10-Q 1 crl330201910-q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2019
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                                   TO                                   
Commission File No. 001-15943
charlesriverlablogoa02.jpg
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
06-1397316
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
251 Ballardvale Street
Wilmington, Massachusetts
(Address of Principal Executive Offices)
 
01887
(Zip Code)
 
(Registrant’s telephone number, including area code): (781) 222-6000
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Ticker symbol(s)
Name of each exchange on which registered
Common stock, $0.01 par value
CRL
New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes þ No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company ¨
 



If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
As of April 26, 2019, there were 48,754,419 shares of the Registrant’s common stock outstanding.



CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2019

TABLE OF CONTENTS
Item
 
Page
PART I - FINANCIAL INFORMATION

1
Financial Statements
 
 
Condensed Consolidated Statements of Income (Unaudited) for the three months ended March 30, 2019 and March 31, 2018
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 30, 2019 and March 31, 2018
 
Condensed Consolidated Balance Sheets (Unaudited) as of March 30, 2019 and December 29, 2018
 
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 30, 2019 and March 31, 2018
 
Notes to Unaudited Condensed Consolidated Financial Statements
2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
3
Quantitative and Qualitative Disclosure About Market Risk
4
Controls and Procedures
PART II - OTHER INFORMATION
1
Legal Proceedings
1A
Risk Factors
2
Unregistered Sales of Equity Securities and Use of Proceeds
6
Exhibits
 
 
 
Signatures

1


Special Note on Factors Affecting Future Results
This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and the future results of Charles River Laboratories International, Inc. that are based on our current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expect,” “anticipate,” “target,” “goal,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,” “likely,” “may,” “designed,” “would,” “future,” “can,” “could,” and other similar expressions which are predictions of, indicate future events and trends or which do not relate to historical matters, are intended to identify such forward-looking statements. These statements are based on our current expectations and beliefs and involve a number of risks, uncertainties and assumptions that are difficult to predict. These statements also include statements regarding risks and uncertainties associated with the unauthorized access into our information systems reported on April 30, 2019, including the timing and effectiveness of adding enforced security features and monitoring procedures, and the potential revenue and financial impact related to the incident.
For example, we may use forward-looking statements when addressing topics such as: goodwill and asset impairments still under review; future demand for drug discovery and development products and services, including the outsourcing of these services; our expectations regarding stock repurchases, including the number of shares to be repurchased, expected timing and duration, the amount of capital that may be expended and the treatment of repurchased shares; present spending trends and other cost reduction activities by our clients; future actions by our management; the outcome of contingencies; changes in our business strategy, business practices and methods of generating revenue; the development and performance of our services and products; market and industry conditions, including competitive and pricing trends; our strategic relationships with leading pharmaceutical and biotechnology companies, venture capital investments, and opportunities for future similar arrangements; our cost structure; the impact of acquisitions, including Citoxlab; our expectations with respect to revenue growth and operating synergies (including the impact of specific actions intended to cause related improvements); the impact of specific actions intended to improve overall operating efficiencies and profitability (and our ability to accommodate future demand with our infrastructure), including gains and losses attributable to businesses we plan to close, consolidate, divest or repurpose; changes in our expectations regarding future stock option, restricted stock, performance share units, and other equity grants to employees and directors; expectations with respect to foreign currency exchange; assessing (or changing our assessment of) our tax positions for financial statement purposes; and our liquidity. In addition, these statements include the impact of economic and market conditions on us and our clients; the effects of our cost saving actions and the steps to optimize returns to shareholders on an effective and timely basis; and our ability to withstand the current market conditions.
You should not rely on forward-looking statements because they are predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document, or in the case of statements incorporated by reference, on the date of the document incorporated by reference.
Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 29, 2018, under the sections entitled “Our Strategy,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in this Quarterly Report on Form 10-Q, under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” in our press releases, and other financial filings with the Securities and Exchange Commission. We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or risks. New information, future events, or risks may cause the forward-looking events we discuss in this report not to occur.




2



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
Service revenue
$
450,942

 
$
345,454

Product revenue
153,627

 
148,516

Total revenue
604,569

 
493,970

Costs and expenses:
 
 
 
Cost of services provided (excluding amortization of intangible assets)
316,800

 
243,808

Cost of products sold (excluding amortization of intangible assets)
75,992

 
68,693

Selling, general and administrative
122,574

 
103,372

Amortization of intangible assets
19,411

 
10,268

Operating income
69,792

 
67,829

Other income (expense):
 
 
 
Interest income
179

 
282

Interest expense
(9,987
)
 
(11,191
)
Other income, net
6,306

 
6,120

Income from continuing operations, before income taxes
66,290

 
63,040

Provision for income taxes
10,602

 
9,772

Income from continuing operations, net of income taxes
55,688

 
53,268

Loss from discontinued operations, net of income taxes

 
(23
)
Net income
55,688

 
53,245

Less: Net income attributable to noncontrolling interests
555

 
614

Net income attributable to common shareholders
$
55,133


$
52,631

 
 
 
 
Earnings per common share
 
 
 
Basic:
 
 
 
Continuing operations attributable to common shareholders
$
1.14

 
$
1.10

Discontinued operations
$

 
$

Net income attributable to common shareholders
$
1.14

 
$
1.10

Diluted:
 
 
 
Continuing operations attributable to common shareholders
$
1.11

 
$
1.08

Discontinued operations
$

 
$

Net income attributable to common shareholders
$
1.11

 
$
1.08

 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
Basic
48,458

 
47,785

Diluted
49,462

 
48,828

 
 
 
 
 
 
 
 
See Notes to Unaudited Condensed Consolidated Financial Statements.

3


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
Net income
$
55,688

 
$
53,245

Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment and other
9,885

 
25,431

Amortization of net loss and prior service benefit included in net periodic cost for pension and other post-retirement benefit plans
374

 
459

Comprehensive income, before income taxes
65,947

 
79,135

Less: Income tax (benefit) expense related to items of other comprehensive income
(102
)
 
1,722

Comprehensive income, net of income taxes
66,049

 
77,413

Less: Comprehensive income related to noncontrolling interests, net of income taxes
1,013

 
1,178

Comprehensive income attributable to common shareholders, net of income taxes
$
65,036


$
76,235

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Unaudited Condensed Consolidated Financial Statements.

4


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share amounts)
 
March 30, 2019
 
December 29, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
126,316


$
195,442

Trade receivables, net
495,501


472,248

Inventories
129,765


127,892

Prepaid assets
58,549

 
53,447

Other current assets
56,051


48,807

Total current assets
866,182


897,836

Property, plant and equipment, net
907,367


932,877

Right-of-use asset-operating leases
130,704

 

Goodwill
1,245,848


1,247,133

Client relationships, net
525,108

 
537,945

Other intangible assets, net
69,651


72,943

Deferred tax assets
23,772


23,386

Other assets
158,005


143,759

Total assets
$
3,926,637


$
3,855,879

Liabilities, Redeemable Noncontrolling Interest and Equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt and finance leases
$
30,655

 
$
31,416

Accounts payable
78,523

 
66,250

Accrued compensation
82,174

 
137,212

Deferred revenue
137,886

 
145,139

Accrued liabilities
109,049

 
106,925

Other current liabilities
91,472

 
71,280

Total current liabilities
529,759

 
558,222

Long-term debt, net and finance leases
1,540,833

 
1,636,598

Right-of-use liability-operating leases
109,054

 

Deferred tax liabilities
151,881

 
143,635

Other long-term liabilities
173,562

 
179,121

Total liabilities
2,505,089

 
2,517,576

Commitments and contingencies (Note 17)

 

Redeemable noncontrolling interest
20,519

 
18,525

Equity:
 
 
 
Preferred stock, $0.01 par value; 20,000 shares authorized; no shares issued and outstanding

 

Common stock, $0.01 par value; 120,000 shares authorized; 48,884 shares issued and 48,747 shares outstanding as of March 30, 2019, and 48,210 shares issued and 48,209 shares outstanding as of December 29, 2018
489

 
482

Additional paid-in capital
1,481,011

 
1,447,512

Retained earnings
97,229

 
42,096

Treasury stock, at cost, 137 and 1 shares, as of March 30, 2019 and December 29, 2018, respectively
(17,815
)
 
(55
)
Accumulated other comprehensive loss
(162,800
)
 
(172,703
)
Total equity attributable to common shareholders
1,398,114

 
1,317,332

Noncontrolling interest
2,915

 
2,446

Total equity
1,401,029

 
1,319,778

Total liabilities, redeemable noncontrolling interest, and equity
$
3,926,637

 
$
3,855,879

See Notes to Unaudited Condensed Consolidated Financial Statements.

5


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
Cash flows relating to operating activities
 
 
 
Net income
$
55,688

 
$
53,245

Less: Loss from discontinued operations, net of income taxes

 
(23
)
Income from continuing operations, net of income taxes
55,688

 
53,268

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
 
 
 
Depreciation and amortization
45,358

 
33,210

Stock-based compensation
12,899

 
10,541

Deferred income taxes
7,781

 
(782
)
Gain on venture capital investments
(10,575
)
 
(6,451
)
Other, net
(380
)
 
3,932

Changes in assets and liabilities:
 
 
 
Trade receivables, net
(23,127
)
 
(3,780
)
Inventories
(2,520
)
 
(3,501
)
Accounts payable
10,245

 
(1,076
)
Accrued compensation
(55,114
)
 
(30,991
)
Deferred revenue
(14,405
)
 
(18,292
)
Customer contract deposits
(5,866
)
 
23,566

Other assets and liabilities, net
(5,125
)
 
407

Net cash provided by operating activities
14,859

 
60,051

Cash flows relating to investing activities
 
 
 
Acquisition of businesses and assets, net of cash acquired
(989
)
 
(20,216
)
Capital expenditures
(16,731
)
 
(27,726
)
Purchases of investments and contributions to venture capital investments
(2,419
)
 
(5,268
)
Proceeds from sale of investments
15

 
28,596

Other, net
(689
)
 
(50
)
Net cash used in investing activities
(20,813
)
 
(24,664
)
Cash flows relating to financing activities
 
 
 
Proceeds from long-term debt and revolving credit facility
290,111

 
1,080,299

Proceeds from exercises of stock options
21,832

 
20,041

Payments on long-term debt, revolving credit facility, and finance lease obligations
(360,658
)
 
(1,096,795
)
Payments on debt financing costs

 
(4,932
)
Purchase of treasury stock
(17,760
)
 
(13,549
)
Other, net
(2,608
)
 

Net cash used in financing activities
(69,083
)
 
(14,936
)
Discontinued operations
 
 
 
Net cash used in operating activities from discontinued operations

 
(636
)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
6,025

 
4,254

Net change in cash, cash equivalents, and restricted cash
(69,012
)
 
24,069

Cash, cash equivalents, and restricted cash, beginning of period
197,318

 
166,331

Cash, cash equivalents, and restricted cash, end of period
$
128,306

 
$
190,400

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

6


 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
Supplemental cash flow information:
 
 
 
Cash and cash equivalents
$
126,316

 
$
187,774

Restricted cash included in Other current assets
491

 
605

Restricted cash included in Other assets
1,499

 
2,021

Cash, cash equivalents, and restricted cash, end of period
$
128,306

 
$
190,400

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Unaudited Condensed Consolidated Financial Statements.

7





CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(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 29, 2018
48,210

 
$
482

 
$
1,447,512

 
$
42,096

 
$
(172,703
)
 
1

 
$
(55
)
 
$
1,317,332

 
$
2,446

 
$
1,319,778

Net income

 

 

 
55,133

 

 

 

 
55,133

 
469

 
55,602

Other comprehensive income

 

 

 

 
9,903

 

 

 
9,903

 

 
9,903

Adjustment of redeemable noncontrolling interest to redemption value

 

 
(1,451
)
 

 

 

 

 
(1,451
)
 

 
(1,451
)
Issuance of stock under employee compensation plans
674

 
7

 
22,051

 

 

 

 

 
22,058

 

 
22,058

Acquisition of treasury shares

 

 

 

 

 
136

 
(17,760
)
 
(17,760
)
 

 
(17,760
)
Stock-based compensation

 

 
12,899

 

 

 

 

 
12,899

 

 
12,899

March 30, 2019
48,884

 
$
489

 
$
1,481,011

 
$
97,229

 
$
(162,800
)
 
137

 
$
(17,815
)
 
$
1,398,114

 
$
2,915

 
$
1,401,029

 
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

 

 

 
52,631

 

 

 

 
52,631

 
464

 
53,095

Other comprehensive income

 

 

 

 
23,604

 

 

 
23,604

 

 
23,604

Reclassification due to adoption of ASU 2018-02

 

 

 
3,330

 
(3,330
)
 

 

 

 

 

Adjustment due to adoption of ASU 2016-01

 

 

 
1,425

 

 

 

 
1,425

 

 
1,425

Issuance of stock under employee compensation plans
630

 
6

 
20,088

 

 

 

 

 
20,094

 

 
20,094

Acquisition of treasury shares

 

 

 

 

 
127

 
(13,549
)
 
(13,549
)
 

 
(13,549
)
Stock-based compensation

 

 
10,541

 

 

 

 

 
10,541

 

 
10,541

March 31, 2018
88,125

 
$
881

 
$
2,590,821

 
$
346,044

 
$
(124,457
)
 
40,220

 
$
(1,673,463
)
 
$
1,139,826

 
$
2,791

 
$
1,142,617

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Unaudited Condensed Consolidated Financial Statements.



8

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited and have been prepared by Charles River Laboratories International, Inc. (the Company) in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The year-end condensed consolidated balance sheet data was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for fiscal year 2018. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position and results of operations.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in accordance with 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.
Consolidation
The Company’s unaudited condensed 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.
Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 1, “Description of Business and Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for fiscal year 2018 as well as Note 16, “Leases” in this Quarterly Report on Form 10-Q.
Newly Adopted Accounting Pronouncements
In June 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-07, “Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” ASU 2018-07 aligns the accounting for share-based payment awards issued to employees and nonemployees as well as improves financial reporting for share-based payments to nonemployees. This standard became effective for the Company in the three months ended March 30, 2019 and did not have a material impact on the consolidated financial statements and related disclosures.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 refines and expands hedge accounting for both financial and commodity risks. It also creates more transparency around how economic results are presented, both on the face of the financial statements and in the disclosures. In addition, this ASU makes certain targeted improvements to simplify the application of hedge accounting guidance. This standard became effective for the Company in the three months ended March 30, 2019 and did not have a material impact on the consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, “Leases.” The standard, including subsequently issued amendments, collectively referred to as Accounting Standards Codification (ASC) 842, “Leases”, established the principles that lessees and lessors will apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. The Company adopted this standard using the modified retrospective transition approach as applied to leases existing as of or entered into after the adoption date (December 30, 2018) in the three months ended March 30, 2019. See Note 16, “Leases” for a discussion of the Company’s adoption of this standard and its impact on the consolidated financial statements and related disclosures.
Newly Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computer Arrangement that is a Service Contract.” ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and

9

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


hosting arrangements that include an internal-use software license). The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years and will be applied either retrospectively or prospectively. Early adoption is permitted. The Company is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-14, “Compensation Retirement Benefits - Defined Benefit Plans -General (Subtopic 715-20).” ASU 2018-14 removes the requirements to disclose the amounts in Accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the next fiscal year and the related party disclosures about the amount of future annual benefits covered by insurance contracts. In addition, the ASU adds the requirement to disclose an explanation for any significant gains and losses related to changes in the benefit obligation for the period. The ASU is effective for fiscal years ending after December 15, 2020 and will be applied on a retrospective basis to all periods presented. Early adoption is permitted. The Company is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 removes the disclosure requirement for the amount and reasons for transfers between Level 1 and Level 2 fair value measurements as well as the process for Level 3 fair value measurements. In addition, the ASU adds the disclosure requirements for changes in unrealized gains and losses included in Other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years and will be applied on a retrospective basis to all periods presented. Early adoption is permitted. The Company is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” The standard simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. This standard is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and will be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses.” The standard requires a financial asset measured at amortized cost basis, such as accounts receivable, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and requires the modified retrospective approach. Early adoption is permitted. The Company is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures.
2. BUSINESS ACQUISITIONS
Citoxlab
On April 29, 2019, the Company acquired Citoxlab, a non-clinical contract research organization (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 will further strengthen 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 preliminary purchase price for Citoxlab was €448 million in cash (or approximately $500 million), subject to certain post-closing adjustments that may change the purchase price. The acquisition was funded through a combination of cash on hand and proceeds from the Company’s $2.3B Credit Facility under the multi-currency revolving facility. See Note 9, “Long-Term Debt and Finance Leases.” 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 Quarterly Report on Form 10-Q, it is not practicable for the Company to disclose either the preliminary allocation of purchase price to assets acquired and liabilities assumed or the pro forma consolidated results of operations as if the Citoxlab acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition after giving effect to certain adjustments. The Company incurred transaction and integration costs in connection with the acquisition of $5.2 million during the three months ended March 30, 2019, which were included in selling, general and administrative expenses within the unaudited condensed consolidated statements of income.
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

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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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 $2.3B Credit Facility as well as the issuance of the Company’s Senior Notes. See Note 9, “Long-Term Debt and Finance Lease Obligations.” This business is reported as part of the Company’s DSA reportable segment.
The purchase allocation of $800.8 million, net of $27.7 million of cash acquired and a final net working capital adjustment of $1.2 million, was as follows:
 
April 3, 2018
 
(in thousands)
Trade receivables (contractual amount of $35,073)
$
35,073

Inventories
4,463

Other current assets (excluding cash)
5,893

Property, plant and equipment
128,403

Goodwill
441,656

Definite-lived intangible assets
309,200

Other long-term assets
1,081

Deferred revenue
(23,926
)
Current liabilities
(32,885
)
Deferred tax liabilities
(65,945
)
Other long-term liabilities
(2,213
)
Total purchase price allocation
$
800,800

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:
 
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 $0.1 million and $2.7 million for the three months ended March 30, 2019 and March 31, 2018, respectively, which were primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.
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 the three months ended March 31, 2018, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $6.9 million, additional interest expense on borrowings of $2.6 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments.

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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
Three Months Ended
 
March 31, 2018
 
(in thousands)
Revenue
$
556,091

Net income attributable to common shareholders
49,414

These unaudited pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the dates indicated or that may result in the future. No effect has been given for synergies, if any, that may be realized through the acquisition.
KWS BioTest Limited
On January 11, 2018, the Company acquired KWS BioTest Limited (KWS BioTest), a CRO specializing in in vitro and in vivo discovery testing services for immuno-oncology, inflammatory and infectious diseases. The acquisition enhances the Company’s discovery expertise, with complementary offerings that provide the Company’s customers with additional tools in the active therapeutic research areas of oncology and immunology. The purchase price for KWS BioTest was $20.3 million in cash and was funded by the Company’s various borrowings. In addition to the initial purchase price, the transaction includes aggregate, undiscounted contingent payments of up to £3.0 million based on future performance. During the three months ended September 29, 2018, the terms of these contingent payments were amended, resulting in a fixed payment of £2.0 million, or $2.6 million, which was paid during the three months ended March 30, 2019. The KWS BioTest business is reported as part of the Company’s DSA reportable segment.
The purchase price allocation of $21.5 million, net of $1.0 million of cash acquired and a final net working capital adjustment of $0.4 million, was as follows:
 
January 11, 2018
 
(in thousands)
Trade receivables (contractual amount of $1,309)
$
1,309

Other current assets (excluding cash)
99

Property, plant and equipment
1,136

Definite-lived intangible assets - client relationships
3,647

Goodwill
17,660

Current liabilities
(1,575
)
Deferred revenue
(151
)
Long-term liabilities
(596
)
Total purchase price allocation
$
21,529

From the date of the acquisition through December 29, 2018, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.
The only definite-lived intangible asset relates to client relationships, which will be amortized over a weighted average life of 12 years.
The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s DSA business from customers introduced through KWS BioTest and the assembled workforce of the acquired business. The goodwill attributable to KWS BioTest is not deductible for tax purposes.
The Company incurred transaction and integration costs of $0.1 million and $0.4 million in connection with the acquisition for the three months ended March 30, 2019 and March 31, 2018, respectively, which were included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.
Pro forma financial information as well as actual revenue and operating income have not been included because KWS BioTest’s financial results are not significant when compared to the Company’s consolidated financial results.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue Recognition

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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”).
To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the amount to which the Company expects to be entitled. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.
When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Generally, the Company does not extend payment terms beyond one year. Applying the practical expedient, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component for the three months ended March 30, 2019.
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 existing transaction price and measure of progress for the performance obligation to which it relates is 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.
Disaggregation of Revenue
The following tables disaggregate the Company’s revenue by major business line and timing of transfer of products or services:

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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
 
(in thousands)
Major Products/Service Lines:
 
 
 
RMS
$
137,172

 
$
133,958

DSA
354,197

 
259,992

Manufacturing
113,200

 
100,020

Total revenue
$
604,569

 
$
493,970

Timing of Revenue Recognition:
 
 
 
RMS
 
 
 
Services and products transferred over time
$
54,813

 
$
48,726

Services and products transferred at a point in time
82,359

 
85,232

DSA
 
 
 
Services and products transferred over time
354,078

 
259,744

Services and products transferred at a point in time
119

 
248

Manufacturing
 
 
 
Services and products transferred over time
31,896

 
28,571

Services and products transferred at a point in time
81,304

 
71,449

Total revenue
$
604,569

 
$
493,970

RMS
The RMS business generates revenue through the commercial production and sale of research models and the provision of services related to the maintenance and monitoring of research models and management of clients’ research operations. Revenue from the sale of research models is recognized at a point in time when the customer obtains control of the product, which may be upon shipment or upon delivery based on the shipping terms of a contract. Revenue generated from research models services is recognized over time and is typically based on a right-to-invoice measure of progress (output method) as invoiced amounts correspond directly to the value of the Company’s performance to date.
DSA
The Discovery and Safety Assessment business provides a full suite of integrated drug discovery services directed at the identification, screening and selection of a lead compound for drug development and offers a full range of safety assessment services including bioanalysis, drug metabolism, pharmacokinetics, toxicology and pathology. Discovery and Safety Assessment services revenue is generally recognized over time using the cost-to-cost or right to invoice measures of progress, primarily representing fixed fee service contracts and per unit service contracts, respectively.
Manufacturing
The Manufacturing business includes Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification services; Biologics Testing Services (Biologics), which performs specialized testing of biologics; and Avian Vaccine Services (Avian), which supplies specific-pathogen-free chicken eggs and chickens. Species identification service revenue is generally recognized at a point in time as identifications are completed by the Company. Biologics service revenue is generally recognized over time using the cost-to-cost measure of progress. Microbial Solutions and Avian product sales are generally recognized at a point in time when the customer obtains control of the product, which may be upon shipment or upon delivery based on the contractual shipping terms of a contract.
Transaction Price Allocated to Future Performance Obligations
The Company discloses the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of March 30, 2019. 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 following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) as of March 30, 2019:

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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
Revenue Expected to be Recognized in Future Periods
 
Less than 1 Year
 
1 to 3 Years
 
4 to 5 Years
 
Beyond 5 Years
 
Total
 
(in thousands)
DSA
$
161,751

 
$
103,493

 
$
8,246

 
$
548

 
$
274,038

Manufacturing
7,158

 
20,363

 
1,706

 
81

 
29,308

Total
$
168,909

 
$
123,856

 
$
9,952

 
$
629

 
$
303,346

Contract Balances from Contracts with Customers
The timing of revenue recognition, billings and cash collections results in billed receivables (client receivables), contract assets (unbilled revenue), contract liabilities (current and non-current deferred revenue), and customer deposits on the unaudited condensed 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:
 
March 30, 2019
 
December 29, 2018
 
(in thousands)
Balances from contracts with customers:
 
 
 
Client receivables
$
377,188

 
$
370,131

Contract assets (unbilled revenue)
120,607

 
105,216

Contract liabilities (current and long-term deferred revenue)
166,705

 
179,559

Contract liabilities (customer contract deposits)
32,380

 
38,245

When the Company does not have the unconditional right to advanced billings, both advanced client payments and unpaid advanced client billings are excluded from deferred revenue, with the advanced billings also being excluded from client receivables. As of March 30, 2019, the Company excluded approximately $12 million of unpaid advanced client billings from both client receivables and deferred revenue and approximately $32 million of advanced client payments have been presented as customer contract deposits within other current liabilities in the accompanying unaudited condensed consolidated balance sheets.
Other changes in the contract asset and the contract liability balances during the three months ended March 30, 2019 were as follows:
(i) 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 the three months ended March 30, 2019, an immaterial cumulative catch-up adjustment to revenue was recorded.
(ii) 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 70% of unbilled revenue as of December 29, 2018 was billed during the three months ended March 30, 2019.
(iii) 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):
Approximately 60% of contract liabilities as of December 29, 2018 were recognized as revenue during the three months ended March 30, 2019.

15

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


4. SEGMENT INFORMATION
The Company’s three reportable segments are Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Support (Manufacturing).
The following table presents revenue and other financial information by reportable segment:
 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
 
(in thousands)
RMS
 
 
 
Revenue
$
137,172

 
$
133,958

Operating income
37,832

 
38,527

Depreciation and amortization
4,322

 
4,853

Capital expenditures
4,112

 
4,625

DSA
 
 
 
Revenue
$
354,197

 
$
259,992

Operating income
46,705

 
40,859

Depreciation and amortization
33,784

 
20,787

Capital expenditures
8,848

 
12,802

Manufacturing
 
 
 
Revenue
$
113,200

 
$
100,020

Operating income
31,499

 
28,523

Depreciation and amortization
5,805

 
5,736

Capital expenditures
3,606

 
6,834

The following table presents reconciliations of segment operating income, depreciation and amortization, and capital expenditures to the respective consolidated amounts:
 
Operating Income
 
Depreciation and Amortization
 
Capital Expenditures
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
 
(in thousands)
Three Months Ended:
 
 
 
 
 
 
 
 
 
 
 
Total reportable segments
$
116,036

 
$
107,909

 
$
43,911

 
$
31,376

 
$
16,566

 
$
24,261

Unallocated corporate
(46,244
)
 
(40,080
)
 
1,447

 
1,834

 
165

 
3,465

Total consolidated
$
69,792

 
$
67,829

 
$
45,358

 
$
33,210

 
$
16,731

 
$
27,726

Revenue for each significant product or service offering is as follows:
 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
 
(in thousands)
RMS
$
137,172

 
$
133,958

DSA
354,197

 
259,992

Manufacturing
113,200

 
100,020

Total revenue
$
604,569

 
$
493,970


16

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


A summary of unallocated corporate expense consists of the following:
 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
 
(in thousands)
Stock-based compensation
$
8,274

 
$
6,991

Compensation, benefits, and other employee-related expenses
22,038

 
20,596

External consulting and other service expenses
3,810

 
2,934

Information technology
2,723

 
2,465

Depreciation
1,447

 
1,834

Acquisition and integration
5,472

 
2,864

Other general unallocated corporate
2,480

 
2,396

Total unallocated corporate expense
$
46,244

 
$
40,080

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 by geographic area is as follows:
 
U.S.
 
Europe
 
Canada
 
Asia Pacific
 
Other
 
Consolidated
 
(in thousands)
Three Months Ended:
 
 
 
 
 
 
 
 
 
 
 
March 30, 2019
$
350,176

 
$
166,365

 
$
53,979

 
$
33,179

 
$
870

 
$
604,569

March 31, 2018
248,980

 
160,826

 
48,578

 
34,520

 
1,066

 
493,970

Included in the Asia Pacific category above are operations located in China, Japan, Korea, Australia, Singapore, and India. 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.
5. SUPPLEMENTAL BALANCE SHEET INFORMATION
The composition of trade receivables, net is as follows:
 
March 30, 2019
 
December 29, 2018
 
(in thousands)
Client receivables
$
377,188

 
$
370,131

Unbilled revenue
120,607

 
105,216

Total
497,795

 
475,347

Less: Allowance for doubtful accounts
(2,294
)
 
(3,099
)
Trade receivables, net
$
495,501

 
$
472,248

The composition of inventories is as follows:
 
March 30, 2019
 
December 29, 2018
 
(in thousands)
Raw materials and supplies
$
22,118

 
$
22,378

Work in process
20,710

 
21,732

Finished products
86,937

 
83,782

Inventories
$
129,765

 
$
127,892


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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The composition of other current assets is as follows:
 
March 30, 2019
 
December 29, 2018
 
(in thousands)
Prepaid income tax
$
54,153

 
$
47,157

Investments
907

 
885

Restricted cash
491

 
465

Other
500

 
300

Other current assets
$
56,051

 
$
48,807

The composition of other assets is as follows:
 
March 30, 2019
 
December 29, 2018
 
(in thousands)
Venture capital investments
$
100,666

 
$
88,591

Life insurance policies
34,939

 
32,340

Restricted cash
1,499

 
1,411

Other
20,901

 
21,417

Other assets
$
158,005

 
$
143,759

The composition of other current liabilities is as follows:
 
March 30, 2019
 
December 29, 2018
 
(in thousands)
Current portion of right-of-use liabilities-operating leases
$
18,912

 
$

Accrued income taxes
25,725

 
24,120

Customer contract deposits
32,380

 
38,245

Other
14,455

 
8,915

Other current liabilities
$
91,472

 
$
71,280

The composition of other long-term liabilities is as follows:
 
March 30, 2019
 
December 29, 2018
 
(in thousands)
U.S. Transition Tax
$
52,066

 
$
52,064

Long-term pension liability
24,589

 
24,671

Accrued executive supplemental life insurance retirement plan
36,522

 
36,086

Long-term deferred revenue
28,819

 
34,420

Other
31,566

 
31,880

Other long-term liabilities
$
173,562

 
$
179,121

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

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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The Company’s total commitment to the venture capital funds as of March 30, 2019 was $124.4 million, of which the Company funded $71.4 million through that date. The Company received dividends totaling $0.8 million and $7.1 million for the three months ended March 30, 2019 and March 31, 2018, respectively. The Company recognized gains of $10.6 million and $6.5 million related to the venture capital investments for the three months ended March 30, 2019 and March 31, 2018, respectively. Gains and losses are recorded in Other income, net in the accompanying unaudited condensed consolidated statements of income.
7. FAIR VALUE
The Company has certain 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. During the three months ended March 30, 2019 and March 31, 2018, there were no transfers between levels.
Valuation methodologies used for assets and liabilities measured or disclosed at fair value are as follows:
Cash equivalents - Valued at market prices determined through third-party pricing services;
Mutual funds - Valued at the unadjusted quoted net asset value of shares held by the Company;
Foreign currency forward contracts - Valued using market observable inputs, such as forward foreign exchange points and foreign exchanges rates;
Life insurance policies - Valued at cash surrender value based on the fair value of underlying investments;
Debt instruments - The book value of the Company’s term and revolving loans, which are variable rate loans carried at amortized cost, approximates the fair value based on current market pricing of similar debt. The book value of the Company’s 5.5% Senior Notes (Senior Notes) due in 2026, which are fixed rate debt, 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.

19

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Assets and liabilities measured at fair value on a recurring basis are summarized below:
 
March 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Cash equivalents
$

 
$
2,521

 
$

 
$
2,521

Other assets:
 
 
 
 
 
 
 
Life insurance policies

 
27,335

 

 
27,335

Total assets measured at fair value
$

 
$
29,856

 
$

 
$
29,856

 
 
 
 
 
 
 
 
Other current liabilities measured at fair value:
 
 
 
 
 
 
 
Contingent consideration
$

 
$

 
$
2,497

 
$
2,497

 
December 29, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Cash equivalents
$

 
$
45,982

 
$

 
$
45,982

Other assets:
 
 
 
 
 
 
 
Life insurance policies

 
24,541

 

 
24,541

Total assets measured at fair value
$

 
$
70,523

 
$

 
$
70,523

 
 
 
 
 
 
 
 
Other current liabilities:
 
 
 
 
 
 
 
Contingent consideration
$

 
$

 
$
3,033

 
$
3,033

Foreign currency forward contract

 
1,319

 

 
1,319

Total liabilities measured at fair value
$

 
$
1,319

 
$
3,033

 
$
4,352

Contingent Consideration
The following table provides a rollforward of the contingent consideration related to previous business acquisitions. See Note 2, “Business Acquisitions.”
 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
 
(in thousands)
Beginning balance
$
3,033

 
$
298

Additions
2,000

 
2,746

Payments
(2,610
)
 

Foreign currency translation
74

 
9

Ending balance
$
2,497

 
$
3,053

The unobservable inputs used in the fair value measurement of the Company’s contingent consideration are the probabilities of successful achievement of certain financial targets and a discount rate. Increases or decreases in any of the probabilities of success would result in a higher or lower fair value measurement, respectively. Increases or decreases in the discount rate would result in a lower or higher fair value measurement, respectively.
Debt Instruments
The book value of the Company’s term and revolving loans, which are variable rate loans carried at amortized cost, approximates the fair value based on current market pricing of similar debt. As the fair value is based on significant other observable inputs, including current interest and foreign currency exchange rates, it is deemed to be Level 2 within the fair value hierarchy.
As of both March 30, 2019 and December 29, 2018, the book value of the Company’s Senior Notes, which is a fixed rate obligation carried at amortized cost, was $500.0 million. The fair value of the Company’s Senior Notes as of March 30, 2019 and December 29, 2018 was $520.0 million and $495.0 million, respectively. Fair value is based on quoted market prices as

20

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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.
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table provides a rollforward of the Company’s goodwill:
 
 
Adjustments to Goodwill
 
 
 
December 29, 2018
 
Foreign Exchange
 
March 30, 2019
 
(in thousands)
RMS
$
56,968

 
$
278

 
$
57,246

DSA
1,051,470

 
(2,341
)
 
1,049,129

Manufacturing
138,695

 
778

 
139,473

Goodwill
$
1,247,133

 
$
(1,285
)
 
$
1,245,848

Intangible Assets, Net
The following table displays intangible assets, net by major class:
 
March 30, 2019
 
December 29, 2018
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
 
(in thousands)
Backlog
$
20,900

 
$
(19,238
)
 
$
1,662

 
$
20,900

 
$
(18,691
)
 
$
2,209

Technology
102,038

 
(44,682
)
 
57,356

 
101,506

 
(41,870
)
 
59,636

Trademarks and trade names
8,411

 
(4,692
)
 
3,719

 
8,331

 
(4,640
)
 
3,691

Other
17,471

 
(10,557
)
 
6,914

 
17,448

 
(10,041
)
 
7,407

Other intangible assets
148,820

 
(79,169
)
 
69,651

 
148,185

 
(75,242
)
 
72,943

Client relationships
797,014

 
(271,906
)
 
525,108

 
791,725

 
(253,780
)
 
537,945

Intangible assets
$
945,834

 
$
(351,075
)
 
$
594,759

 
$
939,910

 
$
(329,022
)
 
$
610,888

The decrease in intangible assets, net during the three months ended March 30, 2019 related to the normal amortization over the useful lives.

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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


9. LONG-TERM DEBT AND FINANCE LEASE OBLIGATIONS
Long-Term Debt
Long-term debt, net consists of the following:
 
March 30, 2019
 
December 29, 2018
 
(in thousands)
Term loans
$
721,875

 
$
731,250

Revolving facility
335,976

 
397,452

Senior Notes
500,000

 
500,000

Other debt
101

 
26,286

Finance leases
28,939

 
29,240

Total debt and finance leases
1,586,891

 
1,684,228

Less:
 
 
 
Current portion of long-term debt
28,225

 
28,228

Current portion of finance leases
2,430

 
3,188

Current portion of long-term debt and finance leases
30,655

 
31,416

Long-term debt and finance leases
1,556,236

 
1,652,812

Debt discount and debt issuance costs
(15,403
)
 
(16,214
)
Long-term debt, net and finance leases
$
1,540,833

 
$
1,636,598

As of March 30, 2019 and December 29, 2018, the weighted average interest rate on the Company’s debt was 3.77% and 4.24%, 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 ($2.3B Credit Facility) which extends the maturity date for the credit facility. The $2.3B Credit Facility provides for a $750.0 million term loan and a $1.55 billion multi-currency revolving facility. The amendment was accounted for as a debt modification. In connection with the transaction, the Company capitalized approximately $6.2 million within Long-term debt, net and finance leases in the accompanying unaudited condensed consolidated balance sheets and expensed approximately $1.0 million of debt issuance costs recorded within Interest expense in the accompanying unaudited condensed consolidated statements of income.
The term loan facility matures in 19 quarterly installments with the last installment due March 26, 2023. The revolving facility matures on March 26, 2023, and requires no scheduled payment before that date. Under specified circumstances, the Company has the ability to increase the term loan and/or revolving facility by up to $1.0 billion in the aggregate.
The interest rates applicable to the term loan and revolving facility under the $2.3B Credit Facility are, at the Company’s option, equal to either the base rate (which is the higher of (1) the prime rate, (2) the federal funds rate plus 0.50%, or (3) the one-month adjusted LIBOR rate plus 1.0%) or the adjusted LIBOR rate, plus an interest rate margin based upon the Company’s leverage ratio.
The $2.3B Credit Facility includes certain customary representations and warranties, events of default, notices of material adverse changes to the Company’s business and negative and affirmative covenants. These covenants include (1) maintenance of a ratio of consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) less capital expenditures to consolidated cash interest expense, for any period of four consecutive fiscal quarters, of no less than 3.50 to 1.0 as well as (2) maintenance of a ratio of consolidated indebtedness to consolidated EBITDA for any period of four consecutive fiscal quarters, of no more than 4.50 to 1.0 with step downs to 3.50 to 1.0 by the last day of the first quarter of 2020. As of March 30, 2019, the Company was compliant with all covenants.
The obligations of the Company under the $2.3B Credit Facility are collateralized by substantially all of the assets of the Company.
During the three months ended March 30, 2019, the Company had a $343.3 million U.S. dollar denominated loan borrowed by a non-U.S. Euro functional currency entity under the Company’s $2.3B Credit Facility, which resulted in foreign currency losses recognized in Other income, net. The Company entered into foreign exchange forward contracts to limit its foreign currency exposures related to these borrowings. As of March 30, 2019, 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.

22

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The acquisition of Citoxlab on April 29, 2019 for €448 million in cash (or approximately $500 million) was funded through a combination of cash on hand and proceeds from the $2.3B Credit Facility under the multi-currency revolving facility.
Senior Notes Offering
On April 3, 2018, the Company entered into an indenture (Indenture) with MUFG Union Bank, N.A., (Trustee) in connection with the offering of $500.0 million in aggregate principal amount of the Company’s 5.5% Senior Notes (Senior Notes), due in 2026, in an unregistered offering. Under the terms of the Indenture, interest on the Senior Notes is payable semi-annually on April 1 and October 1, beginning on October 1, 2018. The Senior Notes are guaranteed fully and unconditionally, jointly and severally on a senior unsecured basis by the Company and certain of its U.S. subsidiaries. In connection with the transaction, the Company incurred approximately $7.4 million of debt issuance costs within Long-term debt, net and finance leases in the accompanying unaudited condensed consolidated balance sheets.
The Company may redeem all or part of the Senior Notes at any time prior to April 1, 2021, at its option, at a redemption price equal to 100% of the principal amount of such Senior Notes plus the Applicable Premium (as defined in the Indenture). The Company may also redeem up to 40% of the Senior Notes with the proceeds of certain equity offerings completed before April 1, 2021, at a redemption price equal to 105.5% of the principal amount of such Senior Notes. On or after April 1, 2021, the Company may on any one or more occasions redeem all or a part of the Senior Notes, at the redemption prices specified in the Indenture based on the applicable date of redemption. Upon the occurrence of a Change of Control Triggering Event (as defined in the Indenture), the Company will be required to offer to repurchase the Senior Notes at a purchase price equal to 101% of the aggregate principal amount of such Senior Notes. Any redemption of the Senior Notes would also require settlement of accrued and unpaid interest, if any, up to but excluding the redemption date.
The Indenture contains certain covenants including, but not limited to, limitations and restrictions on the ability of the Company and its U.S. subsidiaries to (i) create certain liens, (ii) enter into any Sale and Leaseback Transaction (as defined in the Indenture) with respect to any property, and (iii) merge, consolidate, sell or otherwise dispose of all or substantially all of their assets. These covenants are subject to a number of conditions, qualifications, exceptions and limitations. Any event of default, as defined, could result in the acceleration of the repayment of the obligations.
Net proceeds from the Senior Notes of $493.8 million were used to partially repay the outstanding revolving credit facility on April 3, 2018.
Commitment Letter
On February 12, 2018, the Company secured an $830 million commitment under a 364-day senior unsecured bridge loan facility (the Bridge Facility) for the purpose of financing the acquisition of MPI Research. The Bridge Facility was terminated as of April 3, 2018 upon the successful acquisition of MPI Research. Debt issuance costs of $1.8 million, which were capitalized upon the execution of the Bridge Facility, were expensed upon termination of the agreement on April 3, 2018. In addition, the Company incurred and expensed $2.0 million of fees pertaining to a temporary backstop facility related to the negotiation of the Credit Facility during the three months ended March 31, 2018. These costs were included in Interest expense in the accompanying unaudited condensed consolidated statements of income.
Letters of Credit
As of both March 30, 2019 and December 29, 2018, the Company had $6.5 million in outstanding letters of credit.
Finance Lease Obligations
The Company’s finance lease obligations amounted to $28.9 million and $29.2 million as of March 30, 2019 and December 29, 2018, respectively. See Note 16, “Leases” for further discussion.

23

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED 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:
 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
 
(in thousands)
Numerator:
 
 
 
Income from continuing operations, net of income taxes
$
55,688

 
$
53,268

Loss from discontinued operations, net of income taxes

 
(23
)
Less: Net income attributable to noncontrolling interests
555

 
614

Net income attributable to common shareholders
$
55,133

 
$
52,631

 
 
 
 
Denominator:
 
 
 
Weighted-average shares outstanding - Basic
48,458

 
47,785