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

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

Overview

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

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

Segment Reporting

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

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

Our DSA segment is comprised of two businesses: Discovery Services and Safety Assessment. We provide regulated and non-regulated DSA services to support the research, development, and regulatory-required safety testing of potential new drugs, including therapeutic discovery and optimization plus in vitro and in vivo studies, laboratory support services, and strategic non-clinical consulting and program management to support product development.

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

U.S. Department of Justice Investigation into Non-Human Primate Supply Chain

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

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

Global Economic Environment

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

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

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

Recent Acquisitions

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

Fiscal Year 2023 Acquisition

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

Fiscal Year 2022 Acquisition

On April 5, 2022, we acquired Explora BioLabs Holdings, Inc. (Explora BioLabs), a provider of contract vivarium research services, providing biopharmaceutical clients with turnkey in vivo vivarium facilities, management and related services to efficiently conduct their early-stage research activities. The acquisition of Explora BioLabs complements our existing IS business, specifically our CRADL (Charles River Accelerator and Development Lab) footprint, and offers incremental opportunities to partner with an emerging client base, many of which are engaged in cell and gene therapy development. The purchase price of Explora BioLabs was $284.5 million, net of $6.6 million in cash. The acquisition was funded through proceeds from our Credit Facility. This business is reported as part of our RMS reportable segment.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Recent Divestitures

We routinely evaluate strategic fit and fundamental performance of our global infrastructure and divest operations that do not meet key business criteria or where we believe capital could be better deployed in long-term growth opportunities. On December 20, 2022, we completed the sale of our Avian Vaccine Services (Avian) business to a private investor group for a preliminary purchase price of $169 million in cash, subject to certain customary closing adjustments, and future contingent payments up to an additional $30 million. This business was reported in our Manufacturing reportable segment.

Fiscal Quarters

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

Overview of Results of Operations and Liquidity

Revenue for the three months ended April 1, 2023 increased $115.4 million, or 12.6%, to $1,029.4 million compared to $913.9 million in the corresponding period in 2022. The increase in revenue was primarily due to increased demand and pricing within our Safety Assessment business and recent acquisition of Explora BioLabs; partially offset by the divestiture of our Avian business and the negative effect of changes in foreign currency exchange rates when compared to the corresponding three month period in 2022.

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

Net income attributable to common shareholders increased to $103.1 million in the three months ended April 1, 2023, from $93.0 million in the corresponding period of 2022. The increase in Net income attributable to common shareholders was primarily due to the increase in operating income described above, partially offset by higher provision for income taxes compared to the corresponding period of 2022, due to decreased tax benefits from stock-based compensation deductions.

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

Results of Operations

Three Months Ended April 1, 2023 Compared to Three Months Ended March 26, 2022

Revenue and Operating Income

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

			Three Months Ended
			April 1, 2023						March 26, 2022						$ change						% change
			(in thousands, except percentages)
Service revenue			$	857,366					$	720,485					$	136,881					19.0		%
Product revenue			172,007						193,444						(21,437)						(11.1)		%
			$	1,029,373					$	913,929					$	115,444					12.6		%

			Three Months Ended
			April 1, 2023						March 26, 2022						$ change						% change						Impact of FX
			(in thousands, except percentages)
RMS			$	199,766					$	176,542					$	23,224					13.2		%				(2.5)		%
DSA			662,353						544,259						118,094						21.7		%				(2.1)		%
Manufacturing			167,254						193,128						(25,874)						(13.4)		%				(1.9)		%
Total revenue			$	1,029,373					$	913,929					$	115,444					12.6		%				(2.1)		%

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

The following table presents operating income by reportable segment:

			Three Months Ended
			April 1, 2023						March 26, 2022						$ change						% change						Impact of FX
			(in thousands, except percentages)
RMS			$	40,409					$	47,882					$	(7,473)					(15.6)		%				(2.7)		%
DSA			171,431						104,986						66,445						63.3		%				2.7		%
Manufacturing			2,106						46,368						(44,262)						(95.5)		%				(2.0)		%
Unallocated corporate			(46,054)						(50,458)						4,404						(8.7)		%				(1.1)		%
Total operating income			$	167,892					$	148,778					$	19,114					12.8		%				0.7		%
Operating income % of revenue			16.3		%				16.3		%										0 bps

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

RMS

			Three Months Ended
			April 1, 2023						March 26, 2022						$ change						% change						Impact of FX
			(in thousands, except percentages)
Revenue			$	199,766					$	176,542					$	23,224					13.2		%				(2.5)		%
Cost of revenue (excluding amortization of intangible assets)			126,804						102,460						24,344						23.8		%
Selling, general and administrative			27,058						22,363						4,695						21.0		%
Amortization of intangible assets			5,495						3,837						1,658						43.2		%
Operating income			$	40,409					$	47,882					$	(7,473)					(15.6)		%				(2.7)		%
Operating income % of revenue			20.2		%				27.1		%										(690) bps

RMS revenue increased $23.2 million due primarily to higher small research model services revenue, specifically the Insourcing Solutions business, which included the acquisition of Explora BioLabs contributing $15.6 million and higher research model product revenue in North America and Europe, higher revenue in the Cell Solutions business; partially offset by the lower sales of large research models in China, principally due to timing of shipments, and the effect of changes in foreign currency exchange rates.

RMS operating income decreased $7.5 million compared to the corresponding period in 2022. RMS operating income as a percentage of revenue for the three months ended April 1, 2023 was 20.2%, a decrease of 690 bps from 27.1% for the corresponding period in 2022. Operating income and operating income as a percentage of revenue decreased primarily due to the timing of large research model sales in China and higher amortization, operating, and staffing costs due to the recent acquisition of Explora BioLabs; partially offset by foreign exchange impact discussed above.

DSA

			Three Months Ended
			April 1, 2023						March 26, 2022						$ change						% change						Impact of FX
			(in thousands, except percentages)
Revenue			$	662,353					$	544,259					$	118,094					21.7		%				(2.1)		%
Cost of revenue (excluding amortization of intangible assets)			411,523						373,141						38,382						10.3		%
Selling, general and administrative			61,998						43,860						18,138						41.4		%
Amortization of intangible assets			17,401						22,272						(4,871)						(21.9)		%
Operating income			$	171,431					$	104,986					$	66,445					63.3		%				2.7		%
Operating income % of revenue			25.9		%				19.3		%										660 bps

DSA revenue increased $118.1 million due primarily to service revenue which increased in the Safety Assessment business due to increased demand, principally biotechnology clients, pricing of services; partially offset by the effect of changes in foreign currency exchange rates.

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

corresponding period in 2022. Operating income and operating income as a percentage of revenue increased primarily due to the contribution of higher revenue described above.

Manufacturing

			Three Months Ended
			April 1, 2023						March 26, 2022						$ change						% change						Impact of FX
			(in thousands, except percentages)
Revenue			$	167,254					$	193,128					$	(25,874)					(13.4)		%				(1.9)		%
Cost of revenue (excluding amortization of intangible assets)			113,392						101,512						11,880						11.7		%
Selling, general and administrative			39,737						33,350						6,387						19.2		%
Amortization of intangible assets			12,019						11,898						121						1.0		%
Operating income			$	2,106					$	46,368					$	(44,262)					(95.5)		%				(2.0)		%
Operating income % of revenue			1.3		%				24.0		%										(2,270) bps

Manufacturing revenue decreased $25.9 million due primarily to the divestiture of our Avian business, which decreased revenue by $19.2 million, lower services revenue from our Biologics Solutions business, which includes both the Biologics Testing and CDMO businesses, and the effect of changes in foreign currency exchange rates; partially offset by increased revenue in our Microbial Solutions business.

Manufacturing operating income decreased $44.3 million compared to the corresponding period in 2022. Manufacturing operating income as a percentage of revenue for the three months ended April 1, 2023 was 1.3%, a decrease of 2,270 bps from 24.0% for the corresponding period in 2022. Operating income and operating income as a percentage of revenue decreased primarily due to higher operating costs associated with our Biologics Solutions business, including both the Biologics Testing and CDMO businesses, the divestiture of our Avian business, an asset impairment, higher administrative costs, and the foreign exchange impact discussed above.

Unallocated Corporate

			Three Months Ended
			April 1, 2023						March 26, 2022						$ change						% change
			(in thousands, except percentages)
Unallocated corporate			$	46,054					$	50,458					$	(4,404)					(8.7)		%
Unallocated corporate % of revenue			4.5		%				5.5		%										(100) bps

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

Other Income (Expense)

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

Interest expense for the three months ended April 1, 2023 was $34.4 million, an increase of $24.9 million, or 264.4%, compared to $9.4 million in the corresponding period in 2022. The increase was due primarily to higher interest rates, and the absence of $11.8 million of gains recognized in connection with a debt-related foreign exchange forward contract in the corresponding period in 2022.

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

$11.1 million of foreign currency losses recognized in connection with a U.S. dollar denominated loan borrowed by a non-U.S. entity with a different functional currency, and lower net losses incurred on our venture capital investments as compared to fiscal year 2022.

Income Taxes

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

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

Liquidity and Capital Resources

Liquidity and Cash Flows

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

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

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

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

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

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

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

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

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

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

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

			Three Months Ended
			April 1, 2023						March 26, 2022
			(in thousands)
Proceeds from long-term debt and revolving credit facility			$	192,500					$	962,005
Payments on long-term debt, revolving credit facility, and finance lease obligations			(157,328)						(948,267)
Proceeds from exercises of stock options			11,792						12,199
Purchase of treasury stock			(19,012)						(33,994)
Payment of contingent considerations			(2,711)						(3,356)
Other, net			—						(1,870)
Net cash provided by (used in) financing activities			$	25,241					$	(13,283)

For the three months ended April 1, 2023, net cash provided by financing activities reflected the net proceeds of $35.2 million on our Credit Facility, Senior Notes, and finance lease obligations. Included in the net proceeds are net borrowings of $33 million from our Credit Facility throughout the three months ended April 1, 2023.

Net cash provided by financing activities also reflected treasury stock purchases of $19.0 million made due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements, and $2.7 million of contingent consideration payments; partially offset by proceeds from exercises of employee stock options of $11.8 million.

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

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

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

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Financing and Market Risk

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

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

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

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

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

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

Foreign Currency Exchange Rate Risk

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

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

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

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

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Repurchases of Common Stock

During the three months ended April 1, 2023, we did not repurchase any shares under our authorized stock repurchase program. As of April 1, 2023, we had $129.1 million remaining on the authorized $1.3 billion stock repurchase program. Our stock-based compensation plans permit the netting of common stock upon vesting of restricted stock, restricted stock units, and performance share units in order to satisfy individual statutory tax withholding requirements. During the three months ended April 1, 2023, we acquired 0.1 million shares for $19.0 million through such netting.

Critical Accounting Policies and Estimates

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

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

Recent Accounting Pronouncements

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