Company: CRL
Filing Date: 2025-02-19
Form Type: 10-K
Source: 0001100682-25-000011
Chunk: 126

Company: CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
Filing Date: 2025-02-19
Form: 10-K
Item: Item 8
Chunk 126
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ics Solutions reporting unit was $606.0 million. Goodwill is tested for impairment annually during the fourth quarter or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of the Company's reporting units below their carrying amounts. If the carrying values of the net assets assigned to the reporting units exceed the fair values of the reporting units an impairment loss equal to the difference would be recorded. In December 2024, subsequent to the annual goodwill impairment test, a triggering event was identified for the Biologics Solutions reporting unit. This resulted from a loss of key customers, ultimately resulting in a reduction in Biologics Solutions’ long range financial outlook. Management conducted a quantitative impairment test for goodwill to determine if the goodwill in the Biologics Solutions reporting unit was impaired. The determination of the fair value of the Biologics Solutions reporting unit requires the use of significant judgment using management’s best estimates of inputs and assumptions that a market participant would use. The fair value of the Biologics Solutions reporting unit was determined by using a weighted combination of a market-based approach and an income approach. Under the market-based approach, the Company utilized entity specific information about the reporting unit as well as publicly available industry information to determine key assumptions including earnings multiples and sales multiples. Under the income approach, fair value was determined based on the estimated future cash flows of the reporting unit which includes key assumptions for future revenue, long term growth rates, and operating income margins, discounted by an estimated weighted-average cost of capital. As a result, the Company recognized a goodwill impairment charge of $215.0 million.

The principal considerations for our determination that performing procedures relating to the interim goodwill impairment assessment of the Biologics Solutions reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the Biologics Solutions reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to earnings multiples and sales multiples used in the market-based approach and future revenue, long term growth rates, operating income margins, and discount rate used in the income approach; and (iii) the audit effort involved in the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the valuation of the Biologics Solutions reporting unit.