Item 1. Financial Statements

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Item 1. Financial Statements

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)


	Three Months Ended
		March 30, 2024		April 1, 2023
Service revenue		$	816,862	$	857,366
Product revenue		194,698		172,007
Total revenue		1,011,560		1,029,373
Costs and expenses:
Cost of services provided (excluding amortization of intangible assets)		578,164		565,477
Cost of products sold (excluding amortization of intangible assets)		88,553		86,242
Selling, general and administrative		186,291		174,846
Amortization of intangible assets		32,575		34,916
Operating income		125,977		167,892
Other income (expense):
Interest income		2,202		806
Interest expense		(35,001)		(34,380)
Other income (expense), net		5,833		(3,277)
Income before income taxes		99,011		131,041
Provision for income taxes		24,529		27,087
Net income		74,482		103,954
Less: Net income attributable to noncontrolling interests		1,522		823
Net income available to Charles River Laboratories International, Inc.		$	72,960	$	103,131

Calculation of net income per share attributable to common shareholders of Charles River Laboratories International, Inc.
Net income available to Charles River Laboratories International, Inc.		$	72,960	$	103,131
Less: Adjustment of redeemable noncontrolling interest		401		—
Less: Incremental dividends attributable to noncontrolling interest holders		5,230		—
Net income available to Charles River Laboratories International, Inc. common shareholders		$	67,329	$	103,131

Earnings per common share
Net income attributable to common shareholders:
Basic		$	1.31	$	2.02
Diluted		$	1.30	$	2.01

Weighted-average number of common shares outstanding:
Basic		51,437		51,097
Diluted		51,842		51,428

See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three Months Ended
		March 30, 2024		April 1, 2023
Net income		$	74,482	$	103,954
Other comprehensive income (loss):
Foreign currency translation adjustment		(62,840)		23,313
Amortization of net loss, settlement losses, and prior service benefit included in total cost for pension and other post-retirement benefit plans		344		170
Unrealized gains (losses) on hedging instruments		768		(1,402)
Other comprehensive income (loss), before income taxes		(61,728)		22,081
Less: Income tax benefit related to items of other comprehensive income		(5,473)		(1,038)
Comprehensive income, net of income taxes		18,227		127,073
Less: Comprehensive income (loss) related to noncontrolling interests, net of income taxes		(1,241)		1,009
Comprehensive income attributable to Charles River Laboratories International, Inc., net of income taxes		$	19,468	$	126,064







See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share amounts)


	March 30, 2024		December 30, 2023
Assets
Current assets:
Cash and cash equivalents	$	327,039	$	276,771
Trade receivables and contract assets, net of allowances for credit losses of $25,407 and $25,722, respectively	786,980		780,375
Inventories	361,281		380,259
Prepaid assets	93,834		87,879
Other current assets	99,054		83,378
Total current assets	1,668,188		1,608,662
Property, plant and equipment, net	1,618,708		1,639,741
Venture capital and strategic equity investments	243,543		243,811
Operating lease right-of-use assets, net	384,394		394,029
Goodwill	3,070,241		3,095,045
Intangible assets, net	827,638		864,051
Deferred tax assets	36,924		40,279
Other assets	303,147		309,383
Total assets	$	8,152,783	$	8,195,001
Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Accounts payable	$	129,682	$	168,937
Accrued compensation	189,606		213,290
Deferred revenue	256,383		241,820
Accrued liabilities	190,892		227,825
Other current liabilities	188,247		203,210
Total current liabilities	954,810		1,055,082
Long-term debt, net and finance leases	2,660,459		2,647,147
Operating lease right-of-use liabilities	418,054		419,234
Deferred tax liabilities	180,094		191,349
Other long-term liabilities	235,441		223,191
Total liabilities	4,448,858		4,536,003
Commitments and contingencies (Notes 2, 11, 13, and 15)
Redeemable noncontrolling interest	57,775		56,722
Equity:
Preferred stock, $0.01 par value; 20,000 shares authorized; no shares issued and outstanding	—		—
Common stock, $0.01 par value; 120,000 shares authorized; 51,552 shares issued and 51,510 shares outstanding as of March 30, 2024, and 51,338 shares issued and outstanding as of December 30, 2023	515		513
Additional paid-in capital	1,939,413		1,905,578
Retained earnings	1,959,777		1,887,218
Treasury stock, at cost, 42 and zero shares, as of March 30, 2024 and December 30, 2023, respectively	(9,351)		—
Accumulated other comprehensive loss	(249,919)		(196,427)
Total Charles River Laboratories International, Inc. equity	3,640,435		3,596,882
Nonredeemable noncontrolling interests	5,715		5,394
Total equity	3,646,150		3,602,276
Total liabilities, noncontrolling interests and equity	$	8,152,783	$	8,195,001
See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Three Months Ended
	March 30, 2024		April 1, 2023
Cash flows relating to operating activities
Net income	$	74,482	$	103,954
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	85,357		77,069
Stock-based compensation	16,738		13,460
Deferred income taxes	(987)		(11,584)
Long-lived asset impairment charges	5,432		10,460
(Gain) loss on venture capital and strategic equity investments, net	(5,880)		3,282
Provision for credit losses	839		3,238


Other, net	1,999		1,448
Changes in assets and liabilities:
Trade receivables and contract assets, net	(17,281)		(33,831)
Inventories	5,600		(8,587)
Accounts payable	(8,541)		(41,313)
Accrued compensation	(20,945)		(21,469)
Deferred revenue	19,957		(481)
Customer contract deposits	6,140		1,509
Other assets and liabilities, net	(33,022)		12,228
Net cash provided by operating activities	129,888		109,383
Cash flows relating to investing activities
Acquisition of businesses and assets, net of cash acquired	—		(50,166)
Capital expenditures	(79,144)		(106,875)
Purchases of investments and contributions to venture capital investments	(13,867)		(12,570)
Proceeds from sale of investments	7,502		1,953

Other, net	(283)		(960)
Net cash used in investing activities	(85,792)		(168,618)
Cash flows relating to financing activities
Proceeds from long-term debt and revolving credit facility	300,882		192,500
Proceeds from exercises of stock options	21,505		11,792
Payments on long-term debt, revolving credit facility, and finance lease obligations	(292,482)		(157,328)
Purchase of treasury stock	(9,351)		(19,012)
Payments of contingent consideration	—		(2,711)

Other, net	(2,208)		—
Net cash provided by financing activities	18,346		25,241
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(8,387)		1,671
Net change in cash, cash equivalents, and restricted cash	54,055		(32,323)
Cash, cash equivalents, and restricted cash, beginning of period	284,480		241,214
Cash, cash equivalents, and restricted cash, end of period	$	338,535	$	208,891











See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

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

(in thousands)


	Redeemable Noncontrolling Interests		Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Charles River Laboratories, Inc. Equity		Noncontrolling Interest		Total Equity
Shares			Amount					Shares			Amount
December 30, 2023	$	56,722	51,338	$	513	$	1,905,578		$	1,887,218		$	(196,427)	—	$	—	$	3,596,882	$	5,394	$	3,602,276
Net income	1,201		—	—		—			72,960			—		—	—		72,960		321		73,281
Other comprehensive (loss), net of tax	(2,763)		—	—		—			—			(53,492)		—	—		(53,492)		—		(53,492)
Adjustment of redeemable noncontrolling interests to redemption value	4,807		—	—		(4,406)			(401)			—		—	—		(4,807)		—		(4,807)
Dividends to noncontrolling interests	(2,192)		—	—		—			—			—		—	—		—		—		—
Issuance of stock under employee compensation plans	—		214	2		21,503			—			—		—	—		21,505		—		21,505
Purchase of treasury shares	—		—	—		—			—			—		42	(9,351)		(9,351)		—		(9,351)
Stock-based compensation	—		—	—		16,738			—			—		—	—		16,738		—		16,738
March 30, 2024	$	57,775	51,552	$	515	$	1,939,413		$	1,959,777		$	(249,919)	42	$	(9,351)	$	3,640,435	$	5,715	$	3,646,150

















	Redeemable Noncontrolling Interests		Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Charles River Laboratories, Inc. Equity		Noncontrolling Interest		Total Equity
Shares			Amount					Shares			Amount
December 31, 2022	$	42,427	50,944	$	509	$	1,804,940		$	1,432,901		$	(262,057)	—	$	—	$	2,976,293	$	4,785	$	2,981,078
Net income	322		—	—		—			103,131			—		—	—		103,131		501		103,632
Other comprehensive income, net of tax	186		—	—		—			—			22,933		—	—		22,933		—		22,933
Adjustment of redeemable noncontrolling interest to redemption value	—		—	—		—			—			—		—	—		—		—		—
Issuance of stock under employee compensation plans	—		316	3		11,789			—			—		—	—		11,792		—		11,792
Purchase of treasury shares	—		—	—		—			—			—		78	(19,012)		(19,012)		—		(19,012)
Stock-based compensation	—		—	—		13,460			—			—		—	—		13,460		—		13,460
April 1, 2023	$	42,935	51,260	$	512	$	1,830,189		$	1,536,032		$	(239,124)	78	$	(19,012)	$	3,108,597	$	5,286	$	3,113,883















See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Charles River Laboratories International, Inc. (the Company) in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The year-end condensed consolidated balance sheet data was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for fiscal year 2023. Certain reclassifications of prior year amounts have been made to conform to the current year presentation. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position and results of operations.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires that the Company make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, judgments, and methodologies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known.

Newly Issued Accounting Pronouncements

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

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

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1, “Description of Business and Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for fiscal year 2023.

Consolidation

The Company’s unaudited condensed consolidated financial statements reflect its financial statements and those of its subsidiaries in which the Company holds a controlling financial interest. For consolidated entities in which the Company owns or is exposed to less than 100% of the economics, the Company records net income (loss) attributable to noncontrolling interests in its unaudited condensed consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Redeemable noncontrolling interests, where the noncontrolling interest holders have the ability to require the Company to purchase the remaining interests, are classified in the mezzanine section of the unaudited condensed consolidated balance sheets, which is presented above the equity section and below liabilities. Intercompany balances and transactions are eliminated in consolidation.

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Segment Reporting

The Company reports its results in three reportable segments: Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Solutions (Manufacturing).

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

The Company’s DSA reportable segment includes two businesses: Discovery Services and Safety Assessment. The Company provides regulated and non-regulated DSA services to support the research, development, and regulatory-required safety testing of potential new drugs, including therapeutic discovery and optimization plus in vitro and in vivo studies, laboratory support services, and strategic non-clinical consulting and program management to support product development.

The Company’s Manufacturing reportable segment includes Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification services and Biologics Solutions (Biologics), which performs specialized testing of biologics (Biologics Testing Solutions) as well as contract development and manufacturing products and services (CDMO).

2. ACQUISITIONS AND DIVESTITURES

Fiscal 2023 Acquisition

Noveprim Group

On November 30, 2023, the Company completed the acquisition of an additional 41% equity interest of Noveprim Group (Noveprim), a leading supplier of non-human primates (NHPs) located in Mauritius, resulting in a 90% controlling interest. The Company had previously acquired a 49% equity interest in 2022 for $90.0 million plus additional contingent payments up to $5.0 million based on future performance. The total consideration allocable to the Noveprim acquisition is $374.8 million, which includes $144.6 million additional cash paid for the 41% equity interest, elimination of historical activity and intercompany balances of $198.8 million which includes a remeasurement gain on the 49% equity investment of $103.2 million, contingent consideration of $33.3 million, deferred purchase price of $12.0 million payable from 2024 through 2027, offset by estimated post-closing adjustments for working capital of $13.8 million. The contingent consideration fair value is estimated using a Monte Carlo Simulation model and the maximum contingent contractual payments are up to $55.0 million based on future performance and milestone achievements in fiscal years 2023 through 2025. The Company has the call option right to purchase the remaining 10% equity interest up until one month after the sixth anniversary of closing the 41% equity interest. On the first anniversary of the expiration of the call option, a 12-month put option will be triggered giving the seller the right to require the Company to acquire the remaining shares of the seller. The redemption price for the call/put is fixed and ranges from $47.0 million to $54.0 million depending on when exercised. The noncontrolling interest is classified as a redeemable noncontrolling interest in the mezzanine section of the unaudited condensed consolidated balance sheet. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment for NHPs vertically integrated into the DSA supply chain and the RMS reportable segment for those NHPs sold to third party customers. The Company incurred transaction and integration costs in connection with the acquisition of $0.2 million and $0.8 million for the three months ended March 30, 2024 and April 1, 2023, respectively, which was primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.

SAMDI Tech, Inc.

On January 27, 2023, the Company acquired SAMDI Tech, Inc., (SAMDI), a leading provider of high-quality, label-free high-throughput screening (HTS) solutions for drug discovery research. The acquisition of SAMDI will provide clients with seamless access to the premier, label-free HTS MS platform and create a comprehensive, library of drug discovery solutions. The purchase price of SAMDI was $62.8 million, net of $0.4 million in cash, inclusive of a 20% strategic equity interest previously owned by the Company of $12.6 million. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment. The Company did not incur material transaction and integration costs in connection with the acquisition for the three months ended March 30, 2024 and April 1, 2023.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Purchase price information

The purchase price allocation was as follows:


	Noveprim Group(1)		SAMDI Tech, Inc.
	November 30, 2023		January 27, 2023
	(in thousands)
Trade receivables	$	1,308	$	513
Inventories	66,500		—
Other current assets (excluding cash)	3,467		75
Property, plant and equipment	35,831		593
Operating lease right-of-use asset, net	104		—
Goodwill (2)	172,846		37,129
Definite-lived intangible assets	9,500		33,070
Other long-term assets (3)	167,907		6
Deferred revenue	—		(43)
Other current liabilities	(16,378)		(351)
Operating lease right-of-use liabilities (Long-term)	(97)		—
Deferred tax liabilities	(12,984)		(8,191)
Other long-term liabilities	(7,796)		—
Redeemable noncontrolling interest (4)	(45,374)		—
Total purchase price allocation	$	374,834	$	62,801

(1) Purchase price allocation is preliminary and subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts, obligations, and finalization of any working capital adjustments. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.
(2) The goodwill resulting from these transactions is primarily attributable to the potential growth of the Company’s segments from new customers introduced to the acquired businesses or synergies to be realized from acquiring an internal supplier servicing the DSA business and the assembled workforce of the acquirees, thus is not deductible for tax purposes.
(3) Other long-term assets acquired from the Noveprim acquisition include $167.8 million of biological assets, which will be amortized over an estimated eight-year useful life.
(4) Refer to Note 12. Equity and Noncontrolling Interests for further a description of the 10% noncontrolling interest fair value.

The definite-lived intangible assets acquired were as follows:


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

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following table disaggregates the Company’s revenue by major business line and timing of transfer of products or services:


	Three Months Ended
		March 30, 2024		April 1, 2023
		(in thousands)
Timing of Revenue Recognition:
RMS
Services and products transferred over time		$	97,049	$	93,639
Services and products transferred at a point in time		123,858		106,127
Total RMS revenue		220,907		199,766
DSA
Services and products transferred over time		604,125		661,836
Services and products transferred at a point in time		1,327		517
Total DSA revenue		605,452		662,353
Manufacturing
Services and products transferred over time		100,058		86,086
Services and products transferred at a point in time		85,143		81,168
Total Manufacturing revenue		185,201		167,254
Total revenue		$	1,011,560	$	1,029,373

Contract Balances from Contracts with Customers

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


	March 30, 2024		December 30, 2023
	(in thousands)
Assets from contracts with customers
Client receivables	$	590,594	$	578,077
Unbilled revenue	221,793		228,020
Total	812,387		806,097
Less: Allowance for credit losses	(25,407)		(25,722)
Trade receivables and contract assets, net	$	786,980	$	780,375

Liabilities from contracts with customers
Current deferred revenue	$	256,383	$	241,820
Long-term deferred revenue (included in Other long-term liabilities)	32,448		30,919
Customer contract deposits (included in Other current liabilities)	90,589		85,554

Approximately 70% of unbilled revenue as of December 30, 2023, which was $228 million, was billed during the three months ended March 30, 2024. Approximately 70% of unbilled revenue as of December 31, 2022, which was $204 million, was billed during the three months ended April 1, 2023.

Approximately 60% of contract liabilities as of December 30, 2023, which was $273 million, were recognized as revenue during the three months ended March 30, 2024. Approximately 65% of contract liabilities as of December 31, 2022, which was $290 million, were recognized as revenue during the three months ended April 1, 2023.

When the Company does not have the unconditional right to advanced billings, both advanced client payments and unpaid advanced client billings are excluded from deferred revenue, with the advanced billings also being excluded from client receivables. The Company excluded approximately $52 million and $41 million of unpaid advanced client billings from both client receivables and deferred revenue in the accompanying unaudited condensed consolidated balance sheets as of March 30, 2024 and December 30, 2023, respectively.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Allowance for Credit Losses

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


	Three Months Ended
	March 30, 2024		April 1, 2023
	(in thousands)
Beginning balance	$	25,722	$	11,278
Additions	934		5,731
Deductions	(1,249)		(315)
Ending balance	$	25,407	$	16,694

Net provisions were $0.8 million and $3.2 million during the three months ended March 30, 2024 and April 1, 2023, respectively and include recoveries of balances previously written off, which are excluded from the table above.

Transaction Price Allocated to Future Performance Obligations

The Company discloses the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of March 30, 2024. Excluded from the disclosure is the value of unsatisfied performance obligations for contracts with an original expected length of one year or less, contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed, and service revenue recognized in accordance with ASC 842, “Leases”. The aggregate amount of transaction price allocated to the remaining performance obligations for all open customer contracts as of March 30, 2024 was $920.5 million. The Company will recognize revenues for these performance obligations as they are satisfied, approximately 50% of which is expected to occur within the next twelve months and the remainder recognized thereafter during the remaining contract term.

Other Performance Obligation****s

As part of the Company’s service offerings, the Company has identified performance obligations related to leasing Company owned assets. In certain arrangements, customers obtain substantially all of the economic benefits of the identified assets, which may include manufacturing suites and related equipment, and have the right to direct the assets’ use over the term of the contract. The associated revenue is recognized on a straight-line basis over the term of the lease, which is generally less than one year.


	Three Months Ended
		March 30, 2024		April 1, 2023
		(in thousands)				Affected Line Item in the Unaudited Condensed Consolidated Statements of Income
Lease revenue		$	20,974	$	24,090	Service revenue

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. SEGMENT AND GEOGRAPHIC INFORMATION

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


	Three Months Ended
		March 30, 2024		April 1, 2023
		(in thousands)
RMS
Revenue		$	220,907	$	199,766
Cost of revenue (excluding amortization of intangible assets)		140,925		126,804
Selling, general and administrative		30,893		27,058
Amortization of intangible assets		5,940		5,495
Operating income		$	43,149	$	40,409


DSA
Revenue		$	605,452	$	662,353
Cost of revenue (excluding amortization of intangible assets)		417,912		411,523
Selling, general and administrative		56,859		61,998
Amortization of intangible assets		15,842		17,401
Operating income		$	114,839	$	171,431


Manufacturing
Revenue		$	185,201	$	167,254
Cost of revenue (excluding amortization of intangible assets)		107,880		113,392
Selling, general and administrative		32,847		39,736
Amortization of intangible assets		10,793		12,020
Operating income		$	33,681	$	2,106


Unallocated Corporate
Selling, general and administrative		$	(65,692)	$	(46,054)
Operating income (1)		$	(65,692)	$	(46,054)

Consolidated
Revenue		$	1,011,560	$	1,029,373
Cost of revenue (excluding amortization of intangible assets)		666,717		651,719
Selling, general and administrative		186,291		174,846
Amortization of intangible assets		32,575		34,916
Operating income		$	125,977	$	167,892


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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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


	RMS		DSA		Manufacturing		Unallocated Corporate		Consolidated
	(in thousands)




Capital Expenditures
Three Months Ended:
March 30, 2024	$	20,044	$	48,959	$	8,862	$	1,279	$	79,144
April 1, 2023	19,084		65,184		21,738		869		106,875

Depreciation and amortization
Three Months Ended:
March 30, 2024	$	18,123	$	45,789	$	19,805	$	1,640	$	85,357
April 1, 2023	13,489		42,450		20,084		1,046		77,069

Revenue by geographic area is as follows:


	U.S.		Europe		Canada		Asia Pacific		Other		Consolidated
	(in thousands)




Three Months Ended:
March 30, 2024	$	562,317	$	276,319	$	110,401	$	45,772	$	16,751	$	1,011,560
April 1, 2023	605,441		267,703		110,606		42,813		2,810		1,029,373

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

Long-lived assets by geographic area are as follows:


	U.S.		Europe		Canada		Asia Pacific		Other		Consolidated
	(in thousands)
Long-lived assets
March 30, 2024	$	954,225	$	404,657	$	153,443	$	71,076	$	35,307	$	1,618,708
December 30, 2023	964,176		407,375		157,483		74,605		36,102		1,639,741

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

5. SUPPLEMENTAL CASH FLOW INFORMATION


	Three Months Ended
	March 30, 2024		April 1, 2023
	(in thousands)
Cash paid for income taxes	$	18,728	$	13,618
Cash paid for interest	38,258		36,807
Non-cash investing activities:
Purchases of Property, plant and equipment included in Accounts payable and Accrued liabilities	$	23,911	$	43,116
Assets acquired under finance leases	3,159		—

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


	March 30, 2024		December 30, 2023
	(in thousands)
Supplemental cash flow information:
Cash and cash equivalents	$	327,039	$	276,771

Restricted cash included in Other current assets	10,327		5,803
Restricted cash included in Other assets	1,169		1,906
Cash, cash equivalents, and restricted cash, end of period	$	338,535	$	284,480

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. INVENTORY

Inventories

The composition of inventories is as follows:


	March 30, 2024		December 30, 2023
	(in thousands)
Raw materials and supplies	$	44,603	$	42,296
Work in process	43,252		59,727
Finished products	273,426		278,236
Inventories	$	361,281	$	380,259

7. PROPERTY, PLANT AND EQUIPMENT, NET

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


	March 30, 2024		December 30, 2023
	(in thousands)
Land	$	78,852	$	79,546
Buildings (1)	1,033,150		1,053,915
Machinery and equipment (1)	985,006		984,867
Leasehold improvements	348,558		366,556
Furniture and fixtures	30,712		31,284
Computer hardware and software (1)	254,018		254,413
Vehicles (1)	6,974		6,746
Construction in progress	245,826		197,723
Total	2,983,096		2,975,050
Less: Accumulated depreciation	(1,364,388)		(1,335,309)
Property, plant and equipment, net	$	1,618,708	$	1,639,741

(1) These balances include assets under finance leases.

Depreciation expense in the three months ended March 30, 2024 and April 1, 2023 was $45.7 million and $42.2 million, respectively.

8. VENTURE CAPITAL AND STRATEGIC EQUITY INVESTMENTS

Venture capital investments are summarized below:


	Three Months Ended
	March 30, 2024		April 1, 2023
	(in thousands)
Beginning balance	$	121,158	$	129,012
Capital contributions	3,829		3,214
Distributions	(9,353)		(7,217)
Gains (losses)	8,174		(6,848)
Foreign currency translation	(100)		260
Ending balance	$	123,708	$	118,421

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company also invests, with minority positions, directly in equity of predominantly privately held companies. Strategic investments are summarized below:


	Three Months Ended
	March 30, 2024		April 1, 2023
	(in thousands)
Beginning balance	$	122,653	$	182,590
Purchase of investments	—		9,266
Distributions	—		(4,146)
Gain (loss)	(2,294)		3,566
Reduction for acquisition of entity (1)	—		(12,635)
Foreign currency translation	(524)		(3,275)
Ending balance	$	119,835	$	175,366

(1) Refer to Note 2. Acquisitions for further discussion on the SAMDI acquisition.

9. FAIR VALUE

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


	March 30, 2024
	Level 1		Level 2		Level 3		Total
Current assets measured at fair value:	(in thousands)
Cash equivalents	$	—	$	29	$	—	$	29
Term deposit	—		10,068		—		10,068
Other assets:
Life insurance policies	—		44,617		—		44,617
Interest rate swap	—		1,734		—		1,734
Total assets measured at fair value	$	—	$	56,448	$	—	$	56,448



Other long-term liabilities measured at fair value:
Contingent consideration	$	—	$	—	$	33,265	$	33,265

Total liabilities measured at fair value	$	—	$	—	$	33,265	$	33,265

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. During the three months ended March 30, 2024, there were no transfers between levels.


	December 30, 2023
	Level 1		Level 2		Level 3		Total
Current assets measured at fair value:	(in thousands)
Cash equivalents	$	—	$	29	$	—	$	29
Other assets:
Life insurance policies	—		40,912		—		40,912
Interest rate swap	—		966		—		966
Total assets measured at fair value	$	—	$	41,907	$	—	$	41,907

Other long-term liabilities measured at fair value
Contingent consideration	$	—	$	—	$	33,265	$	33,265

Total liabilities measured at fair value	$	—	$	—	$	33,265	$	33,265

During the year ended December 30, 2023, there were no transfers between levels.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contingent Consideration

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


	Three Months Ended
	March 30, 2024		April 1, 2023
	(in thousands)
Beginning balance	$	33,265	$	13,431

Payments	—		(2,711)
Total gains or losses (realized/unrealized):

Foreign currency translation	—		(177)
Ending balance	$	33,265	$	10,543

The Company estimates the fair value of contingent consideration obligations through valuation models, such as probability-weighted and option pricing models, which incorporate probability adjusted assumptions and simulations related to the achievement of the milestones and the likelihood of making related payments. The unobservable inputs used in the fair value measurements include the probabilities of successful achievement of certain financial targets, forecasted results or targets, volatility, and discount rates. The remaining maximum potential payments are approximately $55 million, of which the value accrued as of March 30, 2024 is $33 million as the probability of achieving the maximum target is estimated to be 60%. The volatility and weighted average cost of capital is approximately 7% and 9%, respectively. Increases or decreases in these assumptions may result in a higher or lower fair value measurement, respectively.

Cash Flow Hedge

The Company is exposed to market fluctuations in interest rates as well as variability in foreign exchange rates. The Company has an interest rate swap with a notional amount of $500 million maturing November 2, 2024 to manage interest rate fluctuation related to floating rate borrowings under the Credit Facility, at a fixed rate of 4.65%.

Debt Instruments

The book value of the Company’s 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:


	March 30, 2024				December 30, 2023
	Book Value		Fair Value		Book Value		Fair Value
	(in thousands)
4.25% Senior Notes due 2028	$	500,000	$	468,750	$	500,000	$	478,100
3.75% Senior Notes due 2029	500,000		453,750		500,000		458,100
4.00% Senior Notes due 2031	500,000		445,000		500,000		449,350

10. GOODWILL AND INTANGIBLE ASSETS

Goodwill

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


	RMS		DSA (1)		Manufacturing		Total
	(in thousands)
December 30, 2023	$	497,474	$	1,662,434	$	935,137	$	3,095,045
Acquisitions	—		497		—		497

Foreign exchange	(407)		(21,340)		(3,554)		(25,301)
March 30, 2024	$	497,067	$	1,641,591	$	931,583	$	3,070,241
(1) DSA includes accumulated impairment losses of $1 billion, which were recognized in fiscal years 2008 and 2010.

The decrease in goodwill during the three months ended March 30, 2024 related to foreign exchange in the DSA and Manufacturing reportable segments.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Intangible Assets, Net

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


	March 30, 2024						December 30, 2023
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
	(in thousands)
Client relationships	$	1,515,021	$	(739,260)	$	775,761	$	1,528,780	$	(721,322)	$	807,458
Technology	140,982		(112,842)		28,140		142,190		(111,764)		30,426
Trademarks and trade names	11,842		(4,822)		7,020		11,878		(4,568)		7,310
Backlog	3,100		(2,485)		615		3,100		(2,177)		923
Other	43,008		(26,906)		16,102		43,611		(25,677)		17,934
Intangible assets	$	1,713,953	$	(886,315)	$	827,638	$	1,729,559	$	(865,508)	$	864,051

The decrease in intangible assets, net during the three months ended March 30, 2024 related to normal amortization over the useful lives.

Amortization expense of definite-lived intangible assets for three months ended March 30, 2024 and April 1, 2023 was $32.6 million and $34.9 million, respectively.

11. DEBT AND OTHER FINANCING ARRANGEMENTS

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


	March 30, 2024		December 30, 2023
	(in thousands)
Revolving facility	$	1,133,000	$	1,129,243
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
Other debt	13,516		9,575
Finance leases	30,230		28,550
Total debt and finance leases	2,676,746		2,667,368
Less:
Current portion of long-term debt	459		3,172
Current portion of finance leases	2,169		2,398
Current portion of long-term debt and finance leases	2,628		5,570
Long-term debt and finance leases	2,674,118		2,661,798
Debt discount and debt issuance costs	(13,659)		(14,651)
Long-term debt, net and finance leases	$	2,660,459	$	2,647,147

As of March 30, 2024 and December 30, 2023, the weighted average interest rate on the Company’s debt was 4.97% and 4.93%, respectively.

Letters of Credit

As of March 30, 2024 and December 30, 2023, the Company had $21.2 million and $21.6 million, respectively, in outstanding letters of credit.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. EQUITY AND NONCONTROLLING INTERESTS

Earnings Per Share

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


	Three Months Ended
		March 30, 2024		April 1, 2023
		(in thousands)
Numerator:
Net income		$	74,482	$	103,954
Less: Net income attributable to noncontrolling interests		1,522		823
Net income available to Charles River Laboratories International, Inc.		72,960		103,131
Less: Adjustment of redeemable noncontrolling interest (1)		401		—
Less: Incremental dividends attributable to noncontrolling interest holders (2)		5,230		—
Net income available to Charles River Laboratories International, Inc. common shareholders		$	67,329	$	103,131

Denominator:
Weighted-average shares outstanding - Basic		51,437		51,097
Effect of dilutive securities:
Stock options, restricted stock units and performance share units		405		331
Weighted-average shares outstanding - Diluted		51,842		51,428

Anti-dilutive common stock equivalents (3)		448		405

(1) Represents adjustments of redeemable noncontrolling interest that impact retained earnings.
(2) Represents incremental undeclared dividends attributable to Noveprim noncontrolling interest holders who are entitled to preferential dividends for fiscal year 2024.
(3) These common stock equivalents were outstanding for the periods presented, but were not included in the computation of diluted EPS for those periods because their inclusion would have had an anti-dilutive effect.

Treasury Shares

The Company’s Board of Directors has authorized a $1.3 billion stock repurchase program. As of March 30, 2024, 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 shares of approximately 0.1 million in the three months ended March 30, 2024 and three months ended April 1, 2023, for $9.4 million and $19.0 million, respectively, from such netting.

Accumulated Other Comprehensive Income (Loss)

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


	Foreign Currency Translation Adjustment and Other		Pension and Other Post-Retirement Benefit Plans		Net Unrealized (Loss) Gain on Cash Flow Hedge		Total
	(in thousands)
December 30, 2023	$	(149,999)	$	(47,167)	$	739	$	(196,427)
Other comprehensive income (loss) before reclassifications	(60,077)		344		768		(58,965)

Net current period other comprehensive income (loss)	(60,077)		344		768		(58,965)
Income tax expense (benefit)	(5,737)		80		184		(5,473)
March 30, 2024	$	(204,339)	$	(46,903)	$	1,323	$	(249,919)

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Redeemable Noncontrolling Interests

Through March 30, 2024, the Company holds several redeemable noncontrolling interests. Since the Company has the right to purchase, and the noncontrolling interest holders have the right to require the Company to purchase the remaining interest, which represents a derivative embedded within the equity instrument, the noncontrolling interest is classified in the mezzanine section of the unaudited condensed consolidated balance sheets, which is presented above the equity section and below liabilities.

The redeemable noncontrolling interests are measured at the greater of (i) the redemption amount or (ii) the historical value resulting from the original acquisition date fair value, increased or decreased for the noncontrolling interest’s share of net income (loss), equity capital contributions and distributions. The fair value of the redeemable noncontrolling interest is determined using the income approach, with key assumptions being projected cash flows and discount rates based on market participant’s weighted average cost of capital. To the extent redemption value exceeds carrying value, adjustments are recorded to additional paid-in capital, with any cumulative excess of redemption value over fair value recorded in retained earnings, which impacts net income available to common shareholders used in the calculation of earnings per common share.

Noveprim

The Company holds a 90% ownership interest in Noveprim. The Company has the right to purchase, and the noncontrolling interest holders have the right to sell, the remaining 10% equity interest at a fixed redemption value that ranges from $47.0 million to $54.0 million depending on when exercised. The Company has the call option right to purchase the remaining 10% equity up until one month after the sixth anniversary of closing the 41% equity stake (December 2029). On the first anniversary of the expiration of the call option (December 2030), a 12-month put option will be triggered giving the seller the right to require the Company to acquire the remaining shares of the seller for $54.0 million. Additionally, the 10% noncontrolling interest holders may receive a dividend disproportionate to their equity ownership, of which the fair value of $8 million as of the acquisition date was recorded within the redeemable noncontrolling interest. Through March 30, 2024, incremental dividends based on Noveprim statutory net income attributed to the redeemable noncontrolling interest holders of $5.2 million reduced net income available to common shareholders used in the calculation of earnings per common share. The redemption value is accreted to the put purchase price of $54.0 million using the interest method through December 2030. As of March 30, 2024, the redemption value of $45.8 million exceeded both the carrying value and fair value, resulting in both an adjustment to additional paid in capital of $1.7 million and an adjustment to retained earnings of $0.4 million, respectively.

Other redeemable noncontrolling interest

In 2019, the Company acquired an 80% equity interest in a subsidiary, which included a 20% redeemable noncontrolling interest. In June 2022, the Company purchased an additional 10% interest in the subsidiary for $15.0 million, resulting in a remaining noncontrolling interest of 10%. Beginning in 2024, the Company has the right to purchase, and the noncontrolling interest holders have the right to sell, the remaining 10% equity interest at its appraised value. The redemption value is measured at the greater of the appraised value or a predetermined floor. The amount that the Company could be required to pay to purchase the remaining 10% equity interest is not limited. As of March 30, 2024, the redemption value of $12.0 million exceeded the carrying value, resulting in an adjustment to additional paid in capital of $2.8 million. During the second quarter of fiscal 2024, the Company acquired the remaining 10% for $12.0 million.

Vital River

The Company held a 92% ownership interest in Vital River, a commercial provider of research models and related services in China as of December 31, 2022. The Company had the right to purchase, and the noncontrolling interest holders had the right to sell, the remaining 8% equity interest at a contractually defined redemption value, subject to a redemption floor. The amount that the Company could be required to pay to purchase the remaining 8% equity interest was not limited. During the fourth quarter of fiscal 2023, the Company acquired the remaining 8% and paid $4.8 million of the total $24.4 million due. The remaining purchase price payable was included in Accrued liabilities within the Company’s unaudited condensed consolidated balance sheet as of March 30, 2024 and December 30, 2023 and is expected to be paid during fiscal year 2024.

Nonredeemable Noncontrolling Interest

The Company has an investment in an entity whose financial results are consolidated in the Company’s unaudited condensed consolidated financial statements, as it has the ability to exercise control over this entity. The interest of the noncontrolling party in this entity has been recorded as nonredeemable noncontrolling interest within Equity in the accompanying unaudited condensed consolidated balance sheets. The activity within the nonredeemable noncontrolling interest was not significant during the three months ended March 30, 2024 and April 1, 2023.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. INCOME TAXES

The Company’s effective tax rates for the three months ended March 30, 2024 and April 1, 2023 were 24.8% and 20.7%, respectively. The increase in the effective tax rate from the corresponding prior year period was primarily attributable to unfavorable tax effects from stock-based compensation deductions in the three months ended March 30, 2024.

For the three months ended March 30, 2024, the Company’s unrecognized tax benefits increased by $0.7 million to $23.4 million, primarily due to increases in research and development tax credit reserves. For the three months ended March 30, 2024, the amount of unrecognized income tax benefits that would impact the effective tax rate increased by $0.4 million to $20.7 million for the same reasons discussed above. The accrued interest on unrecognized tax benefits was $1.4 million as of March 30, 2024. The Company estimates that it is reasonably possible that the unrecognized tax benefits will decrease by approximately $5 million over the next twelve-month period, primarily due to audit settlements and expiring statutes of limitations.

The Company’s prepaid and accrued tax positions are as follows:


	March 30, 2024		December 30, 2023		Affected Line Item in the Unaudited Condensed Consolidated Balance Sheets
	(in thousands)
Prepaid income tax	$	60,311	$	59,715	Other current assets
Accrued income taxes	34,102		38,819		Other current liabilities

The Company conducts business in a number of tax jurisdictions. As a result, it is subject to tax audits on a regular basis including, but not limited to, such major jurisdictions as the U.S., the U.K., China, France, Germany, and Canada. With few exceptions, the Company is no longer subject to U.S. and international income tax examinations for years before 2020.

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

14. RESTRUCTURING AND ASSET IMPAIRMENTS

The Company has undertaken restructuring actions impacting the reportable segments at various locations across North America, Europe and Asia. This includes workforce right-sizing actions resulting in severance and transition costs; and costs related to the consolidation of facilities resulting in asset impairment and accelerated depreciation charges.

The following table presents restructuring costs by reportable segment:


	Three Months Ended
		March 30, 2024		April 1, 2023
		(in thousands)
RMS		$	7,387	$	—
DSA		6,491		(2)
Manufacturing		1,631		3,488
Unallocated corporate		1,490		—
Total		$	16,999	$	3,486

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents restructuring costs as included within the Company’s unaudited condensed consolidated statements of income:


	March 30, 2024						April 1, 2023
	Severance and Transition Costs		Asset Impairments and Other Costs		Total		Severance and Transition Costs		Asset Impairments and Other Costs		Total
	(in thousands)






Three Months Ended
Cost of services provided (excluding amortization of intangible assets)	$	4,810	$	1,108	$	5,918	$	567	$	—	$	567
Cost of products sold (excluding amortization of intangible assets)	678		1,330		2,008		18		2,564		2,582
Selling, general and administrative	3,549		5,524		9,073		329		8		337
Total restructuring costs	$	9,037	$	7,962	$	16,999	$	914	$	2,572	$	3,486

Rollforward of Restructuring Activities

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


	Three Months Ended
	March 30, 2024		April 1, 2023
	(in thousands)
Beginning balance	$	5,050	$	1,300
Expense (excluding non-cash charges)	9,037		914
Payments / utilization	(3,235)		(331)

Foreign currency adjustments	(40)		6
Ending balance	$	10,812	$	1,889

As of March 30, 2024 and December 30, 2023, $10.8 million and $5.1 million, respectively, of severance and other personnel related costs liabilities were included in accrued compensation and accrued liabilities within the Company’s unaudited condensed consolidated balance sheets.

15. COMMITMENTS AND CONTINGENCIES

Litigation

On February 16, 2023, the Company was informed by the U.S. Department of Justice (DOJ) that in conjunction with the U.S. Fish and Wildlife Service (USFWS), it had commenced an investigation into the Company’s conduct regarding several shipments of non-human primates from Cambodia. On February 17, 2023 the Company received a grand jury subpoena requesting certain documents related to such investigation. The Company is aware of a parallel civil investigation being undertaken by the DOJ and USFWS. The Company is cooperating with the DOJ and the USFWS and believes that the concerns raised with respect to the Company’s conduct are without merit. The Company maintains a global supplier onboarding and oversight program incorporating risk-based due diligence, auditing, and monitoring practices to help ensure the quality of our supplier relationships and compliance with applicable U.S. and international laws and regulations, and has operated under the belief that all shipments of non-human primates it received satisfied the material requirements, documentation and related processes and procedures of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) documentation and related processes and procedures, which guides the release of each import by USFWS. Notwithstanding our efforts and good-faith belief, in connection with the civil investigation, the Company has voluntarily suspended future shipments of non-human primates from Cambodia to the United States until such time that the Company and USFWS can agree upon and implement additional procedures to reasonably ensure that non-human primates imported from Cambodia are purpose-bred. The Company continues to care for the Cambodia-sourced non-human primates from certain shipments in the United States. The carrying value of the inventory related to these shipments was approximately $27 million as of March 30, 2024, which reflects the value of the shipments in accordance with the Company’s inventory accounting policy. On May 16, 2023, the Company received an inquiry from the Enforcement Division of the U.S. Securities and Exchange Commission (SEC) requesting it to voluntarily provide information, subsequently augmented with a document subpoena, primarily related to the sourcing of non-human primates, and the Company is cooperating with the request. The Company is not able to predict what action, if any, might be taken in the future by the DOJ, USFWS, SEC or other governmental authorities as a result of the investigations. None of the DOJ, USFWS or SEC has provided the Company with any specific timeline or indication as to when these investigations or, specific to the DOJ and USFWS, discussions regarding future processes and procedures, will be

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

concluded or resolved. The Company cannot predict the timing, outcome or possible impact of the investigations, including without limitation any potential fines, penalties or liabilities.

A putative securities class action (Securities Class Action) was filed on May 19, 2023 against the Company and a number of its current/former officers in the United States District Court for the District of Massachusetts. On August 31, 2023, the court appointed the State Teachers Retirement System of Ohio as lead plaintiff. An amended complaint was filed on November 14, 2023 that, among other things, included only James Foster, the Chief Executive Officer and David R. Smith, the former Chief Financial Officer as defendants along with the Company. The amended complaint asserts claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") on behalf of a putative class of purchasers of Company securities from May 5, 2020 through February 21, 2023, alleging that certain of the Company’s disclosures about its practices with respect to the importation of non-human primates made during the putative class period were materially false or misleading. The Company filed a motion to dismiss. While the Company cannot predict the outcome of this matter, it believes the class action to be without merit and plans to vigorously defend against it. The Company cannot reasonably estimate the maximum potential exposure or the range of possible loss in association with this matter.

On November 8, 2023, a stockholder filed a derivative lawsuit in the U.S. District Court of the District of Delaware asserting claims on the Company’s behalf against the members of the Company’s Board of Directors and certain of the Company’s current/former officers (James Foster, the Chief Executive Officer; David R. Smith, the former Chief Financial Officer; and Flavia Pease, the current Chief Financial Officer). The complaint alleges that the defendants breached their fiduciary duties to the Company and its stockholders because certain of the Company’s disclosures about its practices with respect to the importation of non-human primates were materially false or misleading. The complaint also alleges that the defendants breached their fiduciary duties by causing the Company to fail to maintain adequate internal controls over securities disclosure and compliance with applicable law and by failing to comply with the company’s Code of Business Conduct and Ethics. In March 2024, the plaintiff agreed to stay the action until the United States District Court for the District of Massachusetts rules on the pending motion to dismiss in the Securities Class Action. The Company intends to file a motion to dismiss at that time. While the Company cannot predict the outcome of this matter, it believes the derivative lawsuit to be without merit and plans to vigorously defend against it. The Company cannot reasonably estimate the maximum potential exposure or the range of possible loss in association with this matter.

Aside from the matters above, the Company believes there are no other matters pending against the Company that could have a material impact on the Company’s business, financial condition, or results of operations.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

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