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 June 25, 2022

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

Commission File No. 001-15943

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 July 22, 2022, there were 50,863,307 shares of the Registrant’s common stock outstanding.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 25, 2022

TABLE OF CONTENTS

Item		Page
PART I - FINANCIAL INFORMATION
1	Financial Statements
	Condensed Consolidated Statements of Income (Unaudited) for the three and six months ended June 25, 2022 and June 26, 2021	3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended June 25, 2022 and June 26, 2021	4
	Condensed Consolidated Balance Sheets (Unaudited) as of June 25, 2022 and December 25, 2021	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 25, 2022 and June 26, 2021	6
	Condensed Consolidated Statements of Changes in Equity (Unaudited) for the three and six months ended June 25, 2022 and June 26, 2021	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
3	Quantitative and Qualitative Disclosure About Market Risk	35
4	Controls and Procedures	36
PART II - OTHER INFORMATION
1	Legal Proceedings	37
1A	Risk Factors	37
2	Unregistered Sales of Equity Securities and Use of Proceeds	37
6	Exhibits	38
Signatures		39

1

Special Note on Factors Affecting Future Results

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

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

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

Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 25, 2021, under the sections entitled “Our Strategy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in this Quarterly Report on Form 10-Q, under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” in our press releases, and other financial filings with the Securities and Exchange Commission. We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or risks. New information, future events, or risks may cause the forward-looking events we discuss in this report not to occur.

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)

	Three Months Ended				Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Service revenue	$	782,827	$	715,320	$	1,503,312	$	1,341,901
Product revenue	190,304		199,287		383,748		397,272
Total revenue	973,131		914,607		1,887,060		1,739,173
Costs and expenses:
Cost of services provided (excluding amortization of intangible assets)	522,623		476,762		1,009,487		900,737
Cost of products sold (excluding amortization of intangible assets)	93,782		95,824		184,029		188,137
Selling, general and administrative	131,711		171,501		281,744		327,234
Amortization of intangible assets	37,604		32,970		75,611		61,812
Operating income	187,411		137,550		336,189		261,253
Other income (expense):
Interest income	188		171		315		206
Interest expense	(3,703)		(16,190)		(13,137)		(45,909)
Other (expense) income, net	(39,783)		5,965		(68,408)		(21,752)
Income before income taxes	144,113		127,496		254,959		193,798
Provision for income taxes	33,449		37,580		49,069		39,947
Net income	110,664		89,916		205,890		153,851
Less: Net income attributable to noncontrolling interests	1,343		1,468		3,547		3,873
Net income attributable to common shareholders	$	109,321	$	88,448	$	202,343	$	149,978
Earnings per common share
Net income attributable to common shareholders:
Basic	$	2.15	$	1.76	$	3.99	$	2.99
Diluted	$	2.13	$	1.72	$	3.94	$	2.93
Weighted-average number of common shares outstanding:
Basic	50,823		50,297		50,732		50,138
Diluted	51,283		51,334		51,293		51,225
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				Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Net income	$	110,664	$	89,916	$	205,890	$	153,851
Other comprehensive income (loss):
Foreign currency translation adjustment	(93,857)		20,827		(106,809)		30,656
Amortization of net loss and prior service benefit included in net periodic cost for pension and other post-retirement benefit plans	741		993		1,487		1,981
Comprehensive income, before income taxes related to items of other comprehensive income	17,548		111,736		100,568		186,488
Less: Income tax (benefit) expense related to items of other comprehensive income	(6,876)		2,449		(8,894)		1,424
Comprehensive income, net of income taxes	24,424		109,287		109,462		185,064
Less: Comprehensive (loss) income related to noncontrolling interests, net of income taxes	(1,275)		1,843		934		4,233
Comprehensive income attributable to common shareholders, net of income taxes	$	25,699	$	107,444	$	108,528	$	180,831
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)

	June 25, 2022		December 25, 2021
Assets
Current assets:
Cash and cash equivalents	$	200,321	$	241,214
Trade receivables and contract assets, net of allowances for credit losses of $7,928 and $7,180, respectively	747,605		642,881
Inventories	256,765		199,146
Prepaid assets	80,939		93,543
Other current assets	107,456		97,311
Total current assets	1,393,086		1,274,095
Property, plant and equipment, net	1,383,422		1,291,068
Operating lease right-of-use assets, net	382,121		292,941
Goodwill	2,860,258		2,711,881
Client relationships, net	965,206		981,398
Other intangible assets, net	67,166		79,794
Deferred tax assets	42,467		40,226
Other assets	435,635		352,889
Total assets	$	7,529,361	$	7,024,292
Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Current portion of long-term debt and finance leases	$	2,364	$	2,795
Accounts payable	211,381		198,130
Accrued compensation	202,962		246,119
Deferred revenue	242,084		219,703
Accrued liabilities	199,234		228,797
Other current liabilities	190,110		137,641
Total current liabilities	1,048,135		1,033,185
Long-term debt, net and finance leases	2,997,221		2,663,564
Operating lease right-of-use liabilities	365,775		252,972
Deferred tax liabilities	230,051		239,720
Other long-term liabilities	195,075		242,859
Total liabilities	4,836,257		4,432,300
Commitments and contingencies (Notes 2, 9, 11 and 13)
Redeemable noncontrolling interests	40,177		53,010
Equity:
Preferred stock, $0.01 par value; 20,000 shares authorized; no shares issued and outstanding	—		—
Common stock, $0.01 par value; 120,000 shares authorized; 50,990 shares issued and 50,861 shares outstanding as of June 25, 2022, and 50,480 shares issued and outstanding as of December 25, 2021	510		505
Additional paid-in capital	1,761,125		1,718,304
Retained earnings	1,183,094		980,751
Treasury stock, at cost, 129 and 0 shares, as of June 25, 2022 and December 25, 2021, respectively	(38,468)		—
Accumulated other comprehensive loss	(258,555)		(164,740)
Total equity attributable to common shareholders	2,647,706		2,534,820
Noncontrolling interest	5,221		4,162
Total equity	2,652,927		2,538,982
Total liabilities, redeemable noncontrolling interests and equity	$	7,529,361	$	7,024,292
See Notes to Unaudited Condensed Consolidated Financial Statements.

5

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Six Months Ended
	June 25, 2022		June 26, 2021
Cash flows relating to operating activities
Net income	$	205,890	$	153,851
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	151,720		129,613
Stock-based compensation	29,549		30,266
Loss on debt extinguishment and other financing costs	1,987		27,980
Deferred income taxes	(14,684)		8,891
Loss on venture capital and strategic equity investments, net	23,515		6,910
Contingent consideration, fair value changes	(15,420)		—
Other, net	13,520		(475)
Changes in assets and liabilities:
Trade receivables and contract assets, net	(117,642)		(5,224)
Inventories	(63,725)		(7,107)
Accounts payable	31,466		(13,383)
Accrued compensation	(38,173)		13,932
Deferred revenue	27,641		502
Customer contract deposits	16,100		(2,032)
Other assets and liabilities, net	360		13,095
Net cash provided by operating activities	252,104		356,819
Cash flows relating to investing activities
Acquisition of businesses and assets, net of cash acquired	(283,392)		(1,000,505)
Capital expenditures	(163,316)		(74,461)
Purchases of investments and contributions to venture capital investments	(108,842)		(23,266)
Proceeds from sale of investments	205		5,204
Other, net	(4,774)		839
Net cash used in investing activities	(560,119)		(1,092,189)
Cash flows relating to financing activities
Proceeds from long-term debt and revolving credit facility	2,180,511		4,999,942
Proceeds from exercises of stock options	15,571		35,298
Payments on long-term debt, revolving credit facility, and finance lease obligations	(1,856,262)		(4,241,772)
Purchase of treasury stock	(38,468)		(40,297)
Payment of debt extinguishment and financing costs	—		(38,166)
Payment of contingent considerations	(10,356)		—
Other, net	(32,843)		(2,330)
Net cash provided by financing activities	258,153		712,675
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	10,756		17,066
Net change in cash, cash equivalents, and restricted cash	(39,106)		(5,629)
Cash, cash equivalents, and restricted cash, beginning of period	246,314		233,119
Cash, cash equivalents, and restricted cash, end of period	$	207,208	$	227,490
Supplemental cash flow information:
Cash and cash equivalents	$	200,321	$	222,969
Restricted cash included in Other current assets	5,797		3,118
Restricted cash included in Other assets	1,090		1,403
Cash, cash equivalents, and restricted cash, end of period	$	207,208	$	227,490
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 25, 2021	50,480	$	505	$	1,718,304	$	980,751	$	(164,740)	—	$	—	$	2,534,820	$	4,162	$	2,538,982
Net income	—	—		—		93,022		—		—	—		93,022		560		93,582
Other comprehensive loss	—	—		—		—		(10,193)		—	—		(10,193)		—		(10,193)
Adjustment of redeemable noncontrolling interest to redemption value	—	—		(1,161)		—		—		—	—		(1,161)		—		(1,161)
Issuance of stock under employee compensation plans	431	4		13,067		—		—		—	—		13,071		—		13,071
Purchase of treasury shares	—	—		—		—		—		111	(33,994)		(33,994)		—		(33,994)
Stock-based compensation	—	—		14,619		—		—		—	—		14,619		—		14,619
March 26, 2022	50,911	509		1,744,829		1,073,773		(174,933)		111	(33,994)		2,610,184		4,722		2,614,906
Net income	—	—		—		109,321		—		—	—		109,321		499		109,820
Other comprehensive income	—	—		—		—		(83,622)		—	—		(83,622)		—		(83,622)
Adjustment of redeemable noncontrolling interest to redemption value	—	—		(1,132)		—		—		—	—		(1,132)		—		(1,132)
Issuance of stock under employee compensation plans	79	1		2,498		—		—		—	—		2,499		—		2,499
Purchase of treasury shares	—	—		—		—		—		18	(4,474)		(4,474)		—		(4,474)
Stock-based compensation	—	—		14,930		—		—		—	—		14,930		—		14,930
June 25, 2022	50,990	$	510	$	1,761,125	$	1,183,094	$	(258,555)	129	$	(38,468)	$	2,647,706	$	5,221	$	2,652,927
	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 26, 2020	49,767	$	498	$	1,627,564	$	625,414	$	(138,874)	—	$	—	$	2,114,602	$	3,567	$	2,118,169
Net income	—	—		—		61,530		—		—	—		61,530		690		62,220
Other comprehensive income	—	—		—		—		11,857		—	—		11,857		—		11,857
Adjustment of redeemable noncontrolling interest to redemption value	—	—		(835)		—		—		—	—		(835)		—		(835)
Issuance of stock under employee compensation plans	583	6		19,606		—		—		—	—		19,612		—		19,612
Purchase of treasury shares	—	—		—		—		—		134	(36,028)		(36,028)		—		(36,028)
Stock-based compensation	—	—		13,189		—		—		—	—		13,189		—		13,189
March 27, 2021	50,350	504		1,659,524		686,944		(127,017)		134	(36,028)		2,183,927		4,257		2,188,184
Net income	—	—		—		88,448		—		—	—		88,448		583		89,031
Other comprehensive income	—	—		—		—		18,996		—	—		18,996		—		18,996
Adjustment of redeemable noncontrolling interest to redemption value	—	—		(1,506)		—		—		—	—		(1,506)		—		(1,506)
Issuance of stock under employee compensation plans	188	1		15,766		—		—		—	—		15,767		—		15,767
Purchase of treasury shares	—	—		—		—		—		13	(4,269)		(4,269)		—		(4,269)
Stock-based compensation	—	—		17,077		—		—		—	—		17,077		—		17,077
June 26, 2021	50,538	$	505	$	1,690,861	$	775,392	$	(108,021)	147	$	(40,297)	$	2,318,440	$	4,840	$	2,323,280
See Notes to Unaudited Condensed Consolidated Financial Statements.

7

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Charles River Laboratories International, Inc. (the Company) in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The year-end condensed consolidated balance sheet data was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for fiscal year 2021. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position and results of operations.

Use of Estimates

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

Newly Issued Accounting Pronouncements

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 sets disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. The ASU also clarifies that contractual sale restrictions should not be considered when measuring fair value of equity securities. The ASU is effective for fiscal years beginning after December 15, 2023 and will be applied on a prospective basis. The Company is currently evaluating the impact this new standard will have on the consolidated financial statements and related disclosures, but does not believe there will be a material impact.

In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance.” ASU 2021-10 requires disclosures about transactions with a government that have been accounted for by a grant or contribution accounting model to increase transparency about the types of transactions, the accounting for the transactions, and the effect on the financial statements. The ASU is an annual disclosure effective for fiscal years beginning after December 15, 2021 and will be applied on a prospective basis. The Company is currently evaluating the impact this new standard will have on the consolidated financial statements and related disclosures, but does not believe there will be a material impact.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1, “Description of Business and Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for fiscal year 2021.

Consolidation

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

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

Segment Reporting

The Company reports its results in three reportable segments: Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Solutions (Manufacturing). The Company’s RMS reportable segment includes the Research Models, Research Model Services, and Research and GMP-Compliant Cells businesses. Research Models includes the commercial production and sale of small research models, as well as the supply of large research models. Research Model Services includes: Genetically Engineered Models and Services (GEMS), which performs contract breeding and other services associated with genetically engineered models; Research Animal Diagnostic Services (RADS), which provides health monitoring and diagnostics services related to research models; Insourcing Solutions (IS), which provides colony management

8

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

of its clients’ research operations (including recruitment, training, staffing, and management services); and Research and GMP-Compliant Cells, which supplies controlled, consistent, customized primary cells and blood components derived from normal and mobilized peripheral blood, bone marrow, and cord blood. The Company’s DSA reportable segment includes services required to take a drug through the early development process including discovery services, which are non-regulated services to assist clients with the identification, screening, and selection of a lead compound for drug development, and regulated and nonregulated (GLP and non-GLP) safety assessment services. The Company’s Manufacturing reportable segment includes Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification services; Biologics Solutions (Biologics), which performs specialized testing of biologics (Biologics Testing Solutions) as well as contract development and manufacturing products and services (CDMO); Avian Vaccine Services (Avian), which supplies specific-pathogen-free chicken eggs and chickens.

2. ACQUISITIONS AND DIVESTITURES

Fiscal 2022 Acquisition

Explora BioLabs Holdings, Inc.

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

Fiscal 2021 Acquisitions

Vigene Biosciences, Inc.

On June 28, 2021, the Company acquired Vigene Biosciences, Inc. (Vigene), a gene therapy CDMO, providing viral vector-based gene delivery solutions. The acquisition enables clients to seamlessly conduct analytical testing, process development, and manufacturing for advanced modalities with the same scientific partner. The purchase price of Vigene was $323.9 million, net of $2.7 million in cash. Included in the purchase price are contingent payments fair valued at $34.5 million, which was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $57.5 million based on future performance). The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s Manufacturing reportable segment. As of June 25, 2022, the fair value of the contingent consideration was zero as certain financial targets have not and are not expected to be achieved.

Retrogenix Limited

On March 30, 2021, the Company acquired Retrogenix Limited (Retrogenix), an early-stage contract research organization providing specialized bioanalytical services utilizing its proprietary cell microarray technology. The acquisition of Retrogenix enhances the Company’s scientific expertise with additional large molecule and cell therapy discovery capabilities. The purchase price of Retrogenix was $53.9 million, net of $8.5 million in cash. Included in the purchase price are contingent payments fair valued at $6.9 million, which is the maximum potential payout, and was based on a probability-weighted approach. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment.

Cognate BioServices, Inc.

On March 29, 2021, the Company acquired Cognate BioServices, Inc. (Cognate), a cell and gene therapy CDMO offering comprehensive manufacturing solutions for cell therapies, as well as for the production of plasmid DNA and other inputs in the CDMO value chain. The acquisition of Cognate establishes the Company as a scientific partner for cell and gene therapy development, testing, and manufacturing, providing clients with an integrated solution from basic research and discovery through cGMP production. The purchase price of Cognate was $877.9 million, net of $70.5 million in cash and includes $15.7 million of consideration for an approximate 2% ownership interest not acquired, which was redeemed in April 2022 with the ultimate payout tied to performance in 2021. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility and senior notes (Senior Notes) issued in fiscal 2021. This business is reported as part of the Company’s Manufacturing reportable segment.

Distributed Bio, Inc.

On December 31, 2020, the Company acquired Distributed Bio, Inc. (Distributed Bio), a next-generation antibody discovery company with technologies specializing in enhancing the probability of success for delivering high-quality, readily formattable

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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

antibody fragments to support antibody and cell and gene therapy candidates to biopharmaceutical clients. The acquisition of Distributed Bio expands the Company’s capabilities with an innovative, large-molecule discovery platform, and creates an integrated, end-to-end platform for therapeutic antibody and cell and gene therapy discovery and development. The purchase price of Distributed Bio was $97.0 million, net of $0.8 million in cash. The total consideration includes $80.8 million cash paid, settlement of $3.0 million in convertible promissory notes previously issued by the Company during prior fiscal years, and $14.1 million of contingent consideration, which was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $21.0 million based on future performance and milestone achievements over a one-year period). The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment. During the three months ended June 25, 2022, $7.0 million of contingent consideration was paid as certain operational milestones were achieved. Other financial targets associated with the contingent consideration were not met and the fair value of the remaining contingent consideration is zero.

Other Acquisition

On March 3, 2021, the Company acquired certain assets from a distributor that supports the Company’s DSA reportable segment. The purchase price was $35.4 million, which includes $19.5 million in cash paid ($5.5 million of which was paid in fiscal 2020), and $15.9 million of contingent consideration, which was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $17.5 million based on future performance over a three-year period). The fair value of the net assets acquired included $17.3 million of goodwill, $15.2 million attributed to supplier relationships (to be amortized over a 4-year period), and $3.0 million of property, plant, and equipment. The business is reported as part of the Company’s DSA reportable segment. As of June 25, 2022, the fair value of the contingent consideration was zero as certain operational targets were not achieved.

Purchase price information

The purchase price allocation was as follows:

	Explora (1)		Vigene		Retrogenix		Cognate		Distributed Bio
	April 5, 2022		June 28, 2021		March 30, 2021		March 29, 2021		December 31, 2020
	(in thousands)
Trade receivables	$	7,679	$	3,548	$	2,266	$	18,566	$	2,722
Other current assets (excluding cash)	1,067		1,657		209		14,128		221
Property, plant and equipment	37,369		7,649		400		52,082		2,382
Operating lease right-of-use asset, net	48,613		22,507		1,385		34,349		1,586
Goodwill (2)	216,324		239,681		34,489		611,555		71,585
Definite-lived intangible assets	70,100		93,900		22,126		270,900		24,540
Other long-term assets	556		694		—		6,098		469
Deferred revenue	(3,507)		(4,260)		(434)		(20,539)		(1,319)
Other current liabilities (3)	(15,507)		(6,319)		(1,141)		(45,388)		(1,504)
Operating lease right-of-use liabilities (Long-term)	(57,193)		(21,220)		(1,205)		(31,383)		(1,123)
Deferred tax liabilities	(19,173)		(13,958)		(4,174)		(32,503)		(2,529)
Other long-term liabilities	(1,807)		—		—		—		—
Total purchase price allocation	$	284,521	$	323,879	$	53,921	$	877,865	$	97,030
(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 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.
(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 and the assembled workforce of the acquirees, thus is not deductible for tax purposes. Explora BioLabs had $5.0 million of goodwill due to a prior asset acquisition that is not deductible for tax purposes.
(3) In connection with its acquisitions of businesses, the Company routinely records liabilities related to indirect state and local taxes for preacquisition periods when such liabilities are estimable and deemed probable. The Company may or may not be indemnified for such indirect tax liabilities under terms of the acquisitions. As these indirect tax contingencies are resolved, actual obligations, and any indemnifications, may differ from the recorded amounts and any differences are reflected in reported results in the period in which these are resolved. Specifically for Cognate, as of March 29, 2021, the Company recorded an estimated liability of $17 million pertaining to indirect state sales taxes. During the three months ended June 25, 2022, the Company received a favorable ruling from the applicable state in which the indirect state sales tax liability arose and, accordingly, this liability was reduced in full, resulting in a gain recorded through selling, general and administrative expenses in the period.

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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The definite-lived intangible assets acquired were as follows:

	Explora BioLabs		Vigene		Retrogenix		Cognate		Distributed Bio
Definite-Lived Intangible Assets	(in thousands)
Client relationships	$	64,000	$	87,500	$	17,340	$	257,200	$	16,080
Other intangible assets	6,100		6,400		4,786		13,700		8,460
Total definite-lived intangible assets	$	70,100	$	93,900	$	22,126	$	270,900	$	24,540
Weighted Average Amortization Life	(in years)
Client relationships	13		12		13		13		9
Other intangible assets	4		2		3		2		4
Total definite-lived intangible assets	12		11		11		13		7

	Three Months Ended				Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
	(in thousands)
Transaction and Integration Costs
Selling, general and administrative expenses	$	4,426	$	14,694	$	11,539	$	23,411

Pro forma information

The following selected unaudited pro forma consolidated results of operations are presented as if the Cognate and Vigene acquisitions had occurred as of the beginning of the period immediately preceding the period of acquisition, which is December 29, 2019, after giving effect to certain adjustments. For the three and six months ended June 26, 2021, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $4.0 million and $13.3 million, additional interest expense on borrowing of $2.2 million and $5.6 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments. All other acquisitions have not been included because that information is not material to the consolidated financial statements.

	June 26, 2021
	Three Months Ended		Six Months Ended
	(in thousands)
	(unaudited)
Revenue	$	923,859	$	1,782,659
Net income attributable to common shareholders	94,984		132,559

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

RMS Japan Divestiture

On October 12, 2021, the Company sold its RMS Japan operations to The Jackson Laboratory for a preliminary purchase price of $70.6 million, which included $7.9 million in cash, $3.8 million pension over funding, and certain post-closing adjustments.

The RMS Japan business was reported in the Company’s RMS reportable segment. The Company determined that the RMS Japan business was not optimized within the Company’s portfolio at its current scale, and that the capital could be better deployed in other long-term growth opportunities.

CDMO Sweden Divestiture

On October 12, 2021, the Company sold its gene therapy CDMO site in Sweden to a private investor group for a preliminary purchase price of $59.6 million, net of $0.2 million in cash and other post-closing adjustments that may impact the purchase price. Included in the purchase price are contingent payments fair valued at $15.3 million, which were estimated using a probability weighted model (the maximum contingent contractual payments are up to $25.0 million based on future performance), as well as a purchase obligation of approximately $10.0 million between the parties.

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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The CDMO Sweden business was acquired in March 2021 as part of the acquisition of Cognate and was reported in the Company’s Manufacturing reportable segment. The Company routinely evaluates the strategic fit and fundamental performance of our acquisitions integrated within our global infrastructure. As part of this assessment, the Company determined that this capital could be better deployed in other long-term growth opportunities.

The carrying amounts of the major classes of assets and liabilities associated with the divestitures of the businesses were as follows:

	October 12, 2021
	RMS Japan		CDMO Sweden
	(in thousands)
Assets
Current assets	$	26,524	$	8,187
Property, plant, and equipment, net	17,379		14,339
Operating lease right-of-use assets, net	—		19,733
Goodwill	4,129		27,764
Intangible assets, net	—		14,089
Other assets	3,695		—
Total assets	$	51,727	$	84,112
Liabilities
Current liabilities	$	8,705	$	6,386
Operating lease right-of-use liabilities	—		18,221
Long-term liabilities	94		—
Total liabilities	$	8,799	$	24,607

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

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

	Three Months Ended				Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
	(in thousands)
Timing of Revenue Recognition:
RMS
Services and products transferred over time	$	85,803	$	66,334	$	155,727	$	131,230
Services and products transferred at a point in time	100,607		110,360		207,225		222,374
Total RMS revenue	186,410		176,694