiscal Year
			2021						2020						2019
			(in thousands)
Beginning balance			$	5,818					$	6,406					$	2,921
Expense (excluding non-cash charges)			5,695						9,284						12,674
Payments / utilization			(5,604)						(9,918)						(9,206)
Other non-cash adjustments			(1,831)						—						—
Foreign currency adjustments			(67)						46						17
Ending balance			$	4,011					$	5,818					$	6,406

As of December 25, 2021 and December 26, 2020, $4.0 million and $5.8 million, respectively, of severance and other personnel related costs liabilities and lease obligation liabilities were included in accrued compensation and accrued liabilities within the Company’s consolidated balance sheets.

16. LEASES

Operating and Finance Leases

Right-of-use lease assets and lease liabilities are reported in the Company’s consolidated balance sheets as follows:

			Fiscal Year
			December 25, 2021						December 26, 2020
			(in thousands)
Operating leases
Operating lease right-of-use assets, net			$	292,941					$	178,220
Other current liabilities			$	33,267					$	24,674
Operating lease right-of-use liabilities			252,972						155,595
Total operating lease liabilities			$	286,239					$	180,269
Finance leases
Property, plant and equipment, net			$	29,437					$	31,614
Current portion of long-term debt and finance leases			$	2,694					$	3,018
Long-term debt, net and finance leases			24,529						26,029
Total finance lease liabilities			$	27,223					$	29,047

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The components of operating and finance lease costs were as follows:

			Fiscal Year
			December 25, 2021						December 26, 2020						December 28, 2019
			(in thousands)
Operating lease costs			$	45,728					$	32,965					$	30,885
Finance lease costs:
Amortization of right-of-use assets			3,337						3,723						4,007
Interest on lease liabilities			1,280						1,306						1,349
Short-term lease costs			2,441						2,349						1,056
Variable lease costs			4,623						5,122						3,161
Sublease income			(2,008)						(1,673)						(994)
Total lease costs			$	55,401					$	43,792					$	39,464

Other information related to leases was as follows:

Supplemental Cash Flow Information

			Fiscal Year
			December 25, 2021						December 26, 2020						December 28, 2019
			(in thousands)
Cash flows included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	42,576					$	29,961					$	27,153
Operating cash flows from finance leases			1,282						1,306						1,406
Finance cash flows from finance leases			3,202						4,350						3,766
Non-cash leases activity:
Right-of-use lease assets obtained in exchange for new operating lease liabilities			$	142,764					$	63,499					$	24,382
Right-of-use lease assets obtained in exchange for new finance lease liabilities			1,567						1,571						4,819

Lease Term and Discount Rate

			As of						As of						As of
			December 25, 2021						December 26, 2020						December 28, 2019
Weighted-average remaining lease term (in years)
Operating lease			9.0						8.5						8.2
Finance lease			11.7						12.4						13.0
Weighted-average discount rate
Operating lease			3.6		%				4.5		%				4.4		%
Finance lease			4.4		%				4.1		%				4.6		%

At the lease commencement date, the discount rate implicit in the lease is used to discount the lease liability if readily determinable. If not readily determinable or leases do not contain an implicit rate, the Company’s incremental borrowing rate is used as the discount rate, which is based on the information available at the lease commencement date and represents a rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 25, 2021, maturities of operating and finance lease liabilities for each of the following five years and a total thereafter were as follows:

			Operating Leases						Finance Leases
			(in thousands)
2022			$	43,420					$	3,865
2023			40,959						3,524
2024			39,080						3,288
2025			37,177						2,955
2026			32,072						2,460
Thereafter			146,151						19,157
Total minimum future lease payments			338,859						35,249
Less: Imputed interest			52,620						8,026
Total lease liabilities			$	286,239					$	27,223

Total minimum future lease payments (predominantly operating leases) of approximately $111 million for leases that have not commenced as of December 25, 2021, as the Company does not yet control the underlying assets, are not included in the consolidated financial statements. These leases are expected to commence between fiscal years 2022 and 2024 with lease terms of approximately 6 to 15 years.

17. COMMITMENTS AND CONTINGENCIES

Insurance

The Company maintains certain insurance policies that maintain large deductibles up to approximately $2 million, some with or without stop-loss limits, depending on market availability. Insurance policies at certain locations are based on a percentage of the insured assets, for which deductibles for certain property may exceed $15.0 million in the event of a catastrophic event. In addition, the Company purchased representation and warranty insurance in support of some acquisitions, in which deductibles could reach $6.6 million.

Litigation

Various lawsuits, claims and proceedings of a nature considered normal to its business are pending against the Company. While the outcome of any of these proceedings cannot be accurately predicted, the Company does not believe the ultimate resolution of any of these existing matters would have a material adverse effect on the Company’s business or financial condition.

Guarantees

The Company enters into certain agreements with other parties in the ordinary course of business that contain indemnification provisions. These typically include agreements with directors and officers, business partners, contractors, landlords, and customers. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. However, to date the Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of these obligations is minimal.

Purchase Obligations

The Company enters into unconditional purchase obligations, in the ordinary course of business, that include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. These unconditional purchase obligations exclude agreements that are cancellable at any time without penalty. The aggregate amount of the Company’s unconditional purchase obligations totaled approximately $260 million as of December 25, 2021 and the majority of these obligations are expected to be settled during 2022.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.