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 in over 80 facilities and in approximately 20 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

Our strategy is to augment internal growth of existing businesses with complementary acquisitions. We continued to make strategic acquisitions designed to expand our portfolio of services to support the drug discovery and 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 13, 2019, we announced that we signed a binding offer to acquire Citoxlab for €448 million in cash (or approximately $510 million based on current exchange rates), subject to customary closing adjustments. Citoxlab is a non-clinical CRO, specializing in regulated safety assessment services, non-regulated discovery services, and medical device testing. With operations in Europe and North America, the proposed acquisition of Citoxlab would further strengthen our position as the leading, global, early-stage CRO by expanding our scientific portfolio and geographic footprint, which would enhance our ability to partner with clients across the drug discovery and development continuum. The proposed transaction is expected to close in the second quarter of 2019, subject to labor consultations, regulatory requirements, and customary closing

conditions. Upon completion of the labor consultations, Citoxlab’s shareholders are expected to enter into a definitive purchase agreement. The proposed acquisition and associated fees are expected to be financed through our existing revolving credit facility and cash. In the event the agreement is terminated under specified circumstances, we may be required to pay a termination fee of €18.2 million. This business is expected to be reported as part of our DSA reportable segment.

On April 3, 2018, we acquired MPI Research, a non-clinical CRO providing comprehensive testing services to biopharmaceutical and medical device companies worldwide. The acquisition enhances 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 purchase price for MPI Research was $829.7 million in cash, subject to certain post-closing adjustments. The acquisition was funded by borrowings on our $2.3 billion credit facility ($2.3B Credit Facility) as well as the issuance of $500.0 million of our senior notes. The MPI Research business is reported as part of our DSA reportable segment.

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. In addition to the initial purchase price, the transaction includes aggregate, undiscounted contingent payments of up to £3.0 million (approximately $3.8 million based on recent exchange rates), based on future performance. During the three months ended September 29, 2018, the terms of these contingent payments were amended, resulting in a fixed payment of £2.0 million (approximately $2.5 million based on recent exchange rates), due in the first quarter of fiscal year 2019. The KWS BioTest business is 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. In addition to the initial purchase price, the transaction includes aggregate, undiscounted contingent payments of up to €6.7 million (approximately $7.7 million based on recent exchange rates), based on future performance and due in the first quarter of fiscal year 2019 if achieved. 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.

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 meaningfully in fiscal year 2018. 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 2018, from capital markets, partnering with large biopharmaceutical companies, and investment by venture capital. Our full service, early-stage portfolio continued to lead to additional client discussions and new business opportunities in fiscal year 2018, as clients seek to outsource larger portions of their early-stage drug research programs to us.

The primary result of these trends was robust demand for our Safety Assessment services in fiscal year 2018, particularly from biotechnology clients. As a result of this improvement, our Safety Assessment facilities remained well utilized in fiscal year 2018. In order to accommodate increasing client demand, we continued to open modest amounts of capacity at legacy sites, and gained additional capacity through the acquisition of MPI Research in April 2018. Price also improved slightly in fiscal year 2018, as we believe industry capacity utilization continued to increase, as well. 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 five years to enable us to work with clients at the earliest stages of the discovery process. In fiscal year 2018, demand in our Discovery Services business also increased meaningfully, driven by biotechnology clients as many of these clients either initiated or continued to work with us on integrated programs and other projects. Our efforts to enhance our sales strategies and become a trusted scientific partner for our clients’ early-stage programs have been successful, and enabled us to attract new clients for our early discovery services, including a growing base of biotechnology clients. Demand from large biopharmaceutical companies also increased. These clients 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. Demand for our in vivo discovery services continued to increase in fiscal year 2018, and we acquired KWS BioTest in January 2018 to enhance our discovery expertise and provide immuno-oncology capabilities to our clients.

Demand for our products and services that support our clients’ manufacturing activities was also robust in fiscal year 2018. 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 increased in fiscal year 2018, driven by strong demand for research models in China, higher revenue for research model services, and improved pricing. Demand for research models in China continued to be robust in fiscal year 2018, as clients in this growing market continue to value our high-quality research models and we expanded our geographic footprint. Demand for research models services also improved in fiscal year 2018, particularly for our IS and GEMS businesses. The IS business further benefited from being awarded a five-year, $95.7 million contract from the National Institute of Allergy and Infectious Diseases, or NIAID, which commenced in September 2018. 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 outside of China. 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 2018 was $2.3 billion compared to $1.9 billion in fiscal year 2017. The 2018 increase as compared to the corresponding period in 2017 was $408.5 million, or 22.0%, and was primarily due to both growth in our DSA and Manufacturing segments, as discussed in the above “Business Trends” section, as well as the recent acquisitions of MPI Research, KWS BioTest, and Brains On-Line. The positive effect of changes in foreign currency exchange rates increased revenue by $23.7 million, or 1.3%, when compared to the corresponding period in 2017.

In fiscal year 2018, our operating income and operating income margin were $331.4 million and 14.6%, respectively, compared with $288.3 million and 15.5%, respectively, in fiscal year 2017. The increase in operating income was primarily due to our recent acquisitions and increased demand from biotechnology and global biopharmaceutical clients. The decrease in operating income margin was primarily due to increased amortization expense and costs related to our recent acquisitions; as well as continued investments to support future growth of the Company, which includes increased investments in personnel (staffing levels and hourly wage increase), facility expansions (primarily in the RMS, Microbial Solutions, and Biologics businesses), and company-wide IT and infrastructure projects. Offsetting the decreases in operating income margin were the realization of improved volume, mix, and pricing across our products and services portfolio as well as the impact of recent productivity initiatives across all businesses.

Net income attributable to common shareholders increased to $226.4 million in fiscal year 2018, from $123.4 million in the corresponding period of 2017. The increase in net income attributable to common shareholders of $103.0 million was primarily due to the increase in operating income discussed above and a lower effective tax rate driven primarily by net benefits of U.S. Tax Reform; partially offset by lower gains on our venture capital and life insurance policy investments, higher interest expense related to higher debt balances to support our recent acquisitions, and the absence of a gain recorded in other income, net on the CDMO divestiture in 2017.

During fiscal year 2018, our cash flows from operations was $441.1 million compared with $318.1 million for fiscal year 2017. The increase was primarily driven by an increase in income from continuing operations and positive changes in operating assets

and liabilities resulting from an increase in our deferred revenue and customer contract deposits as well as improved collections of our receivables.

On March 26, 2018, we amended and restated our credit facility creating a $2.3B Credit Facility. The $2.3B Credit Facility provides for a $750.0 million term loan and a $1.55 billion multi-currency revolving facility. The term loan facility matures in 19 quarterly installments with the last installment due March 26, 2023. The revolving facility matures on March 26, 2023, and requires no scheduled payment before that date. Under specified circumstances, we have the ability to increase the term loan and/or revolving facility by up to $1.0 billion in the aggregate.

On April 3, 2018, we issued $500.0 million of 5.5% Senior Notes (Senior Notes) due in 2026 in an unregistered offering. Interest on the Senior Notes is payable semi-annually on April 1 and October 1 of each year, beginning on October 1, 2018.

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

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. None of our contracts contained a significant financing component during fiscal year 2018.

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 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.

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.

Accounting Standard Codification Topic 606, “Revenue from Contracts with Customers” (ASC 606) became effective for us on December 31, 2017 and was adopted using the modified retrospective method for all contracts not completed as of the date of adoption. For contracts that were modified before the effective date, we reflected the aggregate effect of all modifications when identifying performance obligations and allocating transaction price in accordance with the practical expedient, which did not have a material effect on the cumulative impact of adopting ASC 606. The reported results for fiscal year 2018 reflect the application of ASC 606 guidance while the historical results for fiscal years 2017 and 2016 were prepared under the guidance of ASC 605, “Revenue Recognition” (ASC 605).

The cumulative effect of applying ASC 606 to all contracts with customers that were not completed as of December 30, 2017 was immaterial. There is no material difference in the reporting of revenue during fiscal year 2018 in accordance with ASC 606 when compared to ASC 605.

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 (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) subjecting certain foreign earnings to U.S. taxation through base erosion anti-abuse tax (BEAT) and global intangible low-taxed income (GILTI); (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.

Our accounting for the elements of U.S. Tax Reform is complete. We have made an accounting policy election to treat taxes due on the GILTI inclusion as a current period expense. See Note 11, “Income Taxes” for further discussion.

In March 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-05, “Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SAB 118).” This standard amends Accounting Standards Codification 740, Income Taxes (ASC 740) to provide guidance on accounting for the tax effects of U.S. Tax Reform pursuant to SAB 118, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from the enactment date of U.S. Tax Reform. This standard is effective upon issuance and we have complied with the amendments.

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The standard allows for reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects arising from the change in the reduction of the U.S. federal statutory income tax rate to 21% from 35%. We elected to early adopt this standard in fiscal year 2018 as permitted on a prospective basis, resulting in a reclassification of $3.3 million from Accumulated other comprehensive income to Retained earnings as a result of remeasuring our deferred tax liabilities related to our pension and other post-retirement benefit plan gains and losses. Our policy is to release material stranded tax effects on a specific identification basis.

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.

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 2018, 2017 and 2016, we elected to perform the quantitative 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 2018, 2017 and 2016 impairment tests indicated that goodwill was not impaired.

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. A 25 basis point change in the discount rate changes the projected benefit obligation by approximately $16 million to $17 million for all our plans.

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 2018, new mortality improvement scales were issued in the U.S. and U.K reflecting a decline in longevity projection from the 2017 releases that we adopted, which decreased our benefit obligations by $1.7 million as of December 29, 2018. In fiscal year 2017, new mortality improvement scales were issued in the U.S. and 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.

On January 31, 2019, we commenced the process to terminate The Charles River Laboratories, Inc. Pension Plan (U.S. Pension Plan) and expect to complete the termination process over the next two years. As part of the planned termination, we re-balanced assets to a target asset allocation of 100% fixed income investments. The change in U.S. Pension Plan investments is intended to provide for a better matching of assets to the characteristics of the liabilities. We intend to take further actions to reduce the volatility of the value of pension assets relative to pension liabilities and to settle remaining liabilities. This includes making such contributions to the U.S. Pension Plan as may be necessary to settle all liabilities, including making lump sum distributions to U.S. Pension Plan participants and purchasing annuity contracts to cover vested benefits for participants who decline to elect a lump sum distribution.

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. Stock-based compensation is recognized as an expense in the consolidated statements of income based on the grant date fair value, adjusted for forfeitures when they occur, over the requisite service period.

Determining the appropriate valuation model and related assumptions requires judgment. The fair value of stock options granted is calculated using the Black-Scholes option-pricing model and the fair value of PSUs is estimated 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.

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 2018 Compared to Fiscal Year 2017

Revenue and Operating Income

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

	Fiscal Year
	2018				2017				$ change				% change
	(in millions, except percentages)
Service revenue	$	1,687.9			$	1,298.3			$	389.6			30.0	%
Product revenue	578.2				559.3				18.9				3.4	%
Total revenue	$	2,266.1			$	1,857.6			$	408.5			22.0	%

	Fiscal Year
	2018				2017				$ change				% change			Impact of FX
	(in millions, except percentages)
RMS	$	519.7			$	493.6			$	26.1			5.3	%		1.6	%
DSA	1,316.9				980.0				336.9				34.4	%		1.1	%
Manufacturing	429.5				384.0				45.5				11.9	%		1.4	%
Total revenue	$	2,266.1			$	1,857.6			$	408.5			22.0	%		1.3	%

The following table presents operating income by reportable segment:

	Fiscal Year
	2018				2017				$ change				% change
	(in millions, except percentages)
RMS	$	136.5			$	114.6			$	21.9			19.1	%
DSA	227.6				182.8				44.8				24.5	%
Manufacturing	136.2				123.9				12.3				9.9	%
Unallocated corporate	(168.9		)		(133.0		)		(35.9		)		27.0	%
Total operating income	$	331.4			$	288.3			$	43.1			15.0	%

The following presents the results from operating income by each of our reportable segments:

RMS

	Fiscal Year
	2018				2017				$ change				% change			Impact of FX
	(in millions, except percentages)
Revenue	$	519.7			$	493.6			$	26.1			5.3	%		1.6	%
Cost of revenue (excluding amortization of intangible assets)	319.8				317.1				2.7				0.9	%
Selling, general and administrative	61.8				60.2				1.6				2.7	%
Amortization of intangible assets	1.6				1.7				(0.1		)		(5.4	)%
Operating income	$	136.5			$	114.6			$	21.9			19.1	%
Operating income % of revenue	26.3		%		23.2		%						3.1	%

RMS revenue increased $26.1 million due primarily to higher research model product revenue in China and higher revenue for research model services. Research model services benefited from a large government contract in the IS business and strong client demand in the GEMS business resulting from increased research and development activity conducted across biotechnology, global biopharmaceutical, and academic institutional clients, and the effect of changes in foreign currency exchange rates; partially offset by lower research model product revenue outside of China.

RMS operating income increased $21.9 million compared to the corresponding period in 2017. RMS operating income as a percentage of revenue for fiscal year 2018 was 26.3%, an increase of 3.1% from 23.2% for the corresponding period in 2017. Operating income and operating income as a percentage of revenue increased due primarily to lower amount of costs associated

with the realignment of our research model production site in Maryland in 2018 compared to 2017. Restructuring costs (recorded primarily within cost of revenue) incurred during 2017 were $18.1 million, which primarily related to non-cash asset impairments and accelerated depreciation charges. Restructuring costs incurred during 2018 were $2.0 million, which primarily related to cash payments for severance and transition costs. Additionally, operating income and operating income as a percentage of revenue increased due to the increased revenue discussed above; partially offset by continued investments to support future growth, including increased investments in personnel (staffing levels and hourly wage increases), and facility expansions (primarily in China) as well as lower operating income margins on the aforementioned large government contract.

DSA

	Fiscal Year
	2018				2017				$ change				% change			Impact of FX
	(in millions, except percentages)
Revenue	$	1,316.9			$	980.0			$	336.9			34.4	%		1.1	%
Cost of revenue (excluding amortization of intangible assets)	903.9				661.7				242.2				36.6	%
Selling, general and administrative	131.2				105.6				25.6				24.3	%
Amortization of intangible assets	54.2				29.9				24.3				81.4	%
Operating income	$	227.6			$	182.8			$	44.8			24.5	%
Operating income % of revenue	17.3		%		18.7		%						(1.4	)%

DSA revenue increased $336.9 million due primarily to the recent acquisitions of MPI Research, KWS BioTest, and Brains On-Line, which contributed $209.5 million, $8.6 million and $6.0 million to service revenue growth, respectively. Additionally, service revenue increased in both the Safety Assessment and Discovery Services businesses due to demand from both biotechnology and global biopharmaceutical clients and favorable pricing and mix of services. The effect of changes in foreign currency exchange rates also increased revenue.

DSA operating income increased $44.8 million compared to the corresponding period in 2017. DSA operating income as a percentage of revenue for fiscal year 2018 was 17.3%, a decrease of 1.4% from 18.7% for the corresponding period in 2017. The increase to operating income was primarily attributable to contributions from recent acquisitions of MPI Research, KWS BioTest, and Brains On-Line. These increases were partially offset by increased costs to support the growth of the Company, which include costs due to the acquisitions, including a higher service cost base, an increase in compensation, benefits, and other employee-related expenses recorded within both cost of revenue and selling, general, and administrative expense, and higher amortization of intangible assets as substantially all of our acquisitions in fiscal year 2018 are included within the DSA reportable segment. These increased costs collectively decreased operating income as a percentage of revenue in 2018 compared to 2017.

Manufacturing

	Fiscal Year
	2018				2017				$ change				% change			Impact of FX
	(in millions, except percentages)
Revenue	$	429.5			$	384.0			$	45.5			11.9	%		1.4	%
Cost of revenue (excluding amortization of intangible assets)	202.3				177.8				24.5				13.8	%
Selling, general and administrative	82.0				72.5				9.5				13.0	%
Amortization of intangible assets	9.0				9.8				(0.8		)		(7.9	)%
Operating income	$	136.2			$	123.9			$	12.3			9.9	%
Operating income % of revenue	31.7		%		32.3		%						(0.6	)%

Manufacturing revenue increased $45.5 million due primarily to higher demand for endotoxin products and species identification services in the Microbial Solutions business, higher service revenue in the Biologics business, higher product revenue in the Avian business, and the effect of changes in foreign currency exchange rates; partially offset by the absence of $1.8 million of service revenue related to the CDMO business.

Manufacturing operating income increased $12.3 million compared to the corresponding period in 2017. Manufacturing operating income as a percentage of revenue for fiscal year 2018 was 31.7%, a decrease of 0.6% from 32.3% for the corresponding period in 2017. The increase to operating income was due primarily to the increase in revenue. This increase was partially offset by increased costs to support the growth of the Company, including increased investments in personnel (staffing

levels and hourly wage increase), facility expansions (primarily in Microbial Solutions and Biologics), and increased investments in technology to support research and development efforts (primarily in Microbial Solutions). Increased costs are recorded in cost of revenue and selling, general, and administrative expenses and these higher costs decreased operating income as a percentage of revenue in 2018 compared to 2017.

Unallocated Corporate

	Fiscal Year
	2018				2017				$ change				% change
	(in millions, except percentages)
Unallocated corporate	$	168.9			$	133.0			$	35.9			27.0	%

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 $35.9 million is consistent with the allocated selling, general, and administrative expense increases discussed above and are primarily related to an increase in compensation, benefits, and other employee-related expenses and an increase in costs associated with the evaluation and integration of our recent acquisitions to support the growth of the Company. Costs as a percentage of revenue for fiscal year 2018 was 7.5%, an increase of 0.3% from 7.2% for the corresponding period in 2017.

Interest Income Interest income, which represents earnings on cash, cash equivalents, and time deposits remained consistent at $0.8 million and $0.7 million for fiscal years 2018 and 2017, respectively.

Interest Expense Interest expense for fiscal year 2018 was $63.8 million, an increase of $34.0 million, or 114.2%, compared to $29.8 million for fiscal year 2017. The increase was due primarily to higher debt to fund our recent acquisitions.

Other Income, Net Other income, net, was $13.3 million for fiscal year 2018, a decrease of $24.5 million, or 64.9%, compared to $37.8 million for fiscal year 2017. The decrease in other income, net was driven by a decrease of $7.0 million in gains recognized related to our venture capital investments, a decrease of $6.0 million in gains related to certain life insurance policies, and the absence of a $10.6 million gain recognized as a result of the CDMO business.

Income Taxes Income tax expense was $54.5 million for fiscal year 2018, a decrease of $116.9 million, compared to $171.4 million for fiscal year 2017. Our effective tax rate was 19.3% for fiscal year 2018, compared to 57.7% for fiscal year 2017. The decrease was primarily driven by the net effects of U.S. Tax Reform, including the reduction of the U.S. federal statutory tax rate from 35% in 2017 to 21% in 2018, as well as the impact of the one-time Transition Tax and change of our assertion of indefinite reinvestment of foreign earnings in 2017. In addition, 2017 includes the impact of the gain on the divestiture of the CDMO business.

Fiscal Year 2017 Compared to Fiscal Year 2016

Revenue and Operating Income

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

	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	%

	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	%

The following table presents operating income by reportable segment:

	Fiscal Year
	2017				2016				$ change				% change
	(in millions, except percentages)
RMS	$	114.6			$	136.4			$	(21.8	)		(16.0	)%
DSA	182.8				135.4				47.4				35.0	%
Manufacturing	123.9				104.6				19.3				18.5	%
Unallocated corporate	(133.0		)		(138.8		)		5.8				4.2	%
Total operating income	$	288.3			$	237.6			$	50.7			21.3	%

The following presents the results from operating income by each of our reportable segments:

RMS

	Fiscal Year
	2017				2016				$ change				% change			Impact of FX
	(in millions, except percentages)
Revenue	$	493.6			$	494.0			$	(0.4	)		(0.1	)%		(0.2	)%
Cost of revenue (excluding amortization of intangible assets)	317.1				292.8				24.3				8.3	%
Selling, general and administrative	60.2				62.5				(2.3		)		(3.7	)%
Amortization of intangible assets	1.7				2.3				(0.6		)		(26.1	)%
Operating income	$	114.6			$	136.4			$	(21.8	)		(16.0	)%
Operating income % of revenue	23.2		%		27.6		%						(4.4	)%

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.

RMS operating income decreased $21.8 million compared to the corresponding period in 2016. RMS operating income as a percentage of revenue for fiscal year 2017 was 23.2%, a decrease of 4.4% from 27.6% for the corresponding period in 2016. Operating income and operating income as a percentage of revenue decreased due primarily to higher restructuring costs (recorded primarily within cost of revenue) associated with the planned closure of our production facility in Maryland; increased employee compensation costs to support the growth of the business; and increased facility investments in China.

DSA

	Fiscal Year
	2017				2016				$ change				% change			Impact of FX
	(in millions, except percentages)
DSA	$	980.0			$	836.6			$	143.4			17.1	%		(0.2	)%
Cost of revenue (excluding amortization of intangible assets)	661.7				575.1				86.6				15.1	%
Selling, general and administrative	105.6				98.3				7.3				7.4	%
Amortization of intangible assets	29.9				27.8				2.1				7.6	%
Operating income	$	182.8			$	135.4			$	47.4			35.0	%
Operating income % of revenue	18.7		%		16.2		%						2.5	%

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.

DSA operating income increased $47.4 million compared to the corresponding period in 2016. DSA operating income as a percentage of revenue for fiscal year 2017 was 18.7%, an increase of 2.5% from 16.2% for the corresponding period in 2016. The increase to operating income was due primarily to the contributions from the acquisitions of WIL Research, Agilux, and Brains On-line. The increase in operating income as a percentage of revenue resulted from the lower restructuring costs

compared to costs incurred in 2016 associated with site consolidations to help improve productivity, lower acquisition costs compared to 2016; partially offset by increased costs to support the growth of the business primarily relating to compensation, benefits, and other employee-related expenses.

Manufacturing

	Fiscal Year
	2017				2016				$ change				% change			Impact of FX
	(in millions, except percentages)
Revenue	$	384.0			$	350.8			$	33.2			9.5	%		0.7	%
Cost of revenue (excluding amortization of intangible assets)	177.8				169.5				8.3				4.9	%
Selling, general and administrative	72.5				65.1				7.4				11.4	%
Amortization of intangible assets	9.8				11.6				(1.8		)		(15.5	)%
Operating income	$	123.9			$	104.6			$	19.3			18.5	%
Operating income % of revenue	32.3		%		29.8		%						2.5	%

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.

Manufacturing operating income increased $19.3 million compared to the corresponding period in 2016. Manufacturing operating income as a percentage of revenue for fiscal year 2017 was 32.3%, an increase of 2.5% from 29.8% for the corresponding period in 2016. The increase to operating income and operating income as a percentage of revenue was due primarily to the increase in revenue; partially offset by increased costs to support the growth of the business including an increase in compensation, benefits, and other employee-related expenses.

Unallocated Corporate

	Fiscal Year
	2017				2016				$ change				% change
	(in millions, except percentages)
Unallocated corporate	$	133.0			$	138.8			$	(5.8	)		(4.2	)%

The decrease in unallocated corporate costs of $5.8 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. Costs as a percentage of revenue for fiscal year 2017 was 7.2%, a decrease of 1.1% from 8.3% for the corresponding period in 2016.

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 $37.8 million for fiscal year 2017, an increase of $26.0 million, or 221.0%, compared to $11.8 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 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.

Liquidity and Capital Resources

We currently require cash to fund our working capital needs, capital expansion, acquisitions, and to 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 29, 2018				December 30, 2017
	(in millions)
Cash and cash equivalents:
Held in U.S. entities	$	67.3			$	30.6
Held in non-U.S. entities	128.1				133.2
Total cash and cash equivalents	195.4				163.8
Investments:
Held in non-U.S. entities	0.9				28.5
Total cash, cash equivalents and investments	$	196.3			$	192.3

Borrowings

On March 26, 2018, we amended and restated our $1.65 billion credit facility, creating our $2.3B Credit Facility which extended the maturity date for the credit facility. The $2.3B Credit Facility provides for a $750.0 million term loan and a $1.55 billion multi-currency revolving facility. The term loan facility matures in 19 quarterly installments with the last installment due March 26, 2023. The revolving facility matures on March 26, 2023, and requires no scheduled payment before that date.

On April 3, 2018, we entered into an indenture (Indenture) with MUFG Union Bank, N.A., in connection with the offering of $500.0 million in aggregate principal amount of the Company’s 5.5% Senior Notes (Senior Notes) due in 2026 in an unregistered offering. Under the terms of the Indenture, interest on the Senior Notes is payable semi-annually on April 1 and October 1 of each year, beginning on October 1, 2018.

Amounts outstanding under our credit facilities and Senior Notes were as follows:

	December 29, 2018				December 30, 2017
	(in millions)
Term loans	$	731.3			$	601.3
Revolving facility	397.5				501.0
Senior Notes	500.0				—
Total	$	1,628.8			$	1,102.3

Under specified circumstances, we have the ability to increase the term loan and/or revolving facility by up to $1.0 billion in the aggregate. The interest rates applicable to the term loan and revolving facility under the $2.3B 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 1.0%) or the adjusted LIBOR rate, plus an interest rate margin based upon our leverage ratio.

The intended acquisition of Citoxlab along with the associated fees are expected to be financed through our existing revolving credit facility and cash.

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 2018, we did not repurchase any shares under our authorized stock repurchase program. As of December 29, 2018, 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 2018, we acquired 0.1 million shares for $13.8 million through such netting.

Cash Flows

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

	Fiscal Year
	2018				2017				2016
	(in millions)
Income from continuing operations	$	227.2			$	125.6			$	156.1
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities	199.1				186.6				174.3
Changes in assets and liabilities	14.8				5.9				(13.5		)
Net cash provided by operating activities	$	441.1			$	318.1			$	316.9

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 2017 to 2018. The increase was primarily driven by an increase in income from continuing operations and positive changes in operating assets and liabilities resulting from an increase in our deferred revenue (primarily due to a one-time up-front payment received in connection with a strategic agreement), an increase in customer contract deposits, as well as improved collections of our receivables. The increase in net cash provided by operating activities from fiscal year 2016 to 2017 was primarily driven by positive changes in operating assets and liabilities due to the recognition of a tax payable in connection with 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 following table presents our net cash used in investing activities:

	Fiscal Year
	2018				2017				2016
	(in millions)
Acquisition of businesses and assets, net of cash acquired	$	(824.9	)		$	(25.0	)		$	(648.5	)
Capital expenditures	(140.1		)		(82.4		)		(55.3		)
Investments, net	10.7				(37.2		)		7.4
Proceeds from divestiture	—				72.5				—
Other, net	(0.7		)		(0.5		)		3.7
Net cash used in investing activities	$	(955.0	)		$	(72.6	)		$	(692.7	)

The primary use of cash used in investing activities in fiscal year 2018 related to our acquisitions of MPI Research and KWS BioTest, and our capital expenditures to support the growth of the business; partially offset by proceeds from net investments, which primarily relate to short-term investments held by our U.K. operations. The primary use of cash 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 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 net investments.

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

	Fiscal Year
	2018				2017				2016
	(in millions)
Proceeds from long-term debt and revolving credit facility	$	2,755.0			$	236.8			$	1,044.7
Proceeds from exercises of stock options	37.7				38.9				23.2
Payments on long-term debt, revolving credit facility, and capital lease obligations	(2,201.0		)		(372.4		)		(656.6		)
Payments on debt financing costs	(18.3		)		—				(3.7		)
Purchase of treasury stock	(13.8		)		(106.9		)		(12.3		)
Other, net	(1.5		)		(4.9		)		(14.5		)
Net cash provided by (used in) financing activities	$	558.1			$	(208.5	)		$	380.8

For fiscal year 2018, net cash provided by financing activities reflected the incremental proceeds from the refinancing of our previous $1.65 Billion Credit Facility to the $2.3 Billion Credit Facility and the proceeds from our $500.0 million Senior Notes. Subsequent to refinancing our $2.3 Billion Credit Facility, we repaid €300 million of our revolving facility borrowed by a non-U.S. Euro functional currency entity and replaced the borrowing with a $343.3 million U.S. dollar denominated loan. A forward currency contract was then executed to mitigate any foreign currency gains or losses on the $343.3 million U.S. dollar denominated loan. Additionally, proceeds from exercises of employee stock options of $37.7 million; partially offset by payments on debt financing costs of $18.3 million, and treasury stock purchases of $13.8 million made due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements. 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.

Contractual Commitments and Obligations

Minimum future payments of our contractual obligations as of December 29, 2018 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)	$	1,628.8			$	28.2			$	103.1			$	997.5			$	500.0
Operating leases (2)	170.1				25.4				43.9				33.9				66.9
Capital leases	40.1				4.0				6.6				5.2				24.3
Redeemable noncontrolling interest (3)	18.5				18.5				—				—				—
Venture capital investment commitments (4)	55.7				39.8				15.9								—
Contingent payments (5)	17.7				3.7				14.0				—				—
Unconditional purchase obligations (6)	145.9				106.7				27.9				11.3				—
Total contractual cash obligations	$	2,076.8			$	226.3			$	211.4			$	1,047.9			$	591.2

(1)	Notes payable includes the principal payments on our debt, which include our $2.3B Credit Facility and our Senior Notes.

(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 29, 2018.

(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 $17.7 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 29, 2018, we had $18.8 million of liabilities associated with uncertain tax positions.

Additionally, we excluded federal and state income tax liabilities of $52.1 million from our summary of contractual obligations presented above, relating to the one-time Transition Tax on unrepatriated earnings under U.S. Tax Reform. The Transition Tax will be paid over an eight-year period which started in 2018 and will not accrue interest.

Off-Balance Sheet Arrangements

As of December 29, 2018, 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.

Citoxlab

On February 13, 2019, we announced that we signed a binding offer to acquire Citoxlab. In the event the agreement is terminated under specified circumstances, we may be required to pay a termination fee of €18.2 million. 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 29, 2018 was $124.7 million, of which we funded $69.0 million through December 29, 2018. Refer to Note 6, “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 29, 2018 were $6.5 million.