Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm			57
Consolidated Statements of Income for fiscal years 2020, 2019 and 2018			60
Consolidated Statements of Comprehensive Income for fiscal years 2020, 2019 and 2018			61
Consolidated Balance Sheets as of December 26, 2020 and December 28, 2019			62
Consolidated Statements of Cash Flows for fiscal years 2020, 2019 and 2018			63
Consolidated Statements of Changes in Equity for fiscal years 2020, 2019 and 2018			65
Notes to Consolidated Financial Statements			66

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 26, 2020 and December 28, 2019, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 26, 2020, 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 26, 2020, 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 26, 2020 and December 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 26, 2020 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 26, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

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 HemaCare and Cellero from its assessment of internal control over financial reporting as of December 26, 2020 because they were acquired by the Company in purchase business combinations during 2020. We have also excluded HemaCare and Cellero from our audit of internal control over financial reporting. HemaCare and Cellero are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent 1.0% and 1.6%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 26, 2020.

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Acquisition of HemaCare Corporation - Valuation of Acquired Customer Relationship Intangible Asset

As described in Notes 1 and 2 to the consolidated financial statements, the Company completed the acquisition of HemaCare Corporation on January 3, 2020. The preliminary purchase price allocation included a customer relationship intangible asset (also referred to as client relationships) of $170.4 million. As disclosed by management, the determination of the fair value of the intangible asset, which represents a significant portion of the purchase price, requires the use of significant judgment by management with regard to (i) the fair value; and (ii) the period and the method by which the intangible asset will be amortized. To determine the fair value of the acquired client relationships, management utilized the multiple period excess earnings model (a commonly accepted valuation technique), which includes the following key assumptions: projections of cash flows from the acquired entity, which include future revenue growth rates, operating income margins, and the customer attrition rate, as well as the discount rate based on an analysis of the acquired entity’s weighted average cost of capital.

The principal considerations for our determination that performing procedures relating to the acquisition of HemaCare Corporation - valuation of acquired customer relationship intangible asset is a critical audit matter are (i) the high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of the customer relationship intangible asset acquired due to the significant amount of judgment and estimation by management when developing the estimate, (ii) significant audit effort was required in evaluating the key assumptions relating to the estimate, such as the future revenue growth rates, operating income margins, customer attrition rate, and discount rate and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of acquired customer relationship intangible asset, including controls over the review of the valuation methodology, the key assumptions underlying the valuation, and the useful lives of the acquired customer relationship intangible asset. These procedures also included, among others, (i) reading the purchase agreement and (ii) testing management’s process for estimating the fair value of customer relationship intangible asset. Testing management’s process included evaluating the appropriateness of the valuation model, testing the completeness and accuracy of data provided by management, and evaluating reasonableness of significant assumptions related to the estimated future revenue growth rates, operating income margins, customer attrition rate, and discount rate. Evaluating the reasonableness of the estimated future revenue growth rates, operating income margins, customer attrition rate, and discount rate assumptions involved considering their consistency with data from external sources, past performance of the acquired business, and evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s valuation model and management significant assumptions related to customer attrition and the discount rate.

Discovery and Safety Assessment Revenue Recognized Over Time

As described in Notes 1 and 3 to the consolidated financial statements, the Company recognized revenue of $1,837.4 million in its Discovery and Safety Assessment (DSA) segment in 2020, of which $1,836.5 million was recognized over time as services are delivered to the customer based on the extent of progress towards completion of the performance obligation using either the cost-to-cost (input method) or right to invoice (output method) measures of progress. 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. Management 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.

The principal considerations for our determination that performing procedures relating to DSA revenue recognized over time is a critical audit matter are the high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating the audit evidence obtained related to the extent of progress towards completion, actual costs incurred, and management’s assumptions used in determining the total estimated costs at completion related to labor hours, allocation of overhead costs, research model costs, and subcontractor costs.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to DSA revenue recognized over time, including controls over the extent of progress towards completion, actual costs incurred and determination of total estimated costs at completion, review of agreements, review of budget versus actual costs incurred and review of revenue recognition. These procedures also included, among others, (i) reading agreements and reports describing the results of services provided for a sample of service contracts, (ii) evaluating and testing management’s process for determining the amount of revenue recognized for a sample of service contracts, which included evaluating the reasonableness of the estimates of costs and management’s assumptions related to labor hours, allocation of overhead costs, research model costs, and subcontractor costs through a comparison of actual current year project costs to historical management cost estimates for completed service contracts, and (iii) testing actual costs incurred for a sample of in-process service contracts by examining evidence of costs incurred, including invoices, time cards, human resources documents, and the completeness and accuracy of overhead allocations.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 17, 2021

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
			2020						2019						2018
Service revenue			$	2,296,156					$	2,029,371					$	1,687,941
Product revenue			627,777						591,855						578,155
Total revenue			2,923,933						2,621,226						2,266,096
Costs and expenses:
Cost of services provided (excluding amortization of intangible assets)			1,533,230						1,371,699						1,150,371
Cost of products sold (excluding amortization of intangible assets)			317,162						291,216						275,658
Selling, general and administrative			528,935						517,622						443,854
Amortization of intangible assets			111,877						89,538						64,830
Operating income			432,729						351,151						331,383
Other income (expense):
Interest income			834						1,522						812
Interest expense			(86,433)						(60,882)						(63,772)
Other income, net			99,984						12,293						13,258
Income from continuing operations, before income taxes			447,114						304,084						281,681
Provision for income taxes			81,808						50,023						54,463
Income from continuing operations, net of income taxes			365,306						254,061						227,218
Income from discontinued operations, net of income taxes			—						—						1,506
Net income			365,306						254,061						228,724
Less: Net income attributable to noncontrolling interests			1,002						2,042						2,351
Net income attributable to common shareholders			$	364,304					$	252,019					$	226,373
Earnings per common share
Basic:
Continuing operations attributable to common shareholders			$	7.35					$	5.17					$	4.69
Discontinued operations			$	—					$	—					$	0.03
Net income attributable to common shareholders			$	7.35					$	5.17					$	4.72
Diluted:
Continuing operations attributable to common shareholders			$	7.20					$	5.07					$	4.59
Discontinued operations			$	—					$	—					$	0.03
Net income attributable to common shareholders			$	7.20					$	5.07					$	4.62
Weighted-average number of common shares outstanding:
Basic			49,550						48,730						47,947
Diluted			50,611						49,693						49,018
See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

			Fiscal Year
			2020						2019						2018
Net income			$	365,306					$	254,061					$	228,724
Other comprehensive income (loss):
Foreign currency translation adjustment and other			22,345						14,224						(28,305)
Pension and other post-retirement benefit plans (Note 12):
Prior service cost and gains (losses) arising during the period			15,747						(25,165)						(1,659)
Amortization of net loss, settlement losses, and prior service benefit included in total cost for pension and other post-retirement benefit plans			17,861						1,772						2,477
Comprehensive income, before income taxes			421,259						244,892						201,237
Less: Income tax expense (benefit) related to items of other comprehensive income (Note 10)			15,372						(3,633)						(1,892)
Comprehensive income, net of income taxes			405,887						248,525						203,129
Less: Comprehensive income related to noncontrolling interests, net of income taxes			2,438						1,822						1,398
Comprehensive income attributable to common shareholders, net of income taxes			$	403,449					$	246,703					$	201,731
See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

			December 26, 2020						December 28, 2019
Assets
Current assets:
Cash and cash equivalents			$	228,424					$	238,014
Trade receivables, net of allowances for doubtful accounts of $6,702 and $3,664, respectively			617,740						514,033
Inventories			185,695						160,660
Prepaid assets			96,712						52,588
Other current assets			72,560						56,030
Total current assets			1,201,131						1,021,325
Property, plant and equipment, net			1,124,358						1,044,128
Operating lease right-of-use assets, net			178,220						140,085
Goodwill			1,809,168						1,540,565
Client relationships, net			721,505						613,573
Other intangible assets, net			66,094						75,840
Deferred tax assets			37,729						44,659
Other assets			352,626						212,615
Total assets			$	5,490,831					$	4,692,790
Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Current portion of long-term debt and finance leases			$	50,214					$	38,545
Accounts payable			122,475						111,498
Accrued compensation			206,823						158,617
Deferred revenue			207,942						171,805
Accrued liabilities			149,820						139,118
Other current liabilities			102,477						90,598
Total current liabilities			839,751						710,181
Long-term debt, net and finance leases			1,929,571						1,849,666
Operating lease right-of-use liabilities			155,595						116,252
Deferred tax liabilities			217,031						167,283
Other long-term liabilities			205,215						182,933
Total liabilities			3,347,163						3,026,315
Commitments and contingencies (Notes 2, 9, 11, 12, 16 and 17)
Redeemable noncontrolling interests			25,499						28,647
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; 49,767 shares issued and outstanding as of December 26, 2020 and 48,936 shares issued and outstanding as of December 28, 2019			498						489
Additional paid-in capital			1,627,564						1,531,785
Retained earnings			625,414						280,329
Treasury stock, at cost, 0 shares as of December 26, 2020 and December 28, 2019			—						—
Accumulated other comprehensive loss			(138,874)						(178,019)
Total equity attributable to common shareholders			2,114,602						1,634,584
Noncontrolling interest			3,567						3,244
Total equity			2,118,169						1,637,828
Total liabilities, redeemable noncontrolling interests and equity			$	5,490,831					$	4,692,790
See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

			Fiscal Year
			2020						2019						2018
Cash flows relating to operating activities
Net income			$	365,306					$	254,061					$	228,724
Less: Income from discontinued operations, net of income taxes			—						—						1,506
Income from continuing operations, net of income taxes			365,306						254,061						227,218
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Depreciation and amortization			234,924						198,095						161,779
Stock-based compensation			56,341						57,271						47,346
Deferred income taxes			(133)						(21,895)						(9,702)
Gain on venture capital and strategic equity investments, net			(100,861)						(20,706)						(15,928)
Other, net			17,273						7,931						15,613
Changes in assets and liabilities:
Trade receivables, net			(85,627)						(8,323)						(21,196)
Inventories			(18,379)						(21,399)						(13,338)
Accounts payable			748						29,775						(12,732)
Accrued compensation			40,481						3,394						31,616
Deferred revenue			28,647						(3,620)						36,072
Customer contract deposits			8,955						(10,898)						28,115
Other assets and liabilities, net			(1,100)						17,250						(33,723)
Net cash provided by operating activities			546,575						480,936						441,140
Cash flows relating to investing activities
Acquisition of businesses and assets, net of cash acquired			(418,628)						(515,701)						(824,868)
Capital expenditures			(166,560)						(140,514)						(140,054)
Purchases of investments and contributions to venture capital investments			(26,692)						(22,341)						(25,125)
Proceeds from sale of investments			11,401						942						35,849
Other, net			(1,065)						(3,888)						(805)
Net cash used in investing activities			(601,544)						(681,502)						(955,003)
Cash flows relating to financing activities
Proceeds from long-term debt and revolving credit facility			2,230,988						3,358,461						2,755,028
Proceeds from exercises of stock options			46,586						34,546						37,657
Payments on long-term debt, revolving credit facility, and finance lease obligations			(2,200,400)						(3,124,588)						(2,201,003)
Payments on debt financing costs			—						(6,593)						(18,337)
Purchase of treasury stock			(23,979)						(18,087)						(13,846)
Other, net			(5,947)						(11,802)						(1,440)
Net cash provided by financing activities			47,248						231,937						558,059
Discontinued operations
Net cash used in operating activities from discontinued operations			—						—						(3,735)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash			794						11,357						(9,474)
Net change in cash, cash equivalents, and restricted cash			(6,927)						42,728						30,987
Cash, cash equivalents, and restricted cash, beginning of period			240,046						197,318						166,331
Cash, cash equivalents, and restricted cash, end of period			$	233,119					$	240,046					$	197,318
See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

			Fiscal Year
			2020						2019						2018
Supplemental cash flow information:
Cash and cash equivalents			$	228,424					$	238,014					$	195,442
Restricted cash included in Other current assets			3,074						431						465
Restricted cash included in Other assets			1,621						1,601						1,411
Cash, cash equivalents, and restricted cash, end of period			$	233,119					$	240,046					$	197,318
Cash paid for income taxes			$	60,059					$	54,060					$	67,600
Cash paid for interest			$	72,461					$	67,813					$	47,540
Non-cash investing and financing activities:
Additions to property, plant and equipment, net			$	25,614					$	21,447					$	18,212
Assets acquired under finance leases			$	1,571					$	4,819					$	1,473
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 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			—						—						—						3,330						(3,330)						—						—						—						—						—
Adjustment due to adoption of ASU 2016-01			—						—						—						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
Net income			—						—						—						252,019						—						—						—						252,019						2,084						254,103
Other comprehensive loss			—						—						—						—						(5,316)						—						—						(5,316)						—						(5,316)
Dividends declared to noncontrolling interest			—						—						—						—						—						—						—						—						(1,286)						(1,286)
Adjustment of redeemable noncontrolling interest to redemption value			—						—						(1,451)						—						—						—						—						(1,451)						—						(1,451)
Purchase of additional equity interest in and modification of Vital River redeemable noncontrolling interest			—						—						(1,870)						—						—						—						—						(1,870)						—						(1,870)
Issuance of stock under employee compensation plans			866						8						34,678						—						—						—						—						34,686						—						34,686
Acquisition of treasury shares			—						—						—						—						—						139						(18,087)						(18,087)						—						(18,087)
Retirement of treasury shares			(140)						(1)						(4,355)						(13,786)						—						(140)						18,142						—						—						—
Stock-based compensation			—						—						57,271						—						—						—						—						57,271						—						57,271
December 28, 2019			48,936						489						1,531,785						280,329						(178,019)						—						—						1,634,584						3,244						1,637,828
Net income			—						—						—						364,304						—						—						—						364,304						1,852						366,156
Other comprehensive income			—						—						—						—						39,145						—						—						39,145						—						39,145
Dividends declared to noncontrolling interest			—						—						—						—						—						—						—						—						(1,529)						(1,529)
Purchase of a 10% redeemable noncontrolling interest and recognition of related contingent consideration			—						—						(2,379)						—						—						—						—						(2,379)						—						(2,379)
Issuance of stock under employee compensation plans			977						10						46,576						—						—						—						—						46,586						—						46,586
Acquisition of treasury shares			—						—						—						—						—						146						(23,979)						(23,979)						—						(23,979)
Retirement of treasury shares			(146)						(1)						(4,759)						(19,219)						—						(146)						23,979						—						—						—
Stock-based compensation			—						—						56,341						—						—						—						—						56,341						—						56,341
December 26, 2020			49,767						$	498					$	1,627,564					$	625,414					$	(138,874)					—						$	—					$	2,114,602					$	3,567					$	2,118,169
See Notes to Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. 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.

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, Research Model Services, and Research Products businesses. Research Models includes the commercial production and sale of small research models, as well as the supply of large research models. Research Model Services includes: Genetically Engineered Models and Services (GEMS), which performs contract breeding and other services associated with genetically engineered models; Research Animal Diagnostic Services (RADS), which provides health monitoring and diagnostics services related to research models; Insourcing Solutions (IS), which provides colony management of its clients’ research operations (including recruitment, training, staffing, and management services); and Research Products, which supplies controlled, consistent, customized primary cells and blood components derived from normal and mobilized peripheral blood, bone marrow, and cord blood. 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.

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.

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On March 11, 2020, the World Health Organization declared the outbreak of a strain of novel coronavirus disease, COVID-19, a global pandemic. The COVID-19 pandemic is dynamic and expanding, and its ultimate scope, duration and effects are uncertain. This pandemic has and continues to result in, and any future epidemic or pandemic crises may potentially result in, direct and indirect adverse effects on the Company’s industry and customers, which in turn has (with respect to COVID-19) and may (with respect to future epidemics or crises) impact the Company’s business, results of operations and financial condition. Further, the COVID-19 pandemic may also affect the Company’s operating and financial results in a manner that is not presently known to the Company or that the Company currently does not expect to present significant risks to its operations or financial results. As of the date of issuance of these consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s consolidated financial statements.

Cash, Cash Equivalents, and Investments

Cash equivalents include money market funds, time deposits and other investments with remaining maturities at the purchase date of three months or less. Time deposits with original maturities of greater than three months are reported as short-term 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, current economic conditions in the geographies in which it operates, and the Company’s expectations of future economic conditions that may affect the collectability of the recorded amounts. 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 in fiscal years 2020, 2019, or 2018 or trade receivables as of December 26, 2020 or December 28, 2019.

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;

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

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• 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 due in 2026 and the 4.25% Senior Notes due in 2028 (Senior Notes), which are fixed rate debt, are carried at amortized cost. Fair value of the Senior Notes is based on quoted market prices and on borrowing rates available to the Company; and

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

Inventories

The Company’s inventories consist of raw materials, work in process and finished product related primarily to small models, large models, cell supply, microbial solutions products, and avian related eggs and flocks. Inventories are stated at the lower of cost or net realizable value. Inventory value is generally 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 small models inventory, costs include 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 models inventory, costs are primarily the external cost paid to acquire the model. For cell supply inventory, costs include direct materials, costs of personnel directly involved in the processing of products sold, and an allocation of facility overhead. For the microbial solutions inventory, costs include direct materials, cost of personnel directly involved in the manufacturing and assembly of products sold, and an allocation of facility overhead. For the avian related inventory, costs include direct materials, such as animal feed, cost of personnel directly involved with the care of the eggs and flocks, and an allocation of facility overhead. 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. Finance lease assets are amortized over the lease term, however, if ownership is transferred by the end of the finance lease, or there is a

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bargain purchase option, such finance 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 Combinations

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, which typically represents a significant portion of the purchase price. The determination of the fair value of intangible assets requires the use of significant judgment using management’s best estimates of inputs and assumptions that a market participant would use. Significant judgments include (i) the fair value; and (ii) whether such intangible assets are amortizable or non-amortizable and, if the former, the period and the method by which the intangible asset will be amortized. The Company utilizes commonly accepted valuation techniques, such as the income approach and the cost approach, as appropriate, in establishing the fair value of intangible assets. Typically, key assumptions include projections of cash flows that arise from identifiable intangible assets of acquired businesses as well as discount rates based on an analysis of the weighted average cost of capital, adjusted for specific risks associated with the assets.

In recent acquisitions, customer relationship intangible assets (also referred to as client relationships) are the most significant identifiable asset acquired. To determine the fair value of the acquired client relationships, the Company typically utilizes the multiple period excess earnings model (a commonly accepted valuation technique), which relies on the following key assumptions: projections of cash flows from the acquired entities, which includes future revenue growth rates, operating income margins, and customer attrition rates; as well as discount rates based on an analysis of the acquired entities’ weighted average cost of capital.

Contingent Consideration

The consideration for the Company’s acquisitions may include 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.

Goodwill and Intangible Assets

Goodwill represents the difference between the purchase price and the fair value of assets acquired and liabilities assumed 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 quantitative 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 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 impairment test. In the quantitative test, 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 an impairment loss equal to the difference would be recorded.

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

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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 approximately 12%. 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.

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.

Strategic Equity Investments

The Company periodically invests in minority equity positions of privately-held companies that are reported either at fair value or under the equity method of accounting, as appropriate. Equity investments accounted for at fair value that do not have readily determinable fair values are generally recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same investee. Gains and losses from strategic equity investments are recorded in Other income, net in the accompanying consolidated statements of income.

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 44 contracts at both December 26, 2020 and December 28, 2019, with a face value of $79.1 million and $72.7 million, respectively.

Leases

The Company adopted Accounting Standards Codification Topic 842, “Leases” on December 30, 2018 using the modified retrospective method for all leases that had commenced as of the effective date, along with certain available practical expedients. Upon adoption the Company derecognized $26 million of property, plant and equipment, net and corresponding other debt associated with certain build-to-suit lease arrangements. The Company recorded operating lease right-of-use assets, net of $134 million, inclusive of opening adjustments impacting prepaid assets and other assets, primarily related to prepaid rent existing at transition, and $127 million of operating lease right-of-use liabilities, within our consolidated balance sheet upon adoption. There was no cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

At inception of a contract, the Company determines if a contract meets the definition of a lease. A lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. The Company determines if the contract conveys the right to control the use of an identified asset for a period of time. The Company assesses throughout the period of use whether the Company has both of the following: (1) the right to obtain substantially all of the economic benefits from use of the identified asset, and (2) the right to

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direct the use of the identified asset. This determination is reassessed if the terms of the contract are changed. Leases are classified as operating or finance leases based on the terms of the lease agreement and certain characteristics of the identified asset. Right-of-use assets and lease liabilities are recognized at lease commencement date based on the present value of the minimum future lease payments.

The Company leases laboratory, production, and office space (real estate), as well as land, vehicles and certain equipment under non-cancellable operating and finance leases. The carrying value of the Company’s right-of-use lease assets is substantially concentrated in its real estate leases, while the volume of lease agreements is primarily concentrated in vehicles and equipment leases. The Company’s policy is to not record leases with an original term of twelve months or less on the consolidated balance sheets. The Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term.

Certain lease agreements include rental payments that are adjusted periodically for inflation or other variables. In addition to rent, the leases may require the Company to pay additional amounts for taxes, insurance, maintenance and other expenses, which are generally referred to as non-lease components. Such adjustments to rental payments and variable non-lease components are treated as variable lease payments and recognized in the period in which the obligation for these payments was incurred. Variable lease components and variable non-lease components are not measured as part of the right-of-use asset and liability. Only when lease components and their associated non-lease components are fixed are they accounted for as a single lease component and are recognized as part of a right-of-use asset and liability. Total contract consideration is allocated to the combined fixed lease and non-lease component. This policy election applies consistently to all asset classes under lease agreements.

Most real estate leases contain clauses for renewal at the Company’s option with renewal terms that generally extend the lease term from 1 to 5 years. Certain lease agreements contain options to purchase the leased property and options to terminate the lease. Payments to be made in option periods are recognized as part of the right-of-use lease assets and lease liabilities when it is reasonably certain that the option to extend the lease will be exercised or the option to terminate the lease will not be exercised, or is not at the Company’s option. The Company determines whether the reasonably certain threshold is met by considering contract-, asset-, market-, and entity-based factors.

A portfolio approach is applied to certain lease contracts with similar characteristics. The Company’s lease agreements do not contain any significant residual value guarantees or material restrictive covenants imposed by the leases.

The Company subleases a limited number of lease arrangements. Sublease activity is not material to the consolidated financial statements.

Stock-Based Compensation

The Company may grant stock options, restricted stock, restricted stock units (RSUs), and performance share units (PSUs) to employees and stock options, restricted stock, and RSUs to non-employee directors under stock-based compensation plans. 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”).

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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. The Company’s contracts do not generally contain significant financing components.

Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. 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, 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 impact on the existing transaction price and measure of progress for the performance obligation to which it relates is generally recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

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.

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

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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.

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 with the Company’s U.S. dollar denominated loan borrowed by a non-U.S. entity under the Company’s 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

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.

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 and all other components of net periodic benefit cost within Other income, net in the consolidated statements of income.

The Company recognizes pension settlement gains or losses in the period when all of the following settlement criteria are met: there is an irrevocable action, the Company is relieved of primary responsibility for a benefit obligation, and significant risks related to the obligation and the assets used to effect the settlement are eliminated.

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

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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.

Newly Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (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 Company’s adoption of this standard in fiscal year 2020 did not have a significant impact on the 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 Company’s adoption of this standard in fiscal year 2020 did not have a significant impact on the 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 Company’s adoption of this standard in fiscal year 2020 did not have a significant impact on the 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. The Company’s adoption of this standard in fiscal year 2020 did not have a significant impact on the consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses”. The standard, including subsequently issued amendments, requires a financial asset measured at amortized cost basis, such as trade and notes receivables, 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. The Company’s adoption of this standard in fiscal year 2020 did not have a significant impact on the consolidated financial statements and related disclosures.

Newly Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU, including subsequently issued updates, offers temporary optional expedients and exceptions for applying U.S. GAAP to modifications to agreements such as loans, debt securities, derivatives, and borrowings which reference LIBOR or another reference rate that is expected to be discontinued by December 31, 2021. The expedients and exceptions provided by the standard do not apply to modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 that an entity has elected certain optional expedients for and are retained through the end of the hedging relationship. The ASU is effective until December 31, 2022 when the replacement for LIBOR is expected to be completed. The interest rate on the Company’s senior credit facility, which matures in fiscal year 2023, is linked to LIBOR. The Company is in the process of evaluating options for

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

transitioning away from the senior credit facility’s use of LIBOR and expects to be completed by the time LIBOR is phased out. The Company did not elect to apply any of the expedients or exceptions as of and for the fiscal year ended December 26, 2020 and is currently evaluating the impact this new standard will have on the consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU 2020-01, “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815).” ASU 2020-01 states any equity security transitioning from the alternative method of accounting under Topic 321 to the equity method, or vice versa, due to an observable transaction will be remeasured immediately before the transition. In addition, the ASU clarifies the accounting for certain non-derivative forward contracts or purchased call options to acquire equity securities stating such instruments will be measured using the fair value principles of Topic 321 before settlement or exercise. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied on a prospective basis. 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 December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax), which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied either retrospectively or prospectively based upon the applicable amendments. 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.

2. BUSINESS COMBINATIONS

Distributed Bio

On December 31, 2020 (fiscal year 2021), the Company acquired Distributed Bio, Inc (Distributed Bio), a next-generation antibody discovery company with technologies specializing in enhancing the probability of success for delivering high-quality, readily formattable antibody fragments to support antibody and cell and gene therapy candidates to biopharmaceutical clients. The acquisition of Distributed Bio expands the Company’s capabilities with an innovative, large-molecule discovery platform, and creates an integrated, end-to-end platform for therapeutic antibody and cell and gene therapy discovery and development. The preliminary purchase price of Distributed Bio was approximately $83 million in cash, with additional contingent payments of up to $21 million based on future performance. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business will be reported as part of the Company’s DSA reportable segment. Due to the limited time between the acquisition date and the filing of this Annual Report on Form 10-K, it is not practicable for the Company to disclose the preliminary allocation of the purchase price to assets acquired and liabilities assumed. The Company incurred transaction and integration costs in connection with the acquisition of $1.2 million during fiscal year 2020, which were included in Selling, general and administrative expenses within the consolidated statements of income.

Cellero, LLC

On August 6, 2020, the Company acquired Cellero, LLC (Cellero), a provider of cellular products for cell therapy developers and manufacturers worldwide. The addition of Cellero enhances the Company’s unique, comprehensive solutions for the high-growth cell therapy market, strengthening the ability to help accelerate clients’ critical programs from basic research and proof-of-concept to regulatory approval and commercialization. It also expands the Company’s access to high-quality, human-derived biomaterials with Cellero’s donor sites in the United States. The purchase price for Cellero was $37.4 million in cash. The acquisition was funded through available cash. This business is reported as part of the Company’s RMS reportable segment.

The preliminary purchase price allocation of $36.9 million, net of $0.5 million of cash acquired was as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

			August 6, 2020
			(in thousands)
Trade receivables			$	1,500
Inventories			551
Other current assets (excluding cash)			182
Property, plant and equipment			1,648
Goodwill			19,457
Definite-lived intangible assets			16,230
Other long-term assets			849
Current liabilities			(1,360)
Deferred tax liabilities			(1,467)
Other long-term liabilities			(740)
Total purchase price allocation			$	36,850

The preliminary 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. From the date of the acquisition through December 26, 2020, 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. 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.

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			$	14,740					13
Other intangible assets			1,490						3
Total definite-lived intangible assets			$	16,230					12

The goodwill resulting from the transaction, $10.8 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 RMS business from customers introduced through Cellero and the assembled workforce of the acquired business.

The Company incurred transaction and integration costs in connection with the acquisition of $2.7 million during fiscal year 2020, which were primarily included in Selling, general and administrative expenses within the consolidated statements of income.

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

HemaCare Corporation

On January 3, 2020, the Company acquired HemaCare Corporation (HemaCare), a business specializing in the production of human-derived cellular products for the cell therapy market. The acquisition of HemaCare expands the Company’s comprehensive portfolio of early-stage research and manufacturing support solutions to encompass the production and customization of high-quality, human derived cellular products to better support clients’ cell therapy programs. The purchase price of HemaCare was $379.8 million in cash. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s RMS reportable segment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The purchase price allocation of $376.7 million, net of $3.1 million of cash acquired was as follows:

			January 3, 2020
			(in thousands)
Trade receivables			$	6,451
Inventories			8,468
Other current assets (excluding cash)			3,494
Property, plant and equipment			10,033
Goodwill			210,196
Definite-lived intangible assets			183,540
Other long-term assets			5,920
Current liabilities			(5,188)
Deferred tax liabilities			(38,529)
Other long-term liabilities			(7,664)
Total purchase price allocation			$	376,721

From the date of the acquisition through December 26, 2020, 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			$	170,390					19
Trade name			7,330						10
Other intangible assets			5,820						3
Total definite-lived intangible assets			$	183,540					18

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

The Company incurred transaction and integration costs in connection with the acquisition of $6.1 million and $3.3 million during fiscal years 2020 and 2019, respectively, which were primarily included in Selling, general and administrative expenses within the consolidated statements of income.

Beginning on January 3, 2020, HemaCare has been included in the operating results of the Company. HemaCare revenue and operating loss during fiscal year 2020 was $43.0 million and $8.1 million, respectively.

The following selected unaudited pro forma consolidated results of operations are presented as if the HemaCare acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition, which is December 30, 2018, after giving effect to certain adjustments. For fiscal year 2020, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $1.2 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments. For fiscal year 2019, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $12.8 million, additional interest expense on borrowings of $10.8 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments.

			Fiscal Year
			2020						2019
			(in thousands)
			(unaudited)
Revenue			$	2,923,951					$	2,661,565
Net income attributable to common shareholders			368,800						245,423

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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 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.

Citoxlab

On April 29, 2019, the Company acquired Citoxlab, 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 acquisition of Citoxlab further strengthens the Company’s position as a leading, global, early-stage CRO by expanding its scientific portfolio and geographic footprint, which enhances the Company’s ability to partner with clients across the drug discovery and development continuum. The purchase price for Citoxlab was $527.1 million in cash. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment.

The purchase price allocation of $490.4 million, net of $36.7 million of cash acquired was as follows:

			April 29, 2019
			(in thousands)
Trade receivables			$	35,405
Inventories			5,282
Other current assets (excluding cash)			13,917
Property, plant and equipment			88,605
Goodwill			280,161
Definite-lived intangible assets			162,400
Other long-term assets			20,063
Deferred revenue			(15,278)
Current liabilities			(46,081)
Deferred tax liabilities			(27,458)
Other long-term liabilities			(22,624)
Redeemable noncontrolling interest			(4,035)
Total purchase price allocation			$	490,357

From the date of the acquisition through March 28, 2020, 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			$	134,600					13
Developed technology			19,900						3
Backlog			7,900						1
Total definite-lived intangible assets			$	162,400					12

The goodwill resulting from the transaction, $7.2 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 Citoxlab and the assembled workforce of the acquired business.

The Company incurred transaction and integration costs in connection with the acquisition of $4.1 million and $20.7 million during fiscal years 2020 and 2019, respectively, which were primarily included in Selling, general and administrative expenses within the consolidated statements of income.

The following selected unaudited pro forma consolidated results of operations are presented as if the Citoxlab acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition, which is December 31, 2017, after giving effect to certain adjustments. For fiscal year 2019, these adjustments included additional amortization of intangible

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

assets and depreciation of fixed assets of $5.7 million, additional interest expense on borrowings of $1.2 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments. For fiscal year 2018, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $9.4 million, additional interest expense on borrowings of $4.1 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments.

			Fiscal Year
			2019						2018
			(in thousands)
			(unaudited)
Revenue			$	2,683,610					$	2,442,283
Net income attributable to common shareholders			268,995						233,288

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.

MPI Research

On April 3, 2018, the Company acquired MPI Research, a non-clinical 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. The acquisition was funded by borrowings on the Credit Facility as well as the issuance of the Company’s 2026 Senior Notes. This business is reported as part of the Company’s DSA reportable segment.

The purchase price 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			$	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

From the date of the acquisition through March 30, 2019, 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:

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

			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. No significant integration costs were incurred in connection with the acquisition for fiscal years 2020 or 2019.

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, which is January 1, 2017, 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.

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

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.

Other Acquisitions

On August 28, 2019, the Company acquired an 80% ownership interest in a supplier that supports the Company’s DSA reportable segment. The purchase price paid was approximately $23 million, net of a $4 million pre-existing relationship. The fair value of the net assets acquired included $13 million of goodwill, $12 million of other long-term assets, and $9 million for a 20% redeemable noncontrolling interest. The business is reported as part of the Company’s DSA reportable segment. Pro forma information and acquisition expenses have not been presented because such information is not material to the financial statements.

On January 11, 2018, the Company acquired KWS BioTest Limited (KWS BioTest). 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 paid was approximately $20 million. The fair value of the net assets acquired included $18 million of goodwill and $4 million of client relationships, which had a weighted average life of 12 years. The business is reported as part of the Company’s DSA reportable segment. Pro forma information and acquisition expenses have not been presented because such information is not material to the financial statements.

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Timing of Revenue Recognition of Major Product/Services Lines:			2020						2019						2018
			(in thousands)
RMS
Services and products transferred over time			$	240,480					$	227,872					$	202,872
Services and products transferred at a point in time			330,672						309,217						316,810
Total RMS revenue			571,152						537,089						519,682
DSA
Services and products transferred over time			1,836,519						1,618,281						1,316,005
Services and products transferred at a point in time			909						714						849
Total DSA revenue			1,837,428						1,618,995						1,316,854
Manufacturing
Services and products transferred over time			174,254						142,896						128,287
Services and products transferred at a point in time			341,099						322,246						301,273
Total Manufacturing revenue			515,353						465,142						429,560
Total revenue			$	2,923,933					$	2,621,226					$	2,266,096

RMS

The RMS business generates revenue through the commercial production and sale of research models, research products, 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 and products 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

The Company discloses the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of December 26, 2020. Excluded from the disclosure is 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 Company has assessed future performance obligations with respect to the COVID-19 pandemic uncertainties and believes there is an insignificant impact on the ability to meet future performance obligations and the amount of revenue to be recognized.

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 26, 2020:

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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						Total
			(in thousands)
DSA			$	216,099					$	128,005					$	4,429					$	348,533
Manufacturing			8,491						6,212						—						14,703
Total			$	224,590					$	134,217					$	4,429					$	363,236

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), and contract liabilities (current and long-term deferred revenue and customer contract 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 26, 2020						December 28, 2019
			(in thousands)
Balances from contracts with customers:
Client receivables			$	489,042					$	395,740
Contract assets (unbilled revenue)			135,400						121,957
Contract liabilities (current and long-term deferred revenue)			227,417						192,788
Contract liabilities (customer contract deposits)			42,244						33,080

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. The Company excluded approximately $16 million and $27 million of unpaid advanced client billings from both client receivables and deferred revenue in the accompanying consolidated balance sheets as of December 26, 2020 and December 28, 2019, respectively. Advanced client payments of approximately $42 million and $33 million have been presented as customer contract deposits within other current liabilities in the accompanying consolidated balance sheets as of December 26, 2020 and December 28, 2019, respectively.

Other changes in the contract asset and the contract liability balances during fiscal years 2020 and 2019 were as follows:

(i) Changes due to business combinations:

See Note 2. “Business Combinations” for the HemaCare acquisition on January 3, 2020, the Cellero acquisition on August 6, 2020, and the Citoxlab acquisition on April 29, 2019.

(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 years 2020 and 2019, 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 90% of unbilled revenue as of December 28, 2019 was billed during fiscal year 2020. Approximately 95% of unbilled revenue as of December 29, 2018 of $105 million was billed during fiscal year 2019.

(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 90% of contract liabilities as of December 28, 2019 were recognized as revenue during fiscal year 2020. Approximately 85% of contract liabilities as of December 29, 2018 of $180 million were recognized as revenue during fiscal year 2019.

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

			2020						2019						2018
			(in thousands)
RMS
Revenue			$	571,152					$	537,089					$	519,682
Operating income			102,706						133,912						136,468
Depreciation and amortization			37,080						19,197						19,469
Capital expenditures			29,487						26,989						35,172
DSA
Revenue			$	1,837,428					$	1,618,995					$	1,316,854
Operating income			325,959						258,903						227,577
Depreciation and amortization			168,922						151,139						112,976
Capital expenditures			105,653						86,843						73,425
Manufacturing
Revenue			$	515,353					$	465,142					$	429,560
Operating income			181,494						145,420						136,212
Depreciation and amortization			25,904						23,584						22,529
Capital expenditures			26,287						23,617						23,323

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
			2020						2019						2018						2020						2019						2018
			(in thousands)
Total reportable segments			$	610,159					$	538,235					$	500,257					$	231,906					$	193,920					$	154,974
Unallocated corporate			(177,430)						(187,084)						(168,874)						3,018						4,175						6,805
Total consolidated			$	432,729					$	351,151					$	331,383					$	234,924					$	198,095					$	161,779

			Capital Expenditures
			2020						2019						2018
			(in thousands)
Total reportable segments			$	161,427					$	137,449					$	131,920
Unallocated corporate			5,133						3,065						8,134
Total consolidated			$	166,560					$	140,514					$	140,054

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

			2020						2019						2018
			(in thousands)
RMS			$	571,152					$	537,089					$	519,682
DSA			1,837,428						1,618,995						1,316,854
Manufacturing			515,353						465,142						429,560
Total revenue			$	2,923,933					$	2,621,226					$	2,266,096

A summary of unallocated corporate expense consists of the following:

			2020						2019						2018
			(in thousands)
Stock-based compensation			$	34,111					$	37,855					$	32,068
Compensation, benefits, and other employee-related expenses			73,814						73,893						69,191
External consulting and other service expenses			26,561						16,639						18,652
Information technology			18,912						16,080						12,463
Depreciation			3,018						4,175						6,805
Acquisition and integration			13,995						26,877						16,295
Other general unallocated corporate			7,019						11,565						13,400
Total unallocated corporate expense			$	177,430					$	187,084					$	168,874

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)
2020
Revenue			$	1,627,149					$	829,312					$	306,259					$	155,086					$	6,127					$	2,923,933
Long-lived assets			627,871						286,229						145,410						62,931						1,917						1,124,358
2019
Revenue			$	1,471,097					$	726,421					$	271,987					$	146,218					$	5,503					$	2,621,226
Long-lived assets			602,654						253,665						127,495						60,213						101						1,044,128
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

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.

5. SUPPLEMENTAL BALANCE SHEET INFORMATION

The composition of trade receivables, net is as follows:

			December 26, 2020						December 28, 2019
			(in thousands)
Client receivables			$	489,042					$	395,740
Unbilled revenue			135,400						121,957
Total			624,442						517,697
Less: Allowance for doubtful accounts			(6,702)						(3,664)
Trade receivables, net			$	617,740					$	514,033

Net provisions of $6.4 million, $3.0 million, and $2.1 million were recorded to the allowance for doubtful accounts in fiscal years 2020, 2019, and 2018, respectively.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The composition of inventories is as follows:

			December 26, 2020						December 28, 2019
			(in thousands)
Raw materials and supplies			$	28,317					$	24,613
Work in process			36,755						35,852
Finished products			120,623						100,195
Inventories			$	185,695					$	160,660

The composition of other current assets is as follows:

			December 26, 2020						December 28, 2019
			(in thousands)
Prepaid income tax			$	68,462					$	54,358
Short-term investments			1,024						941
Restricted cash			3,074						431
Other			—						300
Other current assets			$	72,560					$	56,030

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

			December 26, 2020						December 28, 2019
			(in thousands)
Land			$	61,031					$	63,077
Buildings (1)			1,059,641						1,006,357
Machinery and equipment (1)			661,124						585,965
Leasehold improvements			104,967						84,630
Furniture and fixtures			31,489						28,304
Computer hardware and software (1)			193,622						179,865
Vehicles (1)			6,152						5,561
Construction in progress			92,325						67,939
Total			2,210,351						2,021,698
Less: Accumulated depreciation			(1,085,993)						(977,570)
Property, plant and equipment, net			$	1,124,358					$	1,044,128

(1) These balances include assets under finance leases. See Note 16, “Leases.”

Depreciation expense in fiscal years 2020, 2019 and 2018 was $123.0 million, $108.6 million and $96.9 million, respectively.

The composition of other assets is as follows:

			December 26, 2020						December 28, 2019
			(in thousands)
Venture capital investments			$	197,100					$	108,983
Strategic equity investments			24,704						13,996
Life insurance policies			43,827						38,207
Other long-term income tax assets			23,485						20,570
Restricted cash			1,621						1,601
Long-term pension assets			31,915						1,741
Other			29,974						27,517
Other assets			$	352,626					$	212,615

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The composition of other current liabilities is as follows:

			December 26, 2020						December 28, 2019
			(in thousands)
Current portion of operating lease right-of-use liabilities			$	24,674					$	20,357
Accrued income taxes			24,884						26,066
Customer contract deposits			42,244						33,080
Other			10,675						11,095
Other current liabilities			$	102,477					$	90,598

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

			December 26, 2020						December 28, 2019
			(in thousands)
U.S. Transition Tax			$	48,781					$	52,066
Long-term pension liability, accrued executive supplemental life insurance retirement plan and deferred compensation plan			74,233						80,833
Long-term deferred revenue			19,475						20,983
Other			62,726						29,051
Other long-term liabilities			$	205,215					$	182,933

6. VENTURE CAPITAL AND STRATEGIC EQUITY INVESTMENTS

Venture capital investments were $197.1 million and $109.0 million as of December 26, 2020 and December 28, 2019, respectively. The Company’s total commitment to the venture capital funds as of December 26, 2020 was $139.9 million, of which the Company funded $95.3 million through that date. During fiscal years 2020, 2019, and 2018, the Company received distributions totaling $27.6 million, $11.4 million, and $18.2 million, respectively. During fiscal years 2020, 2019, and 2018, the Company recognized gains related to the venture capital investments of $100.4 million, $20.7 million and $15.9 million, respectively. Gains in fiscal year 2020 predominantly resulted from increases in fair value from publicly-held investments, which included initial public offerings of certain portfolio companies. As of December 26, 2020 and December 28, 2019, the Company’s consolidated retained earnings included $76.8 million and $20.6 million, respectively, of the undistributed earnings related to these investments, net of tax.

The Company also invests, with minority positions, directly in equity of predominantly privately-held companies. Strategic equity investments were $24.7 million and $14.0 million as of December 26, 2020 and December 28, 2019, respectively. The Company recognized insignificant gains and losses related to these investments for fiscal years 2020 and 2019.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. FAIR VALUE

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

			December 26, 2020
			Level 1						Level 2						Level 3						Total
Current assets measured at fair value:			(in thousands)
Cash equivalents			$	—					$	2,273					$	—					$	2,273
Other assets:
Life insurance policies			—						35,770						—						35,770
Total assets measured at fair value			$	—					$	38,043					$	—					$	38,043
Other liabilities measured at fair value:
Contingent consideration			—						—						2,328						2,328
Total liabilities measured at fair value			$	—					$	—					$	2,328					$	2,328

			December 28, 2019
			Level 1						Level 2						Level 3						Total
Current assets measured at fair value:			(in thousands)
Cash equivalents			$	—					$	55,278					$	—					$	55,278
Other assets:
Life insurance policies			—						30,454						—						30,454
Total assets measured at fair value			$	—					$	85,732					$	—					$	85,732
Other current liabilities measured at fair value:
Contingent consideration			$	—					$	—					$	712					$	712
Foreign currency forward contract			—						876						—						876
Total liabilities measured at fair value			$	—					$	876					$	712					$	1,588

During fiscal years 2020 and 2019, there were no transfers between fair value levels.

Contingent Consideration

The following table provides a rollforward of the contingent consideration related to the Company’s business combinations.

			Fiscal Year
			2020						2019
			(in thousands)
Beginning balance			$	712					$	3,033
Additions			2,131						2,869
Payments			(230)						(5,252)
Total gains or losses (realized/unrealized):
Foreign currency translation			183						62
Reversal of previously recorded contingent liability and change in fair value			(468)						—
Ending balance			$	2,328					$	712

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 2026 and 2028 Senior Notes is a fixed rate obligation carried at amortized cost. Fair value is based on 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. The book value and fair value of the Company’s 2026 and 2028 Senior Notes is summarized below:

			December 26, 2020												December 28, 2019
			Book Value						Fair Value						Book Value						Fair Value
2026 Senior Notes			$	500,000					$	523,100					$	500,000					$	537,500
2028 Senior Notes			500,000						523,750						500,000						510,000

8. GOODWILL AND INTANGIBLE ASSETS

Goodwill

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

									Adjustments to Goodwill																		Adjustments to Goodwill
			December 29, 2018						Acquisitions						Foreign Exchange						December 28, 2019						Acquisitions						Foreign Exchange						December 26, 2020
			(in thousands)
RMS			$	56,968					$	—					$	(382)					$	56,586					$	229,654					$	1,519					$	287,759
DSA			2,056,470						293,380						373						2,350,223						(629)						33,536						2,383,130
Manufacturing			138,695						—						61						138,756						—						4,523						143,279
Gross carrying amount			2,252,133						293,380						52						2,545,565						229,025						39,578						2,814,168
Accumulated impairment loss - DSA			(1,005,000)						—						—						(1,005,000)						—						—						(1,005,000)
Goodwill			$	1,247,133																	$	1,540,565																	$	1,809,168

Based on the Company’s quantitative goodwill impairment test, which was performed in the fourth quarter for each of the fiscal years 2020, 2019 and 2018, 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 2020 related primarily to the acquisitions of HemaCare and Cellero in the RMS reportable segment. The increase in goodwill during fiscal year 2019 related primarily to the acquisition of Citoxlab in the DSA reportable segment.

Intangible Assets, Net

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

			December 26, 2020																		December 28, 2019
			Gross						Accumulated Amortization						Net						Gross						Accumulated Amortization						Net
			(in thousands)
Backlog			$	29,233					$	(29,233)					$	—					$	28,865					$	(26,895)					$	1,970
Technology			130,907						(81,305)						49,602						122,106						(57,737)						64,369
Trademarks and trade names			15,870						(5,648)						10,222						8,430						(4,901)						3,529
Other			20,903						(14,633)						6,270						18,279						(12,307)						5,972
Other intangible assets			196,913						(130,819)						66,094						177,680						(101,840)						75,840
Client relationships			1,137,331						(415,826)						721,505						934,668						(321,095)						613,573
Intangible assets			$	1,334,244					$	(546,645)					$	787,599					$	1,112,348					$	(422,935)					$	689,413

The increase in intangible assets, net during fiscal year 2020 related primarily to the acquisitions of HemaCare and Cellero.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amortization expense of definite-lived intangible assets, including client relationships, for fiscal years 2020, 2019 and 2018 was $111.9 million, $89.5 million and $64.8 million, respectively. As of December 26, 2020, 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)
2021						$	104,272
2022						91,877
2023						83,651
2024						76,291
2025						71,915

9. LONG-TERM DEBT AND FINANCE LEASE OBLIGATIONS

Long-term debt, net and finance leases consists of the following:

			December 26, 2020						December 28, 2019
			(in thousands)
Term loans			$	146,875					$	193,750
Revolving facility			814,752						676,134
2026 Senior Notes			500,000						500,000
2028 Senior Notes			500,000						500,000
Other debt			3,457						5,781
Finance leases (Note 16)			29,047						30,527
Total debt and finance leases			1,994,131						1,906,192
Less:
Current portion of long-term debt			47,196						35,548
Current portion of finance leases (Note 16)			3,018						2,997
Current portion of long-term debt and finance leases			50,214						38,545
Long-term debt and finance leases			1,943,917						1,867,647
Debt discount and debt issuance costs			(14,346)						(17,981)
Long-term debt, net and finance leases			$	1,929,571					$	1,849,666

The acquisition of Distributed Bio on December 31, 2020 for approximately $83 million was funded through a combination of available cash and proceeds from the Company’s Credit Facility under the multi-currency revolving facility. The increased borrowings occurred subsequent to December 26, 2020 and are not reflected in the table above.

As of December 26, 2020 and December 28, 2019, the weighted average interest rate on the Company’s debt was 3.11% and 3.46%, respectively.

Term Loans and Revolving Facility

On March 26, 2018, the Company amended and restated its $1.65 billion credit facility creating a $2.3 billion credit facility (Credit Facility). The amendment extended the maturity date and provided for a $750 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 expensed $1.0 million of debt issuance costs recorded within Interest expense in the accompanying consolidated statements of income for the year ended 2018. The term loan facility matures in 19 quarterly installments with the last installment due March 26, 2023. The revolving facility matures on March 26, 2023, and requires no scheduled payment before that date. On September 25, 2019, the Company amended and restated the Credit Facility for certain administrative matters.

On October 23, 2019, the Company prepaid $500.0 million of the term loan with proceeds from a $500.0 million unregistered private offering (see 2028 Senior Notes Offering below) which was treated as a debt modification. Additionally, on November 4, 2019, the Company amended and restated the Credit Facility to increase the multi-currency revolving facility by $500.0 million, from $1.55 billion to $2.05 billion. In connection with these transactions, the Company capitalized $0.5

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

million within Long-term debt, net and finance leases in the accompanying consolidated balance sheets and expensed $1.6 million of debt issuance costs recorded within Interest expense in the accompanying consolidated statements of income for the year ended 2019. 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 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 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 4.00 to 1.0. As of December 26, 2020, the Company was compliant with all covenants.

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

During fiscal years 2020 and 2019, the Company had multiple U.S. dollar denominated loans borrowed by a non-U.S. Euro functional currency entity under the Company’s Credit Facility, which ranged from $300 million to $400 million each. This resulted in foreign currency gains of $11.9 million during fiscal 2020 and foreign currency losses of $9.6 million during fiscal year 2019 related to the remeasurement of the underlying debt, which were recognized in Other income, net. The Company entered into foreign exchange forward contracts to limit its foreign currency exposures related to these borrowings and recognized losses of $9.3 million and gains of $18.7 million during fiscal years 2020 and 2019, respectively, within Interest expense. As of December 26, 2020, the Company did not have any outstanding borrowings in a currency different than its respective functional currency. See Note 14, “Foreign Currency Contracts”, for further discussion.

Base Indenture for Senior Notes Offerings

On April 3, 2018, the Company entered into an indenture (Base Indenture) with MUFG Union Bank, N.A., (Trustee). The purpose of the Indenture was to allow the Company the ability to issue senior notes. The Company has entered into two supplemental indentures in connection with two unregistered offerings, described below.

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.

2026 Senior Notes Offering

On April 3, 2018, the Company entered into the first supplemental indenture (First Supplemental Indenture) with the Trustee in connection with an offering of $500 million in aggregate principal amount of the Company’s 5.5% Senior Notes (2026 Senior Notes), due in 2026, in an unregistered offering. Under the terms of the First Supplemental Indenture, interest on the Senior Notes is payable semi-annually on April 1 and October 1, beginning on October 1, 2018. The 2026 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.

The Company may redeem all or part of the 2026 Senior Notes at any time prior to April 1, 2021, at its option, at a redemption price equal to 100.0% of the principal amount of such Senior Notes plus the Applicable Premium (as defined in the First Supplemental Indenture). The Company may also redeem up to 40.0% 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 2026 Senior Notes. On or after April 1, 2021, the Company may on any one or more occasions redeem all or a part of the 2026 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 2026 Senior Notes at a purchase price equal to 101.0% of the aggregate principal amount of such 2026 Senior Notes. Any redemption of the 2026 Senior Notes would also require settlement of accrued and unpaid interest, if any, up to but excluding the redemption date.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Net proceeds from the 2026 Senior Notes of $493.8 million were used to partially repay the outstanding revolving credit facility on April 3, 2018 as well as fund the acquisition of MPI Research.

2028 Senior Notes Offering

On October 23, 2019, the Company entered into a second supplemental indenture (Second Supplemental Indenture) with the Trustee in connection with the offering of $500 million in aggregate principal amount of the Company’s 4.25% Senior Notes (2028 Senior Notes), due in 2028, in an unregistered offering. Under the terms of the Second Supplemental Indenture, interest on the 2028 Senior Notes is payable semi-annually on May 1 and November 1, beginning on May 1, 2020. The 2028 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 $6 million of debt issuance costs, which were capitalized upon the 2028 Senior Notes issuance on October 23, 2019, and was recorded within Long-term debt, net and finance leases in the accompanying consolidated balance sheets.

The Company may redeem all or part of the 2028 Senior Notes at any time prior to May 1, 2023, at its option, at a redemption price equal to 100% of the principal amount of such 2028 Senior Notes plus the Applicable Premium (as defined in the Indenture). The Company may also redeem up to 40% of the 2028 Senior Notes with the proceeds of certain equity offerings completed before May 1, 2023, at a redemption price equal to 104.25% of the principal amount of such 2028 Senior Notes. On or after May 1, 2023, the Company may on any one or more occasions redeem all or a part of the 2028 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, up to but excluding the redemption date.

Net proceeds from the 2028 Senior Notes of approximately $494 million and available cash were used to prepay a portion of the term loan on October 23, 2019.

Principal Maturities

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

			Principal
			(in thousands)
2021			$	47,196
2022			93,963
2023			821,221
2024			487
2025			233
Thereafter			1,001,984
Total			$	1,965,084

Letters of Credit

As of December 26, 2020 and December 28, 2019, the Company had $16.0 million and $7.5 million, respectively, in outstanding letters of credit.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. 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
			2020						2019						2018
			(in thousands)
Numerator:
Income from continuing operations, net of income taxes			$	365,306					$	254,061					$	227,218
Income from discontinued operations, net of income taxes			—						—						1,506
Less: Net income attributable to noncontrolling interests			1,002						2,042						2,351
Net income attributable to common shareholders			$	364,304					$	252,019					$	226,373
Denominator:
Weighted-average shares outstanding—Basic			49,550						48,730						47,947
Effect of dilutive securities:
Stock options, restricted stock, restricted stock units and performance share units			1,061						963						1,071
Weighted-average shares outstanding—Diluted			50,611						49,693						49,018

Options to purchase 0.2 million shares, 0.4 million shares, and 0.5 million shares for fiscal years 2020, 2019, and 2018, respectively, as well as a non-significant number of restricted stock, RSUs, and performance share units (PSUs), were not included in computing diluted earnings per share because their inclusion would have been anti-dilutive. Basic weighted-average shares outstanding for fiscal years 2020, 2019, and 2018 excluded the impact of 0.9 million shares, 1.0 million shares and 1.0 million shares, respectively, of non-vested restricted stock, RSUs and PSUs.

Treasury Shares

The Company’s Board of Directors has authorized a $1.3 billion stock repurchase program. Under its authorized stock repurchase program, the Company did not repurchase any shares in fiscal years 2020, 2019, and 2018. As of December 26, 2020, 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 $24.0 million, 0.1 million shares for $18.1 million, and 0.1 million shares for $13.8 million in fiscal years 2020, 2019, and 2018, respectively, from such netting.

In fiscal years 2020 and 2019, the Company’s Board of Directors approved the cancellation and return to the Company’s authorized and unissued capital stock of 0.1 million treasury shares totaling $24.0 million and 0.1 million treasury shares totaling $18.1 million, respectively, 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 $19.2 million and $4.8 million, respectively, in fiscal year 2020 and $13.8 million and $4.3 million, respectively, in fiscal year 2019.

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 29, 2018			$	(102,199)					$	(70,504)					$	(172,703)
Other comprehensive income (loss) before reclassifications (1)			14,444						(25,165)						(10,721)
Amounts reclassified from accumulated other comprehensive income			—						1,772						1,772
Net current period other comprehensive income (loss)			14,444						(23,393)						(8,949)
Income tax (benefit)			(177)						(3,456)						(3,633)
December 28, 2019			(87,578)						(90,441)						(178,019)
Other comprehensive income before reclassifications (1)			20,909						15,747						36,656
Amounts reclassified from accumulated other comprehensive income			—						17,861						17,861
Net current period other comprehensive income			20,909						33,608						54,517
Income tax expense			7,215						8,157						15,372
December 26, 2020			$	(73,884)					$	(64,990)					$	(138,874)
(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, Canadian Dollar, and Chinese Yuan Renminbi and to a lesser extent due to the impact of changes in the Japanese Yen and Brazilian Real.

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 within Equity in the accompanying consolidated balance sheets. The activity within the nonredeemable noncontrolling interest during fiscal years 2020, 2019, and 2018 was not significant.

Redeemable Noncontrolling Interests

The Company holds a 92% ownership interest in Vital River, a commercial provider of research models and related services in China as of December 26, 2020. In 2019, the Company purchased an additional 5% equity interest in Vital River for $7.9 million. The Company recorded a $0.8 million gain in equity equal to the excess fair value of the 5% equity interest over the purchase price. Concurrent with the transaction, the pre-existing agreement was further amended to provide the Company with the right to purchase, and the noncontrolling interest holders with the right to sell, the remaining 8% equity interest (redeemable noncontrolling interest) at a contractually defined redemption value, subject to a redemption floor, which represents a derivative embedded within the equity instrument. These rights are exercisable beginning in 2022 and are accelerated in certain events. In 2019, the Company recorded a charge of $2.2 million in Selling, general and administrative expenses within the consolidated statements of income, equal to the excess fair value of the hybrid instrument (equity interest with embedded derivative) over the fair value of the 8% 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 ($16.3 million as of December 26, 2020) and the 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 8% 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 amount that the Company could be required to pay to purchase the remaining 8% equity interest is not limited.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As part of the Citoxlab acquisition in 2019, the Company acquired an approximate 90% equity interest in a subsidiary that was fully consolidated under the voting interest model, which included an approximate 10% redeemable noncontrolling interest. In February 2020, the Company purchased the remaining approximate 10% noncontrolling interest for approximately $4 million and assumption of a contingent consideration liability of approximately $2 million payable to the former shareholders. See Note 7. “Fair Value”.

In 2019, the Company acquired an 80% equity interest that is fully consolidated under the voting interest model, which included a 20% redeemable noncontrolling interest. The Company has the right to purchase, and the noncontrolling interest holders have the right to sell, the remaining 20% equity interest at its appraised value. These rights are exercisable beginning in 2022. 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 appraised value and the carrying amount adjusted for net income (loss) attributable to the noncontrolling interest or a predetermined floor value. As the noncontrolling interest holders have the ability to require the Company to purchase the remaining 20% 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 amount that the Company could be required to pay to purchase the remaining 20% equity interest is not limited.

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

			Fiscal Year
			2020						2019
			(in thousands)
Beginning balance			$	28,647					$	18,525
Purchase of a 10% redeemable noncontrolling interest			(3,732)						—
Adjustment to Vital River redemption value			—						1,451
Purchase of Vital River 5% equity interest			—						(8,745)
Change in fair value of Vital River 8% equity interest, included in additional paid-in capital			—						2,708
Modification of Vital River 8% purchase option			—						2,196
Acquisition of an approximate 10% noncontrolling interest through acquiring Citoxlab			—						4,035
Acquisition of a 20% noncontrolling interest			—						8,740
Net loss attributable to noncontrolling interests			(852)						(42)
Foreign currency translation			1,436						(221)
Ending balance			$	25,499					$	28,647

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. INCOME TAXES

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

			Fiscal Year
			2020						2019						2018
			(in thousands)
Income from continuing operations before income taxes:
U.S.			$	226,935					$	108,326					$	95,062
Non-U.S.			220,179						195,758						186,619
Total income from continuing operations, before income taxes			$	447,114					$	304,084					$	281,681
Income tax provision (benefit):
Current:
Federal			$	38,192					$	18,101					$	17,390
Foreign			35,410						43,489						38,557
State			6,623						9,915						8,837
Total current			80,225						71,505						64,784
Deferred:
Federal			386						(3,226)						(7,145)
Foreign			5,583						(17,111)						(4,104)
State			(4,386)						(1,145)						928
Total deferred			1,583						(21,482)						(10,321)
Total provision for income taxes			$	81,808					$	50,023					$	54,463

Included in the fiscal year 2019 income tax expense of $50.0 million is a $20.6 million tax benefit for the recognition of $315.5 million of historical foreign net operating loss deferred tax assets, partially offset by a $294.9 million valuation allowance. Prior to 2019, these deferred tax assets were not recognized as the Company believed the ability to utilize the net operating losses was remote. As a result of both U.S. Tax Reform and European tax legislation, the Company made changes in 2019 to its financing structure, resulting in the ability to utilize a portion of the net operating losses previously considered remote in nature.

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

			Fiscal Year
			2020						2019						2018
U.S. statutory income tax rate			21.0		%				21.0		%				21.0		%
Foreign tax rate differences			1.2						2.7						0.5
State income taxes, net of federal tax benefit			0.4						2.6						2.4
Non-deductible compensation			1.0						1.7						1.0
Research tax credits and enhanced deductions			(3.4)						(4.4)						(2.9)
Stock-based compensation			(2.7)						(2.2)						(2.1)
Impact of tax uncertainties			(0.2)						(2.6)						(1.1)
Tax on unremitted earnings			1.3						1.7						1.2
Impact of acquisitions and restructuring			0.5						2.7						0.3
Net operating loss deferred tax asset recognition, net of valuation allowance (NOL DTA)			(0.1)						(6.8)						—
Other			(0.7)						0.1						(1.0)
Effective income tax rate			18.3		%				16.5		%				19.3		%

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

			December 26, 2020						December 28, 2019
			(in thousands)
Deferred tax assets:
Compensation			$	32,118					$	40,582
Accruals and reserves			17,970						13,687
Net operating loss and credit carryforwards			406,085						367,269
Operating lease liability			43,646						33,785
Other			4,253						7,181
Valuation allowance			(334,845)						(309,962)
Total deferred tax assets			169,227						152,542
Deferred tax liabilities:
Goodwill and other intangibles			(202,430)						(174,847)
Depreciation related			(33,277)						(29,317)
Venture capital investments			(32,848)						(12,806)
Tax on unremitted earnings			(27,707)						(17,282)
Right-of-use assets			(43,557)						(34,953)
Other			(8,710)						(5,961)
Total deferred tax liabilities			(348,529)						(275,166)
Net deferred taxes			$	(179,302)					$	(122,624)

The valuation allowance increased by $24.9 million from $310.0 million as of December 28, 2019 to $334.8 million as of December 26, 2020. The increase is primarily a result of foreign exchange impact on net operating losses and corresponding valuation allowances relating to the Company’s 2019 financing structure changes. The valuation allowance increased by $300.2 million from $9.8 million as of December 29, 2018 to $310.0 million as of December 28, 2019. The increase is primarily related to the recognition of $315.5 million of net operating loss deferred tax assets due to changes in the Company’s financing structure, $294.9 million of which the Company does not believe is more likely than not to be utilized. The other changes recorded to the Company’s valuation allowance were immaterial in the fiscal years 2020, 2019, and 2018.

As of December 26, 2020, the Company had net operating loss carryforwards of $369.0 million, as compared to $337.3 million as of December 28, 2019. Of this amount, $27.7 million are definite-lived and begin to expire in 2021, and the remainder of $341.3 million can be carried forward indefinitely. The Company has tax credit carryforwards of $37.1 million, which will begin to expire after 2035 and beyond. Additionally, the Company records a benefit to operating income for research and development and other credits in Quebec, France, the Netherlands, and the U.K. related to its DSA facilities.

The Company has 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 Hong Kong, Luxembourg, Denmark, certain capital losses, and fixed assets in the U.K.

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

			Fiscal Year
			2020						2019						2018
			(in thousands)
Beginning balance			$	19,665					$	18,827					$	24,710
Additions to tax positions for current year			7,044						3,691						2,477
Additions to tax positions for prior years			4,589						5,234						—
Reductions to tax positions for prior years			(127)						(1,033)						(4,543)
Settlements			(5,859)						(274)						(3,380)
Expiration of statute of limitations			(342)						(6,780)						(437)
Ending balance			$	24,970					$	19,665					$	18,827

The $5.3 million increase in unrecognized income tax benefits during fiscal year 2020 as compared to the corresponding period in 2019 is primarily attributable to amended U.S. state tax returns from prior years and an additional year of Canadian Scientific Research and Experimental Development (SR&ED) credit, partially offset by audit settlements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The amount of unrecognized income tax benefits that, if recognized, would favorably impact the effective tax rate was $22.6 million as of December 26, 2020 and $17.0 million as of December 28, 2019. The $5.6 million increase is primarily due to the same items noted above. It is reasonably possible as of December 26, 2020 that the liability for unrecognized tax benefits for the uncertain tax position will decrease by approximately $2 million over the next twelve-month period. The Company continues to recognize interest and penalties related to unrecognized income tax benefits in income tax expense. The total amount of cumulative accrued interest related to unrecognized income tax benefits as of December 26, 2020 and December 28, 2019 was $2.4 million and $2.3 million, respectively. Interest expense recorded as a component of income taxes was immaterial for all periods. There were no accrued penalties related to unrecognized income tax benefits as of December 26, 2020 or as of December 28, 2019.

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, France, Germany, and Canada. With few exceptions, the Company is no longer subject to U.S. and international income tax examinations for years before 2017.

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

12. 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. In January 2019, the Company commenced the process to terminate this plan and received regulatory approval in April 2020. In October 2020, the Company settled all remaining benefits directly with vested participants through either lump sum payouts or the purchase of a group annuity contract from a qualified insurance company to administer all future payments. Prior to the settlement, the U.S. Pension Plan was underfunded with a benefit obligation of $93.8 million and plan assets of $93.0 million. In the fourth quarter of fiscal year 2020, the Company made a contribution of $0.8 million to fully fund this plan to cover the lump sum payments, purchase the group annuity contract, and settle remaining termination costs. Upon settlement of the pension liability, the Company recognized a non-cash settlement charge of $10.3 million related to pension losses, reclassified from accumulated other comprehensive loss on the consolidated balance sheet, to other expense in the consolidated statements of income.

The Charles River Pension Plan (U.K. 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 U.K. 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. During fiscal 2020, the Company made contributions of $23.0 million to the U.K. Pension Plan. As of fiscal 2020 year-end, this plan was in a funded status of $28.9 million.

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.

The net periodic benefit cost (income) associated with these plans for fiscal years 2020, 2019 and 2018 totaled $1.6 million, $1.5 million and $(1.5) million, respectively.

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.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 U.S. 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. In fiscal year 2020, one executive officer, who converted their ESLIRP benefit into the DCP, retired resulting in lump sum payment of $8.1 million. Upon settlement of this pension liability, the Company recognized a non-cash settlement charge of $2.1 million related to pension losses, reclassified from accumulated other comprehensive loss on the consolidated balance sheet, to other expense in the consolidated statements of income.

The net periodic benefit cost associated with these plans for fiscal years 2020, 2019 and 2018 totaled $5.7 million, $2.5 million and $2.9 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 26, 2020 and December 28, 2019, the cash surrender value of these life insurance policies were $43.8 million and $38.2 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 26, 2020						December 28, 2019
			(in thousands)
Change in projected benefit obligations:
Benefit obligation at beginning of year			$	447,409					$	362,805
Service cost			3,609						2,833
Interest cost			8,849						11,583
Other			429						850
Benefit payments			(8,913)						(11,062)
Settlements			(101,979)						(74)
Special/Contractual Termination Benefits			—						166
Transfer in from acquisition			—						6,818
Actuarial loss			9,816						66,432
Administrative expenses paid			(808)						(470)
Effect of foreign exchange			9,056						7,528
Benefit obligation at end of year			$	367,468					$	447,409
Change in fair value of plan assets:
Fair value of plan assets at beginning of year			$	357,181					$	305,709
Actual return on plan assets			36,551						53,741
Employer contributions			34,092						2,105
Settlements			(101,979)						(74)
Transfer in from acquisition			—						119
Benefit payments			(8,913)						(11,062)
Administrative expenses paid			(808)						(470)
Effect of foreign exchange			8,628						7,113
Fair value of plan assets at end of year			$	324,752					$	357,181
Net balance sheet liability			$	42,716					$	90,228
Amounts recognized in balance sheet:
Noncurrent assets			$	31,916					$	1,742
Current liabilities			1,713						12,788
Noncurrent liabilities			72,919						79,182

Actuarial losses are driven mainly by liability losses as a result of changes in economic assumptions, in particular lower discount rates, offset by liability gains due to changes in the mortality assumptions and plan experience.

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

			Fiscal Year
			2020						2019
			(in thousands)
Net actuarial loss			$	82,914					$	116,930
Net prior service cost (credit)			(1,593)						(2,096)
Net amount recognized			$	81,321					$	114,834

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 26, 2020						December 28, 2019
			(in thousands)
Accumulated benefit obligation			$	72,940					$	410,243
Fair value of plan assets			11,543						337,344

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 26, 2020						December 28, 2019
			(in thousands)
Projected benefit obligation			$	93,192					$	435,638
Fair value of plan assets			18,560						343,688

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

			Fiscal Year
			2020						2019						2018
			(in thousands)
Service cost			$	3,609					$	2,833					$	2,612
Interest cost			8,849						11,583						10,850
Expected return on plan assets			(11,348)						(13,005)						(15,516)
Amortization of prior service credit			(489)						(489)						(514)
Amortization of net loss			6,239						2,250						2,990
Other			417						850						910
Net periodic benefit cost			$	7,277					$	4,022					$	1,332
Settlement			12,385						—						—
Total benefit cost			$	19,662					$	4,022					$	1,332

Assumptions

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

			December 26, 2020						December 28, 2019
Discount rate			1.48		%				2.14		%
Rate of compensation increase			2.98		%				2.99		%

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. Specifically for the termination of the U.S. Pension Plan in fiscal 2020, estimated costs of lump sum payments and annuity purchases were reflected in the discount rate for fiscal 2019. A 25-basis point change across all discount rates changes the projected benefit obligation by approximately $17 million for all Company plans.

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

			December 26, 2020						December 28, 2019						December 29, 2018
Discount rate			2.14		%				3.21		%				2.82		%
Expected long-term return on plan assets			3.35		%				4.28		%				5.18		%
Rate of compensation increase			2.99		%				3.23		%				3.16		%

A 0.5% decrease in the expected rate of return would increase annual pension expense by $1.6 million.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In fiscal years 2020 and 2019, new mortality improvement scales were issued in the U.S. and the United Kingdom (U.K.) reflecting a decline in longevity projection from previous releases the Company adopted, which decreased the Company’s benefit obligations by $7.8 million and $2.8 million as of December 26, 2020 and December 28, 2019, respectively.

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 26, 2020 or December 28, 2019. The weighted-average target asset allocations are 22.1% to equity securities, 15.3% to fixed income securities and 62.6% to other securities.

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

			December 26, 2020																								December 28, 2019
			Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3						Total
			(in thousands)
Cash and cash equivalents			$	20,163					$	1,466					$	—					$	21,629					$	2,388					$	1,022					$	—					$	3,410
Equity securities (1)			8,633						54,832						—						63,465						7,621						84,377						—						91,998
Debt securities (2)			—						99,188						—						99,188						40,281						89,684						—						129,965
Mutual funds (3)			7,018						65,189						—						72,207						6,324						68,632						—						74,956
Other (4)			508						66,439						1,316						68,263						551						54,787						1,514						56,852
Total			$	36,322					$	287,114					$	1,316					$	324,752					$	57,165					$	298,502					$	1,514					$	357,181
(1) This category comprises equity investments and 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 investments and 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. Holdings primarily include investment-grade corporate bonds and treasuries at various durations.
(3) This category comprises mutual funds valued at the net asset value of shares held by non-U.S. pension plans at year end and translated into U.S. dollars using a foreign currency exchange rate at year end.
(4) This category mainly comprises fixed income securities tied to various U.K. 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 not significant during the periods presented.

During fiscal year 2020, the Company contributed $24.6 million to the pension plans and expects to contribute approximately $0.9 million in fiscal year 2021. During fiscal year 2020, the Company paid $9.5 million directly to certain participants outside of plan assets.

Expected benefit payments are estimated using the same assumptions used in determining the Company’s benefit obligation as of December 26, 2020. 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 2026 through 2030, are as follows.

Fiscal Year						Pension Plans
						(in thousands)
2021						$	6,457
2022						6,890
2023						41,395
2024						7,595
2025						7,847
2026-2030						42,617

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 26, 2020 and December 28, 2019, the accumulated benefit obligation related to the plan was $1.3 million and $1.1 million, respectively. The amounts included in other accumulated comprehensive income as well as expenses related to the plan were not significant for fiscal years 2020, 2019 and 2018.

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 2020, 2019 and 2018, the costs associated with this defined contribution plan totaled $14.6 million, $19.1 million and $13.4 million, respectively.

13. 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 2020, 2019 and 2018, 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 or 10 years from date of 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, which was amended in 2020 (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 8.9 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.

As of December 26, 2020, approximately 6.7 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:

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

			Fiscal Year
			2020						2019						2018
			(in thousands)
Cost of revenue			$	10,636					$	9,038					$	6,285
Selling, general and administrative			45,705						48,233						41,061
Stock-based compensation, before income taxes			56,341						57,271						47,346
Provision for income taxes			(8,130)						(9,465)						(9,188)
Stock-based compensation, net of income taxes			$	48,211					$	47,806					$	38,158

No stock-based compensation related costs were capitalized in fiscal years 2020, 2019 and 2018.

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 28, 2019			1,507						$	105.19
Options granted			292						$	178.79
Options exercised			(533)						$	87.45
Options canceled			(50)						$	134.02
Options outstanding as of December 26, 2020			1,216						$	129.34					3.8						$	148,795
Options exercisable as of December 26, 2020			308						$	98.34					1.5						$	47,163
Options expected to vest as of December 26, 2020			908						$	139.84					4.6						$	101,632

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

			Fiscal Year
			2020						2019						2018
Expected life (in years)			6.0						3.6						3.7
Expected volatility			30		%				27		%				25		%
Risk-free interest rate			0.4		%				2.4		%				2.4		%
Expected dividend yield			0		%				0		%				0		%

The weighted-average grant date fair value of stock options granted was $53.37, $33.97 and $24.80 for fiscal years 2020, 2019 and 2018, respectively.

As of December 26, 2020, the unrecognized compensation cost related to unvested stock options expected to vest was $19.2 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 2020, 2019 and 2018 was $48.6 million, $27.0 million and $29.0 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 Units

The following table summarizes the restricted stock units activity for fiscal year 2020:

			Restricted Stock Units						Weighted Average Grant Date Fair Value
			(in thousands)
December 28, 2019			496						$	116.07
Granted			178						$	182.10
Vested			(187)						$	106.94
Canceled			(21)						$	136.15
December 26, 2020			466						$	144.03

As of December 26, 2020, the unrecognized compensation cost related to shares of unvested RSUs expected to vest was $39.9 million, which is expected to be recognized over an estimated weighted-average amortization period of 2.5 years. The total fair value of RSU grants that vested during fiscal years 2020, 2019 and 2018 was $20.0 million, $16.5 million and $15.5 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
			2020						2019						2018
			(shares in thousands)
PSUs granted			98						160						200
Weighted average grant date fair value			$	209.67					$	164.47					$	117.89
Key assumptions:
Expected volatility			35		%				25		%				26		%
Risk-free interest rate			0.2		%				2.4		%				2.4		%
Expected dividend yield			0		%				0		%				0		%
Total shareholder return of 20-trading day average stock price on grant date			21.7		%				17.7		%				2.9		%

The maximum number of common shares to be issued upon vesting of PSUs is 0.2 million. For fiscal years 2020, 2019 and 2018, the Company recognized stock-based compensation related to PSUs of $22.7 million, $25.3 million and $20.4 million, respectively. The total fair value of PSUs that vested during fiscal years 2020, 2019 and 2018 was $20.9 million, $20.2 million and $18.3 million, respectively.

In fiscal years 2020, 2019 and 2018, the Company also issued approximately 9,000, 15,000 and 17,000 PSUs using a weighted-average grant date fair value per share of $179.66, $144.67 and $109.34, respectively. These PSUs vest upon the achievement of financial targets and other performance measures.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. FOREIGN CURRENCY CONTRACTS

Cross currency loans

The Company periodically entered into foreign exchange forward contracts during fiscal 2020 and 2019 to limit its foreign currency exposure related U.S. dollar denominated loans borrowed by a non-U.S. Euro functional currency entity under the Company’s Credit Facility. These contracts are not designated as hedging instruments. Any gains or losses on these forward contracts are recognized immediately within Interest expense in the consolidated statements of income. The Company had no such open forward contracts as of December 26, 2020 or December 28, 2019.

The following table summarizes the effect of the foreign exchange forward contracts entered into to limit the Company’s foreign currency exposure related to U.S. dollar denominated loans borrowed by a non-U.S. Euro functional currency entity under the Credit Facility on the Company’s consolidated statements of income:

						Fiscal Year
						2020												2019												2018
Location of gain (loss)						Financial statement caption amount						Amount of gain (loss)						Financial statement caption amount						Amount of gain (loss)						Financial statement caption amount						Amount of gain (loss)
						(in thousands)
Interest expense						$	86,433					$	(9,325)					$	60,882					$	18,672					$	63,772					$	1,486

Intercompany loans

The Company periodically enters into foreign exchange forward contracts 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 entered into foreign currency forward contracts during fiscal years 2020 and 2019. The Company did not have any such open contracts as of December 26, 2020 and one contract remained open at December 28, 2019, which had a duration of less than one month and was recorded at fair value in the Company’s accompanying consolidated balance sheet. The notional amount and fair value of the open contract is summarized as follows:

December 28, 2019
Notional Amount						Fair Value						Balance Sheet Location
(in thousands)
$	115,038					$	(876)					Other current liabilities

The following table summarizes the effect of the foreign exchange forward contracts in connection with certain intercompany loans on the Company’s consolidated statements of income:

						Fiscal Year
						2020												2019
Location of gain (loss)						Financial statement caption amount						Amount of gain (loss)						Financial statement caption amount						Amount of gain (loss)
						(in thousands)
Other income, net						$	99,984					$	(892)					$	12,293					$	(121)

15. RESTRUCTURING AND ASSET IMPAIRMENTS

Global Restructuring Initiatives

In recent fiscal years, the Company has undertaken productivity improvement initiatives within all reportable segments at various locations across the U.S., Canada, Europe, China, 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 does not have any significant remaining lease obligations for facilities associated with restructuring activities.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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						Asset Impairments and Other Costs						Total
			(in thousands)
December 26, 2020
Cost of services provided and products sold (excluding amortization of intangible assets)			$	4,453					$	920					$	5,373
Selling, general and administrative			3,137						4,084						7,221
Total			$	7,590					$	5,004					$	12,594
December 28, 2019
Cost of services provided and products sold (excluding amortization of intangible assets)			$	4,348					$	2,367					$	6,715
Selling, general and administrative			7,106						18						7,124
Total			$	11,454					$	2,385					$	13,839
December 29, 2018
Cost of services provided and products sold (excluding amortization of intangible assets)			$	1,770					$	849					$	2,619
Selling, general and administrative			6,911						21						6,932
Total			$	8,681					$	870					$	9,551

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

			Fiscal Year
			2020						2019						2018
			(in thousands)
RMS			$	845					$	3,110					$	1,983
DSA			8,605						7,307						1,063
Manufacturing			2,733						3,032						1,227
Unallocated corporate			411						390						5,278
Total			$	12,594					$	13,839					$	9,551

Rollforward of restructuring activities

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

			Fiscal Year
			2020						2019						2018
			(in thousands)
Beginning balance			$	6,406					$	2,921					$	6,856
Expense (excluding non-cash charges)			9,284						12,674						8,681
Payments / utilization			(9,918)						(9,206)						(12,341)
Foreign currency adjustments			46						17						(275)
Ending balance			$	5,818					$	6,406					$	2,921

As of December 26, 2020 and December 28, 2019, $5.8 million and $6.3 million, respectively, of severance and other personnel related costs liabilities and lease obligation liabilities were included in accrued compensation and accrued liabilities within the Company’s consolidated balance sheets. As of December 28, 2019, $0.1 million, respectively, were included in other long-term liabilities within the Company's consolidated balance sheets.

16. LEASES

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Operating and Finance Leases

Right-of-use lease assets and lease liabilities are reported in the Company’s consolidated balance sheets as follows:

			Fiscal Year
			December 26, 2020						December 28, 2019
			(in thousands)
Operating leases
Operating lease right-of-use assets, net			$	178,220					$	140,085
Other current liabilities			$	24,674					$	20,357
Operating lease right-of-use liabilities			155,595						116,252
Total operating lease liabilities			$	180,269					$	136,609
Finance leases
Property, plant and equipment, net			$	31,614					$	32,519
Current portion of long-term debt and finance leases			$	3,018					$	2,997
Long-term debt, net and finance leases			26,029						27,530
Total finance lease liabilities			$	29,047					$	30,527

The components of operating and finance lease costs were as follows:

			Fiscal Year
			December 26, 2020						December 28, 2019
			(in thousands)
Operating lease costs			$	32,965					$	30,885
Finance lease costs:
Amortization of right-of-use assets			3,723						4,007
Interest on lease liabilities			1,306						1,349
Short-term lease costs			2,349						1,056
Variable lease costs			5,122						3,161
Sublease income			(1,673)						(994)
Total lease costs			$	43,792					$	39,464

Other information related to leases was as follows:

Supplemental cash flow information

			Fiscal Year
			December 26, 2020						December 28, 2019
			(in thousands)
Cash flows included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	29,961					$	27,153
Operating cash flows from finance leases			1,306						1,406
Finance cash flows from finance leases			4,350						3,766
Non-cash leases activity:
Right-of-use lease assets obtained in exchange for new operating lease liabilities			$	63,499					$	24,382
Right-of-use lease assets obtained in exchange for new finance lease liabilities			1,571						4,819

Lease term and discount rate

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

			As of			As of
			December 26, 2020			December 28, 2019
Weighted-average remaining lease term (in years)
Operating lease			8.5			8.2
Finance lease			12.4			13.0
Weighted-average discount rate
Operating lease			4.5		%	4.4		%
Finance lease			4.1		%	4.6		%

At the lease commencement date, the discount rate implicit in the lease is used to discount the lease liability if readily determinable. If not readily determinable or leases do not contain an implicit rate, the Company’s incremental borrowing rate is used as the discount rate, which is based on the information available at the lease commencement date and represents a rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.

As of December 26, 2020, maturities of operating and finance lease liabilities for each of the following five years and a total thereafter were as follows:

			Operating Leases						Finance Leases
			(in thousands)
2021			$	31,326					$	4,242
2022			27,803						3,673
2023			25,014						3,348
2024			24,244						3,118
2025			21,792						2,841
Thereafter			85,249						20,906
Total minimum future lease payments			215,428						38,128
Less: Imputed interest			35,159						9,081
Total lease liabilities			$	180,269					$	29,047

Total minimum future lease payments (predominantly operating leases) of approximately $130 million for leases that have not commenced as of December 26, 2020, as the Company does not yet control the underlying assets, are not included in the consolidated financial statements. These leases are expected to commence between fiscal years 2021 and 2024 with lease terms of approximately 8 to 15 years.

17. COMMITMENTS AND CONTINGENCIES

Insurance

The Company maintains certain insurance policies that maintain large deductibles up to approximately $1.5 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. In addition, the Company purchased representation and warranty insurance in support of some acquisitions, in which deductibles could reach $8.0 million.

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 $197.4 million as of December 26, 2020 and is expected to be paid as follows:

			Payments Due by Period
			Less than 1 Year						1 - 3 Years						3 - 5 Years						Total
			(in thousands)
Unconditional purchase obligations			$	166,078					$	30,617					$	673					$	197,368

18. SELECTED QUARTERLY FINANCIAL DATA (unaudited)

The following table contains quarterly financial information for fiscal years 2020 and 2019. The operating results for any quarter are not necessarily indicative of future period results.

			First Quarter						Second Quarter						Third Quarter						Fourth Quarter
			(in thousands, except per share amounts)
Fiscal Year 2020
Total revenue			$	707,059					$	682,584					$	743,300					$	790,990
Gross profit (1)			252,061						232,238						289,274						299,968
Operating income			94,281						76,768						132,753						128,927
Net income attributable to common shareholders			50,769						67,435						102,909						143,191
Earnings per common share
Net income attributable to common shareholders:
Basic			$	1.03					$	1.36					$	2.07					$	2.88
Diluted			$	1.02					$	1.34					$	2.03					$	2.81
Fiscal Year 2019
Total revenue			$	604,569					$	657,568					$	667,951					$	691,138
Gross profit (1)			211,777						238,104						246,116						262,314
Operating income			69,792						79,768						92,802						108,789
Net income attributable to common shareholders			55,133						43,728						72,810						80,348
Earnings per common share
Net income attributable to common shareholders:
Basic			$	1.14					$	0.90					$	1.49					$	1.64
Diluted			$	1.11					$	0.88					$	1.46					$	1.61
(1) 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.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19. SUBSEQUENT EVENT

On February 17, 2021, the Company announced that it has signed a definitive agreement to acquire Cognate BioServices, Inc. for approximately $875 million in cash, subject to customary closing adjustments. Cognate BioServices, Inc. is a cell and gene therapy CDMO offering comprehensive manufacturing solutions for cell therapies, as well as for the development and production of plasmid DNA and viral vectors for gene therapies. The planned acquisition of Cognate BioServices, Inc. will create a scientific partner for cell and gene therapy development, testing, and manufacturing, providing clients with an integrated solution from basic research through cGMP production. The proposed transaction is expected to close by the end of the first quarter of 2021. The proposed acquisition and associated fees are expected to be financed through a combination of available cash and proceeds from the Company’s Credit Facility under the multi-currency revolving facility. This business is expected to be reported as part of the Company’s Manufacturing reportable segment.