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. 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 full service, early-stage contract research organization (CRO). For over 70 years, we have been in the business of providing the research models required in 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 enable us to support our clients from target identification through non-clinical development. We also provide a suite of products and services to support our clients’ manufacturing activities. Utilizing our broad portfolio of products and services enables our clients to create a more flexible drug development model, which reduces their costs, enhances their productivity and effectiveness, and increases speed to market.

Our client base includes all major global biopharmaceutical companies, many biotechnology companies, CROs, agricultural and industrial chemical companies, life science companies, veterinary medicine companies, contract manufacturing companies, medical device companies, and diagnostic and other commercial entities, as well as leading hospitals, academic institutions, and government agencies around the world. We currently operate approximately 80 facilities in 23 countries worldwide, which numbers exclude our Insourcing Solutions (IS) sites.

Segment Reporting

Our three reportable segments are Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Support (Manufacturing). Our RMS reportable segment includes the Research Models and Research Model Services 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 research 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). Our 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. Our Manufacturing reportable segment 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; Avian Vaccine Services (Avian), which supplies specific-pathogen-free chicken eggs and chickens; and contract development and manufacturing (CDMO) services, which, until we divested this business on February 10, 2017, allowed us to provide formulation design and development, manufacturing, and analytical and stability testing for small molecules.

Recent Acquisitions and Divestiture

We continued to make strategic acquisitions designed to expand our portfolio of services to support the drug discovery and early-stage development continuum and position us as a market leader in the outsourced discovery services market. Our recent acquisitions and divestiture are described below.

On February 12, 2018, we entered into a definitive agreement to acquire MPI Research, a non-clinical CRO, providing comprehensive testing services to biopharmaceutical and medical device companies worldwide. Acquiring MPI Research will enhance our position as a leading global early-stage CRO by strengthening our ability to partner with clients across the drug discovery and development continuum. The transaction is expected to close early in the second quarter of 2018, subject to regulatory approvals and customary closing conditions. The preliminary purchase price will be approximately $800 million in cash, subject to customary closing adjustments. The acquisition and associated fees are expected to be financed through an expansion of our credit facility and cash. We entered into a commitment letter, pursuant to which we will be provided up to $830 million under a bridge loan facility. This business is expected to be reported as part of our DSA reportable segment. In the

event the agreement is terminated under specified circumstances, we may be required to pay a termination fee of $48 million, increasing to $56 million based on other specific circumstances.

On January 11, 2018, we acquired KWS BioTest Limited (KWS BioTest), a CRO specializing in in vitro and in vivo discovery testing services for immuno-oncology, inflammatory and infectious diseases. The acquisition enhances our discovery expertise, with complementary offerings that provide our customers with additional tools in the active therapeutic research areas of oncology and immunology. The purchase price for KWS BioTest was $20.3 million in cash, subject to certain post-closing adjustments that may change the purchase price, and was funded by our various borrowings. In addition to the initial purchase price, the transaction includes aggregate, undiscounted contingent payments of up to £3.0 million (approximately $4.1 million based on recent exchange rates), based on future performance. This business will be reported as part of our DSA reportable segment.

On August 4, 2017, we acquired Brains On-Line, a leading CRO providing critical data that advances novel therapeutics for the treatment of central nervous system (CNS) diseases. Brains On-Line strategically expands our existing CNS capabilities and establishes us as a single-source provider for a broad portfolio of discovery CNS services. The purchase price for Brains On-Line was $21.3 million in cash, subject to certain post-closing adjustments. In addition to the initial purchase price, the transaction includes potential additional payments of up to €6.7 million (approximately $7.9 million based on recent exchange rates), based on future performance. The Brains On-Line business is reported as part of our DSA reportable segment.

On February 10, 2017, we completed the divestiture of our CDMO business to Quotient Clinical Ltd., based in London, England for $75.0 million in proceeds, net of cash, cash equivalents, and working capital adjustments. The CDMO business was acquired in April 2016 as part of the acquisition of WIL Research and was reported in our Manufacturing reportable segment. Following a strategic review that was finalized subsequent to December 31, 2016, we determined that the CDMO business was not optimized within our portfolio at its current scale, and that the capital could be better deployed in other long-term growth opportunities.

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 was included in the fourth quarter of fiscal year 2016, which is occasionally necessary to align with a December 31 calendar year-end.

Business Trends

The demand for our products and services increased in fiscal year 2017. Our pharmaceutical and biotechnology clients continued to intensify their use 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 both CROs, like Charles River, and biotechnology companies to assist them in bringing new drugs to market. In addition, small and mid-size biopharmaceutical clients benefited from the continued strength in the biotechnology funding environment in fiscal year 2017, from capital markets, partnering with large biopharmaceutical companies, and investment by venture capital. Academia has also benefited from partnering activities, as large biopharmaceutical companies have increasingly utilized academic research capabilities to broaden the scope of their research activities. Our full service, early-stage portfolio continued to lead to additional client discussions in fiscal year 2017 regarding strategic relationships, where clients seek to outsource larger portions of their early-stage drug research programs to us.

The primary result of these trends was improved demand for our Safety Assessment services in fiscal year 2017, particularly from biotechnology clients. This improvement led to increased capacity utilization in our Safety Assessment facilities, which remained well utilized in fiscal year 2017. Price also improved slightly in fiscal year 2017, as industry capacity utilization continued to increase. In order to accommodate increasing client demand, we continued to open small amounts of new capacity in fiscal year 2017. We believe our scientific expertise, quality, and responsiveness remain key criteria when our clients make the decision to outsource to us. As our clients continue to pursue their goal of more efficient and effective drug research, they are evaluating outsourcing new areas of their research programs, such as discovery services. We have enhanced our Discovery Services capabilities over the past four years to enable us to work with clients at the earliest stages of the discovery process. In fiscal year 2017, demand in our Discovery Services business was stable. The completion of a few large, integrated early discovery projects from biopharmaceutical clients in fiscal year 2016 was largely offset with improving demand from biotechnology clients as many of these clients either initiated or continued to work with us on integrated programs and other projects. Large biopharmaceutical companies continue to have significant internal discovery capabilities, on which they can choose to rely. In order for large biopharmaceutical clients to increasingly outsource more work to us, we must continue to

demonstrate that our services can augment and accelerate our clients’ drug discovery processes. The business changes that we implemented in fiscal year 2016, including a small site consolidation and realignment of sales strategies in our early discovery business have been successful resulting in the stabilization of the business in fiscal year 2017 and in attracting new clients, including a growing base of biotechnology clients. Demand for our in vivo discovery services continued to increase in fiscal year 2017, and we acquired Brains On-Line in August 2017 to enhance our position as the premier single-source provider for a broad portfolio of discovery CNS services. In addition, we acquired KWS BioTest Limited in January 2018 to enhance our discovery expertise, with complementary offerings that provide our customers with additional tools in the active therapeutic research areas of oncology and immunology.

Demand for our products and services that support our clients’ manufacturing activities was also robust in fiscal year 2017. Demand for our Microbial Solutions business remained strong as manufacturers continued to increase their use of our rapid microbial testing solutions. Our Biologics business continued to benefit from increased demand for services associated with the growing proportion of biologic drugs in the pipeline and on the market. To support this increased demand, we continue to expand the capacity of our Biologics business.

Demand for our Research Models and Services was stable in fiscal year 2017. Demand for research models in mature markets outside of China declined modestly, partially offset by improved pricing. The continued effect of the consolidation of internal infrastructure within our large biopharmaceutical clients and a longer-term trend towards more efficient use of research models has led to reduced demand for research models. Demand for research models in China continued to be robust in fiscal year 2017, as clients in this growing market continue to value our high-quality research models. To accommodate increased demand, we opened a new research models facility in China in late 2017. Demand for research models services also improved in fiscal year 2017, particularly for our GEMS and IS businesses. We are confident that research models and services will remain essential tools for our clients’ drug discovery and early-stage development efforts, and the RMS business will continue to be an important source of cash flow generation for us.

Overview of Results of Operations and Liquidity

Revenue for fiscal year 2017 was $1,857.6 million compared to $1,681.4 million in fiscal year 2016. The 2017 increase as compared to the corresponding period in 2016 was $176.2 million, or 10.5%, and was primarily due to growth in our DSA and Manufacturing segments, as discussed in the above “Business Trends” section.

In fiscal year 2017, our operating income and operating income margin were $287.5 million and 15.5%, respectively, compared with $237.4 million and 14.1%, respectively, in fiscal year 2016. The increase in operating income and operating income margin was primarily due to increased demand in our DSA and Manufacturing segments, the effects of our recent acquisitions, and various productivity initiatives.

Net income attributable to common shareholders decreased to $123.4 million in fiscal year 2017, from $154.8 million in the corresponding period of 2016. The decrease in net income attributable to common shareholders of $31.4 million was primarily due to an increase in the provision for income taxes of $104.6 million as a result of U.S. Tax Reform, partially offset by an increase in operating income as discussed above, as well as a gain of $10.6 million on the CDMO divestiture and an increase of $12.6 million in gains on our venture capital investments.

During fiscal year 2017, our cash flows from operations was $318.1 million compared with $316.9 million for fiscal year 2016. The increase was primarily driven by positive changes in operating assets and liabilities due to the recognition of a tax payable in connection with the recent U.S. Tax Reform, and the timing of our accounts payable and accrued compensation payments. These increases were partially offset by a decrease in income from continuing operations.

In the fourth quarter of fiscal 2017, as part of our efficiency initiatives, we committed to a plan to close our RMS production facility in Maryland before the end of 2018, consolidate production in other facilities, and to reduce our workforce at certain other global RMS facilities. Total costs recognized in the fourth quarter of fiscal 2017 were $18.1 million, of which $17.7 million related to asset impairments and accelerated depreciation. Additional costs are expected to be incurred during 2018 resulting from accelerated lease obligations, severance and transition costs, and site consolidation costs in the range of $6.5 million to $7.5 million.

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.

We believe that the application of our accounting policies, each of which require significant judgments and estimates on the part of management, are the most critical to aid in fully understanding and evaluating our reported financial results. 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.

We believe the following represent our critical accounting policies and estimates used in the preparation of our financial statements:

Revenue Recognition

We recognize revenue when all of the following conditions are satisfied: persuasive evidence of an arrangement exists, delivery has occurred or services have been provided, our price to the customer is fixed or determinable, and collectibility is reasonably assured.

Service revenue is generally evidenced by client contracts, which range in duration from a few weeks to a few years and typically take the form of an agreed upon rate per unit or fixed fee arrangements. Such contracts typically do not contain acceptance provisions based upon the achievement of certain study or laboratory testing results. Revenue of agreed upon rate per unit contracts is recognized as services are performed, based upon rates specified in the contract. In cases where performance spans reporting periods, revenue of fixed fee contracts is recognized as services are performed, measured on the ratio of outputs or performance obligations completed to the total contractual outputs or performance obligations to be provided. Changes in estimated effort to complete the fixed fee contract are reflected in the period in which the change becomes known. Changes in scope of work are common, especially under long-term contracts, and generally result in a change in contract value. Once the parties have agreed to the changes in scope and renegotiated pricing terms, the contract value is amended and revenue is typically recognized as described above.

Most contracts are terminable by the client, either immediately or upon notice. These contracts often require payment to us of expenses to wind down the project, fees earned to date or, in some cases, a termination fee. Such payments are included in revenues when earned.

We recognize product revenue, net of allowances for estimated returns, rebates and discounts, when title and risk of loss pass to customers. When we sell equipment with specified acceptance criteria, we assess our ability to meet the acceptance criteria in order to determine the timing of revenue recognition. We defer revenue until completion of customer acceptance testing if we are not able to demonstrate the ability to meet such acceptance criteria.

A portion of our revenue is from multiple-element arrangements that include multiple products and/or services as deliverables in a single arrangement, with each deliverable, or a combination of the deliverables, representing a separate unit of accounting. We allocate revenues to each element in a multiple-element arrangement based upon the relative selling price of each deliverable. Revenue allocated to each deliverable is then recognized when all revenue recognition criteria are met. Judgments as to the identification of deliverables, units of accounting, the allocation of consideration to the deliverable, and the appropriate timing of revenue recognition are critical with respect to these arrangements.

At the inception of each arrangement that includes milestone payments, we evaluate whether each milestone is substantive. This evaluation includes an assessment of whether (a) the consideration is commensurate with either (1) our performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from our performance to achieve the milestone; (b) the consideration relates solely to past performance; and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. We evaluate factors such as the scientific, clinical, regulatory, and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required, and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment. If a substantive milestone is achieved and collection of the related receivable is reasonably assured, we recognize revenue related to the milestone in its entirety in the period in which the milestone is achieved. If we were to achieve milestones that we consider substantive under any of our revenue arrangements, we may experience significant fluctuations in our revenue from quarter to quarter and year to year depending on the timing of achieving such substantive milestones. In those circumstances where a milestone is not substantive, we recognize as revenue, on the date

the milestone is achieved, an amount equal to the applicable percentage of the performance period that had elapsed as of the date the milestone was achieved, with the balance being deferred and recognized over the remaining period of performance. As of December 30, 2017, we had no significant milestones that were deemed substantive.

We record shipping charges billed to customers in total revenue and record shipping costs in cost of revenue (excluding amortization of intangible assets) for all periods presented.

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. In the event that actual results differ from our estimates, we adjust our estimates in future periods and we may need to establish a valuation allowance, which could materially impact our financial position and results of operations.

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.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as U.S. Tax Reform. U.S. Tax Reform makes broad and complex changes to the U.S. tax code, including, but not limited to, (i) reducing the U.S. federal statutory tax rate from 35% to 21%; (ii) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (iii) generally eliminating U.S federal income taxes on dividends from foreign subsidiaries; (iv) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (v) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (vi) creating the base erosion anti-abuse tax (BEAT), a new minimum tax; (vii) creating a new limitation on deductible interest expense; (viii) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017, and (ix) modifying the officer’s compensation limitation.

The provision for income taxes for fiscal year 2017 includes a $78.5 million estimate for the impact of the enactment of U.S. Tax Reform. The estimated impact of U.S. Tax Reform consists of $73.5 million relating to the one-time transition tax on unrepatriated earnings, $18.2 million of withholding and state taxes relating to withdrawal of our indefinite reinvestment assertion regarding unremitted earnings, and $13.2 million tax benefit for the revaluation of U.S. federal net deferred tax liabilities from 35% to 21%. The final impact of U.S. Tax Reform may differ from these estimates, due to, among other things, changes in interpretations, analysis and assumptions made by management, additional guidance that may be issued by the U.S. Department of the Treasury and the Internal Revenue Service, and any updates or changes to estimates we have utilized to calculate the transition impact. Therefore, our accounting for the elements of U.S. Tax Reform is incomplete. However, we were able to make reasonable estimates of the effects of U.S. Tax Reform.

Prior to the fourth quarter of fiscal year 2017, we asserted that the unremitted earnings of our foreign subsidiaries were deemed indefinitely reinvested as they were required to fund needs outside of the U.S. As a result of the deemed repatriation toll tax and

other effects of U.S. Tax Reform enacted during the fourth quarter of fiscal year 2017, we have withdrawn our indefinite reinvestment assertion for all of our unremitted foreign earnings and have provided deferred taxes of $18.2 million for future withholding and state income taxes upon the repatriation of these earnings. In light of the reduced incremental tax cost of repatriating unremitted earnings, as well as other effects of U.S. Tax Reform, we have determined we can no longer overcome the presumption that all undistributed foreign earnings will ultimately be transferred to the U.S. parent entity.

In fiscal 2017, we adopted Accounting Standard Update (ASU) 2016-09, “Improvements to Employee Share-Based Payment Accounting.” The standard reduces complexity in several aspects of the accounting for employee share-based compensation, including certain income tax consequences. Excess tax benefits and tax deficiencies are recognized in the consolidated statements of income on a prospective basis. The adoption to recognize excess tax benefits and tax deficiencies within the consolidated statements of income on a prospective basis could result in fluctuations in the effective tax rate period-over-period, depending on how many awards vest and the volatility of our stock price. During fiscal year 2017, the impact to the provision for income taxes within the consolidated statements of income was an excess tax benefit of $11.0 million. Further, for fiscal year 2017, we excluded the effect of windfall tax benefits from the hypothetical proceeds used to calculate the repurchase of shares under the treasury stock method for the calculation of diluted earnings per share.

Goodwill and Intangible 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, which represent a significant portion of the purchase price in many of our acquisitions, requires the use of significant judgment with regard to (i) the fair value; and (ii) whether such intangibles are amortizable or non-amortizable and, if the former, the period and the method by which the intangible asset will be amortized. We utilize commonly accepted valuation techniques, such as the income approach and the cost approach, as appropriate, in establishing the fair value of intangible assets. Typically, key assumptions include projections of cash flows that arise from identifiable intangible assets of acquired businesses as well as discount rates based on an analysis of our weighted average cost of capital, adjusted for specific risks associated with the assets.

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.

During fiscal year 2016, we determined that the carrying values of certain DSA intangible assets were not recoverable and recorded an impairment charge of $1.9 million, which was included in costs of services provided (excluding amortization of intangible assets).

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 have the option to first assess qualitative factors to determine whether it is necessary to perform the two-step goodwill impairment test. If we elect this option and believe, as a result of the qualitative assessment, that it is more-likely-than-not that the carrying value of goodwill is not recoverable, the quantitative two-step impairment test is required; otherwise, no further testing is required. Alternatively, we may elect to not first assess qualitative factors and immediately perform the quantitative two-step impairment test. In the first step, 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 the second step of the impairment test is performed in order to determine the implied fair value of our goodwill. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.

In fiscal years 2017, 2016 and 2015, we performed the first step of the two-step 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 2017, 2016 and 2015 impairment tests indicated that goodwill was not impaired.

In the second quarter of 2016, we revised the composition of our reportable segments to align with the view of the business following our acquisition of WIL Research. As a result, goodwill was allocated from our RMS reportable segment to our Manufacturing reportable segment based on the fair value of each business group within its original reporting unit relative to the fair value of that reporting unit. In addition, we completed an assessment of any potential goodwill impairment for all reporting units immediately prior to the reallocation and determined that no impairment existed.

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 which 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.

In fiscal 2017, we recognized $17.7 million of asset impairment and accelerated depreciation charges on the RMS facility in Frederick, Maryland in connection with our global RMS restructuring initiatives.

Pension and Other Post-Retirement Benefit Plans

Several of our U.S. and non-U.S. subsidiaries sponsor defined benefit pension and other post-retirement benefit plans. We recognize the funded status of our defined benefit pension and other postretirement benefit plans as an asset or liability. This amount is defined as the difference between the fair value of plan assets and the benefit obligation. We measure plan assets and benefit obligations as of the date of our fiscal year end.

The cost and obligations of these arrangements are calculated using many assumptions to estimate the benefits that the employee earns while working, the amount of which cannot be completely determined until the benefit payments cease. Major assumptions used in the accounting for these employee benefit plans include the expected return on plan assets, withdrawal and mortality rates, discount rate, and rate of increase in employee compensation levels. Assumptions are determined based on our data and appropriate market indicators, and are evaluated each year as of the plans’ measurement date. Should any of these assumptions change, they would have an effect on net periodic pension costs and the unfunded benefit obligation.

The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the projected benefit obligations. In determining the expected long-term rate of return on plan assets, we consider the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance.

The discount rate reflects the rate we would have to pay to purchase high-quality investments that would provide cash sufficient to settle our current pension obligations.

The rate of compensation increase reflects the expected annual salary increases for the plan participants based on historical experience and the current employee compensation strategy.

In fiscal year 2017, new mortality improvement scales were issued in the U.S. and United Kingdom (U.K) reflecting a decline in longevity projection from the 2016 releases that we adopted, which decreased our benefit obligations by $5.2 million as of

December 30, 2017. In fiscal year 2016, new mortality improvement scales were issued in the U.S. reflecting a decline in longevity projection from the 2015 releases that we adopted, which decreased our benefit obligations by $1.3 million as of December 31, 2016.

Stock-Based Compensation

We grant stock options, restricted stock, restricted stock units (RSUs), and performance share units (PSUs) to employees, and stock options, restricted stock, and RSUs to non-employee directors under stock-based compensation plans. We make certain assumptions in order to value and record expense associated with awards made under our stock-based compensation arrangements. Changes in these assumptions may lead to variability with respect to the timing and amount of expense we recognize in connection with share-based payments.

Determining the appropriate valuation model and related assumptions requires judgment. The fair value of stock options granted is calculated using the Black-Scholes model and the fair value of PSUs is calculated using a lattice model with a Monte Carlo simulation, both of which require the use of subjective assumptions including volatility and expected term, among others.

Determining the appropriate amount to expense based on the anticipated achievement of PSU’s performance targets requires judgment, including forecasting the achievement of future financial targets. The estimate of expense is revised periodically based on the probability of achieving the required performance targets. The cumulative impact of any changes to our estimates is reflected in the period of change.

Due to our adoption in fiscal 2017 of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”, we elected to change our accounting policy to account for forfeitures when they occur on a modified retrospective basis, which resulted in an immaterial impact on our consolidated financial statements and related disclosures.

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.

Results of Operations

Fiscal Year 2017 Compared to Fiscal Year 2016

Revenue

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

	Fiscal Year
	2017				2016				$ change				% change			Impact of FX
	(in millions, except percentages)
RMS	$	493.6			$	494.0			$	(0.4	)		(0.1	)%		(0.2	)%
DSA	980.0				836.6				143.4				17.1	%		(0.2	)%
Manufacturing	384.0				350.8				33.2				9.5	%		0.7	%
Total revenue	$	1,857.6			$	1,681.4			$	176.2			10.5	%		0.0	%

	Fiscal Year
	2017				2016				$ change				% change
	(in millions, except percentages)
Service revenue	$	1,298.3			$	1,130.7			$	167.6			14.8	%
Product revenue	559.3				550.7				8.6				1.6	%
Total revenue	$	1,857.6			$	1,681.4			$	176.2			10.5	%

RMS revenue decreased $0.4 million due to lower research model revenue outside of China, lower service revenue in the RADS business, and the negative effect of changes in foreign currency exchange rates; partially offset by higher research model product revenue in China, and higher research model services revenue attributable to the IS and GEMS businesses.

DSA revenue increased $143.4 million due primarily to increased demand from mid-tier biotechnology clients and global biopharmaceuticals clients. The Safety Assessment business had higher service revenue as a result of the WIL Research acquisition, which contributed $62.5 million to service revenue growth, as well as growth of the legacy business, including favorable volume, mix of services, and pricing; and the Discovery Services business had higher service revenue, primarily as a result of the acquisitions of Agilux and Brains On-Line that contributed $28.6 million and $4.9 million to service revenue growth, respectively; partially offset by the negative effect of changes in foreign currency exchange rates.

Manufacturing revenue increased $33.2 million due primarily to higher demand for endotoxin products in the Microbial Solutions business; increased demand in the Biologics business, which included the acquisition of Blue Stream that contributed $3.5 million to service revenue growth; and positive effect of changes in foreign current exchange rates; partially offset by the absence of $10.9 million of service revenue related to the CDMO business; and lower product revenue in the Avian business.

Cost of Services Provided and Products Sold (Excluding Amortization of Intangible Assets)

The following tables present consolidated costs of services provided and products sold (excluding amortization of intangible assets) (Costs) by reportable segment and by type:

	Fiscal Year
	2017				2016				$ change				% change
	(in millions, except percentages)
RMS	$	317.0			$	292.8			$	24.2			8.3	%
DSA	660.6				572.4				88.2				15.4	%
Manufacturing	177.7				169.5				8.2				4.8	%
Total cost of services provided and products sold (excluding amortization of intangible assets)	$	1,155.3			$	1,034.7			$	120.6			11.6	%

	Fiscal Year
	2017				2016				$ change				% change
	(in millions, except percentages)
Cost of services provided	$	865.6			$	757.7			$	107.9			14.2	%
Cost of products sold	289.7				277.0				12.7				4.6	%
Total cost of services provided and products sold (excluding amortization of intangible assets)	$	1,155.3			$	1,034.7			$	120.6			11.6	%

Costs for fiscal year 2017 increased $120.6 million, or 11.6%, compared to fiscal year 2016. Costs as a percentage of revenue for fiscal year 2017 were 62.2%, an increase of 0.7%, from 61.5% for fiscal year 2016.

RMS Costs increased $24.2 million due primarily to higher restructuring costs associated with the planned closure of our production facility in Maryland; increased employee compensation costs and increased facility investments in China; partially offset by the favorable effect of changes in foreign currency exchange rates. RMS Costs as a percentage of revenue for fiscal year 2017 were 64.2%, an increase of 4.9%, from 59.3% for fiscal year 2016, due primarily to lower research model volume, higher restructuring charges, higher compensation costs, and facility investments.

DSA Costs increased $88.2 million due primarily to an increase in Safety Assessment Costs, which included a higher service cost base due to the WIL Research acquisition and the growth of the legacy services business, and higher compensation; an increase in Discovery Services Costs, which included a higher service cost base due to the acquisitions of Agilux and Brains On-Line, and higher compensation costs; partially offset by higher restructuring costs incurred during 2016 associated with site consolidations to help improve productivity; and the favorable effect of changes in foreign currency exchange rates. DSA Costs as a percentage of revenue for fiscal year 2017 were 67.4%, a decrease of 1.0%, from 68.4% for fiscal year 2016, due primarily to higher volume, favorable pricing, and productivity improvements.

Manufacturing Costs increased $8.2 million due primarily to an increase in Microbial Solutions Costs resulting from higher demand of endotoxin products; an increase in Biologics Costs resulting from the growth of the business and the acquisition of Blue Stream; and the unfavorable effect of changes in foreign currency exchange rates; partially offset by a decrease in CDMO Costs related to the divestiture of the CDMO business. Manufacturing Costs as a percentage of revenue for fiscal year 2017 were 46.3%, a decrease of 2.0%, from 48.3% for fiscal year 2016, due primarily to higher volume, favorable pricing, and productivity improvements.

Selling, General and Administrative Expenses

	Fiscal Year
	2017				2016				$ change				% change
	(in millions, except percentages)
RMS	$	60.2			$	62.5			$	(2.3	)		(3.7	)%
DSA	105.5				98.3				7.2				7.3	%
Manufacturing	72.5				65.1				7.4				11.4	%
Unallocated corporate	135.2				141.6				(6.4		)		(4.6	)%
Total selling, general and administrative	$	373.4			$	367.5			$	5.9			1.6	%

Selling, general and administrative expenses (SG&A) for fiscal year 2017 increased $5.9 million, or 1.6%, compared with fiscal year 2016. SG&A as a percentage of revenue for fiscal year 2017 was 20.1%, a decrease of 1.8%, from 21.9% for fiscal year 2016, which was driven by the RMS and DSA segments, as well as a reduction in unallocated corporate spend, as discussed below.

The decrease in RMS SG&A of $2.3 million was primarily related to a decrease in operating expenses, including information technology infrastructure and facility expenses. RMS SG&A as a percentage of revenue for fiscal year 2017 was 12.2%, a decrease of 0.4%, from 12.6% for fiscal year 2016.

The increase in DSA SG&A of $7.2 million was primarily related to an increase in compensation, benefits, and other employee-related expenses to support the growth of the business. DSA SG&A as a percentage of revenue for fiscal year 2017 was 10.8%, a decrease of 1.0%, from 11.8% for fiscal year 2016.

The increase in Manufacturing SG&A of $7.4 million was primarily related to an increase in compensation, benefits, and other employee-related expenses to support the growth of the business. Manufacturing SG&A as a percentage of revenue for fiscal year 2017 was 18.9%, an increase of 0.3%, from 18.6% for fiscal year 2016.

The decrease in unallocated corporate SG&A of $6.4 million was primarily related to a decrease in costs associated with the evaluation and integration of acquisitions, and decrease in information technology infrastructure related expenses; partially offset by an increase in compensation, benefits, and other employee-related expenses.

Amortization of Intangible Assets Amortization of intangible assets for fiscal year 2017 was $41.4 million, a decrease of $0.3 million, or 0.8%, from $41.7 million for fiscal year 2016, due primarily to certain intangible assets becoming fully amortized and the disposal of certain amortizable intangible assets in connection with the CDMO business divestiture; partially offset by the amortization of certain intangible assets acquired in connection with our recent acquisitions.

Interest Income Interest income, which represents earnings on cash, cash equivalents, and time deposits was $0.7 million for fiscal year 2017, a decrease of $0.6 million, or 47.5%, compared to $1.3 million for fiscal year 2016.

Interest Expense Interest expense for fiscal year 2017 was $29.8 million, an increase of $2.1 million, or 7.5%, compared to $27.7 million for fiscal year 2016. The increase was due primarily to higher average balances outstanding and higher average interest rates under our $1.65B Credit Facility; partially offset by the increase in fiscal year 2016 attributed to the write-off of a portion of debt issuance costs in connection with the modification of our prior $1.3B Credit Facility.

Other Income, Net Other income, net, was $38.5 million for fiscal year 2017, an increase of $26.6 million, or 224.0%, compared to $11.9 million for fiscal year 2016. The increase in other income, net was driven by an increase of $12.6 million in gains recognized related to our venture capital investments, a $10.6 million gain recognized as a result of the divestiture of the CDMO business, and higher net gains on life insurance policy investments of $2.0 million.

Income Taxes Income tax expense was $171.4 million for fiscal year 2017, an increase of $104.6 million, compared to $66.8 million for fiscal year 2016. Our effective tax rate was 57.7% for fiscal year 2017, compared to 30.0% for fiscal year 2016. The increase was primarily driven by the one-time transition tax on unrepatriated foreign earnings mandated by U.S. Tax Reform, the change of our assertion of indefinite reinvestment of foreign earnings, and a gain on the divestiture of the CDMO business. These increases are net of decreases relating to the excess tax benefits from stock-based compensation due to the adoption of ASU 2016-09, as well as the revaluation of U.S. net deferred tax liabilities to 21% based on enacted U.S. Tax Reform.

Fiscal Year 2016 Compared to Fiscal Year 2015

Revenue

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

	Fiscal Year
	2016				2015				$ change				% change			Impact of FX
	(in millions, except percentages)
RMS	$	494.0			$	470.4			$	23.6			5.0	%		(0.2	)%
DSA	836.6				612.2				224.4				36.7	%		(2.7	)%
Manufacturing	350.8				280.7				70.1				25.0	%		(0.8	)%
Total revenue	$	1,681.4			$	1,363.3			$	318.1			23.3	%		(1.5	)%

	Fiscal Year
	2016				2015				$ change				% change
	(in millions, except percentages)
Service revenue	$	1,130.7			$	858.2			$	272.5			31.7	%
Product revenue	550.7				505.1				45.6				9.0	%
Total revenue	$	1,681.4			$	1,363.3			$	318.1			23.3	%

Revenue for fiscal year 2016 increased $318.1 million, or 23.3%, compared with fiscal year 2015. The negative effect of changes in foreign currency exchange rates decreased revenue by $20.0 million, or 1.5%, when compared to the prior year.

RMS revenue increased $23.6 million due to higher research model services revenue in North America, Europe, and Japan and higher research model product revenue in North America, Europe, and Asia; partially offset by the negative effect of changes in foreign currency exchange rates.

DSA revenue increased $224.4 million due to higher service revenue in the Safety Assessment business, primarily as a result of the WIL Research acquisition that contributed $163.5 million to service revenue growth, and increased study volume, mix of services, and pricing in our legacy business; and higher service revenue in Discovery Services’ In Vivo business, which includes the acquisitions of Oncotest and Agilux that contributed $14.6 million to service revenue growth; partially offset by lower Early Discovery service revenue due primarily to softer demand from global clients; and the negative effect of changes in foreign currency exchange rates.

Manufacturing revenue increased $70.1 million due to higher revenue in the Microbial Solutions business, which includes the acquisition of the Celsis business that contributed $17.9 million to revenue product growth; higher service revenue in the Biologics business, which includes the Blue Stream acquisition that contributed $4.1 million to service revenue growth; higher product revenue in the Avian business, primarily due to the acquisition of the Sunrise business that contributed $4.9 million to product revenue growth; and Contract Manufacturing service revenue related to the CDMO services of WIL Research acquired in April 2016 that contributed $12.6 million to service revenue growth; partially offset by the negative effect of changes in foreign currency exchange rates.

Cost of Services Provided and Products Sold (Excluding Amortization of Intangible Assets)

The following tables presents consolidated cost of services provided and products sold (excluding amortization of intangible assets) by reportable segment:

	Fiscal Year
	2016				2015				$ change				% change
	(in millions, except percentages)
RMS	$	292.8			$	284.2			$	8.6			3.0	%
DSA	572.4				407.0				165.4				40.6	%
Manufacturing	169.5				141.0				28.5				20.3	%
Total cost of services provided and products sold (excluding amortization of intangible assets)	$	1,034.7			$	832.2			$	202.5			24.3	%

	Fiscal Year
	2016				2015				$ change				% change
	(in millions, except percentages)
Cost of services provided	$	757.7			$	568.2			$	189.5			33.4	%
Cost of products sold	277.0				264.0				13.0				4.9	%
Total cost of services provided and products sold (excluding amortization of intangible assets)	$	1,034.7			$	832.2			$	202.5			24.3	%

Costs for fiscal year 2016 increased $202.5 million, or 24.3%, compared with fiscal year 2015. Costs as a percentage of revenue for fiscal year 2016 were 61.5%, an increase of 0.5%, from 61.0% for fiscal year 2015.

RMS Costs increased $8.6 million due primarily to the growth of the business, partially offset by cost savings achieved as a result of our efficiency initiatives. RMS Costs as a percentage of revenue for fiscal year 2016 were 59.3%, a decrease of 1.1%, from 60.4% for fiscal year 2015.

DSA Costs increased $165.4 million due primarily to an increase in Safety Assessment Costs, which included a higher service cost base due to the acquisition of WIL Research, the growth of the legacy business; an increase in Discovery Services Costs, which included a higher service cost base due to the acquisitions of Oncotest and Agilux; a charge of $1.9 million related to an impairment of certain intangibles; and a restructuring charge of $9.4 million related to the consolidation of small DSA facilities in the U.S., Ireland, and the U.K.; partially offset by the favorable effect of changes in foreign currency exchange rates. DSA Costs as a percentage of revenue for fiscal year 2016 were 68.4%, an increase of 1.9%, from 66.5% for fiscal year 2015, primarily due to the acquisition of WIL Research.

Manufacturing Costs increased $28.5 million due primarily to an increase in Biologics Costs resulting from the growth of the business and the acquisition of Blue Stream; an increase in Contract Manufacturing Costs related to the CDMO services of WIL Research acquired in April 2016; an increase in Microbial Solutions Costs resulting from the acquisition of Celsis and the growth of the legacy business; and an increase in Avian Costs, primarily due to the acquisition of the Sunrise business; partially offset by $4.1 million due to lower amortization of inventory fair value adjustments related to the Celsis acquisition. Manufacturing Costs as a percentage of revenue for fiscal year 2016 were 48.3%, a decrease of 1.9%, from 50.2% for fiscal year 2015.

Selling, General and Administrative Expenses

	Fiscal Year
	2016				2015				$ change				% change
	(in millions, except percentages)
RMS	$	62.5			$	62.1			$	0.4			0.5	%
DSA	98.3				69.2				29.1				42.0	%
Manufacturing	65.1				57.9				7.2				12.5	%
Unallocated corporate	141.6				111.2				30.4				27.4	%
Total selling, general and administrative	$	367.5			$	300.4			$	67.1			22.3	%

SG&A for fiscal year 2016 increased $67.1 million, or 22.3%, compared with fiscal year 2015. SG&A as a percentage of revenue for fiscal year 2016 was 21.9%, a decrease of 0.1%, from 22.0% for fiscal year 2015.

The increase in RMS SG&A of $0.4 million was related to an increase of $1.3 million in external consulting and other service expenses; an increase of $0.5 million in operating expenses, including information technology infrastructure and facility expenses; an increase of $0.3 million in compensation, benefits, and other employee-related expenses; and an increase of $0.2 million in stock-based compensation expense; partially offset by a decrease of $0.8 million in severance expense; a decrease of $0.3 million in costs associated with the evaluation and integration of acquisitions; a decrease of $0.2 million in bad debt expense; and a decrease of $0.6 million in other expenses. RMS SG&A as a percentage of revenue for fiscal year 2016 was 12.6%, a decrease of 0.6%, from 13.2% for fiscal year 2015.

The increase in DSA SG&A of $29.1 million was related to an increase of $12.5 million in compensation, benefits, and other employee-related expenses; an increase of $5.9 million in operating expenses, including information technology infrastructure and facility expenses; an increase of $5.7 million in costs associated with the evaluation and integration of acquisitions; an increase of $2.9 million in severance expense; an increase of $1.5 million in external consulting and other service expenses; an increase of $1.3 million in depreciation expense; an increase of $1.2 million in stock-based compensation expense; and an increase of $0.3 million in other expenses; partially offset by a decrease of $2.2 million in bad debt expense. DSA SG&A as a percentage of revenue for fiscal year 2016 was 11.8%, an increase of 0.5%, from 11.3% for fiscal year 2015.

The increase in Manufacturing SG&A of $7.2 million was related to an increase of $6.7 million in compensation, benefits, and other employee-related expenses; an increase of $1.2 million in external consulting and other service expenses; an increase of $1.0 million in operating expenses, including information technology infrastructure and facility expenses; an increase of $0.7 million in stock-based compensation; and an increase of $0.6 million in other expenses; partially offset by a decrease of $1.8 million in severance expense; a decrease of $1.0 million in costs associated with the evaluation and integration of acquisitions; and a decrease of $0.2 million in depreciation expense. Manufacturing SG&A as a percentage of revenue for fiscal year 2016 was 18.6%, a decrease of 2.0%, from 20.6% for fiscal year 2015.

The increase in unallocated corporate SG&A of $30.4 million was related to an increase of $8.0 million in external consulting and other service expenses; an increase of $6.2 million in compensation, benefits, and other employee-related expenses; an increase of $4.8 million in information technology expenses; an increase of $4.0 million in costs associated with the evaluation and integration of acquisitions; an increase of $1.5 million in stock-based compensation; an increase of $1.0 million in depreciation expense; and an increase of $4.9 million in other expenses.

Amortization of Intangible Assets Amortization of intangibles for fiscal year 2016 was $41.7 million, an increase of $17.5 million, or 72.1%, from $24.2 million for fiscal year 2015, due primarily to certain intangibles acquired in connection with the Agilux, Blue Stream, WIL Research, Oncotest, Celsis, and Sunrise acquisitions.

Interest Income Interest income, which represents earnings on held cash, cash equivalents, and time deposits was $1.3 million for fiscal year 2016, an increase of $0.3 million, or 26.0%, compared to $1.0 million for fiscal year 2015.

Interest Expense Interest expense for fiscal year 2016 was $27.7 million, an increase of $12.6 million, or 83.8%, compared to $15.1 million for fiscal year 2015. The increase was primarily due to the write-off of a portion of debt issuance costs in connection with the modification of our $1.3B Credit Facility, a higher average debt balance outstanding as a result of business acquisitions, a higher average interest rate as a result of a higher leverage ratio, and an increased interest expense related to capital leases.

Other Income, Net Other income, net, was $11.9 million for fiscal year 2016, an increase of $8.9 million, or 295.5%, compared to $3.0 million for fiscal year 2015. The increase in other income, net was driven by the absence of an expense of $10.4 million due to a reversal of the indemnification asset associated with a previous acquisition in the corresponding period in 2015; an increase of $6.5 million in gains on our venture capital investments accounted for under the equity method; a higher net gain of $2.1 million on life insurance policy investments; a $0.7 million gain on remeasurement of previously held equity interest in an entity acquired in a step acquisition; and an increase of $0.6 million in other activity; partially offset by the absence of a bargain purchase gain of $9.9 million associated with the acquisition of Sunrise in May 2015; and a $1.5 million charge recorded in connection with the modification of the option to purchase the remaining 13% equity interest in Vital River.

Income Taxes Income tax expense was $66.8 million for fiscal year 2016, an increase of $23.4 million, compared to $43.4 million for fiscal year 2015. Our effective tax rate was 30.0% in the fiscal year 2016, compared to 22.2% in the fiscal year 2015. The increase was primarily driven by non-deductible expenses associated with acquisitions and restructurings. In addition, we recognized a reduction in unrecognized tax benefits and related interest of $10.4 million due to the expiration of the statute of limitations associated with pre-acquisition tax positions on the forgiveness of debt and a non-taxable bargain purchase gain of $9.9 million associated with the acquisition of Sunrise in fiscal year 2015.

Liquidity and Capital Resources

We currently require cash to fund our working capital needs, capital expansion, acquisitions, pay our debt and pension obligations. Our principal sources of liquidity have been our cash flows from operations, 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 investments:

	December 30, 2017				December 31, 2016
	(in millions)
Cash and cash equivalents:
Held in U.S. entities	$	30.6			$	10.6
Held in non-U.S. entities	133.2				107.0
Total cash and cash equivalents	163.8				117.6
Investments:
Held in U.S. entities	—				—
Held in non-U.S. entities	28.5				3.8
Total cash, cash equivalents and investments	$	192.3			$	121.4

Borrowings

On March 30, 2016, we amended and restated our $1.3 billion credit facility, creating our $1.65B Credit Facility which (1) extended the maturity date for the credit facility, and (2) made certain other amendments in connection with our acquisition of WIL Research. The $1.65B Credit Facility provides for up to $1.65 billion in financing, including a $650.0 million term loan facility and a $1.0 billion multi-currency revolving credit facility. The term loan facility matures in 19 quarterly installments, with the last installment due March 30, 2021. The revolving credit facility matures on March 30, 2021, and requires no scheduled payment before that date.

Amounts outstanding under the $1.65B Credit Facility were as follows:

	December 30, 2017				December 31, 2016
	(in millions)
Term loans	$	601.3			$	633.8
Revolving credit facility	501.0				578.8
Total	$	1,102.3			$	1,212.6

Under specified circumstances, we have the ability to increase the term loan facility and/or revolving credit facility by up to $500.0 million in the aggregate. The interest rates applicable to the term loan and revolving loans under the $1.65B Credit Facility are, at our 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%) or the adjusted LIBOR rate, plus an interest rate margin based upon our leverage ratio.

In connection with our plan to acquire MPI Research, our intention is to increase our debt level by approximately $830 million as we obtained a commitment for a bridge loan facility. We are evaluating fixed-rate debt financing alternatives which could be used to finance the acquisition and for general corporate purposes.

Repurchases of Common Stock

On May 9, 2017, our Board of Directors increased the stock repurchase authorization by $150.0 million, to an aggregate amount of $1.3 billion. During fiscal year 2017, we repurchased 1.0 million shares for $90.6 million under our authorized stock repurchase program. As of December 30, 2017, 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, RSUs, and PSUs in order to satisfy individual statutory tax withholding requirements. During fiscal year 2017, we acquired 0.2 million shares for $16.3 million through such netting.

Cash Flows

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

	Fiscal Year
	2017				2016				2015
	(in millions)
Income from continuing operations	$	125.6			$	156.1			$	152.0
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities	186.6				174.3				126.6
Changes in assets and liabilities	5.9				(13.5		)		28.2
Net cash provided by operating activities	$	318.1			$	316.9			$	306.8

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 income from continuing operations for (1) non-cash operating items such as depreciation and amortization, stock-based compensation, deferred income taxes, gains on venture capital investments and divestiture, and impairment charges, 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. Net cash provided by operating activities increased from fiscal year 2016 to 2017. The increase was primarily driven by positive changes in operating assets and liabilities due to the recognition of a tax payable in connection with the recent U.S. Tax Reform, and the timing of our accounts payable and accrued compensation payments. These increases were partially offset by a decrease in income from continuing operations. The increase in net cash provided by operating activities from fiscal year 2015 to 2016 was primarily driven by higher income from continuing operations partially offset by a negative change in operating assets and liabilities. Our days sales outstanding, which includes deferred revenue as an offset to accounts receivable but is not adjusted for an allowance for doubtful accounts in the calculation, was 60 days as of December 30, 2017, compared to 52 days as of December 31, 2016, and 51 days as of December 26, 2015. The increase was primarily driven by changes in the timing of certain working capital items related to integration of the information systems of WIL Research, which the Company acquired in 2016, and timing of deferred revenue.

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

	Fiscal Year
	2017				2016				2015
	(in millions)
Acquisition of businesses and assets, net of cash acquired	$	(25.0	)		$	(648.5	)		$	(247.7	)
Capital expenditures	(82.4		)		(55.3		)		(63.3		)
Investments, net	(37.2		)		7.4				(14.4		)
Proceeds from divestiture	72.5				—				—
Other, net	(0.5		)		3.7				(2.2		)
Net cash used in investing activities	$	(72.6	)		$	(692.7	)		$	(327.6	)

The primary use of cash used in investing activities in fiscal year 2017 related to our capital expenditures to support the growth of the business, net investment activity, and our acquisition of Brains On-Line, partially offset by the proceeds from the divestiture of the CDMO business. The primary use of cash in fiscal year 2016 was related to our acquisitions of WIL Research for $577.4 million, net of cash acquired; Agilux for $62.0 million, net of cash acquired; and Blue Stream for $8.7 million, net of cash acquired; as well as our capital expenditures; partially offset by proceeds from the sale of investments, net of purchases of investments and contributions to venture capital investments. The principal use of cash in fiscal year 2015 was related to our acquisitions of Celsis for $202.0 million, net of cash acquired; Oncotest for $35.2 million, net of cash acquired; and Sunrise for $9.6 million, net of cash acquired; as well as our capital expenditures.

The following table presents our net cash (used in) provided by financing activities:

	Fiscal Year
	2017				2016				2015
	(in millions)
Proceeds from long-term debt and revolving credit facility	$	236.8			$	1,044.7			$	492.5
Proceeds from exercises of stock options	38.9				23.2				39.3
Payments on long-term debt, revolving credit facility, and capital lease obligations	(372.4		)		(656.6		)		(417.3		)
Purchase of treasury stock	(106.9		)		(12.3		)		(117.5		)
Other, net	(4.9		)		(18.2		)		(4.3		)
Net cash (used in) provided by financing activities	$	(208.5	)		$	380.8			$	(7.3	)

For fiscal year 2017, cash used in financing activities reflected net payments of $135.6 million on long-term debt, revolving credit facility, and capital lease obligations; and treasury stock purchases of $106.9 million made pursuant to our authorized stock repurchase program and the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements; partially offset by proceeds from exercises of employee stock options of $38.9 million. For fiscal year 2016, cash provided by financing activities reflected net borrowings of $388.0 million and proceeds from exercises of employee stock options of $23.2 million; partially offset by treasury stock purchases of $12.3 million due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements and other activity. For fiscal year 2015, cash used in financing activities reflected treasury stock purchases of $117.5 million made pursuant to our authorized stock repurchase program; partially offset by net borrowings of $75.2 million; proceeds from exercises of employee stock options of $39.3 million, and other activity.

Contractual Commitments and Obligations

Minimum future payments of our contractual obligations as of December 30, 2017 are as follows:

	Payments Due by Period
	Total				Less than 1 Year				1 - 3 Years				3 - 5 Years				More Than 5 Years
	(in millions)
Notes payable (1)	$	1,102.4			$	28.5			$	134.1			$	939.8			$	—
Operating leases (2)	144.1				25.4				43.9				29.7				45.1
Capital leases	43.2				3.6				6.2				5.1				28.3
Redeemable noncontrolling interest (3)	15.8				—				15.8				—				—
Venture capital investment commitments (4)	37.0				26.8				10.2								—
Contingent payments (5)	26.5				3.0				23.5				—				—
Unconditional purchase obligations (6)	90.3				70.5				11.5				8.3				—
Total contractual cash obligations	$	1,459.3			$	157.8			$	245.2			$	982.9			$	73.4

(1)	Notes payable includes the principal payments on our debt.

(2)	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. Amounts reflected within the table detail future minimum rental commitments under non-cancellable operating leases, net of income from subleases, for each of the periods presented.

(3)	The estimated cash obligation for redeemable noncontrolling interest is based on the amount that would be paid if settlement occurred as of the balance sheet date based on the contractually defined redemption value as of December 30, 2017.

(4)	The timing of the remaining capital commitment payments to venture capital funds is subject to the procedures of the limited liability partnerships and limited liability companies; the above table reflects the earliest possible date the payment can be required under the relevant agreements.

(5)	In connection with certain business and asset acquisitions, we agreed to make additional payments aggregating to $26.5 million based upon the achievement of certain financial targets in connection with each acquisition. The contingent payment obligations included in the table above have not been probability adjusted or discounted.

(6)

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.

The above table excludes obligations related to our pension and other post-retirement benefit plans. Refer to Item 8, “Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K for more details.

Tax Related Obligations

We excluded liabilities pertaining to uncertain tax positions from our summary of contractual obligations presented above, as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities. As of December 30, 2017, we had $24.7 million of liabilities associated with uncertain tax positions.

Additionally, we excluded federal and state income tax liabilities of $73.5 million, which is net of a federal benefit of state income tax, from our summary of contractual obligations presented above, relating to the one-time transition tax on unrepatriated earnings under U.S. Tax Reform, of which $12.9 million is expected to be paid within one year. The transition tax will be paid over an eight-year period starting in 2018 and will not accrue interest.

Off-Balance Sheet Arrangements

As of December 30, 2017, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K promulgated under the Exchange Act, except as disclosed below.

MPI Research

On February 12, 2018, we entered into a definitive agreement to acquire MPI Research. In the event the agreement is terminated under specified circumstances, we may be required to pay a termination fee of $48 million, increasing to $56 million based on other specific circumstances. Refer to Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for more details.

Venture Capital Investments

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, 2017 was $88.2 million, of which we funded $51.2 million through December 30, 2017. Refer to Note 4, “Venture Capital Investments and Marketable Securities,” 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.

Letters of Credit

Our off-balance sheet commitments related to our outstanding letters of credit as of December 30, 2017 were $4.9 million.