UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 28, 2020

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

Commission File No. 001-15943

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware			06-1397316
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)
251 Ballardvale Street	Wilmington	Massachusetts	01887
(Address of Principal Executive Offices)			(Zip Code)

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

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

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

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

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

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

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

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

        As of April 24, 2020, there were 49,487,437 shares of the Registrant’s common stock outstanding.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 28, 2020

TABLE OF CONTENTS

Item		Page
PART I - FINANCIAL INFORMATION
1	Financial Statements
	Condensed Consolidated Statements of Income (Unaudited) for the three months ended March 28, 2020 and March 30, 2019	3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 28, 2020 and March 30, 2019	4
	Condensed Consolidated Balance Sheets (Unaudited) as of March 28, 2020 and December 28, 2019	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 28, 2020 and March 30, 2019	6
	Condensed Consolidated Statements of Changes in Equity (Unaudited) for the three months ended March 28, 2020 and March 30, 2019	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
3	Quantitative and Qualitative Disclosure About Market Risk	40
4	Controls and Procedures	41
PART II - OTHER INFORMATION
1	Legal Proceedings	42
1A	Risk Factors	42
2	Unregistered Sales of Equity Securities and Use of Proceeds	55
6	Exhibits	56
Signatures		57

1

Special Note on Factors Affecting Future Results

This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and the future results of Charles River Laboratories International, Inc. that are based on our current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expect,” “anticipate,” “target,” “goal,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,” “likely,” “may,” “designed,” “would,” “future,” “can,” “could,” and other similar expressions which are predictions of, indicate future events and trends or which do not relate to historical matters, are intended to identify such forward-looking statements. These statements are based on our current expectations and beliefs and involve a number of risks, uncertainties and assumptions that are difficult to predict.

For example, we may use forward-looking statements when addressing topics such as: the COVID-19 pandemic, its duration, its impact on our business, results of operations, financial condition, liquidity, use of our borrowings, business practices, operations, suppliers, third party service providers, customers, employees, industry, ability to meet future performance obligations, ability to efficiently implement advisable safety precautions, and internal controls over financial reporting; the COVID-19 pandemic’s impact on demand, the global economy and financial markets; goodwill and asset impairments still under review; changes and uncertainties in the global economy; future demand for drug discovery and development products and services, including the outsourcing of these services; our expectations regarding stock repurchases, including the number of shares to be repurchased, expected timing and duration, the amount of capital that may be expended and the treatment of repurchased shares; the impact of unauthorized access into our information systems, including the timing and effectiveness of any enhanced security and monitoring; present spending trends and other cost reduction activities by our clients; future actions by our management; the outcome of contingencies; changes in our business strategy, business practices and methods of generating revenue; the development and performance of our services and products; market and industry conditions, including competitive and pricing trends; our strategic relationships with leading pharmaceutical and biotechnology companies, venture capital investments, and opportunities for future similar arrangements; our cost structure; the impact of acquisitions, including HemaCare; our expectations with respect to revenue growth and operating synergies (including the impact of specific actions intended to cause related improvements); the impact of specific actions intended to improve overall operating efficiencies and profitability (and our ability to accommodate future demand with our infrastructure), including gains and losses attributable to businesses we plan to close, consolidate, divest or repurpose; changes in our expectations regarding future stock option, restricted stock, performance share units, and other equity grants to employees and directors; expectations with respect to foreign currency exchange; assessing (or changing our assessment of) our tax positions for financial statement purposes; and our liquidity. In addition, these statements include the impact of economic and market conditions on us and our clients; the effects of our cost saving actions and the steps to optimize returns to shareholders on an effective and timely basis; and our ability to withstand the current market conditions.

Forward-looking statements are predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document, or in the case of statements incorporated by reference, on the date of the document incorporated by reference.

Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 28, 2019, under the sections entitled “Our Strategy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in this Quarterly Report on Form 10-Q, under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” in our press releases, and other financial filings with the Securities and Exchange Commission. We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or risks. New information, future events, or risks may cause the forward-looking events we discuss in this report not to occur.

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)

	Three Months Ended
	March 28, 2020		March 30, 2019
Service revenue	$	546,592	$	450,942
Product revenue	160,467		153,627
Total revenue	707,059		604,569
Costs and expenses:
Cost of services provided (excluding amortization of intangible assets)	372,824		316,800
Cost of products sold (excluding amortization of intangible assets)	82,174		75,992
Selling, general and administrative	129,901		122,574
Amortization of intangible assets	27,879		19,411
Operating income	94,281		69,792
Other income (expense):
Interest income	316		179
Interest expense	(15,067)		(9,987)
Other (expense) income, net	(24,071)		6,306
Income from operations, before income taxes	55,459		66,290
Provision for income taxes	4,622		10,602
Net income	50,837		55,688
Less: Net income attributable to noncontrolling interests	68		555
Net income attributable to common shareholders	$	50,769	$	55,133
Earnings per common share
Net income attributable to common shareholders:
Basic	$	1.03	$	1.14
Diluted	$	1.02	$	1.11
Weighted-average number of common shares outstanding:
Basic	49,189		48,458
Diluted	49,966		49,462
See Notes to Unaudited Condensed Consolidated Financial Statements.

3

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

	Three Months Ended
	March 28, 2020		March 30, 2019
Net income	$	50,837	$	55,688
Other comprehensive income (loss):
Foreign currency translation adjustment and other	(44,855)		9,885
Amortization of net loss and prior service benefit included in net periodic cost for pension and other post-retirement benefit plans	1,374		374
Comprehensive income, before income taxes	7,356		65,947
Less: Income tax benefit related to items of other comprehensive income	(2,039)		(102)
Comprehensive income, net of income taxes	9,395		66,049
Less: Comprehensive income (loss) related to noncontrolling interests, net of income taxes	(476)		1,013
Comprehensive income attributable to common shareholders, net of income taxes	$	9,871	$	65,036
See Notes to Unaudited Condensed Consolidated Financial Statements.

4

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share amounts)

	March 28, 2020		December 28, 2019
Assets
Current assets:
Cash and cash equivalents	$	372,433	$	238,014
Trade receivables, net	542,390		514,033
Inventories	162,938		160,660
Prepaid assets	68,826		52,588
Other current assets	61,694		56,030
Total current assets	1,208,281		1,021,325
Property, plant and equipment, net	1,033,409		1,044,128
Operating lease right-of-use assets, net	155,568		140,085
Goodwill	1,731,837		1,540,565
Client relationships, net	752,516		613,573
Other intangible assets, net	80,347		75,840
Deferred tax assets	42,753		44,659
Other assets	197,079		212,615
Total assets	$	5,201,790	$	4,692,790
Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Current portion of long-term debt and finance leases	$	47,667	$	38,545
Accounts payable	102,697		111,498
Accrued compensation	113,620		158,617
Deferred revenue	178,829		171,805
Accrued liabilities	139,163		139,118
Other current liabilities	108,920		90,598
Total current liabilities	690,896		710,181
Long-term debt, net and finance leases	2,326,770		1,849,666
Operating lease right-of-use liabilities	133,440		116,252
Deferred tax liabilities	197,094		167,283
Other long-term liabilities	173,924		182,933
Total liabilities	3,522,124		3,026,315
Commitments and contingencies (Notes 2, 9, 11, 12, 16 and 17)
Redeemable noncontrolling interests	24,039		28,647
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; 49,630 shares issued and 49,486 shares outstanding as of March 28, 2020, and 48,936 shares issued and 48,936 shares outstanding as of December 28, 2019	496		489
Additional paid-in capital	1,562,982		1,531,785
Retained earnings	331,098		280,329
Treasury stock, at cost, 144 and 0 shares, as of March 28, 2020 and December 28, 2019, respectively	(23,675)		—
Accumulated other comprehensive loss	(218,917)		(178,019)
Total equity attributable to common shareholders	1,651,984		1,634,584
Noncontrolling interest	3,643		3,244
Total equity	1,655,627		1,637,828
Total liabilities, redeemable noncontrolling interests and equity	$	5,201,790	$	4,692,790
See Notes to Unaudited Condensed Consolidated Financial Statements.

5

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Three Months Ended
	March 28, 2020		March 30, 2019
Cash flows relating to operating activities
Net income	$	50,837	$	55,688
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	57,260		45,358
Stock-based compensation	10,960		12,899
Deferred income taxes	(2,973)		7,781
Loss (gain) on venture capital and other investments	12,035		(10,575)
Other, net	10,495		(380)
Changes in assets and liabilities:
Trade receivables, net	(32,136)		(23,127)
Inventories	4,076		(2,520)
Accounts payable	(10,003)		10,245
Accrued compensation	(45,245)		(55,114)
Deferred revenue	6,065		(14,405)
Customer contract deposits	4,454		(5,866)
Other assets and liabilities, net	2,765		(5,125)
Net cash provided by operating activities	68,590		14,859
Cash flows relating to investing activities
Acquisition of businesses and assets, net of cash acquired	(382,250)		(989)
Capital expenditures	(25,721)		(16,731)
Purchases of investments and contributions to venture capital investments	(7,121)		(2,419)
Proceeds from sale of investments	2,504		15
Other, net	(1,097)		(689)
Net cash used in investing activities	(413,685)		(20,813)
Cash flows relating to financing activities
Proceeds from long-term debt and revolving credit facility	1,409,793		290,111
Proceeds from exercises of stock options	22,608		21,832
Payments on long-term debt, revolving credit facility, and finance lease obligations	(925,109)		(360,658)
Purchase of treasury stock	(23,675)		(17,760)
Other, net	(4,405)		(2,608)
Net cash provided by (used in) financing activities	479,212		(69,083)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	290		6,025
Net change in cash, cash equivalents, and restricted cash	134,407		(69,012)
Cash, cash equivalents, and restricted cash, beginning of period	240,046		197,318
Cash, cash equivalents, and restricted cash, end of period	$	374,453	$	128,306
Supplemental cash flow information:
Cash and cash equivalents	$	372,433	$	126,316
Restricted cash included in Other current assets	444		491
Restricted cash included in Other assets	1,576		1,499
Cash, cash equivalents, and restricted cash, end of period	$	374,453	$	128,306
See Notes to Unaudited Condensed Consolidated Financial Statements.

6

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

        (in thousands)

	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Equity Attributable to Common Shareholders		Noncontrolling Interest		Total Equity
	Shares	Amount								Shares	Amount
December 28, 2019	48,936	$	489	$	1,531,785	$	280,329	$	(178,019)	—	$	—	$	1,634,584	$	3,244	$	1,637,828
Net income	—	—		—		50,769		—		—	—		50,769		399		51,168
Other comprehensive income	—	—		—		—		(40,898)		—	—		(40,898)		—		(40,898)
Buy-out and contingent consideration recognition in connection with redeemable noncontrolling interest	—	—		(2,379)		—		—		—	—		(2,379)		—		(2,379)
Issuance of stock under employee compensation plans	694	7		22,616		—		—		—	—		22,623		—		22,623
Acquisition of treasury shares	—	—		—		—		—		144	(23,675)		(23,675)		—		(23,675)
Stock-based compensation	—	—		10,960		—		—		—	—		10,960		—		10,960
March 28, 2020	49,630	$	496	$	1,562,982	$	331,098	$	(218,917)	144	$	(23,675)	$	1,651,984	$	3,643	$	1,655,627
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Equity Attributable to Common Shareholders		Noncontrolling Interest		Total Equity
	Shares	Amount								Shares	Amount
December 29, 2018	48,210	$	482	$	1,447,512	$	42,096	$	(172,703)	1	$	(55)	$	1,317,332	$	2,446	$	1,319,778
Net income	—	—		—		55,133		—		—	—		55,133		469		55,602
Other comprehensive income	—	—		—		—		9,903		—	—		9,903		—		9,903
Adjustment of redeemable noncontrolling interest to redemption value	—	—		(1,451)		—		—		—	—		(1,451)		—		(1,451)
Issuance of stock under employee compensation plans	674	7		22,051		—		—		—	—		22,058		—		22,058
Acquisition of treasury shares	—	—		—		—		—		136	(17,760)		(17,760)		—		(17,760)
Stock-based compensation	—	—		12,899		—		—		—	—		12,899		—		12,899
March 30, 2019	48,884	$	489	$	1,481,011	$	97,229	$	(162,800)	137	$	(17,815)	$	1,398,114	$	2,915	$	1,401,029
See Notes to Unaudited Condensed Consolidated Financial Statements.

7

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Charles River Laboratories International, Inc. (the Company) in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The year-end condensed consolidated balance sheet data was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for fiscal year 2019. 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.

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

Consolidation

The Company’s unaudited condensed consolidated financial statements reflect its financial statements and those of its subsidiaries in which the Company holds a controlling financial interest. For consolidated entities in which the Company owns or is exposed to less than 100% of the economics, the Company records net income (loss) attributable to noncontrolling interests in its consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and transactions are eliminated in consolidation.

The Company’s fiscal year is typically based on 52-weeks, with each quarter composed of 13 weeks ending on the last Saturday on, or closest to, March 31, June 30, September 30, and December 31.

Segment Reporting

The Company reports its results in three reportable segments: Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Support (Manufacturing). The Company’s RMS reportable segment includes the Research Models, Research Model Services, and Research Products 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 its clients’ research operations (including recruitment, training, staffing, and management services). Research Products supplies controlled, consistent, customized primary cells and blood components derived from normal and mobilized peripheral blood, bone marrow, and cord blood. The Company’s DSA reportable segment includes services required to take a drug through the early development process including discovery services, which are non-regulated services to assist clients with the identification, screening, and selection of a lead compound for drug development, and regulated and non-regulated (GLP and non-GLP) safety assessment services. The Company’s Manufacturing reportable segment includes Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification

8

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

services; Biologics Testing Services (Biologics), which performs specialized testing of biologics; and Avian Vaccine Services (Avian), which supplies specific-pathogen-free chicken eggs and chickens.

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 2019.

Newly Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computer Arrangement that is a Service Contract.” ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This standard became effective for the Company in the three months ended March 28, 2020 and did not have a significant impact on the unaudited condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 removes the disclosure requirement for the amount and reasons for transfers between Level 1 and Level 2 fair value measurements as well as the process for Level 3 fair value measurements. In addition, the ASU adds the disclosure requirements for changes in unrealized gains and losses included in Other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This standard became effective for the Company in the three months ended March 28, 2020 and did not have a significant impact on the unaudited condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-14, “Compensation Retirement Benefits - Defined Benefit Plans -General (Subtopic 715-20).” ASU 2018-14 removes the requirements to disclose the amounts in Accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the next fiscal year and the related party disclosures about the amount of future annual benefits covered by insurance contracts. In addition, the ASU adds the requirement to disclose an explanation for any significant gains and losses related to changes in the benefit obligation for the period. This standard became effective for the Company in the three months ended March 28, 2020 and did not have a significant impact on the unaudited condensed consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” The standard simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. This standard became effective for the Company in the three months ended March 28, 2020 and did not have an impact on the unaudited condensed consolidated financial statements and related disclosures. The Company performs its annual impairment test during the fourth quarter of a fiscal year and does not expect any significant impact on the consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses”. The standard, including subsequently issued amendments, requires a financial asset measured at amortized cost basis, such as trade and notes receivables, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This standard became effective for the Company in the three months ended March 28, 2020 and did not have a significant impact on the unaudited condensed consolidated financial statements and related disclosures.

Newly Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU offers temporary optional expedients and exceptions for applying U.S. GAAP to modifications to agreements such as loans, debt securities, derivatives, and borrowings which reference LIBOR or another reference rate that is expected to be discontinued by December 31, 2021. The expedients and exceptions provided by the standard do not apply to modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 that an entity has elected certain optional expedients for and are retained through the end of the hedging relationship. The ASU is effective until December 31, 2022 when the replacement for LIBOR is expected to be completed. The interest rate on the Company’s senior credit facility, which matures in fiscal year 2023, is linked to LIBOR. The Company is in the process of evaluating options for transitioning away from the senior credit facility’s use of LIBOR and expects to be completed by the time LIBOR is phased out. The Company is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures and has yet to elect an adoption date.

In January 2020, the FASB issued ASU 2020-01, “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815).” ASU 2020-01 states any equity security transitioning

9

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

from the alternative method of accounting under Topic 321 to the equity method, or vice versa, due to an observable transaction will be remeasured immediately before the transition. In addition, the ASU clarifies the accounting for certain non-derivative forward contracts or purchased call options to acquire equity securities stating such instruments will be measured using the fair value principles of Topic 321 before settlement or exercise. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied on a prospective basis. Early adoption is permitted. The Company is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures, but does not believe there will be a material impact upon adoption.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax), which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied either retrospectively or prospectively based upon the applicable amendments. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

2. BUSINESS COMBINATIONS

HemaCare Corporation

On January 3, 2020, the Company acquired HemaCare Corporation (HemaCare), a business specializing in the production of human-derived cellular products for the cell therapy market. The acquisition of HemaCare expands the Company’s comprehensive portfolio of early-stage research and manufacturing support solutions to encompass the production and customization of high-quality, human derived cellular products to better support clients’ cell therapy programs. The purchase price of HemaCare was $379.8 million in cash. The acquisition was funded through a combination of cash on hand and proceeds from the Company’s Credit Facility under the multi-currency revolving facility. See Note 9, “Long-Term Debt and Finance Leases.” This business is reported as part of the Company’s RMS reportable segment.

The preliminary purchase allocation of $376.7 million, net of $3.1 million of cash acquired was as follows:

	January 3, 2020
	(in thousands)
Trade receivables	$	6,451
Inventories	8,468
Other current assets (excluding cash)	3,527
Property, plant and equipment	10,033
Goodwill	209,104
Definite-lived intangible assets	183,540
Other long-term assets	5,920
Current liabilities	(5,188)
Deferred tax liabilities	(37,470)
Other long-term liabilities	(7,664)
Total purchase price allocation	$	376,721

The purchase price allocation is subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.

The breakout of definite-lived intangible assets acquired was as follows:

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

The Company incurred transaction and integration costs in connection with the acquisition of $5.7 million for the three months ended March 28, 2020, which were primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.

Beginning on January 3, 2020, HemaCare has been included in the operating results of the Company. HemaCare revenue and operating loss for the three months ended March 28, 2020 was $12.3 million and $2.2 million, respectively.

The following selected unaudited pro forma consolidated results of operations are presented as if the HemaCare acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition, which is December 30, 2018, after giving effect to certain adjustments. For the three months ended March 28, 2020, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $0.2 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments. For the three months ended March 30, 2019, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $3.2 million, additional interest expense on borrowings of $2.8 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments.

	Three Months Ended
	March 28, 2020		March 30, 2019
	(in thousands)
	(unaudited)
Revenue	$	707,077	$	613,456
Net income attributable to common shareholders	55,705		52,186

These unaudited pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the dates indicated or that may result in the future. No effect has been given for synergies, if any, that may be realized through the acquisition.

Citoxlab

On April 29, 2019, the Company acquired Citoxlab, a non-clinical CRO, specializing in regulated safety assessment services, non-regulated discovery services, and medical device testing. With operations in Europe and North America, the acquisition of Citoxlab further strengthens the Company’s position as a leading, global, early-stage CRO by expanding its scientific portfolio and geographic footprint, which enhances the Company’s ability to partner with clients across the drug discovery and development continuum. The purchase price for Citoxlab was $527.1 million in cash. The acquisition was funded through a combination of cash on hand and proceeds from the Company’s Credit Facility under the multi-currency revolving facility. This business is reported as part of the Company’s DSA reportable segment.

The purchase allocation of $490.4 million, net of $36.7 million of cash acquired was as follows:

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

The breakout of definite-lived intangible assets acquired was as follows:

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

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

The Company incurred transaction and integration costs in connection with the acquisition of $1.4 million and $5.2 million for the three months ended March 28, 2020 and March 30, 2019, respectively, which were primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.

Beginning on April 29, 2019, Citoxlab has been included in the operating results of the Company. Citoxlab revenue and operating income for the three months ended March 28, 2020 was $45.3 million and $2.5 million, respectively.

The following selected unaudited pro forma consolidated results of operations are presented as if the Citoxlab acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition, which is December 31, 2017, after giving effect to certain adjustments. For the three months ended March 30, 2019, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $2.6 million, additional interest expense on borrowings of $1.2 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments.

	Three Months Ended
	March 30, 2019
	(in thousands)
	(unaudited)
Revenue	$	650,875
Net income attributable to common shareholders	61,028

These unaudited pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the dates indicated or that may result in the future. No effect has been given for synergies, if any, that may be realized through the acquisition.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Acquisition

On August 28, 2019, the Company acquired an 80% ownership interest in a supplier that supports the Company’s DSA reportable segment. The remaining 20% interest is a redeemable non-controlling interest. See Note 10, “Equity and Noncontrolling Interests.” The purchase price was $23.4 million, net of a $4.0 million pre-existing relationship for a supply agreement settled upon acquisition. The acquisition was funded through a combination of cash on hand and proceeds from the Company’s Credit Facility under the multi-currency revolving facility. The business is reported as part of the Company’s DSA reportable segment.

The purchase allocation of $23.1 million, net of $0.3 million of cash acquired was as follows:

	August 28, 2019
	(in thousands)
Trade receivables	$	189
Inventories	7,644
Property, plant and equipment	1,462
Goodwill	12,669
Other long-term assets	11,849
Current liabilities	(441)
Deferred tax liabilities	(1,331)
Other long-term liabilities	(238)
Redeemable noncontrolling interest	(8,740)
Total purchase price allocation	$	23,063

The purchase price allocation is subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition. From the date of the acquisition through March 28, 2020, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis.

No significant integration costs were incurred with the acquisition for the three months ended March 28, 2020.

Pro forma financial information as well as the disclosure of actual results have not been included because these financial results are not significant when compared to the Company’s consolidated financial results.

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

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

	Three Months Ended
	March 28, 2020		March 30, 2019
	(in thousands)
Major Products/Service Lines:
RMS	$	145,996	$	137,172
DSA	438,683		354,197
Manufacturing	122,380		113,200
Total revenue	$	707,059	$	604,569

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended
March 28, 2020	March 30, 2019
(in thousands)