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| Fiscal Year | | | | |
| December 30, 2023 | | December 31, 2022 | | $ change | | % change |
| (in thousands, except percentages) |
| Other income (expense): | | | | | | | |
| Interest income | $ | 5,196 | | | $ | 780 | | | $ | 4,416 | | | 566.2 | % |
| Interest expense | (136,710) | | | (59,291) | | | (77,419) | | | 130.6 | % |
| Other income, net | 95,537 | | | 30,523 | | | 65,014 | | | 213.0 | % |
| Total other expense, net | $ | (35,977) | | | $ | (27,988) | | | $ | (7,989) | | | 28.5 | % |
Interest expense for fiscal year 2023 was $136.7 million, an increase of $77.4 million, or 130.6%, compared to $59.3 million in fiscal year 2022. The increase was due primarily to higher interest rates, and the absence of $49.7 million of gains recognized in connection with a debt-related foreign exchange forward contract in the corresponding period in 2022.
Other income, net for fiscal year 2023 was $95.5 million, an increase of $65.0 million, or 213.0%, compared to $30.5 million for fiscal year 2022. The increase was due primarily to a gain on acquisition of $98.5 million for Noveprim, the absence of $46.5 million of foreign currency losses recognized in connection with a U.S. dollar denominated loan borrowed by a non-U.S. entity with a different functional currency, and lower net losses incurred on our venture capital, other strategic equity investments, and life insurance investments as compared to fiscal year 2022; partially offset by the absence of a gain on the divestiture of our Avian business of $123.4 million in fiscal year 2022.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
Income Taxes
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| Fiscal Year | | | | |
| 2023 | | 2022 | | $ change | | % change |
| (in thousands, except percentages) |
| Provision for income taxes | $ | 100,914 | | | $ | 130,379 | | | $ | (29,465) | | | (22.6) | % |
| Effective tax rate | 17.4 | % | | 20.9 | % | | | | (350) bps |
Income tax expense for fiscal year 2023 was $100.9 million, a decrease of $29.5 million compared to $130.4 million for fiscal year 2022. Our effective tax rate was 17.4% for fiscal year 2023 compared to 20.9% for fiscal year 2022. The decrease in our effective tax rate in fiscal year 2023 compared to fiscal year 2022 was primarily attributable to the impact of the non-taxable gain on Noveprim of $98.5 million; partially offset by a decreased tax benefit from stock-based compensation deductions.
Liquidity and Capital Resources
Liquidity and Cash Flows
We currently require cash to fund our working capital needs, capital expansion, acquisitions, and to pay our debt, lease, venture capital and strategic equity investments, and pension obligations. Our principal sources of liquidity have been our cash flows from operations, recent divestitures, supplemented by long-term borrowings. Based on our current business plan, we believe that our existing funds, when combined with cash generated from operations and our access to financing resources, are sufficient to fund our operations for the foreseeable future.
The following table presents our cash, cash equivalents and short-term investments:
| | | | | | | | | | | |
| December 30, 2023 | | December 31, 2022 |
| (in thousands) |
| Cash and cash equivalents: | | | |
| Held in U.S. entities | $ | 2,234 | | | $ | 15,813 | |
| Held in non-U.S. entities | 274,537 | | | 218,099 | |
| Total cash and cash equivalents | 276,771 | | | 233,912 | |
| Short-term investments: | | | |
| Held in non-U.S. entities | 68 | | | 998 | |
| Total cash, cash equivalents and short-term investments | $ | 276,839 | | | $ | 234,910 | |
The following table presents our net cash provided by operating activities:
| | | | | | | | | | | |
| Fiscal Year |
| 2023 | | 2022 |
| (in thousands) |
| Net income | $ | 480,370 | | | $ | 492,608 | |
| Adjustments to reconcile net income to net cash provided by operating activities | 305,908 | | | 279,586 | |
| Changes in assets and liabilities | (102,380) | | | (152,554) | |
| Net cash provided by operating activities | $ | 683,898 | | | $ | 619,640 | |
Net cash provided by cash flows from operating activities represents the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net income for (1) non-cash operating items such as depreciation and amortization, stock-based compensation, loss on debt extinguishment and other financing costs, deferred income taxes, long-lived asset impairment changes, gains and/or losses on venture capital and strategic equity investments, gains and/or losses on divestitures, changes in fair value of contingent consideration, as well as (2) changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in our results of operations. During fiscal year 2023, our cash flows from operations was $683.9 million compared with $619.6 million for fiscal year 2022. The increase in net cash provided by operating activities was primarily driven by the amounts and timing of compensation payments and inventory purchases.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
The following table presents our net cash used in investing activities:
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| Fiscal Year |
| 2023 | | 2022 |
| (in thousands) |
| Acquisitions of businesses and assets, net of cash acquired | $ | (194,785) | | | $ | (283,392) | |
| Capital expenditures | (318,528) | | | (324,733) | |
| Proceeds from sale of businesses, net | — | | | 163,275 | |
| Investments, net | (47,548) | | | (153,725) | |
| Other, net | (2,294) | | | (9,347) | |
| Net cash used in investing activities | $ | (563,155) | | | $ | (607,922) | |
The primary use of cash used in investing activities in fiscal year 2023 related to the acquisitions of Noveprim and SAMDI, capital expenditures to support the growth of the business, and investments in certain venture capital and strategic equity investments. The primary use of cash used in investing activities in fiscal year 2022 related to the acquisition of Explora BioLabs, capital expenditures to support the growth of the business, and investments in certain venture capital and strategic equity investments; partially offset by proceeds from the sale of our Avian business.
The following table presents our net cash used in financing activities:
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| Fiscal Year |
| 2023 | | 2022 |
| (in thousands) |
| Proceeds from long-term debt and revolving credit facility | $ | 776,353 | | | $ | 2,952,430 | |
| Payments on long-term debt, revolving credit facility, and finance lease obligations | (851,676) | | | (2,932,636) | |
| Proceeds from exercises of stock options | 25,597 | | | 25,110 | |
| Purchase of treasury stock | (24,155) | | | (38,651) | |
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| Purchases of additional equity interests, net | (4,784) | | | (30,533) | |
| Payment of contingent considerations | (2,711) | | | (10,356) | |
| Other, net | (4,145) | | | (7,761) | |
| Net cash used in financing activities | $ | (85,521) | | | $ | (42,397) | |
For fiscal year 2023, net cash used in financing activities was primarily driven by debt repayments on our Credit Facility offset by borrowings to fund the recent acquisition of Noveprim.
Net cash used in financing activities also reflected treasury stock purchases of $24.2 million made due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements, $4.8 million payment to purchase the remaining 8% interest in our Vital River subsidiary, $4.0 million of dividends paid to noncontrolling interests, and $2.7 million of contingent consideration payments; partially offset by proceeds from exercises of employee stock options of $25.6 million. We did not pay any dividends on our Common Stock in fiscal year 2023 and have no current plans to do so in the coming fiscal year.
For fiscal year 2022, net cash used in financing activities reflected the net proceeds of $19.8 million on our Credit Facility and finance lease obligations. Included in the net proceeds are the following amounts:
•Borrowings under our Credit Facility of $300 million, which were used primarily for the acquisition of Explora BioLabs;
•Net repayments of $100 million on our Credit Facility throughout fiscal year 2022;
•Payments of $2.0 billion partially offset by $1.9 billion of proceeds in connection with a non-U.S. Euro functional currency entity repaying Euro loans and replacing the Euro loans with U.S. dollar denominated loans. A series of forward currency contracts were executed to mitigate any foreign currency gains or losses on the U.S. dollar denominated loans. These proceeds and payments are presented as gross financing activities.
Net cash used in financing activities also reflected treasury stock purchases of $38.7 million made due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements, approximately $15 million payment to purchase an additional 10% interest in a subsidiary, $15.7 million payment to acquire the remaining 2% ownership interest in Cognate, $10.4 million of contingent consideration payments, and $5.3 million of dividends paid to noncontrolling interests; partially offset by proceeds from exercises of employee stock options of $25.1 million.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
Financing and Market Risk
We are exposed to market risk from changes in interest rates and currency exchange rates, which could affect our future results of operations and financial condition. We manage our exposure to these risks through our regular operating and financing activities.
Amounts outstanding under our Credit Facility and our Senior Notes were as follows:
| | | | | | | | | | | |
| December 30, 2023 | | December 31, 2022 |
| (in thousands) |
| Revolving facility | $ | 1,129,243 | | | $ | 1,197,586 | |
| 4.25% Senior Notes due 2028 | 500,000 | | | 500,000 | |
| 3.75% Senior Notes due 2029 | 500,000 | | | 500,000 | |
| 4.0% Senior Notes due 2031 | 500,000 | | | 500,000 | |
| Total | $ | 2,629,243 | | | $ | 2,697,586 | |
The interest rates applicable to the Credit Facility are equal to (A) for revolving loans denominated in U.S. dollars, at the Company’s option, either the base rate (which is the higher of (1) the prime rate, (2) the federal funds rate plus 0.50%, or (3) the one-month adjusted SOFR rate plus 1.0%) or the adjusted SOFR rate, (B) for revolving loans denominated in euros, the adjusted EURIBOR rate and (C) for revolving loans denominated in sterling, the daily simple SONIA rate, in each case, plus an interest rate margin based upon the Company’s leverage ratio. In March 2023 and in conjunction with the Credit Agreement second amendment (Second Amendment) the Company modified the variable rate on the Credit Facility from adjusted LIBOR to adjusted term SOFR. All outstanding U.S. dollar borrowings remained at adjusted LIBOR through their respective interest reset periods in April 2023 and were then set to term SOFR.
Our 2028 Senior Notes have semi annual interest payments due May 1 and November 1. Our 2029 and 2031 Senior Notes have semi annual interest payments due March 15 and September 15.
During the fourth fiscal quarter of 2022, we entered into an interest rate swap with a notional amount of $500 million to manage interest rate fluctuation related to our floating rate borrowings under the Credit Facility, at a fixed rate of 4.70%. In March 2023 and in conjunction with the Second Amendment, we modified the variable rate on our interest rate swap from 1-month LIBOR to 1-month term SOFR. Effective with the modification we will pay a fixed rate of 4.65% on our swap maturing November 2, 2024. The transition did not have an impact on our hedge accounting or a material impact to our consolidated financial statements.
Our off-balance sheet commitments related to our outstanding letters of credit as of December 30, 2023 were $21.6 million.
Foreign Currency Exchange Rate Risk
We operate on a global basis and have exposure to some foreign currency exchange rate fluctuations for our financial position, results of operations, and cash flows.
While the financial results of our global activities are reported in U.S. dollars, our foreign subsidiaries typically conduct their operations in their respective local currency. The principal functional currencies of our foreign subsidiaries are the Euro, British Pound, and Canadian Dollar. During fiscal year 2023, the most significant drivers of foreign currency translation adjustment we recorded as part of other comprehensive income (loss) were the British Pound, Euro, Canadian Dollar, and Hungarian Forint.
Fluctuations in the foreign currency exchange rates of the countries in which we do business will affect our financial position, results of operations, and cash flows. As the U.S. dollar strengthens against other currencies, the value of our non-U.S. revenue, expenses, assets, liabilities, and cash flows will generally decline when reported in U.S. dollars. The impact to net income as a result of a U.S. dollar strengthening will be partially mitigated by the value of non-U.S. expenses, which will decline when reported in U.S. dollars. As the U.S. dollar weakens versus other currencies, the value of the non-U.S. revenue, expenses, assets, liabilities, and cash flows will generally increase when reported in U.S. dollars. For fiscal year 2023, our revenue would have decreased by $126.7 million and our operating income would have decreased by $2.8 million, if the U.S. dollar exchange rate had strengthened by 10%, with all other variables held constant.
We attempt to minimize this exposure by using certain financial instruments in accordance with our overall risk management and our hedge policy. We do not enter into speculative derivative agreements.
We entered into foreign exchange forward contracts during fiscal year December 31, 2022 to limit our foreign currency exposure related to a U.S. dollar denominated loan borrowed by a non-U.S. Euro functional currency entity under the Credit Facility. Refer to Note 11. Debt and Other Financing Arrangements to our consolidated financial statements contained in Item
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
8, “Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K for further details regarding these types of forward contracts.
Repurchases of Common Stock
During fiscal year 2023, we did not repurchase any shares under our authorized $1.3 billion stock repurchase program. As of December 30, 2023, we had $129.1 million remaining on the authorized stock repurchase program. Our stock-based compensation plans permit the netting of common stock upon vesting of restricted stock, restricted stock units, and performance share units in order to satisfy individual statutory tax withholding requirements. During fiscal year 2023, we acquired 0.1 million shares for $24.2 million through such netting.
Commitments and Other Purchasing Arrangements
We lease properties and equipment for use in our operations. In addition to rent, the leases may require us to pay additional amounts for taxes, insurance, maintenance, and other operating expenses. As of December 30, 2023, we had $757.4 million of operating leases inclusive of future minimum rental commitments under non-cancellable operating leases, net of income from subleases as well as $39.9 million of financing leases. The expected payments of our operating and finance lease liabilities over the next twelve months are $70.6 million and $3.8 million, respectively as of December 30, 2023.
In addition to the obligations on the balance sheet at December 30, 2023, we entered into unconditional purchase obligations in the ordinary course of business. Unconditional purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions, and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancellable at any time without penalty. As of December 30, 2023, we had approximately $390 million of unconditional purchase obligations, the majority of which are expected to be settled during 2024.
We invest in several venture capital funds that invest in start-up companies, primarily in the life sciences industry. Our total commitment to the funds as of December 30, 2023 was $212.9 million, of which we funded $145.2 million through December 30, 2023.
Refer to Note 8. Venture Capital and Strategic Equity Investments to our consolidated financial statements contained in Item 8, “Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K for further details.
In connection with certain business and asset acquisitions, we agreed to make additional payments based upon the achievement of certain financial targets and other milestones in connection with the respective acquisition. As of December 30, 2023, we had approximately $98 million of gross contingent payments, of which $33 million are expected to be paid.
We have certain federal and state income tax liabilities of $32.4 million relating to the one-time Transition Tax on unrepatriated earnings under the 2017 Tax Act. The Transition Tax will be paid, interest free, over an eight-year period through 2026.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The information called for by this item is incorporated herein by reference to “Item 7. Management’s Discussion and Analysis of Results of Operations - Liquidity and Capital Resources” of this Report; and Note 1 “Description of Business and Summary of Significant Accounting Policies - Fair Value” included in Item 8 of this Report.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Charles River Laboratories International, Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Charles River Laboratories International, Inc. and its subsidiaries (the “Company”) as of December 30, 2023 and December 31, 2022, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 30, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 30, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Noveprim Group (“Noveprim”) from its assessment of internal control over financial reporting as of December 30, 2023, because it was acquired by the Company in a purchase business combination during 2023. We have also excluded Noveprim from our audit of internal control over financial reporting. Noveprim is a subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent less than 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 30, 2023.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Acquisition of Noveprim – Valuation of Biological Assets
As described in Notes 1 and 2 to the consolidated financial statements, on November 30, 2023, the Company completed the acquisition of Noveprim, resulting in a 90% controlling interest. Of the acquired long-term assets, $167.8 million of biological assets were recorded. The determination of the fair value of biological assets requires the use of significant judgment using management’s best estimates of inputs and assumptions that a market participant would use. To determine the fair value, management utilized the multiple period excess earnings model, which relies on the following key assumptions: projections of cash flows from the acquired entities, which includes future revenue, cost of revenue, operating income margins, and productivity rates, as well as the discount rate based on market participant’s weighted average cost of capital.
The principal considerations for our determination that performing procedures relating to the valuation of biological assets acquired in the acquisition of Noveprim is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the biological assets acquired; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to the cost of revenue, productivity rates, and discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the biological assets acquired. These procedures also included, among others (i) reading the purchase agreement; (ii) testing management’s process for developing the fair value estimate of the biological assets acquired; (iii) evaluating the appropriateness of the multiple period excess earnings model; (iv) testing the completeness and accuracy of the underlying data used in the multiple period excess earnings model; and (v) evaluating the reasonableness of the significant assumptions used by management related to the cost of revenue, productivity rates, and discount rate. Evaluating management’s assumptions related to the cost of revenue and productivity rates involved considering (i) the past performance of Noveprim; (ii) the consistency with external research data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the multiple period excess earnings model and (ii) the reasonableness of the discount rate assumption.
Discovery and Safety Assessment Service Revenue Recognized Over Time Using the Input Method
As described in Notes 1 and 3 to the consolidated financial statements, the Company recognized Discovery and Safety Assessment (DSA) revenue from services and products transferred over time of $2,611.6 million for the year-ended December 30, 2023, of which the majority relates to services that are delivered to the customer based on the extent of progress towards completion of the performance obligation that management
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
measures using the cost-to-cost (input method). Management uses the input method measure of progress when it best depicts the transfer of value to the customer, which occurs as the Company incurs costs on its contract, generally related to fixed fee service contracts. Under the input method measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. The cost calculation includes variables such as labor hours, allocation of overhead costs, research model costs, and subcontractor costs. Revenue is recorded proportionally as costs are incurred.
The principal considerations for our determination that performing procedures relating to DSA service revenue recognized over time using the input method is a critical audit matter are a high degree of auditor subjectivity and effort in performing procedures and evaluating audit evidence related to the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to DSA service revenue recognized over time using the input method, including controls over the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation, review of contracts, testing of budget versus actual costs incurred, and testing of revenue recognition. These procedures also included, among others (i) reading contracts and reports describing the results of services provided for a sample of DSA service contracts; (ii) testing management’s process for determining the amount of DSA service revenue recognized over time for a sample of DSA service contracts; (iii) evaluating the appropriateness of the input method used by management; (iv) evaluating the reasonableness of the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations through performing a retrospective comparison of actual costs incurred to historical estimated costs for completed service contracts; and (v) testing actual costs incurred for a sample of in-progress service contracts by examining evidence of costs incurred.
/s/
February 14, 2024
We have served as the Company’s auditor since 1999.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
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| | Fiscal Year |
| | 2023 | | 2022 | | 2021 |
| Service revenue | $ | | | | $ | | | | $ | | |
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| Total revenue | | | | | | | | |
| Costs and expenses: | | | | | |
| Cost of services provided (excluding amortization of intangible assets) | | | | | | | | |
| Cost of products sold (excluding amortization of intangible assets) | | | | | | | | |
| Selling, general and administrative | | | | | | | | |
| Amortization of intangible assets | | | | | | | | |
| Operating income | | | | | | | | |
| Other income (expense): | | | | | |
| Interest income | | | | | | | | |
| Interest expense | () | | | () | | | () | |
| Other income (expense), net | | | | | | | () | |
| Income before income taxes | | | | | | | | |
| Provision for income taxes | | | | | | | | |
| Net income | | | | | | | | |
| Less: Net income attributable to noncontrolling interests | | | | | | | | |
| Net income attributable to common shareholders | $ | | | | $ | | | | $ | | |
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| Earnings per common share | | | | | |
| Net income attributable to common shareholders: | | | | | |
| Basic | $ | | | | $ | | | | $ | | |
| Diluted | $ | | | | $ | | | | $ | | |
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| See Notes to Consolidated Financial Statements. |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
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| Fiscal Year |
| 2023 | | 2022 | | 2021 |
| Net income | $ | | | | $ | | | | $ | | |
| Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustment | | | | () | | | () | |
| Pension and other post-retirement benefit plans (Note 14): | | | | | |
| Prior service cost and (losses) gains arising during the period | () | | | | | | () | |
| Amortization of net loss, settlement losses, and prior service benefit included in total cost for pension and other post-retirement benefit plans | | | | | | | | |
| Unrealized gains (losses) on hedging instruments | | | | () | | | | |
| Other comprehensive income (loss), before income taxes | | | | () | | | () | |
Less: Income tax (benefit) expense related to items of other comprehensive income (Note 12) | | | | () | | | () | |
| Comprehensive income, net of income taxes | | | | | | | | |
| Less: Comprehensive income related to noncontrolling interests, net of income taxes | | | | | | | | |
| Comprehensive income attributable to common shareholders, net of income taxes | $ | | | | $ | | | | $ | | |
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| See Notes to Consolidated Financial Statements. |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
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| December 30, 2023 | | December 31, 2022 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | | | | $ | | |
Trade receivables and contract assets, net of allowances for credit losses of $ and $, respectively | | | | | |
| Inventories | | | | | |
| Prepaid assets | | | | | |
| Other current assets | | | | | |
| Total current assets | | | | | |
| Property, plant and equipment, net | | | | | |
| Venture capital and strategic equity investments | | | | | |
| Operating lease right-of-use assets, net | | | | | |
| Goodwill | | | | | |
| Intangible assets, net | | | | | |
| Deferred tax assets | | | | | |
| Other assets | | | | | |
| Total assets | $ | | | | $ | | |
| Liabilities, Redeemable Noncontrolling Interests and Equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | | | | $ | | |
| Accrued compensation | | | | | |
| Deferred revenue | | | | | |
| Accrued liabilities | | | | | |
| Other current liabilities | | | | | |
| Total current liabilities | | | | | |
| Long-term debt, net and finance leases | | | | | |
| Operating lease right-of-use liabilities | | | | | |
| Deferred tax liabilities | | | | | |
| Other long-term liabilities | | | | | |
| Total liabilities | | | | | |
| Commitments and contingencies (Notes 2, 11, 13, 14 and 18) | | | |
| Redeemable noncontrolling interest | | | | | |
| Equity: | | | |
Preferred stock, $ par value; shares authorized; shares issued and outstanding | | | | | |
Common stock, $ par value; shares authorized; shares issued and outstanding as of December 30, 2023 and shares issued and outstanding as of December 31, 2022 | | | | | |
| Additional paid-in capital | | | | | |
| Retained earnings | | | | | |
Treasury stock, at cost, shares as of December 30, 2023 and December 31, 2022 | | | | | |
| Accumulated other comprehensive loss | () | | | () | |
| Total equity attributable to common shareholders | | | | | |
| Noncontrolling interests (nonredeemable) | | | | | |
| Total equity | | | | | |
| Total liabilities, redeemable noncontrolling interests and equity | $ | | | | $ | | |
| See Notes to Consolidated Financial Statements. |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | | | | | | | |
| | Fiscal Year |
| | 2023 | | 2022 | | 2021 |
| Cash flows relating to operating activities | | | | | |
| Net income | $ | | | | $ | | | | $ | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | | | | | | | | |
| Stock-based compensation | | | | | | | | |
| Loss on debt extinguishment and amortization of other financing costs | | | | | | | | |
| Deferred income taxes | () | | | () | | | () | |
| Long-lived asset impairment charges | | | | | | | | |
| (Gain) loss on venture capital and strategic equity investments, net | () | | | | | | | |
| Provision for credit losses | | | | | | | | |
| Loss (gain) on divestitures, net | | | | () | | | () | |
| Changes in fair value of contingent consideration arrangements | | | | () | | | () | |
| Other, net | | | | | | | | |
| Changes in assets and liabilities: | | | | | |
| Trade receivables and contract assets, net | () | | | () | | | () | |
| Inventories | () | | | () | | | () | |
| Accounts payable | () | | | () | | | | |
| Accrued compensation | | | | () | | | | |
| Deferred revenue | () | | | | | | () | |
| Customer contract deposits | () | | | | | | | |
| Other assets and liabilities, net | | | | | | | | |
| Net cash provided by operating activities | | | | | | | | |
| Cash flows relating to investing activities | | | | | |
| Acquisition of businesses and assets, net of cash acquired | () | | | () | | | () | |
| Capital expenditures | () | | | () | | | () | |
| Purchases of investments and contributions to venture capital investments | () | | | () | | | () | |
| Proceeds from sale of investments | | | | | | | | |
| Proceeds from sale of businesses, net | | | | | | | | |
| Other, net | () | | | () | | | | |
| Net cash used in investing activities | () | | | () | | | () | |
| Cash flows relating to financing activities | | | | | |
| Proceeds from long-term debt and revolving credit facility | | | | | | | | |
| Proceeds from exercises of stock options | | | | | | | | |
| Payments on long-term debt, revolving credit facility, and finance lease obligations | () | | | () | | | () | |
| Purchase of treasury stock | () | | | () | | | () | |
| Payment of debt extinguishment and financing costs | | | | | | | () | |
| Payments of contingent consideration | () | | | () | | | () | |
| Purchases of additional equity interests, net | () | | | () | | | | |
| Other, net | () | | | () | | | | |
| Net cash (used in) provided by financing activities | () | | | () | | | | |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | | | | | | | | |
| Net change in cash, cash equivalents, and restricted cash | | | | () | | | | |
| Cash, cash equivalents, and restricted cash, beginning of period | | | | | | | | |
| Cash, cash equivalents, and restricted cash, end of period | $ | | | | $ | | | | $ | | |
| | | | | |
| See Notes to Consolidated Financial Statements. |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Equity
Attributable
to Common
Shareholders | | Noncontrolling
Interest | | Total
Equity |
| Shares | | Amount | | | | | Shares | | Amount | | | |
| December 26, 2020 | | | | $ | | | | $ | | | | $ | | | | $ | () | | | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Net income | — | | | — | | | — | | | | | | — | | | — | | | — | | | | | | | | | | |
| Other comprehensive (loss) | — | | | — | | | — | | | — | | | () | | | — | | | — | | | () | | | — | | | () | |
| Dividends declared to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | () | | | () | |
| | | | | | | | | | | |
| Adjustment to noncontrolling interest fair value | — | | | — | | | () | | | — | | | — | | | — | | | — | | | () | | | — | | | () | |
| Issuance of stock under employee compensation plans | | | | | | | | | | — | | | — | | | — | | | — | | | | | | — | | | | |
| Purchase of treasury shares | — | | | — | | | — | | | — | | | — | | | | | | () | | | () | | | — | | | () | |
| Retirement of treasury shares | () | | | () | | | () | | | () | | | — | | | () | | | | | | | | | — | | | | |
| Stock-based compensation | — | | | — | | | | | | — | | | — | | | — | | | — | | | | | | — | | | | |
| December 25, 2021 | | | | | | | | | | | | | () | | | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | | | | — | | | — | | | — | | | | | | | | | | |
| Other comprehensive (loss) | — | | | — | | | — | | | — | | | () | | | — | | | — | | | () | | | — | | | () | |
| Dividends declared to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | () | | | () | |
| Adjustment of redeemable noncontrolling interest to redemption value | — | | | — | | | () | | | — | | | — | | | — | | | — | | | () | | | — | | | () | |
| | | | | | | | | | | |
| Issuance of stock under employee compensation plans | | | | | | | | | | — | | | — | | | — | | | — | | | | | | — | | | | |
| Purchase of treasury shares | — | | | — | | | — | | | — | | | — | | | | | | () | | | () | | | — | | | () | |
| Retirement of treasury shares | () | | | () | | | () | | | () | | | — | | | () | | | | | | | | | — | | | | |
| Stock-based compensation | | | | | | | | | | | | | | | | | | | — | | | | |
| December 31, 2022 | | | | | | | | | | | | | () | | | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | | | | — | | | — | | | — | | | | | | | | | | |
| Other comprehensive income | — | | | — | | | — | | | — | | | | | | — | | | — | | | | | | — | | | | |
| Dividends declared to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | () | | | () | |
| Adjustment of redeemable noncontrolling interest to redemption value | — | | | — | | | | | | — | | | — | | | — | | | — | | | | | | — | | | | |
| Gain on purchase of remaining equity interest of Vital River redeemable noncontrolling interest | — | | | — | | | | | | — | | | — | | | — | | | — | | | | | | — | | | | |
| Issuance of stock under employee compensation plans | | | | | | | | | | — | | | — | | | — | | | — | | | | | | — | | | | |
| Purchase of treasury shares | — | | | — | | | — | | | — | | | — | | | | | | () | | | () | | | — | | | () | |
| Retirement of treasury shares | () | | | () | | | () | | | () | | | — | | | () | | | | | | | | | — | | | | |
| Stock-based compensation | | | | | | | | | | | | | | | | | | | — | | | | |
| December 30, 2023 | | | | $ | | | | $ | | | | $ | | | | $ | () | | | | | | $ | | | | $ | | | | $ | | | | $ | | |
| See Notes to Consolidated Financial Statements. |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
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 its clients’ research operations (including recruitment, training, staffing, and management services) within our clients’ facilities and utilizing our 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 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). In December of 2022, the Company sold the Avian Vaccine Services business (Avian), reported in the Manufacturing segment, which supplied specific-pathogen-free chicken eggs and chickens.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| Machinery and equipment | - |
| Furniture and fixtures | - |
| Computer hardware and software | - |
| Vehicles | - |
Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the lease term. Finance lease assets are amortized over the lease term, however, if ownership is transferred by the end of the finance lease, or there is a bargain purchase option, such finance lease assets are amortized over the useful life that would be assigned if such assets were owned.
When the Company disposes of property, plant and equipment, it removes the associated cost and accumulated depreciation from the related accounts on its consolidated balance sheet and includes any resulting gain or loss recorded in Other (expense) income, net in the accompanying consolidated statements of income.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under the equity method of accounting, the Company’s portion of the investment gains and losses, as reported in the fund’s financial statements on a quarterly lag each reporting period, is recorded in Other (expense) income, net in the accompanying consolidated statements of income. In addition, the Company adjusts the carrying value of these investments to reflect its estimate of changes to fair value since the fund’s financial statements are based on information from the fund’s management team, market prices of known public holdings of the fund, and other information.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company held contracts at December 30, 2023 with a face value of $ million and contracts with a face value of $ million at December 31, 2022, which are recorded in Other assets.
to years. Certain lease agreements contain options to purchase the leased property and options to terminate the lease. Payments to be made in option periods are recognized as part of the right-of-use lease assets and lease liabilities when it is reasonably certain that the option to extend the lease will be exercised or the option to terminate the lease will not be exercised, or is not at the Company’s option. The Company determines whether the reasonably certain threshold is met by considering contract-, asset-, market-, and entity-based factors.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
% equity interest of Noveprim Group (Noveprim), a leading supplier of non-human primates (NHPs) located in Mauritius, resulting in a % controlling interest. The
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 $ million, net of $ million in cash, inclusive of a % strategic equity interest previously owned by the Company of $ 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.
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 purchase price of Explora BioLabs was $ million, net of $ million in cash. The acquisition was funded through proceeds from the Company’s 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 $ million, net of $ million in cash. Included in the purchase price are contingent payments fair valued at $ million, which was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $ 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 December 30, 2023 and December 31, 2022 the fair value of the contingent consideration was 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 outsourced discovery services provider specializing in 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 $ million, net of $ million in cash. Included in the purchase price are contingent payments fair valued at $ 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.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Distributed Bio, Inc.
On December 31, 2020, the Company acquired Distributed Bio, Inc. (Distributed Bio), a next-generation antibody discovery company with technologies specializing in enhancing the probability of success for delivering high-quality, readily formattable antibody fragments to support antibody and cell and gene therapy candidates to biopharmaceutical clients. The acquisition of Distributed Bio expands the Company’s capabilities with an innovative, large-molecule discovery platform, and creates an integrated, end-to-end platform for therapeutic antibody and cell and gene therapy discovery and development. The purchase price of Distributed Bio was $ million, net of $ million in cash. The total consideration includes $ million cash paid, settlement of $ million in convertible promissory notes previously issued by the Company during prior fiscal years, and $ million of contingent consideration, which was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $ million based on future performance and milestone achievements over a 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 fiscal year 2022, $ million of contingent consideration was paid as certain operational milestones were achieved. As of December 30, 2023, other financial targets associated with the contingent consideration were not met and the fair value of the remaining contingent consideration is .
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 $ million, which includes $ million in cash paid ($ million of which was paid in fiscal 2020), and $ million of contingent consideration, which was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $ million based on future performance over a period). The fair value of the net assets acquired included $ million of goodwill, $ million attributed to supplier relationships (to be amortized over a period), and $ million of property, plant, and equipment. The business is reported as part of the Company’s DSA reportable segment. As of December 30, 2023, the fair value of the contingent consideration was as certain operational targets were not achieved.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | $ | | | | Inventories | | | | | | | | |
| Other current assets (excluding cash) | | | | | | | | |
| Property, plant and equipment | | | | | | | | |
| Operating lease right-of-use asset, net | | | | | | | | |
Goodwill (2) | | | | | | | | |
| Definite-lived intangible assets | | | | | | | | |
Other long-term assets (3) | | | | | | | | |
| Deferred revenue | | | | () | | | () | |
| Other current liabilities | () | | | () | | | () | |
| Operating lease right-of-use liabilities (Long-term) | () | | | | | | () | |
| Deferred tax liabilities | () | | | () | | | () | |
| Other long-term liabilities | () | | | | | | () | |
Redeemable noncontrolling interest (4) | () | | | | | | | |
| Total purchase price allocation | $ | | | | $ | | | | $ | | |
| | | | | |
(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. Explora BioLabs had $ million of goodwill due to a prior asset acquisition that is deductible for tax purposes. |
(3) Other long-term assets acquired from the Noveprim acquisition include $ 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 % noncontrolling interest fair value. |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | $ | | | | $ | | | | Other current assets (excluding cash) | | | | | | | | | | | |
| Property, plant and equipment | | | | | | | | | | | |
| Operating lease right-of-use asset, net | | | | | | | | | | | |
Goodwill (1) | | | | | | | | | | | |
| Definite-lived intangible assets | | | | | | | | | | | |
| Other long-term assets | | | | | | | | | | | |
| Deferred revenue | () | | | () | | | () | | | () | |
Other current liabilities (2) | () | | | () | | | () | | | () | |
| Operating lease right-of-use liabilities (Long-term) | () | | | () | | | () | | | () | |
| Deferred tax liabilities | () | | | () | | | () | | | () | |
|
| Total purchase price allocation | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
(1) 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. |
(2) 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 $ million pertaining to indirect state sales taxes. During fiscal year 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. |
| | $ | | | | $ | | | | Other intangible assets | | | | | | | | |
| Total definite-lived intangible assets | $ | | | | $ | | | | $ | | |
| | | | | |
| Weighted Average Amortization Life | (in years) |
| Client relationships | — | | | | | |
| Other intangible assets | | | | | |
| Total definite-lived intangible assets | | | | | |
The definite-lived intangible assets acquired during fiscal years 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Vigene | | Retrogenix | | Cognate | | Distributed Bio |
| Definite-Lived Intangible Assets | (in thousands) |
| Client relationships | $ | | | | $ | | | | $ | | | | $ | | |
| Other intangible assets | | | | | | | | | | | |
| Total definite-lived intangible assets | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| Weighted Average Amortization Life | (in years) |
| Client relationships | | | | | | | |
| Other intangible assets | | | | | | | |
| Total definite-lived intangible assets | | | | | | | |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | $ | | | | | | | Divestitures
The Company routinely evaluates the strategic fit and fundamental performance of its global businesses, divesting operations that do not meet key business criteria. As part of this ongoing assessment, the Company determined that certain capital could be better deployed in other long-term growth opportunities.
Avian Vaccine Services
On December 20, 2022, the Company sold its Avian Vaccine Services business (Avian) to a private investor group for a purchase price of $ million in cash, subject to certain customary closing adjustments. The Company may also earn up to $ million of contingent payments, which are tied to certain annual results of the Avian business from January 2024 through December 2027. The contingent payments have been fair valued at $ million using a discounted probability weighted model. The Avian business was reported in the Company’s Manufacturing reportable segment. During the fiscal year 2022, the Company recorded a gain on the divestiture of Avian of $ million within Other income (expense) on the Company’s consolidated statements of income.
RMS Japan
On October 12, 2021, the Company sold its RMS Japan operations to The Jackson Laboratory for a purchase price of $ million, which included $ million in cash, $ million pension over funding, and certain post-closing adjustments. During the three months ended December 25, 2021, the Company recorded a gain on the divestiture of the RMS Japan business of $ million, net of costs to sell, a currency translation adjustment, and other adjustments related to certain ongoing arrangements with the buyer, which was included in Other income (expense), net within the Company’s consolidated statements of income. The RMS Japan business was reported in the Company’s RMS reportable segment.
CDMO Sweden
On October 12, 2021, the Company sold its gene therapy CDMO site in Sweden to a private investor group for a purchase price of $ million, net of $ 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 $ million, which were estimated using a probability weighted model (the maximum contingent contractual payments are up to $ million based on future performance), as well as a purchase obligation of approximately $ million between the parties. During fiscal year 2022 the fair value of the contingent payments receivable was reduced from $ million to $ million, which was the balance as of December 30, 2023, as certain financial targets are not expected to be achieved. CDMO Sweden was acquired in March 2021 as part of the acquisition of Cognate and was reported in the Company’s Manufacturing reportable segment.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | $ | | |
| Property, plant, and equipment, net | | | | | | | | |
| Operating lease right-of-use assets, net | | | | | | | | |
| Goodwill | | | | | | | | |
| Client relationships, net | | | | | | | | |
| Other assets | | | | | | | | |
| Total assets | $ | | | | $ | | | | $ | | |
| | | | | |
| Liabilities | | | | | |
| Current liabilities | $ | | | | $ | | | | $ | | |
| Operating lease right-of-use liabilities | | | | | | | | |
| Long-term liabilities | | | | | | | | |
| Total liabilities | $ | | | | $ | | | | $ | | |
3.
| | $ | | | | $ | | | | Services and products transferred at a point in time | | | | | | | | |
| Total RMS revenue | | | | | | | | |
| DSA | | | | | |
| Services and products transferred over time | | | | | | | | |
| Services and products transferred at a point in time | | | | | | | | |
| Total DSA revenue | | | | | | | | |
| Manufacturing | | | | | |
| Services and products transferred over time | | | | | | | | |
| Services and products transferred at a point in time | | | | | | | | |
| Total Manufacturing revenue | | | | | | | | |
| Total revenue | $ | | | | $ | | | | $ | | |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | Unbilled revenue | | | | | |
| Total | | | | | |
| Less: Allowance for credit losses | () | | | () | |
| Trade receivables and contract assets, net | $ | | | | $ | | |
| | | |
| Liabilities from contracts with customers | | | |
| Current deferred revenue | $ | | | | $ | | |
| Long term deferred revenue (included in Other long-term liabilities) | | | | | |
| Customer contract deposits (included in Other current-liabilities) | | | | | |
The Company recognized substantially all of the current contract assets and liabilities balances at December 31, 2022 and December 25, 2021 in revenues during fiscal years 2023 and 2022, respectively.
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 $ million and $ million of unpaid advanced client billings from both client receivables and deferred revenue in the accompanying consolidated balance sheets as of December 30, 2023 and December 31, 2022, respectively. Net provisions were $ million, $ million, and $ million in fiscal years 2023, 2022, and 2021, respectively.
Transaction Price Allocated to Future Performance Obligations
The Company discloses the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of December 30, 2023. 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 December 30, 2023 was $ million. The Company will recognize revenues for these performance obligations as they are satisfied, approximately % of which is expected to occur within the next and the remainder recognized thereafter during the remaining contract term.
Other Performance Obligations
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.
| | $ | | | | $ | | | | Service revenue |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4.
reportable segments are 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. | | $ | | | | $ | | | | Operating income | | | | | | | | |
| Depreciation and amortization | | | | | | | | |
| Capital expenditures | | | | | | | | |
| DSA | | | | | |
| Revenue | $ | | | | $ | | | | $ | | |
| Operating income | | | | | | | | |
| Depreciation and amortization | | | | | | | | |
| Capital expenditures | | | | | | | | |
| Manufacturing | | | | | |
| Revenue | $ | | | | $ | | | | $ | | |
| Operating income | | | | | | | | |
| Depreciation and amortization | | | | | | | | |
| Capital expenditures | | | | | | | | |
| Unallocated corporate | | | | | |
Operating income (1) | $ | () | | | $ | () | | | $ | () | |
| Depreciation and amortization | | | | | | | | |
| Capital expenditures | | | | | | | | |
| Consolidated | | | | | |
| Revenue | $ | | | | $ | | | | $ | | |
| Operating income | | | | | | | | |
| Depreciation and amortization | | | | | | | | |
| Capital expenditures | | | | | | | | |
| | | | | |
(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. |
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Long-lived assets | | | | | | | | | | | | | | | | | |
| 2022 | | | | | | | | | | | |
| Revenue | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Long-lived assets | | | | | | | | | | | | | | | | | |
| 2021 | | | | | | | | | | | |
| Revenue | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Long-lived assets | | | | | | | | | | | | | | | | | |
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 consist of property, plant, and equipment, net.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5.
| | $ | | | | $ | | | | Cash paid for interest | | | | | | | | |
| Non-cash investing and financing activities: | | | | | |
| Purchases of Property, plant and equipment included in Accounts payable and Accrued liabilities | $ | | | | $ | | | | $ | | |
| Assets acquired under finance leases | | | | | | | | |
Cash, cash equivalents and restricted cash is included in the accompanying balance sheet as follows:
| | | | | | | | | | | |
| December 30, 2023 | | December 31, 2022 |
| (in thousands) |
| Supplemental cash flow information: | | | |
| Cash and cash equivalents | $ | | | | $ | | |
| |
| Restricted cash included in Other current assets | | | | | |
| Restricted cash included in Other assets | | | | | |
| Cash, cash equivalents, and restricted cash, end of period | $ | | | | $ | | |
6.
| | $ | | | | Work in process | | | | | |
| Finished products | | | | | |
| Inventories | $ | | | | $ | | |
7.
| | $ | | | Buildings (1) | | | | | |
Machinery and equipment (1) | | | | | |
| Leasehold improvements | | | | | |
| Furniture and fixtures | | | | | |
Computer hardware and software (1) | | | | | |
Vehicles (1) | | | | | |
| Construction in progress | | | | | |
| Total | | | | | |
| Less: Accumulated depreciation | () | | | () | |
| Property, plant and equipment, net | $ | | | | $ | | |
| | | |
(1) These balances include assets under finance leases. See Note 17. Leases. |
Depreciation expense in fiscal years 2023, 2022 and 2021 was $ million, $ million and $ million, respectively.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.
| | $ | | | | $ | | | | Capital contributions | | | | | | | | |
| Distributions | () | | | () | | | () | |
| Gain (loss) | () | | | () | | | () | |
| Foreign currency translation | | | | () | | | () | |
| | | |
| Ending balance | $ | | | | $ | | | | $ | | |
The Company also invests, with minority positions, directly in equity of predominantly privately-held companies. Strategic investments are summarized below:
| | | | | | | | | | | | | | | | | |
| December 30, 2023 | | December 31, 2022 | | December 25, 2021 |
| (in thousands) |
| Beginning balance | $ | | | | $ | | | | $ | | |
| Purchase of investments | | | | | | | | |
| Distributions | () | | | () | | | () | |
Gain (loss) (1) | | | | () | | | () | |
Reduction for acquisition of entities (1) | () | | | | | | | |
| Foreign currency translation | | | | () | | | () | |
| Ending balance | $ | | | | $ | | | | $ | | |
(1) Refer to Note 2. Acquisitions for further discussion on the Noveprim and SAMDI acquisitions |
9.
| | $ | | | | $ | | | | $ | | | | Other assets: | | | | | | | |
| Life insurance policies | | | | | | | | | | |
| Interest rate swap | | | | | | | | | | | |
| Total assets measured at fair value | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
|
|
| Other long-term liabilities measured at fair value: | | | | | | | |
| Contingent consideration | | | | | | | | | | | |
| Interest rate swap | | | | | | | | | | | |
| Total liabilities measured at fair value | $ | | | | $ | | | | $ | | | | $ | | |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | $ | | | | $ | | | | Other assets: | | | | | | | |
| Life insurance policies | | | | | | | | | | | |
| Total assets measured at fair value | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| Accrued liabilities measured at fair value: | | | | | | | |
| Contingent consideration | $ | | | | $ | | | | $ | | | | $ | | |
| Other long-term liabilities measured at fair value: | | | | | | | |
| Contingent consideration | | | | | | | | | | | |
| Interest rate swap | | | | | | | | | | | |
| Total liabilities measured at fair value | $ | | | | $ | | | | $ | | | | $ | | |
During fiscal years 2023 and 2022, there were no transfers between fair value levels.
Contingent Consideration
| | $ | | | | $ | | | | Additions | | | | | | | | |
| Payments | () | | | () | | | () | |
| Total gains or losses (realized/unrealized): | | | | | |
| Adjustment of previously recorded contingent liability | | | | () | | | () | |
| Foreign currency translation | () | | | () | | | () | |
| Ending balance | $ | | | | $ | | | | $ | | |
The Company estimates the fair value of contingent consideration obligations through valuation models, such as probability-weighted and option pricing models, that incorporate probability adjusted assumptions and simulations related to the achievement of the milestones and the likelihood of making related payments. The unobservable inputs used in the fair value measurements include the probabilities of successful achievement of certain financial targets, forecasted results or targets, volatility, and discount rates. The remaining maximum potential payments are approximately $ million, of which the value accrued as of December 30, 2023 is approximately $ million. The weighted average probability of achieving the maximum target is approximately %. The average volatility and weighted average cost of capital are approximately % and %, respectively.
Cash Flow Hedge
The Company is exposed to market fluctuations in interest rates as well as variability in foreign exchange rates. In November 2022, the Company entered into an interest rate swap with a notional amount of $ million to manage interest rate fluctuation related to floating rate borrowings under the Credit Facility, at a fixed rate of %.
In March 2023 and in conjunction with an amendment of the Credit Agreement (Second Amendment), the Company modified the variable rate on its interest rate swap from 1-month LIBOR to 1-month adjusted term SOFR. Effective with the modification, the Company will pay a fixed rate of % on its swap maturing November 2, 2024. The Company elected to apply the optional expedient in ASC 848, Reference Rate Reform, in connection with modifying its interest rate swap from LIBOR to SOFR that enabled it to consider the modification a continuation of the existing contract. As a result, the transition did not have an impact on the Company’s hedge accounting or a material impact to the Company’s financial statements.
Debt Instruments
The book value of the Company’s term and revolving loans, which are variable rate loans carried at amortized cost, approximates the fair value based on current market pricing of similar debt. As the fair value is based on significant other
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$ | | | | $ | | | | $ | | | | $ | | | % Senior Notes due 2029 | | | | | | | | | | | |
% Senior Notes due 2031 | | | | | | | | | | | |
10.
| | $ | | | | $ | | | | $ | | | | Acquisitions | | | | | | | () | | | | |
| Divestitures | | | | | | | () | | | () | |
| Foreign exchange | () | | | () | | | () | | | () | |
| December 31, 2022 | | | | | | | | | | | |
| Acquisitions | | | | | | | | | | | |
| Divestitures | | | | | | | | | | | |
| Foreign exchange | () | | | | | | | | | | |
| December 30, 2023 | $ | | | | $ | | | | $ | | | | $ | | |
(1) DSA includes accumulated impairment losses of $ billion, which were recognized in fiscal years 2008 and 2010. |
Based on the Company’s quantitative goodwill impairment test, which was performed in the fourth quarter for each of the fiscal years 2023, 2022 and 2021, the fair value of each reporting unit exceeded the reporting unit’s book value and, therefore, goodwill was t impaired. After completing the quantitative testing for fiscal year 2023, all reporting units exceeded the carrying value by a significant amount except for the Biologics Solutions reporting unit which had a fair value that exceeded its carrying value by approximately %.
The increase in goodwill during fiscal year 2023 related to the acquisitions of Noveprim and SAMDI in the DSA reportable segment. The increase in goodwill during fiscal year 2022 related to the acquisition of Explora in the RMS reportable segment, partially offset by a decrease due to the Avian divestiture impacting the Manufacturing reportable segment.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | | | | Technology | | | | () | | | | | | | | | () | | | | |
| Backlog | $ | | | | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | | |
| Trademarks and trade names | | | | () | | | | | | | | | () | | | | |
| Other | | | | () | | | | | | | | | () | | | | |
| Intangible assets | $ | | | | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | | |
The decrease in intangible assets, net during fiscal year 2023 related primarily to normal amortization over the useful lives, partially offset by the acquisitions of Noveprim and SAMDI.
Amortization expense of definite-lived intangible assets, including client relationships, for fiscal years 2023, 2022 and 2021 was $ million, $ million and $ million, respectively.
| | 2025 | | $ | | |
| 2026 | | $ | | |
| 2027 | | $ | | |
| 2028 | | $ | | |
11.
) | | Other income (expense) | The Company did not have any U.S. dollar denominated loans borrowed by a non-U.S. Euro functional currency entity under the Credit Facility during fiscal year 2023.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | 2025 | | |
| 2026 | | |
| 2027 | | |
| 2028 | | |
| Thereafter | | |
| Total | $ | | |
Letters of Credit
As of December 30, 2023 and December 31, 2022, the Company had $ million and $ million, respectively, in outstanding letters of credit.
12.
| | $ | | | | $ | | | | Less: Net income attributable to noncontrolling interests | | | | | | | | |
| Net income attributable to common shareholders | $ | | | | $ | | | | $ | | |
| | | | | |
| Denominator: | | | | | |
| Weighted-average shares outstanding—Basic | | | | | | | | |
| Effect of dilutive securities: | | | | | |
| Stock options, restricted stock units and performance share units | | | | | | | | |
| Weighted-average shares outstanding—Diluted | | | | | | | | |
| | | | | |
Anti-dilutive common stock equivalents(1) | | | | | | | | |
| | | | | |
(1) 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 $ billion stock repurchase program. As of December 30, 2023, the Company had $ 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 million in fiscal years 2023 and 2022, for $ million and $ million, respectively, from such netting.
Prior to the end of fiscal years 2023, 2022 and 2021, the Company’s Board of Directors approved the cancellation and return to the Company’s authorized and unissued capital stock, reducing treasury stock on the Company’s consolidated balance sheet. The Company allocated the excess of the repurchase price over the par value of shares acquired to reduce both retained earnings and additional paid-in capital.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | () | | | $ | | | | $ | () | | Other comprehensive income before reclassifications (1) | () | | | () | | | | | | () | |
| Amounts reclassified from accumulated other comprehensive income | | | | | | | | | | | |
| Net current period other comprehensive (loss) income | () | | | | | | | | | () | |
| Income tax (benefit) expense | () | | | | | | | | | () | |
| December 25, 2021 | () | | | () | | | | | | () | |
Other comprehensive income before reclassifications (1) | () | | | | | | () | | | () | |
| Amounts reclassified from accumulated other comprehensive income | | | | | | | | | | | |
| Net current period other comprehensive (loss) income | () | | | | | | () | | | () | |
| Income tax (benefit) expense | () | | | | | | () | | | () | |
| December 31, 2022 | () | | | () | | | () | | | () | |
Other comprehensive (loss) income before reclassifications (1) | | | | () | | | | | | | |
| Amounts reclassified from accumulated other comprehensive income | | | | | | | | | | | |
| Net current period other comprehensive (loss) income | | | | () | | | | | | | |
| Income tax (benefit) expense | | | | () | | | | | | | |
| December 30, 2023 | $ | () | | | $ | () | | | $ | | | | $ | () | |
(1) The impact of the foreign currency translation adjustment to other comprehensive income (loss) before reclassifications was primarily due to the effect of changes in foreign currency exchange rates of the Japanese Yen, Euro, British Pound, Canadian Dollar, Chinese Yuan Renminbi, and Hungarian Forint and to a lesser extent due to the impact of changes in the Brazilian Real. |
Nonredeemable Noncontrolling Interest
The Company has an investment in an entity whose financial results are consolidated in the Company’s financial statements, as it has the ability to exercise control over this entity. The interest of the noncontrolling party in this entity has been recorded as noncontrolling interest within Equity in the accompanying consolidated balance sheets. The activity within the nonredeemable noncontrolling interest (net income less dividends declared) during fiscal years 2023, 2022, and 2021 was not significant.
Redeemable Noncontrolling Interests
The Company holds a % ownership interest in Noveprim. The Company has the right to purchase, and the noncontrolling interest holders have the right to sell, the remaining % equity interest at a fixed redemption value that ranges from $ million to $ million depending on when exercised, which represents a derivative embedded within the equity instrument. The Company has the call option right to purchase the remaining % equity up until one month after the sixth anniversary of closing the % 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 $ million. Additionally, the % noncontrolling interest holders may receive a dividend disproportionate to their equity ownership, which has an approximate fair value of $ million. The redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the accreted redemption value using the interest method and the carrying amount adjusted for net income (loss) attributable to the noncontrolling interest. As the noncontrolling interest holders have the ability to require the Company to purchase the remaining % interest, the noncontrolling interest is classified in the mezzanine section of the consolidated balance sheets, which is presented above the equity section and below liabilities.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In 2020, the Company acquired an % equity interest in a subsidiary, which included a % redeemable noncontrolling interest. In June 2022, the Company purchased an additional % interest in the subsidiary for $ million, resulting in a remaining noncontrolling interest of %. Beginning in 2024, the Company has the right to purchase, and the noncontrolling interest holders have the right to sell, the remaining % equity interest at its appraised value. The redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the appraised value and the carrying amount adjusted for net income (loss) attributable to the noncontrolling interest ($ million as of December 30, 2023) or a predetermined floor, which represents a derivative embedded within the equity instrument. The amount that the Company could be required to pay to purchase the remaining % equity interest is not limited.
| | $ | | | | $ | | | Acquisition resulting in a 10% noncontrolling interest | | | | | | | | |
Additional purchases reducing noncontrolling interest percentage | () | | | () | | | | |
| Adjustments to redemption value | () | | | | | | | |
Net income | | | | | | | | |
| Dividends | () | | | () | | | | |
| Foreign currency translation | () | | | () | | | | |
| Other | () | | | | | | | |
| Ending balance | $ | | | | $ | | | | $ | | |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13.
| | $ | | | | $ | | | | Non-U.S. | | | | | | | | |
| Total income before income taxes | $ | | | | $ | | | | $ | | |
| Income tax provision (benefit): | | | | | |
| Current: | | | | | |
| Federal | $ | | | | $ | | | | $ | | |
| Foreign | | | | | | | | |
| State | | | | | | | | |
| Total current | | | | | | | | |
| Deferred: | | | | | |
| Federal | () | | | () | | | () | |
| Foreign | | | | () | | | | |
| State | () | | | () | | | () | |
| Total deferred | () | | | () | | | () | |
| Total provision for income taxes | $ | | | | $ | | | | $ | | |
% | | | % | | | % | | Foreign tax rate differences | | | | | | | | |
| State income taxes, net of federal tax benefit | | | | | | | | |
| Non-deductible compensation | | | | | | | | |
| Research tax credits and enhanced deductions | () | | | () | | | () | |
| Stock-based compensation | () | | | () | | | () | |
| Enacted tax rate changes | () | | | | | | | |
| Tax on unremitted earnings | | | | | | | | |
| Impact of tax uncertainties | () | | | () | | | | |
| Impact of acquisitions and restructuring | () | | | | | | () | |
| Net operating loss deferred tax asset recognition, net of valuation allowance (NOL DTA) | | | | () | | | | |
| Global intangible low-taxed income | | | | | | | | |
| Foreign-derived intangible income | () | | | () | | | () | |
| Other | | | | | | | () | |
| Effective income tax rate | | % | | | % | | | % |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | Accruals and reserves | | | | | |
| Net operating loss and credit carryforwards | | | | | |
| Operating lease liability | | | | | |
Capitalized R&D Expenditures | | | | | |
| Other | | | | | |
| Valuation allowance | () | | | () | |
| Total deferred tax assets | | | | | |
| Deferred tax liabilities: | | | |
| Goodwill and other intangibles | () | | | () | |
| Depreciation related | () | | | () | |
| Venture capital investments | () | | | () | |
| Tax on unremitted earnings | () | | | () | |
| Right-of-use assets | () | | | () | |
| |
| Other | () | | | () | |
| Total deferred tax liabilities | () | | | () | |
| Net deferred taxes | $ | () | | | $ | () | |
The Company has recognized its deferred tax assets on the belief that it is more likely than not that they will be realized. Exceptions primarily relate to deferred tax assets for net operating losses in Luxembourg, Sweden, state research and development tax credits, certain capital losses, and fixed assets in the U.K.
| | $ | | | | $ | | | | Additions (reductions) charged to income tax provision, net | | | | | | | | |
| Additions due to acquisitions | | | | | | | | |
| Reductions due to divestitures, restructuring | | | | () | | | () | |
| Currency translation and other | | | | () | | | () | |
| Ending balance | $ | | | | $ | | | | $ | | |
As of December 30, 2023, the Company had tax-effected deferred tax assets for net operating loss carryforwards of $ million, as compared to $ million as of December 31, 2022. Of this amount, $ million are definite-lived and begin to expire in 2027, and the remainder of $ million can be carried forward indefinitely. The Company has deferred tax assets for tax credit carryforwards of $ million. The entire $ million are definite-lived and begin to expire after 2039. Additionally, the Company records a benefit to operating income for research and development and other credits in Quebec, France, the Netherlands, and the U.K. related to its DSA facilities.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | $ | | | | Additions to tax positions for current year | | | | | | | | |
| | | |
| Additions to tax positions for prior years | | | | | | | | |
| Reductions to tax positions for prior years | () | | | () | | | () | |
| Settlements | | | | () | | | () | |
| Expiration of statute of limitations | () | | | () | | | () | |
| Ending balance | $ | | | | $ | | | | $ | | |
The $ million decrease in unrecognized income tax benefits during fiscal year 2023 as compared to the corresponding period in 2022 is primarily attributable to prior year reductions to Canadian Scientific Research and Experimental Development (SR&ED) credits, partially offset by an additional year of SR&ED credit additions. The amount of unrecognized income tax benefits that, if recognized, would favorably impact the effective tax rate was $ million as of December 30, 2023 and $ million as of December 31, 2022. It is reasonably possible as of December 30, 2023 that the liability for unrecognized tax benefits for the uncertain tax position will decrease by approximately $ million over the next twelve-month period. The Company continues to recognize interest and penalties related to unrecognized income tax benefits in income tax expense. The total amount of cumulative accrued interest related to unrecognized income tax benefits as of December 30, 2023 and December 31, 2022 was $ million and $ million, respectively. Interest expense recorded as a component of income taxes was immaterial for all periods. There were accrued penalties related to unrecognized income tax benefits as of December 30, 2023 or as of December 31, 2022.
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 2019.
The Company and certain of its subsidiaries have ongoing tax controversies in the U.S., Canada, France, and India. The Company does not anticipate resolution of these audits will have a material impact on its consolidated financial statements.
Prepaid income tax of $ million and $ million has been presented within Other current assets in the accompanying consolidated balance sheets as of December 30, 2023 and December 31, 2022, respectively. Accrued income taxes of $ million and $ million have been presented within Other current liabilities in the accompanying consolidated balance sheets as of December 30, 2023 and December 31, 2022, respectively.
14.
contributions to the U.K. Pension Plan. As of fiscal 2023 year-end, this plan was in a funded status of $ million.During 2022, the Company terminated a non-contributory defined benefit plan that covered certain employees in Canada (Canada Pension Plan). Upon settlement of the pension liability in fiscal year 2022, the Company recognized a $ million loss related to the net periodic benefit cost recorded in Other expense in the consolidated statements of income.
In addition, the Company has several defined benefit plans in certain other countries in which it maintains an operating presence, including Canada, France, Germany, Italy, Mauritius, Netherlands, and Japan.
The net periodic benefit cost (income) associated with these plans for fiscal years 2023, 2022 and 2021 totaled $ million, $ million and $ million, respectively.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company provides certain active employees an annual contribution into their DCP account of % of the employee’s base salary plus the lesser of their target annual bonus or actual annual bonus.
In addition to the DCP, certain officers and key employees also participate, or in the past participated, in the Company’s Executive Supplemental Life Insurance Retirement Plan (ESLIRP), which is a non-funded, non-qualified arrangement. Annual benefits under this plan will equal a percentage of the highest five consecutive years of compensation, offset by amounts payable under the U.S. Pension Plan and Social Security. In connection with the establishment of the DCP, certain active ESLIRP participants, who agreed to convert their accrued ESLIRP benefit to a comparable deferred compensation benefit, discontinued their direct participation in the ESLIRP. Instead, the present values of the accrued benefits of ESLIRP participants were credited to their DCP accounts, and future accruals are converted to present values and credited to their DCP accounts annually.
The net periodic benefit cost associated with these plans for fiscal years 2023, 2022 and 2021 totaled $ million, $ million and $ million, respectively.
The Company has invested in several corporate-owned key-person life insurance policies with the intention of using these investments to fund the ESLIRP and the DCP. Participants have no interest in any such investments. As of December 30, 2023 and December 31, 2022, the cash surrender value of these life insurance policies were $ million and $ million, respectively.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | Service cost | | | | | |
| Interest cost | | | | | |
| |
| Benefit payments | () | | | () | |
| Curtailment | | | | () | |
| Settlements | | | | () | |
| |
| Transfer in due to acquisition | | | | | |
| Actuarial (gain) loss | | | | () | |
| |
| Effect of foreign exchange | | | | () | |
| Benefit obligation at end of year | $ | | | | $ | | |
| Change in fair value of plan assets: | | | |
| Fair value of plan assets at beginning of year | $ | | | | $ | | |
| Actual return on plan assets | | | | () | |
| Employer contributions | | | | | |
| Settlements | | | | () | |
| Transfer in due to acquisition | | | | | |
| Benefit payments | () | | | () | |
| |
| Effect of foreign exchange | | | | () | |
| Fair value of plan assets at end of year | $ | | | | $ | | |
| | | |
| Net balance sheet liability | $ | | | | $ | | |
| | | |
| Amounts recognized in balance sheet: | | | |
| Noncurrent assets | $ | | | | $ | | |
| Current liabilities | | | | | |
| Noncurrent liabilities | | | | | |
Actuarial gains and losses are driven by changes in economic assumptions, principally discount rates.
| | $ | | | | Net prior service cost (credit) | () | | | () | |
| Net amount recognized | $ | | | | $ | | |
| | $ | | | | Fair value of plan assets | | | | | |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | Fair value of plan assets | | | | | |
| | $ | | | | $ | | | | Interest cost | | | | | | | | |
| Expected return on plan assets | () | | | () | | | () | |
| Amortization of prior service credit | () | | | () | | | () | |
| Amortization of net loss | | | | | | | | |
| | | |
|
|
|
|
|
|
|
|
|
|
|
|
| | $ | | | | $ | | |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | $ | | | | Operating cash flows from finance leases | | | | | | | | |
| Finance cash flows from finance leases | | | | | | | | |
| | | | | |
| Non-cash leases activity: | | | | | |
| Right-of-use lease assets obtained in exchange for new operating lease liabilities | $ | | | | $ | | | | $ | | |
| Right-of-use lease assets obtained in exchange for new finance lease liabilities | | | | | | | | |
Lease term and discount rate
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| | December 30, 2023 | | December 31, 2022 | | December 25, 2021 |
| Weighted-average remaining lease term (in years) | | | | | | |
| Operating lease | | | | | | |
| Finance lease | | | | | | |
| Weighted-average discount rate | | | | | | |
| Operating lease | | | % | | | % | | | % |
| Finance lease | | | % | | | % | | | % |
At the lease commencement date, the discount rate implicit in the lease is used to discount the lease liability if readily determinable. If not readily determinable or leases do not contain an implicit rate, the Company’s incremental borrowing rate is used as the discount rate, which is based on the information available at the lease commencement date and represents a rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.
| | $ | | | | 2025 | | | | | | |
| 2026 | | | | | | |
| 2027 | | | | | | |
| 2028 | | | | | | |
| Thereafter | | | | | | |
| Total minimum future lease payments | | | | | | |
| Less: Imputed interest | | | | | | |
| Total lease liabilities | | $ | | | | $ | | |
Total minimum future lease payments (predominantly operating leases) of approximately $ million for leases that have not commenced as of December 30, 2023, as the Company does not yet control the underlying assets, are not included in the consolidated financial statements. These leases are expected to commence between fiscal years 2024 and 2025 with lease terms of approximately to years.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18.
million, some with or without stop-loss limits, depending on market availability. Insurance policies at certain locations are based on a percentage of the insured assets, for which deductibles for certain property may exceed $ million in the event of a catastrophic event. In addition, the Company purchased representation and warranty insurance in support of some acquisitions, in which deductibles could reach $ million.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 recent shipments in the United States. The carrying value of the inventory related to these shipments is approximately $ million as of December 30, 2023, 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. We are 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 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 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. The Company intends to file a motion to dismiss. 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.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Based on their evaluation, required by paragraph (b) of Rules 13a-15 or 15d-15, promulgated by the Securities Exchange Act of 1934, as amended (Exchange Act), the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, are effective, at a reasonable assurance level, as of December 30, 2023, to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures.
(b) Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of December 30, 2023.
Our assessment of the effectiveness of our internal control over financial reporting as of December 30, 2023 excluded Noveprim, which was acquired by the Company in 2023. Noveprim, whose total assets and total revenues were excluded from the Company’s assessment, represented approximately less than 1%, respectively, of the related consolidated amounts as of and for the fiscal year ended December 30, 2023.
The effectiveness of our internal control over financial reporting as of December 30, 2023, has been audited by PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm, as stated in their report which appears in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
(c) Changes in Internal Controls Over Financial Reporting
During fiscal year 2023, there were no material changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of the Exchange Act Rules 13a-15 or 15d-15 that occurred during the fourth quarter of 2023 that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
Item 9B. Other Information
During the quarter ended December 30, 2023, none of our officers or directors or any contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K., except as follows:
•, , our , a Rule 10b5-1 trading arrangement, dated February 23, 2023 for the sale of up to shares of common stock. Mr. Foster did not sell any shares pursuant to such plan, which, absent such termination, would have expired on March 1, 2025.
•, , our , a Rule 10b5-1 trading arrangement, dated February 24, 2023 for the sale of up to shares of common stock. Ms. Girshick did not sell any shares pursuant to such plan, which, absent such termination, would have expired on February 28, 2024.
•, a Rule 10b5-1 trading arrangement for the sale of up to shares of common stock, subject to certain conditions. The arrangement’s expiration date is February 28, 2025.
During the quarter ended December 30, 2023, the Company did not adopt or terminate any “Rule 10b5-1 trading arrangement” as defined in Item 408(a) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
A. Directors and Compliance with Section 16(a) of the Exchange Act
Any information required by this Item regarding our directors and compliance with Section 16(a) of the Exchange Act by our officers and directors will be included in the 2024 Proxy Statement under the sections captioned “Nominees for Directors” and “Delinquent Section 16(a) Reports” and is incorporated herein by reference thereto. The information required by this Item regarding our corporate governance will be included in the 2024 Proxy Statement under the section captioned “Corporate Governance” and is incorporated herein by reference thereto.
B. Our Executive Officers
The information required by this Item regarding our executive officers is reported in Part I of this Form 10-K under the heading “Item 1. Business”
C. Audit Committee Financial Expert
The information required by this Item regarding the audit committee of the Board of Directors and financial experts will be included in the 2024 Proxy Statement under the section captioned “The Board of Directors and its Committees-Audit Committee and Financial Experts” and is incorporated herein by reference thereto.
D. Insider Trading Policy
We have adopted an Insider Trading Policy governing the purchase, sale, and/or other dispositions of our securities by directors, officers, and employees of the Company. The Insider Trading Policy is designed to promote compliance with insider trading laws, rules, and regulations and any applicable listing standards. Our Insider Trading Policy is posted on our website and can be accessed by selecting the “Corporate Governance” link at http://ir.criver.com.
E. Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all of our employees and directors, including our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions. Our Code of Business Conduct and Ethics is posted on our website and can be accessed by selecting the “Corporate Governance” link at http://ir.criver.com. We will provide to any person, without charge, a copy of our Code of Business Conduct and Ethics. To obtain a copy, please mail a request to the Corporate Secretary, Charles River Laboratories International, Inc., 251 Ballardvale Street, Wilmington, MA 01887. Information on our website is not incorporated by reference in this annual report.
F. Changes to Board Nomination Procedures
In December 2021, we amended our By-laws to include a proxy access by-law. Under our proxy access by-law, if a stockholder (or a group of up to 20 stockholders) who has owned at least 3% of our shares for at least three years and has complied with the other requirements set forth in our By-laws wants us to include director nominees (up to the greater of two nominees or 20% of the Board) in our proxy statement for an upcoming Annual Meeting, the nominations must be received in a timely manner, between 120 and 150 days prior to the anniversary of the date our proxy statement was first sent to stockholders in connection with the prior year’ annual meeting.
Item 11. Executive Compensation
A. Policies and Practices for Granting Certain Equity Awards.
The Compensation Committee of the Board of Directors is responsible for the review and approval of our policies and practices with respect to granting equity awards. The Compensation Committee typically targets the second quarter of our fiscal year, shortly after our annual meeting of shareholders and the release of our first quarter financial results, for granting annual stock awards to eligible recipients, absent an extraordinary event. The Compensation Committee believes this aligns timing of equity grants with the planning of annual salary increases (also in the second quarter of our fiscal year), allowing our managers to take a holistic view of total compensation.
The Compensation Committee seeks to structure equity grants so that they are awarded during an open window period as designated by our Insider Trading Policy, or, if Compensation Committee approval is provided during a non-window period, are typically made effective on the first business day following our press release with respect to financial results for the prior quarter. This policy is intended to ensure that options are awarded at a time when the exercise price fully reflects all recently disclosed information. In the case of new hires eligible to receive equity grants, grants are generally made on the first business day of the month following the date the individual commences employment.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
All grants to executive officers are made by the Compensation Committee itself and not pursuant to any delegated authority.
We have never had any programs, policies, or practices which are intended to time stock option grants with the release of material, non-public information in a manner that would provide advantageous option exercise prices to grant recipients. Option exercise prices are, in all cases, equal to the closing price of our common stock on the date of grant.
B. Actions to Recover Erroneously Awarded Compensation
At no point during or after the last completed fiscal year did we prepare an accounting statement that required the recovery of erroneously awarded compensation pursuant to the company’s clawback policy, nor was there an outstanding balance as of the end of the last completed fiscal year of erroneously awarded compensation to be recovered from the application of the policy to a prior restatement.
The remainder of the information required by this Item will be included in the 2024 Proxy Statement under the sections captioned “2023 Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation and Related Information,” “Compensation Committee Interlocks and Insider Participation” and “Report of Compensation Committee,” and is incorporated herein by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item will be included in the 2024 Proxy Statement under the sections captioned “Beneficial Ownership of Securities” and “Equity Compensation Plan Information” and is incorporated herein by reference thereto.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item will be included in the 2024 Proxy Statement under the sections captioned “Related Person Transaction Policy” and “Corporate Governance-Director Qualification Standards; Director Independence” and is incorporated herein by reference thereto.
Item 14. Principal Accountant Fees and Services
The information required by this Item will be included in the 2024 Proxy Statement under the section captioned “Statement of Fees Paid to Independent Registered Public Accounting Firm” and is incorporated herein by reference thereto.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 15(a)(1) and (2) Financial Statements and Schedules
See "Index to Consolidated Financial Statements and Financial Statements Schedules" at Item 8 to this Annual Report on Form 10-K. Other financial statement schedules have not been included because they are not applicable or the information is included in the financial statements or notes thereto.
Item 15(a)(3) and Item 15(b) Exhibits
We have identified below each management contract and compensation plan filed as an exhibit to this Annual Report on Form 10-K.
| | | | | | | | | | | | | | | | | |
| Exhibit No. | Description | Filed with this Form 10-K | Incorporation by Reference |
| Form | Filing Date | Exhibit No. |
| 3.1 | | | S-1/A | June 23, 2000 | 3.1 |
| 3.2 | | | 8-K | December 15, 2021 | 3.1 |
| 4.1 | | | S-1/A | June 23, 2000 | 4.1 |
| 4.2 | | | 10-K | February 11, 2020 | 4.2 |
| 4.3 | | | 10-Q | August 5, 2020 | 10.3 |
| 4.4 | | | 8-K | April 3, 2018 | 4.1 |
| 4.5 | | | 8-K | October 23, 2019 | 4.1 |
| 4.6 | | | 8-K | October 23, 2019 | 4.2 |
| 4.7 | | | 8-K | March 23, 2021 | 4.1 |
| 4.8 | | | 8-K | March 23, 2021 | 4.2 |
| 4.9 | | | 8-K | March 23, 2021 | 4.3 |
| 4.10 | | | 8-K | March 23, 2021 | 4.4 |
| 4.11 | | | S-3 | May 4, 2021 | 4.1 |
| 4.12 | | | S-3 | May 4, 2021 | 4.2 |
| 10.1* | | | 10-Q | August 3, 2016 | 10.1 |
10.2* | | X | | | |
| 10.3* | | | 10-K | February 14, 2017 | 10.4 |
| 10.4* | | | 10-K | February 14, 2017 | 10.7 |
| 10.5* | | | 10-Q | August 5, 2020 | 10.1 |
| 10.6* | | X | | | |
| 10.7* | | | 10-Q | August 3, 2010 | 10.1 |
| 10.8* | | | 10-K | February 23, 2009 | 10.7 |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
| | | | | | | | | | | | | | | | | |
| Exhibit No. | Description | Filed with this Form 10-K | Incorporation by Reference |
| Form | Filing Date | Exhibit No. |
| 10.9* | | | 10-Q | May 4, 2016 | 10.1 |
| 10.10* | | | 10-K | March 9, 2005 | 10.23 |
| 10.11* | | | 8-K | May 18, 2021 | 99.1 |
| 10.12* | | | 10-Q | May 4, 2021 | 10.2 |
| 10.13* | | | 10-Q | May 4, 2021 | 10.3 |
| 10.14 | Ninth Amended and Restated Credit Agreement, dated as of April 21, 2021, among Charles River Laboratories International, Inc., the Subsidiary Borrowers party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the other agents party thereto | | 8-K | April 23, 2021 | 10.1 |
| 10.15* | | | 8-K | December 27, 2021 | 10.1 |
| 10.16* | | | 8-K | December 27, 2021 | 10.2 |
10.17*† | | | 10-Q | May 4, 2022 | 10.1 |
| 19 | | X | | | |
| 21.1 | | X | | | |
| 23.1 | | X | | | |
| 31.1 | | X | | | |
| 31.2 | | X | | | |
| 32.1 | | X | | | |
| 97 | | X | | | |
| 101.INS | eXtensible Business Reporting Language (XBRL) Instance Document | X | | | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema | X | | | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | X | | | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | X | | | |
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase | X | | | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | X | | | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | | | | |
| * Management contract or compensatory plan, contract or arrangement. |
| † Certain information in this exhibit was omitted by means of redacting a portion of the text and replacing it with [***] |
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | | | | |
| | CHARLES RIVER LABORATORIES INTERNATIONAL, INC. |
| February 14, 2024 | By: | /s/ FLAVIA H. PEASE |
| Flavia H. Pease |
| Corporate Executive Vice President and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated below and on the dates indicated. | | | | | | | | | | | |
| Signatures | Title | Date |
| By: | /s/ JAMES C. FOSTER | Chairman, President and Chief Executive Officer | February 14, 2024 |
| James C. Foster | | |
| | | |
| By: | /s/ FLAVIA H. PEASE | Corporate Executive Vice President and | February 14, 2024 |
| Flavia H. Pease | Chief Financial Officer | |
| | | |
| By: | /s/ MICHAEL G. KNELL | Corporate Senior Vice President and | February 14, 2024 |
| Michael G. Knell | Chief Accounting Officer | |
| | | |
| By: | /s/ NANCY C. ANDREWS | Director | February 14, 2024 |
| Nancy C. Andrews | | |
| | | |
| By: | /s/ ROBERT J. BERTOLINI | Director | February 14, 2024 |
| Robert J. Bertolini | | |
| | | |
| By: | /s/ RESHEMA KEMPS-POLANCO | Director | February 14, 2024 |
| Reshema Kemps-Polanco | | |
| | | |
| By: | /s/ DEBORAH T. KOCHEVAR | Director | February 14, 2024 |
| Deborah T. Kochevar | | |
| | | |
| By: | /s/ GEORGE LLADO | Director | February 14, 2024 |
| George Llado | | |
| | | |
| By: | /s/ MARTIN MACKAY | Director | February 14, 2024 |
| Martin Mackay | | |
| | | |
| By: | /s/ GEORGE E. MASSARO | Director | February 14, 2024 |
| George E. Massaro | | |
| | | |
| By: | /s/ C. RICHARD REESE | Director | February 14, 2024 |
| C. Richard Reese | | |
| | | |
| By: | /s/ CRAIG B. THOMPSON | Director | February 14, 2024 |
| Craig B. Thompson | | |
| | | |
| By: | /s/ RICHARD F. WALLMAN | Director | February 14, 2024 |
| Richard F. Wallman | | |
| | | |
| By: | /s/ VIRGINIA M. WILSON | Director | February 14, 2024 |
| Virginia M. Wilson | | |
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