# CHARLES RIVER LABORATORIES INTERNATIONAL, INC. (CRL) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CHARLES RIVER LABORATORIES INTERNATIONAL, INC.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1100682/000110068224000007/crl-20231230.htm
Accession: 0001100682-24-000007
Filing date: 2024-02-14
Report date: 2023-12-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CRL/
All MD&A years: /company/CRL/mda/
Previous year: /company/CRL/mda/fy2022/ (FY 2022)
Next year: /company/CRL/mda/fy2024/ (FY 2024)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and related notes appearing in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. A discussion of our results of operations for the fiscal year ended December 31, 2022 and a comparison of our results for the fiscal years ended December 31, 2022 and December 25, 2021 was included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 22, 2023. In addition to historical consolidated financial information, the following discussion contains forward-looking statements. Actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in Item 1A, “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Certain percentage changes may not recalculate due to rounding.

Overview

We are a leading, full service, non-clinical global drug development partner. For over 75 years, we have been in the business of providing the research models required in the research and development of new drugs, devices, and therapies. Over this time, we have built upon our original core competency of laboratory animal medicine and science (research model technologies) to develop a diverse portfolio of discovery and safety assessment services, both Good Laboratory Practice (GLP) and non-GLP, that supports our clients from target identification through non-clinical development. We also provide a suite of products and services to support our clients’ manufacturing activities, including our contract development and manufacturing organization (CDMO) business. Utilizing our broad portfolio of products and services enables our clients to create a more efficient and flexible drug development model, which reduces their costs, enhances their productivity and effectiveness, and increases speed to market.

Our client base includes major global pharmaceutical companies, many biotechnology companies; agricultural and industrial chemical, life science, veterinary medicine, medical device, diagnostic and consumer product companies; contract research and contract manufacturing organizations; and other commercial entities, as well as leading hospitals, academic institutions, and government agencies around the world. We currently operate in 155 sites and in over 20 countries worldwide, which numbers exclude certain Insourcing Solutions (IS) sites.

Segment Reporting

Our three reportable segments are Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Solutions (Manufacturing).

Our 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: 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 our clients’ research operations (including recruitment, training, staffing, and management services) within our clients’ facilities as well as our own vivarium space, utilizing our Charles River Accelerator and Development Lab (CRADL) option. Cell Solutions provides controlled, consistent, customized primary cells and blood components derived from normal and mobilized peripheral blood and bone marrow.

Our DSA segment is comprised of two businesses: Discovery Services and Safety Assessment. We provide 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.

Our 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, we sold the Avian Vaccine Services (Avian) business, reported in the Manufacturing segment, which supplied specific-pathogen-free chicken eggs and chickens.

40

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Fiscal Quarters

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

Business Trends

In fiscal year 2023, biopharmaceutical clients reprioritized their drug development programs and were more cautious with their budgetary spending amidst the uncertainty in the broader market environment, including a slowdown in biotechnology funding activities, as well as macroeconomic challenges, including higher interest rates. The demand and pricing for our products and services continued to increase in fiscal year 2023, but at a slower pace than in recent years.

Despite the near-term market pressures, many of our pharmaceutical and biotechnology clients continued to benefit from the long-term value of strategic outsourcing to improve their operating efficiency and to access capabilities that they do not maintain internally. Many of our large biopharmaceutical clients have continued to increase investments in their drug discovery and early-stage development efforts and have strengthened their relationships with outsourced partners, like Charles River, and biotechnology companies to assist them in bringing new drugs to market. While these clients were more cautious with their early-stage R&D spending in fiscal year 2023, these large biopharmaceutical clients were the principal driver of revenue growth. A reduction in the biotechnology funding environment from peak levels in 2021 resulted in a moderation of demand from small and mid-size biotechnology clients. We have recently experienced an increase in our allowance for credit losses, which increased to $25.7 million as of December 30, 2023 from $11.3 million as of December 31, 2022 and may expect this trend to continue if the biotechnology funding environment remains consistent or further softens. Our ability to continue to deliver our leading suite of research and non-clinical development solutions has endeavored our clients to continue to choose to partner with us for our flexible and efficient outsourcing solutions, broad scientific capabilities, and global scale.

Revenue for RMS increased, principally driven by pricing. China reported healthy growth rates despite pressure from more cautious spending on biomedical research activity from clients within China. Demand for research model services continued to perform well, led by our Insourcing Solutions business, particularly our CRADL™ operations. Clients are increasingly adopting CRADL™’s flexible model to access vivarium space without having to invest in internal infrastructure. To support client demand, we have expanded CRADL™’s footprint both organically and through the acquisition of Explora BioLabs in April 2022. We are confident that research models and services will remain essential tools for our clients’ drug discovery and early-stage development efforts.

DSA continued to benefit from sustained trends in fiscal year 2023. The Safety Assessment revenue growth rate moderated due to our clients’ budgetary spending constraints but continued to report a solid growth rate for the fiscal year due to a combination of price increases and study volume. Safety Assessment growth was supported by the meaningful scale of the backlog for this business, although it has recently decreased. DSA backlog decreased to $2.45 billion as of December 30, 2023 from $3.15 billion as of December 31, 2022.

We believe that our comprehensive scientific capabilities and global scale, as well as the breadth and depth of our scientific expertise, quality, and responsiveness remain key criteria when our clients make the decision to outsource to us. Biotechnology clients continue to move their programs forward and utilize outsourcing to achieve their goal of more efficient and effective drug research to bring innovative new therapies to market. We continued to enhance our Discovery Services capabilities to provide clients with a comprehensive portfolio that enables them to start working with us at the earliest stages of the discovery process. We have accomplished this in recent years through acquisitions and by adding cutting-edge capabilities to our discovery toolkit through technology partnerships. In fiscal year 2023, demand in our Discovery Services business declined, as clients reprioritize their program and conserve their early-stage spending, which resulted in lower proposal activity and a longer lead time to commence new projects.

Revenue for our products and services that support our clients’ manufacturing activities increased across most of our Manufacturing Solutions businesses in fiscal year 2023 however, demand in this reportable segment was impacted by clients’ more cautious spending trends in fiscal year 2023, as well as destocking activities and other challenges associated with CDMO and biopharmaceutical clients. Demand for our cell and gene therapy CDMO services improved meaningfully in fiscal year 2023 as the initiatives that we have implemented to improve the performance of our CDMO business gained traction and generated a healthy pipeline of new business opportunities including working on two commercial products. Charles River remains a premier scientific partner for development, testing, and manufacturing of advanced drug modalities and the acquisition of the CDMO businesses in 2021, Cognate and Vigene, further enhanced our presence in the high-growth cell and gene therapy sector.

In response to recent trends described above, we have undertaken restructuring actions within all reportable segments at various locations across North America, Europe and Asia. This includes workforce right-sizing actions, resulting in severance and transition costs; and costs related to the consolidation of facilities, resulting in asset impairment and accelerated depreciation

41

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

charges. Restructuring charges recognized during fiscal year 2023 were approximately $30 million, of which $18 million related to asset impairment and accelerated depreciation charges and $12 million related to severance charges. We expect that these effectuated actions as well as other upcoming planned actions will result in approximately $60 million to $70 million of cost savings on an annualized basis.

Recent Acquisitions

Our strategy is to augment internal growth of existing businesses with complementary acquisitions. We continue to make strategic acquisitions designed to expand our portfolio of products and services to support the drug discovery and development continuum. Our recent acquisitions are described below.

On November 30, 2023, we completed our acquisition of an additional 41% equity interest of Noveprim Group (“Noveprim”), a leading provider of non-human primates (“NHPs”) used for biomedical, pharmaceutical and toxicological research purposes, resulting in a 90% controlling interest. The acquisition strengthens and diversifies the supply chain for our DSA segment. We had previously acquired a 49% equity stake in 2022 for $90.0 million up-front and additional future contingent payments up to $5.0 million based on future performance. The total preliminary purchase price for the Noveprim acquisition is $374.8 million, which includes $144.6 million additional cash paid for the 41% equity interest, elimination of historical activity and intercompany balances of $198.8 million which includes a remeasurement gain on the 49% equity investment of $103.2 million, contingent consideration of $33.3 million, deferred purchase price of $12.0 million payable from 2024 through 2027, offset by estimated post-closing adjustments for working capital of $13.8 million. The acquisition was funded through a combination of available cash and proceeds from our Credit Facility. This business is reported as part of our DSA reportable segment for NHPs vertically integrated into our Safety Assessment supply chain and the RMS reportable segment for NHPs sold to third party customers.

On January 30, 2023, we acquired SAMDI Tech, Inc., (SAMDI), a leading provider of high-quality, label-free high-throughput screening (HTS) solutions for drug discovery research. The acquisition of SAMDI will provide clients with seamless access to the premier, label-free HTS MS platform and create a comprehensive, library of drug discovery solutions. The purchase price of SAMDI was $62.8 million, net of $0.4 million in cash, inclusive of a 20% strategic equity interest previously owned by us of $12.6 million. The acquisition was funded through a combination of available cash and proceeds from our Credit Facility. This business is reported as part of our DSA reportable segment.

On April 5, 2022, we 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 our existing Insourcing Solutions business, specifically our CRADL™ 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 $284.5 million, net of $6.6 million in cash acquired. The acquisition was funded through proceeds from our Credit Facility. This business is reported as part of our RMS reportable segment.

Recent Divestiture

We routinely evaluate strategic fit and fundamental performance of our global infrastructure and divest operations that do not meet key business criteria or where capital could be better deployed in other long-term growth opportunities. On December 20, 2022, we completed the sale of our Avian Vaccine Services (Avian) business to a private investor group for a preliminary purchase price of $167 million in cash, subject to certain customary closing adjustments, and future contingent payments up to an additional $30 million. Prior to divestiture, this business was reported in our Manufacturing reportable segment.

U.S. Government Investigations into Non-Human Primate Supply Chain

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

42

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

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 $27 million as of December 30, 2023, which reflects the value of the shipments in accordance with our 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. Refer to Item 1A, “Risk Factors” disclosed herein for our assessment of risk factors surrounding this matter.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (U.S.). The preparation of these financial statements requires us to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reported periods and related disclosures. These estimates and assumptions are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on our historical experience, trends in the industry, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions. Our significant accounting policies are more fully described in Note 1, “Description of Business and Summary of Significant Accounting Policies”, to our consolidated financial statements contained in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

An accounting policy is deemed to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the impact of the estimates and assumptions on our consolidated financial statements is or may be material. We believe the following represent our critical accounting policies and estimates used in the preparation of our financial statements:

Revenue Recognition

Revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer (“transaction price”).

To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing the amount to which we expect to be entitled. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Generally, we do not extend payment terms beyond one year. Applying the practical expedient, we do not assess whether a significant financing component exists if the period between when we perform our obligations under the contract and when the customer pays is one year or less. Our contracts do not generally contain significant financing components.

Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. We determine standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

Contracts are often modified to account for changes in contract specifications and requirements. Contract modifications exist when the modification either creates new, or changes existing, enforceable rights and obligations. Generally, when contract modifications create new performance obligations, the modification is considered to be a separate contract and revenue is recognized prospectively. When contract modifications change existing performance obligations, the impact on the existing transaction price and measure of progress for the performance obligation to which it relates is generally recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

43

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Product revenue is generally recognized when the customer obtains control of our product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract. Service revenue is generally recognized over time as the services are delivered to the customer based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. Depending on which better depicts the transfer of value to the customer, we generally measure our progress using either cost-to-cost (input method) or right-to-invoice (output method). We use the cost-to-cost measure of progress when it best depicts the transfer of value to the customer which occurs as we incur costs on our contract, generally related to fixed fee service contracts. Under the cost-to-cost 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 costs 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 right-to-invoice measure of progress is generally related to rate per unit contracts, as the extent of progress towards completion is measured based on discrete service or time-based increments, such as samples tested or labor hours incurred. Revenue is recorded in the amount invoiced since that amount corresponds directly to the value of our performance to date. During fiscal year 2023, $2.6 billion, or approximately 60%, of our total revenue recognized ($4.1 billion) is DSA service revenue transferred over time.

Intangible Assets (including Goodwill) and certain Biological Assets

We use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination. The determination of the fair value of intangible assets (including goodwill) and certain biological assets, which represent a significant portion of the purchase price in certain recent acquisitions, requires the use of significant judgment with regard to (i) the fair value; and (ii) whether such assets are amortizable or non-amortizable and, if the former, the period and the method by which the asset will be amortized. We utilize commonly accepted valuation techniques, such as the income, cost and market approaches, as appropriate, in establishing the fair value of these assets. Typically, key assumptions include projections of cash flows that arise from these assets of acquired businesses as well as discount rates based on an analysis of the weighted average cost of capital, adjusted for specific risks associated with the assets.

In our recent acquisitions, customer relationship intangible assets (also referred to as client relationships) and certain biological assets have been the most significant identifiable assets acquired. To determine the fair value of the acquired client relationships and biological assets, we utilized the multiple period excess earnings model (a commonly accepted valuation technique), which includes the following key assumptions: projections of cash flows from the acquired entities, which included future revenue, cost of revenue, operating income margins, customer attrition rates, productivity rates; as well as discount rates based on a market participant’s weighted average cost of capital. The value of the client relationship acquired was $23 million for fiscal year 2023 and $64 million for fiscal year 2022. The value of the biological assets acquired was $168 million for fiscal year 2023.

We review definite-lived intangible assets for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets. Actual cash flows arising from a particular intangible asset could vary from projected cash flows which could imply different carrying values from those established at the dates of acquisition and which could result in impairment of such asset. No significant impairments were recognized during fiscal years 2023 and 2022.

We evaluate goodwill for impairment annually, during the fourth quarter, and when events occur or circumstances change that may reduce the fair value of the asset below its carrying amount. Events or circumstances that might require an interim evaluation include unexpected adverse business conditions, economic factors, unanticipated technological changes or competitive activities, loss of key personnel and acts by governments and courts. Estimates of future cash flows require assumptions related to revenue and operating income growth, asset-related expenditures, working capital levels and other factors. Different assumptions from those made in our analysis could materially affect projected cash flows and our evaluation of goodwill for impairment.

We perform the quantitative impairment test where we compare the fair value of our reporting units to their carrying values. If the carrying values of the net assets assigned to the reporting units exceed the fair values of the reporting units, then we would record an impairment loss equal to the difference. In fiscal years 2023 and 2022 we performed the quantitative goodwill impairment test for our reporting units. Fair value was determined by using a weighted combination of a market-based approach and an income approach, as this combination was deemed to be the most indicative of our fair value in an orderly transaction between market participants. Under the market-based approach, we utilized information about our company as well as publicly available industry information to determine earnings multiples and sales multiples that are used to value our reporting units. Under the income approach, we determined fair value based on the estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of the reporting unit and the rate of return an outside investor would expect to earn. Our 2023 and 2022 impairment tests indicated that goodwill was not impaired.

44

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Valuation and Impairment of Long-Lived Assets

Long-lived assets to be held and used, including property, plant, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable. Factors we consider important that could trigger an impairment review include, but are not limited to, the following:

•significant underperformance relative to expected historical or projected future operating results;

•significant negative industry or economic trends; or

•significant changes or developments in strategy or operations that negatively affect the utilization of our long-lived assets.

Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset, net of any sublease income, if applicable, and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written-down to their fair values. We measure any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in our current business model. Significant judgments are required to estimate future cash flows, including the selection of appropriate discount rates and other assumptions. We may also estimate fair value based on market prices for similar assets, as appropriate. Changes in these estimates and assumptions could materially affect the determination of fair value for these assets. Long-lived asset impairments of $42 million were recognized during fiscal year 2023 and no significant impairments were recognized during 2022.

Income Taxes

We prepare and file income tax returns based on our interpretation of each jurisdiction’s tax laws and regulations. In preparing our consolidated financial statements, we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. Significant management judgment is required in assessing the realizability of our deferred tax assets. In performing this assessment, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making this determination, under the applicable financial accounting standards, we are allowed to consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and the effects of tax planning strategies. Our valuation allowance was $304.2 million as of December 30, 2023. In the event actual results differ from our estimates, we will adjust our estimates in future periods and may establish additional allowances or reversals as necessary.

We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. We evaluate uncertain tax positions on a quarterly basis and consider various factors, that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, information obtained during in process audit activities and changes in facts or circumstances related to a tax position. We adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. Our liabilities for uncertain tax positions can be relieved only if the contingency becomes legally extinguished through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the benefits associated with the position meet the “more-likely-than-not” threshold or the liability becomes effectively settled through the controversy process. We consider matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews; we have no plans to appeal or litigate any aspect of the tax position; and we believe that it is highly unlikely that the taxing authority would re-examine the related tax position. We also accrue for potential interest and penalties related to unrecognized tax benefits in income tax expense.

We generally receive a tax deduction upon the exercise of non-qualified stock options by employees, or the vesting of restricted stock and performance share units held by employees. The stock price, timing, and amount of vesting and exercising of stock-based compensation could materially impact our current tax expense.

Our global operations make the effective tax rate sensitive to significant tax law changes. Several countries have begun to enact legislation to implement the Organization for Economic Cooperation and Development’s (OECD) international tax framework, including the Pillar II global minimum tax regime with effect from January 1, 2024 or later. We are currently monitoring these developments, but do not expect there to be a material financial impact.

45

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

New Accounting Pronouncements

For a discussion of new accounting pronouncements, refer to Note 1, “Description of Business and Summary of Significant Accounting Policies” to our consolidated financial statements contained in Item 8, “Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K.

46

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Results of Operations

Consolidated Results of Operations and Liquidity

Revenue for fiscal year 2023 was $4.1 billion compared to $4.0 billion in fiscal year 2022. The 2023 increase as compared to the corresponding period in 2022 was $153.3 million, or 3.9%, and was primarily due to increased volume and pricing within our Safety Assessment business and our recent acquisition of Explora BioLabs; partially offset by the divestiture of our Avian business and the effect of changes in foreign currency exchange rates when compared to fiscal year 2022.

In fiscal year 2023, our operating income and operating income margin were $617.3 million and 14.9%, respectively, compared with $651.0 million and 16.4%, respectively, in fiscal year 2022. The decrease in operating income and operating income margins for fiscal year 2023 was primarily due to higher operating costs within our Manufacturing segment, restructuring and asset impairment charges principally in our DSA and Manufacturing segments, and the divestiture of the Avian business; partially offset by contributions of higher revenue described above.

Net income attributable to common shareholders decreased to $474.6 million in fiscal year 2023, from $486.2 million in the corresponding period of 2022. The decrease in net income attributable to common shareholders of $11.6 million was primarily due to lower operating income described above and higher interest expense due to higher interest rates on our variable debt, partially offset by lower income tax expense during fiscal year 2023 compared to the corresponding period of 2022.

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.

Revenue and Operating Income

The following tables present consolidated revenue by type and by reportable segment:

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["","2023","","2022","","$ change","","% change"],["","(in thousands, except percentages)"],["Service revenue","$","3,440,019","","","$","3,216,904","","","$","223,115","","","6.9","%"],["Product revenue","689,390","","","759,156","","","(69,766)","","","(9.2)","%"],["","$","4,129,409","","","$","3,976,060","","","$","153,349","","","3.9","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["","2023","","2022","","$ change","","% change","","Impact of FX"],["","(in thousands, except percentages)"],["RMS","$","792,343","","","$","739,175","","","$","53,168","","","7.2","%","","(0.6)","%"],["DSA","2,615,623","","","2,447,316","","","168,307","","","6.9","%","","0.3","%"],["Manufacturing","721,443","","","789,569","","","(68,126)","","","(8.6)","%","","0.4","%"],["Total revenue","$","4,129,409","","","$","3,976,060","","","$","153,349","","","3.9","%","","0.2","%"]]
[[/GREPCENT_TABLE]]

Analysis of Segment Results

The following table presents operating income by reportable segment:

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["","2023","","2022","","$ change","","% change","","Impact of FX"],["","(in thousands, except percentages)"],["RMS","$","154,666","","","$","160,410","","","$","(5,744)","","","(3.6)","%","","(1.4)","%"],["DSA","606,076","","","532,889","","","73,187","","","13.7","%","","1.9","%"],["Manufacturing","88,329","","","167,084","","","(78,755)","","","(47.1)","%","","1.3","%"],["Unallocated corporate","(231,810)","","","(209,408)","","","(22,402)","","","10.7","%","","(0.1)","%"],["Total operating income","$","617,261","","","$","650,975","","","$","(33,714)","","","(5.2)","%","","1.6","%"],["Operating income % of revenue","14.9","%","","16.4","%","","","","(150) bps"]]
[[/GREPCENT_TABLE]]

The following presents and discusses our consolidated financial results by each of our reportable segments:

47

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

RMS

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["","2023","","2022","","$ change","","% change","","Impact of FX"],["","(in thousands, except percentages)"],["Revenue","$","792,343","","","$","739,175","","","$","53,168","","","7.2","%","","(0.6)","%"],["Cost of revenue (excluding amortization of intangible assets)","509,970","","","455,607","","","54,363","","","11.9","%"],["Selling, general and administrative","105,965","","","102,795","","","3,170","","","3.1","%"],["Amortization of intangible assets","21,742","","","20,363","","","1,379","","","6.8","%"],["Operating income","$","154,666","","","$","160,410","","","$","(5,744)","","","(3.6)","%","","(1.4)","%"],["Operating income % of revenue","19.5","%","","21.7","%","","","","(220) bps"]]
[[/GREPCENT_TABLE]]

RMS revenue increased $53.2 million due primarily to higher research model services revenue, specifically the Insourcing Solutions business, which included the acquisition of Explora BioLabs contributing $15.6 million, higher small research model product revenue in North America and China, and higher large model product revenue due to the acquisition of Noveprim, which contributed $6.1 million; partially offset by the effect of changes in foreign currency exchange rates and the impact of the 53rd week in fiscal year 2022, which had contributed $7.4 million to revenue.

RMS operating income decreased $5.7 million compared to fiscal year 2022. RMS operating income as a percentage of revenue for fiscal year 2023 was 19.5%, a decrease of 220 bps from 21.7% for fiscal year 2022. Operating income and operating income as a percentage of revenue decreased due to higher amortization, operating, and staffing costs due to the acquisition of Explora BioLabs; mix of small research models products and services; and the effect of changes in foreign currency exchange rates.

DSA

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["","2023","","2022","","$ change","","% change","","Impact of FX"],["","(in thousands, except percentages)"],["Revenue","$","2,615,623","","","$","2,447,316","","","$","168,307","","","6.9","%","","0.3","%"],["Cost of revenue (excluding amortization of intangible assets)","1,675,472","","","1,617,760","","","57,712","","","3.6","%"],["Selling, general and administrative","263,770","","","213,870","","","49,900","","","23.3","%"],["Amortization of intangible assets","70,305","","","82,797","","","(12,492)","","","(15.1)","%"],["Operating income","$","606,076","","","$","532,889","","","$","73,187","","","13.7","%","","1.9","%"],["Operating income % of revenue","23.2","%","","21.8","%","","","","140 bps"]]
[[/GREPCENT_TABLE]]

DSA revenue increased $168.3 million due primarily to service revenue which increased in the Safety Assessment business due to increased demand, principally biopharmaceutical clients, pricing of services, and the acquisition of SAMDI contributing $7.0 million to service revenue; partially offset by decreases in our Discovery Services business and the effect of changes in foreign currency exchange rates and the impact of the 53rd week in fiscal year 2022, which had contributed $37.1 million to revenue.

DSA operating income increased $73.2 million compared to fiscal year 2022. DSA operating income as a percentage of revenue for fiscal year 2023 was 23.2%, an increase of 140 bps from 21.8% for fiscal year 2022. Operating income and operating income as a percentage of revenue increased primarily due to the contribution of higher revenue described above and lower amortization of intangible assets; partially offset by higher legal costs incurred in connection with investigations by the U.S government into the non-human primate supply chain, asset impairment charges related to a Discovery Services site closure and a recently divested site related to our Safety Assessment business, and the absence of certain favorable acquisition-related adjustments to contingent consideration arrangements incurred during 2022 which are recorded in selling, general and administrative costs.

48

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Manufacturing

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["","2023","","2022","","$ change","","% change","","Impact of FX"],["","(in thousands, except percentages)"],["Revenue","$","721,443","","","$","789,569","","","$","(68,126)","","","(8.6)","%","","0.4","%"],["Cost of revenue (excluding amortization of intangible assets)","441,411","","","440,042","","","1,369","","","0.3","%"],["Selling, general and administrative","146,311","","","139,027","","","7,284","","","5.2","%"],["Amortization of intangible assets","45,392","","","43,416","","","1,976","","","4.6","%"],["Operating income","$","88,329","","","$","167,084","","","$","(78,755)","","","(47.1)","%","","1.3","%"],["Operating income % of revenue","12.2","%","","21.2","%","","","","(900) bps"]]
[[/GREPCENT_TABLE]]

Manufacturing revenue decreased $68.1 million due primarily to the divestiture of our Avian business, which decreased revenue by $77.3 million, lower services revenue from our Biologics Testing business, and the impact of the 53rd week in fiscal year 2022 which contributed $8.2 million to revenue in the prior year; partially offset by increased CDMO and Microbial Solutions service revenue.

Manufacturing operating income decreased $78.8 million compared to fiscal year 2022. Manufacturing operating income as a percentage of revenue for fiscal year 2023 was 12.2%, a decrease of 900 bps from 21.2% for fiscal year 2022. Operating income and operating income as a percentage of revenue decreased primarily due to the divestiture of our Avian business, higher charges related to restructuring activities, and lower operating income due to higher operating costs within our Biologics Solutions business, an asset impairment charge, and the absence of a $19 million impact of a favorable ruling from tax authorities on certain indirect tax positions recorded within selling, general and administrative expense in the corresponding period in 2022.

Unallocated Corporate

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["","2023","","2022","","$ change","","% change"],["","(in thousands, except percentages)"],["Unallocated corporate","$","231,810","","","$","209,408","","","$","22,402","","","10.7","%"],["Unallocated corporate % of revenue","5.6","%","","5.3","%","","","","30 bps"]]
[[/GREPCENT_TABLE]]

Unallocated corporate costs consist of selling, general and administrative expenses that are not directly related or allocated to the reportable segments. The increase in unallocated corporate costs of $22.4 million, or 10.7%, compared to fiscal year 2022 is primarily related to an increase in our digital investments as well as higher variable compensation and benefits expenses. Costs as a percentage of revenue for fiscal year 2023 was 5.6%, an increase of 30 bps from 5.3% for fiscal year 2022.

Other Income (Expense)

[[GREPCENT_TABLE]]
[["","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","%"]]
[[/GREPCENT_TABLE]]

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.

49

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Income Taxes

[[GREPCENT_TABLE]]
[["","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"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","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"]]
[[/GREPCENT_TABLE]]

The following table presents our net cash provided by operating activities:

[[GREPCENT_TABLE]]
[["","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"]]
[[/GREPCENT_TABLE]]

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.

50

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

The following table presents our net cash used in investing activities:

[[GREPCENT_TABLE]]
[["","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","\u2014","","","163,275"],["Investments, net","(47,548)","","","(153,725)"],["Other, net","(2,294)","","","(9,347)"],["Net cash used in investing activities","$","(563,155)","","","$","(607,922)"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","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)"],["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)"]]
[[/GREPCENT_TABLE]]

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.

51

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:

[[GREPCENT_TABLE]]
[["","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"]]
[[/GREPCENT_TABLE]]

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

52

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.