Item 8. Financial Statements and Supplementary Data

217K characters. Original on sec.gov · Markdown

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Report of Independent Registered Public Accounting Firm	49
Consolidated Statements of Income for fiscal years 2018, 2017 and 2016	51
Consolidated Statements of Comprehensive Income for fiscal years 2018, 2017 and 2016	52
Consolidated Balance Sheets as of December 29, 2018 and December 30, 2017	53
Consolidated Statements of Cash Flows for fiscal years 2018, 2017 and 2016	54
Consolidated Statements of Changes in Equity for fiscal years 2018, 2017 and 2016	56
Notes to Consolidated Financial Statements	57

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Charles River Laboratories International, Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Charles River Laboratories International, Inc. and its subsidiaries (the “Company”) as of December 29, 2018 and December 30, 2017, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 29, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 29, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 29, 2018 and December 30, 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded MPI Research and KWS BioTest from its assessment of internal control over financial reporting as of December 29, 2018 because they were acquired by the Company in purchase business combinations during 2018. We have also excluded MPI Research and KWS BioTest from our audit of internal control over financial reporting. MPI Research and KWS BioTest are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 5.4% and 9.6% respectively, of the related consolidated financial statement amounts as of and for the year ended December 29, 2018.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and

dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 13, 2019

We have served as the Company’s auditor since 1999.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)



	Fiscal Year
	2018			2017			2016
Service revenue	$	1,687,941		$	1,298,298		$	1,130,733
Product revenue	578,155			559,303			550,699
Total revenue	2,266,096			1,857,601			1,681,432
Costs and expenses:
Cost of services provided (excluding amortization of intangible assets)	1,150,371			867,014			760,439
Cost of products sold (excluding amortization of intangible assets)	275,658			289,669			277,034
Selling, general and administrative	443,854			371,266			364,708
Amortization of intangible assets	64,830			41,370			41,699
Operating income	331,383			288,282			237,552
Other income (expense):
Interest income	812			690			1,314
Interest expense	(63,772		)	(29,777		)	(27,709		)
Other income, net	13,258			37,760			11,764
Income from continuing operations, before income taxes	281,681			296,955			222,921
Provision for income taxes	54,463			171,369			66,835
Income from continuing operations, net of income taxes	227,218			125,586			156,086
Income (loss) from discontinued operations, net of income taxes	1,506			(137		)	280
Net income	228,724			125,449			156,366
Less: Net income attributable to noncontrolling interests	2,351			2,094			1,601
Net income attributable to common shareholders	$	226,373		$	123,355		$	154,765

Earnings per common share
Basic:
Continuing operations attributable to common shareholders	$	4.69		$	2.60		$	3.28
Discontinued operations	$	0.03		$	—		$	0.01
Net income attributable to common shareholders	$	4.72		$	2.60		$	3.29
Diluted:
Continuing operations attributable to common shareholders	$	4.59		$	2.54		$	3.22
Discontinued operations	$	0.03		$	—		$	0.01
Net income attributable to common shareholders	$	4.62		$	2.54		$	3.23

Weighted-average number of common shares outstanding:
Basic	47,947			47,481			47,014
Diluted	49,018			48,564			47,958









See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)



	Fiscal Year
	2018			2017		2016
Net income	$	228,724		$	125,449	$	156,366
Other comprehensive income (loss):
Foreign currency translation adjustment and other	(28,305		)	78,084		(73,243		)
Pension and other post-retirement benefit plans (Note 12):
Prior service cost and (losses) gains arising during the period	(1,659		)	36,593		(60,678		)
Amortization of net loss and prior service benefit included in net periodic cost for pension and other post-retirement benefit plans	2,477			3,344		1,711
Comprehensive income, before income taxes	201,237			243,470		24,156
Less: Income tax (benefit) expense related to items of other comprehensive income (Note 10)	(1,892		)	7,954		(12,369		)
Comprehensive income, net of income taxes	203,129			235,516		36,525
Less: Comprehensive income (loss) related to noncontrolling interests, net of income taxes	1,398			3,128		(24		)
Comprehensive income attributable to common shareholders, net of income taxes	$	201,731		$	232,388	$	36,549





























See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)



	December 29, 2018			December 30, 2017
Assets
Current assets:
Cash and cash equivalents	$	195,442		$	163,794
Trade receivables, net	472,248			430,016
Inventories	127,892			114,956
Prepaid assets	53,447			36,544
Other current assets	48,807			81,315
Total current assets	897,836			826,625
Property, plant and equipment, net	932,877			781,973
Goodwill	1,247,133			804,906
Client relationships, net	537,945			301,891
Other intangible assets, net	72,943			67,871
Deferred tax assets	23,386			22,654
Other assets	143,759			124,002
Total assets	$	3,855,879		$	2,929,922
Liabilities, Redeemable Noncontrolling Interest and Equity
Current liabilities:
Current portion of long-term debt and capital leases	$	31,416		$	30,998
Accounts payable	66,250			77,838
Accrued compensation	137,212			101,044
Deferred revenue	145,139			117,569
Accrued liabilities	106,925			89,780
Other current liabilities	71,280			44,460
Current liabilities of discontinued operations	—			1,815
Total current liabilities	558,222			463,504
Long-term debt, net and capital leases	1,636,598			1,114,105
Deferred tax liabilities	143,635			89,540
Other long-term liabilities	179,121			194,815
Long-term liabilities of discontinued operations	—			3,942
Total liabilities	2,517,576			1,865,906
Commitments and contingencies (Notes 2, 9, 11, 12, and 16)
Redeemable noncontrolling interest	18,525			16,609
Equity:
Preferred stock, $0.01 par value; 20,000 shares authorized; no shares issued and outstanding	—			—
Common stock, $0.01 par value; 120,000 shares authorized; 48,210 shares issued and 48,209 shares outstanding as of December 29, 2018 and 87,495 shares issued and 47,402 shares outstanding as of December 30, 2017	482			875
Additional paid-in capital	1,447,512			2,560,192
Retained earnings	42,096			288,658
Treasury stock, at cost, 1 and 40,093 shares as of December 29, 2018 and December 30, 2017, respectively	(55		)	(1,659,914		)
Accumulated other comprehensive loss	(172,703		)	(144,731		)
Total equity attributable to common shareholders	1,317,332			1,045,080
Noncontrolling interest	2,446			2,327
Total equity	1,319,778			1,047,407
Total liabilities, redeemable noncontrolling interest and equity	$	3,855,879		$	2,929,922
See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



	Fiscal Year
	2018			2017			2016
Cash flows relating to operating activities
Net income	$	228,724		$	125,449		$	156,366
Less: Income (loss) from discontinued operations, net of income taxes	1,506			(137		)	280
Income from continuing operations, net of income taxes	227,218			125,586			156,086
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Depreciation and amortization	161,779			131,159			126,658
Stock-based compensation	47,346			44,003			43,642
Deferred income taxes	(9,702		)	28,254			1,945
Gain on venture capital investments	(15,928		)	(22,867		)	(10,284		)
Gain on divestiture	—			(10,577		)	—
Impairment charges	—			17,239			6,717
Other, net	15,613			(666		)	5,629
Changes in assets and liabilities:
Trade receivables, net	(21,196		)	(48,279		)	(52,780		)
Inventories	(13,338		)	(17,838		)	(4,021		)
Accounts payable	(12,732		)	34			22,076
Accrued compensation	31,616			3,666			9,298
Long-term payable on Transition Tax (Notes 5 and 11)	(8,974		)	61,038			—
Deferred revenue	36,072			(8,466		)	14,580
Customer contract deposits	28,115			—			—
Other assets and liabilities, net	(24,749		)	15,788			(2,647		)
Net cash provided by operating activities	441,140			318,074			316,899
Cash flows relating to investing activities
Acquisition of businesses and assets, net of cash acquired	(824,868		)	(25,012		)	(648,482		)
Capital expenditures	(140,054		)	(82,431		)	(55,288		)
Purchases of investments and contributions to venture capital investments	(25,125		)	(46,217		)	(40,248		)
Proceeds from sale of investments	35,849			9,128			47,652
Proceeds from divestiture	—			72,462			—
Other, net	(805		)	(516		)	3,694
Net cash used in investing activities	(955,003		)	(72,586		)	(692,672		)
Cash flows relating to financing activities
Proceeds from long-term debt and revolving credit facility	2,755,028			236,856			1,044,666
Proceeds from exercises of stock options	37,657			38,870			23,197
Payments on long-term debt, revolving credit facility, and capital lease obligations	(2,201,003		)	(372,435		)	(656,636		)
Payments on debt financing costs	(18,337		)	—			(3,659		)
Purchase of treasury stock	(13,846		)	(106,909		)	(12,267		)
Other, net	(1,440		)	(4,858		)	(14,545		)
Net cash provided by (used in) financing activities	558,059			(208,476		)	380,756
Discontinued operations
Net cash used in operating activities from discontinued operations	(3,735		)	(1,809		)	(2,056		)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(9,474		)	11,234			(2,996		)
Net change in cash, cash equivalents, and restricted cash	30,987			46,437			(69		)
Cash, cash equivalents, and restricted cash, beginning of period	166,331			119,894			119,963
Cash, cash equivalents, and restricted cash, end of period	$	197,318		$	166,331		$	119,894


See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)



	Fiscal Year
	2018		2017		2016
Supplemental cash flow information:
Cash and cash equivalents	$	195,442	$	163,794	$	117,626
Restricted cash included in Other current assets	465		592		532
Restricted cash included in Other assets	1,411		1,945		1,736
Cash, cash equivalents, and restricted cash, end of period	$	197,318	$	166,331	$	119,894

Cash paid for income taxes	$	67,600	$	60,377	$	42,868
Cash paid for interest	$	47,540	$	27,417	$	22,756
Non-cash investing and financing activities:
Additions to property, plant and equipment, net	$	18,212	$	38,199	$	5,333
Assets acquired under capital lease	$	1,473	$	722	$	1,335




























See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(in thousands)



	Common stock						Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock					Total Equity Attributable to Common Shareholders			Noncontrolling Interest			Total Equity
Shares			Amount						Shares		Amount
December 26, 2015	85,464			$	855		$	2,397,960		$	10,538		$	(135,548	)	38,766		$	(1,540,738	)	$	733,067		$	4,489		$	737,556
Net income	—			—			—			154,765			—			—		—			154,765			924			155,689
Other comprehensive loss	—			—			—			—			(118,216		)	—		—			(118,216		)	(154		)	(118,370		)
Dividends declared to noncontrolling interest	—			—			—			—			—			—		—			—			(2,902		)	(2,902		)
Adjustment of redeemable noncontrolling interest to fair value	—			—			1,690			—			—			—		—			1,690			—			1,690
Purchase of additional equity in redeemable noncontrolling interest	—			—			1,593			—			—			—		—			1,593			—			1,593
Tax benefit associated with stock issued under employee compensation plans	—			—			9,274			—			—			—		—			9,274			—			9,274
Issuance of stock under employee compensation plans	837			8			23,212			—			—			—		—			23,220			—			23,220
Acquisition of treasury shares	—			—			—			—			—			172		(12,267		)	(12,267		)	—			(12,267		)
Stock-based compensation	—			—			43,642			—			—			—		—			43,642			—			43,642
December 31, 2016	86,301			863			2,477,371			165,303			(253,764		)	38,938		(1,553,005		)	836,768			2,357			839,125
Net income	—			—			—			123,355			—			—		—			123,355			1,179			124,534
Other comprehensive income	—			—			—			—			109,033			—		—			109,033			—			109,033
Dividends declared to noncontrolling interest	—			—			—			—			—			—		—			—			(1,209		)	(1,209		)
Issuance of stock under employee compensation plans	1,194			12			38,818			—			—			—		—			38,830			—			38,830
Acquisition of treasury shares	—			—			—			—			—			1,155		(106,909		)	(106,909		)	—			(106,909		)
Stock-based compensation	—			—			44,003			—			—			—		—			44,003			—			44,003
December 30, 2017	87,495			875			2,560,192			288,658			(144,731		)	40,093		(1,659,914		)	1,045,080			2,327			1,047,407
Net income	—			—			—			226,373			—			—		—			226,373			1,550			227,923
Other comprehensive loss	—			—			—			—			(24,642		)	—		—			(24,642		)	—			(24,642		)
Reclassification due to adoption of ASU 2018-02 (See Note 1)	—			—			—			3,330			(3,330		)	—		—			—			—			—
Adjustment due to adoption of ASU 2016-01 (see Note 1)	—			—			—			1,424			—			—		—			1,424			—			1,424
Dividends declared to noncontrolling interest	—			—			—			—			—			—		—			—			(1,431		)	(1,431		)
Adjustment of redeemable noncontrolling interest to redemption value	—			—			(2,069		)	—			—			—		—			(2,069		)	—			(2,069		)
Issuance of stock under employee compensation plans	936			9			37,657			—			—			—		—			37,666			—			37,666
Acquisition of treasury shares	—			—			—			—			—			129		(13,846		)	(13,846		)	—			(13,846		)
Retirement of treasury shares	(40,221	)		(402		)	(1,195,614		)	(477,689		)	—			(40,221	)	1,673,705			—			—			—
Stock-based compensation	—			—			47,346			—			—			—		—			47,346			—			47,346
December 29, 2018	48,210			$	482		$	1,447,512		$	42,096		$	(172,703	)	1		$	(55	)	$	1,317,332		$	2,446		$	1,319,778




See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Charles River Laboratories International, Inc. (the Company), together with its subsidiaries, is a full service, early-stage contract research organization (CRO). The Company has built upon its 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 the Company to support its clients from target identification through non-clinical development. The Company also provides a suite of products and services to support its clients’ manufacturing activities.

Principles of Consolidation

The Company’s consolidated financial statements reflect its financial statements and those of its subsidiaries in which the Company holds a controlling financial interest. For consolidated entities in which the Company owns or is exposed to less than 100% of the economics, the Company records net income (loss) attributable to noncontrolling interests in its consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and transactions are eliminated in consolidation.

The Company’s fiscal year is typically based on 52-weeks, with each quarter composed of 13 weeks ending on the last Saturday on, or closest to, March 31, June 30, September 30, and December 31. 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.

Reclassifications

Certain reclassifications have been made in the consolidated statements of income for prior periods to conform to the current year presentation. See “Newly Adopted Accounting Pronouncements” below for further discussion.

Segment Reporting

The Company reports its results in three reportable segments: Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Support (Manufacturing). The Company’s RMS reportable segment includes the Research Models 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 its clients’ research operations (including recruitment, training, staffing, and management services). The Company’s DSA reportable segment includes services required to take a drug through the early development process including discovery services, which are non-regulated services to assist clients with the identification, screening, and selection of a lead compound for drug development, and regulated and non-regulated (GLP and non-GLP) safety assessment services. The Company’s Manufacturing reportable segment includes Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification 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 the Company divested this business on February 10, 2017, allowed it to provide formulation design and development, manufacturing, and analytical and stability testing for small molecules.

Use of Estimates

The preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United States (U.S. GAAP) requires that the Company make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, judgments and methodologies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known.

Cash and Cash Equivalents

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash equivalents include money market funds, time deposits and other investments with remaining maturities at the purchase date of three months or less.

Investments

Marketable securities are reported at fair value. Gains and losses on marketable securities are included in other income, net and are determined using the specific identification method. Time deposits with original maturities of greater than three months are reported as investments.

Trade Receivables, Net

The Company records trade receivables net of an allowance for doubtful accounts. An allowance for doubtful accounts is established based on historical collection information, a review of major client accounts receivable balances and current economic conditions in the geographies in which it operates. Amounts determined to be uncollectible are charged or written off against the allowance.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments and trade receivables. The Company places cash and cash equivalents and investments in various financial institutions with high credit rating and limits the amount of credit exposure to any one financial institution. Trade receivables are primarily from clients in the pharmaceutical and biotechnology industries, as well as academic and government institutions. Concentrations of credit risk with respect to trade receivables, which are typically unsecured, are limited due to the wide variety of customers using the Company’s products and services as well as their dispersion across many geographic areas. No single client accounted for more than 5% of revenue or trade receivables for the periods ended December 29, 2018 and December 30, 2017.

Fair Value Measurements

The accounting standard for fair value measurements defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and requires certain disclosures about fair value measurements. Under this standard, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has certain financial assets and liabilities recorded at fair value, which have been classified as Level 1, 2 or 3 within the fair value hierarchy:


•	Level 1 - Fair values are determined utilizing prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access,


•	Level 2 - Fair values are determined by utilizing quoted prices for identical or similar assets and liabilities in active markets or other market observable inputs such as interest rates, yield curves, and foreign currency spot rates,


•	Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The fair value hierarchy level is determined by asset and class based on the lowest level of significant input. The observability of inputs may change for certain assets or liabilities. This condition could cause an asset or liability to be reclassified between levels. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter.

Valuation methodologies used for assets and liabilities measured or disclosed at fair value are as follows:


•	Cash equivalents - Valued at market prices determined through third-party pricing services;


•	Mutual funds - Valued at the unadjusted quoted net asset value of shares held by the Company;


•	Foreign currency forward contracts - Valued using market observable inputs, such as forward foreign exchange points and foreign exchanges rates;


•	Life insurance policies - Valued at cash surrender value based on the fair value of underlying investments;


•	Debt instruments - The book value of the Company’s term and revolving loans, which are variable rate loans carried at amortized cost, approximates the fair value based on current market pricing of similar debt. The book value of the Company’s 5.5% Senior Notes (Senior Notes) due in 2026, which are fixed rate debt carried at amortized cost, approximates fair value based on quoted market prices and on borrowing rates available to the Company; and

•

Debt instruments - The book value of the Company’s term and revolving loans, which are variable rate loans carried at amortized cost, approximates the fair value based on current market pricing of similar debt. The book value of the Company’s 5.5% Senior Notes (Senior Notes) due in 2026, which are fixed rate debt carried at amortized cost, approximates fair value based on quoted market prices and on borrowing rates available to the Company; and

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


•	Contingent consideration - Valued based on a probability weighting of the future cash flows associated with the potential outcomes.

Inventories

Inventories are stated at the lower of cost or net realizable value. Inventory value is based on the standard cost method for all businesses except for the Avian business, which is based on an average cost. Standard costs are trued-up to reflect actual cost. For the small model business, cost includes direct materials such as feed and bedding, costs of personnel directly involved in the care of the models, and an allocation of facility overhead. For the large model business, cost is primarily the external cost paid to acquire the model. Inventory costs are charged to cost of revenue in the period the products are sold to an external party. The Company analyzes its inventory levels on a quarterly basis and writes down inventory that is determined to be damaged, obsolete or otherwise unmarketable, with a corresponding charge to cost of products sold.

Property, Plant and Equipment, Net

Property, plant and equipment, net, including improvements that significantly add to productive capacity or extend useful life, are carried at cost and are subject to review for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The cost of normal, recurring, or periodic repairs and maintenance activities related to property, plant and equipment is expensed as incurred. In addition, the Company capitalizes certain internal use computer software development costs. Costs incurred during the preliminary project stage are expensed as incurred, while costs incurred during the application development stage are capitalized and amortized over the estimated useful life of the software. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Maintenance and training costs related to software obtained for internal use are expensed as incurred.

Interest costs incurred during the construction of major capital projects are capitalized until the underlying asset is ready for its intended use, at which point the interest costs are amortized as depreciation expense over the life of the underlying asset.

The Company generally depreciates the cost of its property, plant and equipment using the straight-line method over the estimated useful lives of the respective assets as follow:



	Estimated Useful Lives
	(in years)
Land	Indefinite
Buildings	20 - 40
Machinery and equipment	3 - 20
Furniture and fixtures	5 - 10
Computer hardware and software	3 - 8
Vehicles	3 - 5

Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the lease term. Capital lease assets are amortized over the lease term, however, if ownership is transferred by the end of the capital lease, or there is a bargain purchase option, such capital lease assets are amortized over the useful life that would be assigned if such assets were owned.

When the Company disposes of property, plant and equipment, it removes the associated cost and accumulated depreciation from the related accounts on its consolidated balance sheet and includes any resulting gain or loss in its consolidated statement of income.

Business Acquisitions

The Company accounts for business combinations under the acquisition method of accounting. The Company allocates the amounts that it pays for each acquisition to the assets it acquires and liabilities it assumes based on their fair values at the dates of acquisition, including identifiable intangible assets. The Company bases the fair value of identifiable intangible assets acquired in a business combination on valuations that use information and assumptions determined by management and which consider management’s best estimates of inputs and assumptions that a market participant would use.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contingent Consideration

The consideration for the Company’s acquisitions often includes future payments that are contingent upon the occurrence of a particular event. The Company records an obligation for such contingent payments at fair value on the acquisition date. The Company estimates the fair value of contingent consideration obligations through valuation models that incorporate probability adjusted assumptions related to the achievement of the milestones and the likelihood of making related payments. The Company revalues these contingent consideration obligations each reporting period. Changes in the fair value of the contingent consideration obligations are recognized in the Company’s consolidated statements of income as a component of selling, general and administrative expenses. Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates and changes in the assumed probabilities of successful achievement of certain financial targets.

Discount rates in the Company’s valuation models represent a measure of the credit risk associated with settling the liability. The period over which the Company discounts its contingent obligations is typically based on when the contingent payments would be triggered. These fair value measurements are based on significant inputs not observable in the market. See Note 7, “Fair Value.”

Goodwill and Intangible Assets

Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the acquisition method of accounting. Goodwill is not amortized, but reviewed for impairment on an annual basis, during the fourth quarter, or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of the Company's reporting units below their carrying amounts.

The Company has the option to first assess qualitative factors to determine whether it is necessary to perform the two-step impairment test. If the Company elects this option and believes, 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, the Company may elect to not first assess qualitative factors and immediately perform the quantitative two-step impairment test. In the first step, the Company compares the fair value of its 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 the Company’s goodwill. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference.

Definite-lived intangible assets, including client relationships, are amortized over the pattern in which the economic benefits of the intangible assets are utilized and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset, which requires the use of customer attribution rates and other assumptions. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the definite-lived intangible assets, the definite-lived intangible assets are written-down to their fair values.

Valuation and Impairment of Long-Lived Assets

Long-lived assets to be held and used 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.

Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset 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.

Long-lived assets to be disposed of are carried at fair value less costs to sell.

Venture Capital Investments

The Company invests in several venture capital funds that invest in start-up companies, primarily in the life sciences industry. The Company’s ownership interest in these funds ranges from less than 1% to 12.0%. The Company accounts for the investments in limited partnerships (LPs), which are variable interest entities, under the equity method of accounting. For publicly-held investments in the LPs, the Company adjusts for changes in fair market value based on reported share holdings at the end of each fiscal quarter. The Company is not the primary beneficiary because it has no power to direct the activities that most significantly affect the LPs’ economic performance. The Company accounts for the investments in limited liability companies, which are not variable interest entities, under the equity method of accounting.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Under the equity method of accounting, the Company’s portion of the investment gains and losses, as reported in the fund’s financial statements on a quarterly lag each reporting period, is recorded in other income, net in the accompanying consolidated statements of income. In addition, the Company adjusts the carrying value of these investments to reflect its estimate of changes to fair value since the fund’s financial statements are based on information from the fund’s management team, market prices of known public holdings of the fund and other information.

Life Insurance Contracts

Investments in life insurance contracts are recorded at cash surrender value. The initial investment at the transaction price is recognized and remeasured based on fair value of underlying investments or contractual value each reporting period. Investments in and redemptions of these life insurance contracts are reported as cash flows from investing activities in the consolidated statement of cash flows. The Company held 45 and 43 contracts at both December 29, 2018 and December 30, 2017, with a face value of $65.2 million and $61.4 million, respectively.

Stock-Based Compensation

The Company grants 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. 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.

For stock options, restricted stock and RSUs that vest based on service conditions, the Company uses the straight-line method to allocate compensation expense to reporting periods. Where awards are made with non-substantive vesting periods and a portion of the award continues to vest after the employee’s eligible retirement, the Company recognizes expense based on the period from the grant date to the date on which the employee is retirement eligible. The Company records the expense for PSU grants subject to performance and/or market conditions using the accelerated attribution method over the remaining service period when management determines that achievement of the performance-based milestone is probable.

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. The expected volatility assumption is typically determined using the historical volatility of the Company’s common stock over the expected life of the stock-based award. The expected term is determined using historical option exercise activity. The fair value of restricted stock and RSUs is based on the market value of the Company’s common stock on the date of grant.

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 the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”).

To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the amount to which the Company expects to be entitled. Variable consideration is included in the transaction price if, in the Company’s 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 the Company’s 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, the Company does not extend payment terms beyond one year. Applying the practical expedient, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s 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. The Company determines 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,

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the Company estimates 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 the Company’s 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, the Company generally measures its progress using either cost-to-cost (input method) or right-to-invoice (output method). The Company uses the cost-to-cost measure of progress when it best depicts the transfer of value to the customer which occurs as the Company incurs costs on its 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 the Company’s performance to date.

Advertising Costs

Advertising costs are expensed as incurred. For fiscal years 2018, 2017 and 2016, advertising costs totaled $1.9 million, $1.6 million and $1.4 million, respectively.

Income Taxes

The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statements carrying amounts and their respective tax basis. The Company measures deferred tax assets and liabilities using the enacted tax rates in effect when the temporary differences are expected to be settled. The Company evaluates the realizability of its deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized.

The Company accounts for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The Company evaluates uncertain tax positions on a quarterly basis and considers various factors, including, but 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. The Company also accrues for potential interest and penalties related to unrecognized tax benefits in income tax expense.

In fiscal year 2018, the Company made an accounting policy election to treat taxes due on the Global Intangible Low-Taxed Income (GILTI) inclusion as a current period expense. See Note 11, “Income Taxes” for further discussion.

Foreign Currency Contracts

Foreign currency contracts are recorded at fair value in the Company’s consolidated balance sheets and are not designated as hedging instruments. Any gains or losses on forward contracts associated with intercompany loans are recognized immediately in Other income, net and are largely offset by the remeasurement of the underlying intercompany loan. Any gains or losses on forward contracts associated the Company’s U.S. dollar denominated loan borrowed by a non-U.S. entity under the Company’s $2.3B Credit Facility are recognized immediately in Interest expense. Gains or losses incurred on the remeasurement of the Company’s U.S. dollar denominated loan borrowed by a non-U.S. entity with a different functional currency is recorded in Other income, net.

Translation of Foreign Currencies

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Company’s subsidiaries that transact in a functional currency other than the U.S. dollar, assets and liabilities are translated at current rates of exchange as of the balance sheet date. Income and expense items are translated at the average foreign exchange rates for the period. Adjustments resulting from the translation of the financial statements of the Company’s foreign operations into U.S. dollars are excluded from the determination of net income and are recorded in accumulated other comprehensive loss, a separate component of equity.

Pension and Other Post-Retirement Benefit Plans

The Company recognizes the funded status of its defined benefit pension and other post-retirement 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. The Company measures plan assets and benefit obligations as of its fiscal year end.

The key assumptions used to calculate benefit obligations and related pension costs include expected long-term rate of return on plan assets, withdrawal and mortality rates, expected rate of increase in employee compensation levels and a discount rate. Assumptions are determined based on the Company’s data and appropriate market indicators, and evaluated each year as of the plan’s measurement date.

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, the Company considers 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.

In fiscal year 2018, new mortality improvement scales were issued in the U.S. and the United Kingdom (U.K.) reflecting a decline in longevity projection from the 2017 releases that the Company adopted, which decreased the Company’s 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. reflecting a decline in longevity projection from the 2016 releases that the Company adopted, which decreased the Company’s benefit obligations by $5.2 million as of December 30, 2017.

The discount rate reflects the rate the Company would have to pay to purchase high-quality investments that would provide cash sufficient to settle its current pension obligations. A 25 basis point change across all discount rates changes the projected benefit obligation by approximately $16 million to $17 million for all Company 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.

The Company is required to recognize as a component of other comprehensive income, net of tax, the actuarial gains or losses and prior service costs or credits that arise but were not previously required to be recognized as components of net periodic benefit cost. Other comprehensive income is adjusted as these amounts are later recognized in income as components of net periodic benefit cost.

The Company records the service cost component of the net periodic benefit cost within Cost of services provided and Selling, general, and administrative expenses (within Operating income) and all other components of net periodic benefit cost within Other income, net in the consolidated statements of income.

Earnings Per Share

Basic earnings per share is calculated by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the period. Except where the result would be anti-dilutive to income from continuing operations, diluted earnings per share is computed using the treasury stock method, assuming the exercise of stock options and the vesting of restricted stock awards, RSUs, or PSUs, as well as their related income tax effects.

Treasury Shares

The Company periodically retires treasury shares acquired through share repurchases and returns those shares to the status of authorized but unissued. The Company accounts for treasury stock transactions under the cost method. For each reacquisition of common stock, the number of shares and the acquisition price for those shares is added to the existing treasury stock count and total value. Thus, the average cost per share is re-averaged each time shares are acquired. When treasury shares are retired, the Company allocates the excess of the repurchase price over the par value of shares acquired to both retained earnings and additional paid-in-capital. The portion allocated to additional paid-in-capital is determined by applying a percentage, determined by dividing the number of shares to be retired by the number of shares issued, to the balance of additional paid-in-capital as of the retirement date.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Newly Adopted Accounting Pronouncements

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 the Company has complied with the amendments. The Company’s accounting for the elements of U.S. Tax Reform is complete. See Note 11, “Income Taxes” for further discussion.

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%. The Company 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 the Company’s deferred tax liabilities related to its pension and other post-retirement benefit plan gains and losses. The Company’s policy is to release material stranded tax effects on a specific identification basis.

In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The standard requires an employer to disaggregate the service cost component from the other components of net benefit cost and provides explicit guidance on the presentation of the service cost component and the other components of net benefit cost in the statements of income. The Company adopted this standard in fiscal year 2018 and applied the changes retrospectively to the presentation of the service cost component and the other components of net periodic pension cost in the consolidated statements of income for all periods presented as required. The adoption of this standard had no impact on Net income, however increased Operating income by $0.8 million and $0.1 million during fiscal years 2017 and 2016, respectively. In connection with the impact of Operating income to the Company’s reportable segments for fiscal year 2017, Research Models and Services (RMS) decreased by $0.1 million, Discovery and Safety Assessment (DSA) decreased by $1.3 million, Manufacturing Support (Manufacturing) decreased by less than $0.1 million, and Unallocated corporate increased by $2.2 million. For fiscal year 2016, Operating income for RMS increased by $0.1 million, DSA decreased by $2.8 million, Manufacturing increased by less than $0.1 million, and Unallocated corporate increased by $2.8 million.

In January 2017, the FASB issued ASU 2017-01, “Clarifying the Definition of a Business.” The standard clarifies the definition of a business by adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The Company’s adoption of this standard in fiscal year 2018 did not have a significant impact on the consolidated financial statements and related disclosures.

In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory.” The standard requires the immediate recognition of tax effects for an intra-entity asset transfer other than inventory. The Company’s adoption of this standard in fiscal year 2018 did not have a significant impact on the consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Liabilities.” This standard, including a subsequently issued amendment under ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities”, requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes recognized in net income, simplifies the impairment assessment of certain equity investments, and updates certain presentation and disclosure requirements. The Company adopted this standard in fiscal year 2018, resulting in an increase of $1.9 million to Other assets with a corresponding increase to Retained earnings and Deferred taxes of $1.4 million and $0.5 million, respectively.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” The standard, including subsequently issued amendments, collectively referred to Accounting Standard Codification (ASC) 606, “Revenue From Contracts With Customers”, replaced most existing revenue recognition guidance in U.S. GAAP and permits the use of either a modified retrospective or cumulative effect transition method. The Company elected the modified retrospective transition method. The standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The Company adopted this standard in fiscal year 2018. See Note 3, “Revenue From Contracts With Customers” for a discussion of the Company’s adoption of this standard and its impact on the consolidated financial statements and related disclosures.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Newly Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computer Arrangement that is a Service Contract.” ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years and will be applied either retrospectively or prospectively. Early adoption is permitted. The Company is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-14, “Compensation Retirement Benefits - Defined Benefit Plans -General (Subtopic 715-20).” ASU 2018-14 removes the requirements to disclose the amounts in Accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the next fiscal year and the related party disclosures about the amount of future annual benefits covered by insurance contracts. In addition, the ASU adds the requirement to disclose an explanation for any significant gains and losses related to changes in the benefit obligation for the period. The ASU is effective for fiscal years ending after December 15, 2020 and will be applied on a retrospective basis to all periods presented. Early adoption is permitted. The Company is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 removes the disclosure requirement for the amount and reasons for transfers between Level 1 and Level 2 fair value measurements as well as the process for Level 3 fair value measurements. In addition, the ASU adds the disclosure requirements for changes in unrealized gains and losses included in Other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years and will be applied on a retrospective basis to all periods presented. Early adoption is permitted. The Company is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures.

In June 2018, the FASB issued ASU 2018-07, “Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” ASU 2018-07 aligns the accounting for share-based payment awards issued to employees and nonemployees as well as improves financial reporting for share-based payments to nonemployees. The ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years and will be applied to all new option awards granted after the date of adoption. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 refines and expands hedge accounting for both financial and commodity risks. It also creates more transparency around how economic results are presented, both on the face of the financial statements and in the disclosures. In addition, this ASU makes certain targeted improvements to simplify the application of hedge accounting guidance. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and requires the modified retrospective approach. Early adoption is permitted. This update applies to all existing hedging relationships on the date of adoption with the cumulative effect of adoption being reflected as of the beginning of the fiscal year of adoption. The Company is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” The standard simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. This standard is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and will be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses.” The standard requires a financial asset measured at amortized cost basis, such as accounts receivable, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and requires the modified retrospective approach. Early adoption is

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

permitted. The Company is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, “Leases.” The standard, including subsequently issued amendments, collectively referred to as ASC 842, “Leases”, established the principles that lessees and lessors will apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company will adopt this standard using a modified retrospective transition approach as applied to leases existing as of or entered into after the adoption date. The implementation team has substantially completed its assessment of the new standard, including a detailed review of the Company’s lease portfolio, and impact on its existing lease accounting policies and newly required financial statement disclosures. In the first quarter of fiscal year 2019, the Company is implementing a new lease accounting system and will enhance certain related business processes and internal controls to support the requirements of the new standard. The adoption of the new standard is expected to result in i) no significant change in the carrying values of assets and liabilities related to its finance leases, previously referred to as capital leases (See Note 9, “Long-Term Debt and Capital Lease Obligations”), ii) derecognition of assets and related liabilities pertaining to certain build-to-suit arrangements previously accounted for under ASC 840, “Leases” and recording them under the guidance of ASC 842, approximating $26 million, and iii) the recording of right-of-use assets and corresponding lease liabilities pertaining to its operating leases in its consolidated balance sheet of approximately $130 million. The Company does not expect the adoption of the new standard to have a significant impact upon its considered statements of income and cash flows.

BUSINESS ACQUISITIONS AND DIVESTITURE

MPI Research

On April 3, 2018, the Company acquired MPI Research, a non-clinical contract research organization (CRO) providing comprehensive testing services to biopharmaceutical and medical device companies worldwide. The acquisition enhances the Company’s position as a leading global early-stage CRO by strengthening its 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 that may change the purchase price. The acquisition was funded by borrowings on the Company’s $2.3B Credit Facility as well as the issuance of the Company’s Senior Notes. See Note 9, “Long-Term Debt and Capital Lease Obligations.” This business is reported as part of the Company’s DSA reportable segment.

The preliminary purchase allocation of $800.8 million, net of $27.7 million of cash acquired and a final net working capital adjustment of $1.2 million, was as follows:



	April 3, 2018
	(in thousands)
Trade receivables (contractual amount of $35,073)	$	35,073
Inventories	4,463
Other current assets (excluding cash)	5,893
Property, plant and equipment	128,403
Goodwill	441,656
Definite-lived intangible assets	309,200
Other long-term assets	1,081
Deferred revenue	(23,926		)
Current liabilities	(32,885		)
Deferred tax liabilities	(65,945		)
Other long-term liabilities	(2,213		)
Total purchase price allocation	$	800,800

The purchase price allocation is subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition. From the date of the acquisition through December 29, 2018, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The breakout of definite-lived intangible assets acquired was as follows:



	Definite-Lived Intangible Assets		Weighted Average Amortization Life
	(in thousands)		(in years)
Client relationships	$	264,900	13
Developed technology	23,400		3
Backlog	20,900		1
Total definite-lived intangible assets	$	309,200	12

The goodwill resulting from the transaction, $4.1 million of which is deductible for tax purposes due to a prior asset acquisition, is primarily attributable to the potential growth of the Company’s DSA business from customers introduced through MPI Research and the assembled workforce of the acquired business.

The Company incurred transaction and integration costs in connection with the acquisition of $16.5 million during fiscal year 2018, which were primarily included in Selling, general and administrative expenses within the consolidated statements of income.

MPI Research revenue and operating income from April 3, 2018 through December 29, 2018 was $209.5 million and $33.4 million, respectively. Beginning on April 3, 2018, MPI Research has been included in the operating results of the Company.

The following selected unaudited pro forma consolidated results of operations are presented as if the MPI Research acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition after giving effect to certain adjustments. For fiscal year 2018, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $14.1 million, additional interest expense on borrowings of $2.8 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments. For fiscal year 2017, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $22.4 million, additional interest expense on borrowings of $27.1 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments.



	Fiscal Year
	2018		2017
	(in thousands)
	(unaudited)
Revenue	$	2,328,213	$	2,095,385
Net income attributable to common shareholders	225,550		126,641

These unaudited pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the dates indicated or that may result in the future. No effect has been given for synergies, if any, that may be realized through the acquisition.

KWS BioTest Limited

On January 11, 2018, the Company 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 the Company’s discovery expertise, with complementary offerings that provide the Company’s 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 the Company’s various borrowings. 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 the Company’s DSA reportable segment.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The purchase price allocation of $21.5 million, net of $1.0 million of cash acquired and a final net working capital adjustment of $0.4 million, was as follows:



	January 11, 2018
	(in thousands)
Trade receivables (contractual amount of $1,309)	$	1,309
Other current assets (excluding cash)	99
Property, plant and equipment	1,136
Definite-lived intangible assets - client relationships	3,647
Goodwill	17,660
Current liabilities	(1,575		)
Deferred revenue	(151		)
Long-term liabilities	(596		)
Total purchase price allocation	$	21,529

From the date of the acquisition through December 29, 2018, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.

The only definite-lived intangible asset relates to client relationships, which will be amortized over a weighted average life of 12 years.

The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s DSA business from customers introduced through KWS BioTest and the assembled workforce of the acquired business. The goodwill attributable to KWS BioTest is not deductible for tax purposes.

The Company incurred transaction and integration costs of $0.7 million in connection with the acquisition during fiscal year 2018, which were included in Selling, general and administrative expenses within the consolidated statements of income.

Pro forma financial information as well as actual revenue and operating income (loss) have not been included because KWS BioTest’s financial results are not significant when compared to the Company’s consolidated financial results.

Brains On-Line

On August 4, 2017, the Company acquired Brains On-Line, a CRO providing critical data that advances novel therapeutics for the treatment of central nervous system (CNS) diseases. Brains On-Line strategically expands the Company’s existing CNS capabilities and establishes the Company 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 and was funded by the Company’s various borrowings. 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. The Brains On-Line business is reported as part of the Company’s DSA reportable segment.

The contingent payments become payable based on the achievement of certain revenue and earnings targets. If achieved, the payments become due in the first quarter of fiscal year 2019. The Company estimated the fair value of this contingent consideration based on a probability-weighted set of outcomes.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The purchase price allocation of $20.1 million, net of $0.6 million of cash acquired, was as follows:



	August 4, 2017
	(in thousands)
Trade receivables (contractual amount of $1,146)	$	1,146
Other current assets (excluding cash)	640
Property, plant and equipment	664
Other long-term assets	29
Definite-lived intangible assets	9,300
Goodwill	12,582
Current liabilities	(1,683		)
Deferred revenue	(405		)
Long-term liabilities	(2,151		)
Total purchase price allocation	$	20,122

From the date of the acquisition through June 30, 2018, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.

The breakout of definite-lived intangible assets acquired was as follows:



	Definite-Lived Intangible Assets		Weighted Average Amortization Life
	(in thousands)		(in years)
Client relationships	$	7,000	13
Other intangible assets	2,300		10
Total definite-lived intangible assets	$	9,300	12

The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s DSA businesses from customers and technology introduced through Brains On-Line and the assembled workforce of the acquired business. The goodwill attributable to Brains On-Line is not deductible for tax purposes.

No significant integration costs were incurred in connection with the acquisition during fiscal year 2018. The Company incurred transaction and integration costs in connection with the acquisition of $2.6 million during fiscal year 2017, which were included in selling, general and administrative expenses within the consolidated statements of income.

Pro forma financial information as well as actual revenue and operating income (loss) have not been included because Brains On-Line’s financial results are not significant when compared to the Company’s consolidated financial results.

Agilux

On September 28, 2016, the Company acquired Agilux Laboratories, Inc. (Agilux), a CRO that provides a suite of integrated discovery bioanalytical services for small and large molecules, drug metabolism and pharmacokinetic services, and pharmacology services. The acquisition supports the Company’s strategy to offer clients a broader, integrated portfolio that provides services continuously from the earliest stages of drug research through the non-clinical development process. The purchase price for Agilux was $64.9 million in cash and was funded by borrowings on the Company’s revolving credit facility. The business is reported as part of the Company’s DSA reportable segment.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The purchase price allocation of $62.0 million, net of $2.9 million of cash acquired, was as follows:



	September 28, 2016
	(in thousands)
Trade receivables (contractual amount of $4,799)	$	4,799
Other current assets (excluding cash)	794
Property, plant and equipment	3,907
Other long-term assets	11
Definite-lived intangible assets	21,900
Goodwill	44,517
Current liabilities	(3,812		)
Long-term liabilities	(10,091		)
Total purchase price allocation	$	62,025

From the date of the acquisition through September 30, 2017, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.

The breakout of definite-lived intangible assets acquired was as follows:



	Definite-Lived Intangible Assets		Weighted Average Amortization Life
	(in thousands)		(in years)
Client relationships	$	16,700	17
Other intangible assets	5,200		4
Total definite-lived intangible assets	$	21,900	14

The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s DSA businesses from customers and technology introduced through Agilux and the assembled workforce of the acquired business. The goodwill attributable to Agilux is not deductible for tax purposes.

No significant integration costs were incurred in connection with the acquisition during fiscal year 2018. The Company incurred transaction and integration costs of $0.3 million and $1.7 million, respectively, in connection with the acquisition during fiscal years 2017 and 2016, which were included in selling, general and administrative expenses within the consolidated statements of income.

Pro forma financial information as well as actual revenue and operating income (loss) have not been included because Agilux’s financial results are non-significant when compared with the Company’s consolidated financial results.

Blue Stream

On June 27, 2016, the Company acquired Blue Stream Laboratories, Inc. (Blue Stream), an analytical CRO supporting the development of complex biologics and biosimilars. Combining Blue Stream with the Company’s existing discovery, safety assessment, and biologics capabilities creates a leading CRO that has the ability to support biologic and biosimilar development from characterization through clinical testing and commercialization. The purchase price for Blue Stream was $11.7 million, including $3.0 million in contingent consideration, and was subject to certain customary adjustments. The acquisition was funded by borrowings on the Company’s revolving credit facility. The business is reported in the Company’s Manufacturing reportable segment.

The Company estimated the fair value of this contingent consideration based on a probability-weighted set of outcomes. The contingent consideration is a one-time payment payable based on the achievement of a revenue target. The target was achieved and the Company paid the $3.0 million in contingent consideration in the third quarter of fiscal year 2017.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The purchase price allocation of $11.7 million, net of a non-significant amount of cash acquired, was as follows:



	June 27, 2016
	(in thousands)
Trade receivables (contractual amount of $1,104)	$	1,104
Other current assets (excluding cash)	15
Property, plant and equipment	912
Other long-term assets	187
Definite-lived intangible assets	1,230
Goodwill	10,334
Current liabilities	(1,132		)
Long-term liabilities	(901		)
Total purchase price allocation	$	11,749

From the date of the acquisition through July 1, 2017, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.

The breakout of definite-lived intangible assets acquired was as follows:



	Definite-Lived Intangible Assets		Weighted Average Amortization Life
	(in thousands)		(in years)
Client relationships	$	650	10
Other intangible assets	580		5
Total definite-lived intangible assets	$	1,230	7

The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s Manufacturing segment from customers and technology introduced through Blue Stream, the assembled workforce of the acquired business, expected synergies, and the development of future proprietary processes. The goodwill attributable to Blue Stream is not deductible for tax purposes.

No significant integration costs were incurred in connection with the acquisition during fiscal years 2018 and 2017. The Company incurred $0.6 million of transaction and integration costs in connection with the acquisition during fiscal year 2016, which were included in selling, general and administrative expenses within the consolidated statements of income.

Pro forma financial information as well as actual revenue and operating income (loss) have not been included because Blue Stream’s financial results are non-significant when compared with the Company’s consolidated financial results.

WIL Research

On April 4, 2016, the Company acquired WIL Research, a provider of safety assessment and CDMO services to biopharmaceutical and agricultural and industrial chemical companies worldwide. The acquisition enhanced the Company’s position as a leading, global, early-stage CRO by strengthening its ability to partner with clients across the drug discovery and development continuum. The purchase price for WIL Research was $604.8 million, including assumed liabilities of $0.4 million. The purchase price included payment for actual working capital of the acquired business. The acquisition was funded by cash on hand and borrowings on the Company’s $1.65B Credit Facility. See Note 9, “Long-Term Debt and Capital Lease Obligations.” WIL Research’s safety assessment and CDMO businesses are reported in the Company’s DSA and Manufacturing reportable segments, respectively. On February 10, 2017, the Company divested the CDMO business.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The purchase price allocation of $577.4 million, net of $27.4 million of cash acquired, was as follows:



	April 4, 2016
	(in thousands)
Trade receivables (contractual amount of $48,625)	$	48,157
Inventories	2,296
Other current assets (excluding cash)	3,814
Property, plant and equipment	129,066
Other long-term assets	1,060
Definite-lived intangible assets	164,800
Goodwill	330,175
Deferred revenue	(39,103		)
Other current liabilities	(27,386		)
Long-term liabilities	(35,488		)
Total purchase price allocation	$	577,391

From the date of the acquisition through April 1, 2017, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.

The breakout of definite-lived intangible assets acquired was as follows:



	Definite-Lived Intangible Assets		Weighted Average Amortization Life
	(in thousands)		(in years)
Client relationships	$	137,500	15
Developed technology	20,700		3
Backlog	6,600		1
Total definite-lived intangible assets	$	164,800	13

The goodwill resulting from the transaction, $19.0 million of which was deductible for tax purposes due to a prior asset acquisition, was primarily attributed to the potential growth of the Company’s DSA and Manufacturing businesses from clients introduced through WIL Research, the assembled workforce of the acquired business, and expected cost synergies. Subsequent to the divestiture of the CDMO business on February 10, 2017, $14.8 million of the goodwill was deductible for tax purposes.

No significant integration costs were incurred in connection with the acquisition during fiscal year 2018. The Company incurred transaction and integration costs in connection with the acquisition of $1.7 million and $15.5 million during fiscal years 2017 and 2016, respectively, which were included in selling, general and administrative expenses within the consolidated statements of income.

WIL Research revenue and operating income from April 4, 2016 through December 31, 2016 was $176.1 million and $12.5 million, respectively. Beginning on April 4, 2016, WIL Research has been included in the operating results of the Company.

The following selected unaudited pro forma consolidated results of operations are presented as if the WIL Research acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition after giving effect to certain adjustments. For fiscal year 2016, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $0.4 million, reversal of interest expense on borrowings of $2.6 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments.



	Fiscal Year 2016
	(in thousands)
	(unaudited)
Revenue	$	1,741,964
Net income attributable to common shareholders	175,779

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

These unaudited pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the date indicated or that may result in the future. No effect has been given for synergies, if any, that may have been realized through the acquisition.

Contract Manufacturing

On February 10, 2017, the Company sold its CDMO business to Quotient Clinical Ltd., based in London, England, for $75.0 million in proceeds, net of $0.6 million in cash and cash equivalents transferred in conjunction with the sale and $0.3 million of working capital adjustments.

The CDMO business was acquired in April 2016 as part of the acquisition of WIL Research and was reported in the Company’s Manufacturing reportable segment. The Company determined that the CDMO business was not optimized within the Company’s portfolio at its current scale, and that the capital could be better deployed in other long-term growth opportunities.

During the three months ended April 1, 2017, the Company recorded a gain on the divestiture of the CDMO business of $10.6 million, which was included in other income, net within the Company’s consolidated statements of income. The carrying amounts of the major classes of assets and liabilities associated with the divestiture of the CDMO business were as follows:



	February 10, 2017
	(in thousands)
Assets
Current assets	$	5,505
Property, plant and equipment, net	11,174
Goodwill	35,857
Long-term assets	17,154
Total assets	$	69,690
Liabilities
Deferred revenue	$	4,878
Other current liabilities	1,158
Total liabilities	$	6,036

REVENUE FROM CONTRACTS WITH CUSTOMERS

Adoption of ASC Topic 606, “Revenue from Contracts with Customers” (ASC 606)

ASC 606 became effective for the Company 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, the Company 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.

Disaggregation of Revenue

The following tables disaggregate the Company’s revenue by major business line and timing of transfer of products or services:



Major Products/Service Lines:	2018
	(in thousands)
RMS	$	519,682
DSA	1,316,854
Manufacturing	429,560
Total revenue	$	2,266,096

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Timing of Revenue Recognition:	2018
	(in thousands)
RMS
Services and products transferred over time	$	202,872
Services and products transferred at a point in time	316,810
DSA
Services and products transferred over time	1,316,005
Services and products transferred at a point in time	849
Manufacturing
Services and products transferred over time	128,287
Services and products transferred at a point in time	301,273
Total revenue	$	2,266,096

RMS

The RMS business generates revenue through the commercial production and sale of research models and the provision of services related to the maintenance and monitoring of research models and management of clients’ research operations. Revenue from the sale of research models is recognized at a point in time when the customer obtains control of the product, which may be upon shipment or upon delivery based on the shipping terms of a contract. Revenue generated from research models services is recognized over time and is typically based on a right-to-invoice measure of progress (output method) as invoiced amounts correspond directly to the value of the Company’s performance to date.

DSA

The Discovery and Safety Assessment business provides a full suite of integrated drug discovery services directed at the identification, screening and selection of a lead compound for drug development and offers a full range of safety assessment services including bioanalysis, drug metabolism, pharmacokinetics, toxicology and pathology. Discovery and Safety Assessment services revenue is generally recognized over time using the cost-to-cost or right to invoice measures of progress, primarily representing fixed fee service contracts and per unit service contracts, respectively.

Manufacturing

The Manufacturing business includes Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification services; Biologics Testing Services (Biologics), which performs specialized testing of biologics; and Avian Vaccine Services (Avian), which supplies specific-pathogen-free chicken eggs and chickens. Species identification service revenue is generally recognized at a point in time as identifications are completed by the Company. Biologics service revenue is generally recognized over time using the cost-to-cost measure of progress. Microbial Solutions and Avian product sales are generally recognized at a point in time when the customer obtains control of the product, which may be upon shipment or upon delivery based on the contractual shipping terms of a contract.

Transaction Price Allocated to Future Performance Obligations

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of December 29, 2018. The guidance provides certain practical expedients that limit this requirement and, therefore, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) as of December 29, 2018:

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Revenue Expected to be Recognized in Future Periods
	Less than 1 Year		1 to 3 Years		4 to 5 Years		Beyond 5 Years		Total
	(in thousands)
DSA	$	138,132	$	94,230	$	5,022	$	647	$	238,031
Manufacturing	10,584		20,193		6,448		31		37,256
Total	$	148,716	$	114,423	$	11,470	$	678	$	275,287

Contract Balances from Contracts with Customers

The timing of revenue recognition, billings and cash collections results in billed receivables (client receivables), contract assets (unbilled revenue), contract liabilities (current and non-current deferred revenue), and customer deposits on the consolidated balance sheets. The Company’s payment terms are generally 30 days in the United States and consistent with prevailing practice in international markets. A contract asset is recorded when a right to consideration in exchange for goods or services transferred to a customer is conditioned other than the passage of time. Client receivables are recorded separately from contract assets since only the passage of time is required before consideration is due. A contract liability is recorded when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met. The following table provides information about client receivables, contract assets, and contract liabilities from contracts with customers:



	December 29, 2018		December 30, 2017 (1)
	(in thousands)
Balances from contracts with customers only:
Client receivables	$	370,131	$	335,839
Contract assets (unbilled revenue)	105,216		96,297
Contract liabilities (current and long-term deferred revenue)	179,559		125,882
Contract liabilities (customer contract deposits)	38,245		—
(1) The beginning balance as of December 30, 2017 is presented under the guidance of ASC 605.

Under ASC 606, when the Company does not have the unconditional right to advanced billings, both advanced client payments and unpaid advanced client billings are excluded from deferred revenue, with the advanced billings also being excluded from client receivables. As of December 29, 2018, the Company excluded approximately $22 million of unpaid advanced client billings from both client receivables and deferred revenue and approximately $38 million of advanced client payments have been presented as customer contract deposits within other current liabilities in the accompanying consolidated balance sheets.

Other changes in the contract asset and the contract liability balances during fiscal year 2018 were as follows:

(i) Changes due to business combinations:

See Note 2. “Business Acquisitions and Divestiture” for client receivables, unbilled revenue, deferred revenue, and customer contract deposits that were acquired as part of the MPI Research acquisition occurring on April 3, 2018 and the KWS BioTest acquisition occurring on January 11, 2018.

(ii) Cumulative catch-up adjustments to revenue that affect the corresponding contract asset or contract liability, including adjustments arising from a change in the measure of progress, a change in an estimate of the transaction price (including any changes in the assessment of whether an estimate of variable consideration is constrained), or a contract modification:

During fiscal year 2018, an immaterial cumulative catch-up adjustment to revenue was recorded.

(iii) A change in the time frame for a right to consideration to become unconditional (that is, for a contract asset to be recorded as a client receivable):

Approximately $92 million of unbilled revenue as of December 30, 2017 was billed during fiscal year 2018.

(iv) A change in the time frame for a performance obligation to be satisfied (that is, for the recognition of revenue arising from a contract liability):

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Approximately $101 million of contract liabilities as of December 30, 2017 were recognized as revenue during fiscal year 2018.

SEGMENT AND GEOGRAPHIC INFORMATION

The Company’s three reportable segments are Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Support (Manufacturing). Asset information on a reportable segment basis is not disclosed as this information is not separately identified and internally reported to the Company’s Chief Operating Decision Maker. The Company retrospectively adopted ASU 2017-07 in fiscal year 2018, which impacted segment information. Service cost is reflected in operating income within the consolidated statements of income while all other components of net periodic cost are recorded in other income, net within the consolidated statements of income. See Note 1, “Description of Business and Summary of Significant Accounting Policies.”

The following table presents revenue and other financial information by reportable segment:



	2018		2017		2016
	(in thousands)
RMS
Revenue	$	519,682	$	493,615	$	494,037
Operating income	136,468		114,588		136,418
Depreciation and amortization	19,469		19,627		20,853
Capital expenditures	35,172		20,879		11,642
DSA
Revenue	$	1,316,854	$	980,022	$	836,593
Operating income	227,577		182,796		135,379
Depreciation and amortization	112,976		79,355		71,816
Capital expenditures	73,425		36,616		27,493
Manufacturing
Revenue	$	429,560	$	383,964	$	350,802
Operating income	136,212		123,898		104,561
Depreciation and amortization	22,529		22,893		25,566
Capital expenditures	23,323		15,188		12,247

The following tables present reconciliations of segment operating income, depreciation and amortization, and capital expenditures to the respective consolidated amounts:



	Operating Income									Depreciation and Amortization
	2018			2017			2016			2018		2017		2016
	(in thousands)
Total reportable segments	$	500,257		$	421,282		$	376,358		$	154,974	$	121,875	$	118,235
Unallocated corporate	(168,874		)	(133,000		)	(138,806		)	6,805		9,284		8,423
Total consolidated	$	331,383		$	288,282		$	237,552		$	161,779	$	131,159	$	126,658



	Capital Expenditures
	2018		2017		2016
	(in thousands)
Total reportable segments	$	131,920	$	72,683	$	51,382
Unallocated corporate	8,134		9,748		3,906
Total consolidated	$	140,054	$	82,431	$	55,288

Revenue for each significant product or service offering is as follows:

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	2018		2017		2016
	(in thousands)
RMS	$	519,682	$	493,615	$	494,037
DSA	1,316,854		980,022		836,593
Manufacturing	429,560		383,964		350,802
Total revenue	$	2,266,096	$	1,857,601	$	1,681,432

A summary of unallocated corporate expense consists of the following:



	2018		2017		2016
	(in thousands)
Stock-based compensation	$	32,068	$	27,114	$	27,272
Compensation, benefits, and other employee-related expenses	69,191		46,920		36,349
External consulting and other service expenses	18,652		22,224		23,421
Information technology	12,463		11,997		13,233
Depreciation	6,805		9,284		8,423
Acquisition and integration	16,295		3,728		15,608
Other general unallocated corporate	13,400		11,733		14,500
Total unallocated corporate expense	$	168,874	$	133,000	$	138,806

Other general unallocated corporate expense consists of costs associated with departments such as senior executives, corporate accounting, legal, tax, human resources, treasury, and investor relations.

Revenue and long-lived assets by geographic area are as follows:



	U.S.		Europe		Canada		Asia Pacific		Other		Consolidated
	(in thousands)
2018
Revenue	$	1,267,620	$	643,957	$	206,382	$	142,495	$	5,642	$	2,266,096
Long-lived assets	597,223		205,185		74,051		56,262		156		932,877
2017
Revenue	$	959,263	$	569,812	$	200,343	$	126,462	$	1,721	$	1,857,601
Long-lived assets	446,574		203,911		82,228		49,020		240		781,973
2016
Revenue	$	850,422	$	520,937	$	194,210	$	114,710	$	1,153	$	1,681,432
Long-lived assets	462,330		177,423		78,866		37,111		97		755,827

Included in the Asia Pacific category above are operations located in China, Japan, Singapore, India, Australia, and Korea. Included in the Other category above are operations located in Brazil and Israel. Revenue represents sales originating in entities physically located in the identified geographic area. Long-lived assets consist of property, plant, and equipment, net.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SUPPLEMENTAL BALANCE SHEET INFORMATION

The composition of trade receivables, net is as follows:



	December 29, 2018			December 30, 2017
	(in thousands)
Client receivables	$	370,131		$	335,839
Unbilled revenue	105,216			96,297
Total	475,347			432,136
Less: Allowance for doubtful accounts	(3,099		)	(2,120		)
Trade receivables, net	$	472,248		$	430,016

The following amounts were recorded to the allowance for doubtful accounts in fiscal years 2018, 2017, and 2016; net provisions of $2.1 million; net provisions of $0.9 million; and net recoveries of $0.5 million, respectively.

The composition of inventories is as follows:



	December 29, 2018		December 30, 2017
	(in thousands)
Raw materials and supplies	$	22,378	$	19,858
Work in process	21,732		18,200
Finished products	83,782		76,898
Inventories	$	127,892	$	114,956

The composition of other current assets is as follows:



	December 29, 2018		December 30, 2017
	(in thousands)
Investments	$	885	$	28,489
Prepaid income tax	47,157		52,234
Restricted cash	465		592
Other	300		—
Other current assets	$	48,807	$	81,315

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The composition of property, plant and equipment, net is as follows:



	December 29, 2018			December 30, 2017
	(in thousands)
Land	$	52,266		$	48,989
Buildings (1)	938,184			812,230
Machinery and equipment (1)	501,894			450,992
Leasehold improvements	59,854			52,969
Furniture and fixtures	26,700			27,455
Computer hardware and software (1)	166,398			140,216
Vehicles (1)	5,167			4,582
Construction in progress	56,549			45,518
Total	1,807,012			1,582,951
Less: Accumulated depreciation	(874,135		)	(800,978		)
Property, plant and equipment, net	$	932,877		$	781,973

(1) These balances include assets under capital lease. See Note 9, “Long-Term Debt and Capital Lease Obligations.”

Depreciation expense in fiscal years 2018, 2017 and 2016 was $96.9 million, $89.8 million and $85.0 million, respectively.

The composition of other assets is as follows:



	December 29, 2018		December 30, 2017
	(in thousands)
Life insurance policies	$	32,340	$	34,008
Venture capital investments	88,591		71,101
Restricted cash	1,411		1,945
Other	21,417		16,948
Other assets	$	143,759	$	124,002

The composition of other current liabilities is as follows:



	December 29, 2018		December 30, 2017
	(in thousands)
Accrued income taxes	$	24,120	$	43,250
Customer contract deposits	38,245		—
Other	8,915		1,210
Other current liabilities	$	71,280	$	44,460

The composition of other long-term liabilities is as follows:



	December 29, 2018		December 30, 2017
	(in thousands)
U.S. Transition Tax	$	52,064	$	61,038
Long-term pension liability	24,671		52,364
Accrued executive supplemental life insurance retirement plan and deferred compensation plan	36,086		37,582
Long-term deferred revenue	34,420		8,313
Other	31,880		35,518
Other long-term liabilities	$	179,121	$	194,815

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

VENTURE CAPITAL INVESTMENTS AND MARKETABLE SECURITIES

Venture Capital Investments

During fiscal years 2018, 2017, and 2016, the Company recognized gains related to the venture capital investments of $15.9 million, $22.9 million and $10.3 million, respectively. The Company’s total commitment to these venture capital funds as of December 29, 2018 was $124.7 million, of which the Company funded $69.0 million through that date. During fiscal years 2018, 2017, and 2016, the Company received dividends totaling $18.2 million, $10.1 million, and $7.1 million, respectively. As of December 29, 2018 and December 30, 2017, the Company’s consolidated retained earnings included $14.1 million and $12.1 million, respectively, of the undistributed earnings related to these entities.

Marketable Securities

The Company held no marketable securities as of December 29, 2018 and December 30, 2017. During fiscal year 2016, the Company realized non-significant losses and received proceeds of $4.6 million from the sale of its available-for-sale securities.

FAIR VALUE

Assets and liabilities measured at fair value on a recurring basis are summarized below:



	December 29, 2018
	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash equivalents	$	—	$	45,982	$	—	$	45,982
Other assets:
Life insurance policies			24,541		—		24,541
Total assets measured at fair value	$	—	$	70,523	$	—	$	70,523

Other current liabilities:
Contingent consideration	$	—	$	—	$	3,033	$	3,033
Foreign currency forward contract	—		1,319		—		1,319
Total liabilities measured at fair value	$	—	$	1,319	$	3,033	$	4,352



	December 30, 2017
	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash equivalents	$	—	$	21	$	—	$	21
Other assets:
Life insurance policies	—		26,358		—		26,358
Total assets measured at fair value	$	—	$	26,379	$	—	$	26,379

Other current liabilities:
Contingent consideration	$	—	$	—	$	298	$	298
Total liabilities measured at fair value	$	—	$	—	$	298	$	298

During fiscal years 2018 and 2017, there were no transfers between fair value levels.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contingent Consideration

The following table provides a rollforward of the contingent consideration related to previous business acquisitions. See Note 2, “Business Acquisitions and Divestiture”.



	Fiscal Year
	2018			2017
	(in thousands)
Beginning balance	$	298		$	3,621
Additions	3,315			296
Payments	—			(3,606		)
Total gains or losses (realized/unrealized):
Foreign currency translation	(298		)	(13		)
Reversal of previously recorded contingent liability and change in fair value	(282		)	—
Ending balance	$	3,033		$	298

The unobservable inputs used in the fair value measurement of the Company’s contingent consideration are the probabilities of successful achievement of certain financial targets and a discount rate. Increases or decreases in any of the probabilities of success would result in a higher or lower fair value measurement, respectively. Increases or decreases in the discount rate would result in a lower or higher fair value measurement, respectively.

Debt Instruments

The book value of the Company’s term and revolving loans, which are variable rate loans carried at amortized cost, approximates the fair value based on current market pricing of similar debt. As the fair value is based on significant other observable inputs, including current interest and foreign currency exchange rates, it is deemed to be Level 2 within the fair value hierarchy.

The book value of the Company’s Senior Notes, which are a fixed rate obligation carried at amortized cost, approximates the fair value at quoted market prices as well as borrowing rates available to the Company. As the fair value is based on significant other observable outputs, it is deemed to be Level 2 within the fair value hierarchy.

GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table provides a rollforward of the Company’s goodwill:



				Adjustments to Goodwill								Adjustments to Goodwill
	December 31, 2016			Acquisitions / (Divestiture)			Foreign Exchange		December 30, 2017			Acquisitions		Foreign Exchange			December 29, 2018
	(in thousands)
RMS	$	56,397		$	—		$	1,725	$	58,122		$	—	$	(1,154	)	$	56,968
DSA	1,568,476			11,942			29,758		1,610,176			460,223		(13,929		)	2,056,470
Manufacturing	167,644			(36,000		)	9,964		141,608			2,551		(5,464		)	138,695
Gross carrying amount	1,792,517			(24,058		)	41,447		1,809,906			462,774		(20,547		)	2,252,133
Accumulated impairment loss - DSA	(1,005,000		)	—			—		(1,005,000		)	—		—			(1,005,000		)
Goodwill	$	787,517							$	804,906							$	1,247,133

Based on the Company’s step one goodwill impairment test, which was performed in the fourth quarter for each of the fiscal years 2018, 2017 and 2016, the fair value of each reporting unit exceeded the reporting unit’s book value and, therefore, goodwill was not impaired.

The increase in goodwill during fiscal year 2018 related primarily to the acquisitions of MPI Research and KWS BioTest in the DSA reportable segment, an immaterial acquisition of an Australian business in the Manufacturing reportable segment, and the impact of foreign exchange.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Intangible Assets, Net

The following table displays intangible assets, net by major class:



	December 29, 2018							December 30, 2017
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
	(in thousands)
Backlog	$	20,900	$	(18,691	)	$	2,209	$	8,111	$	(8,111	)	$	—
Technology	101,506		(41,870		)	59,636		81,309		(27,157		)	54,152
Trademarks and trade names	8,331		(4,640		)	3,691		8,661		(4,562		)	4,099
Other	17,448		(10,041		)	7,407		17,465		(7,845		)	9,620
Other intangible assets	148,185		(75,242		)	72,943		115,546		(47,675		)	67,871
Client relationships	791,725		(253,780		)	537,945		540,425		(238,534		)	301,891
Intangible assets	$	939,910	$	(329,022	)	$	610,888	$	655,971	$	(286,209	)	$	369,762

The increase in intangible assets, net during the fiscal year 2018 related primarily to the acquisitions of MPI Research and KWS BioTest in the DSA reportable segment. During fiscal year 2017, the Company divested the CDMO business, which resulted in a net decrease of $16.8 million and $0.3 million to client relationships and backlog, respectively.

Amortization expense of definite-lived intangible assets, including client relationships, for fiscal years 2018, 2017 and 2016 was $64.8 million, $41.4 million and $41.7 million, respectively. As of December 29, 2018, estimated amortization expense for intangible assets for each of the next five fiscal years is expected to be as follows:



Fiscal Year	Amortization Expense
	(in thousands)
2019	$	77,173
2020	74,162
2021	63,089
2022	56,958
2023	52,494

LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-Term Debt

Long-term debt, net consists of the following:



	December 29, 2018			December 30, 2017
	(in thousands)
Term loans	$	731,250		$	601,250
Revolving facility	397,452			500,997
Senior Notes	500,000			—
Other long-term debt	26,286			18,292
Total debt	1,654,988			1,120,539
Less: Current portion of long-term debt	(28,228		)	(28,546		)
Long-term debt	1,626,760			1,091,993
Debt discount and debt issuance costs	(16,214		)	(5,770		)
Long-term debt, net	$	1,610,546		$	1,086,223

As of December 29, 2018 and December 30, 2017, the weighted average interest rate on the Company’s debt was 4.24% and 2.45%, respectively.

Term Loans and Revolving Facility

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On March 26, 2018, the Company amended and restated its $1.65 billion credit facility creating a $2.3 billion credit facility ($2.3B Credit Facility) which extends 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 amendment was accounted for as a debt modification. In connection with the transaction, the Company capitalized approximately $6.2 million within long-term debt, net and capital leases in the accompanying consolidated balance sheets and expensed approximately $1.0 million of debt issuance costs recorded within interest expense in the accompanying consolidated statements of income.

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, the Company has the ability to increase the term loan and/or revolving facility by up to $1.0 billion in the aggregate.

The interest rates applicable to the term loan and revolving facility under the $2.3B Credit Facility are, at the Company’s option, equal to either the base rate (which is the higher of (1) the prime rate, (2) the federal funds rate plus 0.50%, or (3) the one-month adjusted LIBOR rate plus 1.0%) or the adjusted LIBOR rate, plus an interest rate margin based upon the Company’s leverage ratio.

The $2.3B Credit Facility includes certain customary representations and warranties, events of default, notices of material adverse changes to the Company’s business and negative and affirmative covenants. These covenants include (1) maintenance of a ratio of consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) less capital expenditures to consolidated cash interest expense, for any period of four consecutive fiscal quarters, of no less than 3.50 to 1.0 as well as (2) maintenance of a ratio of consolidated indebtedness to consolidated EBITDA for any period of four consecutive fiscal quarters, of no more than 4.50 to 1.0 with step downs to 3.50 to 1.0 by the last day of the first quarter of 2020. As of December 29, 2018, the Company was compliant with all covenants.

The obligations of the Company under the $2.3B Credit Facility are collateralized by substantially all of the assets of the Company.

As of December 29, 2018 the Company had a $343.3 million U.S. dollar denominated loan borrowed by a non-U.S. Euro functional currency entity under the Company’s $2.3B Credit Facility. The Company entered into a foreign exchange forward contract to limit its foreign currency exposure related to this borrowing. See Note 14, “Foreign Currency Contracts”, for further discussion.

Senior Notes Offering

On April 3, 2018, the Company entered into an indenture (Indenture) with MUFG Union Bank, N.A., (Trustee) 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. The Senior Notes are guaranteed fully and unconditionally, jointly and severally on a senior unsecured basis by the Company and certain of its U.S. subsidiaries. In connection with the transaction, the Company incurred approximately $7.4 million of debt issuance costs within long-term debt, net and capital leases in the accompanying consolidated balance sheets.

The Company may redeem all or part of the Senior Notes at any time prior to April 1, 2021, at its option, at a redemption price equal to 100% of the principal amount of such Senior Notes plus the Applicable Premium (as defined in the Indenture). The Company may also redeem up to 40% of the Senior Notes with the proceeds of certain equity offerings completed before April 1, 2021, at a redemption price equal to 105.5% of the principal amount of such Senior Notes. On or after April 1, 2021, the Company may on any one or more occasions redeem all or a part of the Senior Notes, at the redemption prices specified in the Indenture based on the applicable date of redemption. Upon the occurrence of a Change of Control Triggering Event (as defined in the Indenture), the Company will be required to offer to repurchase the Senior Notes at a purchase price equal to 101% of the aggregate principal amount of such Senior Notes. Any redemption of the Senior Notes would also require settlement of accrued and unpaid interest, if any, to but excluding the redemption date.

The Indenture contains certain covenants, including but not limited to, limitations and restrictions on the ability of the Company and its U.S. subsidiaries to (i) create certain liens, (ii) enter into any Sale and Leaseback Transaction (as defined in the Indenture) with respect to any property, and (iii) merge, consolidate, sell or otherwise dispose of all or substantially all of their assets. These covenants are subject to a number of conditions, qualifications, exceptions and limitations. Any event of default, as defined, could result in the acceleration of the repayment of the obligations.

Net proceeds from the Senior Notes of $493.8 million were used to partially repay the outstanding revolving credit facility on April 3, 2018.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Commitment Letter

On February 12, 2018, the Company secured an $830 million commitment under a 364-day senior unsecured bridge loan facility (the “Bridge Facility”) for the purpose of financing the acquisition of MPI Research. The Bridge Facility was terminated as of April 3, 2018 upon the successful acquisition of MPI Research. Debt issuance costs of $1.8 million, which were capitalized upon the execution of the Bridge Facility, were expensed upon termination of the agreement on April 3, 2018. In addition, the Company incurred and expensed $2.0 million of fees pertaining to a temporary backstop facility related to the negotiation of the Credit Facility during the three months ended March 31, 2018. These costs were included in interest expense in the accompanying consolidated statements of income.

Principal maturities of existing debt for the periods set forth in the table below, are as follows:



	Principal
	(in thousands)
2019	$	28,228
2020	42,188
2021	60,938
2022	93,750
2023	903,701
Thereafter	500,000
Total	$	1,628,805

Excluded from the table above is $26.2 million of other debt associated with construction in progress related to build-to-suit operating leases. The minimum rental commitments under these non-cancellable leases are included in Note 16, “Commitments and Contingencies.”

Letters of Credit

As of December 29, 2018 and December 30, 2017, the Company had $6.5 million and $4.9 million, respectively, in outstanding letters of credit.

Capital Lease Obligations

The Company’s capital lease obligations amounted to $29.2 million and $30.3 million as of December 29, 2018 and December 30, 2017, respectively.

As of December 29, 2018, the minimum lease payments under capital leases for each of the next five years and total thereafter were as follows:



	Minimum Lease Payments
	(in thousands)
2019	$	3,972
2020	3,759
2021	2,869
2022	2,967
2023	2,209
Thereafter	24,304
Total	$	40,080

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

EQUITY AND NONCONTROLLING INTERESTS

Earnings Per Share

The following table reconciles the numerator and denominator in the computations of basic and diluted earnings per share:



	Fiscal Year
	2018		2017			2016
	(in thousands)
Numerator:
Income from continuing operations, net of income taxes	$	227,218	$	125,586		$	156,086
Income (loss) from discontinued operations, net of income taxes	1,506		(137		)	280
Less: Net income attributable to noncontrolling interests	2,351		2,094			1,601
Net income attributable to common shareholders	$	226,373	$	123,355		$	154,765

Denominator:
Weighted-average shares outstanding—Basic	47,947		47,481			47,014
Effect of dilutive securities:
Stock options, restricted stock, restricted stock units and performance share units	1,071		1,083			944
Weighted-average shares outstanding—Diluted	49,018		48,564			47,958

Options to purchase 0.5 million shares, 0.6 million shares, and 0.8 million shares for fiscal years 2018, 2017 and 2016, respectively were not included in computing diluted earnings per share because their inclusion would have been anti-dilutive. Basic weighted-average shares outstanding for fiscal year 2018 and for both fiscal years 2017 and 2016 excluded the impact of 1.0 million shares and 1.1 million shares, respectively, of non-vested restricted stock and RSUs.

Treasury Shares

In July 2010, the Company’s Board of Directors authorized a $500.0 million stock repurchase program, and subsequently approved increases to the stock repurchase program of $250.0 million in 2010, $250.0 million in 2013, $150.0 million in 2014, and $150.0 million in 2017, for an aggregate authorization of $1.3 billion. Under its authorized stock repurchase program, the Company repurchased 1.0 million shares totaling $90.6 million in fiscal year 2017, and did not repurchase any shares in fiscal years 2018 and 2016. As of December 29, 2018, the Company had $129.1 million remaining on the authorized stock repurchase program.

The Company’s stock-based compensation plans permit the netting of common stock upon vesting of restricted stock, RSUs, and PSUs in order to satisfy individual statutory tax withholding requirements. The Company acquired 0.1 million shares for $13.8 million, 0.2 million shares for $16.3 million, and 0.2 million shares for $12.3 million in fiscal years 2018, 2017 and 2016, respectively, from such netting.

In October 2018, the Company’s Board of Directors approved the cancellation and return to the Company’s authorized and unissued capital stock of 40.2 million treasury shares totaling $1.7 billion, reducing treasury stock on the Company’s consolidated balance sheet. The Company allocated the excess of the repurchase price over the par value of shares acquired to reduce both retained earnings and additional paid-in-capital for $0.5 billion and $1.2 billion, respectively.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accumulated Other Comprehensive Income (Loss)

Changes to each component of accumulated other comprehensive income (loss), net of income taxes, are as follows:



	Foreign Currency Translation Adjustment and Other			Pension and Other Post-Retirement Benefit Plans			Total
	(in thousands)
December 31, 2016	$	(154,595	)	$	(99,169	)	$	(253,764	)
Other comprehensive income before reclassifications (1)	77,050			36,593			113,643
Amounts reclassified from accumulated other comprehensive income (loss)	—			3,344			3,344
Net current period other comprehensive income (loss)	77,050			39,937			116,987
Income tax expense	—			7,954			7,954
December 30, 2017	(77,545		)	(67,186		)	(144,731		)
Other comprehensive loss before reclassifications (1)	(27,352		)	(1,659		)	(29,011		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			2,477			2,477
Net current period other comprehensive (loss) income	(27,352		)	818			(26,534		)
Amount reclassified from accumulated other comprehensive loss due to the adoption of ASU 2018-02 (See Note 1)	—			3,330			3,330
Income tax (benefit) expense	(2,698		)	806			(1,892		)
December 29, 2018	$	(102,199	)	$	(70,504	)	$	(172,703	)
(1) The impact of the foreign currency translation adjustment to other comprehensive income (loss) before reclassifications was primarily due to the effect of changes in foreign currency exchange rates of the Euro, British Pound, and Canadian Dollar and to a lesser extent due to the impact of changes in the Chinese Yuan Renminbi and Japanese Yen.

Nonredeemable Noncontrolling Interest

The Company has an investment in an entity whose financial results are consolidated in the Company’s financial statements, as it has the ability to exercise control over this entity. The interest of the noncontrolling party in this entity has been recorded as noncontrolling interest. The activity within the nonredeemable noncontrolling interest during fiscal years 2018 and 2017 was not significant. In 2016, the activity within the nonredeemable noncontrolling interest was a decrease of $2.1 million.

Redeemable Noncontrolling Interest

In January 2013, the Company acquired a 75% ownership interest in Vital River, a commercial provider of research models and related services in China, for $24.2 million, net of $2.7 million of cash acquired. Concurrent with the acquisition, the Company entered into an agreement with the noncontrolling interest holders that provided the Company with the right to purchase, and the noncontrolling interest holders with the right to sell, the remaining 25% of the entity for cash at its fair value beginning in January 2016.

The following table provides a rollforward of the fair value of the Company’s redeemable noncontrolling interest for fiscal year 2016:

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Redeemable Noncontrolling Interest
	(in thousands)
December 26, 2015	$	28,008
Total gains or losses (realized/unrealized):
Net income attributable to noncontrolling interest	320
Foreign currency translation	(653		)
Change in fair value, included in additional paid-in capital	(1,690		)
July 7, 2016	$	25,985
Purchase of 12% equity	$	(12,360	)
Total gains or losses (realized/unrealized):
Net income attributable to noncontrolling interest	357
Foreign currency translation	(818		)
Modification of 13% purchase option	1,495
December 31, 2016	$	14,659

On July 7, 2016, the Company purchased an additional 12% equity interest in Vital River for $10.8 million, resulting in total ownership of 87%. The Company recorded a $1.6 million gain in equity equal to the excess fair value of the 12% equity interest over the purchase price. Concurrent with the transaction, the original agreement was amended providing the Company with the right to purchase, and the noncontrolling interest holders with the right to sell, the remaining 13% equity interest at a contractually defined redemption value, subject to a redemption floor (embedded derivative). These rights are exercisable beginning in 2019 and are accelerated in certain events. The Company recorded a charge of $1.5 million in other income, net, equal to the excess fair value of the hybrid instrument (equity interest with an embedded derivative) over the fair value of the 13% equity interest. The redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the contractually defined redemption value ($18.5 million as of December 29, 2018) and its carrying amount adjusted for net income (loss) attributable to the noncontrolling interest. As the noncontrolling interest holders have the ability to require the Company to purchase the remaining 13% interest, the noncontrolling interest is classified in the mezzanine section of the consolidated balance sheets, which is presented above the equity section and below liabilities. The agreement does not limit the amount that the Company could be required to pay to purchase the remaining 13% equity interest.

The following table provides a rollforward of the activity related to the Company’s redeemable noncontrolling interest:



	Fiscal Year
	2018			2017
	(in thousands)
Beginning balance	$	16,609		$	14,659
Total gains or losses (realized/unrealized):
Net income attributable to noncontrolling interest	800			916
Adjustment to redemption value	2,069			—
Foreign currency translation	(953		)	1,034
Ending balance	$	18,525		$	16,609

INCOME TAXES

The components of income from continuing operations before income taxes and the related provision for income taxes are presented below:

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Fiscal Year
	2018			2017		2016
	(in thousands)
Income from continuing operations before income taxes:
U.S.	$	95,062		$	123,896	$	59,255
Non-U.S.	186,619			173,059		163,666
	$	281,681		$	296,955	$	222,921
Income tax provision (benefit):
Current:
Federal	$	17,390		$	93,871	$	18,592
Foreign	38,557			37,150		39,829
State	8,837			12,361		5,263
Total current	64,784			143,382		63,684
Deferred:
Federal	(7,145		)	9,416		7,206
Foreign	(4,104		)	14,953		(4,024		)
State	928			3,618		(31		)
Total deferred	(10,321		)	27,987		3,151
	$	54,463		$	171,369	$	66,835

U. S. Tax Reform

U.S. Tax Reform, which was signed into law on December 22, 2017, has resulted in significant changes 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.

The Company’s accounting for the elements of U.S. Tax Reform is complete. The Company recorded measurement period adjustments under SAB 118 in fiscal year 2018 to the provisional amounts recorded in the fourth quarter of fiscal year 2017. These adjustments included a $1.0 million tax benefit relating to a decreased Transition Tax liability compared to the $73.5 million obligation reported in fiscal year 2017, and a $2.2 million tax benefit compared to the $18.2 million of tax recorded in fiscal year 2017 related to the Company’s unremitted foreign earnings. Additionally, the Company recorded a $2.3 million tax benefit for additional decreases to the net deferred tax liability relating to the reduction on the U.S. federal statutory tax rate from 35% to 21%.

In fiscal year 2018, the Company made an accounting policy election to treat taxes due on the GILTI inclusion as a current period expense.

Prior to the fourth quarter of fiscal 2017, the Company asserted that the unremitted earnings of its foreign subsidiaries were deemed indefinitely reinvested as they were required to fund needs outside of the U.S. As a result of the Transition Tax and other effects of U.S. Tax Reform enacted during the fourth quarter of fiscal 2017, the Company withdrew its indefinite reinvestment assertion for all of its unremitted foreign earnings.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The components of deferred tax assets and liabilities are as follows:



	December 29, 2018			December 30, 2017
	(in thousands)
Deferred tax assets:
Compensation	$	36,724		$	40,788
Accruals and reserves	13,183			8,248
Inventory reserves and valuations	2,482			2,135
Net operating loss and credit carryforwards	35,679			33,160
Other	2,578			7,661
Valuation allowance	(9,788		)	(10,591		)
Total deferred tax assets	80,858			81,401
Deferred tax liabilities:
Goodwill and other intangibles	(154,743		)	(89,636		)
Financing related	(898		)	(429		)
Depreciation related	(19,373		)	(23,763		)
Venture capital investments	(10,557		)	(7,796		)
Tax on unremitted earnings	(14,140		)	(19,204		)
Other	(1,398		)	(7,459		)
Total deferred tax liabilities	(201,109		)	(148,287		)
Net deferred taxes	$	(120,251	)	$	(66,886	)

The changes recorded to the Company’s valuation allowance were insignificant in fiscal years 2018, 2017, and 2016.

Reconciliations of the statutory U.S. federal income tax rate to effective tax rates are as follows:



	Fiscal Year
	2018		2017		2016
U.S. statutory income tax rate	21.0	%	35.0	%	35.0	%
Foreign tax rate differences	0.5		(6.8	)	(10.3	)
State income taxes, net of federal tax benefit	2.4		2.0		1.6
Research tax credits and enhanced deductions	(2.9	)	(2.4	)	(3.5	)
Stock-based compensation	(2.1	)	(3.2	)	—
Enacted tax rate changes	(0.1	)	(4.2	)	(0.8	)
Transition Tax	(0.3	)	24.8		—
Impact of tax uncertainties	(1.1	)	(0.4	)	0.2
Tax on unremitted earnings	1.2		7.3		2.0
GILTI, net of foreign tax credits	1.1		—		—
Foreign-Derived Intangible Income (FDII)	(1.4	)	—		—
Impact of acquisitions and restructuring	0.3		3.8		1.8
Other	0.7		1.8		4.0
Effective income tax rate	19.3	%	57.7	%	30.0	%

GILTI, net of foreign tax credits includes $12.8 million of tax related to the GILTI inclusion, net of a $9.6 million foreign tax credit. FDII includes a $4.0 million tax benefit for the FDII deduction.

As of December 29, 2018, the Company had foreign net operating loss and tax credit carryforwards of $35.7 million, as compared to $33.2 million as of December 30, 2017. Of this amount, $2.9 million will expire beginning in 2019, $18.2 million will begin to expire in 2030 and beyond, and the remainder of $14.6 million can be carried forward indefinitely. In accordance with Canadian federal tax law, the Company claims Scientific Research and Experimental Development (SR&ED) credits on qualified research and development costs incurred in its Safety Assessment facility in Montreal, and currently maintains $15.9

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

million in credit carryforwards, which will begin to expire in 2036. Additionally, the Company records a benefit to operating income for research and development credits in both Quebec and the U.K. related to its Safety Assessment and Early Discovery facilities.

The Company has fully recognized its deferred tax assets on the belief that it is more likely than not that they will be realized. The only exceptions relate to deferred tax assets primarily for net operating losses in France, Hong Kong, Luxembourg, the Netherlands and Germany, capital losses in the U.S., and fixed assets in the U.K. The valuation allowance decreased by $0.8 million from $10.6 million as of December 30, 2017 to $9.8 million as of December 29, 2018.

A reconciliation of the Company’s beginning and ending unrecognized income tax benefits is as follows:



	Fiscal Year
	2018			2017			2016
	(in thousands)
Beginning balance	$	24,710		$	24,186		$	23,338
Additions to tax positions for current year	2,477			1,791			2,194
Additions to tax positions for prior years	—			1,428			2,035
Reductions to tax positions for prior years	(4,543		)	—			(1,866		)
Settlements	(3,380		)	(1,754		)	(918		)
Expiration of statute of limitations	(437		)	(941		)	(597		)
Ending balance	$	18,827		$	24,710		$	24,186

The $5.9 million decrease in unrecognized income tax benefits during fiscal year 2018 is primarily attributable to audit settlements, favorable tax authority rulings, and favorable foreign exchange movement, partially offset by an additional year of Canadian SR&ED credit.

The amount of unrecognized income tax benefits that, if recognized, would favorably impact the effective tax rate was $17.6 million as of December 29, 2018 and $22.7 million as of December 30, 2017. The $5.1 million decrease is primarily attributable to favorable tax rulings and audit settlements during the year ended December 29, 2018. It is reasonably possible as of December 29, 2018 that the liability for unrecognized tax benefits for the uncertain tax position will decrease by $7.6 million over the next twelve month period, primarily as a result of lapsing statutes of limitations. The Company continues to recognize interest and penalties related to unrecognized income tax benefits in income tax expense. The total amount of accrued interest related to unrecognized income tax benefits as of December 29, 2018 and December 30, 2017 was $2.7 million and $2.5 million, respectively. The total amount of accrued penalties related to unrecognized income tax benefits as of December 30, 2017 was $0.3 million and none as of December 29, 2018.

The Company conducts business in a number of tax jurisdictions. As a result, it is subject to tax audits on a regular basis including, but not limited to, such major jurisdictions as the U.S., the U.K., China, Japan, France, Germany, and Canada. With few exceptions, the Company is no longer subject to U.S. and international income tax examinations for years before 2015.

The Company and certain of its subsidiaries have ongoing tax controversies in the U.S. and Canada. The Company does not anticipate resolution of these audits will have a material impact on its financial statements.

EMPLOYEE BENEFIT PLANS

Pension Plans

The Charles River Laboratories, Inc. Pension Plan (U.S. Pension Plan) is a qualified, non-contributory defined benefit plan covering certain U.S. employees. Effective 2002, the U.S. Pension Plan was amended to exclude new participants from joining and in 2008 the accrual of benefits was frozen. On January 31, 2019, the Company commenced the process to terminate the U.S. Pension Plan and expects to complete the termination process over the next two years. As part of the planned termination, the Company 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. The Company intends 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.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Charles River Pension Plan is a defined contribution and defined benefit pension plan covering certain U.K. employees. Benefits are based on participants’ final pensionable salary and years of service. Participants’ rights vest immediately. Effective December 31, 2002, the plan was amended to exclude new participants from joining the defined benefit section of the plan and a defined contribution section was established for new entrants. Contributions under the defined contribution plan are determined as a percentage of gross salary. In the fourth quarter of 2015, the Charles River Pension Plan was amended such that the members of the defined benefit section of the plan ceased to accrue additional benefits; however, their benefits continue to be adjusted for changes in their final pensionable salary or a specified inflation index, as applicable.

In addition, the Company has several defined benefit plans in certain other countries in which it maintains an operating presence, including Canada, France, Germany, Japan, Italy, and the Netherlands.

Charles River Laboratories Deferred Compensation Plan and Executive Supplemental Life Insurance Retirement Plan

The Company maintains a non-qualified deferred compensation plan, known as the Charles River Laboratories Deferred Compensation Plan (DCP), which allows a select group of eligible employees to defer a portion of their compensation. At the present time, no contributions are credited to the DCP, except as set forth below. Participants must specify the distribution date for deferred amounts at the time of deferral, in accordance with applicable IRS regulations. Generally, amounts may be paid in lump sum or installments upon retirement or termination of employment, or later if the employee terminates employment after age 55 and before age 65. Amounts may also be distributed during employment, subject to a minimum deferral requirement of three years.

The Company provides certain active employees an annual contribution into their DCP account of 10% of the employee’s base salary plus the lesser of their target annual bonus or actual annual bonus.

In addition to the DCP, certain officers and key employees also participate, or in the past participated, in the Company’s Executive Supplemental Life Insurance Retirement Plan (ESLIRP), which is a non-funded, non-qualified arrangement. Annual benefits under this plan will equal a percentage of the highest five consecutive years of compensation, offset by amounts payable under the CRL Pension Plan and Social Security. In connection with the establishment of the DCP, certain active ESLIRP participants, who agreed to convert their accrued ESLIRP benefit to a comparable deferred compensation benefit, discontinued their direct participation in the ESLIRP. Instead, the present values of the accrued benefits of ESLIRP participants were credited to their DCP accounts, and future accruals are converted to present values and credited to their DCP accounts annually.

The net periodic benefit costs associated with these plans, including the ESLIRP, for fiscal years 2018, 2017 and 2016 totaled $2.9 million, $2.3 million and $2.2 million, respectively.

The Company has invested in several corporate-owned key-person life insurance policies with the intention of using these investments to fund the ESLIRP and the DCP. Participants have no interest in any such investments. As of December 29, 2018 and December 30, 2017, the cash surrender value of these life insurance policies were $32.3 million and $34.0 million, respectively.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table provides a reconciliation of benefit obligations and plan assets of the Company’s pension, DCP and ESLIRP plans:



	December 29, 2018			December 30, 2017
	(in thousands)
Change in projected benefit obligations:
Benefit obligation at beginning of year	$	392,964		$	379,942
Service cost	2,612			3,110
Interest cost	10,850			11,642
Other	1,499			—
Benefit payments	(8,886		)	(9,665		)
Plan amendments	104			(1		)
Actuarial gain	(21,168		)	(15,724		)
Administrative expenses paid	(195		)	(698		)
Effect of foreign exchange	(14,975		)	24,358
Benefit obligation at end of year	$	362,805		$	392,964
Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	304,325		$	256,903
Actual return on plan assets	(7,419		)	33,558
Employer contributions	31,174			5,165
Benefit payments	(8,886		)	(9,665		)
Administrative expenses paid	(195		)	(698		)
Effect of foreign exchange	(13,290		)	19,062
Fair value of plan assets at end of year	$	305,709		$	304,325

Net balance sheet liability	$	57,096		$	88,639

Amounts recognized in balance sheet:
Noncurrent assets	$	3,280		$	1,169
Current liabilities	1,095			1,228
Noncurrent liabilities	59,281			88,580

Amounts recognized in accumulated other comprehensive loss related to the Company’s pension, DCP and ESLIRP plans are as follows:



	Fiscal Year
	2018			2017
	(in thousands)
Net actuarial loss	$	93,483		$	94,705
Net prior service cost (credit)	(2,585		)	(3,203		)
Net amount recognized	$	90,898		$	91,502

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The accumulated benefit obligation and fair value of plan assets for the Company’s pension, DCP and ESLIRP plans with accumulated benefit obligations in excess of plan assets are as follows:



	December 29, 2018		December 30, 2017
	(in thousands)
Accumulated benefit obligation	$	254,138	$	359,965
Fair value of plan assets	207,538		285,609

The projected benefit obligation and fair value of plan assets for the Company’s pension, DCP and ESLIRP plans with projected benefit obligations in excess of plan assets are as follows:



	December 29, 2018		December 30, 2017
	(in thousands)
Projected benefit obligation	$	273,625	$	381,960
Fair value of plan assets	213,249		292,152

The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year are as follows:



	December 29, 2018
	(in thousands)
Amortization of net actuarial loss	$	1,954
Amortization of net prior service credit	(486		)

Components of net periodic benefit cost for the Company’s pension, DCP and ESLIRP plans are as follows:



	Fiscal Year
	2018			2017			2016
	(in thousands)
Service cost	$	2,612		$	3,110		$	2,453
Interest cost	10,850			11,642			12,046
Expected return on plan assets	(15,516		)	(14,249		)	(14,164		)
Amortization of prior service cost (credit)	(514		)	(496		)	(292		)
Amortization of net loss (gain)	2,990			3,845			2,003
Curtailment	—			—			(279		)
Settlements	—			—			788
Other	910			—			—
Net periodic cost (benefit)	$	1,332		$	3,852		$	2,555

Assumptions

Weighted-average assumptions used to determine projected benefit obligations are as follows:



	December 29, 2018		December 30, 2017
Discount rate	3.21	%	2.82	%
Rate of compensation increase	3.23	%	3.16	%

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Weighted-average assumptions used to determine net periodic benefit cost are as follows:



	December 29, 2018		December 30, 2017		December 31, 2016
Discount rate	2.82	%	3.01	%	3.89	%
Expected long-term return on plan assets	5.18	%	5.41	%	5.83	%
Rate of compensation increase	3.16	%	3.25	%	3.17	%

A 0.5% decrease in the expected rate of return would increase annual pension expense by $1.5 million.

Plan Assets

The Company invests its pension assets with the objective of achieving a total long-term rate of return sufficient to fund future pension obligations and to minimize future pension contributions. The Company is willing to tolerate a commensurate level of risk to achieve this objective. The Company controls its risk by maintaining a diversified portfolio of asset classes. Plan assets did not include any of the Company’s common stock as of December 29, 2018 or December 30, 2017. The weighted-average target asset allocations are 28.5% to equity securities, 35.8% to fixed income securities and 35.7% to other securities.

The fair value of the Company’s pension plan assets by asset category are as follows:



	December 29, 2018								December 30, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)
Cash	$	7,317	$	—	$	—	$	7,317	$	564	$	—	$	—	$	564
Equity securities (1)	72,237		—		—		72,237		88,854		—		—		88,854
Debt securities (2)	17,147		4,100		—		21,247		18,485		4,117		—		22,602
Mutual funds (3)	86,282		59,984		—		146,266		74,708		66,656		—		141,364
Other (4)	718		56,283		1,641		58,642		472		48,713		1,756		50,941
Total	$	183,701	$	120,367	$	1,641	$	305,709	$	183,083	$	119,486	$	1,756	$	304,325
(1) This category comprises equity securities held by non-U.S. pension plans valued at the quoted closing price, and translated into U.S. dollars using a foreign currency exchange rate at year end.
(2) This category comprises debt securities held by non-U.S. pension plans valued at the quoted closing price, and translated into U.S. dollars using a foreign currency exchange rate at year end.
(3) This category comprises mutual funds valued at the net asset value of shares held at year end.
(4) This category mainly comprises fixed income securities tied to various UK government bond yields held by non-US pension plans valued at the net asset value of shares held at year-end, and translated into U.S. dollars using a foreign currency exchange rate at year end.

The activity within the Level 3 pension plan assets was non-significant during the periods presented.

During fiscal year 2018, the Company contributed $29.9 million to the pension plans and $1.3 million directly to certain participants outside of plan assets. The Company expects to contribute approximately $0.9 million in fiscal year 2019.

Expected benefit payments are estimated using the same assumptions used in determining the Company’s benefit obligation as of December 29, 2018. Benefit payments will depend on future employment and compensation levels, among other factors, and changes in any of these factors could significantly affect these estimated future benefit payments. Estimated future benefit payments during the next five years and in the aggregate for fiscal years thereafter, are as follows:



Fiscal Year	Pension Plans
	(in thousands)
2019	$	9,311
2020	9,754
2021	10,374
2022	11,076
2023	35,599
Thereafter	73,903

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Post-Retirement Health and Life Insurance Plans

The Company’s Canadian location offers post-retirement life insurance benefits to its employees and post-retirement medical and dental insurance coverage to certain executives. The plan is non-contributory and unfunded. As of December 29, 2018 and December 30, 2017, the accumulated benefit obligation related to the plan was $1.5 million and $1.4 million, respectively. The amounts included in other accumulated comprehensive income as well as expenses related to the plan were non-significant for fiscal years 2018, 2017 and 2016.

Charles River Laboratories Employee Savings Plan

The Charles River Laboratories Employee Savings Plan is a defined contribution plan in the form of a qualified 401(k) plan in which substantially all U.S. employees are eligible to participate upon employment. The plan contains a provision whereby the Company matches a percentage of employee contributions. During fiscal years 2018, 2017 and 2016, the costs associated with this defined contribution plan totaled $13.4 million, $11.6 million and $6.2 million, respectively.

STOCK-BASED COMPENSATION

The Company has stock-based compensation plans under which employees and non-employee directors may be granted stock-based awards such as stock options, restricted stock, restricted stock units (RSUs), and performance share units (PSUs).

During fiscal years 2018, 2017 and 2016, the primary share-based awards and their general terms and conditions are as follows:


•	Stock options, which entitle the holder to purchase a specified number of shares of common stock at an exercise price equal to the closing market price of common stock on the date of grant; typically vest over 4 years; and typically expire 5 to 7 years from date of grant.


•	Restricted stock, which is an award of common stock issued on the grant date and subject to vesting, typically over 2 to 4 years. Recipients cannot sell or transfer the shares until the restriction period has lapsed, but are entitled to forfeitable cash dividends and to vote their respective shares upon grant.


•	RSUs, which represent an unsecured promise to grant at no cost a set number of shares of common stock upon the completion of the vesting schedule, and typically vest over 2 to 4 years. With respect to RSUs, recipients are not entitled to cash dividends and have no voting rights on the stock during the vesting period.


•	PSUs, which entitle the holder to receive at no cost, a specified number of shares of common stock within a range of shares from zero to a specified maximum and typically vest over 3 years. Payout of this award is contingent upon achievement of certain performance and market conditions.

In May 2007, the Company’s shareholders approved the 2007 Incentive Plan, which was amended in 2009, 2011, 2013 and 2015 (2007 Plan). The 2007 Plan provided no further awards to be granted under preexisting stock option and incentive plans; provided, however, that any shares that have been forfeited or canceled in accordance with the terms of the applicable award under a preexisting plan may be subsequently awarded in accordance with the terms of the preexisting plan. The 2007 Plan allows a maximum of 18.7 million shares to be awarded, of which restricted stock grants, RSUs, and performance based stock awards count as 2.3 shares and stock options count as 1.0 share. Any stock options and other share-based awards that were granted under prior plans and were outstanding in May 2007 continue in accordance with the terms of the respective plans.

In May 2016, the Company’s shareholders approved the 2016 Incentive Plan (2016 Plan). The 2016 Plan provided no further awards to be granted under preexisting stock option and incentive plans; provided, however, that any shares that have been forfeited or canceled in accordance with the terms of the applicable award under a preexisting plan may be subsequently awarded in accordance with the terms of the preexisting plan. The 2016 Plan allows a maximum of 6.1 million shares to be awarded, of which restricted stock grants, RSUs, and performance based stock awards count as 2.3 shares and stock options count as 1.0 share. Any stock options and other share-based awards that were granted under prior plans and were outstanding in May 2016 continue in accordance with the terms of the respective plans.

In May 2018, the Company’s shareholders approved the 2018 Incentive Plan (2018 Plan). The 2018 Plan provided no further awards to be granted under preexisting stock option and incentive plans; provided, however, that any shares that have been forfeited or canceled in accordance with the terms of the applicable award under a preexisting plan may be subsequently awarded in accordance with the terms of the preexisting plan. The 2018 Plan allows a maximum of 7.2 million shares to be awarded, of which restricted stock grants, RSUs, and performance based stock awards count as 2.3 shares and stock options count as 1.0 share. Any stock options and other share-based awards that were granted under prior plans and were outstanding in May 2018 continue in accordance with the terms of the respective plans.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 29, 2018, approximately 7.1 million shares were authorized for future grants under the Company’s share-based compensation plans. The Company settles employee share-based compensation awards with newly issued shares. The following table provides stock-based compensation by the financial statement line item in which it is reflected:



	Fiscal Year
	2018			2017			2016
	(in thousands)
Cost of revenue	$	6,285		$	6,509		$	6,508
Selling, general and administrative	41,061			37,494			37,134
Stock-based compensation, before income taxes	47,346			44,003			43,642
Provision for income taxes	(9,188		)	(13,428		)	(15,548		)
Stock-based compensation, net of income taxes	$	38,158		$	30,575		$	28,094

The Company capitalized no stock-based compensation related costs for fiscal years 2018, 2017 and 2016.

Stock Options

The following table summarizes stock option activity under the Company’s stock-based compensation plans:



	Number of shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
	(in thousands)				(in years)	(in thousands)
Options outstanding as of December 30, 2017	1,774		$	73.19
Options granted	508		$	109.32
Options exercised	(576	)	$	65.40
Options canceled	(150	)	$	88.17
Options outstanding as of December 29, 2018	1,556		$	86.44	2.9	$	39,300
Options exercisable as of December 29, 2018	379		$	66.91	1.8	$	16,991
Options expected to vest as of December 29, 2018	1,175		$	92.74	3.2	$	22,309

The fair value of stock options granted was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:



	Fiscal Year
	2018		2017		2016
Expected life (in years)	3.7		3.6		3.6
Expected volatility	25	%	24	%	25	%
Risk-free interest rate	2.4	%	1.6	%	1.2	%
Expected dividend yield	0	%	0	%	0	%

The weighted-average grant date fair value of stock options granted was $24.80, $18.33 and $15.12 for fiscal years 2018, 2017 and 2016, respectively.

As of December 29, 2018, the unrecognized compensation cost related to unvested stock options expected to vest was $13.4 million. This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 2.3 years.

The total intrinsic value of options exercised during fiscal years 2018, 2017 and 2016 was $29.0 million, $30.0 million and $23.0 million, respectively, with intrinsic value defined as the difference between the market price on the date of exercise and the exercise price.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restricted Stock and Restricted Stock Units

The following table summarizes the restricted stock and restricted stock units activity for fiscal year 2018:



	Restricted Stock and Restricted Stock Units		Weighted Average Grant Date Fair Value
	(in thousands)
December 30, 2017	514		$	80.45
Granted	221		$	109.15
Vested	(201	)	$	76.84
Canceled	(44	)	$	92.78
December 29, 2018	490		$	93.80

As of December 29, 2018, the unrecognized compensation cost related to shares of unvested restricted stock and RSUs expected to vest was $25.7 million, which is expected to be recognized over an estimated weighted-average amortization period of 2.3 years. The total fair value of restricted stock and RSU grants that vested during fiscal years 2018, 2017 and 2016 was $15.5 million, $13.6 million and $14.6 million, respectively.

Performance Based Stock Award Program

The Company issues PSUs to certain corporate officers. The number of shares of common stock issued for each PSU is adjusted based on a performance condition linked to the Company’s financial performance. Certain awards are further adjusted based on a market condition, which is calculated based on the Company’s stock performance relative to a peer group over the three-year vesting period. The fair value of the market condition is reflected in the fair value of the award at grant date.

The Company utilizes a Monte Carlo simulation valuation model to value these awards. Information pertaining to the Company’s PSUs and the related estimated weighted-average assumptions used to calculate their fair value were as follows:



	Fiscal Year
	2018			2017			2016
PSUs granted	200,333			197,645			190,628
Weighted average grant date fair value	$	117.89		$	99.96		$	80.38
Key Assumptions:
Expected volatility	26		%	26		%	24		%
Risk-free interest rate	2.4		%	1.3		%	0.9		%
Expected dividend yield	0		%	0		%	0		%
20 trading day average stock price on grant date	2.9		%	17.7		%	(4.8		)%

The maximum number of common shares to be issued upon vesting of PSUs is 0.4 million. For fiscal years 2018, 2017 and 2016, the Company recognized stock-based compensation related to PSUs of $20.4 million, $18.9 million and $19.7 million, respectively. The total fair value of PSUs that vested during fiscal years 2018, 2017 and 2016 was $18.3 million, $14.4 million and $18.0 million, respectively.

In fiscal years 2018, 2017 and 2016, the Company also issued approximately 17,000, 15,000 and 18,000 PSUs using a weighted-average grant date fair value per share of $109.34, $88.05 and $73.70 respectively. These PSUs vest upon the achievement of financial targets and other performance measures.

FOREIGN CURRENCY CONTRACTS

The Company entered into foreign exchange forward contracts during fiscal 2018 to limit its foreign currency exposure related a U.S. dollar denominated loan borrowed by a non-U.S. Euro functional currency entity under the Company’s $2.3B Credit Facility. These contracts are not designated as hedging instruments. Any gains or losses on these forward contracts are recognized immediately in Interest expense. The open contract at December 29, 2018, which has a duration of approximately 3 months, is recorded at fair value in the Company’s accompanying consolidated balance sheet. The notional amount and fair value of the open contract as of December 29, 2018 is summarized as follows:

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



December 29, 2018
Notional Amount		Fair Value			Balance Sheet Location
(in thousands)
$	343,300	$	(1,319	)	Other current liabilities

The Company also entered into foreign exchange forward contracts during fiscal years 2018, 2017, and 2016 to limit its foreign currency exposure related to certain intercompany loans. These contracts are not designated as hedging instruments. Any gains or losses on forward contracts associated with intercompany loans are recognized immediately in Other income, net and are largely offset by the remeasurement of the underlying intercompany loans. The Company did not have any foreign currency contracts open related to intercompany loans as of December 29, 2018 and December 30, 2017.

The following table summarizes the effect of all foreign exchange forward contracts on the Company’s consolidated statements of income:



	Fiscal Year
Location of Gain	2018		2017		2016
	(in thousands)
Interest expense	$	1,486	$	—	$	—
Other income, net	—		—		3,373

RESTRUCTURING AND ASSET IMPAIRMENTS

Global RMS Restructuring Initiatives

In the fourth quarter of fiscal year 2017, the Company committed to a plan to further reduce costs and improve operating efficiencies in its RMS reportable segment. The plan included ceasing production within the Company’s facility in Maryland and reducing its workforce at various global RMS facilities during 2018. On August 1, 2018, the Company’s Board of Directors approved a modification to the plan which repurposes the facility in Maryland to be used for alternative initiatives. The Company’s existing lease obligation continues through 2028 and the Company expects to remain in the facility for the duration of the lease term.

The following table presents a summary of severance and transition costs, and asset impairments (referred to as restructuring costs) related to this initiative by classification within the consolidated statements of income:



	Severance and Transition Costs		Asset Impairments and Other Costs		Total
	(in thousands)
December 29, 2018
Cost of services provided and products sold (excluding amortization of intangible assets)	$	847	$	822	$	1,669
Selling, general and administrative	314		—		314
Total	$	1,161	$	822	$	1,983
December 30, 2017
Cost of services provided and products sold (excluding amortization of intangible assets)	$	362	$	17,716	$	18,078
Selling, general and administrative	67		—		67
Total	$	429	$	17,716	$	18,145

No further restructuring costs related to this initiative are expected to be incurred beyond 2018. Restructuring costs incurred during 2017 were $18.1 million, which primarily related to non-cash asset impairments and accelerated depreciation charges of $17.7 million. The costs incurred during 2018 were $2.0 million, which primarily related to cash payments for severance and transition costs of $1.2 million. All of the costs are recorded in the RMS reportable segment.

Other Restructuring Initiatives

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In recent fiscal years, the Company has undertaken productivity improvement initiatives within all reportable segments at various locations across the U.S., Europe, and Japan. This includes workforce right-sizing and scalability initiatives, resulting in severance and transition costs; and cost related to the consolidation of facilities, resulting in asset impairment and accelerated depreciation charges. The Company’s existing lease obligations for certain facilities continue through various dates, the latest being March 2028.

The following table presents a summary of restructuring costs related to these initiatives by classification within the consolidated statements of income:



	Severance and Transition Costs		Lease Obligations		Asset Impairments and Other Costs		Total
	(in thousands)
Fiscal Year 2018
Cost of services provided and products sold (excluding amortization of intangible assets)	$	923	$	—	$	27	$	950
Selling, general and administrative	6,597		—		21		6,618
Total	$	7,520	$	—	$	48	$	7,568
Fiscal Year 2017
Cost of services provided and products sold (excluding amortization of intangible assets)	$	1,944	$	—	$	929	$	2,873
Selling, general and administrative	1,905		—		—		1,905
Total	$	3,849	$	—	$	929	$	4,778
Fiscal Year 2016
Cost of services provided and products sold (excluding amortization of intangible assets)	$	4,717	$	4,616	$	4,809	$	14,142
Selling, general and administrative	3,737		—		—		3,737
Total	$	8,454	$	4,616	$	4,809	$	17,879

The following table presents restructuring costs by reportable segment for these productivity improvement initiatives:



	Fiscal Year
	2018		2017		2016
	(in thousands)
RMS	$	—	$	291	$	759
DSA	1,063		1,604		17,114
Manufacturing	1,227		2,883		6
Unallocated corporate	5,278		—		—
Total	$	7,568	$	4,778	$	17,879

The following table provides a rollforward for all of the Company’s severance and transition costs, and lease obligation liabilities related to restructuring activities:



	Fiscal Year
	2018			2017			2016
	(in thousands)
Beginning balance	$	6,856		$	8,102		$	2,969
Expense	8,681			4,278			13,070
Payments / utilization	(12,341		)	(6,103		)	(7,667		)
Foreign currency adjustments	(275		)	579			(270		)
Ending balance	$	2,921		$	6,856		$	8,102

As of December 29, 2018 and December 30, 2017, $2.4 million and $3.0 million of severance and other personnel related costs liabilities and lease obligation liabilities, respectively, were included in accrued compensation and accrued liabilities within the Company’s consolidated balance sheets and $0.5 million and $3.9 million, respectively, were included in other long-term liabilities within the Company's consolidated balance sheets.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company rents laboratory and office space, land, vehicles and certain equipment under non-cancellable operating leases. These lease agreements contain various clauses for renewal at the Company’s option and, in certain cases, rent escalation clauses. Rental expense under these leases amounted to $30.4 million, $26.3 million and $21.8 million in fiscal years 2018, 2017 and 2016, respectively. In addition to rent, the leases may require the Company to pay additional amounts for taxes, insurance, maintenance and other operating expenses.

As of December 29, 2018, minimum rental commitments under non-cancellable leases, net of income from subleases, for each of the next five years and total thereafter were as follows:



	Minimum Lease Payments
	(in thousands)
2019	$	25,411
2020	22,400
2021	21,544
2022	18,535
2023	15,398
Thereafter	66,870
Total	$	170,158

Insurance

The Company maintains certain insurance policies that maintain large deductibles up to approximately $1.0 million, some with or without stop-loss limits, depending on market availability. Insurance policies at certain locations are based on a percentage of the insured assets, for which deductibles for certain property may exceed $5.0 million in the event of a catastrophic event.

Litigation

Various lawsuits, claims and proceedings of a nature considered normal to its business are pending against the Company. While the outcome of any of these proceedings cannot be accurately predicted, the Company does not believe the ultimate resolution of any of these existing matters would have a material adverse effect on the Company’s business or financial condition.

Guarantees

The Company enters into certain agreements with other parties in the ordinary course of business that contain indemnification provisions. These typically include agreements with directors and officers, business partners, contractors, landlords, and customers. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. However, to date the Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of these obligations is minimal.

Purchase Obligations

The Company enters into unconditional purchase obligations, in the ordinary course of business, that 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 aggregate amount of the Company’s unconditional purchase obligations totaled $146.0 million as of December 29, 2018.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SELECTED QUARTERLY FINANCIAL DATA (unaudited)

The following table contains quarterly financial information for fiscal years 2018 and 2017. The operating results for any quarter are not necessarily indicative of future period results.



	First Quarter		Second Quarter		Third Quarter		Fourth Quarter (1)
	(in thousands, except per share amounts)
Fiscal Year 2018
Total revenue	$	493,970	$	585,301	$	585,295	$	601,530
Gross profit (2)	181,469		215,981		216,200		226,417
Operating income	67,829		76,710		84,362		102,482
Net income attributable to common shareholders	52,631		53,709		60,368		59,665
Earnings (loss) per common share
Basic:
Continuing operations attributable to common shareholders	$	1.10	$	1.08	$	1.25	$	1.24
Discontinued operations	$	—	$	0.03	$	—	$	—
Net income attributable to common shareholders	$	1.10	$	1.11	$	1.25	$	1.24
Diluted:
Continuing operations attributable to common shareholders	$	1.08	$	1.06	$	1.22	$	1.21
Discontinued operations	$	—	$	0.03	$	—	$	—
Net income attributable to common shareholders	$	1.08	$	1.10	$	1.22	$	1.21
Fiscal Year 2017
Total revenue	$	445,763	$	469,129	$	464,232	$	478,477
Gross profit (2)	171,352		185,325		176,847		167,394
Operating income	69,706		81,686		74,062		62,827
Net income (loss) attributable to common shareholders	46,778		53,952		52,474		(29,849		)
Earnings (loss) per common share
Basic:
Continuing operations attributable to common shareholders	$	0.98	$	1.14	$	1.11	$	(0.63	)
Discontinued operations	$	—	$	—	$	—	$	—
Net income (loss) attributable to common shareholders	$	0.98	$	1.13	$	1.11	$	(0.63	)
Diluted:
Continuing operations attributable to common shareholders	$	0.97	$	1.12	$	1.09	$	(0.63	)
Discontinued operations	$	—	$	—	$	—	$	—
Net income (loss) attributable to common shareholders	$	0.97	$	1.12	$	1.08	$	(0.63	)
(1) Net loss attributable to common shareholders in 2017 includes the amounts recorded due to U.S. Tax Reform. See Note 11.
(2) Gross profit is calculated as total revenue minus cost of revenue (excluding amortization of intangible assets).

Full-year amounts may not sum due to rounding.

SUBSEQUENT EVENT

Citoxlab

On February 13, 2019, the Company announced that it has 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 the Company’s position as the leading, global, early-stage CRO by expanding its scientific portfolio and geographic footprint, which would enhance the Company’s 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 the

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Company’s existing revolving credit facility and cash. In the event the agreement is terminated under specified circumstances, the Company may be required to pay a termination fee of €18.2 million. This business is expected to be reported as part of the Company’s DSA reportable segment.

Previous: Item 7A. Quantitative and Qualitative Disclosures about Market Risk · Next: Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure