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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 26, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File No. 001-15943
CRL-20200926_G1.JPG
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware   06-1397316
(State or Other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification No.)
251 Ballardvale Street Wilmington Massachusetts 01887
(Address of Principal Executive Offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Ticker symbol(s) Name of each exchange on which registered
Common stock, $0.01 par value CRL New York Stock Exchange
    Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
    Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes  No 
    Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
    If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
    As of October 23, 2020, there were 49,742,626 shares of the Registrant’s common stock outstanding.



CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 2020

TABLE OF CONTENTS
Item   Page
PART I - FINANCIAL INFORMATION
1 Financial Statements
Condensed Consolidated Statements of Income (Unaudited) for the three and nine months ended September 26, 2020 and September 28, 2019
3
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 26, 2020 and September 28, 2019
4
Condensed Consolidated Balance Sheets (Unaudited) as of September 26, 2020 and December 28, 2019
5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 26, 2020 and September 28, 2019
6
Condensed Consolidated Statements of Changes in Equity (Unaudited) for the three and nine months ended September 26, 2020 and September 28, 2019
7
Notes to Unaudited Condensed Consolidated Financial Statements
9
2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
3 Quantitative and Qualitative Disclosure About Market Risk
4 Controls and Procedures
PART II - OTHER INFORMATION
1 Legal Proceedings
1A Risk Factors
2 Unregistered Sales of Equity Securities and Use of Proceeds
6 Exhibits
Signatures

1


Special Note on Factors Affecting Future Results
This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and the future results of Charles River Laboratories International, Inc. that are based on our current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expect,” “anticipate,” “target,” “goal,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,” “likely,” “may,” “designed,” “would,” “future,” “can,” “could,” and other similar expressions which are predictions of, indicate future events and trends or which do not relate to historical matters, are intended to identify such forward-looking statements. These statements are based on our current expectations and beliefs and involve a number of risks, uncertainties and assumptions that are difficult to predict.
For example, we may use forward-looking statements when addressing topics such as: the COVID-19 pandemic, its duration, its impact on our business, results of operations, financial condition, liquidity, use of our borrowings, business practices, operations, suppliers, third party service providers, customers, employees, industry, ability to meet future performance obligations, ability to efficiently implement advisable safety precautions, and internal controls over financial reporting; the COVID-19 pandemic’s impact on demand, the global economy and financial markets; goodwill and asset impairments still under review; changes and uncertainties in the global economy; future demand for drug discovery and development products and services, including the outsourcing of these services; our expectations regarding stock repurchases, including the number of shares to be repurchased, expected timing and duration, the amount of capital that may be expended and the treatment of repurchased shares; the impact of unauthorized access into our information systems, including the timing and effectiveness of any enhanced security and monitoring; present spending trends and other cost reduction activities by our clients; future actions by our management; the outcome of contingencies; changes in our business strategy, business practices and methods of generating revenue; the development and performance of our services and products; market and industry conditions, including competitive and pricing trends; our strategic relationships with leading pharmaceutical and biotechnology companies, venture capital investments, and opportunities for future similar arrangements; our cost structure; the impact of acquisitions, including HemaCare and Cellero, LLC; our expectations with respect to revenue growth and operating synergies (including the impact of specific actions intended to cause related improvements); the impact of specific actions intended to improve overall operating efficiencies and profitability (and our ability to accommodate future demand with our infrastructure), including gains and losses attributable to businesses we plan to close, consolidate, divest or repurpose; changes in our expectations regarding future stock option, restricted stock, performance share units, and other equity grants to employees and directors; expectations with respect to foreign currency exchange; assessing (or changing our assessment of) our tax positions for financial statement purposes; and our liquidity. In addition, these statements include the impact of economic and market conditions on us and our clients; the effects of our cost saving actions and the steps to optimize returns to shareholders on an effective and timely basis; and our ability to withstand the current market conditions.
Forward-looking statements are predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document, or in the case of statements incorporated by reference, on the date of the document incorporated by reference.
Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 28, 2019, under the sections entitled “Our Strategy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in this Quarterly Report on Form 10-Q, under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” in our press releases, and other financial filings with the Securities and Exchange Commission. We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or risks. New information, future events, or risks may cause the forward-looking events we discuss in this report not to occur.



2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
  Three Months Ended Nine Months Ended
  September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
Service revenue $ 580,774  $ 523,169  $ 1,677,927  $ 1,479,991 
Product revenue 162,526  144,782  455,016  450,097 
Total revenue 743,300  667,951  2,132,943  1,930,088 
Costs and expenses:    
Cost of services provided (excluding amortization of intangible assets) 377,226  351,894  1,124,988  1,014,063 
Cost of products sold (excluding amortization of intangible assets) 76,800  69,941  234,382  220,028 
Selling, general and administrative 128,289  129,509  385,902  388,024 
Amortization of intangible assets 28,232  23,805  83,869  65,611 
Operating income 132,753  92,802  303,802  242,362 
Other income (expense):  
Interest income 179  385  771  838 
Interest expense (18,867) (5,698) (53,286) (36,520)
Other income (expense), net 21,211  (14,254) 23,400  (8,161)
Income from operations, before income taxes 135,276  73,235  274,687  198,519 
Provision (benefit) for income taxes 32,665  (317) 53,571  24,970 
Net income 102,611  73,552  221,116  173,549 
Less: Net (expense) income attributable to noncontrolling interests (298) 742  1,878 
Net income attributable to common shareholders $ 102,909  $ 72,810  $ 221,113  $ 171,671 
Earnings per common share    
Net income attributable to common shareholders:
Basic $ 2.07  $ 1.49  $ 4.47  $ 3.53 
Diluted $ 2.03  $ 1.46  $ 4.39  $ 3.46 
Weighted-average number of common shares outstanding:
Basic 49,703  48,818  49,482  48,682 
Diluted 50,702  49,715  50,371  49,627 
See Notes to Unaudited Condensed Consolidated Financial Statements.

3


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
Three Months Ended Nine Months Ended
September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
Net income $ 102,611  $ 73,552  $ 221,116  $ 173,549 
Other comprehensive income (loss):
Foreign currency translation adjustment and other 20,112  (15,889) (17,993) (9,075)
Amortization of net loss and prior service benefit included in net periodic cost for pension and other post-retirement benefit plans 1,411  365  4,150  1,113 
Comprehensive income, before income taxes
124,134  58,028  207,273  165,587 
Less: Income tax expense (benefit) related to items of other comprehensive income 3,201  (2,511) 3,024  (1,381)
Comprehensive income, net of income taxes 120,933  60,539  204,249  166,968 
Less: Comprehensive income (loss) related to noncontrolling interests, net of income taxes 591  (37) 399  1,064 
Comprehensive income attributable to common shareholders, net of income taxes $ 120,342  $ 60,576  $ 203,850  $ 165,904 
See Notes to Unaudited Condensed Consolidated Financial Statements.

4


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share amounts)
September 26, 2020 December 28, 2019
Assets  
Current assets:    
Cash and cash equivalents $ 242,879  $ 238,014 
Trade receivables, net 572,058  514,033 
Inventories 181,367  160,660 
Prepaid assets 69,481  52,588 
Other current assets 74,489  56,030 
Total current assets 1,140,274  1,021,325 
Property, plant and equipment, net 1,037,212  1,044,128 
Operating lease right-of-use assets, net 168,379  140,085 
Goodwill 1,777,642  1,540,565 
Client relationships, net 732,408  613,573 
Other intangible assets, net 70,370  75,840 
Deferred tax assets 39,515  44,659 
Other assets 247,538  212,615 
Total assets $ 5,213,338  $ 4,692,790 
Liabilities, Redeemable Noncontrolling Interests and Equity    
Current liabilities:    
Current portion of long-term debt and finance leases $ 47,946  $ 38,545 
Accounts payable 96,758  111,498 
Accrued compensation 191,295  158,617 
Deferred revenue 172,336  171,805 
Accrued liabilities 151,061  139,118 
Other current liabilities 127,618  90,598 
Total current liabilities 787,014  710,181 
Long-term debt, net and finance leases 1,968,161  1,849,666 
Operating lease right-of-use liabilities 146,578  116,252 
Deferred tax liabilities 202,392  167,283 
Other long-term liabilities 183,695  182,933 
Total liabilities 3,287,840  3,026,315 
Commitments and contingencies (Notes 2, 9, 11, 12, 16 and 17)
Redeemable noncontrolling interests 24,033  28,647 
Equity:    
Preferred stock, $0.01 par value; 20,000 shares authorized; no shares issued and outstanding
—  — 
Common stock, $0.01 par value; 120,000 shares authorized; 49,882 shares issued and 49,736 shares outstanding as of September 26, 2020, and 48,936 shares issued and 48,936 shares outstanding as of December 28, 2019
499  489 
Additional paid-in capital 1,614,185  1,531,785 
Retained earnings 501,442  280,329 
Treasury stock, at cost, 146 and 0 shares, as of September 26, 2020 and December 28, 2019, respectively
(23,905) — 
Accumulated other comprehensive loss (195,281) (178,019)
Total equity attributable to common shareholders 1,896,940  1,634,584 
Noncontrolling interest 4,525  3,244 
Total equity 1,901,465  1,637,828 
Total liabilities, redeemable noncontrolling interests and equity $ 5,213,338  $ 4,692,790 
See Notes to Unaudited Condensed Consolidated Financial Statements.

5


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
  Nine Months Ended
  September 26, 2020 September 28, 2019
Cash flows relating to operating activities    
Net income $ 221,116  $ 173,549 
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 174,048  146,262 
Stock-based compensation 40,973  43,429 
Deferred income taxes (3,131) (25,092)
Gain on venture capital and strategic equity investments, net (32,226) (5,724)
Other, net 16,902  4,865 
Changes in assets and liabilities:    
Trade receivables, net (51,456) (24,491)
Inventories (14,055) (12,981)
Accounts payable (12,327) 24,481 
Accrued compensation 29,438  (23,320)
Deferred revenue (1,308) (1,556)
Customer contract deposits 9,887  (7,586)
Other assets and liabilities, net 30,335  8,423 
Net cash provided by operating activities 408,196  300,259 
Cash flows relating to investing activities    
Acquisition of businesses and assets, net of cash acquired (419,146) (515,647)
Capital expenditures (78,706) (76,675)
Purchases of investments and contributions to venture capital investments (19,887) (17,664)
Proceeds from sale of investments 5,810  15 
Other, net (1,192) (660)
Net cash used in investing activities (513,121) (610,631)
Cash flows relating to financing activities    
Proceeds from long-term debt and revolving credit facility 1,411,954  2,071,175 
Proceeds from exercises of stock options 43,806  26,982 
Payments on long-term debt, revolving credit facility, and finance lease obligations (1,320,961) (1,798,620)
Purchase of treasury stock (23,905) (18,040)
Other, net (4,417) (10,516)
Net cash provided by financing activities 106,477  270,981 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash 5,825  8,793 
Net change in cash, cash equivalents, and restricted cash 7,377  (30,598)
Cash, cash equivalents, and restricted cash, beginning of period 240,046  197,318 
Cash, cash equivalents, and restricted cash, end of period $ 247,423  $ 166,720 
Supplemental cash flow information:
Cash and cash equivalents $ 242,879  $ 164,759 
Restricted cash included in Other current assets 2,968  534 
Restricted cash included in Other assets 1,576  1,427 
Cash, cash equivalents, and restricted cash, end of period $ 247,423  $ 166,720 
See Notes to Unaudited Condensed Consolidated Financial Statements.

6




CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
    (in thousands)

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Equity Attributable to Common Shareholders Noncontrolling Interest Total Equity
Shares Amount Shares Amount
December 28, 2019 48,936  $ 489  $ 1,531,785  $ 280,329  $ (178,019)   $   $ 1,634,584  $ 3,244  $ 1,637,828 
Net income —  —  —  50,769  —  —  —  50,769  399  51,168 
Other comprehensive loss —  —  —  —  (40,898) —  —  (40,898) —  (40,898)
Buy-out and contingent consideration recognition in connection with redeemable noncontrolling interest —  —  (2,379) —  —  —  —  (2,379) —  (2,379)
Issuance of stock under employee compensation plans 694  22,616  —  —  —  —  22,623  —  22,623 
Acquisition of treasury shares —  —  —  —  —  144  (23,675) (23,675) —  (23,675)
Stock-based compensation —  —  10,960  —  —  —  —  10,960  —  10,960 
March 28, 2020 49,630  496  1,562,982  331,098  (218,917) 144  (23,675) 1,651,984  3,643  1,655,627 
Net income —  —  —  67,435  —  —  —  67,435  441  67,876 
Other comprehensive income —  —  —  —  6,203  —  —  6,203  —  6,203 
Issuance of stock under employee compensation plans 174  13,992  —  —  —  —  13,994  —  13,994 
Acquisition of treasury shares —  —  —  —  —  (118) (118) —  (118)
Stock-based compensation —  —  13,143  —  —  —  —  13,143  —  13,143 
June 27, 2020 49,804  498  1,590,117  398,533  (212,714) 145  (23,793) 1,752,641  4,084  1,756,725 
Net income —  —  —  102,909  —  —  —  102,909  441  103,350 
Other comprehensive income —  —  —  —  17,433  —  —  17,433  —  17,433 
Issuance of stock under employee compensation plans 78  7,198  —  —  —  —  7,199  —  7,199 
Acquisition of treasury shares —  —  —  —  —  (112) (112) —  (112)
Stock-based compensation —  —  16,870  —  —  —  —  16,870  —  16,870 
September 26, 2020 49,882  $ 499  $ 1,614,185  $ 501,442  $ (195,281) 146  $ (23,905) $ 1,896,940  $ 4,525  $ 1,901,465 
7




Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Equity Attributable to Common Shareholders Noncontrolling Interest Total Equity
Shares Amount Shares Amount
December 29, 2018 48,210  $ 482  $ 1,447,512  $ 42,096  $ (172,703) 1  $ (55) $ 1,317,332  $ 2,446  $ 1,319,778 
Net income —  —  —  55,133  —  —  —  55,133  469  55,602 
Other comprehensive income —  —  —  —  9,903  —  —  9,903  —  9,903 
Adjustment of redeemable noncontrolling interest to redemption value —  —  (1,451) —  —  —  —  (1,451) —  (1,451)
Issuance of stock under employee compensation plans 674  22,051  —  —  —  —  22,058  —  22,058 
Acquisition of treasury shares —  —  —  —  —  136  (17,760) (17,760) —  (17,760)
Stock-based compensation —  —  12,899  —  —  —  —  12,899  —  12,899 
March 30, 2019 48,884  489  1,481,011  97,229  (162,800) 137  (17,815) 1,398,114  2,915  1,401,029 
Net income —  —  —  43,728  —  —  —  43,728  383  44,111 
Other comprehensive loss —  —  —  —  (3,436) —  —  (3,436) —  (3,436)
Purchase of additional equity interest in and modification of Vital River redeemable noncontrolling interest —  —  (1,870) —  —  —  —  (1,870) —  (1,870)
Issuance of stock under employee compensation plans 53  —  2,148  —  —  —  —  2,148  —  2,148 
Acquisition of treasury shares —  —  —  —  —  (123) (123) —  (123)
Stock-based compensation —  —  16,505  —  —  —  —  16,505  —  16,505 
June 29, 2019 48,937  489  1,497,794  140,957  (166,236) 138  (17,938) 1,455,066  3,298  1,458,364 
Net income —  —  —  72,810  —  —  —  72,810  776  73,586 
Other comprehensive loss —  —  —  —  (12,234) —  —  (12,234) —  (12,234)
Issuance of stock under employee compensation plans 39  2,801  —  —  —  —  2,802  —  2,802 
Acquisition of treasury shares —  —  —  —  —  (156) (156) —  (156)
Stock-based compensation —  —  14,025  —  —  —  —  14,025  —  14,025 
September 28, 2019 48,976  $ 490  $ 1,514,620  $ 213,767  $ (178,470) 139  $ (18,094) $ 1,532,313  $ 4,074  $ 1,536,387 
See Notes to Unaudited Condensed Consolidated Financial Statements.





8

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

1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited and have been prepared by Charles River Laboratories International, Inc. (the Company) in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The year-end condensed consolidated balance sheet data was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for fiscal year 2019. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position and results of operations.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires that the Company make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, judgments, and methodologies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known.
On March 11, 2020, the World Health Organization declared the outbreak of a strain of novel coronavirus disease, COVID-19, a global pandemic. The COVID-19 pandemic is dynamic and expanding, and its ultimate scope, duration and effects are uncertain. This pandemic has and continues to result in, and any future epidemic or pandemic crises may potentially result in, direct and indirect adverse effects on the Company’s industry and customers, which in turn has (with respect to COVID-19) and may (with respect to future epidemics or crises) impact the Company’s business, results of operations and financial condition. Further, the COVID-19 pandemic may also affect the Company’s operating and financial results in a manner that is not presently known to the Company or that the Company currently does not expect to present significant risks to its operations or financial results. As of the date of issuance of these unaudited condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s condensed consolidated financial statements.
Consolidation
The Company’s unaudited condensed consolidated financial statements reflect its financial statements and those of its subsidiaries in which the Company holds a controlling financial interest. For consolidated entities in which the Company owns or is exposed to less than 100% of the economics, the Company records net income (loss) attributable to noncontrolling interests in its consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and transactions are eliminated in consolidation.
The Company’s fiscal year is typically based on 52-weeks, with each quarter composed of 13 weeks ending on the last Saturday on, or closest to, March 31, June 30, September 30, and December 31.
Segment Reporting
The Company reports its results in three reportable segments: Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Support (Manufacturing). The Company’s RMS reportable segment includes the Research Models, Research Model Services, and Research Products businesses. Research Models includes the commercial production and sale of small research models, as well as the supply of large research models. Research Model Services includes: Genetically Engineered Models and Services (GEMS), which performs contract breeding and other services associated with genetically engineered models; Research Animal Diagnostic Services (RADS), which provides health monitoring and diagnostics services related to research models; and Insourcing Solutions (IS), which provides colony management of its clients’ research operations (including recruitment, training, staffing, and management services). Research Products supplies controlled, consistent, customized primary cells and blood components derived from normal and mobilized peripheral blood, bone marrow, and cord blood. The Company’s DSA reportable segment includes services required to take a drug through the early development process including discovery services, which are non-regulated services to assist clients with the identification, screening, and selection of a lead compound for drug development, and regulated and non-regulated (GLP and non-GLP) safety assessment services. The Company’s Manufacturing reportable segment includes Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification
9

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
services; Biologics Testing Services (Biologics), which performs specialized testing of biologics; and Avian Vaccine Services (Avian), which supplies specific-pathogen-free chicken eggs and chickens.
Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 1, “Description of Business and Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for fiscal year 2019.
Newly Adopted Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computer Arrangement that is a Service Contract.” ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This standard became effective for the Company in the three months ended March 28, 2020 and did not have a significant impact on the unaudited condensed consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 removes the disclosure requirement for the amount and reasons for transfers between Level 1 and Level 2 fair value measurements as well as the process for Level 3 fair value measurements. In addition, the ASU adds the disclosure requirements for changes in unrealized gains and losses included in Other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This standard became effective for the Company in the three months ended March 28, 2020 and did not have a significant impact on the unaudited condensed consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-14, “Compensation Retirement Benefits - Defined Benefit Plans -General (Subtopic 715-20).” ASU 2018-14 removes the requirements to disclose the amounts in Accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the next fiscal year and the related party disclosures about the amount of future annual benefits covered by insurance contracts. In addition, the ASU adds the requirement to disclose an explanation for any significant gains and losses related to changes in the benefit obligation for the period. This standard became effective for the Company in the three months ended March 28, 2020 and did not have a significant impact on the unaudited condensed consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” The standard simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. This standard became effective for the Company in the three months ended March 28, 2020 and did not have an impact on the unaudited condensed consolidated financial statements and related disclosures. The Company performs its annual impairment test during the fourth quarter of a fiscal year and does not expect any significant impact on the consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses”. The standard, including subsequently issued amendments, requires a financial asset measured at amortized cost basis, such as trade and notes receivables, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This standard became effective for the Company in the three months ended March 28, 2020 and did not have a significant impact on the unaudited condensed consolidated financial statements and related disclosures.
Newly Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU offers temporary optional expedients and exceptions for applying U.S. GAAP to modifications to agreements such as loans, debt securities, derivatives, and borrowings which reference LIBOR or another reference rate that is expected to be discontinued by December 31, 2021. The expedients and exceptions provided by the standard do not apply to modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 that an entity has elected certain optional expedients for and are retained through the end of the hedging relationship. The ASU is effective until December 31, 2022 when the replacement for LIBOR is expected to be completed. The interest rate on the Company’s senior credit facility, which matures in fiscal year 2023, is linked to LIBOR. The Company is in the process of evaluating options for transitioning away from the senior credit facility’s use of LIBOR and expects to be completed by the time LIBOR is phased out. The Company did not elect to apply any of the expedients or exceptions as of and for the three and nine months ended September 26, 2020 and is currently evaluating the impact this new standard will have on the unaudited condensed consolidated financial statements and related disclosures.
In January 2020, the FASB issued ASU 2020-01, “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815).” ASU 2020-01 states any equity security transitioning
10

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
from the alternative method of accounting under Topic 321 to the equity method, or vice versa, due to an observable transaction will be remeasured immediately before the transition. In addition, the ASU clarifies the accounting for certain non-derivative forward contracts or purchased call options to acquire equity securities stating such instruments will be measured using the fair value principles of Topic 321 before settlement or exercise. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied on a prospective basis. Early adoption is permitted. The Company is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures, but does not believe there will be a material impact upon adoption.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax), which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied either retrospectively or prospectively based upon the applicable amendments. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.
2. BUSINESS COMBINATIONS
Cellero, LLC
On August 6, 2020, the Company acquired Cellero, LLC (Cellero), a provider of cellular products for cell therapy developers and manufacturers worldwide. The addition of Cellero enhances the Company’s unique, comprehensive solutions for the high-growth cell therapy market, strengthening the ability to help accelerate clients’ critical programs from basic research and proof-of-concept to regulatory approval and commercialization. It also expands the Company’s access to high-quality, human-derived biomaterials with Cellero’s donor sites in the United States. The purchase price for Cellero was $37.5 million in cash, subject to certain post-closing adjustments that may change the purchase price. The acquisition was funded through cash on hand. This business is reported as part of the Company’s RMS reportable segment.

The preliminary purchase price allocation of $37.0 million, net of $0.5 million of cash acquired was as follows:

August 6, 2020
(in thousands)
Trade receivables $ 1,525 
Inventories 551 
Other current assets (excluding cash) 182 
Property, plant and equipment 1,648 
Goodwill 19,532 
Definite-lived intangible assets 16,230 
Other long-term assets 849 
Current liabilities (1,360)
Deferred tax liabilities (1,467)
Other long-term liabilities (740)
Total purchase price allocation $ 36,950 

The preliminary purchase price allocation is subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.
The breakout of definite-lived intangible assets acquired was as follows:
11

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Definite-Lived Intangible Assets Weighted Average Amortization Life
(in thousands) (in years)
Client relationships $ 14,740  13
Other intangible assets 1,490  3
Total definite-lived intangible assets $ 16,230  12
The goodwill resulting from the transaction, $10.8 million of which is deductible for tax purposes due to a prior asset acquisition, is primarily attributable to the potential growth of the Company’s RMS business from customers introduced through Cellero and the assembled workforce of the acquired business.
The Company incurred transaction and integration costs in connection with the acquisition of $2.0 million for the three and nine months ended September 26, 2020, which was primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.
Pro forma financial information as well as the disclosure of actual revenue and operating income (loss) have not been included because Cellero's financial results are not significant when compared to the Company’s consolidated financial results.
HemaCare Corporation
On January 3, 2020, the Company acquired HemaCare Corporation (HemaCare), a business specializing in the production of human-derived cellular products for the cell therapy market. The acquisition of HemaCare expands the Company’s comprehensive portfolio of early-stage research and manufacturing support solutions to encompass the production and customization of high-quality, human derived cellular products to better support clients’ cell therapy programs. The purchase price of HemaCare was $379.8 million in cash. The acquisition was funded through a combination of cash on hand and proceeds from the Company’s Credit Facility under the multi-currency revolving facility. See Note 9, “Long-Term Debt and Finance Leases.” This business is reported as part of the Company’s RMS reportable segment.
The preliminary purchase price allocation of $376.7 million, net of $3.1 million of cash acquired was as follows:
January 3, 2020
(in thousands)
Trade receivables $ 6,451 
Inventories 8,468 
Other current assets (excluding cash) 3,494 
Property, plant and equipment 10,033 
Goodwill 210,196 
Definite-lived intangible assets 183,540 
Other long-term assets 5,920 
Current liabilities (5,188)
Deferred tax liabilities (38,529)
Other long-term liabilities (7,664)
Total purchase price allocation $ 376,721 

The purchase price allocation is subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.
The breakout of definite-lived intangible assets acquired was as follows:
Definite-Lived Intangible Assets Weighted Average Amortization Life
(in thousands) (in years)
Client relationships $ 170,390  19
Trade name 7,330  10
Other intangible assets 5,820  3
Total definite-lived intangible assets $ 183,540  18
12

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s RMS business from customers introduced through HemaCare and the assembled workforce of the acquired business. The goodwill attributable to HemaCare is not deductible for tax purposes.
The Company incurred transaction and integration costs in connection with the acquisition of $0.1 million and $5.9 million for the three and nine months ended September 26, 2020, respectively, which were primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.
Beginning on January 3, 2020, HemaCare has been included in the operating results of the Company. HemaCare revenue for the three and nine months ended September 26, 2020 was $12.8 million and $31.5 million, respectively. HemaCare operating income for the three months ended September 26, 2020 was $0.4 million and its operating loss for the nine months ended September 26, 2020 was $7.7 million.
The following selected unaudited pro forma consolidated results of operations are presented as if the HemaCare acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition, which is December 30, 2018, after giving effect to certain adjustments. For the nine months ended September 26, 2020, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $0.6 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments. For the nine months ended September 28, 2019, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $9.6 million, additional interest expense on borrowings of $8.8 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments.
Three Months Ended Nine Months Ended
September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
(in thousands)
(unaudited)
Revenue $ 743,300  $ 677,993  $ 2,132,961  $ 1,959,544 
Net income attributable to common shareholders 102,802  70,722  225,890  165,376 
These unaudited pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted ad the acquisition occurred on the dates indicated or that may result in the future. No effect has been given for synergies, if any, that may be realized through the acquisition.
Citoxlab
On April 29, 2019, the Company acquired Citoxlab, a non-clinical CRO, specializing in regulated safety assessment services, non-regulated discovery services, and medical device testing. With operations in Europe and North America, the acquisition of Citoxlab further strengthens the Company’s position as a leading, global, early-stage CRO by expanding its scientific portfolio and geographic footprint, which enhances the Company’s ability to partner with clients across the drug discovery and development continuum. The purchase price for Citoxlab was $527.1 million in cash. The acquisition was funded through a combination of cash on hand and proceeds from the Company’s Credit Facility under the multi-currency revolving facility. This business is reported as part of the Company’s DSA reportable segment.
13

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The purchase price allocation of $490.4 million, net of $36.7 million of cash acquired was as follows:
April 29, 2019
(in thousands)
Trade receivables $ 35,405 
Inventories 5,282 
Other current assets (excluding cash) 13,917 
Property, plant and equipment 88,605 
Goodwill 280,161 
Definite-lived intangible assets 162,400 
Other long-term assets 20,063 
Deferred revenue (15,278)
Current liabilities (46,081)
Deferred tax liabilities (27,458)
Other long-term liabilities (22,624)
Redeemable noncontrolling interest (4,035)
Total purchase price allocation $ 490,357 
From the date of the acquisition through March 28, 2020, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.
The breakout of definite-lived intangible assets acquired was as follows:
Definite-Lived Intangible Assets Weighted Average Amortization Life
(in thousands) (in years)
Client relationships $ 134,600  13
Developed technology 19,900  3
Backlog 7,900  1
Total definite-lived intangible assets $ 162,400  12
The goodwill resulting from the transaction, $7.2 million of which is deductible for tax purposes due to a prior asset acquisition, is primarily attributable to the potential growth of the Company’s DSA business from customers introduced through Citoxlab and the assembled workforce of the acquired business.
The Company incurred transaction and integration costs in connection with the acquisition of $0.6 million and $1.9 million for the three months ended September 26, 2020 and September 28, 2019, respectively, which were primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income. The Company incurred transaction and integration costs in connection with the acquisition of $3.1 million and $19.1 million for the nine months ended September 26, 2020 and September 28, 2019, respectively, which were primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.
The following selected unaudited pro forma consolidated results of operations are presented as if the Citoxlab acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition, which is December 31, 2017, after giving effect to certain adjustments. For the nine months ended September 28, 2019, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $4.8 million, additional interest expense on borrowings of $1.2 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments.

September 28, 2019
Three Months Ended Nine Months Ended
Revenue $ 667,951  $ 1,992,472 
Net income attributable to common shareholders 74,948  189,601 
These unaudited pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the dates indicated or that may result in the future. No effect has been given for synergies, if any, that may be realized through the acquisition.
14

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Acquisition
On August 28, 2019, the Company acquired an 80% ownership interest in a supplier that supports the Company’s DSA reportable segment. The remaining 20% interest is a redeemable non-controlling interest. See Note 10, “Equity and Noncontrolling Interests.” The purchase price was $23.4 million, net of a $4.0 million pre-existing relationship for a supply agreement settled upon acquisition. The acquisition was funded through a combination of cash on hand and proceeds from the Company’s Credit Facility under the multi-currency revolving facility. The business is reported as part of the Company’s DSA reportable segment.
The purchase price allocation of $23.1 million, net of $0.3 million of cash acquired was as follows:
August 28, 2019
(in thousands)
Trade receivables $ 189 
Inventories 7,644 
Property, plant and equipment 1,462 
Goodwill 12,591 
Other long-term assets 11,849 
Current liabilities (441)
Deferred tax liabilities (1,253)
Other long-term liabilities (238)
Redeemable noncontrolling interest (8,740)
Total purchase price allocation $ 23,063 
From the date of the acquisition through June 27, 2020, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.
No significant integration costs were incurred with the acquisition for the three and nine months ended September 26, 2020. The Company incurred transaction and integration costs in connection with the acquisition of $2.1 million and $3.2 million for the three and nine months ended September 28, 2019, respectively, which were primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.
Pro forma financial information as well as the disclosure of actual results have not been included because these financial results are not significant when compared to the Company’s consolidated financial results.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
The following tables disaggregate the Company’s revenue by major business line and timing of transfer of products or services:
Three Months Ended Nine Months Ended
September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
(in thousands)
Major Products/Service Lines:
RMS $ 151,910  $ 132,546  $ 414,455  $ 405,772 
DSA 461,177  420,079  1,342,424  1,179,793 
Manufacturing 130,213  115,326  376,064  344,523 
Total revenue $ 743,300  $ 667,951  $ 2,132,943  $ 1,930,088 

15

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended Nine Months Ended
September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
(in thousands)
Timing of Revenue Recognition:
RMS
Services and products transferred over time $ 60,225  $ 56,243  $ 177,623  $ 168,377 
Services and products transferred at a point in time 91,685  76,303  236,832  237,395 
DSA
Services and products transferred over time 460,821  419,445  1,341,832  1,178,874 
Services and products transferred at a point in time 356  634  592  919 
Manufacturing
Services and products transferred over time 47,457  36,308  126,088  102,674 
Services and products transferred at a point in time 82,756  79,018  249,976  241,849 
Total revenue $ 743,300  $ 667,951  $ 2,132,943  $ 1,930,088 
RMS
The RMS business generates revenue through the commercial production and sale of research models, research products, and the provision of services related to the maintenance and monitoring of research models and management of clients’ research operations. Revenue from the sale of research models and products is recognized at a point in time when the customer obtains control of the product, which may be upon shipment or upon delivery based on the shipping terms of a contract. Revenue generated from research models services is recognized over time and is typically based on a right-to-invoice measure of progress (output method) as invoiced amounts correspond directly to the value of the Company’s performance to date.
DSA
The Discovery and Safety Assessment business provides a full suite of integrated drug discovery services directed at the identification, screening and selection of a lead compound for drug development and offers a full range of safety assessment services including bioanalysis, drug metabolism, pharmacokinetics, toxicology and pathology. Discovery and Safety Assessment services revenue is generally recognized over time using the cost-to-cost or right to invoice measures of progress, primarily representing fixed fee service contracts and per unit service contracts, respectively.
Manufacturing
The Manufacturing business includes Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification services; Biologics Testing Services (Biologics), which performs specialized testing of biologics; and Avian Vaccine Services (Avian), which supplies specific-pathogen-free chicken eggs and chickens. Species identification service revenue is generally recognized at a point in time as identifications are completed by the Company. Biologics service revenue is generally recognized over time using the cost-to-cost measure of progress. Microbial Solutions and Avian product sales are generally recognized at a point in time when the customer obtains control of the product, which may be upon shipment or upon delivery based on the contractual shipping terms of a contract.
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 September 26, 2020. Excluded from the disclosure is the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed. The Company has assessed future performance obligations with respect to the COVID-19 pandemic uncertainties and believes there is an insignificant impact on the ability to meet future performance obligations and the amount of revenue to be recognized.
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) as of September 26, 2020:
Revenue Expected to be Recognized in Future Periods
Less than 1 Year 1 to 3 Years 4 to 5 Years Beyond 5 Years Total
(in thousands)
DSA $ 250,855  $ 106,704  $ 4,265  $ 15  $ 361,839 
Manufacturing 8,044  8,121  53  40  16,258 
Total $ 258,899  $ 114,825  $ 4,318  $ 55  $ 378,097 
16

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Contract Balances from Contracts with Customers
The timing of revenue recognition, billings and cash collections results in billed receivables (client receivables), contract assets (unbilled revenue), and contract liabilities (current and long-term deferred revenue and customer contract deposits) on the unaudited condensed consolidated balance sheets. The Company’s payment terms are generally 30 days in the United States and consistent with prevailing practice in international markets. A contract asset is recorded when a right to consideration in exchange for goods or services transferred to a customer is conditioned other than the passage of time. Client receivables are recorded separately from contract assets since only the passage of time is required before consideration is due. A contract liability is recorded when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met. The following table provides information about client receivables, contract assets, and contract liabilities from contracts with customers:
September 26, 2020 December 28, 2019
(in thousands)
Balances from contracts with customers:
Client receivables $ 429,935  $ 395,740 
Contract assets (unbilled revenue) 148,034  121,957 
Contract liabilities (current and long-term deferred revenue) 191,459  192,788 
Contract liabilities (customer contract deposits) 42,990  33,080 
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 $13 million and $27 million of unpaid advanced client billings from both client receivables and deferred revenue in the accompanying unaudited condensed consolidated balance sheets as of September 26, 2020 and December 28, 2019, respectively. Advanced client payments of approximately $43 million and $33 million have been presented as customer contract deposits within other current liabilities in the accompanying unaudited condensed consolidated balance sheets as of September 26, 2020 and December 28, 2019, respectively.
Other changes in the contract asset and the contract liability balances during the nine months ended September 26, 2020 were as follows:
(i) Changes due to business combinations:
See Note 2. “Business Combinations” for client receivables that were acquired as part of the HemaCare acquisition on January 3, 2020 and Cellero acquisition on August 6, 2020. No significant contract assets or contract liabilities were acquired as part of these acquisitions.
(ii) Cumulative catch-up adjustments to revenue that affect the corresponding contract asset or contract liability, including adjustments arising from a change in the measure of progress, a change in an estimate of the transaction price (including any changes in the assessment of whether an estimate of variable consideration is constrained), or a contract modification:
During the nine months ended September 26, 2020, an immaterial cumulative catch-up adjustment to revenue was recorded.
(iii) A change in the time frame for a right to consideration to become unconditional (that is, for a contract asset to be recorded as a client receivable):
Approximately 85% of unbilled revenue as of December 28, 2019 was billed during the nine months ended September 26, 2020.
(iv) A change in the time frame for a performance obligation to be satisfied (that is, for the recognition of revenue arising from a contract liability):
Approximately 80% of contract liabilities as of December 28, 2019 were recognized as revenue during the nine months ended September 26, 2020.
17

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. SEGMENT INFORMATION
The Company’s three reportable segments are RMS, DSA, and Manufacturing. The following table presents revenue and other financial information by reportable segment:
Three Months Ended Nine Months Ended
September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
(in thousands)
RMS    
Revenue $ 151,910  $ 132,546  $ 414,455  $ 405,772 
Operating income 37,108  34,385  68,325  103,729 
Depreciation and amortization 9,455  4,895  27,333  14,198 
Capital expenditures 3,552  5,818  15,585  14,979 
DSA
Revenue $ 461,177  $ 420,079  $ 1,342,424  $ 1,179,793 
Operating income 90,348  64,995  234,872  175,214 
Depreciation and amortization 42,707  39,898  125,138  111,231 
Capital expenditures 15,532  21,141  46,436  45,130 
Manufacturing
Revenue $ 130,213  $ 115,326  $ 376,064  $ 344,523 
Operating income 48,246  39,253  132,288  103,893 
Depreciation and amortization 6,655  5,990  19,257  17,577 
Capital expenditures 5,787  6,421  13,985  14,299 
Reconciliations of segment operating income, depreciation and amortization, and capital expenditures to the respective consolidated amounts are as follows:
Operating Income Depreciation and Amortization Capital Expenditures
September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
(in thousands)
Three Months Ended:
Total reportable segments $ 175,702  $ 138,633  $ 58,817  $ 50,783  $ 24,871  $ 33,380 
Unallocated corporate (42,949) (45,831) 763  975  1,314  1,783 
Total consolidated $ 132,753  $ 92,802  $ 59,580  $ 51,758  $ 26,185  $ 35,163 
Nine Months Ended:
Total reportable segments $ 435,485  $ 382,836  $ 171,728  $ 143,006  $ 76,006  $ 74,408 
Unallocated corporate (131,683) (140,474) 2,320  3,256  2,700  2,267 
Total consolidated $ 303,802  $ 242,362  $ 174,048  $ 146,262  $ 78,706  $ 76,675 

Revenue for each significant product or service offering is as follows:
  Three Months Ended Nine Months Ended
September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
(in thousands)
RMS $ 151,910  $ 132,546  $ 414,455  $ 405,772 
DSA 461,177  420,079  1,342,424  1,179,793 
Manufacturing 130,213  115,326  376,064  344,523 
Total revenue $ 743,300  $ 667,951  $ 2,132,943  $ 1,930,088 
18

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of unallocated corporate expense consists of the following:
Three Months Ended Nine Months Ended
September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
(in thousands)
Stock-based compensation $ 10,116  $ 8,752  $ 25,023  $ 27,744 
Compensation, benefits, and other employee-related expenses 20,812  18,770  63,541  54,561 
External consulting and other service expenses 3,088  4,156  10,474  12,060 
Information technology
4,937  3,534  12,888  10,811 
Depreciation 763  975  2,320  3,256 
Acquisition and integration 2,124  5,679  9,976  23,621 
Other general unallocated corporate 1,109  3,965  7,461  8,421 
Total unallocated corporate expense $ 42,949  $ 45,831  $ 131,683  $ 140,474 
Other general unallocated corporate expense consists of costs associated with departments such as senior executives, corporate accounting, legal, tax, human resources, treasury, and investor relations.
Revenue by geographic area is as follows:
U.S. Europe Canada Asia Pacific Other Consolidated
(in thousands)
Three Months Ended:
September 26, 2020 $ 406,975  $ 214,194  $ 78,995  $ 41,553  $ 1,583  $ 743,300 
September 28, 2019 373,094  184,685  71,984  36,698  1,490  667,951 
Nine Months Ended:
September 26, 2020 $ 1,196,605  $ 595,391  $ 227,171  $ 109,347  $ 4,429  $ 2,132,943 
September 28, 2019 1,091,194  533,820  194,865  106,090  4,119  1,930,088 
Included in the Other category above are operations located in Brazil and Israel. Revenue represents sales originating in entities physically located in the identified geographic area.
5. SUPPLEMENTAL BALANCE SHEET INFORMATION
The composition of trade receivables, net is as follows:
September 26, 2020 December 28, 2019
(in thousands)
Client receivables $ 429,935  $ 395,740 
Unbilled revenue 148,034  121,957 
Total 577,969  517,697 
Less: Allowance for doubtful accounts (5,911) (3,664)
Trade receivables, net $ 572,058  $ 514,033 

The composition of inventories is as follows:
September 26, 2020 December 28, 2019
(in thousands)
Raw materials and supplies $ 26,300  $ 24,613 
Work in process 34,672  35,852 
Finished products 120,395  100,195 
Inventories $ 181,367  $ 160,660 
19

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The composition of other current assets is as follows:
September 26, 2020 December 28, 2019
(in thousands)
Prepaid income tax $ 70,258  $ 54,358 
Short-term investments 963  941 
Restricted cash 2,968  431 
Other 300  300 
Other current assets $ 74,489  $ 56,030 

The composition of other assets is as follows:
September 26, 2020 December 28, 2019
(in thousands)
Venture capital investments $ 142,998  $ 108,983 
Strategic equity investments 21,019  13,996 
Life insurance policies 38,339  38,207 
Other long-term income tax assets 21,376  20,570 
Restricted cash 1,576  1,601 
Other 22,230  29,258 
Other assets $ 247,538  $ 212,615 
The composition of other current liabilities is as follows:
September 26, 2020 December 28, 2019
(in thousands)
Current portion of operating lease right-of-use liabilities $ 24,870  $ 20,357 
Accrued income taxes 36,978  26,066 
Customer contract deposits 42,990  33,080 
Other 22,780  11,095 
Other current liabilities $ 127,618  $ 90,598 
The composition of other long-term liabilities is as follows:
September 26, 2020 December 28, 2019
(in thousands)
U.S. Transition Tax $ 48,781  $ 52,066 
Long-term pension liability, accrued executive supplemental life insurance retirement plan and deferred compensation plan 75,960  80,833 
Long-term deferred revenue 19,123  20,983 
Other 39,831  29,051 
Other long-term liabilities $ 183,695  $ 182,933 

6. VENTURE CAPITAL AND STRATEGIC EQUITY INVESTMENTS
Venture capital investments were $143.0 million and $109.0 million as of September 26, 2020 and December 28, 2019, respectively. The Company’s total commitment to the venture capital funds as of September 26, 2020 was $130.8 million, of which the Company funded $92.0 million through that date. The Company received dividends totaling $6.3 million and $0.2 million for the three months ended September 26, 2020 and September 28, 2019, respectively. The Company received dividends totaling $9.6 million and $1.8 million for the nine months ended September 26, 2020 and September 28, 2019, respectively.
20

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company recognized gains of $19.9 million and losses of $0.6 million related to the venture capital investments for the three months ended September 26, 2020 and September 28, 2019, respectively. The Company recognized gains of $31.6 million and $5.7 million related to the venture capital investments for the nine months ended September 26, 2020 and September 28, 2019, respectively.
The Company also invests, with minority positions, directly in equity of predominantly privately-held companies. Strategic equity investments were $21.0 million and $14.0 million as of September 26, 2020 and December 28, 2019, respectively. The Company recognized insignificant gains and losses for the three and nine months ended September 26, 2020 and September 28, 2019, respectively.
7. FAIR VALUE
The Company has certain assets and liabilities recorded at fair value, which have been classified as Level 1, 2, or 3 within the fair value hierarchy:
Level 1 - Fair values are determined utilizing prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access,
Level 2 - Fair values are determined by utilizing quoted prices for identical or similar assets and liabilities in active markets or other market observable inputs such as interest rates, yield curves, and foreign currency spot rates,
Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The fair value hierarchy level is determined by asset and class based on the lowest level of significant input. The observability of inputs may change for certain assets or liabilities. This condition could cause an asset or liability to be reclassified between levels. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. During the nine months ended September 26, 2020 and September 28, 2019, there were no transfers between levels.
Valuation methodologies used for assets and liabilities measured or disclosed at fair value are as follows:
Cash equivalents - Valued at market prices determined through third-party pricing services;
Foreign currency forward contracts - Valued using market observable inputs, such as forward foreign exchange points and foreign exchanges rates;
Life insurance policies - Valued at cash surrender value based on the fair value of underlying investments;
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. The book value of the Company’s 5.5% Senior Notes due in 2026 and the 4.25% Senior Notes due in 2028 (Senior Notes), which are fixed rate debt, are carried at amortized cost. Fair value of the Senior Notes is based on quoted market prices and on borrowing rates available to the Company; and
Contingent consideration - Valued based on a probability weighting of the future cash flows associated with the potential outcomes.
Assets and liabilities measured at fair value on a recurring basis are summarized below:
  September 26, 2020
Level 1 Level 2 Level 3 Total
(in thousands)
Cash equivalents $ —  $ 1,678  $ —  $ 1,678 
Other assets:
Life insurance policies —  30,459  —  30,459 
Total assets measured at fair value $ —  $ 32,137  $ —  $ 32,137 
Other current liabilities measured at fair value:
Contingent consideration $ —  $ —  $ 2,220  $ 2,220 
Total liabilities measured at fair value $ —  $ —  $ 2,220  $ 2,220 

21

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

  December 28, 2019
Level 1 Level 2 Level 3 Total
(in thousands)
Cash equivalents $ —  $ 55,278  $ —  $ 55,278 
Other assets:
Life insurance policies —  30,454  —  30,454 
Total assets measured at fair value $ —  $ 85,732  $ —  $ 85,732 
Other current liabilities measured at fair value:
Contingent consideration $ —  $ —  $ 712  $ 712 
Foreign currency forward contract —  876  —  876 
Total liabilities measured at fair value $ —  $ 876  $ 712  $ 1,588 
Contingent Consideration
The following table provides a rollforward of the contingent consideration related to previous business acquisitions. See Note 2, “Business Combinations.”
Nine Months Ended
September 26, 2020 September 28, 2019
(in thousands)
Beginning balance $ 712  $ 3,033 
Additions 2,131  2,869 
Payments (230) (5,252)
Adjustment of previously recorded contingent liability (468) — 
Foreign currency 75  42 
Ending balance $ 2,220  $ 692 
The unobservable inputs used in the fair value measurement of the Company’s contingent consideration are the probabilities of successful achievement of certain financial targets and a discount rate. Increases or decreases in any of the probabilities of success would result in a higher or lower fair value measurement, respectively. Increases or decreases in the discount rate would result in a lower or higher fair value measurement, respectively.
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 observable inputs, including current interest and foreign currency exchange rates, it is deemed to be Level 2 within the fair value hierarchy.
The book value of the Company’s 2026 and 2028 Senior Notes is a fixed rate obligation carried at amortized cost. Fair value is based on quoted market prices as well as borrowing rates available to the Company. As the fair value is based on significant other observable outputs, it is deemed to be Level 2 within the fair value hierarchy. The book value and fair value of the Company’s 2026 and 2028 Senior Notes is summarized below:
September 26, 2020 December 28, 2019
Book Value Fair Value Book Value Fair Value
2026 Senior Notes $ 500,000  $ 519,450  $ 500,000  $ 537,500 
2028 Senior Notes 500,000  515,000  500,000  510,000 

22

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

8. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table provides a rollforward of the Company’s goodwill:
  Adjustments to Goodwill  
December 28, 2019 Acquisitions Foreign Exchange September 26, 2020
(in thousands)
RMS $ 56,586  $ 229,728  $ 618  $ 286,932 
DSA 1,345,223  (629) 7,484  1,352,078 
Manufacturing 138,756  —  (124) 138,632 
Goodwill $ 1,540,565  $ 229,099  $ 7,978  $ 1,777,642 
The increase in goodwill during the nine months ended September 26, 2020 related primarily to the acquisitions of HemaCare and Cellero in the RMS reportable segment.
Intangible Assets, Net
The following table displays intangible assets, net by major class:
  September 26, 2020 December 28, 2019
Gross Accumulated Amortization Net Gross Accumulated Amortization Net
(in thousands)
Backlog $ 28,875  $ (28,382) $ 493  $ 28,865  $ (26,895) $ 1,970 
Technology 127,288  (74,045) 53,243  122,106  (57,737) 64,369 
Trademarks and trade names 15,622  (5,374) 10,248  8,430  (4,901) 3,529 
Other 20,600  (14,214) 6,386  18,279  (12,307) 5,972 
Other intangible assets 192,385  (122,015) 70,370  177,680  (101,840) 75,840 
Client relationships 1,116,222  (383,814) 732,408  934,668  (321,095) 613,573 
Intangible assets $ 1,308,607  $ (505,829) $ 802,778  $ 1,112,348  $ (422,935) $ 689,413 
The increase in intangible assets, net during the nine months ended September 26, 2020 related primarily to the acquisitions of HemaCare and Cellero.
9. LONG-TERM DEBT AND FINANCE LEASE OBLIGATIONS
Long-term debt, net and finance leases consists of the following:
September 26, 2020 December 28, 2019
(in thousands)
Term loans $ 160,938  $ 193,750 
Revolving facility 836,767  676,134 
2026 Senior Notes
500,000  500,000 
2028 Senior Notes
500,000  500,000 
Other debt
5,867  5,781 
Finance leases (Note 16)
27,783  30,527 
Total debt and finance leases 2,031,355  1,906,192 
Less:
Current portion of long-term debt 45,017  35,548 
Current portion of finance leases (Note 16) 2,929  2,997 
Current portion of long-term debt and finance leases 47,946  38,545 
Long-term debt and finance leases 1,983,409  1,867,647 
Debt discount and debt issuance costs (15,248) (17,981)
Long-term debt, net and finance leases $ 1,968,161  $ 1,849,666 
As of September 26, 2020 and December 28, 2019, the weighted average interest rate on the Company’s debt was 3.21% and 3.46%, respectively.
23

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

Term Loans and Revolving Facility
The Company has a credit facility consisting of a $750 million term loan and a $2.05 billion multi-currency revolving facility (Credit Facility). The term loan facility matures in 19 quarterly installments with the last installment due March 26, 2023. On October 23, 2019, the Company prepaid $500.0 million of the term loan with proceeds from a $500.0 million unregistered private offering (see 2028 Senior Notes below). The revolving facility matures on March 26, 2023, and requires no scheduled payment before that date.
Under specified circumstances, the Company has the ability to increase the term loan and/or revolving facility by up to $1.0 billion in the aggregate.
The interest rates applicable to the term loan and revolving facility under the Credit Facility are, at the Company’s option, equal to 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 LIBOR rate plus 1.0%) or the adjusted LIBOR rate, plus an interest rate margin based upon the Company’s leverage ratio.
The Credit Facility includes certain customary representations and warranties, events of default, notices of material adverse changes to the Company’s business and negative and affirmative covenants. These covenants include (1) maintenance of a ratio of consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) less capital expenditures to consolidated cash interest expense, for any period of four consecutive fiscal quarters, of no less than 3.50 to 1.0 as well as (2) maintenance of a ratio of consolidated indebtedness to consolidated EBITDA for any period of four consecutive fiscal quarters, of no more than 4.00 to 1.0. As of September 26, 2020, the Company was compliant with all covenants.
The obligations of the Company under the Credit Facility are collateralized by substantially all of the assets of the Company.
During the nine months ended September 26, 2020 and September 28, 2019, the Company had multiple U.S. dollar denominated loans borrowed by a non-U.S. Euro functional currency entity under the Company’s Credit Facility, which ranged from $300 million to $400 million. This resulted in foreign currency losses recognized in Other income, net of $4.2 million and $14.9 million during the nine months ended September 26, 2020 and September 28, 2019, respectively, related to the remeasurement of the underlying debt. The Company entered into foreign exchange forward contracts to limit its foreign currency exposures related to these borrowings and recognized gains of $6.1 million and $21.6 million during the nine months ended September 26, 2020 and September 28, 2019, respectively, within Interest expense. As of September 26, 2020, the Company did not have any outstanding borrowings in a currency different than its respective functional currency. See Note 14, “Foreign Currency Contracts”, for further discussion.
Base Indenture for Senior Notes
The Company has an indenture (Base Indenture) with MUFG Union Bank, N.A., (Trustee). The purpose of the Indenture was to allow the Company the ability to issue senior notes. The Company has entered into two supplemental indentures in connection with the senior notes described below.
2026 Senior Notes
In fiscal year 2018, the Company entered into the first supplemental indenture (First Supplemental Indenture) with the Trustee in connection with an offering of $500 million in aggregate principal amount of the Company’s 5.5% Senior Notes (2026 Senior Notes), due in 2026, in an unregistered offering. Under the terms of the First Supplemental Indenture, interest on the Senior Notes is payable semi-annually on April 1 and October 1, beginning on October 1, 2018.
2028 Senior Notes
In fiscal year 2019, the Company entered into a second supplemental indenture (Second Supplemental Indenture) with the Trustee in connection with the offering of $500 million in aggregate principal amount of the Company’s 4.25% Senior Notes (2028 Senior Notes), due in 2028, in an unregistered offering. Under the terms of the Second Supplemental Indenture, interest on the 2028 Senior Notes is payable semi-annually on May 1 and November 1, beginning on May 1, 2020.
Letters of Credit
As of September 26, 2020 and December 28, 2019, the Company had $8.1 million and $7.5 million, respectively, in outstanding letters of credit.
24

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

10. EQUITY AND NONCONTROLLING INTERESTS
Earnings Per Share
The following table reconciles the numerator and denominator in the computations of basic and diluted earnings per share:
Three Months Ended Nine Months Ended
September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
(in thousands)
Numerator:    
Net income $ 102,611  $ 73,552  $ 221,116  $ 173,549 
Less: Net (expense) income attributable to noncontrolling interests (298) 742  1,878 
Net income attributable to common shareholders $ 102,909  $ 72,810  $ 221,113  $ 171,671 
Denominator:    
Weighted-average shares outstanding - Basic 49,703  48,818  49,482  48,682 
Effect of dilutive securities:
Stock options, restricted stock units and performance share units 999  897  889  945 
Weighted-average shares outstanding - Diluted 50,702  49,715  50,371  49,627 
Options to purchase 0.3 million and 0.4 million shares for the three months ended September 26, 2020 and September 28, 2019, respectively, as well as a non-significant number of restricted stock units (RSUs) and performance share units (PSUs), were not included in computing diluted earnings per share because their inclusion would have been anti-dilutive. Options to purchase 0.3 million and 0.4 million shares for the nine months ended September 26, 2020 and September 28, 2019, respectively, as well as a non-significant number of RSUs and PSUs, were not included in computing diluted earnings per share because their inclusion would have been anti-dilutive. Basic weighted-average shares outstanding for the nine months ended September 26, 2020 and September 28, 2019 excluded the impact of 0.9 million and 1.0 million shares of non-vested RSUs and PSUs, respectively.
Treasury Shares
During the nine months ended September 26, 2020 and September 28, 2019, the Company did not repurchase any shares under its authorized stock repurchase program. As of September 26, 2020, the Company had $129.1 million remaining on the authorized stock repurchase program.
The Company’s stock-based compensation plans permit the netting of common stock upon vesting of RSUs and PSUs in order to satisfy individual statutory tax withholding requirements. During the nine months ended September 26, 2020 and September 28, 2019, the Company acquired 0.1 million shares for $23.9 million and 0.1 million shares for $18.0 million, respectively, from such netting.
Accumulated Other Comprehensive Income (Loss)
Changes to each component of accumulated other comprehensive income (loss), net of income taxes, are as follows:
Foreign Currency Translation Adjustment
and Other
Pension and Other Post-Retirement Benefit Plans Total
(in thousands)
December 28, 2019 $ (87,578) $ (90,441) $ (178,019)
Other comprehensive loss before reclassifications (18,388) —  (18,388)
Amounts reclassified from accumulated other comprehensive loss —  4,150  4,150 
Net current period other comprehensive income (loss) (18,388) 4,150  (14,238)
Income tax expense 2,135  889  3,024 
September 26, 2020 $ (108,101) $ (87,180) $ (195,281)
25

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

Nonredeemable Noncontrolling Interest
The Company has an investment in an entity whose financial results are consolidated in the Company’s unaudited condensed consolidated financial statements, as it has the ability to exercise control over this entity. The interest of the noncontrolling party in this entity has been recorded as noncontrolling interest within Equity in the accompanying unaudited condensed consolidated balance sheets. The activity within the nonrede