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PART I | PART I | |||||||
1 | Business | 1 | ||||||
1A | Risk Factors | 18 | ||||||
1B | Unresolved Staff Comments | 28 | ||||||
2 | Properties | 28 | ||||||
3 | Legal Proceedings | 28 | ||||||
4 | Submission of Matters to a Vote of Security Holders | 28 | Not Applicable | |||||
Supplementary Item. Executive Officers of the Registrant pursuant to Instruction 3 to Item 401 (b) of Regulation S-K | 28 | |||||||
PART II | PART II | |||||||
5 | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 30 | ||||||
6 | Selected Consolidated Financial Data | 33 | ||||||
7 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 34 | ||||||
7A | Quantitative and Qualitative Disclosures About Market Risk | 48 | ||||||
8 | Financial Statements and Supplementary Data | 49 | ||||||
9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 103 | ||||||
9A | Controls and Procedures | 103 | ||||||
9B | Other Information | 103 | ||||||
PART III | PART III | |||||||
10 | Directors and Executive Officers of the Registrant | 104 | ||||||
11 | Executive Compensation | 104 | ||||||
12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters | 105 | ||||||
13 | Certain Relationships and Related Transactions | 105 | ||||||
14 | Principal Accountant Fees and Services | 105 | ||||||
PART IV | PART IV | |||||||
15 | Exhibits | 105 | ||||||
Standard & Poor's MidCap 400 We are a leading global provider of solutions that accelerate the early-stage drug discovery and development two reporting segments: Research Models and Services (RMS) and Preclinical Services (PCS). in vivo discovery and drug development services markets in which we currently participate, ranging from research model production to non-regulated discovery services to regulated safety assessment, has a current size of approximately $6.0 billion and in the aggregate is expected to increase over time as outsourcing trends continue. It is estimated that the market for regulated safety assessment services is approximately 40% outsourced, while emerging growth areas such as in vivo discovery and certain research model services are believed to be less outsourced currently. Our small research models include: models. metabolic, cardiovascular and renal diseases. We believe that the continued Other Related Research Model Products and Services. We also offer two other categories of products and services within We currently offer the following preclinical services, in which we include bothin vivo andin vitro studies, supportive laboratory services, and strategic preclinical consulting and program management to support product global basis. Bioanalysis, Pharmacokinetics, and Drug Metabolism. In support of preclinical drug safety testing, our Toxicology. Toxicology is one of our core preclinical competencies and a competitive strength. Once a lead molecule is selected, appropriate toxicology studies are conducted in support of clinical trials in humans. These toxicology studies are typically performed in laboratory models to elucidate the potential adverse effects that a compound has on an organism over a variety of doses and over various time periods, and focus on safety and assessment of harmful effects. Our toxicology services feature: clients. We provide specialized testing of Our Strategy Outsourcing allows our the products and services we provide across the early-stage drug development continuum primarily through internal development, which will be augmented, as needed, through focused acquisitions and alliances. Acquisitions are an integral part of our growth strategy, but we are committed to a disciplined approach that seeks to target businesses that are a sound strategic fit and that offer the prospect of enhancing shareholder value, typically including the achievement of a hurdle rate on return on invested capital above our weighted cost of capital. This strategy may include geographic expansion of existing core services, strengthening our core services or technical capabilities or the addition of a new product or service in a related or adjacent business. In clients. Our marketing efforts are focused Our benefits of animal research and provide awards and prizes to outstanding leaders in the laboratory animal medicine field. As of December We do not report backlog for our RMS business segment because turnaround time from order placement to fulfillment, both for products and services, is rapid. environments. Our import and export of animals in support of several of our business units as well as our operations in foreign countries are subject to international agreements and conventions, as well as a variety of national, regional, and local laws and regulations, which establish the standards for the humane treatment, care and handling of animals by dealers and research facilities. We maintain the necessary certificates, licenses, detailed standard operating procedures and other documentation required to comply with applicable regulations for the humane treatment of the animals in our custody at our locations. All of our sites are also subject to licensing and regulation under national, regional and local laws relating to the surface and air transportation of laboratory specimens, the handling, storage and disposal of laboratory specimens, hazardous waste and radioactive materials, and the safety and health of laboratory employees. Although we believe we are currently in compliance in all material respects with such national, regional and local laws (which include the USDA, the standards set by the International Air Transport Association, the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), and European oversight agencies), failure to comply could subject us to denial of the right to conduct business, fines, criminal penalties and other enforcement actions. functions. any. Because of the complexities of the formal adoption process, the finalization and implementation of this guidance will likely take three or more years, but is likely to be fully implemented by 2016. Some of the new guidance will require additional operating and capital expenses that will impact not only us and our industry competitors but clients in the biomedical research community, who not only will bear the costs of these changes in the pricing of goods and services, but will also need to make similar changes in their own operations. them. In some cases, we may produce or import animals carrying infectious agents capable of causing disease in Impairment of goodwill may adversely impact future results of operations. New technologies may be developed, validated and increasingly used in biomedical research that could reduce demand for some of our products and services. a project to replace many of our numerous legacy business systems at our different sites globally with an enterprise wide, integrated enterprise resource planning (ERP) system. The first stages, which included all of our U.S. sites as well as our RMS site in Canada, and our PCS sites in Montreal and Edinburgh, went live in 2010. We are now enhancing the value of the system's reporting capabilities. The expansion of the system to other international locations may occur at a future date based on value to the business. In general, the process of planning and preparing for these types of integrated, wide-scale implementations is extremely complex and we are required to address a number of challenges including data conversion, system cutover and user training. Problems in any of these areas could cause operational problems during implementation including delayed shipments, missed sales, billing and accounting errors and other operational issues. There have been numerous, well-publicized instances of companies experiencing difficulties with the implementation of ERP systems which resulted in negative business consequences. services and products.Charles River operateswe 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"“expect,” “anticipate,” “target,” “goal,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,” “likely,” “may,” “designed,” “would,” “future,” “can,” “could” and other similar expressions that are predictions of or 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 of Charles River and involve a number of risks, uncertainties, and assumptions that are difficult to predict. For example, we may use forward-looking statements when addressing topics such as: the pursuit of our initiatives to optimize returns for stockholders, including efforts to improve our operating margins, improve free cash flow, invest in growth businesses and return value to shareholders; goodwill and asset impairments still under review; future demand for drug discovery and development products and services, and in particular non-regulated discovery, including the outsourcing of these services;services and spending trends by our clients; 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 customers (particularly in light of the challenging economic environment);clients; future actions by our management; the outcome of contingencies; changes in our business strategy; changes in our 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; changes in the composition or level of our revenues; our cost structure; the impact of acquisitions and dispositions; the timing of the opening of new and expanded facilities; our expectations with respect to sales 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 (including without limitation(and our Lean Sigma Six program,ability to accommodate future demand with our ERP project, our sales force realignment, and the restructuring of our PCS segment)infrastructure); changes in our expectations regarding future stock option, restricted stock, and other equity grants to employees and directors; changes in our expectations regarding our stock repurchases; expectations with respect to foreign currency exchange; assessing (or changing our assessment of) our tax positions for financial statement purposes; and our cash flow and liquidity. In addition, these statements include the impact of economic and market conditions on our customers;clients; the effects of our 2009 and 2010 cost-saving actions and other actions designedthe steps to manage expenses, operating costsoptimize returns to shareholders on an effective and capital spending and to streamline efficiency (including the expected impact of the suspension of our PCS Massachusetts operations); the timing of our repatriation of accumulated income earned outside the United Statestimely basis and the ability of Charles River 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 this Form 10-K under the section entitled "Our“Our Strategy,"” the section entitled "Risks“Risks Related to Our Business and Industry,"” the section entitled "Management's“Management's Discussion and Analysis of Financial Condition and Results of Operations"Operations” and 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. Charles River has beensincein 1947 and during that time,since then, we have undergone several changes to our business structure. Charles River Laboratories International, Inc. was incorporated in 1994. In1994 and in 2000, we completed theour initial public offering of Charles River Laboratories International, Inc.offering. Our stock is traded on the New York Stock Exchange under the symbol "CRL"“CRL” and is included in the1000 and Composite 1500 Indices,indices, the Dow Jones US Biotechnology Index, the NYSE Composite Index and the NYSE Healthcare Sector Index,indices, and many of the Russell indices, among others. We are headquartered in Wilmington, Massachusetts. Our headquarters mailing address is 251 Ballardvale Street, Wilmington, MA, 01887, and the telephone number at that location is (781) 222-6000. Our Internet site iswww.criver.com. Material contained on our Internet site is not incorporated by reference into this Form 10-K. Unless the context otherwise requires, references in this Form 10-K to "Charles“Charles River," "we," "us"” “we,” “us” or "our"“our” refer to Charles River Laboratories International, Inc. and its subsidiaries.Overviewprocess, includingprocess. The focus of our business is in vivo biology; our portfolio includes research models and associated services required to enable in vivo drug discovery and outsourceddevelopment.services. The drugstage of the development process, a drug candidate is tested in vitro (typically on a cellular or sub-cellular level in a test tube or multi-well petri plate) and in vivo (in research models) to support planned or on-going human trials.money—money; various studies and reports estimate it takes between 10-16 years, up to $1.65$2.0 billion, and exploration of more than 10,000 drug compounds to produce a single FDA-approved drug. Charles River isWe are positioned to leverage our core competenciescompetency in in vivo biology and regulatory-compliant preclinical services in an efficient and cost-effective way to aid our customersclients in bringing their drugs to market faster. Utilizing our broad portfolio of products and services enables our clients to reduce costs, increase speed and enhance their productivity and effectiveness in early-stage drug discovery and development.two reporting segments: Research Models and Services (RMS) and Preclinical Services (PCS). We providebeen in the business of providing the research models required in research and development of new drugs, devices and therapies and have been infor 65 years. Over this business for over 60 years. Wetime, we have built upon our core competenciescompetency of in vivo biology to develop a diverse and growing portfolio of products and services. Our wide array of tools and services enables our customers to reduce costs, increase speed and enhance their productivity and effectiveness in drug discovery and development. Our customerclient base includes global pharmaceutical companies, biotechnology companies, as well as government agencies, and leading hospitals and academic institutions around the world. We currently operate approximately 7064 facilities in 1615 countries worldwide. Our products and services, supported by our global infrastructure and deep scientific expertise, enable our customersclients to meet many of the challenges of early-stage life sciences research. In 2009,2011, our net sales from continuing operations were $1.20$1.1 billion and our operating income from continuing operations was $166.9$174.3 million. In recent years, wecompleted a number of acquisitions that have broadened our present portfolio of high-end services to include general toxicology, specialty toxicology, discovery and imaging services, biopharmaceutical services and Phase I clinical services. In addition, these acquisitions:•significantly expanded our overall corporate size;•significantly increased the breadth of the products and services that we offer; and•expanded and strengthened our global footprint in the growing market for pharmaceutical research and development services. These acquisitions, which include the acquisitions of Piedmont Research Center LLC, Cerebricon Ltd. and Systems Pathology Company, LLC in 2009 and NewLab BioQuality AG and MIR Preclinical Services in 2008, have been critical in our continuing mission to support our key pharmaceutical and biotechnology customers, who are increasingly seeking full service, global partners to whom they can outsource more of their preclinical research and development efforts. By some estimates, the outsourcedin vivo discovery and drug development services markets in which we participate—ranging from research model production through Phase I clinical services—has a currentsize of approximately $7.0-$7.5 billion annually. It is thought that this represents 30-40% of all of the related in vivo discovery and drug development work currently performed (with wide variances among the different services) and in the aggregate is expected to increase over time as outsourcing trends continue. In 2009 much of our focus was dedicated towards ongoing positioning to take advantage of long-term opportunities to support our clients as they continue to outsource drug development services. One element of this focus has manifested through realignments of our PCS organization and our sales and marketing group. In 2009, we also pushed forward process efficiency initiatives through strengthening of our Lean Six Sigma organization and, at the beginning of fiscal 2010, the initial rollout of our ERP (enterprise resource planning) system in the United States. In 2008, we completed the major stages of our three-year capacity expansion program, and in early 2009 we finished with the last few elements of the program with focus on facilities in China and Sherbrooke (Canada). We continually evaluate our capacity in light of our customer needs and demands. Accordingly, in January 2010 we announced that we had decided to suspend operations at our Shrewsbury, Massachusetts, facility by the middle of 2010, with the intention to resume operations when global preclinical market conditions improve and we require additional capacity. For additional discussion of the factors that were elements of our 2009 focus, as well as the factors that we believe have recently been influencing outsourcing demand from our customers, please see the section entitled "Our Strategy" included elsewhere in the Form 10-K. Charles River hasapproximatelyover 150 different strains, we continue to maintain our position as the global leader in the production and sale of the most widely used rodent research model strains, principally genetically and virallymicrobiologically defined purpose-bred rats and mice. We also provide a variety of related services that are designed to assist our customersclients in supporting the use of research models in drug discovery and development. With multiple facilities located on three continents (North America, Europe and Asia (Japan)Asia), we maintain production centers, including a total of approximately 180 barrier rooms and/or isolator facilities, strategically located near our customers.clients. In 2009,2011, RMS accounted for 55%61.7% of our total net sales from continuing operations and approximately 51% of our employees including approximately 100 science professionals with advanced scientific degrees.130295 science professionals with advanced scientific degrees.customersclients around the world, including most pharmaceutical companies, a broad range of biotechnology companies, many government agencies, and leading hospitals and academic institutions. We have 2320 production facilities located in 87 countries worldwide, which are strategically located to be in close proximity to our customers.clients. Our research models include both standard strains and disease models such as those with compromised immune systems, which are in demand as early-stage research tools. The United States Food and Drug Administration (FDA) and foreign regulatory bodies typically require that the safety and efficacy of new drug candidates be tested on research models like ours prior to testing in humans. As a result, our research models are an essential part of the drug discovery and development process.•••••animals.and cardiovascular and kidney disease. We are presently focusing our disease model program on five areas of research: cardiovascular, metabolic, renal, oncology, and central nervous system, which provides overlapping disease modalities that support multiple uses of certain models.high-quality purpose-bred, specific pathogen-freehigh quality, purpose bred, specific-pathogen-free (SPF) large research models to the biomedical research community.described below, designed to assistsupport our customersclients use of research models in screening drug candidates faster.candidates. These services capitalize on the technologies and relationships developed through our research model business, and address the need among pharmaceutical and biotechnology companies to outsource the non-core aspects of their drug discovery activities. These services include those which are related to the maintenance and monitoring of research those services designed to implement efficacy screening protocols to improve the customer'sclient's drug evaluation process. We currently offer four major categories of research models services—Geneticallyservices-Genetically Engineered Models and Services, Insourcing Solutions (f/k/a Consulting and Staffing Services), Discovery Services and Research Animal Diagnostic Services, and Discovery and Imaging Services.customersclients in breeding maintenance and performing health profile diagnosticsmaintenance of research models purchased or purposefully created by our customersclients for biomedical research activities. While the creation of a genetically engineered model (GEM) can be a critical scientific event, it is only the first step in the discovery process. Productive utilization of GEMs requires significant additional technical expertise.expertise in order to properly support early discovery research. We provide breeding expertise and colony development, quarantine, and health monitoring, germplasm cryopreservation, and rederivation including assisted reproduction and genetic monitoring. We provide these services to over 500 laboratories and customersclients around the world from pharmaceutical and biotechnology companies to hospitals and universities. Consulting and Staffing Services.Insourcing Solutions. Building upon our core capability as the leading provider of high-quality research models, we manage research model care operations (including recruitment, training, staffing and management services) on behalf of government and academic organizations, as well as commercial customers.clients. Demand for our services has been driven by the trend for research institutions to choose to retain certain elements of their research efforts in-house, but prefer to outsource internal functions or activities that are not critical to their core scientific innovation process, or for which they do not maintain the necessary resources in-house.staffing and management of those elements. In addition, we believe that our expertise in in vivo biology, and in particular research model care, and facility operations, and discovery and development services, enhances the productivity and quality of our customers'clients' research model programs.customersclients in monitoring and analyzing the health and geneticsprofiles of the research models and cell lines used in their research protocols. We developed this capability internally by building upon the scientific foundation created by the diagnostic laboratory needs of our research model business. Depending upon a customer'sclient's needs, we may serve as its sole-source testing laboratory, or as an alternative source supporting its internal laboratory capabilities.growth in model development anduse, characterization and utilization of specific disease models and GEMs will drive our future growth asallows us to be well positioned to be the reference laboratory of choice for health and genetic testing of laboratory research models. Discoverymodels and Imaging Services. Augmenting our traditional model production and GEMS described above, we believe there are emerging opportunities to assist our customersan industry leader in a varietythe field of discovery, research, development and imaging areas. Expediting the development process of investigational agents by providing products and services to customers extends their internal capabilities, complements their internal expertise and helps reduce product development timelines. In addition, ouranimal diagnostics.in vivo biology expertise positions us to provide complementary disease model services, which include surgical procedures, pre-conditioning and aging. We augmented our discovery and research and development capabilities substantially in 2009 via the acquisitions of Piedmont Research Center (focusing on therapeutic efficacy studies in oncology and other therapeutic areas) and Cerebricon Ltd. (focusing on therapeutic efficacy studies for the evaluation of investigational agents for the treatment of diseases of the central nervous system). In addition, our 2008 acquisition of MIR Preclinical Services allows us to offer extensivein vivo imaging capabilities in disease models (including MRI, PET, CT and bioluminescence/fluorescence imaging), as well as therapeutic efficacy expertise in inflammation, metabolic, cardiovascular and oncologic pharmacology. Imaging services have the potential to increase the efficiency of lead candidate selection by providing earlier and more highly predictive preclinical data, compared with traditional non-imaging methods, and in addition is well suited to facilitating translation between preclinical testing and clinical evaluation of investigational agents. The Discovery and Imaging Services that we offer through our RMS business are complementary to the Discovery Support services that we offer through our PCS business.RMS—RMS: in vitro products and avian vaccine services. We are committed to being the leader in providing our customers within vitro alternatives as these methods become scientifically validated and commercially feasible, and toward that goal we work with and support the European Center for Validation of Alternative Methods in these efforts. Endotoxin testing uses a processed extract from the blood of the horseshoe crab, known as limulus amebocyte lysate (LAL). The LAL test is the first and most successful FDA-validatedin vitro alternative to an animal model test to date. The processextraction of extracting blood is generallydoes not harmful toharm the crabs, which are subsequently returned to their natural ocean environment. OurIn Vitro business produces and distributes endotoxin testing kits, reagents, software, accessories, instruments and associated services to pharmaceutical and biotechnology companies worldwide. We are a market leader in endotoxin testing products and services, which are used for FDA-required quality control testing of injectable drugs and medical devices, their components and the processes by which they are manufactured.(Endosafe®(Endosafe®-PTS™) technology that allows rapid endotoxin testing in the central laboratory or manufacturing environment. WeIn recent years, we have recently expanded the PTS product portfolio to include a multiple sample testing system known as the Endosafe-MCS (multi cartridge system) in response to the demand of our higher testing volume customers.clients. We anticipate continued adoption of rapid methods as our customersclients respond to the FDA's Process Analytical Technology (PAT) Initiative. In addition, we are planning to introduce a fully automated MCS in 2012, which will assist in penetrating our client's high-volume central testing laboratories. We also expect to see expanded use of this rapid endotoxin testing technology in non-traditional areas such as renal dialysis, nuclear and compounding pharmacies, and cellular therapy. In addition, weWe are currently exploring obtaining 510(K)510(k) medical device approval of this technology for clinical diagnostic applications.specific pathogen-free,specific-pathogen-free, or SPF, chickens and fertile chicken eggs.eggs and chickens. SPF chicken embryos are used by animal health companies as self-contained "bioreactors"“bioreactors” for the manufacture of live viruses. These viruses are used as a raw material primarily in poultry, as well as human, vaccine applications. The production of SPF eggs is performed under biosecure conditions, similar in many ways to our research model production. We have a worldwide presence, in North America with several SPF egg production facilities in the United States, and contracted production capabilities in Hungary, and franchise operations in IndiaChina and Australia.India. We also operate a specialized avian laboratory in the United States, which provides in-house quality control testing of the SPF flocks, offers testing services to vaccine companies and commercial poultry operations, and manufactures poultry diagnostics and bulk antigens for poultry vaccines. Our PCS customers are principally engaged in the discovery and development of new drugs, devices and therapies.Discovery represents the earliest stages of research in the life sciences, directed at the identification, screening and selection of a lead compound for future drug development. Discovery activities typically last anywhere from 4-6 years in conventional pharmaceutical research and development timelines.Development activities, which follow, and which can take up to 7 years, are directed at demonstrating thesafety, tolerability andclinical efficacy of the selected drug candidates. During the preclinical stage of the development process, a drug candidate is testedin vitro (typically on a cellular or subcellular level in a test tube or multi-well petri plate) andin vivo (in research models) to support planned or on-going human trials. With our focus on early-stage drug development support, we view clinical Phase I (first-in-human assessment) studies as a strategic component of our preclinical service offerings. The development services portion of our PCS business enables our customers to outsource their critical, regulatory-required drug and toxicology activities to us. The demand for these services was historically driven by preclinical development programs of biotechnology companies, which traditionally have been outsourced, and also by the selective outsourcing strategy of larger global pharmaceutical companies. The necessary significant investments in personnel, facilities and other capital resources required in order to efficiently conduct these activities means that global pharmaceutical companies and biotechnology companies are frequently choosing to outsource their development activities, allowing them to focus on their core competencies of innovation and early drug discovery and, particularly for pharmaceutical companies, promotion and market distribution. We are one of the two largest providers of preclinical services worldwide and offer particular expertise in the design, execution and reporting of general and specialty toxicology studies, especially those dealing with innovative therapies and biologicals. We currently provide preclinical services at multiple facilities located in the United States, Canada, Europe and Asia (China). Our PCS segment represented 45% of our total net sales in 2009 and employed 51% of our employees including approximately 375 science professionals with advanced scientific degrees.development from inceptiondevelopment:proofhelp in early integrative drug selection criteria. The Discovery Support services that we offer through our PCS business are complementary to the Discovery Services that we offer through our RMS business.concept: Toxicology. Toxicology is one of our core preclinical competencies and a competitive strength. Once a lead molecule is selected, appropriate toxicology studies are conducted to support clinical trials in humans. These studies are performed in laboratory models to elucidate the potential adverse effects that a compound has on an organism over a variety of doses and over various time periods, and focus on safety and assessment of harmful effects. Our toxicology services feature:•all the standard protocols for general toxicity testing (genotoxicity, safety pharmacology, acute, subacute, chronic toxicity and carcinogenicity bioassays) required for regulatory submissions supporting "first-in-human" to "first-to-the-market" strategies;•expertise in specialty routes of administration and modes of administration (e.g., infusion, intravitreal, intrathecal, and inhalation), which are important not only for the testing of potential pharmaceuticals, but also for the safety testing of medical devices, industrial chemicals, food additives, agrochemicals, biocides, nutraceuticals, animal health products and other materials;•market-leading expertise in the conduct and assessment of reproductive and developmental toxicology studies (in support of larger scale, human clinical trials);•services in important specialty areas such as ocular, bone, juvenile/neonatal, immuno-toxicity, photobiology and dermal testing;•work in all major therapeutic areas;•study design and strategic advice to our clients basedsubmission on our wealth of experience and scientific expertise in support of drug development; and•strong history of assisting our clients in achieving their regulatory or internal milestones for safety testing, including studies addressing stem cell therapies, DNA vaccines, protein biotherapeutics, small molecules and medical devices.Our toxicology facilities operate in compliance with Good Laboratory Practices (GLPs) as required by the FDA as well as other international regulatory bodies. Our facilities are regularly inspected by U.S. and other GLP compliance monitoring authorities, as well as our own and our customers' Quality Assurance departments. Pathology Services. In the drug development process, the ability to identify and characterize clinical and anatomic pathologic change is critical in determining the safety of a new compound. We employ a large number of highly trained pathologists who use state-of-the-art techniques to identify potential test article-related changes within tissues, fluids and cells, as well as at the molecular level. Pathology support is critical not only for regulatory-driven safety studies, but also for specialized investigative studies, discovery support, and stand-alone immunohistochemistry evaluations for monoclonal antibodies. Key "go/no-go" decisions regarding continued product development are typically dependent on the identification, characterization and evaluation of gross and microscopic pathology findings we perform for our clients.customersclients are required to demonstrate ample drug exposure, stability in the collected sample, kinetics of their drug or compound in circulation, the presence of metabolites, and with recombinant proteins and peptides, the presence or absence of anti-drug antibodies. We have scientific depth in the sophisticated analyticalbioanalytical techniques required to satisfy these requirements for a number of drug classes. After performing sample analysis for preclinical study support, we have the opportunity to capture the benefits of bridging the preclinical bioanalysis with subsequent clinical development. Once the analysis is complete, our scientists evaluate the data to provide information on the pharmacokinetics and/or toxicokinetics of the drug, as well as complete evaluation of the distribution of the drug or metabolites by radio-labeled techniques.metabolites. Pharmacokinetics refers to understanding what the body does to a drug or compound once administered, including the process by which the drug is absorbed, distributed in the body, metabolized, and excreted (ADME); toxicokinetics refers to the same understanding as applied to higher doses that may result in adverse effects. Our clients require these studies for the full preclinical assessment of the disposition of the drug, the results of which are used in the final preclinical safety evaluation of the compound. Discovery Support. Atearliest stagesconduct and assessment of lead compound identification,reproductive and developmental toxicology studies (in support of larger scale and later-stage human clinical trials);scientists are engagedclients based on our wealth of experience and scientific expertise in evaluating the activity and efficacysupport of drug candidatesdevelopment; andseveral important therapeutic areas, including:•asthma (throughachieving their regulatory or internal milestones for safety testing, including studies addressing stem cell therapies, DNA vaccines, protein biotherapeutics, small molecules and medical devices.disease model colonies);•bone disease (using our state-of-the-art imaging and pathology capabilities);•ophthalmology (using our models of neovascularization);•general cardiovascular and device testing (using our surgical models); and•early drug formulation and bioanalysisinvestigative studies, discovery support, and method development.We also offer lead optimization strategies including early pharmacokinetic, metabolism,stand-alone immunohistochemistry evaluations for monoclonal antibodies. Key “go/no-go” decisions regarding continued product development are typically dependent on the identification, characterization and toxicology support to help in early integrative drug selection criteria. The Discovery Support services thatevaluation of gross and microscopic pathology findings we offer throughperform for our PCS business are complementary to the Discovery and Imaging Services that we offer through our RMS business.biologicalsbiologics and devices frequently outsourced by global pharmaceutical and biotechnology developers.companies. Our laboratories in the United States, Germany, Scotland and Ireland provide timely, compliant molecular biology, virology, bioanalytical, immunochemistry, microbiology and related services. We confirm that biological processes and the drug candidates produced are consistent, correctly defined, stable and essentially contaminant free. This testing is required by the FDA and other global regulatory authorities for our customersclients to obtain new drug approvals, to maintain government licensed manufacturing facilities and to release approved therapeutic products for patient treatment.Phase I Trials in Healthy, Normal and Special Populations Phase I clinical trials are usually short duration studies conducted on a small number (20-100) of healthy human subjects (although special populations can be used) under highly controlled conditions. Testing is usually performed where trial participants can be closely monitored in a secure environment, such as at a clinic-type facility or hospital. Our clinical services capabilities are located at our premier Phase I clinic in Tacoma, Washington, with a capacity of 250 beds. We focus our clinical services business on high-end clinical pharmacology studies in healthy participants. From a strategic perspective, we believe that our business benefits from complementary and consecutive services offerings of preclinical services and Phase I clinical research in our core early-stage development portfolio. We offer a wide range of Phase I clinical research services designed to move lead pharmaceutical candidates rapidly from preclinical development through Phase I pharmacokinetic tolerability and pharmacodynamic assessment to explore human pharmacology. We can conduct studies across a wide range of therapeutic areas, and have demonstrated experience in complex dose tolerance, radio-labeled, cardiac safety, pharmacokinetics, pharmacodynamics and bioavailability studies. In addition, we provide customers with high-end "first-in-human" studies for novel compounds, and expertise in complex drug-drug interaction studies. Participants at our clinics are evaluated through an intensive screening process to ensure study suitability. We employ clinical regulatory compliance staff to monitor the conduct and reporting of Phase I trials and to assure management that these trials are conducted in compliance with appropriate regulatory requirements.clients in acceleratingclients. We aim to provide flexible, tailored solutions to help them accelerate and enhance the search for drugs, devicesefficiency of their drug research and therapies. Fromin vivo discovery through first-in-human testing,development efforts, and thereby drive our goalgrowth. Our strategy is to deliver a fullcomprehensive and integrated portfolio of early-stage products and services which supports our clients' goal to maintain the flexible infrastructure they need in order to bring new therapies to market faster and more cost effectively. We believe we have certain competitive advantages in executing this strategy, as a result of our continuing focus on the following:forthat focuses almost exclusively on the early-stage drug development platform (from research models and associated services, to non-regulated discovery services, to regulated safety assessment). As such, we are able to collaborate with clients at the earliest stages, when critical decisions are made regarding which molecules will remain in development, and to work alongside them as drug candidates move downstream through the nonclinical development process. In particular, our recognized expertise in in vivo biology provides us with a competitive advantage in understanding our client's molecules, and the challenges faced during the discovery and development process, including non-GLP efficacy and safety assessment testing critical for making “go/no-go” decisions.by providingwho are increasingly facing pressure to manage their research and development costs, while at the greatest valuesame time maintain or develop a strong pipeline of innovative new drugs, conduct research and development in multiple countries simultaneously, and identify, hire and retain a breadth of scientific and technical experts. In order to convert what has historically been largely fixed costs into variable expenses and to facilitate and speed their research, our pharmaceutical and biotechnology clients are making strategic benefit.decisions to outsource a portfolio of services to high quality, full-service providers like us. Our business isprospects are driven primarily drivenby this trend towards the virtualization of our clients through outsourcing, as well as by the trend towards virtualization of, and increase in outsourced services by, our customers, along with the continued growthlevel of research and development spending by pharmaceutical and biotechnology companies, the federal government and academic institutions.customersclients to concentrate their internal expertise and resources on early drug discovery in areas such as lead identification and optimization (and for more mature companies, post-approval marketing), while continuing to advance their most promising products through the development pipeline. This creates opportunities for companies such as ours who can help optimize our clients' programs and assist in accelerating their drug discovery and development process. Our strategy iscapitalize on these opportunities by continuing to build our portfolio of premium, value-added products and services through internal development and investment, augmented by strategic "bolt-on" transactions. Charles River is positioned to address our customers' future needs and improve the efficiency and speed of their drug development activities, as we provide a multi-faceted value proposition that enables us to:•provide external expertise which may be too costly for our customers to build and/or maintain in-house;•partner with customers to allow them to compensate for recent capacity and/or staff reductions;•provide flexible arrangements to better balance our clients' workload/staff requirements (often reducing their personnel and operating costs);•provide customized solutions across therapeutic area;•draw upon our higher utilization and efficiencies to our clients' advantage (including the use of purpose-built facilities designed for high throughput);•address our customers' demands for "non-core" but strategically importantin vivo biology activities and specialty services, such as general and specialty toxicology and program management, that are prohibitive for customers to maintain in-house; and•provide additional value to our customers through broad-based partnerships across the breadth of the Charles River portfolio. In today's business environment, we believe there is a particular advantage in being a global, full service, high-quality provider of services throughout the drug discovery and development continuum. Many of our customers, especially large pharmaceutical companies, are attracted to Tier 1 contract research organizations with a full breadth of capabilities, and choose to establish preferred provider relationships with only a small number, which allows them to simplify their relationship management as well as access greater value from their outsourcing partner. Recent trends suggest that large pharmaceutical restructurings, with increased focus on key therapeutic areas, may favor larger contract research organizations who can present customers with the benefits of economies of scale and scope, extensive therapeutic area expertise, global footprint and simplified communications and coordination. Those companies with critical mass and financial stability are likely to have an advantage, as we expect that customers will gravitate towards placing long-term studies with providers they can rely upon. We are focused on being recognized as a premier preferred provider and building broader and deeper long-term strategic partnerships with our customers. Accordingly, with many of our largest customers, we enter into global preferred provider agreements that span both segments of our business. In addition, in response to individual customer needs, we remain flexible and open to broad-based multi-year partnering arrangements which may take various and customized forms. Historically thesegenerally involve financial commitments from the customer, which tap into the broad array of physical and/or service resources that we provide (e.g. reserving dedicated space within existing facilities; building out space to a particular specification; working within our clients' infrastructure; and occasionally establishing a new facility). This strategy and focus has been developed in recognition of the needs and desires of our customers who are increasingly facing pressure to manage their research and development costs while at the same time maintaining or developing productivity;strong pipeline of innovative new drugs, conduct research and development in multiple countries simultaneously and identify, hire and retain a breadth of scientific and technical experts. It is both risky and expensivestronger emphasis on later-stage programs to bring a new prescription drug to market. It is estimated that only 4 in 5,000 - 10,000 investigational drugs that begin preclinical testing will progress to human testing, and only one of those will be approved for human use. According to various reports, it takes 10 to 16 years and costs in the range of $180 million to $1.65 billion, with an average cost of over $900 million, to bring a new drug to market ($1.2 billion for a biologic). Furthermore, costs associated with developing new drugs and biologics are increasing due to a variety of factors, including:•price inflation;•fast moving technological advances (high-throughput screening, combinatorial chemistry, genomics, proteomics) which have increased the investment costs to conduct research and development;•increased challenges in addressing "unmet needs" (e.g. chronic diseases);•increased costs and extended timelines due to the difficulty in conducting trials in western countries; and•increasing clinical trial complexity, size and extended timelines due to increased requirements to demonstrate efficacy, safety and cost effectiveness. In order to convert largely fixed costs into variable expenses and to facilitate and speed their research, our pharmaceutical and biotechnology customers are making strategic decisions to outsource a portfolio of services to high-quality full service providers like us. During the past decade, we believe that the growth of outsourcing by our customers has been driven by a unique confluence of events, including:•the current outlook for drugs coming off patent protection and resulting threats from generic drug manufacturers, which are expected to affect a large percentage of these companies' existing revenues in the intermediate future;•the reduction over the past decade in the growth rate of drugs gaining approval;•increased pressure (1) to find drugs to cure and manage chronic diseases, many of which are complex and affect small and/or aging patient populations and (2) to develop specialty and orphanaccelerate drugs in both cases increasing riskclinical trials to market;cost of development while segmenting and shrinking the patient populations from blockbusters to smaller, more specialized indications;associated integration issues;•continued productivity and cost containment pressures on the medical device, diagnostics and biopharmaceutical industries due in part to escalating global healthcare costs, increasing concentration of buying power attributable to larger payors and governments, while customers in those fields simultaneously need to manage increased financial focus on operating margins and returns;•increasing globalizationdevelopment (particularly increased research and development activity in developing countries);•heightened regulatory authority scrutiny worldwide, particularly concerning drug safety; and•scrutiny of the medical value of new drugs being developed as comparedpipelines to established therapies. Over the most recent couple of years, our customers have faced a more challenging market environment. Among the factors that have affected them, we have seen the following have the most material impact and negatively affect outsourcing trends:•large pharmaceutical companies have intensified their cost-savings and efficiency actions, and have announced significant initiatives to improve their research and development productivity and rationalize their drug pipelines. This focus has been manifested through consolidation and reductions in infrastructure, spending constraints, pricing pressures and project delays and cancellations. In the short term, we have seen large pharmaceutical companies slow down their "early stage" preclinical and Phase I studies in favor of their later-stage products as they reprioritize compound pipelines (focusing on the back-end of their pipelines in the near-term) and moderate their spending per drug candidate;•biotechnology customers, particularly those that are cash-flow negative, have been highly focused on rationing their liquid assets in a challenging funding environment;•sponsor consolidation, particularly several large and mid-sized biopharmaceutical company mergers;•many customers are narrowing their pipeline focus to a smaller number of similar, high-potential therapeutic areas where they may yield the greatest returns (with particular focus and competition in oncology, metabolism/obesity, autoimmune/inflammatory, central nervous system and infectious disease);areas;•many larger customers have diversified their technology platform bases and have extended their portfolios into biologics (therapeutic proteins, antibodies, RNAi and vaccines) while retaining their core expertise in small molecules;•our customers generally have been focused on near-term cost controls as they contend with the challenges of the global economic meltdown; and•senior management turnover and structural realignment has resulted in some internal turmoil and slower decision-making in some of our larger customers while they finalize and roll-out their restructuring plans. While the short-term consequences of these factors have temporarily mitigated the outsourcing growth rate trends, we believe thatmid-term there is nobiotech funding environment; anddevelopment activities and strategies, and in factresearch processes.with the closing of the major mergers in 2009their receptiveness towards increased discovery services outsourcing and the stabilization of other of the factors addressed above, including the successful launch of new therapies currently in late-stage development and the subsequent need to replenish early-stage pipelines, will eventually drive the pharmaceutical industry will return to focusingre-focus on driving drugs and therapies through thetheir early-stage development pipeline.efforts. Also, we believe that as larger pharmaceutical companies become leaner and more efficient, generally focusing on their core competencies of fundamental research and development and commercialization, they will also continue to be conservative in their staffing and further reduce their in-house expertise. This should lead to a reinvigoration of outsourcing as they assesschoose to utilize external resources rather than invest in internal infrastructure. In the aggregate, we believe that the evolving large pharmaceutical research and development model will make our essential products and services even more relevant to our clients, and allows them to leverage our integrated offerings and expertise to drive their key internal priorities. In 2009, we moderated our investment in capacity expansion in light ofR&D efficiency and cost effectiveness.heavy investments we made from 2006 through 2008. Nonetheless,challenging market conditions which have persisted over the combination of reduced customer demand, cost containment initiatives pursued by our customers and excess capacity within our industry generally, has resulted in significant pricing pressure in 2009 and into 2010. In response,last few years, we have taken a number ofsignificant steps to better support our customers in today's challenging environment,clients, identify new strategies to enhance client satisfaction, improve operating efficienciesefficiency, and generally strengthen our business model. In 2009, we realigned our sales force in order to enhance our ability to support our clients and to focus on three particular client segments: global biopharmaceutical companies; mid-tier biopharmaceutical companies; and academic/government institutions. Also in 2009, we realigned our PCS business along functional lines in order to continue the process of standardizing and harmonizing our procedures, which has enabled clients to place work with us at multiple locations with the knowledge that procedures are consistently performed and data delivered in standard formats. In 2010, we began the implementation of an ERP system in order to improve availability of and access to data. In October 2011, we took the next step to further integrate our businesses by unifying RMS and PCS globally. We took this action to strengthen the linkage between the businesses, which enables us to offer clients more seamless access to our broad portfolio and scientific expertise. First, in the past year we closed or disposed of smaller, less efficient sites including PCS Arkansas and our Phase I facility in Scotland (as well as two small RMS sites in Hungary and Belgium), and reduced headcount by about 1,000 (primarily throughout our PCS segment). This includes our recent decision to suspend operations at our PCS Massachusetts site. Initiative 2011 Progress Improve our consolidated operating margin Improved consolidated operating margin from continuing operations achieved due to: Improve our free cash flow generation Disciplined investment in growth businesses Capital projects invested in growth business: Return value to shareholders completed facility expansions, our leaner infrastructure is intended to improve our operating margins while providing us with sufficient capacityactions and flexibility to accommodate increased demand in the future. Second,intensified focus, we announced two internal organizational restructurings that affect our PCS business and our Sales and Marketing organization: PCS Organizational Realignment: we restructured our Preclinical Services business to create a dual accountability structure with both global functional teams and site-level management. This new structure centralizes and integrates our global PCS portfolio and unites expertise from various facilities to support our client programs, regardless of the specific site at which the program was initiated. This structure allows team members to easily share information and best practices globally, standardize operations and improve efficiencies throughout Charles River. Most importantly, it further enables us to provide exceptional and consistent service at all levels and across all sites worldwide, which is particularly important to those clients who utilize multiple Charles River sites. Sales and Marketing Realignment: we realigned our enterprise-wide sales and marketing team with changes fully implemented at the beginning of 2010. This enhances our client-centric focus and communications by segment through the establishment of a three-pronged sales organization with a focus on global biopharmaceutical companies, small and mid-sized pharmaceutical companies and biotechnology companies, and academic and government customers. We have designated dedicated sales professionals for each segment, enhancing our ability to meet customer needs by offering customized, tailored solutions across our entire portfolio. Overall, this reorganization will allow us to provide more comprehensive coverage and support for all of the market segments among our diverse client population. Finally, we have also remained focused on internal process improvement initiatives. Specifically, we have continued our investment in our information technology systems and resources in order to better serve our customers, harmonize our data, and streamline our processes. Our most visible effort has been the initial roll out of our integrated enterprise resource planning (ERP) system. The first stage, which included all of our United States sites as well as our RMS site in Canada, went live at the beginning of fiscal 2010, and other locations are expected to be added in later stages. In addition, we have continued to expand our Lean Six Sigma program to reduce process cycle times, eliminate non-value add steps and optimize our operating efficiencies. Based on the initial success of the program in our PCS business segment, we have recently expanded it to RMS to attain similar operational benefits and elevated the program director to a corporate vice president level. We intend to continue to broaden the scope of the products and services we provide across the drug development continuum primarily through internal development, which will be augmented, as needed, through focused acquisitions and alliances. Our approach to acquisitions is a disciplined one that seeks to target businesses that are a sound strategic fit and that offer the prospect of enhancing stockholder value. This strategy may include geographic expansion of existing core services, strengthening of one of our core services or the addition of a new product or service in a related or adjacent business. In 2009, we completed 4 acquisitions, ranging in size from $5.4 million to $45.6 million. We believe that we are well positioned to exploit both existing and new outsourcing opportunities. As strategic outsourcing by our customersclients increases, and in particular by larger biopharmaceutical clients, we believe that our expertise in areas previously addressed by our customers'clients' in-house capabilities allows us to provide a more flexible, efficient and cost-effective alternative for them. In short, because these products and services are the core of our business, we are able to build and maintain expertise and tap intoachieve economies of scale that are difficult for our customersclients to match within their internal infrastructure.TableWe intend to continue to broaden the scope of Contentsaddition, as2011, we identified and evaluated a number of acquisition opportunities, but none that met our customers narrow their focus toward specific therapeutic areas, we have increasingly aligned our services portfolio along therapeutic lines, particularly those subject to major research funding or focus, such as oncology, metabolism and obesity, autoimmune/inflammation, cardiovascular, infectious disease and central nervous system. criteria closed during the year.have also focused on adding expertise in the biologics development areas. As a result of these collective efforts, we expect to be better positioned to gain market share by taking advantage of these trends, as well as broader based collaboration across thein vivo discovery to first-in-human continuum.Customers In 2010, we establishedmaintain a three-pronged sales organization with a focus on:•••customers.customersclients continue to consist primarily of all of the major pharmaceutical companies, many biotechnology companies, animal health,contract research organizations (CROs), agricultural and chemical companies, life science, veterinary medicine, contract manufacturing organizations (CMOs), medical device, diagnostic and other life sciences companies, andcommercial entities, as well as leading hospitals, academic institutions, and government agencies. We have stable, long-term relationships with many of our customers.clients. During 2009,2011, no single commercial customerclient accounted for more than 6%5% of our total net sales.1012 included in the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K. For information regarding net sales and long-lived assets attributable to operations in the United States, Europe, Canada, Japan and other countries for each of the last three fiscal years, please review Note 1012 included in the Notes to As part of our recent sales organization realignment, wecustomerclient segments, enhancing our ability to meet customerclient needs by offering customized, tailored solutions across our entire portfolio. In addition, our mid-market pharmaceutical and biotechnology customersclients will benefit by additional support from a combination of account managers with broad portfolio knowledge and specialists with specific scientific expertise. This allows us to provide comprehensive coverage of all of the market segments among our diverse client population.OurIn addition to interactions with our direct sales force, our primary promotional activities include organizing scientific symposia, publishing scientific papers and newsletters, webinars, and making presentations and participating at scientific conferences and trade shows in North America, Europe and Asia. We supplement these scientifically based marketing activities with internet-based marketing, advertising and direct mail. In certain locales, our direct sales force is supplemented by international distributors and agents for our products and services, particularly with respect to ourIn Vitro and Biopharmaceutical Services businesses.customersclients in the biomedical research industry. We maintain client/customer service, technical assistance and consulting service departments (in addition to project managers for our service businesses), which address both our customers'clients' routine and more specialized needs and generally serve as a scientific resource for our clients.them. We frequently assist our customersclients in solving problems related to animal husbandry, health and genetics, biosecurity, preclinical and clinical study design, regulatory consulting, protocol development and other areas in which our expertise is widely recognized as a valuable resource by our customers.clients.to stimulateon stimulating demand for further outsourcing across our entire portfolio. We believe that our ability to provide solutions that address all aspects ofin vivo biology are increasingly attractive to our customers,clients, and we continue to design and market our commercial activities to deliver flexible, customized programs designed by segment to meet our clients' global and site-specific needs.Competitionstrategygoal is to be a leader in each of the markets in which we participate. We compete in the marketplace on the basis of quality, reputation, responsiveness, pricing, innovation, breadth ofour therapeutic and scientific expertise timeliness and availability, supported by our professional bench strength inin vivo biology, quality, reputation, flexibility, responsiveness, pricing, innovation and toxicology, global capabilities and strategically located facilities worldwide.capabilities. We are able to offer a unique portfolio of early-stage products and services to support most of the drug development continuum through our wide range of research models and research model services, discovery and imaging services and our broad array of both routine and specialized preclinical services (through first-in-human Phase I clinical services).development.•competitorscompanies in North America (each of whom has a global scope), and several smaller competitors in Europe and in Japan. Of our main U.S. competitors, two are privately held businesses and the third is a government funded, not-for-profit institution. We believe that none of our main competitors in RMS has our comparable global reach, financial strength, breadth of product and services offerings, technical expertise or pharmaceutical and biotechnology industry relationships.•As forfiveten participants (including Charles River) account for approximately 50%a significant portion of the global outsourced preclinical market, (exclusive of clinical services), with the rest of the market remaining highly fragmented. Our PCS segment (including our Phase I business) also competes with in-house departments of pharmaceutical and biotechnology companies, universities and teaching hospitals.Employees26, 2009,31, 2011, we had approximately 8,0007,100 employees including(including approximately 500400 professionals with advanced scientific degrees, including Ph.D.s, D.V.M.s, and M.D.s.M.D.s). Our employees are not unionized in the United States, although employees are unionized at some of our European facilities, consistent with local customs for our industry. Our satisfactionpast employee surveys indicatehave indicated that we have an excellent relationshiprelationships with our employees.$273.7$202.5 million at December 26, 200931, 2011, as compared to $310.7$219.9 million at December 27, 2008.25, 2010. Our preclinical services are performed over varying durations, from short to extended periods of time, which may be as long as several years. We maintain an order backlog to track anticipated revenue from studies and projects that either have not started, but are anticipated to begin in the near future, or are in process and have not been completed. We only recognize a study or project in backlog after we have received written evidence of a customer'sclient's intention to proceed. We do not recognize verbal orders.orders as backlog. Cancelled studies or projects are removed from backlog.20092011 backlog may be completed in 2010,2012, while others may be completed in later years). Second, the scope of studies may change, which may either increase or decrease their value. Third, studies included in backlog may be subject to bonus or penalty payments. Fourth, studies may be terminated or delayed at any time by the client or regulatory authorities for a number of reasons, including the failure of a drug to satisfy safety and efficacy requirements or a sponsor making a strategic decision that a study or service is no longer necessary. Delayed contracts remain in our backlog until a determination of whether to continue, modify or cancel the study has been made. We cannot provide any assurance that we will be able to realize all or most of the net revenues included in backlog or estimate the portion to be filled in the current year.environments, as described below.United StatesU.S. small animal research modelmodels activities and our avian vaccine services operations are not subject to regulation under the AWA. For regulated species, the AWA and attendant Animal Care regulations require producers and users of regulated species to provide veterinary care and to utilize specific husbandry practices such as cage size, shipping conditions, sanitation and, for certain species, environmental enrichment to assure the welfare of these animals. We comply with licensing and registration requirement standards set by the United States Department of Agriculture (USDA) for the care and use of regulated species. Our animal production facilities and preclinical facilities in the U.S. are accredited by the Association for Assessment and Accreditation of Laboratory Animal Care International (AAALAC), a private, nonprofit, international organization that promotes the humane treatment of animals in science through voluntary accreditation and assessment programs. AAALAC covers all species of laboratory animals, including rats, mice and birds. Our preclinicallaboratory safety assessment studies intended to support the registration or licensing of our clients' products throughout the world. A minor part of our RMS business also conducts similar studies for our clients. The conduct of many of these studies must comply with national statutory or regulatory requirements for Good Laboratory Practice (GLP). GLP regulations describe a quality system concerned with the organizational process and the conditions under which nonclinical laboratory studies are planned, performed, monitored, recorded, archived and reported. GLP compliance is required by such regulatory agencies as the FDA, United States Environmental Protection Agency, European Medicines Agency for the Evaluation of Medicinal Products (EMEA)(EMA), Medicines and Healthcare Products Regulatory Agency (MHRA) in the United Kingdom, Health Canada, State Food and Drug Administration of the Peoples' Republic of China, and the Japanese Ministry of Health and Welfare.Welfare, among others. GLP requirements are significantly harmonized throughout the world and our laboratories are capable of conducting studies in compliance with all appropriate requirements. To assure our compliance obligations, we have established quality assurance units (QAU) in each of our nonclinical laboratories. The QAUs operate independently from those individuals that direct and conduct studies, and monitor each study to assure management that the facilities, equipment, personnel, methods, practices, records, and controls are in compliance with GLP. Our laboratory managers use the results of QAU monitoring as part of a continuous process improvement program to assure our nonclinical studies meet client and regulatory expectations for quality and integrity. Our PCS business also conducts human Phase I clinical trials and provides services in support of our clients' registration or licensing applications. Human clinical trials are conducted in a progressive fashion beginning with Phase I, and in the case of approved drugs, continued through Phase IV trials. Phase I studies are the initial human clinical trials and are conducted with a small number of subjects under highly controlled conditions. These clinical trials and services are performed in accordance with the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use Good Clinical Practice Consolidated Guidance and in compliance with regulations governing the conduct of clinical investigations and the protection of human clinical trial subjects. FDA regulations do not require a quality assurance program; however, our Phase I facility has an established quality assurance unit that monitors the conduct and reporting of Phase I trials to assure that these trials are conducted in compliance with appropriate regulatory requirements.producesproduce endotoxin test kits, reagents, cell banks used in research and biopharmaceutical production and vaccine support products. Additionally, several of our laboratories conduct identity, stability and potency testing in support of our clients' manufacturing programs. These activities are subject to regulation by the FDA and other national regulatory agencies under their respective current Good Manufacturing Practice (GMP)(cGMP) regulations. We are subject to inspection on a routine basis for compliance with these regulations. These regulations require that we manufacture our products or perform testing in a prescribed manner with respect to GMPcGMP compliance, and maintain records of our manufacturing, testing and control activities. We also maintain a Biological License Agreement (BLA) with the FDA's Center for Biologics Evaluation and Research (CBER) that covers the manufacture and distribution of in vitro diagnostic reagents in detecting endotoxins. We also maintain an Establishment License with USDA's Center for Veterinary Biologics (CVB) that covers certain of our sites which manufacture antigens used in a licensed diagnostic kit for rodents or—particular to our avian vaccine services—which manufacture USDA licensed antigens, antibodies, and viruses that are sold to clients for use in the manufacturing of their own USDA licensed products. Our vaccine support business also manufactures and markets three USDA licensed products that are considered final use products (Mycoplasma Gallisepticum Antigen, Mycoplasma Melegridis Antigen and Mycoplasma Synoviae Antigen), and sites involved in the manufacture of these articles are subject to regular inspection by USDA/CVB.functions within the Company, headed by our Corporate Vice President for Regulatory Affairs and Compliance.registration of title or use.registrations. In addition, we in-license technology and products from other companies when it enhances both our product and services business.businesses. In the future, in-licensing may become a larger initiative to enhancing our offerings, particularly as we focus on therapeutic areain vitroIn Vitro testing business, including the Endosafe-PTS, and our pathology based software development activities through our Systems Pathology Company subsidiary, we have no patents, trademarks, licenses, franchises or concessions which are material and upon which any of the products or services we offer are dependent."Investor Relations—Corporate Governance"“Investor Relations-Corporate Governance” caption. and elsewhere in this Form 10-K and in other documents we file with the SEC are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this Form 10-K. We note that factors set forth below, individually or in the aggregate, may cause our actual results to differ materially from expected and historical results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. and clinical stages of drug discovery and development may decrease, which could slow our growth. significantly as a result of the increase in pharmaceutical and biotechnology companies outsourcing their preclinical and clinical research support activities. While many industry analysts expect the outsourcing trend to continue to increase for the next several years (although with different growth rates for different phases of drug discovery and development) a decreasedecreases in preclinical and/or clinical outsourcing activity couldmay result in a diminished growth rate in the sales of any one or more of our expected higher-growth areasservice lines and may adversely affect our financial condition and results of operations. In fact, in 20092011 our revenues for our PCS segment declined 20.6%6.3% from 2010, our 2010 PCS revenues declined 8.8% from 2009, and 2009 revenues declined 19.5% from 2008. For additional discussion of the factors that we believe have recently been influencing outsourcing demand from our customers,clients, please see the section entitled "Our Strategy"“Our Strategy” included elsewhere in the Form 10-K. Furthermore, our customerclient contracts are generally terminable on little or no notice. Termination of a large contract or multiple contracts could adversely affect our sales and profitability. Our operations and financial results could be significantly affected by these risks.customersclients include researchers at pharmaceutical and biotechnology companies. Our ability to continue to grow and win new business is dependent in large part upon the ability and willingness of the pharmaceutical and biotechnology industries to continue to spend on compoundsmolecules in the preclinical phase of research and development and to outsource the products andcustomers,clients, particularly those that are cash-negative, who may be highly focused on rationing their liquid assets in a challenging funding environment), general economic conditions and institutional budgetary policies. Our business could be adversely affected by any significant decrease in life sciencesdrug research and development expenditures by pharmaceutical and biotechnology companies, as well as by academic institutions, government laboratories or private foundations. In particular, studies in recent years have indicated that a majority of academic researchers are anticipating reductions in their budgets, although funds disbursed through the American Recovery and Reinvestment Act could provide some offset.budgets. Similarly, economic factors and industry trends that affect our clients in these industries, including funding for biotechnology companies, which have suffered during the 2008/2009recent economic downturn, also affect their research and development budgets and, consequentially, our business as well. The economic downturn has also negatively affected us to the extent that the research and development budgets atspending by our pharmaceutical customers have recently slowed down their preclinical and Phase I studies in favor ofclients has been directed towards their later-stage products rather than early-stage studies as they reprioritize compound pipelines (focusing on the back-end of their pipelines in the near-term) and moderate their spending per drug candidate. Furthermore, our customersclients (particularly larger bio/pharmaceuticalbiopharmaceutical companies) continue to search for ways to maintainmaximize the breadth ofreturn on their compoundpipeline, butinvestments with a focus on leaner research and development costs per drug candidate. For additional discussion of the factors that we believe have recently been influencing research and development budgets at our customers,clients, please see the sectionsections entitled "Our Strategy"“Our Strategy” and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in the Form 10-K.customersclients at academic institutions and research laboratories whose funding is partially dependent on both the level and timing of funding from government sources, such as the U.S. National Institutes of Health (NIH) and similar domestic and international agencies.agencies, which can be difficult to forecast. Government funding of research and development is subject to the political process, which is inherently fluid and unpredictable. Our sales may be adversely affected if our customersclients delay purchases as a result of uncertainties surrounding the approval of government budget proposals. Also, government proposals to reduce or eliminate budgetary deficits have sometimes included reduced allocations to the NIH and other government agencies that fund research and development activities. Other programs, such as homeland security or defense, or general efforts to reduce the federal budget deficit could be viewed by the U.S. government as a higher priority. These budgetary pressures may result in reduced allocations in the future to government agencies that fund research and development activities. Although the Obama administration's stimulus packages in 2009 and 2010 included increases in NIH funding, NIH funding had otherwise remained fairly flat in recent years and a(including into 2012). A reduction in government funding for the NIH or other government research agencies could adversely affect our business and our financial results. Also, there is no guarantee that NIH funding will be directed towards projects and studies that require use of our products and services.United States,U.S., strictly regulate the drug development process. Our business involves helping pharmaceutical and biotechnology companies, among others, navigate the regulatory drug approval process. Accordingly, many regulations, and often new regulations, are expected to result in higher regulatory standards and often additional revenues for companies that service these industries. However, some changes in regulations, such as a relaxation in regulatory requirements or the introduction of simplified drug approval procedures, or an increase in regulatory requirements that we have difficulty satisfying or that make our services less competitive, could eliminate or substantially reduce the demand for our services. In addition, if regulatory authorities were to mandate a significant reduction in safety testingassessment procedures which utilize laboratory animals (as has been advocated by certain groups), certain segments of our business could be materially adversely affected.recent years,March 2010, the U.S. Congress enacted health care reform legislation intended over time to expand health insurance coverage and impose health industry cost containment measures. In November 2011, the U.S. Supreme Court decided to review the constitutionality of this legislation and agreed to hear oral arguments in March 2012. If this legislation, or parts of it, is found to be constitutional, the legislation as enacted and implemented may significantly impact the pharmaceutical and biotechnology industries. In addition, the U.S. Congress, various state legislatures have consideredand European and Asian governments may consider various types of health care reform in order to control growing health care costs. We are presently uncertain as to the effects of the recently enacted legislation on our business and are unable to predict what legislative proposals will be adopted in the future, if any, nor in what form they may ultimately be approved. Similar reform movements have occurred in Europe and Asia. contains costs could limitUnited StatesU.S. and abroad. In addition, new laws or regulations may create a risk of liability, increase our costs or limit our service offerings. Furthermore, if health insurers were to change their practices with respect to reimbursements for pharmaceutical products, our customersclients may spend less, or reduce their growth in spending on research and development.
Any failure by us to comply with applicable regulations and related guidance could harm our reputation and operating results, and compliance with new regulations and guidance may result in additional costs.TableContentsongoing research or the disqualification of data for submission to regulatory authorities. This could harm our reputation, our prospects for future work and our operating results. For example, the issuance of a notice of observations or a warning from the FDA based on a finding of a material violation by us of good laboratory practice or current good manufacturing practice requirements could materially and adversely affect us. In recent years, the FDA has significantly increased the number of warning letters regarding drug products. Typically, such letters (and the underlying accountability) are directed to the drug sponsor, but in recent years the FDA has provided such letters to a small number of other contract research organizations (CRO). If our operations are found to violate any applicable law or other governmental regulations, we might be subject to civil and criminal penalties, damages and fines. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management's attention from the operation of our business and damage our reputation.customerclient agreements contain customer-determinedcustomer‑determined termination and service reduction provisions, which may result in less contract revenue than we anticipate.customersclients provide that the customersclients can terminate the agreements or reduce the scope of services under the agreements with little or no notice. CustomersClients may elect to terminate their agreements with us for various reasons, including:••••customer'sclient's decision to forego or terminate a particular study;••for customerclient preference.customerclient terminates a contract with us, we are entitled under the terms of the contract to receive revenue earned to date as well as certain other costs and, in some cases, penalties. Cancellation of a large contract or proximate cancellation of multiple (particularly our PCS segment) and, therefore, may adversely affect our operating results.under-priceunder‑price or overrun cost estimates with these contracts, potentially resulting in financial losses.customer.client. The loss, reduction in scope or delay of a large contract or the loss or delay of multiple contracts could materially adversely affect our business, although our contracts frequently entitle us to receive the costs of winding down the terminated projects, as well as all fees earned by us up to the time of termination. Some contracts also entitle us to a predetermined termination fee and irrevocably committed costs/expenses. adventitious, infectious agents such as certain viruses and bacteria because the presence of these contaminants can distort or compromise the quality of research results and could adversely impact human or animal health. The presence of these infectious agents in our animal production facilities and certain service operations could disrupt our contaminant-free research model and fertile egg production as well as our animal services businesses including GEMS, harm our reputation for contaminant-free production and result in decreased sales.customerclient orders and credits for prior shipments. In addition to microbiological contaminations, the potential for genetic mix-ups or mismatings also exists and may require the restarting of the applicable colonies. While this does not require the complete clean-up, renovation and disinfection of the barrier room, it would likely result in inventory loss, additional start-up costs and possibly reduced sales. Contaminations also expose us to risks that customersclients will request compensation for damages in excess of our contractual indemnification requirements. There also exists a risk that contaminations from models that we produce may affect our customer'sclient's facilities, with similar impact toman;humans; and in the case of such a contamination or undiagnosed infection, there could be a possible risk of human exposure and infection.WeMany of our operations are comprised of complex mechanical systems which are subject to periodic failure, including aging fatigue. Such failures are unpredictable, and while we have made significant capital expenditures designed to strengthen our biosecurity, and have significantly improvedimprove our operating procedures to protect against such contaminations; however,contaminations, and replace impaired systems and equipment in advance of such events, failures and/or contaminations may still occur.Our business is subject to risks relating to operating internationally. A significant part of our net sales is derived from operations outside the United States. Our international revenues, which include revenues from our non-U.S. subsidiaries, have represented approximately one-half our total net sales in recent years. We expect that international revenues will continue to account for a significant percentage of our revenues for the foreseeable future. There are a number of risks associated with our international business, including:•foreign currencies we receive for sales and which we record as expenses outside the United States could be subject to unfavorable exchange rates with the U.S. dollar and reduce the amount of revenue (and increase the amount of expenses) that we recognize and cause fluctuations in reported financial results;•certain contracts, particularly in Canada, are frequently denominated in currencies other than the currency in which we incur expenses related to those contracts and where expenses are incurred in currencies other than those in which contracts are priced, fluctuations in the relative value of those currencies could have a material adverse effect on our results of operations;•general economic and political conditions in the markets in which we operate;•potential international conflicts, including terrorist acts;•potential trade restrictions, exchange controls and legal restrictions on the repatriation of funds into the United States;•difficulties and costs associated with staffing and managing foreign operations, including risks of violations of local laws or the U.S. Foreign Corrupt Practices Act by employees overseas or the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions;•unexpected changes in regulatory requirements;•the difficulties of compliance with a wide variety of foreign laws and regulations;•unfavorable labor regulations in foreign jurisdictions;•potentially negative consequences from changes in or interpretations of US and foreign tax laws:•longer accounts receivable cycles in certain foreign countries; and•import and export licensing requirements.Upgrading and integrating our business systems could result in implementation issues and business disruptions. We recently completed the initial implementation of a project to replace many of our numerous legacy business systems at our different sites globally with an enterprise wide, integrated enterprise resource planning (ERP) system. The first stage, which included all of our United States sites as well as our RMS site in Canada, went live at the beginning of fiscal 2010, and other locations are expected to be added in later stages. The process of planning and preparing for such an integrated, wide-scale implementation is extremely complex and we are required to address a number of challenges includingdata conversion, system cutover and user training. Problems in any of these areas could cause operational problems during implementation including delayed shipments, missed sales, billing and accounting errors and other operational issues. There have been numerous, well-publicized instances of companies experiencing difficulties with the implementation of ERP systems which resulted in negative business consequences.Negative attention from special interest groups may impair our business. The products and services which we provide our customers are essential to the drug discovery and development process, and are almost universally mandated by law. Notwithstanding, certain special interest groups categorically object to the use of animals for valid research purposes. Historically, our core research model activities with rats, mice and other rodents have not been the subject of significant animal rights media attention. However, research activities with animals have been the subject of adverse attention, impacting the industry. This has included on-site demonstrations near facilities operated by us. Any negative attention, threats or acts of vandalism directed against our animal research activities in the future could impair our ability to operate our business efficiently.Several of our product and service offerings are dependent on a limited source of supply, which if interrupted could adversely affect our business. We depend on a limited international source of supply of large research models required in our product and service offerings. Disruptions to their continued supply may arise from health problems, export or import laws/restrictions or embargoes, international trade regulations, foreign government or economic instability, severe weather conditions, increased competition amongst suppliers for models, disruptions to the air travel system or other normal-course or unanticipated events. Any disruption of supply could harm our business if we cannot remove the disruption or are unable to secure an alternative or secondary supply source on comparable commercial terms.Any failure by us to comply with applicable regulations and related guidance could harm our reputation and operating results. Any failure on our part to comply with applicable regulations could result in the termination of ongoing research or the disqualification of data for submission to regulatory authorities. This could harm our reputation, our prospects for future work and our operating results. For example, if we were to fail to verify that informed consent is obtained from participants in connection with a particular Phase I clinical trial, the data collected from that trial could be disqualified and we might be required to redo the trial at no further cost to our customer, but at substantial cost to us. Furthermore, the issuance of a notice of observations or a warning from the FDA based on a finding of a material violation by us of good clinical practice, good laboratory practice or current good manufacturing practice requirements could materially and adversely affect us. In addition, regulations and guidance worldwide concerning the production and use of laboratory animals for research purposes continues to be updated. Notably, there has been a recent updating of guidance in Europe that will be implemented over a period of several years on a country-by-country basis. Because of the complexities of the formal adoption process, the finalization and implementation of this guidance will likely take three or more years. Similarly, guidance has been and continues to be developed for other areas that impact the biomedical research community on both a national and international basis, including transportation, euthanasia guidance, import and export requirements of biological materials, health monitoring requirements and the use of disinfectants. In the United States, an updating of guidance used by the National Institutes of Health and by certain oversight agencies for the care and use of laboratory animals has been completed, and it is expected to be finalized and implemented over the next two years. These new guidelines could cause us increased costs attributable to additional facilities, the need to add personnel to address new processes, as well as increased administrative burden, and the upgrading of existing facilities.The drug discovery and development services industry is highly competitive. The drug discovery and development services industry is highly competitive. We often compete for business not only with other drug discovery and development companies, but also with internal discovery and development departments within our larger clients, who may have greater resources than ours. We also compete with universities and teaching hospitals for our services. We compete on a variety of factors, including:•reputation for on-time quality performance;•reputation for regulatory compliance;•expertise and experience in multiple specialized areas;•scope and breadth of service and product offerings across the drug discovery and development spectrum;•broad geographic availability (with consistent quality);•price/value;•technological expertise and efficient drug development processes;•quality of facilities;•financial stability;•size;•ability to acquire, process, analyze and report data in an accurate manner; and•ability to manage Phase I clinical trials. If we do not compete successfully, our business will suffer. Increased competition might lead to price and other concessions that might adversely affect our operating results. The drug discovery and development services industry has continued to see a trend towards consolidation, particularly among the biotechnology companies, who are targets for each other and for larger pharmaceutical companies (although recent trends in 2008 and 2009 also demonstrated increased merger activity between larger pharmaceutical companies themselves). If this trend continues, it is likely to produce more competition among the larger companies and contract research organizations generally, with respect to both clients and acquisition candidates. In addition, while there are substantial barriers to entry for large, global competitors with broad-based services, small, specialized entities considering entering the contract research organization industry will continue to find lower barriers to entry, and private equity firms may determine that there are opportunities in acquiring and rolling up these companies, thus further increasing possible competition. Furthermore, in recent years both Charles River and our competitors, particularly in the preclinical services area, have been investing in capital projects to increase capacity. An ongoing challenge for all participants is balancing capacity growth and market demand. If capacity has been increased too much, pressure to lower prices or to take on lower-margin studies and projects may occur. These competitive pressures may affect the attractiveness of our services and could adversely affect our financial results.Potential Changes in U.S. Tax Law. On February 1, 2010, President Obama and the U.S. Treasury Department proposed changing certain of the U.S. tax rules for U.S. corporations doing business outside the United States. The proposed changes include limiting the ability of U.S. corporations to deduct interest expense allocated and apportioned to offshore earnings, modifying the foreign tax credit rules and further restricting the ability of U.S. corporations to transfer funds between foreign subsidiaries without triggering U.S. income tax. Although the scope of the proposed changes remains unclear and the likelihood ofenactment is uncertain, it is possible that these or other changes in the U.S. tax laws could increase the Company's effective tax rate which would affect our profitability.We could be adversely affected by tax law changes in Canada and the United Kingdom. We have substantial operations in Canada and the United Kingdom which currently benefit from favorable corporate tax arrangements. We receive substantial tax credits in Canada from both the Canadian federal and Quebec governments and benefits from enhanced deductions and accelerated tax depreciation allowances in the United Kingdom. Any reduction in the availability or amount of these tax credits or deductions would be likely to have a material adverse effect on profits, cash flow and our effective tax rate.26, 2009,31, 2011, we had recorded goodwill and other intangibles of $668.5$291.0 million in the consolidated balance sheet.•or Phase I clinical studies that may lead to inaccurate reports, which may undermine the usefulness of a study or data from the study, or which may potentially advance studies absent the necessary support or inhibit studies from proceeding to the next level of testing;•litigation risk, including resulting from our errors or omissions, associated with the possibility that the drugs/compounds of our clients that were included in drug development trials we participated in may cause illness, personal injury or have other negative side effects to clinical study participants or other persons (including death);•general risks associated with operating a Phase I clinical business, including negative consequences from the administration of drugs to clinical trial participants or the professional malpractice of Phase I medical care providers;•customers'clients' property, such as research models and samples, study compounds, records, work in progress, other archived materials, or goods and materials in transit,•company policies for the quarantine and handling of imported animals; andTable of Contents•riskrisks that we may have errors and omissions related to our products designed to conduct lot release testing of medical devices and injectable drugs (primarily through ourIn Vitro business) or in the testing of biologicalsbiologics and other services performed by our biopharmaceutical services business, which could result in us or our customersclients failing to identify unsafe or contaminated materials; andmaterials.•errors and omissions during a trial that may undermine the usefulness of a trial or data from the trial.liability;liability, insurance maintained by our clients investigators, and by us;us, and various regulatory requirements we must follow in connection with our business.our insurance coverage. Furthermore, there can be no assurance that we or a party required to indemnify us will be able to maintain such insurance coverage on terms acceptable to us.If we are unable to attract suitable participants for our Phase I clinical trials, our business might suffer. The Phase I clinical research studies we run rely upon the ready accessibility and willing participation of subjects. Participants generally include people from the communities in which the studies are conducted, which such communities to date have provided a substantial pool of potential subjects for research studies. Our Phase I clinical research activities could be adversely affected if we were unable to attract suitable and willing participants on a consistent basis.For instance, we acquired imaging capabilities in 2008 through our acquisition of MIR (and further augmented our imaging services in 2009 through the acquisition of Cerebricon). However, we generally may not be successful in commercializing these methods if developed, and sales or profits from these methods may not offset reduced sales or profits from research models. Alternative research methods could decrease the need for research models, and we may not be able to develop new products effectively or in a timely manner to replace any lost sales. In addition, other companies or entities may develop research models with characteristics different than the ones that we produce, and which may be viewed as more desirable by our customers.clients.
Upgrading and integrating our business systems could result in implementation issues and business disruptions.TableContentsservices.26, 2009,31, 2011, we had approximately $492.6$739 million of debt. This debt could have significant adverse effects on our business, including making it more difficult for us to obtain additional financing on favorable terms; requiring us to dedicate a substantial portion of our cash flows from operations to the repayment of debt and the interest on this debt; limiting our ability to capitalize on significant business opportunities; and making us more vulnerable to rising interest rates. For additional information regarding our debt, please see Note 45 included in the Notes to Consolidated Financial Statements elsewhere in this Form 10-K.•••••employees of the acquired companies;•Tablerisks that disagreements or disputes with prior owners of Contents••customerclient data. As a routine element of our business, we collect, analyze and retain substantial amounts of data pertaining to the preclinical and the clinical studies we conduct for our customers.clients. Unauthorized third parties could attempt to gain entry to such computer systems for the purpose of stealing data or disrupting the systems. We believe that we have taken adequate measures to protect them from intrusion, and we continue to improve and enhance our systems in this regard, but in the event that our efforts are unsuccessful we could suffer significant harm. Our contracts with our customersclients typically contain provisions that require us to keep confidential the information generated from these studies. In the event the confidentiality of such information was compromised, we could suffer significant harm.over 3035 years. We have no employment agreement with Mr. Foster or other members of our non-European based senior management. If Mr. Foster or other members of senior management do not continue in their present positions, our business may suffer.an excellenta strong record of employee retention, there is still strongsignificant competition for qualified personnel in the veterinary, pharmaceutical and biotechnology fields. Therefore, we may not be able to attract and retain the qualified personnel necessary for the development of our business. The loss of the services of existing personnel, as well as the failure to recruit additional key scientific, technical and managerial personnel in a timely manner, could harm our business.•economy,•customer engagements,•customerclient contracts in the quarter,•services,•overruns,overruns;•customers,•customers,clients;•events, and•• States, Canada and China.States. We own large RMS facilities in the United Kingdom, France, Germany, Japan, Canada and the United States. None of our leases is individually material to our business operations. Many of our leases have an option to renew, and we believe that we will be able to successfully renew expiring leases on terms satisfactory to us. We believe that our facilities are adequate for our operations and that suitable additional space will be available when needed.For additional information see Note 910 to the Consolidated Financial Statements included elsewhere in this Form 10-K. In 2008, we completed the major stages of our three year capacity expansion program, and in early 2009 we finished with the last few elements of the program with focus on facilities in China and Sherbrooke (Canada). customerclient needs and demands. Accordingly, in January 20102011 we announceddisposed of our PCS operation in Shanghai, China and consolidated our Discovery Services site in Michigan with our operations in North Carolina. Currently, we do not anticipate significant expansion requirements in our PCS business for the next few years due to available capacity at existing and suspended sites. However, we may expand at specific sites should we determine that it is not feasible to utilize available capacity at existing or suspended sites. We have adequate capacity to meet the current needs of our RMS clients and do not currently envision the need for significant expansion of our RMS capacity.had decided to suspenddispose of or consolidate operations at our Shrewsbury, Massachusetts, facility bywhere the middleassociated real estate is leased. Depending on the resolution of 2010,these situations, we may be encumbered with the intention to resume operations when global preclinical market conditions improve and we require additional capacity.remaining real estate lease obligations.
a party to any material legal proceedings, other than ordinary routine litigation incidental to our business that is not material to our business or financial condition. On January 31, 2012, a putative class action, entitled Irma Garcia v. Charles River Laboratories, Inc., was filed against us in the San Diego Superior Court, alleging various causes of action related to failure to make proper and timely payments to employees in California, failure to timely furnish accurate itemized wage statements, unfair business practices, associated penalties pursuant to California law, and declaratory relief. While no prediction may be made as to the outcome of litigation, we intend to defend against this proceeding vigorously.
Christophe Berthoux, age 47, rejoined us in February 2005 as General Manager of our clinical services business. Following the sale of our Phase II-IV clinical services business in August 2006, Dr. Berthoux was named Corporate Senior Vice President, U.S. Research Models and Services and In Vitro Products and Services, and in 2008 he was named our Corporate Executive Vice President,
Global Sales and Marketing and Chief Commercial Officer. Previously, from 1990 to early 2004, Dr. Berthoux held a variety of managerial positions with the Company, including Corporate Vice President and head of European Research Models and Services.
James C. Foster, age 59,61, joined us in 1976 as General Counsel. Over the past 3435 years, Mr. Foster has held various staff and managerial positions, and was named our President in 1991, Chief Executive Officer in 1992 and our Chairman in 2000.
First quarter (through February 12, 2010) First quarter Second quarter Third quarter Fourth quarter First quarter Second quarter Third quarter Fourth quarter 31, 2011. trading. Securities Authorized for Issuance Under Equity Compensation Plans Equity compensation plan approved by security holders: Equity compensation plan approved by security holders: Charles River 2000 Incentive Plan Charles River 1999 Management Incentive Plan Inveresk 2002 Stock Option Plan 2007 Incentive Plan Equity compensation plans not approved by security holders Equity compensation plans not approved by security holders Total Total Total number of restricted shares outstanding(1) Total number of options outstanding Comparison of 5-Year Cumulative Total Return Charles River Laboratories International, Inc. S&P 500 NASDAQ Pharmaceutical Statement of Income Data: Statement of Income Data: Net sales Net sales Cost of products sold and services provided Cost of products sold and services provided Selling, general and administrative expenses Selling, general and administrative expenses Goodwill impairment Goodwill impairment Amortization of intangibles Amortization of intangibles Operating income (loss) Operating income (loss) Interest income Interest income Interest expense Interest expense Other, net Other, net Income (loss) from continuing operations before income taxes Income (loss) from continuing operations before income taxes Provision for income taxes Provision for income taxes Income (loss) from continuing operations net of income taxes Income (loss) from continuing operations net of income taxes Income (loss) from discontinued businesses, net of tax Income (loss) from discontinued businesses, net of tax Net income (loss) Net income (loss) Net income (loss) attributable to noncontrolling interests Net income (loss) attributable to noncontrolling interests Net income (loss) attributable to common shareowners Net income (loss) attributable to common shareowners Common Share Data: Common Share Data: Earnings (loss) per common share Earnings (loss) per common share Basic Basic Continuing operations attributable to common shareowners Discontinued operations Net income (loss) attributable to common shareowners Diluted Diluted Continuing operations attributable to common shareowners Discontinued operations Net income (loss) attributable to common shareowners Other Data: Other Data: Depreciation and amortization Depreciation and amortization Capital expenditures Capital expenditures Balance Sheet Data (at end of period): Balance Sheet Data (at end of period): Cash and cash equivalents Cash and cash equivalents Working capital Working capital Goodwill, net Goodwill, net Total assets Total assets Total debt Total shareowners' equity Total shareowners' equity We are a leading global provider of solutions that advance the drug discovery and development process, including research models and associated services and outsourced preclinical services. We provide our products and services to global pharmaceutical companies and biotechnology companies, as well as government agencies, our services. We believe that the long-term drivers for our business as a whole will primarily emerge from our We stock repurchase authorization. $336.7 million in 2010. 2010. liabilities, revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and assumptions. Some of those estimates can be complex and require management to make estimates about the future and actual results could differ from those estimates. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. For any given estimate or assumption made by management, there may also be other estimates or assumptions that are reasonable. to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. In determining the fair value of assets, we utilize appraisals for the fair value of property and equipment and valuations of certain intangible assets, including Our service revenue is comprised of contracts, we recorded unbilled revenue of $29.4 million and deferred revenue of $56.5 million in our consolidated balance sheet. asset allocation and expected returns likely to be earned over the life of the plan. If the actual return is different from the assumed expected return in plan assets, the difference would be amortized over a period of approximately 15 to 20 years. The estimated effect of a 1.0% change in the expected rate of return would increase or decrease pension expense by Net sales Cost of products sold and services provided Selling, general and administrative expenses Goodwill impairment Amortization of other intangibles Operating income (loss) Interest income Interest expense Provision for income taxes Noncontrolling interests Income (loss) from continuing operations attributable to common shareowners general and administrative expenses, amortization of goodwill and intangibles and operating income by segment and as percentages of their respective segment net sales. Net sales: Net sales: Research models and services Preclinical services Cost of products sold and services provided: Cost of products sold and services provided: Research models and services Preclinical services Goodwill impairment: Goodwill impairment: Preclinical services Selling, general and administrative expenses: Selling, general and administrative expenses: Research models and services Preclinical services Unallocated corporate overhead Amortization of other intangibles: Amortization of other intangibles: Research models and services Preclinical services Operating income (loss): Operating income (loss): Research models and services Preclinical services Unallocated corporate overhead Net sales: Research models and services Preclinical services Cost of products sold and services provided: Research models and services Preclinical services Goodwill impairment: Preclinical services Selling, general and administrative expenses: Research models and services Preclinical services Unallocated corporate overhead Amortization of other intangibles: Research models and services Preclinical services Operating income: Research models and services Preclinical services Unallocated corporate overhead 2010 stock-based compensation), information systems, compliance and facilities expenses associated with our corporate, administration and professional services functions, was carrying value of the SPC assets over their respective fair market values. Net Income 2009 Research Models and Services. In Goodwill Impairment. Our annual goodwill impairment assessment has historically been completed at the beginning of the fourth quarter. Based on our cash surrender value. shares, capital expenditures and prepayment of debt. At December 31, 2011, the $68.9 million was comprised of $0.4 million held in the United States and $68.5 million held by non-U.S. subsidiaries. At December 25, 2010, the $179.2 million was comprised of $72.3 million held in the United States and $106.9 million held by non-U.S. subsidiaries. The decline in cash in the U.S. was primarily due to share repurchases and capital expenditures while the decline in cash outside the U.S. was primarily due to capital expenditures and prepayments on the Euro term loan. We are a net borrower and closely managed the cash at year-end to keep balances low. We were able to maintain liquidity by having the ability to borrow on our revolving line of credit. The increase in our DSO was primarily driven by slower collections and decreased deferred revenue. Our net cash provided by operating activities will be impacted by future timing of client payments for products and services as evidenced in our DSO. A one-day increase or decrease in our DSO represents a change of approximately $3.1 million of cash provided by operating activities. Our allowance for doubtful accounts was $4.0 million as of December 31, 2011 compared to $4.8 million as of December 25, 2010. marketable securities, respectively. during 2010. Debt Debt Interest payments Interest payments Operating leases Operating leases Pension Construction commitments Total contractual cash obligations be applied prospectively. 31, 2011 based on their quoted market value. Quarterly Information (Unaudited) Inc.: Net sales related to products Net sales related to products Net sales related to services Net sales related to services Net sales Net sales Costs and expenses Costs and expenses Cost of products sold Cost of services provided Selling, general and administrative Goodwill impairment Amortization of other intangibles Operating income (loss) Operating income (loss) Other income (expense) Other income (expense) Interest income Interest expense Other, net Income (loss) from continuing operations, before income taxes Income (loss) from continuing operations, before income taxes Provision for income taxes Provision for income taxes Income (loss) from continuing operations, net of income taxes Income (loss) from continuing operations, net of income taxes Income (loss) from discontinued operations, net of tax Net income (loss) Net income (loss) Less: Net loss (income) attributable to noncontrolling interests Less: Net loss (income) attributable to noncontrolling interests Net income (loss) attributable to common shareowners Net income (loss) attributable to common shareowners Earnings (loss) per common share Earnings (loss) per common share Basic: Continuing operations attributable to common shareowners Discontinued operations attributable to common shareowners Net income (loss) attributable to common shareowners Diluted: Continuing operations attributable to common shareowners Discontinued operations attributable to common shareowners Net income (loss) attributable to common shareowners Assets Assets Current assets Cash and cash equivalents Trade receivables, net Inventories Other current assets Total current assets Property, plant and equipment, net Goodwill, net Other intangibles, net Deferred tax asset Other assets Total assets Liabilities and Equity Liabilities and Equity Current liabilities Current portion of long-term debt and capital leases Accounts payable Accrued compensation Deferred revenue Accrued liabilities Other current liabilities Total current liabilities Long-term debt and capital leases Other long-term liabilities Total liabilities Commitments and contingencies Shareowners' equity Preferred stock, $0.01 par value; 20,000,000 shares authorized; no shares issued and outstanding Common stock, $0.01 par value; 120,000,000 shares authorized; 77,106,847 issued and 65,877,218 shares outstanding at December 26, 2009 and 76,609,779 issued and 67,052,884 shares outstanding at December 27, 2008 Capital in excess of par value Accumulated deficit Treasury stock, at cost, 11,229,629 shares and 9,556,895 shares at December 26, 2009 and December 27, 2008, respectively Accumulated other comprehensive income Total shareowners' equity Noncontrolling interests Total equity Total liabilities and equity Cash flows relating to operating activities Cash flows relating to operating activities Net income (loss) Less: Income (loss) from discontinued operations Income (loss) from continuing operations Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: Depreciation and amortization Goodwill impairment Gain on pension curtailment Non-cash compensation Deferred income taxes Other, net Changes in assets and liabilities: Changes in assets and liabilities: Trade receivables Inventories Other assets Accounts payable Accrued compensation Deferred revenue Accrued liabilities Other liabilities Net cash provided by operating activities Cash flows relating to investing activities Cash flows relating to investing activities Acquisition of businesses and assets, net of cash acquired Capital expenditures Purchases of investments Proceeds from sale of investments Other, net Net cash used in investing activities Cash flows relating to financing activities Cash flows relating to financing activities Proceeds from long-term debt and revolving credit agreement Payments on long-term debt, capital lease obligation and revolving credit agreement Proceeds from exercises of stock options and warrants Excess tax benefit from exercises of employee stock options Purchase of treasury stock Other, net Net cash used in financing activities Discontinued operations Discontinued operations Net cash provided by (used in) operating activities Net cash provided by investing activities Net cash provided by (used in) discontinued operations Effect of exchange rate changes on cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Cash and cash equivalents, end of period Supplemental cash flow information Supplemental cash flow information Cash paid for interest Cash paid for taxes Supplemental non-cash investing activities information Capitalized interest Balance at December 30, 2006 Components of comprehensive income, net of tax: Net income Foreign currency translation adjustment Net increase in unrecognized pension net gain/loss and prior service costs Unrealized loss on marketable securities Total comprehensive income Decrease in noncontrolling interest for purchase of remaining interest in Japan Dividend paid noncontrolling interest Tax benefit associated with stock issued under employee compensation plans Exercise of warrants Issuance of stock under employee compensation plans Acquisition of treasury shares Stock-based compensation Balance at December 29, 2007 Components of comprehensive income, net of tax: Net (loss) Foreign currency translation adjustment Net decrease in unrecognized pension net gain/loss and prior service costs Unrealized loss on marketable securities Total comprehensive income Decrease in noncontrolling interest for sale of Mexico Tax benefit associated with stock issued under employee compensation plans Exercise of warrants Deferred taxes Issuance of stock under employee compensation plans Acquisition of treasury shares Stock-based compensation Balance at December 27, 2008 Balance at December 27, 2008 Components of comprehensive income, net of tax: Net income Foreign currency translation adjustment Net decrease in unrecognized pension net gain/loss and prior service costs Unrealized gain on marketable securities Total comprehensive income Tax detriment associated with stock issued under employee compensation plans Exercise of warrants Issuance of stock under employee compensation plans Acquisition of treasury shares Stock-based compensation Balance at December 26, 2009 Balance at December 26, 2009 doubtful accounts amount to Customer receivables Unbilled revenue Total Less allowance for doubtful accounts Net trade receivables The amortized cost, gross unrealized gains, gross unrealized losses and fair value for marketable securities by major security type were as follows: Time deposits Mutual fund Auction rate securities Auction rate securities Due less than one year Due after one year through five years Due after ten years The composition of inventories is as follows: Raw materials and supplies Raw materials and supplies Work in process Work in process Finished products Finished products Inventories Prepaid assets Prepaid assets Deferred tax asset Deferred tax asset Marketable securities Marketable securities Prepaid income tax Prepaid income tax Restricted cash Restricted cash Current assets of discontinued operations Other current assets Land Land Buildings Buildings Machinery and equipment Machinery and equipment Leasehold improvements Leasehold improvements Furniture and fixtures Furniture and fixtures Vehicles Vehicles Construction in progress Construction in progress Total Less accumulated depreciation Less accumulated depreciation Net property, plant and equipment Net property, plant and equipment Deferred financing costs Cash surrender value of life insurance policies Long term marketable securities Other assets Long-term assets of discontinued operations Other assets Balance December 27, 2008 Expense Payments/utilization Balance at December 26, 2009 Accrued income taxes Current deferred tax liability Accrued interest and other Current liabilities of discontinued operations Other current liabilities Deferred tax liability Long-term pension liability Accrued Executive Supplemental Life Insurance Retirement Plan and Deferred Compensation Plan Other long-term liabilities Other long-term liabilities Time deposits Mutual funds Auction rate securities Fair value of life policies Total assets Auction rate securities Fair value of life policies Total assets Beginning balance Transfers in and/or out of Level 3 Total gains or losses (realized/unrealized): Included in earnings (other expenses) Included in other comprehensive income Purchases, issuances and settlements Ending balance Current assets (excluding cash) Property, plant and equipment Current liabilities Long term liabilities Goodwill and other intangible asset Total purchase price allocation In-process research and development Goodwill Total goodwill and other intangibles Current assets (excluding cash) Property, plant and equipment Other long-term assets Current liabilities Long-term debt Long-term deferred tax Goodwill and other intangible asset Total purchase price allocation Customer relationships Goodwill Total goodwill and other intangibles Current assets Property, plant and equipment Current liabilities Goodwill and other intangible asset Total purchase price allocation Customer relationships Backlog Trademarks and trade names Developed technology Goodwill Total goodwill and other intangibles Current assets (excluding cash) Property, plant and equipment Deferred taxes Goodwill and other intangible asset Total purchase price allocation Customer relationships Non-compete Goodwill Total goodwill and other intangibles Current assets (excluding cash) Property, plant and equipment Noncurrent assets Current liabilities Noncurrent liabilities Deferred taxes Goodwill and other intangible asset Total purchase price allocation Customer relationships Backlog Non-compete Goodwill Total goodwill and other intangibles Current assets (excluding cash) Property, plant and equipment Current liabilities Deferred taxes Goodwill and other intangibles acquired Total purchase price allocation Customer relationships Backlog Non-compete covenants Goodwill Total goodwill and other intangibles Noncontrolling interest acquired Property, plant and equipment Deferred tax liability Intangible asset (customer relationships with 15 year estimated amortization life) Net sales Operating income Income from continuing operations Earnings per common share Basic Diluted Goodwill Other intangible assets not subject to amortization: Research models PCS in process R&D Other intangible assets subject to amortization: Backlog Customer relationships Customer contracts Trademarks and trade names Standard operating procedures Other identifiable intangible assets Total other intangible assets Research Models and Services Gross carrying amount Accumulated amortization Preclinical Services Gross carrying amount Accumulated impairment loss Accumulated amortization Total Gross carrying amount Accumulated impairment loss Accumulated amortization to determine if impairment exists. Our annual goodwill impairment assessment has historically been completed at the beginning of the fourth quarter. The goodwill impairment analysis is a two-step process. The first step is used to identify potential impairment and involves comparing each reporting unit's estimated fair value to its carrying value, including goodwill. Fair value is determined by using a weighted combination of a market-based approach and an income approach, as this combination is deemed to be the most indicative of our fair value in an orderly transaction between market participants. Under the market-based approach, we utilize information about our Company as well as publicly available industry information to determine earnings multiples and sales multiples that are used to value our reporting units. Under the income approach, we determine fair value based on the estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital which reflects the overall level of inherent risk of the reporting unit and the rate of return an outside investor would expect to earn. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, profit margin percentages, discount rates, perpetuity growth rates, future capital expenditures and future market conditions, among others. Our projections are based on an internal strategic review. Key assumptions, strategies, opportunities and risks from this strategic review along with a market evaluation are the basis for our assessment. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is not considered to be impaired. However, if the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment. reporting unit was being acquired in a business combination. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. In determining the fair value of assets we utilize appraisals for the fair value of property and equipment and valuations of certain intangible assets, including 2010 2011 2012 2013 2014 2.25% Senior convertible debentures: 2.25% Senior convertible debentures: Principal Unamortized debt discount Net carrying amount of senior convertible debentures Net carrying amount of senior convertible debentures Term loan facilities Term loan facilities Revolving credit facility Revolving credit facility Other long-term debt, represents secured and unsecured promissory notes, interest rates ranging from 0% to 0.5%, 0% to 11.6% and 0% to 11.6% at December 26, 2009, December 27, 2008 and December 29, 2007, respectively, maturing between 2008 and 2013 Total debt Total debt Less: current portion of long-term debt Less: current portion of long-term debt Long-term debt Long-term debt 2010 2011 2012 2012 2013 2013 2014 2014 Thereafter Thereafter Total per note for each day of that measurement period was less than triggers were met. Numerator: Numerator: Income (loss) from continuing operations for purposes of calculating earnings per share Income (loss) from continuing operations for purposes of calculating earnings per share Income (loss) from discontinued businesses Income (loss) from discontinued businesses Denominator: Denominator: Weighted-average shares outstanding—Basic Weighted-average shares outstanding—Basic Effect of dilutive securities: Effect of dilutive securities: 2.25% senior convertible debentures Stock options and contingently issued restricted stock Warrants Weighted-average shares outstanding—Diluted Weighted-average shares outstanding—Diluted Basic earnings (loss) per share from continuing operations attributable to common shareowners Basic earnings (loss) per share from continuing operations attributable to common shareowners Basic earnings (loss) per share from discontinued operations attributable to common shareowners Basic earnings (loss) per share from discontinued operations attributable to common shareowners Diluted earnings (loss) per share from continuing operations attributable to common shareowners Diluted earnings (loss) per share from continuing operations attributable to common shareowners Diluted earnings (loss) per share from discontinued operations attributable to common shareowners Diluted earnings (loss) per share from discontinued operations attributable to common shareowners our common stock over the course of a calculation period. We received the final Number of shares of common stock repurchased Total cost of repurchase 25, 2010. Balance at December 29, 2007 Period change Tax Balance at December 27, 2008 Period change Tax Balance at December 26, 2009 Separately and concurrently with the pricing of the 2013 Notes in June 2006, we issued warrants for approximately 7.2 million shares of our common stock. The warrants give the holders the right to receive, for no additional consideration, cash or shares (at our option) with a value equal to the appreciation in the price of our shares above Income (loss) from continuing operations before income taxes Income (loss) from continuing operations before income taxes U.S. Non-U.S. Income tax provision Income tax provision Current: Federal Foreign State and local Total current Deferred: Federal Foreign State and local Total deferred Net deferred taxes, detailed below, recognize the impact of temporary differences between the amounts of assets and liabilities recorded for financial statement purposes and such amounts measured in accordance with tax laws. Compensation Accruals and reserves Financing related Goodwill and other intangibles Net operating loss and credit carryforwards Depreciation related Non-indefinitely reinvested earnings Other Valuation allowance Total deferred taxes U.S. statutory income tax rate Foreign tax rate differences State income taxes, net of Federal tax benefit Unbenefitted losses and valuation allowance Impact of repatriation of non-US earnings Research tax credits and enhanced deductions Enacted tax rate changes Impact of tax uncertainties Impact of goodwill impairment Other We have fully recognized our deferred tax assets on the belief that it is more likely than not that they will be realized. The only exceptions at December Beginning balance Beginning balance Additions: Additions: Tax positions for current year Tax positions for prior years Reductions: Reductions: Tax positions for current year Tax positions for prior years Settlements Expiration of statute of limitations Ending balance Ending balance Kingdom, Germany and Canada. With few exceptions, we are no longer subject to U.S. and international income tax examinations for years before 2005. Canada (TCC). In the fourth quarter of 2009 and the first quarter of 2010, we filed Notices of Appeal with the TCC and received the Crown's response in the second quarter of subsidiaries remain indefinitely reinvested as of the end of 2011 as they are required to fund needs outside the U.S. and cannot be repatriated in a manner that is substantially tax free. During the third quarter of 2011, we restructured our international operations in a tax-free manner to allow us more flexibility in accessing our offshore cash to fund needs outside the U.S. As of December On June 12, 2006, we issued In addition to the Deferred Compensation Plan, certain officers and key employees also participate, or in the past participated, in our amended and restated 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 Charles River Laboratories, Inc. Pension Plan and Social Security. The defined benefit pension plans for Japan and our Canadian RMS operation are non-contributory plans that cover substantially all employees of those respective companies. Benefits are based upon length of service and final salary. In addition, our French RMS operation has a defined benefit statutory indemnity plan covering most of its employees. Change in benefit obligations Change in benefit obligations Benefit obligation at beginning of year Service cost Interest cost Plan participants' contributions Curtailment Settlement gain Benefit payments Actuarial loss (gain) Plan amendments Other Effect of foreign exchange Benefit obligation at end of year Change in plan assets Change in plan assets Fair value of plan assets at beginning of year Plan assets assumed Actual return on plan assets Settlement gain Employer contributions Plan participants' contributions Benefit payments Premiums paid Other Effect of foreign exchange Fair value of plan assets at end of year Funded status Projected benefit obligation Fair value of plan assets Net balance sheet liability Classification of net balance sheet liability Non-current assets Current liabilities Non-current liabilities Amounts recognized in statement of financial position as part of accumulated other comprehensive income ("AOCI") Net actuarial (gain)/loss Net prior service cost/(credit) Total The accumulated benefit obligation for all defined benefit plans Projected benefit obligation Accumulated benefit obligation Fair value of plan assets Projected benefit obligation Accumulated benefit obligation Fair value of plan assets Amounts in AOCI expected to be recognized as components of net periodic benefit cost over the next fiscal year Amortization of net actuarial (gain)/loss Amortization of net prior service cost/(credit) Service cost Interest cost Expected return on plan assets Amortization of prior service cost (credit) Amortization of net loss (gain) Net periodic benefit cost Settlement Curtailment gain Net pension cost Discount rate Rate of compensation increase Discount rate Expected long-term return on plan assets Rate of compensation increase future cash flows necessary to pay benefits when they become due. The rate of compensation increase reflects the expected annual salary increases for the plan participants based on historical experience and our current employee compensation strategy. Equity securities Fixed income Other Total 25, 2010 Cash Common stock(a) Debt securities(a) Mutual funds(b) Life insurance policies(c) Other Total Balance, December 27, 2008 Actual return on plan assets: Relating to assets still held at December 26, 2009 Relating to assets sold during the period Purchases, sales and settlements Transfers in and/or out of Level 3 Balance, December 26, 2009 During 2012. 2010 2011 2012 2013 2014 2015-2019 At the Annual Meeting of Shareholders held on May 8, 2007, our shareholders approved the 2007 Incentive Plan Stock-based compensation expense in: Stock-based compensation expense in: Cost of sales Selling and administration Income from continuing operations, before income taxes Provision for income taxes Net income attributable to common shareowners Net income attributable to common shareowners Expected life (in years) Expected volatility Risk-free interest rate Expected dividend yield Weighted—average grant date fair value Options outstanding as of December 30, 2006 Options granted Options exercised Options canceled Options outstanding as of December 29, 2007 Options granted Options exercised Options canceled Options outstanding as of December 27, 2008 Options granted Options exercised Options canceled Options outstanding as of December 26 2009 Options exercisable as of December 29, 2007 Options exercisable as of December 27, 2008 Options exercisable as of December 26, 2009 The following table summarizes significant ranges of outstanding and exercisable options as of $0.00–$10.00 $10.01–$20.00 $20.01–$30.00 $30.01–$40.00 $40.01–$50.00 $50.01–$60.00 $60.01–$70.00 Totals Non-vested at December 27, 2008 Granted Forfeited Vested Non-vested at December 26, 2009 The following table summarizes the restricted stock activity for Outstanding December 27, 2008 Granted Vested Canceled Outstanding December 26, 2009 2010 2011 2012 2013 2014 Thereafter We maintain various Our RMS segment includes sales of research models, Research Models and Services Net sales Gross margin Operating income Total assets Long-lived assets Depreciation and amortization Capital expenditures Preclinical Services Net sales Gross margin Operating income Total assets Long-lived assets Depreciation and amortization Capital expenditures Total segment operating income Unallocated corporate overhead Consolidated operating income Stock-based compensation expense U.S. retirement plans Audit, tax and related expense Salary and bonus Global IT Employee health LDP and fringe benefit expense Consulting and outside services Severance expense Costs associated with evaluation of acquisitions Other general unallocated corporate expenses the identified geographic area. Long-lived assets include property, plant and equipment and other long-lived assets. 2009 Sales to unaffiliated customers Long-lived assets 2008 Sales to unaffiliated customers Long-lived assets 2007 Sales to unaffiliated customers Long-lived assets Operating results from discontinued operations are as follows: Net sales Income (loss) from operations of discontinued businesses, before income taxes Provision for income taxes Income (loss) from operations of discontinued businesses, net of taxes Fiscal Year Ended December 26, 2009 Total net sales Gross profit Operating income (loss) Income from continuing operations, net of tax Income (loss) from discontinued businesses, net of tax Net income attributable to common shareowners Earnings (loss) per common share Basic Continuing operations attributable to common shareowners Discontinued operations attributable to common shareowners Net income attributable to common shareowners Diluted Continuing operations attributable to common shareowners Discontinued operations attributable to common shareowners Net income attributable to common shareowners Fiscal Year Ended December 27, 2008 Total net sales Gross profit Operating income (loss) Income from continuing operations, net of tax Income (loss) from discontinued businesses, net of tax Net income attributable to common shareowners Earnings (loss) per common share Basic Continuing operations attributable to common shareowners Discontinued operations attributable to common shareowners Net income attributable to common shareowners Diluted Continuing operations attributable to common shareowners Discontinued operations attributable to common shareowners Net income attributable to common shareowners Fiscal Year Ended December 26, 2009 Research Models and Services Sales Gross margin Operating income Depreciation and amortization Capital expenditures Preclinical Services Sales Gross margin Operating income Depreciation and amortization Capital expenditures Unallocated corporate overhead Total Sales Gross margin Operating income Depreciation and amortization Capital expenditures Fiscal Year Ended December 27, 2008 Research Models and Services Sales Gross margin Operating income Depreciation and amortization Capital expenditures Preclinical Services Sales Gross margin Operating income Depreciation and amortization Capital expenditures Unallocated corporate overhead Total Sales Gross margin Operating income Depreciation and amortization Capital expenditures Item 9. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure ” High Low $ 39.07 $ 32.74
2009
High
Low
2012 High Low First quarter (through February 17, 2012) $ 36.25 $ 27.39 2011 High Low $ 29.87 $ 23.03 $ 39.39 $ 35.54 33.28 23.29 42.47 37.38 37.47 29.82 42.05 28.54 40.14 30.95 33.57 25.95
2008
High
Low
2010 High Low $ 69.04 $ 53.73 $ 39.75 $ 32.74 65.95 55.14 41.65 28.00 69.19 57.84 35.87 28.20 58.00 19.92 36.10 30.70 26, 2009.February 12, 2010January 31, 2012, there were approximately 578448 registered shareholders of the outstanding shares of common stock.Boardfollowing table provides information relating to the our purchases of Directorsshares of the Company has authorized a share repurchase program, originally authorized on July 27, 2005 and subsequently amended on October 26, 2005, May 9, 2006, August 1, 2007 and July 24, 2008 to acquire up to a total of $600.0 million ofour common stock. The program does not have a fixed expiration date. As of December 26, 2009, approximately $144.8 million remains authorized for share repurchases. Duringstock during the quarter ended December 26, 2009,31, 2011. September 25, 2011 to October 22, 2011 450,240 $ 28.95 450,199 $ 128,224 October 23, 2011 to November 19, 2011 394,095 $ 30.36 394,095 $ 116,258 November 20, 2011 to December 31, 2011 — $ — — $ 116,258 Total: 844,335 844,294 Company did notstock repurchase anyauthorization by $250.0 million to $750.0 million on October 20, 2010.stock. The timingstock for $25.0 million under our Rule 10b5-1 Purchase Plan and amount of any future repurchases will depend onin open market conditions and corporate considerations.26, 2009,25, 2010, the Company acquired 3,42041 shares for a nominal amount as a result of such withholdings.26, 2009,31, 2011, the number of options issued under the Company's stock option plans and the number of options available for future issuance under these plans. Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights Weighted-average
exercise price of
outstanding
options, warrants
and rights Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)) (a) (b) (c) (a) (b) (c) 3,203,404 $ 41.22 445,668 9,000 $ 36.72 15,617 97,020 $ 24.24 — 2,907,519 $ 34.22 3,801,315 Charles River 2000 Incentive Plan 2,322,927 $ 41.20 1,083,653 Charles River 1999 Management Incentive Plan 1,000 $ 31.12 6,000 Inveresk 2002 Stock Option Plan 72,041 $ 26.20 — 2007 Incentive Plan 3,685,295 $ 36.63 4,709,080 — — — — — — 6,216,943 (1) 4,262,600 (2) 6,081,263 (1) 5,798,733 (2)
____________________________(1)None of the options outstanding under any equity compensation plan of the Company include rights to any dividend equivalents (i.e., a right to receive from the Company a payment commensurate to dividend payments received by holders of common stock or other equity instruments of the Company).(2)On March 22, 2007, the Board of Directors determined that, upon approval of the 2007 Incentive Plan, no future awards would be granted under the preexisting equity compensation plans, including the Charles River 1999 Management Incentive Plan and the Charles River 2000 Incentive Plan. Shareholder approval was obtained on May 8, 2007. Previously, on February 28, 2005, the Board of Directors terminated the Inveresk 2002 Stock Option Plan to the extent that no further awards would be granted thereunder.(1) None of the options outstanding under any of our equity compensation plans include rights to any dividend equivalents (i.e., a right to receive from us a payment commensurate to dividend payments received by holders of our common stock or our other equity instruments). (2) On March 22, 2007, the Board of Directors determined that, upon approval of the 2007 Incentive Plan, no future awards would be granted under the preexisting equity compensation plans, including the Charles River 1999 Management Incentive Plan and the Charles River 2000 Incentive Plan. Shareholder approval was obtained on May 8, 2007. Previously, on February 28, 2005, the Board of Directors terminated the Inveresk 2002 Stock Option Plan to the extent that no further awards would be granted thereunder. the Company'sour existing equity compensation plans as of December 26, 2009: Number of securities
outstanding Weighted average
exercise price Weighted
average term (a) (b) (c) (a) (b) (c) 896,393 $ — — 703,011 $ — — 6,216,943 $ 37.67 4.77 6,081.263 $ 38.25 3.67
____________________________(1)For purposes of this table, only unvested restricted stock as of December 26, 2009 is included. Also for purposes of this table only, the total includes 84,358 restricted stock units granted to certain employees of the Company outside of the United States.(1) Thethe S&P 500 Index and Thethe NASDAQ Pharmaceutical Index.the Company'sour cumulative total shareholder return on itsour Common Stock during a period commencing on December 25, 200430, 2006 and ending on December 26, 200931, 2011 (as measured by dividing (1) the sum of (A) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and (B) the difference between the Company'sour share price at the end and the beginning of the measurement period; by (2) the share price at the beginning of the measurement period) with the cumulative total return of the S&P 500 Index and the NASDAQ Pharmaceutical Index during such period. The Company hasWe have not paid any dividends on the Common Stock, and no dividends are included in the representation of the Company's performance. The stock price performance on the graph below is not necessarily indicative of future price performance. The graph is not "soliciting“soliciting material,"” is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference in any filing of the Companyour filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. Information used in the graph was obtained from Standards & Poor's Institutional Market Services, a source believed to be reliable, but the Company iswe are not responsible for any errors or omissions in such information.
Dec. 25,
2004 Dec. 31,
2005 Dec. 30,
2006 Dec. 29,
2007 Dec. 27,
2008 Dec. 26,
2009 100.00 91.02 92.91 142.04 53.75 70.81 100.00 104.91 121.48 128.16 80.74 102.11 100.00 102.23 105.16 99.56 91.99 98.21 Charles River Laboratories International, Inc. 100 152.88 57.85 76.21 82.54 63.19 S&P 500 Index 100 105.49 66.46 84.05 96.71 98.75 NASDAQ Pharmaceutical Index 100 90.99 84.71 95.64 100.1 110.44 Fiscal Year(1) Fiscal Year(1) 2009 2008 2007 2006 2005 2011 2010 2009 2008 2007 (dollars in thousands) (dollars in thousands) $ 1,202,551 $ 1,343,493 $ 1,230,626 $ 1,058,385 $ 993,328 $ 1,142,647 $ 1,133,416 $ 1,171,642 $ 1,295,299 $ 1,185,139 773,183 832,784 752,435 651,778 603,624 740,405 748,656 748,650 796,478 720,254 233,995 230,266 217,523 180,795 157,999 198,648 232,489 227,663 223,935 212,471 — 700,000 — — — — 305,000 — 700,000 — Asset impairment 7,492 91,378 — — — Termination fee — 30,000 — — — 28,447 30,312 33,509 37,639 47,011 21,796 24,405 25,716 26,725 30,020 166,926 (449,869 ) 227,159 188,173 184,694 174,306 (298,512 ) 169,613 (451,839 ) 222,394 1,777 8,691 9,683 6,836 3,695 1,353 1,186 1,712 7,882 9,120 (21,682 ) (22,334 ) (24,453 ) (23,200 ) (24,324 ) (42,586 ) (35,279 ) (21,682 ) (22,335 ) (24,453 ) 2,086 (5,930 ) (1,448 ) 981 (177 ) (411 ) (1,477 ) 1,914 (5,154 ) (1,392 ) 149,107 (469,442 ) 210,941 172,790 163,888 132,662 (334,082 ) 151,557 (471,446 ) 205,669 39,725 56,174 56,677 48,164 16,261 17,140 23 40,354 57,029 56,023 109,382 (525,616 ) 154,264 124,626 147,627 115,522 (334,105 ) 111,203 (528,475 ) 149,646 3,220 424 (3,146 ) (181,004 ) (3,790 ) (5,545 ) (8,012 ) 1,399 3,283 1,472 112,602 (525,192 ) 151,118 (56,378 ) 143,837 109,977 (342,117 ) 112,602 (525,192 ) 151,118 1,839 687 (470 ) (1,605 ) (1,838 ) (411 ) 5,448 1,839 687 (470 ) $ 114,441 $ (524,505 ) $ 150,648 $ (57,983 ) $ 141,999 $ 109,566 $ (336,669 ) $ 114,441 $ (524,505 ) $ 150,648 $ 1.70 $ (7.80 ) $ 2.30 $ 1.78 $ 2.09 $ 0.05 $ 0.01 $ (0.05 ) $ (2.63 ) $ (0.05 ) $ 1.75 $ (7.80 ) $ 2.25 $ (0.84 ) $ 2.04 Continuing operations attributable to common shareowners $ 2.26 $ (5.25 ) $ 1.73 $ (7.85 ) $ 2.23 Discontinued operations $ (0.11 ) $ (0.13 ) $ 0.02 $ 0.05 $ (0.02 ) Net income (loss) attributable to common shareowners $ 2.16 $ (5.38 ) $ 1.75 $ (7.8 ) $ 2.25 $ 1.69 $ (7.80 ) $ 2.24 $ 1.76 $ 2.02 $ 0.05 $ 0.01 $ (0.05 ) $ (2.59 ) $ (0.05 ) $ 1.74 $ (7.80 ) $ 2.19 $ (0.83 ) $ 1.96 Continuing operations attributable to common shareowners $ 2.24 $ (5.25 ) $ 1.72 $ (7.85 ) $ 2.17 Discontinued operations $ (0.11 ) $ (0.13 ) $ 0.02 $ 0.05 $ (0.02 ) Net income (loss) attributable to common shareowners $ 2.14 $ (5.38 ) $ 1.74 $ (7.8 ) $ 2.19 $ 93,553 $ 91,290 $ 86,411 $ 82,586 $ 87,935 $ 85,230 $ 93,649 $ 89,962 $ 86,851 $ 81,965 80,012 199,858 230,938 183,529 94,520 49,143 42,860 79,853 198,642 230,754 $ 182,574 $ 243,592 $ 225,449 $ 175,380 $ 114,821 $ 68,905 $ 179,160 $ 182,574 $ 243,592 $ 225,449 345,828 317,141 299,587 241,762 107,910 209,046 293,114 345,828 317,141 299,587 508,235 457,578 1,120,540 1,119,309 1,097,590 197,561 198,438 508,235 457,578 1,120,540 2,204,093 2,141,413 2,778,313 2,523,449 2,538,209 1,558,320 1,733,373 2,204,093 2,141,413 2,778,313 492,832 515,332 437,902 489,284 296,090 Total debt and capital lease obligations 717,945 700,852 492,832 515,332 437,902 1,375,243 1,241,286 1,905,390 1,643,892 1,827,013 525,583 687,423 1,375,243 1,241,286 1,905,390 (1)Our fiscal year consists of 12 months ending on the last Saturday on, or prior to, December 31.(1) Our fiscal year consists of 12 months ending on the last Saturday on, or prior to, December 31. Overview and leading hospitals and academic institutions throughout the world in order to bring drugs to market faster and more efficiently. Our broad portfolio of products and services enables our customers to reduce costs, increase speed to market and enhance their productivity and effectiveness in drug discovery and development. We have built upon our core competency ofin vivo biology, including laboratory animal medicine and science (research model technologies) to develop a diverse and growing portfolio of regulatory compliant preclinical services - both GLP (Good Laboratory Practice) and non-GLP - which address drug discovery and development. Utilizing our broad portfolio of products and services enables our clients to create a more flexible drug development in the preclinical arena.model which reduces their costs, enhances their productivity and effectiveness, and increases speed to market. We have been in business for over 6065 years and currently operate approximately 7064 facilities in 1615 countries worldwide. This was a challenging year for preclinical services. We believe business restructuring and reprioritization of pipelines byclientscompanies have been undergoing significant changes over the last few years as they endeavor to improve the productivity of their drug development pipelines, and at the same time, streamline their infrastructures in 2008order to improve efficiency and early 2009 contributed towards reduced demandreduce operating costs. Our clients' efforts have had an unfavorable impact on our operations as we started the year. As 2009 progressed our operating results were further negatively impacted by an assortment of factors including: continueda result of: measured research and development spending by major pharmaceutical and biotechnology companies due to the impact of the slower economy and world wide credit crisis; a period of accelerating consolidations; significant study slippage andcompanies; delays in customerclient decisions and commitments; tight cost constraints and recognitionthe resultant pricing pressure, particularly in view of excess preclinical capacity within our industry which resulted in pricing pressure;the contract research industry; a focus on late-stage (human)clinical testing as customers endeavorclients accelerate their efforts to bring drugs to market;market in the face of expiration of patents on branded drugs; decreased funding for biopharmaceutical companies and pendingthe impact of healthcare reform initiatives. In addition, consolidation in the pharmaceutical and biotechnology industry has also affected demand for our products and services. All of these ongoing factors contributedcontinue to contribute to demand uncertaintyuncertainty.impacted salesservices appears to be stabilizing but we remain uncertain as to when the unfavorable market factors will abate. As part of clients efforts to improve pipeline productivity, pharmaceutical and biotechnology companies are emphasizing efficacy testing in 2009. As we look forward, we anticipate market demand, particularly for Preclinical Services will beginorder to ramp up slowly beginningeliminate therapies from the pipeline earlier in the second quarter of 2010. As our customers reinvigorate their drug development effortsprocess. This trend is visible in increasing demand for our non-GLP in vivo pharmacology and drug metabolism and pharmacokinetics (DMPK) services. We continue to employ methodsanticipate that our clients will reduce their internal capacity through closure of underutilized facilities and increase their use of these outsourced services in the future, because utilizing outsourced services enables them to improve the effectiveness and cost efficiency of theircreate a flexible drug development pipelines, as well as complete consolidationsmodel which improves operating efficiency and reduces costs. We believe that have been announced, we believe they will increase theirincreased focus on strategic outsourcing by our clients should result in the expansion of strategic relationships with a reduced and limited number of partners, which will drive demand for the services we provide.customers'clients' continued demand for research models and services and regulatory compliant preclinicalboth GLP and non-GLP will also continue to pursue strategic "bolt-on" acquisitions that complementfocus on our four key initiatives designed to allow us to drive profitable growth and to maximize value for shareholders, and thus better position ourselves to operate successfully in the current and future business increaseenvironment. These four initiatives are:rate of our growth or geographically expand our existing services, as evidenced by our acquisitions of Systems Pathology Company, Cerebricon and Piedmont Research Center in 2009. During this period of market uncertainty, weconsolidated operating margin. alignaggressively manage our organizationcost structure and drive operating efficiencies which are expected to supportgenerate improving operating margins. We have already implemented significant actions to reduce costs during the last two years to manage challenging industry-wide preclinical market requirements. Theconditions. These actions have favorably impacted our margins in 2011. In the fourth quarter of 2011, we implemented a headcount reduction of approximately 2%, primarily in 2009 included restrictions on hiring, a salary freeze for a substantial percentage of our workforce, including almost all incentive-eligible employees (since lifted in 2010), continued tight control of discretionary spending, headcount reductions, predominately in ourthe Preclinical Services (PCS) business. This action is expected to generate annual savings of approximately $7.5 million beginning in 2012.segment, reductionsegments without significant additional investment for expansion. Improved operating margins, elimination of operating losses with the sale of our Phase I clinical business in targeted bonus amounts and other benefits,2011 and the closure of our Arkansas facility. As a result of these actions, we recorded a chargePCS China facility in 2011, and minimal requirements for severance costs of $16.6 million. Additionally during 2009 we realigned our PCS organization as well as our Sales and Marketing teamcapital expansion, should contribute to enhance our customer service and client focus. During 2010 and into the future we are continuing our process improvement initiatives including the ongoing roll out of our ERP system and Lean Six Sigma programstrong cash flow generation. We expect capital expenditures to drive further efficienciesbe approximately $50 million in our organization.2012.have evaluated our capacity plans for our PCS business, taking into consideration the factors that are affecting our sales and determined that we have more than sufficient capacitycontinue to accommodate our clients' current demand. Accordingly, we will suspend operations at our PCS facilitymaintain a disciplined focus on deployment of capital, investing in Shrewsbury, Massachusetts during 2010. We intend to resume operations when global preclinical market conditions improve and we require additional capacity. In lightthose areas of our completed facility expansions,existing business which will generate the greatest sales growth and profitability, such as Genetically Engineered Models and Services (GEMS), Discovery Services (DS), In Vitro products and Biopharmaceutical Services.leaner infrastructure is intendedstock with the intent to improvedrive immediate shareholder value and earnings per share accretion. During 2011, we repurchased 8.4 million shares. Our weighted average shares outstanding for 2011 has decreased to 51.3 million shares from 62.6 million shares for 2010. As of December 31, 2011, we had $116.3 million remaining on our operating margins while providing us with sufficient capacity and flexibility to accommodate increased demand in the future. As a result of this decision, the Company expects to record charges of approximately $7$750.0 million primarily in the first quarter of 2010, for severance and related costs. We expect in total these actions have reduced costs by approximately $40 million in 2009 and $70 million in 2010.20092011 were $1.2 billion, a decrease$1,142.6 million, an increase of 10.5%0.8% from 2008.$1,133.4 million in 2010. The sales decreaseincrease was due primarily to slower demandincreased sales for RMS partially offset by lower PCS due to significant study slippage and delays in customer decisions and commitments, lack of capital market funding for biotechnology companies, our clients' tight cost controls which resulted in more measured spending and pricing pressure, and a focus on late-stage (human) testing as customers endeavor to bring drugs to market.sales. The effect of foreign currency translation had a negativepositive impact on sales of 2.3%2.2%. Due to the timing of our fiscal year end, we periodically recognize a "53rd week" in a fiscal year. The 53rd week in 2011 contributed approximately 1.0% to reported 2011 sales.decreasedincreased to 35.7% of net sales compared to 38.0%35.2% of net sales in 2008,2011 compared to 33.9% of net sales in 2010, due primarily to lowercost savings actions and the impact of increased RMS sales.2009 was $166.9 million2011 compared to aan operating loss of $298.5 million for 2008 of $449.9 million primarily due to our goodwill impairment of $700 million in 2008.2010. Income from continuing operations, net of tax, was $115.5 million for 2011 compared to an operating loss of $334.1 million for 2010. The increase in operating income was primarily due to prior year items which include a goodwill impairment, asset impairments and the $30.0 million acquisition termination fee. For 2011, diluted earnings per share attributable to common shareowners was $111.2 million in 2009$2.14 compared to a loss from continuing operations attributable to common shareowners of $524.9 million in 2008. Diluted income per share from continuing operations attributable to common shareowners for 2009 was $1.69 compared to adiluted loss per share of $7.80$5.38 in 2008.2010. Our capital expenditures totaled $80.0$49.1 million for 2009,2011, compared to $199.9$42.9 million for 2008.2010. Our planned capital expenditures in 20102012 are in the range of $60 million to $70approximately $50.0 million. Net income attributable to common shareowners for 2009 was $114.4$109.6 million in 2011, compared to a net loss attributable to common shareowners for 2008 of $524.5 million.RMSResearch Models and PCS,Services (RMS) and Preclinical Services (PCS), which reflectreflects the manner in which our operating units are managed.54.9%61.7% of net sales in 2009,2011, includes salesthree categories: production of research models, genetically engineered modelsResearch Model Services, and servicesOther Products. Research Model Services include four business units: Genetically Engineered Models and Services (GEMS), research animal diagnosticsResearch Animal Diagnostics (RADS), discoveryDiscovery Services (DS), and imaging services, consultingInsourcing Solutions (IS). Other Products includes our In Vitro business and staffing services,avian vaccine support, andin vitro business.services. Net sales for thisthe RMS segment were flatincreased 5.8% compared to 2008, with unfavorable2010, primarily driven by higher sales of Other Products and Research Model Services. The effect of foreign currency translation has a positive impact on sales of 1.3% partially offset by the addition of Piedmont Research Center, Cerebricon and MIR Preclinical Services.2.7%. We experienced decreasesincreases in both the RMS gross margin, to 42.1% from 43.1% to 42.2%41.7%, and operating margin to 29.2% from 30.1% to 29.3% compared to27.7% last year, due mainly to the impact of cost savings and our fixed costscost leverage with flat sales partially offset by cost savings.increased sales.45.1%38.3% of net sales in 2009,2011, includes services required to take a drug through the development process including discovery support, toxicology, pathology,safety assessment and biopharmaceutical bioanalysis, pharmacokinetics and drug metabolism services as well as Phase I clinical trials.services. Sales for this segment decreased 20.6% over 20086.3% from 2010, driven by slower demand for preclinical services and unfavorablepartially offset by favorable foreign currency, which decreasedincreased sales growth by 3.2%, partially offset by the full-year impact of NewLab BioQuality AG, which we acquired in September of 2008.1.5%. We experienced a decreasean increase in the PCS gross margin to 24.0% from 33.1%22.8% in 2008 to 27.8% in 2009,2010, due mainly to lower capacity utilizationimpairments in 2010 and cost savings in 2011 partially offset by the impact of sales mix and continued pricing pressure. The 2011 operating margin was 5.7% compared to (81.4%) in 2010, mainly due to the lower sales volume, increased pricing pressure, and costs associated with the start up of our new facilities in China and Canada partially offset by expense management. As a result of our goodwill impairment the 2008 operating margin was a negative 87.3% compared to 6.8%and asset impairments in 2009.Statements—NoteStatements-Note 1.Significant Accountingan annuala test for goodwill impairment analysisannually and whenever events or circumstances make it likely the fair value of goodwilla reporting unit has fallen below its carrying amount to determine if impairment exists. The goodwill impairment analysis is a two-step process. The first step is used to identify potential impairment and involves comparing each reporting unit's estimated fair value to its carrying value, including goodwill. Fair value is determined by using a weighted combination of a market-based approach and an income approach, as this combination is deemed to be the most indicative of our fair value in an orderly transaction between market participants. Under the market-based approach, we utilize information about our Company as well as publicly available industry information to determine earnings multiples and sales multiples that are used to value our reporting units. Under the income approach, we determine fair value based on the estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital which reflects the overall level of inherent risk of the reporting unit and the rate of return an outside investor would expect to earn. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, profit margin percentages, discount rates, perpetuity growth rates, future capital expenditures and future market conditions, among others. Our projections are based on our internal projections.plans. Key assumptions, strategies, opportunities and risks from this strategic review along with a market evaluation are the basis for our assessment. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is not considered to be impaired. However, if the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment.howthe manner in which goodwill is calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit as calculated in step one, over the estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the carrying value of goodwill assignedcustomerclient relationships.as ofat the beginning of the fourth quarter. Based on our assessment (step one) for 2009,2011, the fair value of our businessbusinesses units exceeded their carrying value therefore our goodwill was not impaired.26, 2009,31, 2011, we had recorded goodwill and other intangibles of $668.5$291.0 million in the consolidated balance sheet. At the beginning of the fourth quarter of 2008, based on our initial assessment (step one), the fair value of our business units exceeded their carrying value therefore our goodwill was not impaired. As economic conditions worsened late in the fourth quarter and our business performance and outlook was not as strong as anticipated coupled with a decrease in our market capitalization, management determined that circumstances had changed enough to trigger another goodwill impairment test as of December 27, 2008. Our analysis resulted in the determination that the fair value our PCS business was less than its carrying value. The second step of the goodwill impairment test involved us calculating the implied goodwill for the PCS business. The carrying value of the goodwill assigned to the PCS business exceeded the implied fair value of goodwill resulting in a goodwill impairment of $700 million.•••customerclient purchase orders, title and risk of loss have transferred, which occurs upon delivery of the products, the sales price is fixed and determinable and collectability is reasonably assured. These recognition criteria are met at the time the product is delivered to the customer'sclient's site. Product sales are recorded net of returns upon delivery. For large models in some cases customersclients pay in advance of delivery of the product. These advances are deferred and recognized as revenue upon delivery of the product.toxicology, pathology, laboratory, clinical Phase I trials,discovery support, safety assessment , RADS, GEMS, DS and consulting and staffing servicesIS and is generally evidenced by customerclient contracts. ToxicologySafety assessment services provide highly specialized toxicology studies to evaluate the safety and toxicity of new pharmaceutical compoundsmolecules and materials used in medical devices. PathologyIt also includes pathology services, which provide the ability to identify and characterize pathologic changes within tissues and cells in determining the safety of a new compound. LaboratoryRADS services monitor and analyze the health and genetics of research models used in research protocols. Clinical Phase I conducts tolerability assessments to explore human pharmacology. GEMS services include validating, maintaining, breeding and testing research models for biomedical research activities. ConsultingDS augments our GEMS services by providing efficacy studies and staffingother services providerequired as drugs progress through the development pipeline. IS provides management of animal care operations on behalf of government, academic, pharmaceutical and biotechnology organizations.toxicology, pathology and clinical Phase I trialssafety assessment services arrangements typically range from one to six months but can range up to approximately 24 months in length. These agreements are negotiated for a fixed fee. Laboratory service arrangements are generally completed within a one-month period and are also of a fixed fee nature. DS services are also short-term in nature, while GEMS and consulting and staffing servicesIS are of a longer-term nature, from six months to five years, and are billed at agreed upon rates as specified in the contract.customersclients and do not contain acceptance provisions which are based upon the achievement of certain study or laboratory testing results. Revenue of agreed upon rate contracts is recognized as services are performed, based upon rates specified in the contract. Revenue of fixed fee contracts is recognized as services are performed in relation to estimated costs to complete procedures specified by customersclients in the form of study protocols. In general, such amounts become billable in accordance with predetermined payment schedules, but are recognized as revenue as services are performed. As a result of the reviews, revisions in estimated effort to complete the contract are reflected in the period in which the change became known.customer with the offset toclient and recognized as unbilled receivable. As of December 26, 2009, we had recorded unbilled revenue of $32.6 million and deferred revenue of $72.4 million in our consolidated balance sheet31, 2011, based on the difference between the estimated level of services performed and the billing arrangements defined by our service contracts.advisorsadvisers and actuaries. The key assumptions include the discount rate, the expected return on plan assets and expected future rate of salary increases. In addition, our actuaries determine the expense or liability of the plan using other assumptions for future experiences such as withdrawal and mortality rate. The assumed discount rate, which is intended to be the actual rate at which benefits could effectively be settled, is adjusted based on the change in the long-term bond yield as of the measurement date. As of December 26, 2009,31, 2011, the weighted-averageweighted‑average discount rate for our pension plans was 5.41%4.47%. As of December 26, 2009,31, 2011, we had a pension liability of $32.6$49.2 million.$1.8$2.0 million.share-basedstock-based payment awards made to employees and directors including employee stock options and restricted stock awards based on estimated fair values. Accordingly, stock-based compensation cost is measured at grant date, based on the estimated fair value of the award and is recognized as expense on a straight-line basis over the requisite service period which is generally the vesting period. During the year ended December 26, 2009,31, 2011, we recognized $23.8$21.7 million of stock compensation expense associated with stock options, restricted stock and performance based stock awards. We estimate the fair value of stock options using the Black-Scholes option-pricingoption‑pricing model and the fair value of our restricted stock awards and restricted stock units based on the quoted market price of our common stock. We recognize the associated compensation expense on a straight-line basis over the vesting periods of the awards, net of estimated forfeitures. Forfeiture rates are estimated based on historical pre-vesting forfeitures and are updated on a quarterly basis to reflect actual forfeitures of unvested awards.26, 2009,31, 2011, earnings of non-U.S. subsidiaries considered to be indefinitely reinvested totaled $278$106.5 million. No provision for U.S. income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to both U.S. Federal and state taxes and withholding taxes payable to the various foreign countries. It is our policy to indefinitely reinvest the earnings of our non-U.S. subsidiaries unless they can be repatriated in a manner that generates a tax benefit or an unforeseen cash need arises in the United States and the earnings can be repatriated in a manner that is substantially free of income taxes. It is not practicable to estimate the amount of additional income taxes payable on the earnings that are indefinitely reinvested in foreign operations.to determine bothfor the current and deferred tax position.future periods. Any significant fluctuation in tax rates or changes in tax laws and regulations or changes to interpretation of existing tax laws and regulations could cause our estimate of taxes to change resulting in either increases or decreases in our effective tax rate. Effective December 31, 2006, we adopted a new accounting standard for uncertainty in income taxes which clarifies the accounting for income tax positions by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. The guidance also provides for the derecognition of previously recognized income tax items, measurement, classification, interest and penalties, accounting in interim periods and financial statement disclosure. Accordingly, weWe recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the tax position. The tax benefits recognized in our financial statements from such positions are measured onbased upon the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. Fiscal Year Ended Fiscal Year Ended December 26,
2009 December 27,
2008 December 29,
2007 December 31, 2011 December 25, 2010 December 26, 2009 100 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 64.3 % 62.0 % 61.1 % 64.8 % 66.1 % 63.9 % 19.5 % 17.1 % 17.7 % 17.4 % 20.5 % 19.4 % — 52.1 % — — % 26.9 % — % Asset impairments 0.7 % 8.1 % — % Termination fee — % 2.6 % — % 2.4 % 2.3 % 2.7 % 1.9 % 2.2 % 2.2 % 13.9 % (33.5 )% 18.5 % 15.3 % (26.3 )% 14.5 % 0.1 % 0.6 % 0.8 % 0.1 % 0.1 % 0.1 % 1.8 % 1.7 % 2.0 % 3.7 % 3.1 % 1.9 % 3.3 % 4.2 % 4.6 % 1.5 % — % 3.4 % Discontinued operations (0.5 )% (0.7 )% 0.1 % 0.2 % 0.1 % — % — % 0.5 % 0.2 % 9.2 % (39.1 )% 12.5 % Net income (loss) attributable to common shareowners 9.6 % (29.7 )% 9.8 % Fiscal Year Ended Fiscal Year Ended December 26,
2009 December 27,
2008 December 29,
2007 December 31, 2011 (dollars in millions) (dollars in millions) $ 659.9 $ 659.9 $ 577.2 542.6 683.6 653.4 Research models and services $ 705.4 $ 667.0 $ 659.9 Preclinical services 437.2 466.4 511.7 $ 381.3 $ 375.3 $ 327.9 391.9 457.5 424.5 Research models and services 408.1 388.6 381.2 Preclinical services 332.3 360.0 367.4 — 700.0 — Preclinical services — 305.0 — Termination fee — 30.0 — Asset impairment Research models and services 0.7 0.8 — Preclinical services 6.8 90.6 — $ 79.0 $ 83.3 $ 70.3 91.5 94.8 93.7 63.5 52.2 53.5 Research models and services 83.6 85.8 79.1 Preclinical services 58.1 73.4 85.1 Unallocated corporate overhead 56.9 73.3 63.5 $ 6.4 $ 2.6 $ 1.9 22.1 27.7 31.6 Research models and services 6.7 7.3 6.3 Preclinical services 15.0 17.1 19.4 $ 193.3 $ 198.7 $ 177.1 37.1 (596.4 ) 103.6 (63.5 ) (52.2 ) (53.5 ) Research models and services 206.3 184.5 $ 193.3 Preclinical services 24.9 (379.7 ) 39.8 Unallocated corporate overhead (56.9 ) (103.3 ) (63.5 ) Fiscal Year Ended December 26,
2009 December 27,
2008 December 29,
2007 54.9 % 49.1 % 46.9 % 45.1 % 50.9 % 53.1 % 57.8 % 56.9 % 56.8 % 72.2 % 66.9 % 65.0 % — 102.4 % — 12.0 % 12.6 % 12.2 % 16.8 % 13.9 % 14.3 % — — — 1.0 % 0.4 % 0.3 % 4.1 % 4.1 % 4.8 % 29.3 % 30.1 % 30.7 % 6.8 % (87.3 )% 15.9 % (5.3 )% (3.9 )% (4.3 )% Fiscal Year Ended December 31, 2011 Net sales: Research models and services 61.7 % 58.8 % 56.3 % Preclinical services 38.3 % 41.2 % 43.7 % Cost of products sold and services provided: Research models and services 57.9 % 58.3 % 57.8 % Preclinical services 76.0 % 77.2 % 71.8 % Goodwill impairment: Preclinical services — % 65.4 % — % Asset impairment: Research models and services 0.1 % 0.1 % — % Preclinical services 1.6 % 19.4 % — % Termination fee — % — % — % Selling, general and administrative expenses: Research models and services 11.8 % 12.9 % 12.0 % Preclinical services 13.3 % 15.8 % 16.6 % Unallocated corporate overhead — % — % — % Amortization of other intangibles: Research models and services 1.0 % 1.1 % 1.0 % Preclinical services 3.4 % 3.7 % 3.8 % Operating income: Research models and services 29.2 % 27.7 % 29.3 % Preclinical services 5.7 % (81.4 )% 7.8 % Unallocated corporate overhead (5.0 )% (9.1 )% (5.4 )% 20092011 Compared to Fiscal 2008in 2009for the year ending December 31, 2011 were $1,202.6$1,142.6 million, a decreasean increase of $140.9$9.2 million, or 10.5%0.8%, from $1,343.5$1,133 million in 2008.for the year ending December 25, 2010, due primarily to increased sales for RMS and favorable foreign currency translation of 2.2% partially offset by lower PCS sales.In 2009,For the year ending December 31, 2011, net sales for our RMS segment were $659.9$705.4 million, flat comparedan increase of $38.4 million, or 5.8%, from $667.0 million for the year ending December 25, 2010, due primarily to 2008. Sales growth from the additionshigher Other Product sales, which include our Avian and In Vitro businesses, as well as Research Model Services. The effect of Piedmont Research Center, MIR Preclinical Services and Cerebricon was offset by softer demand for products and services, a 1.3% negative impact fromfavorable foreign currency translation andincreased sales by 2.7%.divestiture of the vaccine business in Mexico. Preclinical Services. In 2009,year ending December 31, 2011, net sales for our PCS segment were $542.6$437.2 million, a decrease of $141.0$29.2 million, or 20.6%6.3%, compared to $683.6from $466.4 million for the year ending December 25, 2010. The sales decrease was driven by reduced biopharmaceutical spending, which resulted in 2008. The decrease in PCS sales was primarily due to slowerlower demand for preclinicalour services and unfavorablea shift in study mix, offset by favorable foreign currency which decreased sales growth by 3.2% and the divestituretranslation of the Phase I business in Scotland partially offset by full year impact of the acquisition of NewLab.1.5%.in 2009during 2011 was $773.2$740.4 million, a decrease of $59.6$8.3 million, or 7.2%1.1%, from $832.8$748.7 million in 2008.during 2010. Cost of products sold and services provided in 2009during the year ending December 31, 2011 was 64.3%64.8% of net sales, compared to 62.0% in 2008.66.1% during the year ending December 25, 2010.in 2009during 2011 was $381.3$408.1 million, an increase of $6.0$19.5 million, or 1.6%5.0%, compared to $375.3$388.6 million in 2008.2010. Cost of products sold and services provided as a percentagefor the year ending December 31, 2011 decreased to 57.9% of net sales in 2009 was 57.8% compared to 56.9% in 2008.58.3% of net sales for the year ending December 25, 2010. The increasedecrease in cost as a percentage of sales was due primarily to the impact of increased fixed costs with flat sales.our cost-savings actions partiallyin 2009during 2011 was $391.9$332.3 million, a decrease of $65.6$27.7 million, or 14.3%, compared to $457.5$360.1 million in 2008.2010. Cost of services provided as a percentage of net sales was 72.2% in 2009,76.0% during the year ending December 31, 2011, compared to 66.9% in 2008.77.2% for the year ending December 25, 2010. The increasedecrease in cost of products sold and services provided as a percentage of net sales was primarily due to lower capacity utilization, additional costs associated with the start upimpact of the new preclinical facilities in Sherbrooke and China and severance costs partially offset by cost savings initiatives.our cost-savings actions.in 2009for the year ending December 31, 2011 were $234.0$198.7 million, an increasea decrease of $3.7$33.8 million, or 1.6%14.6%, from $230.3$232.5 million in 2008.for the year ending December 25, 2010. Selling, general and administrative expenses in 2009during 2011 were 19.5%17.4% of net sales compared to 17.1% of net sales in 2008.20.5% for the year ending December 25, 2010. The increasedecrease in selling, general and administrative expenses as a percent of sales was primarily due to the lower sales.cost saving-actions.in 2009for 2011 were $79.0$83.6 million, a decrease of $4.3$2.1 million, or 5.2%2.5%, compared to $83.3$85.7 million in 2008.2010. Selling, general and administrative expenses decreased as a percentage of sales to 12.0%11.8% for the year ending December 31, 2011 from 12.9% for the year ending December 25, 2010. The decrease in 2009 from 12.6% in 2008,selling, general and administrative expenses as a percent of sales was primarily due mainly to tight control of discretionary costs and lower operating expenses in Japan.cost-savings actions.in 2009during 2011 were $91.5$58.1 million, a decrease of $3.3$15.4 million, or 3.6%20.9%, compared to $94.8$73.5 million in 2008 due mainly to tight control of discretionary costs, lower bonus expense and a gain on the sale of real estate.during 2010. Selling, general and administrative expenses in 2009 increasedfor the year ending December 31, 2011 decreased to 16.8%13.3% of net sales, compared 13.9% in 2008,to 15.8% of net sales for the year ending December 25, 2010, due mainly to lower sales.the benefit of cost-savings actions.related toassociated with activities centered at our corporate headquarters, such as compensation (including$63.5$56.9 million during the year ending December 31, 2011, compared to $73.3 million during the year ending December 25, 2010. The decrease was primarily due to cost-savings actions and tight expense control, a life insurance gain of $7.7 million in 2009, compared to $52.2 million in 2008. The increase in unallocated corporate overhead during 2009 was due primarily to severance charges2011 and prior year costs related to our cost-saving actions, growth in health care costs, increased costs associated with the evaluation of a proposed acquisition candidatesof $6.6 million.impactfuture cash flow expected to be generated from the long-lived assets. Accordingly, we recorded impairment charges of $64.6 million for PCS-Massachusetts, $17.2 million for PCS-China and $7.2 million for in-process research and development costs representing the excess of the 2008 pension curtailment gain.in 2009for the year ending December 31, 2011 was $28.5$21.8 million, a decrease of $1.8$2.6 million, from $30.3$24.4 million in 2008.for the year ending December 25, 2010. Amortization expense decreased as a percentage of sales to 1.9% for the year ending December 31, 2011, from 2.2% for the year ending December2009,2011, amortization of other intangibles for our RMS segment was $6.4$6.7 million, an increasea decrease of $3.8$0.6 million from $2.6$7.3 million in 2008 due to acquisitions.2010.In 2009,For the year ending December 31, 2011, amortization of other intangibles for our PCS segment was $22.1$15.0 million, a decrease of $5.6$2.1 million from $27.7$17.1 million in 2008.for the year ending December 25, 2010.in 2009 was $166.9for the year ending December 31, 2011was $174.3 million, compared toan increase from a loss of $449.9$298.5 million in 2008. Research Models and Services. In 2009, operating income for our RMS segment was $193.3 million, a decrease of $5.4 million, or 2.7%, from $198.7 million in 2008.the year ending December 25, 2010. Operating income as a percentage of net sales for the year ending December 31, 2011 was 15.3% compared to (26.3)% for the year ending December 25, 2010, due primarily to the impact of the asset impairment, goodwill impairment and termination fee in 20092010.29.3%$206.3 million, an increase of $21.9 million, or 11.8%, from $184.5 million in 2010. Operating income as a percentage of net sales for the year ending December 31, 2011 was 29.2%, compared to 30.1% in 2008.27.7% for the year ending December 25, 2010. The decreaseincrease in operating income as a percentage of net sales was primarily due to the impact of our fixed cost with flat sales.cost-savings actions.In 2009For the year ending December 31, 2011, operating income for our PCS segment was $37.1$24.9 million, compared toan increase from a loss of $596.4$379.7 million for the year ending December 25, 2010. Operating income as a percentage of net sales increased to 5.7% in 2008.2011 compared to (81.4)% of net sales in 2010. The increase in operating income as a percentage of net sales was primarily due our $700 millionto the asset impairment, goodwill impairment recordedand termination fee in 2008, partially offset by2010.impactyear ending December 31, 2011, compared to $103.3 million during the year ending December 25, 2010. The decrease was primarily due to the termination fee and costs related to the evaluation of lower salesa proposed acquisition of $6.6 million in 2010 as well as cost-savings actions and increased severance costs.tight expense control and a life insurance gain of $7.7 million in 2011.in 2009for 2011 was $21.7$42.6 million, compared to $22.3$35.3 million in 2008.2010. The decreaseincrease was due to lowerincreased debt balances and lower interest rates on outstanding debt partially offset by increased interest expense on the convertible debt and reduced capitalized interest.balances.in 2009for 2011 was $1.8$1.4 million, compared to $8.7$1.2 million in 2008 primarily due to lower cash balances and lower interest rates on invested funds.for 2010.20092011 was $39.7 million, a decrease of $16.5$17.1 million, compared to $56.2 million$23 thousand in 2008.2010. Our effective tax rate was 26.6%12.9 % in 2009,2011, compared to (12.0%)0% in 2008. The goodwill impairment adversely impacted our 2008 effective tax rate by (37.6%). Other changes2010. Changes in the effective tax rate resultedresult from earnings mix, increased unbenefitted lossesbenefits recognized in several jurisdictions2011 due to releasing a valuation allowance on a tax loss incurred with the disposition of the our Phase I clinical business in the first quarter of 2011, a non-taxable gain on a settlement of a life insurance policy, a settlement of a German tax audit, and audit settlement benefits recordedthe impact of declines in 2009.statutory tax rates in the United Kingdom and Japan. Additionally, in 2010, the effective tax rate reflected goodwill and fixed asset impairments and the termination fee for 2008 included a one-time charge due to Massachusettsproposed acquisition, which were unbenefitted for tax law changepurposes and one-time benefit due to repatriationthe cost of repatriating foreign earnings.earnings that were previously indefinitely reinvested. Income from discontinued operations. The net income from discontinued operations in 2009 of $3.2 million represented a decrease in the loss recognized from the sale of the Phase II—IV Clinical Services business of $5.6 million net of applicable income tax expense of $2.4 million. This adjustment resulted from a settlement with the IRS Appeals Division in the third quarter of 2009.attributableAttributable to common shareowners.Common Shareowners. Net income attributable to common shareowners in 2009for the year ending December 31, 2011 was $114.4$109.6 million compared to a loss of $524.5$336.7 million in 2008.for the year ending December 25, 2010.20082010 Compared to Fiscal 200720082010 were $1,343.5$1,133.4 million, an increasea decrease of $112.9$38.2 million, or 9.2%3.3%, from $1,230.6$1,171.6 million in 2007.2009.2008,2010, net sales for our RMS segment were $659.9$667.0 million, an increase of $82.7$7.1 million, or 14.3%1.1%, from $577.2$659.9 million in 2007,2009. Sales growth was driven by the additions of Piedmont Research Center and Cerebricon, both of which were acquired in 2009, partially offset by lower sales of research models.increased small modelreduced biopharmaceutical spending which resulted in lower sales in the United Statesvolume and Europe, increased consulting and staffing services and strong in vitro sales.pricing pressure. Favorable foreign currency translation increased sales growth by approximately 3.7%0.9%. RMS sales increased due to pricing and unit volume increases in both models, including large models, and services. The RMS sales growth was driven by increases in basic research and biotechnology spending, which drove greater demand for our products and services. Preclinical Services. In 2008, net sales for our PCS segment were $683.6 million, an increase20082010 was $832.8$748.6 million, an increase of $80.4 million, or 10.7%, from $752.4 million in 2007.essentially flat with 2009. Cost of products sold and services provided in 20082010 was 62.0%66.1% of net sales, compared to 61.1%63.9% in 2007.2009 due mainly to lower sales.20082010 was $375.3$388.6 million, an increase of $47.5$7.4 million, or 14.5%1.9%, compared to $327.8$381.2 million in 2007.2009. Cost of products sold and services provided as a percentage of net sales in 20082010 was 56.9%58.3%, compared to 56.8%57.8% in 2007.2009. The greater facility utilizationincrease in cost as a percentage of sales was due mainly to the resultimpact of the increased fixed costs with a small sales during the quarter,increase partially offset by an unfavorable product mix due to greater growth in the lower margin service area.cost savings.20082010 was $457.5$360.0 million, an increasea decrease of $32.9$7.4 million, or 7.8%2.0%, compared to $424.6$367.4 million in 2007.2009. Cost of services provided as a percentage of net sales was 66.9%77.2% in 2008,2010, compared to 65.0%71.8% in 2007.2009. The increase in cost of services provided as a percentage of net sales was primarily due to lower capacity utilization due to the impact of lower sales growthvolume and the start-up and transition costs of PCS Nevada facilities.increased pricing pressure.20082010 were $230.3$232.5 million, an increase of $12.8$4.8 million, or 5.9%2.1%, from $217.5$227.7 million in 2007.2009. Selling, general and administrative expenses in 20082010 were 17.1%20.5% of net sales, compared to 17.7%19.4% of net sales in 2007.2009. The increase in selling, general and administrative expenses as a percentage of sales was primarily due to lower sales.20082010 were $83.3$85.8 million, an increase of $13.0$6.7 million, or 18.5%8.5%, compared to $70.3 million$79.1 in 2007.2009. Selling, general and administrative expenses increased as a percentage of sales to 12.6%12.9% in 20082010 from 12.2%12.0% in 20072009, due mainly to higher operatingthe reinstatement of limited merit-based wage increases coupled with increased allocations of Corporate Marketing and IT costs.20082010 were $94.8$73.4 million, an increasea decrease of $1.1$11.7 million, or 1.2%13.6%, compared to $93.7$85.1 million in 2007.2009 due mainly to reduced allocations of Corporate Marketing and IT costs and tight expense control over discretionary costs. Selling, general and administrative expenses in 20082010 decreased to 13.9%15.8% of net sales, compared to 14.3%16.6% in 2007.2009.$52.2$73.3 million in 2008,2010, compared to $53.5$63.5 million in 2007.2009. The decreaseincrease in unallocated corporate overhead in 2008during 2010 was due primarily dueto increased global IT costs and costs related to the gainimplementation of our ERP system in 2010 and increased costs associated with the curtailmentevaluation of the U.S. pension plan and slower growth in health care costs.acquisition candidates. Amortization of Other Intangibles. Amortization of other intangibles in 2008 was $30.3 million, a decrease of $3.2 million, from $33.5 million in 2007. Research Models and Services. In 2008, amortization of other intangibles for our RMS segment was $2.6 million, an increase of $0.7 million from $1.9 million in 2007. Preclinical Services. In 2008, amortization of other intangibles for our PCS segment was $27.7 million, a decrease of $3.9 million from $31.6 million in 2007.initial assessment (step one) for 2008,2010, the fair value of our business units exceeded their carrying value therefore our goodwill was not impaired. As economic conditions worsened late in the fourth quarter and our business performance and outlook was not as strong as anticipated coupled with a decrease in our market capitalization, management determined that circumstances had changed enough to trigger another goodwill impairment test as of December 27, 2008. Our analysis resulted in the determination that the fair value our PCS business was less than its carrying value. The second step of the goodwill impairment test involved us calculating the implied goodwill for the PCS business. The carrying value of the goodwill assigned to the PCS business exceeded the implied fair value of goodwill resulting in a goodwill impairment of $700$305.0 million. Operating Income.Asset Impairment. During the fourth quarter of 2010, based on our most recent market outlook, we assessed our long-lived assets for impairment. The assessment included an evaluation of the ongoing cash flows of the long-lived assets. We determined, based upon our evaluation, that the long-lived assets associated with PCS-Massachusetts and PCS-China were no longer fully recoverable from the future cash flows. Based upon the assets no longer being fully recoverable, we determined the fair value of the long-lived assets based upon a valuation completed by an independent third party valuation firm. The valuation was based upon the estimated market value of the long-lived assets and the future cash flow expected to be generated from the long-lived assets. Accordingly, we recorded impairment charges of $64.6 million for PCS-Massachusetts, $17.2 million for PCS-China and $7.2 million for in-process research and development costs representing the excess of the carrying value of the SPC assets over their respective fair market values.20082010 was $449.9$298.5 million, compared to operating income of $227.2$169.6 million in 2007.2009.2008,2010, operating income for our RMS segment was $198.7$184.5 million, an increasea decrease of $21.5$8.8 million, or 12.2%4.6%, from $177.2$193.3 million in 2007.2009. Operating income as a percentage of net sales in 20082010 was 30.1%27.7%, compared to 30.7%29.3% in 2007. The decrease in operating income as a percentage of sales was primarily due to increased operating expenses offset by improved utilization due to the higher sales volume. Preclinical Services. In 2008, operating loss for our PCS segment was $596.4 million, compared to operating income of $103.5 million in 2007.2009. The decrease in operating income as a percentage of net sales was primarily due to goodwill impairment as well as to the start-upimpact of our fixed costs with flat sales and transition costshigher selling, general and administrative expenses.Nevada facilities, partially offset by improvedsegment was $379.7 million compared to operating efficiency as a resultincome of higher sales$39.8 million in 2009. The decrease in operating income was primarily due to our $305.0 million goodwill impairment, our $64.6 million PCS-Massachusetts impairment and lower amortization costs.$17.2 million PCS-China impairment.20082010 was $22.3$35.3 million, compared to $24.5$21.7 million in 2007,2009. The increase was due primarily to lower outstandingincreased debt and lower interest rates.balances.20082010 was $8.7$1.2 million, compared to $9.7$1.7 million in 2007.2009 primarily due to lower cash balances and lower interest rates on invested funds.20082010 was $56.2 million, a decrease of $0.5 million$23 thousand, compared to $56.7$40.4 million in 2007.2009. Our effective tax rate was 0.0 % in 2008 was (12.0)% which was adversely impacted by2010, compared to 26.6% in 2009. Changes in the goodwill impairment by (37.6)%. Our 2007 effective tax rate was 26.9%. The changeresulted primarily from 2007goodwill and fixed asset impairments and the termination fee for a proposed acquisition that were unbenefitted for tax purposes, amount and mix of earnings, increased tax benefits related to 2008 effective tax rate was primarily dueour research and development activities in Canada and the UK and the cost of repatriating foreign earnings that were previously indefinitely reinvested.goodwill impairment.Phase I clinical services business exceeded its future cash flows, which included the proceeds from the sale of the business, and therefore recorded an impairment of the assets of $6.4 million. (Loss) attributable to common shareowners. NetThe net loss attributable to common shareowners in 20082010 was $524.5$336.7 million, compared to net income attributable to common shareowners of $150.6$114.4 million in 2007.2009.the convertible debt offering, our marketable securities and our revolving line of credit arrangements.marketable securities$4.5 million outstanding under letters of $72.6 million and $19.0 millioncredit as of December 26, 200931, 2011.27, 2008, respectively. The increase31, 2011, the interest rate margin for base rate loans was due0.75% and for adjusted LIBOR loans was 1.75%.management's decisionour business and negative and affirmative covenants. These covenants include (1) the ratio of consolidated earnings before interest, taxes, depreciation and amortization less capital expenditures to invest in short term investmentsconsolidated cash interest expense, which for any period of four consecutive fiscal quarters, of no less than 3.5 to increase yield.1.0 as well as (2) the ratio of consolidated indebtedness to consolidated earnings before interest, taxes, depreciation and amortization for any period of four of the previous consecutive fiscal quarters, of no more than 4 to 1. In the second and third quarters of 2012, this ratio will step down to 3.5 to 1, and thereafter will step down to 3.25 to 1. As of December 31, 2011, we were compliant with all financial covenants specified in the credit agreement.20092010, we entered into an agreement with a third party investment bank to implement an ASR program to repurchase $300 million of common stock. Under this ASR, we paid $300 million on August 27, 2010 from cash on hand and available liquidity, including funds borrowed by us under our new amended and restated $750 million credit facility. The initial delivery of 6,000,000 treasury shares was recorded at $175.1 million, the market value at the date of the transaction. We received an additional 750,000 shares under the ASR on September 23, 2010, which were recorded at $23.5 million, which represented the market value on that date, and we received an additional 1,250,000 shares on December 27, 2008,21, 2010, which were recorded at $43.1,million which also represented the market value on that date. During 2010, in total, we repurchased 8,000,000 shares under the ASR program. The ASR was settled on February 11, 2011 based on a discount to the daily volume weighted average price (VWAP) of our common stock over the course of a calculation period. We received the final 871,829 shares based on the settlement of the ASR, which were recorded at $32.5 million.$16.2 $16.4 million in marketable securities with $5.3 million in time deposits and $19.0$11.1 million invested in auction rate securities rated AAA by a major credit rating agency. The year-end balance was comprised of $11.1 million held in the United States and $5.3 million held by non-U.S. subsidiaries. Our auction rate securities are guaranteed by U.S. federal agencies. These auction rate securities provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, usually every 7 or 35 days. The current overall credit concerns in the capital markets as well as the failed auctionsauction status of these securities have impacted our ability to liquidate these investments.our auction rate securities. If the auctions for the securities we own continue to fail, the investment may not be readily convertible to cash until a future auction of these investments is successful. Based on our ability to access our cash and other short-term investments, our expected operating cash flows and other sources of cash, we do not anticipate the current lack of liquidity on these investments will affect our ability to operate our business as usual.26, 2009,31, 2011, the fair value of our outstanding 2013 Notes was approximately $336.0$339.5 million based on their quoted market value. During the fourth quarter of 20092011, no conversion triggers were met. Concurrently withUpon maturity, we will settle the saleprincipal balance of the 2013 Notes we entered into convertible note hedge transactions with respectin cash and any additional amount due to the conversion feature in cash or shares. We intend to utilize our obligation to deliver common stock under the 2013 Notes. The convertible note hedges give us the right to receive, for no additional consideration, the numbers of shares of common stock that we are obligated to deliver upon conversion of the 2013 Notes (subject to antidilution adjustments substantially identical to those in the 2013 Notes),existing cash and expire on June 15, 2013. The aggregate cost of these convertible note hedges was $98.3 million. Separately and concurrently with the pricing of the 2013 Notes, we issued warrants for approximately 7.2 million sharesmarketable securities, future cash flow from operations, existing capacity of our common stock.credit agreement, which includes possible increases to term and/or revolving line of credit, and evaluate other financing alternatives, to meet the cash requirement at maturity in June 2013.warrants givepolicies provide funding for our deferred compensation plan and in certain cases, funding for life insurance benefits. During the holderssecond quarter of 2011, we received life insurance proceeds of $9.5 million related to a former officer. We recognized a tax exempt gain of $7.7 million representing the right to receive, for no additional consideration, cash or shares (at our option) with a value equal todifference between the appreciation in the price of our shares above $59.925, and expire between September 13, 2013 and January 22, 2014 over 90 equal increments. The totallife insurance proceeds from the issuance of the warrants were $65.4 million. From our economic perspective, the cumulative impact of the purchase of the convertible note hedges and the sale of the warrants increases the effective conversion price of the 2013 Notes from $48.94 to $59.925 per share. We currently have a $428 million credit agreement and a $50 million credit agreement. At December 26, 2009, we had term loans of $100.4 million and $90.0 million under our revolving credit facility under the $428 million credit agreement outstanding. As of December 26, 2009, we had $106.8 million available to borrow under our revolving credit agreements. As of December 26, 2009, we were compliant with all financial covenants specified in the credit agreements. On January 27, 2010, we executed our fourth amendment to the $50 million credit agreement to extend the maturity date to July 31, 2011. During 2009, we repatriated $120.0 million of the earnings of our non-U.S. subsidiaries pursuant to a plan established in the fourth quarter of 2008. As a result of the repatriation, we recorded tax benefits primarily due to foreign tax credits in 2008 of $7.2 million, of which $4.0 million was reflected in the effective tax rate and $3.2 million was reflected in the Cumulative Translation Adjustment account, and in 2009 of $3.5 million of which $1.1 million was reflected in the effective tax rate and $2.4 million was reflected in the Cumulative Translation Adjustment account. The proceeds from the repatriation were used for general corporate purposes. We continue to maintain our permanent reinvestment assertion with respect to the remaining unremitted earnings of our non-U.S. subsidiaries. Our Board of Directors has authorized a share repurchase program, originally authorized on July 27, 2005 and subsequently amended on October 26, 2005, May 9, 2006, August 1, 2007 and July 24, 2008 to acquire up to a total of $600.0 million of common stock. The program does not have a fixed expiration date. In order to facilitate these share repurchases, we entered into Rule 10b5-1 Purchase Plans the last of which was terminated in May 2009. As of December 26, 2009, approximately $144.8 million remained authorized for share repurchases. The timing and amount of any future repurchases will depend on market conditions and corporate considerations.$182.6$68.9 million at December 26, 200931, 2011, compared to $243.6$179.2 million at December 27, 2008.in 2009for the years ending December 31, 2011 and 2008December 25, 2010 was $217.4$206.8 million and $282.2$168.2 million, respectively. The decreaseincrease in cash provided by operations was primarily due to lower earnings.net income and trade receivables, partially offset by a decrease in taxes payable. The tax benefit related to the disposition of the Phase I clinical business, which increased net income in 2011, will be realized in cash in the future. Our days sales outstanding (DSO) of 43increased to 48 days as of December 26, 2009 has increased from 4031, 2011 compared to 45 days atas of December 27, 2008. The increase in our DSO was primarily driven by decreased deferred revenue as a result of lower PCS sales volume.25, 2010. Our DSO includes deferred revenue as an offset to accounts receivable in the calculation.used inprovided by (used in) investing activities in 2009for the years ending December 31, 2011 and 2008December 25, 2010 was $208.8$(36.6) million and $230.0$3.0 million, respectively. Our capital expenditures in 2009during 2011 were $80.0$49.1 million, of which $31.9$34.3 million was related to RMS and $48.1$14.9 million to PCS. For 20102012, we project capital expenditures to be in the range of $60 million to $70approximately $50.0 million. We anticipate that future capital expenditures will be funded by operating activities, marketable securities and existing credit facilities. We paid $83.3During 2011 and 2010, we sold $31.6 million for acquisitions during 2009, primarily related to our purchaseand $72.5 million of Piedmont Research Center, Systems Pathology Company, LLC (SPC) and Cerebricon.in 2009for the years ending December 31, 2011 and December 25, 2010 was $81.0$271.8 million and $17.3$168.0 million, in 2008.respectively. Proceeds from long-term debt were $250.7 million and $579.4 million for the years ending December 31, 2011 and December 25, 2010, respectively. Payments on long-term debt and revolving credit agreements were $253.0 million and $381.5 million for the years ending December 31, 2011 and December 25, 2010, respectively. During 2009,2011, we purchased $45.9paid $283.8 million offor treasury stock and repaid debtshares of $54.1common stock acquired through our ASR program and open market purchases, compared to $356.5 million partially offset by proceeds from debt of $18.0 million. During 2008, we purchased $115.1 million of treasury stock and repaid $36.5 million of debt, partially offset by proceeds from exercises of employee stock options and warrants of $28.5 million and proceeds from debt of $102.0 million.26, 200931, 2011 are as follows:follows (in millions) Total Less than
1 Year 1—3 Years 3—5 Years After
5 Years Contractual Obligations (in millions) Total 1 - 3 Years 3 - 5 Years $ 541.2 $ 35.3 $ 505.9 $ $ — $ 739.4 $ 14.7 $ 447.4 $ 277.3 $ — 68.3 24.2 36.0 8.1 — 82.0 31.5 36.0 14.5 — 106.5 20.7 31.8 19.9 34.1 60.2 14.7 20.4 10.9 14.1 76.5 5.5 11.3 13.5 46.2 2.6 2.6 — — — $ 795.1 $ 88.3 $ 585.0 $ 41.5 $ 80.3 Pension and supplemental retirement benefits 107.0 6.7 25.1 21.9 53.3 Total contractual cash obligations $ 988.6 $ 67.6 $ 528.9 $ 324.6 $ 67.4 67 to the Consolidated Financial Statements forisare indexed to our common stock and classified in stockholders' equity, these instruments are not accounted for as derivatives.October 2009,May 2011, the FASB issued an accounting standard update to addressprovide guidance on wording changes used to describe many of the accountingrequirements in U.S. GAAP for multiple-deliverable arrangements to enable vendors to accountmeasuring fair value and for products or services separately rather than as a combined unit. Specifically, thisdisclosing information about fair value measurements. Additionally, the update addresses how to separate deliverablesprovides clarification about the FASB's intent regarding the application of existing fair value measurement requirements. This amendment will become effective for us on January 1, 2012 and how to measure and allocate arrangement consideration to one or more units of accounting. We will adopt the provision of this update on December 27, 2009, the beginning of our fiscal year 2010. The adoption of this update will not have an impact on our consolidated financial statements.2009,2011, the FASB issued a newan accounting standard update to improve the comparability, consistency and transparency of financial reporting by companies involved with variable interest entities and to provide more relevant and reliable informationincrease the prominence of items reported in other comprehensive income. The FASB decided to userseliminate the option to present components of financial statements. This standard replacesother comprehensive income as part of the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial intereststatement of changes in stockholders' equity. The update also requires that all non-owner changes in stockholders' equity be presented either in a variable interest entity withsingle continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components, followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income and the total of comprehensive income. This amendment will become effective for us on January 1, 2012 and will be applied retrospectively.approach focused on identifying which reporting entity hasaccounting standard update related to the powergoodwill impairment test. The revised standard is intended todirect reduce the activities of a variable interest entity that most significantly impact the entity's economic performancecost and (1) the obligation to absorb lossescomplexity of the entity or (2)annual goodwill impairment test by providing companies with the rightoption of performing a qualitative assessment to receive benefits from the entity. An approach thatdetermine whether future impairment testing is expected to be primarily qualitative will be more effective for identifying which reporting entity has a controlling financial interest in a variable interest entity.necessary. The amendments in this standard also require additional disclosures about a reporting entity's involvement in variable interest entities, which will enhance the information provided to users of financial statements. Thisrevised standard is effective for fiscal years starting after November 15, 2009, orus on January 1, 2010 for companies reporting earnings on a calendar-year basis. We are evaluating the impact this2012 and will have on our consolidated financial statements. In June 2009, the FASB issued a new accounting standard for transfers of financial assets to improve the information an entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement in transferred financial assets. This standard is effective for fiscal years beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis. The adoption of this pronouncement is not expected to have an impact on our consolidated financial statements.be applied prospectively. have entered into two credit agreements, the $428 millionour amended credit agreement and the $50 million credit agreement.on September 23, 2011. Our primary interest rate exposure results from changes in LIBOR or the base rates which are used to determine the applicable interest rates under our term loans and revolving credit facility in the credit agreement and in the $50 million credit agreement.$3.0$7.1 million on a pre-tax basis. The book value of our credit agreementsdebt approximates fair value.$350$350.0 million of the 2013 Notes in a private placement in the second quarter of 2006. The convertible senior debenture notes2013 Notes bear an interest rate of 2.25%. The fair market value of the outstanding notes was $336.0approximately $339.5 million on December 26, 2009.2009,2011, we utilized foreign exchange contracts, principally to hedge the impact of currency fluctuations on customer clientitems. There were noitems, including intercompany loans. The foreign exchange contracts opencurrency contract outstanding as of December 26, 2009.31, 2011 is a non-designated hedge, and is marked to market with changes in fair value recorded to earnings.Consolidated Financial Statements: Report of Management50Consolidated Financial Statements: Supplementary Data: 56Supplementary Data:26, 2009.31, 201126, 200931, 2011 has been audited by PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm, as stated in their report which is included herein.Inc:IncInc. and its subsidiaries at December 26, 200931, 2011 and December 27, 2008,25, 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 26, 200931, 2011 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, 2009,31, 2011, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these 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 Annual Report on Internal Control over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. 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 discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for noncontrolling interest in a subsidiary and the manner in which it accounts for convertible debt as of December 28, 2008. As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for business combinations as of December 28, 2008.February 19, 2010 Fiscal Year Ended Fiscal Year Ended December 26,
2009 December 27,
2008 December 29,
2007 December 31,
2011 December 25,
2010 December 26,
2009 $ 465,268 $ 471,741 $ 415,247 $ 483,309 $ 458,623 $ 465,268 737,283 871,752 815,379 659,338 674,793 706,374 1,202,551 1,343,493 1,230,626 1,142,647 1,133,416 1,171,642 255,682 252,938 225,088 517,501 579,846 527,347 233,995 230,266 217,523 — 700,000 — 28,447 30,312 33,509 Cost of products sold 267,966 252,962 255,682 Cost of services provided 472,439 495,694 492,968 Selling, general and administrative 198,648 232,489 227,663 Goodwill impairment — 305,000 — Asset impairments 7,492 91,378 — Termination fee — 30,000 — Amortization of other intangibles 21,796 24,405 25,716 166,926 (449,869 ) 227,159 174,306 (298,512 ) 169,613 1,777 8,691 9,683 (21,682 ) (22,334 ) (24,453 ) 2,086 (5,930 ) (1,448 ) Interest income 1,353 1,186 1,712 Interest expense (42,586 ) (35,279 ) (21,682 ) Other, net (411 ) (1,477 ) 1,914 149,107 (469,442 ) 210,941 132,662 (334,082 ) 151,557 39,725 56,174 56,677 17,140 23 40,354 109,382 (525,616 ) 154,264 115,522 (334,105 ) 111,203 3,220 424 (3,146 ) Income (loss) from discontinued operations, net of taxes (5,545 ) (8,012 ) 1,399 112,602 (525,192 ) 151,118 109,977 (342,117 ) 112,602 1,839 687 (470 ) (411 ) 5,448 1,839 $ 114,441 $ (524,505 ) $ 150,648 $ 109,566 $ (336,669 ) $ 114,441 $ 1.70 $ (7.80 ) $ 2.30 $ 0.05 $ 0.01 $ (0.05 ) $ 1.75 $ (7.80 ) $ 2.25 $ 1.69 $ (7.80 ) $ 2.24 $ 0.05 $ 0.01 $ (0.05 ) $ 1.74 $ (7.80 ) $ 2.19 Basic: Continuing operations attributable to common shareowners $ 2.26 $ (5.25 ) $ 1.73 Discontinued operations $ (0.11 ) $ (0.13 ) $ 0.02 Net income (loss) attributable to common shareowners $ 2.16 $ (5.38 ) $ 1.75 Diluted: Continuing operations attributable to common shareowners $ 2.24 $ (5.25 ) $ 1.72 Discontinued operations $ (0.11 ) $ (0.13 ) $ 0.02 Net income (loss) attributable to common shareowners $ 2.14 $ (5.38 ) $ 1.74 December 26,
2009 December 27,
2008 December 31,
2011 December 25,
2010 $ 182,574 $ 243,592 196,947 210,214 102,723 96,882 113,357 67,451 595,601 618,139 865,743 837,246 508,235 457,578 160,292 136,100 18,978 37,348 55,244 55,002 $ 2,204,093 $ 2,141,413 Current assets Cash and cash equivalents $ 68,905 $ 179,160 Trade receivables, net 184,810 192,972 Inventories 92,969 100,297 Other current assets 79,052 76,603 Current assets of discontinued businesses 107 3,862 Total current assets 425,843 552,894 Property, plant and equipment, net 738,030 752,657 Goodwill, net 197,561 198,438 Other intangibles, net 93,437 121,236 Deferred tax asset 44,804 45,003 Other assets 57,659 62,323 Long-term assets of discontinued businesses 986 822 Total assets $ 1,558,320 $ 1,733,373 $ 35,413 $ 35,452 31,232 40,517 45,522 54,870 72,390 86,707 49,997 60,741 15,219 22,711 249,773 300,998 457,419 479,880 123,077 118,827 830,269 899,705 — — 771 766 2,038,455 2,016,031 (238,493 ) (352,934 ) (470,527 ) (425,924 ) 45,037 3,347 1,375,243 1,241,286 (1,419 ) 422 1,373,824 1,241,708 $ 2,204,093 $ 2,141,413 Current liabilities Current portion of long-term debt and capital leases $ 14,758 $ 30,582 Accounts payable 34,332 30,627 Accrued compensation 41,602 48,918 Deferred revenue 56,530 66,905 Accrued liabilities 54,377 59,369 Other current liabilities 14,033 20,095 Current liabilities of discontinued businesses 1,165 3,284 Total current liabilities 216,797 259,780 Long-term debt and capital leases 703,187 670,270 Other long-term liabilities 108,451 114,596 Long-term liabilities of discontinued businesses 2,522 — Total liabilities 1,030,957 1,044,646 Commitments and contingencies Shareowners' equity Preferred stock, $0.01 par value; 20,000,000 shares authorized; no shares issued and outstanding — — Common stock, $0.01 par value; 120,000,000 shares authorized; 78,473,888 issued and 48,875,715 shares outstanding at December 31, 2011 and 77,531,056 issued and 56,441,081 shares outstanding at December 25, 2010 785 775 Capital in excess of par value 2,056,921 1,996,874 Accumulated deficit (465,596 ) (575,162 ) Treasury stock, at cost, 29,598,173 shares and 21,089,975 shares at December 31, 2011 and December 25, 2010, respectively (1,071,120 ) (768,699 ) Accumulated other comprehensive income 4,593 33,635 Total shareowners' equity 525,583 687,423 Noncontrolling interests 1,780 1,304 Total equity 527,363 688,727 Total liabilities and equity $ 1,558,320 $ 1,733,373 Fiscal Year Ended Fiscal Year Ended December 26,
2009 December 27,
2008 December 29,
2007 December 31,
2011 December 25,
2010 December 26,
2009 $ 112,602 $ (525,192 ) $ 151,118 3,220 424 (3,146 ) 109,382 (525,616 ) 154,264 Net income (loss) $ 109,977 $ (342,117 ) $ 112,602 Less: Income (loss) from discontinued operations (5,545 ) (8,012 ) 1,399 Income (loss) from continuing operations 115,522 (334,105 ) 111,203 93,553 91,290 86,411 — 700,000 — (674 ) (3,276 ) — 23,813 24,333 26,017 15,791 6,902 (12,510 ) 19,018 21,083 19,214 Depreciation and amortization 85,230 93,649 89,962 Amortization of debt issuance costs and discounts 20,010 19,777 13,798 Goodwill impairment — 305,000 — Impairment charges 7,492 91,378 3,460 Pension curtailment — — (674 ) Non-cash compensation 21,706 25,526 23,652 Deferred income taxes (8,668 ) (42,342 ) 16,845 Other, net (7,436 ) 1,797 906 21,768 (8,532 ) (492 ) (4,379 ) (9,670 ) (12,988 ) 1,633 6,145 (9,333 ) (11,493 ) 8,177 2,076 (10,631 ) 1,248 9,445 (14,661 ) (15,314 ) 8,736 (6,291 ) 6,717 3,442 (19,391 ) (21,245 ) 18,045 217,438 282,242 292,327 Trade receivables 7,669 (5,640 ) 21,082 Inventories 3,766 1,989 (4,376 ) Other assets 505 (2,131 ) 1,461 Accounts payable 2,208 71 (11,349 ) Accrued compensation (7,412 ) 4,482 (9,545 ) Deferred revenue (9,515 ) (4,209 ) (14,468 ) Accrued liabilities (1,355 ) 5,501 (6,671 ) Taxes payable and prepaid taxes (13,782 ) 13,087 (15,095 ) Other liabilities (9,098 ) (5,594 ) (4,614 ) Net cash provided by operating activities 206,842 168,236 215,577 (83,347 ) (69,151 ) (11,584 ) (80,012 ) (199,858 ) (230,938 ) (102,275 ) (6,439 ) (299,408 ) 52,785 45,444 334,546 4,028 51 2,668 (208,821 ) (229,953 ) (204,716 ) Acquisition of businesses and assets, net of cash acquired — — (83,347 ) Capital expenditures (49,143 ) (42,860 ) (79,853 ) Purchases of investments (24,556 ) (27,600 ) (98,991 ) Proceeds from sale of investments 31,607 72,464 50,484 Other, net 5,447 950 2,623 Net cash provided by (used in) investing activities (36,645 ) 2,954 (209,084 ) 18,000 102,000 — (54,130 ) (36,540 ) (64,545 ) 819 28,490 53,977 231 3,788 7,150 (45,897 ) (115,058 ) (41,617 ) — — (1,392 ) (80,977 ) (17,320 ) (46,427 ) Proceeds from long-term debt and revolving credit agreement 250,708 579,372 18,000 Proceeds from exercises of stock options and warrants 20,625 4,492 819 Payments on long-term debt, capital lease obligation and revolving credit agreement (252,965 ) (381,535 ) (54,130 ) Purchase of treasury stock and Accelerated Stock Repurchase Program (283,795 ) (356,527 ) (45,897 ) Other, net (6,359 ) (13,697 ) 231 Net cash used in financing activities (271,786 ) (167,895 ) (80,977 ) 7,606 484 (4,177 ) — — 30 7,606 484 (4,147 ) Net cash provided by (used in) operating activities (1,559 ) 777 9,467 Net cash provided by investing activities — 2,807 263 Net cash provided by financing activities — — — Net cash provided by (used in) discontinued operations (1,559 ) 3,584 9,730 3,736 (17,310 ) 13,032 (7,107 ) (10,293 ) 3,736 (61,018 ) 18,143 50,069 (110,255 ) (3,414 ) (61,018 ) 243,592 225,449 175,380 179,160 182,574 243,592 $ 182,574 $ 243,592 $ 225,449 $ 68,905 $ 179,160 $ 182,574 $ 14,170 $ 14,186 $ 20,110 27,180 43,157 38,448 2,496 5,263 8,619 Cash paid for interest $ 22,231 $ 16,140 $ 8,104 Cash paid for taxes $ 29,124 $ 22,068 $ 27,180 Capitalized interest $ 298 $ 56 $ 2,496 Total Accumulated
(Deficit)
Earnings Accumulated
Other
Comprehensive
Income Common
Stock Capital in
Excess
of Par Treasury
Stock Noncontrolling
Interest $ 1,653,115 $ 20,923 $ 21,171 $ 734 $ 1,869,019 $ (267,955 ) $ 9,223 151,118 150,648 — — — — 470 57,801 — 57,872 — — — (71 ) 6,564 — 6,564 — — — (48 ) — (48 ) — — — — 215,435 — — — — — 399 (5,624 ) — — — — — (5,624 ) (498 ) — — — — — (498 ) 8,727 — — — 8,727 — — 14 — — — 14 — — 54,121 — — 20 54,101 — — (42,417 ) — — — — (42,417 ) — 26,017 — — — 26,017 — — $ 1,908,890 $ 171,571 $ 85,559 $ 754 $ 1,957,878 $ (310,372 ) $ 3,500 (525,192 ) (524,505 ) — — — — (687 ) (72,538 ) — (72,588 ) — — — 50 (7,457 ) — (7,457 ) — — — — (2,167 ) — (2,167 ) — — — — (607,354 ) — — — — — (637 ) (2,441 ) — — — — — (2,441 ) 4,769 — — — 4,769 — — 741 — — — 741 — 731 — — — 731 — — 27,591 — — 12 27,579 — — (115,552 ) — — — — (115,552 ) — 24,333 — — — 24,333 — — Total $ 1,241,708 $ (352,934 ) $ 3,347 $ 766 $ 2,016,031 $ (425,924 ) $ 422 $ 1,241,708 $ (352,934 ) $ 3,347 $ 766 $ 2,016,031 $ (425,924 ) $ 422 112,602 114,441 — — — — (1,839 ) 47,248 — 47,250 — — — (2 ) (6,328 ) — (6,328 ) — — — — 768 — 768 — — — — 154,290 — — — — — (1,841 ) (2,203 ) — — — (2,203 ) — — 22 — — — 22 — 797 — — 5 792 — — (44,603 ) — — — — (44,603 ) — 23,813 — — — 23,813 — — Components of comprehensive income, net of tax: Net income 112,602 114,441 (1,839 ) Foreign currency translation adjustment 47,248 47,250 (2 ) Net decrease in unrecognized pension net gain/loss and prior service costs (6,328 ) (6,328 ) — Unrealized gain on marketable securities 768 768 — Total comprehensive income 154,290 (1,841 ) Tax detriment associated with stock issued under employee compensation plans (2,203 ) (2,203 ) Exercise of warrants 22 22 Issuance of stock under employee compensation plans 797 5 792 Acquisition of treasury shares (44,603 ) — — (44,603 ) Stock-based compensation 23,813 23,813 $ 1,373,824 $ (238,493 ) $ 45,037 $ 771 $ 2,038,455 $ (470,527 ) $ (1,419 ) $ 1,373,824 $ (238,493 ) $ 45,037 $ 771 $ 2,038,455 $ (470,527 ) $ (1,419 ) Components of comprehensive income, net of tax: Net loss (342,117 ) (336,669 ) (5,448 ) Foreign currency translation adjustment (4,985 ) (4,803 ) (182 ) Net decrease in unrecognized pension net gain/loss and prior service costs (7,452 ) (7,452 ) — Unrealized gain on marketable securities 853 853 — Total comprehensive income (353,701 ) (5,630 ) Dividends paid noncontrolling interest (270 ) (270 ) Purchase of noncontrolling interest in PCS-China (4,000 ) (12,623 ) 8,623 Tax detriment associated with stock issued under employee compensation plans (926 ) (926 ) Issuance of stock under employee compensation plans 4,590 4 4,586 Acquisition of treasury shares (298,172 ) — (298,172 ) Accelerated Stock Repurchase equity instrument (58,355 ) (58,355 ) Stock-based compensation 25,737 25,737 Balance at December 25, 2010 $ 688,727 $ (575,162 ) $ 33,635 $ 775 $ 1,996,874 $ (768,699 ) $ 1,304 Components of comprehensive income, net of tax: Net income 109,977 109,566 411 Foreign currency translation adjustment (13,084 ) (13,149 ) 65 Net decrease in unrecognized pension net gain/loss and prior service costs (15,568 ) (15,568 ) — Unrealized gain on marketable securities (325 ) (325 ) — Total comprehensive income 81,000 476 Tax detriment associated with stock issued under employee compensation plans (802 ) (802 ) Issuance of stock under employee compensation plans 20,527 10 20,517 Acquisition of treasury shares (269,655 ) 32,766 (302,421 ) Accelerated Stock Repurchase equity instrument (14,140 ) (14,140 ) Stock-based compensation 21,706 21,706 Balance at December 31, 2011 $ 527,363 $ (465,596 ) $ 4,593 $ 785 $ 2,056,921 $ (1,071,120 ) $ 1,780 Adoption of Recent Accounting Standards and Revised Financial Statements Effective December 28, 2008, we adopted two new accounting pronouncements; a newly issued accounting standard for our 2013 Notes and a newly issued accounting and reporting standard for noncontrolling interest in a subsidiary and for deconsolidation of a subsidiary; which require us to retrospectively adjust previously reported financial information. As such, certain prior period amounts have been adjusted in these consolidated financial statements to reflect retrospective application of these accounting pronouncements.customerclient accounts receivable balances and management's assessment of current economic conditions. We reassess the allowance for doubtful accounts each quarter. If the financial condition of our customersclients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Provisions to the allowance forCHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)1. Description of Business and Summary of Significant Accounting Policies (Continued)$4052009, $1,1792011, $1,536 in 20082010 and $494$405 in 2007.2009. Write offs to the allowance for doubtful accounts amounted to $243$1,228 in 2009, $2882011, $1,541 in 20082010 and $421$243 in 2007.2009. December 26,
2009 December 27,
2008 $ 169,354 $ 162,518 32,595 51,798 201,949 214,316 (5,002 ) (4,102 ) $ 196,947 $ 210,214 December 31, 2011 December 25, 2010 Client receivables $ 159,381 $ 170,696 Unbilled revenue 29,446 27,095 Total 188,827 197,791 Less allowance for doubtful accounts (4,017 ) (4,819 ) Net trade receivables $ 184,810 $ 192,972 customersclients in thecustomerclient accounted for more than 6%5% of our net sales or trade receivables for any period presented.mutual funds, time deposits and auction rate securities.26, 2009,31, 2011, we held $16,212$11,051 in auction rate securities which are variable rate debt instruments, which bear interest rates that reset approximately every 7 or 35 days. The auction rate securities owned were rated AAA by a major credit rating agency and are either commercially insured or guaranteed by the Federal Family Education Loan Program (FFELP). The underlying securities have contractual maturities which are generally greater than ten10 years. The auction rate securities are classified as available for sale and are recorded at fair value. Typically, the carrying value of auction rate securities approximates fair value due to the frequent resetting of the interest rates. We have classified these investments as long-term consistent with the term of the underlying security which are structured with short term interest rate reset dates of generally 7 or 35 days but with contractual maturities that are long term. During the third quarter of 2009, we received a partial call on one of our auction rate securities at par value. As a result, we received $3,675.CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)1. Description of Business and Summary of Significant Accounting Policies (Continued) December 26, 2009 December 31, 2011 Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value $ 9,022 $ — $ — $ 9,022 $ 5,359 $ — $ — $ 5,359 $ 47,615 $ — $ (201 ) $ 47,414 $ 17,460 $ — $ (1,248 ) $ 16,212 11,972 — (921 ) 11,051 $ 17,331 $ — $ (921 ) $ 16,410 $ 74,097 $ — $ (1,449 ) $ 72,648 December 27, 2008 Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value $ 21,175 $ — $ (2,217 ) $ 18,958 $ 21,175 $ — $ (2,217 ) $ 18,958 December 25, 2010 Time deposits $ 9,834 $ — $ — $ 9,834 Auction rate securities 11,974 — (597 ) 11,377 $ 21,808 $ — $ (597 ) $ 21,211 December 26, 2009 December 27, 2008 December 31, 2011 December 25, 2010 Amortized
Cost Fair
Value Amortized
Cost Fair
Value $ 9,022 $ 9,022 $ $ $ 5,359 $ 5,359 $ 9,834 $ 9,834 — — — — — — — — 17,460 16,212 21,175 18,958 11,972 11,051 11,974 11,377 $ 17,331 $ 16,410 $ 21,808 $ 21,211 $ 26,482 $ 25,234 $ 21,175 $ 18,958 unsellable.unable to be sold.CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)1. Description of Business and Summary of Significant Accounting Policies (Continued) December 26,
2009 December 27,
2008 December 31, 2011 December 25, 2010 $ 15,262 $ 14,202 $ 13,987 $ 13,153 17,178 12,091 13,533 13,869 70,283 70,589 65,449 73,275 $ 102,723 $ 96,882 Inventories $ 92,969 $ 100,297 December 26,
2009 December 27,
2008 December 31, 2011 December 25, 2010 $ 21,182 $ 25,354 $ 22,828 $ 21,434 21,654 31,748 30,894 31,251 56,436 — 5,359 9,834 13,846 7,391 19,742 13,856 239 2,725 229 228 — 233 $ 113,357 $ 67,451 Other current assets $ 79,052 $ 76,603 $2,496$298 and $5,023$555 in 2009, $5,2632011, $56 and $6,363$394 in 20082010 and $8,619$2,496 and $5,484$5,023 in 2007,2009, respectively. We also capitalize internal and external costs incurred during the application development stage of internal use software. As of December 26, 2009, we have recorded $43,853 related to our ERP software project which was classified as construction in process. Depreciation is calculated for financial reporting purposes using the straight-line method based on the estimated useful lives of the assets as follows: buildings, 20 to 40 years; machinery and equipment, 3 to 20 years; furniture and fixtures, 5 to 10 years; vehicles, 3 to 5 years; and leasehold improvements, the shorter of estimated useful life or the lease periods. We begin to depreciate capital projects in the first full month the asset is placed in service.1. Description of Business and Summary of Significant Accounting Policies (Continued) December 26,
2009 December 27,
2008 December 31, 2011 December 25, 2010 $ 39,402 $ 38,696 $ 40,517 $ 40,409 755,607 688,868 696,275 694,342 373,566 337,687 348,795 327,353 38,853 16,850 29,975 26,772 11,455 10,935 10,663 10,473 5,595 5,514 5,226 5,456 Computer hardware and software 105,563 106,073 86,272 112,326 57,661 45,465 1,310,750 1,210,876 Total 1,294,675 1,256,343 (445,007 ) (373,630 ) (556,645 ) (503,686 ) $ 865,743 $ 837,246 $ 738,030 $ 752,657 2009, 20082011, 2010 and 20072009 was $65,106, $60,978$63,435, $69,244 and $52,902,$64,246, respectively.Other Intangibles and Other Long-LivedIntangible Assets property, plant and equipment, intangible assets and goodwill requires significant judgment. Assumptions and estimates are used in determining the fair value of assets acquired and liabilities assumed in a business acquisition. A significant portion of the purchase price in our acquisitions is assigned to intangible assets and goodwill. Assigning value to intangible assets requires that we use significant judgment in determining (i) the fair value and (ii) whether such intangibles are amortizable or non-amortizable and, if the former, the period and the method by which the intangible assets will be amortized. We utilize commonly accepted valuation techniques, such as the income approach and the cost approach, as appropriate, in establishing the fair value of long-lived assets. Typically, key assumptions include projected revenue and expense levels used in establishing the fair value of business acquisitions as well as discount rates based on an analysis of our weighted average cost of capital, adjusted for specific risks associated with the assets. Changes in the initial assumptions could lead to changes in amortization expense recorded in our future financial statements. We perform an annual impairment analysis of goodwill to determine if impairment exists. The goodwill impairment analysis is a two-step process. The first step is used to identify potential impairment and involves comparing each reporting unit's estimated fair value to its carrying value, including goodwill. Fair value is determined by using a weighted combination of a market-based approach and an income approach, as this combination is deemed to be the most indicative of our fair value in an orderly transaction between market participants. Under the market-based approach, we utilize information about our Company as well as publicly available industry information to determine earnings multiples and sales multiples that are used to value our reporting units. Under the income approach, we determine fair value based on the estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital which reflects the overall level of inherent risk of the reporting unit and the rate of return an outside investor would expect to earn. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, profit margin percentages, discount rates, perpetuityCHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)1. Description of Business and Summary of Significant Accounting Policies (Continued)growth rates, future capital expenditures and future market conditions, among others. Our projections are based on an internal strategic review. Key assumptions, strategies, opportunities and risks from this strategic review along with a market evaluation are the basis for our assessment. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is not considered to be impaired. However, if the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment. The second step of the goodwill impairment process involves the calculation of an implied fair value of goodwill for each reporting unit for which step one indicated impairment. The implied fair value of goodwill is determined similar to how goodwill is calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit as calculated in step one, over the estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. In determining the fair value of assets we utilize appraisals for the fair value of property and equipment and valuations of certain intangible assets, including customer relationships. Our annual goodwill impairment assessment has historically been completed as of the beginning of the fourth quarter. Based on our assessment (step one) for 2009, the fair value of our business units exceeded their carrying value therefore our goodwill was not impaired. The results of this year's impairment test are as of a point in time. If the future growth and operating results of our business are not as strong as anticipated and/or our market capitalization declines, this could impact the assumptions used in calculating the fair value in subsequent years. To the extent goodwill is impaired, its carrying value will be written down to its implied fair value and a charge will be made to our earnings. Such an impairment charge could materially and adversely affect our operating results and financial condition. As of 26, 2009,31, 2011, we had recorded goodwill and other intangibles of $668.5 million$290,998 in the consolidated balance sheet. For intangible assets, Goodwill and other indefinite-lived intangibles will not be amortized, but will be reviewed for impairment at least annually. Other intangibles with definite lives are amortized over their estimated lives. property, plant and equipment, we assess the carrying value of these assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include but are not limited to the following:•significant underperformance relative to expected historical or projected future operating results;•significant negative industry or economic trends; or•significant changes or developments in strategy or operations that negatively affect the utilization of our long-lived assets. Should we determine that the carrying value of long-lived tangible assets may not be recoverable, we will measure any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in our current business model. We may also estimate fair value based on market prices for similar assets, as appropriate. Significant judgments are required to estimate future cash flows, including the selection of appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for these assets.CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)1. Description of Business and Summary of Significant Accounting Policies (Continued)Other Assets Other assets consist of assets that we do not intend to settle within the next twelve months. The composition of other assets is as follows: December 26,
2009 December 27,
2008 $ 3,679 $ 5,307 25,099 19,652 16,212 18,958 10,254 6,898 — 4,187 $ 55,244 $ 55,002 Accounting for Investment in Life Insurance Contracts Our investment in life insurance contracts are recorded at fair value. Accordingly, we recognize the initial investment at the transaction price and remeasure the investment at fair value each reporting period. Investments in life insurance contracts are reported as part of purchases of investments in the statement of cash flows. At December 26, 2009, we held 76 contracts with a carrying value of $25,099 and a face value of $136,374.Restructuring and Contract Termination Costs We recognize obligations associated with restructuring activities and contract termination costs by recording a liability at fair value for the costs associated with an exit or disposal activity as well as costs to terminate a contract or an operating lease. The overall purpose of our restructuring actions is to lower overall operating costs and improve profitability by reducing excess capacities. Restructuring charges are typically recorded in selling, general and administrative expenses in the period in which the plan is approved by our senior management and, where material, our Board of Directors, and when the liability is incurred. A liability for costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity is recognized and measured at its fair value when the entity ceases using the right conveyed by the contract. During 2009 we implemented staffing reductions to improve operating efficiency and profitability at various sites including our Arkansas facility which we closed this year. As a result of these actions, through December 26, 2009 we recorded severance charges of $16,636 including $5,275 in cost of sales and $11,361 in selling, general and administrative expense. $10,014 relates to our Preclinical Services segment, $3,997 to Research Models and Services and $2,625 to Corporate. As of December 26, 2009, $2,757 was included in accrued compensation and $1,739 in other long term liabilities on our consolidated balance sheet. Severance and
Retention Costs $ 639 16,636 (12,779 ) $ 4,496 CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)1. Description of Business and Summary of Significant Accounting Policies (Continued)Other Current Liabilities Other current liabilities consist of liabilities we intend to settle within the next twelve months. The composition of other current liabilities is as follows: December 29,
2009 December 27,
2008 $ 13,623 $ 20,763 1,174 1,269 422 644 — 35 $ 15,219 $ 22,711 Other Long-Term Liabilities Other long-term liabilities consist of liabilities we do not intend to settle within the next twelve months. The composition of other long-term liabilities is as follows: December 29,
2009 December 27,
2008 $ 42,867 $ 47,538 32,516 32,175 22,889 25,954 24,805 13,160 $ 123,077 $ 118,827 Joint Ventures We hold investments in joint ventures that are separate legal entities whose purpose is consistent with our overall operations and represent geographic and business segment expansions of our existing markets. The financial results of all joint ventures were consolidated in our results as we have the ability to exercise control over these entities. The interests of the outside joint venture partners have been recorded as noncontrolling interests totaling $(1,419) and $422 at December 26, 2009 and December 27, 2008, respectively.Stock-Based Compensation Plans We grant stock options and restricted stock to employees and non-employee directors under our share-based compensation plans. Stock-based compensation cost is measured at grant date, based onmake it likely the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period. We estimate the fair value of stock options using the Black-Scholes valuation model. Key inputs and assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the risk-free interest rate over the option's expected term, the expected annual dividend yield and the expected stock price volatility. The expected stock priceCHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)1. Description of Business and Summary of Significant Accounting Policies (Continued)volatility assumption was determined using the historical volatility of our common stock over the expected life of the option. The risk-free interest rate was based on the market yield for the five year U.S. Treasury security. The expected life of options was determined using historical option exercise activity. Management believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of our stock options granted. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.Revenue Recognition We recognize revenue related to our products, which include research models, in vitro technology and vaccine support products, when persuasive evidence of an arrangement exists, generally in the form of customer purchase orders, title and risk of loss have transferred, which occurs upon delivery of the products, the sales price is fixed and determinable and collectability is reasonably assured. These recognition criteria are met at the time the product is delivered to the customer's site. Product sales are recorded net of returns upon delivery. For large models in some cases customers pay in advance of delivery of the product. These advances are deferred and recognized as revenue upon delivery of the product. Our service revenue is comprised of toxicology, pathology, laboratory, clinical Phase I trials, GEMS and consulting and staffing services and is generally evidenced by customer contracts. Toxicology services provide highly specialized studies to evaluate the safety and toxicity of new pharmaceutical compounds and materials used in medical devices. Pathology services provide the ability to identify and characterize pathologic changes within tissues and cells in determining the safety of a new compound. Laboratory services monitor and analyze the health and genetics of research models used in research protocols. Clinical Phase I conducts tolerability assessments to explore human pharmacology. GEMS services include validating, maintaining, breeding and testing research models for biomedical research activities. Consulting and staffing services provide management of animal care operations on behalf of government, academic, pharmaceutical and biotechnology organizations. The toxicology, pathology and clinical Phase I trials services arrangements typically range from one to six months but can range up to approximately 24 months in length. These agreements are negotiated for a fixed fee. Laboratory service arrangements are generally completed within a one-month period and are also of a fixed fee nature. GEMS and consulting and staffing services are of a longer-term nature, from six months to five years, and are billed at agreed upon rates as specified in the contract. Our service revenue is recognized upon the completion of the agreed upon performance criteria. These performance criteria are generally in the form of either study protocols or specified activities or procedures which we are engaged to perform. These performance criteria are established by our customers and do not contain acceptance provisions which are based upon the achievement of certain study or laboratory testing results. Revenue of agreed upon rate contracts is recognized as services are performed, based upon rates specified in the contract. Revenue of fixed fee contracts is recognized as services are performed in relation to estimated costs to complete procedures specified by customers in the form of study protocols.CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)1. Description of Business and Summary of Significant Accounting Policies (Continued) Deferred and unbilled revenue are recognized in our consolidated balance sheets. In some cases, a portion of the contract fee is paid at the time the study is initiated. These advances are recorded as deferred revenue and recognized as revenue as services are performed. Revenue is recognized on unbilled services and relate to amounts that are currently unbillable to the customer pursuant to contractual terms. In general, such amounts become billable in accordance with predetermined payment schedules, but are recognized as revenue as services are performed.Guarantees We include standard indemnification provisions in customer contracts, which include standard provisions limiting our liability under such contracts, including our indemnification obligations, with certain exceptions.Derivatives and Hedging Activities We record all derivatives, whether designed for hedging relationships or not, on our balance sheet at fair value. If the derivative is designated as a fair value hedge, all changes in the fair value of the derivative and changes in the fair value of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portion of the changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the statement of operations when the hedged item affects earnings. The ineffective portions of both fair value and cash flow hedges are immediately recognized as earnings. We recorded a hedge gain (loss) of $1,785 in 2009, $(3,977) in 2008 and $1,603 in 2007.Fair Value We hold cash equivalents, investments and certain other assets that are carried at fair value. We generally determine fair value using a market approach based on quoted prices of identical instruments when available. When market quotes of identical instruments are not readily accessible or available, we determine fair value based on quoted market prices of similar instruments. Disclosure for assets and liabilities that are measured at fair value but recognized and disclosed at fair value on a nonrecurring basis are required prospectively beginning January 1, 2009. As of December 26, 2009, we do not have any significant non-recurring measurements of nonfinancial assets and nonfinancial liabilities. The valuation hierarchy for disclosure of the inputs used to measure fair value prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from or corroborated by observable market data through correlation. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)1. Description of Business and Summary of Significant Accounting Policies (Continued) Assets measured at fair value on a recurring basis are summarized below: Fair Value Measurements at December 26, 2009 using Quoted Prices in
Active Markets
for Identical
Assets
Level 1 Significant Other
Observable
Inputs
Level 2 Significant
Unobservable
Inputs
Level 3 Assets at
Fair Value $ — $ 9,022 $ — $ 9,022 47,414 — — 47,414 — — 16,212 16,212 — 20,032 — 20,032 $ 47,414 $ 29,054 $ 16,212 $ 92,680 Fair Value Measurements at December 27, 2008 using Quoted Prices in
Active Markets
for Identical
Assets
Level 1 Significant Other
Observable
Inputs
Level 2 Significant
Unobservable
Inputs
Level 3 Assets at
Fair Value $ — $ — $ 18,958 $ 18,958 — 14,062 — 14,062 $ — $ 14,062 $ 18,958 $ 33,020 The table below presents a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 26, 2009 and December 27, 2008. Our auction rate securities were valued at fair value by management in part utilizing an independent valuation reviewed by management which used pricing models and discounted cash flow methodologies incorporating assumptions that reflect the assumptions a marketplace participant would use at December 26, 2009. Fair Value Measurements
Using Significant
Unobservable
Inputs (Level 3) Year ended December 26,
2009 December 27,
2008 $ 18,958 $ — — 21,175 (40 ) — 969 (2,217 ) (3,675 ) — $ 16,212 $ 18,958 CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)1. Description of Business and Summary of Significant Accounting Policies (Continued)Income Taxes We recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax basis of our assets and liabilities. We measure deferred tax assets and liabilities using the enacted tax rates and laws that will be in effect when we expect the differences to reverse. We reduce our deferred tax assets by a valuation allowance if, based upon the weight of available evidence both positive and negative, it is more likely than not that we will not realize some or all of the deferred tax assets. Effective December 31, 2006, we adopted a new accounting standard for uncertainty in income taxes which clarifies the accounting for income tax positions by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. The guidance also provides for the derecognition of previously recognized income tax items, measurement, classification, interest and penalties, accounting in interim periods and financial statement disclosure. Accordingly, we recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the tax position. The tax benefits recognized in our financial statements from such positions are measured on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.Foreign Currency Translation The functional currency of each of our operating foreign subsidiaries is local currency. The financial statements of these subsidiaries are translated into U.S. dollars as follows: assets and liabilities at year-end exchange rates; income, expenses and cash flows at average exchange rates; and equity at historical exchange rates. The resulting translation adjustment is recorded as a component of accumulated other comprehensive income in the accompanying balance sheet. Exchange gains and losses on foreign currency transactions are recorded as other income or expense. We recorded an exchange gain (loss) of $(861) in 2009, $3,653 in 2008 and $(3,959) in 2007.Comprehensive Income Our comprehensive income consists of net income plus the sum of the changes in unrealized gains (losses) on available-for-sale marketable securities, unrealized gains (losses) on hedging activities, foreign currency translation adjustments and change in unrecognized pension gains and losses and prior service costs and credits (collectively, other comprehensive income) and is presented in the Consolidated Statements of Changes in Equity, net of tax.Pension Obligations Our defined benefit pension plans' assets, liabilities and expenses are calculated using certain assumptions. These assumptions are reviewed annually, or whenever otherwise required, based on reviews of current plan information and consultations with independent investment advisors and actuaries. The selection of assumptions requires a high degree of judgment and may materially change from period to period. We do not offer other defined benefits associated with post-retirement benefit plans other than pensions. We recognize the funded status of our benefit plans on our balance sheet; recognize gains, losses and prior service costs or credits that arise during the period that are not recognized as components of net periodic benefit cost as a component of accumulated other comprehensive income, net of tax; andCHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)1. Description of Business and Summary of Significant Accounting Policies (Continued)measure plan assets and obligations as of the date of our fiscal year-end balance sheet. Additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation are disclosed in the notes to our financial statements. In December 2008, the FASB issued guidance on an employer's disclosures about plan assets of defined benefit pension or other postretirement plan. The new disclosures required shall be provided for fiscal years ending after December 15, 2009 and are not required for earlier periods that are presented for comparative purposes. This new accounting standard increases our pension footnote disclosure but does not have an impact on our consolidated financial statements.Earnings (Loss) Per Share Basic earnings per share are calculated by dividing net income attributable to common shareowners by the weighted average number of common shares outstanding. Diluted earnings per common share are calculated by adjusting the weighted average number of common shares outstanding to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued, to the extent these additional shares are not anti-dilutive.Discontinued Operations The results of discontinued operations, less applicable income taxes (benefit) and assets and liabilities, are reported as a separate component in the accompanying statement of income and consolidated balance sheets for the current and prior periods. The statement of cash flows also reflects separate disclosure of cash flows pertaining to discontinued operations consistently for all periods presented.New Accounting Pronouncements In October 2009, the FASB issued an accounting standard update to address the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit. Specifically, this update addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. We will adopt the provisions of this update on December 27, 2009, the beginning of our fiscal year 2010. The adoption of this update will not have an impact on our consolidated financial statements. In June 2009, the FASB issued a new accounting standard to improve financial reporting by companies involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. This standard replaces the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. An approach that is expected to be primarily qualitative will be more effective for identifying which reporting entity has a controlling financial interest in a variable interest entity. The amendments in this standard also require additional disclosures about a reporting entity's involvement in variable interest entities, which will enhance the information provided to users of financial statements. This standard is effective for fiscal years starting after November 15, 2009, or January 1,CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)1. Description of Business and Summary of Significant Accounting Policies (Continued)2010 for companies reporting earnings on a calendar-year basis. We are evaluating the impact this will have on our consolidated financial statements. In June 2009, the FASB issued a new accounting standard for transfers of financial assets to improve the information an entity provides inunit has fallen below its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement in transferred financial assets. This standard is effective for fiscal years beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis. The adoption of this pronouncement is not expected to have an impact on our consolidated financial statements.2. Business Acquisitions We acquired several businesses during the three-year period ended December 26, 2009. The results of operations of the acquired businesses are included in the accompanying consolidated financial statements from the date of acquisition. In August 2009, we acquired Systems Pathology Company, LLC (SPC) a pathology based software development company focused on developing state-of-the-art analytical imaging technologies to automate the labor intensive tissue evaluations process which is a significant component of standard preclinical studies for $24,522 in cash and up to $14,000 (undiscounted) potential contingent consideration. The contingent consideration consists of payments based on certain agreed upon revenue and technical milestones. The fair value of the contingent consideration at the date of acquisition was $9,100 which was estimated using the income approach based on significant inputs that are not observable in the market. Key assumptions included a discount rate of 18% and a probability adjustment as we believe the probability of each milestone payment being made ranges from 60% to 85%. No payments of contingent consideration have been made as of December 26, 2009. The amount recognized for contingent consideration was $9,300 at December 26, 2009 and the assumptions used to develop the estimate had not changed. SPC is included in our PCS segment. The preliminary purchase price allocation net of $9 of cash acquired is as follows: $ 49 338 (1,317 ) (1,040 ) 35,592 $ 33,622 The breakout of goodwill and other intangibles acquired with the acquisition was as follows: Weighted average
amortization
life (years) $ 14,000 5.1 21,592 — $ 35,592 CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)2. Business Acquisitions (Continued) In-process research and development is accounted for as an indefinite-lived intangible asset until its completion, after which it becomes an amortizable finite-lived asset (completion costs are expensed as incurred). Goodwill is deductible for tax purposes. On July 31, 2009, we acquired Cerebricon Ltd. which is included in our RMS segment for $8,180 in cash. Based in Finland, Cerebricon provides discovery services for therapeutic products for treatment of diseases of the central nervous system supported by in vivo imaging capabilities. The preliminary purchase price allocation net of $1,200 of acquired cash is as follows: $ 1,754 816 41 (1,485 ) (1,178 ) (1,453 ) 9,685 $ 8,180 The breakout of goodwill and other intangibles acquired with the acquisition was as follows: Weighted average
amortization
life (years) $ 5,597 4.2 4,088 — $ 9,685 Goodwill is not deductible for tax purposes. In May 2009, we acquired the assets of Piedmont Research Center (PRC) for $45,558 in cash. PRC, which is based in North Carolina, provides discovery services focused on efficacy studies in oncology and other therapeutic areas for pharmaceutical and biotechnology clients and is included in our RMS segment. The preliminary purchase price allocation is as follows: $ 1,414 1,315 (1,204 ) 44,033 $ 45,558 CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)2. Business Acquisitions (Continued) The breakout of goodwill and other intangibles acquired with the acquisition was as follows: Weighted average
amortization
life (years) $ 18,400 6.3 900 .7 500 2.2 300 1.5 23,933 — $ 44,033 Goodwill is deductible for tax purposes. In April 2009, we acquired certain assets of Medical Supply Company, LTD, an Irish based provider of products and services for the purpose of endotoxin detection, testing and assessment for $5,386 in cash. Intangibles of $4,875 were recorded related to customer relationships with a 4.5 year weighted average amortization life. It is included in our RMS segment. On November 19, 2008 we acquired certain assets of an Indian distributor for $5,469 which is included in our RMS segment. The purchase price allocation, including deal costs of $273 incurred by us is as follows: $ 53 37 (80 ) 5,459 $ 5,469 The breakout of goodwill and other intangibles acquired with the acquisition was as follows: Weighted average
amortization
life (years) $ 3,770 5 236 2 1,453 — $ 5,459 Goodwill is not deductible for tax purposes. On September 15, 2008 we acquired privately-held Molecular Therapeutics, Inc., the parent entity of Molecular Imaging Research, Inc. (MIR) for $11,980 in cash. Ann Arbor, Michigan-based MIR provides discovery services utilizing extensive in-vivo imaging capabilities to pharmaceutical andCHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)2. Business Acquisitions (Continued)biotechnology clients and is included in our RMS segment. The purchase price allocation, including deal costs of $79 incurred by us and net of $368 of cash acquired, is as follows: $ 1,123 848 223 (1,271 ) (564 ) (1,678 ) 13,010 $ 11,691 In conjunction with the purchase, we paid off $364 of acquired debt. The breakout of goodwill and other intangibles acquired with the MIR acquisition was as follows: Weighted average
amortization
life (years) $ 5,470 6.6 200 0.4 10 2.1 7,330 — $ 13,010 Goodwill is not deductible for tax purposes. On September 9, 2008, we acquired all of the capital stock of privately held Dusseldorf, Germany-based NewLab BioQuality AG (NewLab) for $48,500 in cash. NewLab, a contract service organization, provides safety and quality control services to biopharmaceutical clients and enhances our existing capabilities of in process validation services, in consulting services, and assisting in designing International Conference on Harmonisation (ICH)-compliant stability testing programs and is included in our PCS segment. The preliminary purchase price allocation associated with the NewLab acquisition, including transaction costs of $1,602 incurred by us and net of $3,363 of cash acquired, is as follows: $ 5,242 3,198 (3,324 ) (6,069 ) 47,692 $ 46,739 In conjunction with the purchase of NewLab, we utilized $87 of available cash to prepay NewLab's existing debt.CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)2. Business Acquisitions (Continued) The breakout of goodwill and other intangibles acquired with the NewLab acquisition was as follows: Weighted average
amortization
life (years) $ 17,600 6.2 800 0.7 200 1.9 29,035 — $ 47,635 Goodwill is not deductible for tax purposes. On June 14, 2007, we entered into a joint venture with Shanghai BioExplorer Co., Ltd., a Shanghai, China-based provider of preclinical services, to form Charles River Laboratories Preclinical Services—China. We paid $2,400 in cash for a 75% ownership interest in the joint venture. Additionally, as part of the agreement, the joint venture purchased the net assets of Shanghai BioExplorer for a purchase price of $1,532 including transaction costs of $543. Intangible assets of $935 were recorded by the joint venture based on the preliminary purchase price allocation. On January 4, 2007, we acquired the remaining 15% of the equity (319,199 common shares) of Charles River Laboratories Japan, Inc., (Charles River Japan) from Ajinomoto Company Inc., the noncontrolling interest partner. As of the effective date of this transaction, we own 100% of Charles River Japan. The purchase price for the equity was 1.3 billion Yen, or approximately $10,899, which was paid in cash. The purchase price allocation is as follows: $ 5,624 2,224 (4,187 ) 7,238 $ 10,899 For the years ended 2009, 2008 and 2007 $43,818, $9,157 and $662 of revenue and $8,642, $3,427 and $1,106 of operating loss are included in our consolidated statements of income related to these acquisitions. The following selected unaudited pro forma consolidated results of operations are presented as if each of the acquisitions had occurred as of the beginning of the period immediately preceding the period of acquisition after giving effect to certain adjustments including the amortization of intangibles. The pro forma data is for informational purposes only and does not necessarily reflect the results ofCHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)2. Business Acquisitions (Continued)operations had the companies operated as one during the periods reported. No effect has been given for synergies, if any, that may have been realized through the acquisitions. Fiscal Year Ended December 26,
2009 December 27,
2008 December 29,
2007 $ 1,210,830 $ 1,363,670 $ 1,253,372 163,199 (452,619 ) 226,354 109,228 (525,593 ) 153,025 $ 1.68 $ (7.81 ) $ 2.29 $ 1.67 $ (7.81 ) $ 2.23 Refer to Note 5 for further discussion of the method of computation of earnings per share.3. Goodwill and Other Intangible Assets The following table displays goodwill and other intangible assets not subject to amortization and other intangible assets that continue to be subject to amortization: December 26, 2009 December 27, 2008 Gross Carrying
Amount Accumulated
Amortization &
Impairment loss Gross Carrying
Amount Accumulated
Amortization &
Impairment loss $ 1,221,100 $ (712,865 ) $ 1,170,414 $ (712,836 ) $ 3,438 $ — $ 3,438 $ — $ 14,000 — — — 16,575 (15,625 ) 16,068 (15,259 ) 313,021 (173,707 ) 262,519 (132,980 ) 1,645 (1,645 ) 1,655 (1,655 ) 5,081 (4,338 ) 4,581 (3,933 ) 657 (643 ) 657 (651 ) 6,935 (5,102 ) 6,188 (4,528 ) $ 361,352 $ (201,060 ) $ 295,106 $ (159,006 ) CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)3. Goodwill and Other Intangible Assets (Continued) The changes in the gross carrying amount and accumulated amortization of goodwill are as follows: Adjustments to
Goodwill Adjustments to
Goodwill Balance at
December 29,
2007 Acquisitions Foreign
Exchange/
Other Balance at
December 27,
2008 Acquisitions Foreign
Exchange/
Other Balance at
December 26,
2009 $ 22,006 $ 9,221 $ (280 ) $ 30,947 $ 27,478 $ 309 $ 58,734 (4,902 ) — 56 (4,846 ) — (29 ) (4,875 ) 1,111,426 29,035 (994 ) 1,139,467 22,226 673 1,162,366 — — (700,000 ) (700,000 ) — — (700,000 ) (7,990 ) — — (7,990 ) — — (7,990 ) $ 1,133,432 $ 38,256 $ (1,274 ) $ 1,170,414 $ 49,704 $ 982 $ 1,221,100 — — (700,000 ) (700,000 ) — — (700,000 ) (12,892 ) — 56 (12,836 ) — (29 ) (12,865 ) CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)3. Goodwill and Other Intangible Assets (Continued)customerclient relationships. December 31, 2011 December 25, 2010 Deferred financing costs $ 9,239 $ 11,167 Cash surrender value of life insurance policies 25,057 31,054 Long term marketable securities 11,051 11,377 Other assets 12,312 8,725 Other assets $ 57,659 $ 62,323 Severance and Retention Costs 2011 2010 2009 Balance, beginning of period $ 10,658 $ 4,332 $ 639 Expense 5,462 16,504 16,334 Payments/utilization (12,746 ) (10,178 ) (12,641 ) Balance, end of period $ 3,374 $ 10,658 $ 4,332 Fiscal Year Ended 2011 2010 2009 Severance charges included in cost of sales $ 1,012 $ 10,860 $ 5,005 Severance charges included in selling, general and administrative expense 4,450 5,644 11,339 Total expense $ 5,462 $ 16,504 $ 16,344 Fiscal Year Ended 2011 2010 2009 Research models and services $ 1,196 $ 4,429 $ 3,997 Preclinical services 4,372 9,145 9,722 Corporate (106 ) 2,930 2,625 Total expense $ 5,462 $ 16,504 $ 16,344 December 31, 2011 December 25, 2010 Accrued income taxes $ 10,552 $ 18,372 Current deferred tax liability 1,379 963 Accrued interest and other 2,102 760 Other current liabilities $ 14,033 $ 20,095 December 31, 2011 December 25, 2010 Deferred tax liability $ 16,074 $ 30,050 Long-term pension liability 49,223 36,335 Accrued Executive Supplemental Life Insurance Retirement Plan and Deferred Compensation Plan 25,739 24,659 Other long-term liabilities 17,415 23,552 Other long-term liabilities $ 108,451 $ 114,596 Fair Value Measurements at December 31, 2011 using Quoted Prices in Active Markets for Identical Assets Level 1 Significant Other Observable Inputs Level 2 Significant Unobservable Inputs Level 3 Assets and Liabilities at Fair Value Time deposits $ — $ 5,359 $ — $ 5,359 Auction rate securities — — 11,051 11,051 Fair value of life policies — 19,520 — 19,520 Hedge contract — 5 — 5 Total assets measured at fair value $ — $ 24,884 $ 11,051 $ 35,935 Contingent consideration — — — — Total liabilities measured at fair value $ — $ — $ — $ — Fair Value Measurements at December 25, 2010 using Quoted Prices in Active Markets for Identical Assets Level 1 Significant Other Observable Inputs Level 2 Significant Unobservable Inputs Level 3 Assets and Liabilities at Fair Value Time deposits $ — $ 9,834 $ — $ 9,834 Auction rate securities — — 11,377 11,377 Fair value of life policies — 25,609 — 25,609 Hedge contract — 419 — 419 Total assets measured at fair value $ — $ 35,862 $ 11,377 $ 47,239 Contingent consideration — — 5,365 5,365 Total liabilities measured at fair value $ — $ — $ 5,365 $ 5,365 Year ended Auction rate securities December 31, 2011 December 25, 2010 Beginning balance $ 11,377 $ 16,212 Transfers in and/or out of Level 3 — — Total gains or losses (realized/unrealized): Included in earnings (other expenses) (1 ) 14 Included in other comprehensive income (325 ) 651 Purchases, issuances and settlements — (5,500 ) Ending balance $ 11,051 $ 11,377 Year ended Contingent Consideration December 31, 2011 December 25, 2010 Beginning balance $ 5,365 $ 9,300 Transfers in and/or out of Level 3 — — Total gains or losses (realized/unrealized): Included in selling, general and administrative expense (5,365 ) (3,935 ) Included in other comprehensive income — — Purchases, issuances and settlements — — Ending balance $ — $ 5,365 Current assets (excluding cash) $ 49 Property, plant and equipment 338 Current liabilities (1,317 ) Long term liabilities (1,040 ) Goodwill and other intangible asset 35,592 Total purchase price allocation $ 33,622 In-process research and development (see Note 4) $ 14,000 5.1 Goodwill 21,592 — Total goodwill and other intangibles $ 35,592 Current assets (excluding cash) $ 1,754 Property, plant and equipment 816 Other long-term assets 41 Current liabilities (1,485 ) Long-term debt (1,178 ) Long-term deferred tax (1,453 ) Goodwill and other intangible asset 9,685 Total purchase price allocation $ 8,180 client relationships $ 5,597 4.2 Goodwill 4,088 — Total goodwill and other intangibles $ 9,685 Current assets $ 1,414 Property, plant and equipment 1,315 Current liabilities (1,204 ) Goodwill and other intangible asset 44,033 Total purchase price allocation $ 45,558 Weighted average amortization life (years) client relationships $ 18,400 6.3 Backlog 900 0.7 Trademarks and trade names 500 2.2 Developed technology 300 1.5 Goodwill 23,933 — Total goodwill and other intangibles $ 44,033 December 31, 2011 December 25, 2010 Gross Carrying Amount Accumulated Amortization & Impairment Loss Gross Carrying Amount Accumulated Amortization & Impairment Loss Goodwill $ 1,214,285 $ (1,016,724 ) $ 1,216,196 $ (1,017,758 ) Other intangible assets not subject to amortization: Research models $ 3,438 $ — $ 3,438 $ — PCS in process R&D — — 6,800 — Other intangible assets subject to amortization: Backlog 2,856 (2,253 ) 2,839 (2,109 ) Client relationships 298,813 (210,816 ) 301,175 (192,345 ) Client contracts 14,818 (14,818 ) 15,259 (15,259 ) Trademarks and trade names 5,022 (4,706 ) 5,041 (4,614 ) Standard operating procedures 650 (650 ) 657 (657 ) Other identifiable intangible assets 5,415 (4,332 ) 5,428 (4,417 ) Total other intangible assets $ 331,012 $ (237,575 ) $ 340,637 $ (219,401 ) Adjustments to Goodwill Adjustments to Goodwill Balance at December 26, 2009 Acquisitions Foreign Exchange/ Impairment Balance at December 25, 2010 Acquisitions Foreign Exchange/ Impairment Balance at December 31, 2011 Research Models and Services Gross carrying amount $ 58,734 $ — $ (858 ) $ 57,876 $ — $ (1,474 ) $ 56,402 Accumulated amortization (4,875 ) — 107 (4,768 ) — 1,047 (3,721 ) Preclinical Services Gross carrying amount 1,162,366 — (4,046 ) 1,158,320 — (437 ) 1,157,883 Accumulated impairment loss (700,000 ) — (305,000 ) (1,005,000 ) — — (1,005,000 ) Accumulated amortization (7,990 ) — — (7,990 ) — (13 ) (8,003 ) Total Gross carrying amount $ 1,221,100 $ — $ (4,904 ) $ 1,216,196 $ — $ (1,911 ) $ 1,214,285 Accumulated impairment loss (700,000 ) — (305,000 ) (1,005,000 ) — — (1,005,000 ) Accumulated amortization (12,865 ) — 107 (12,758 ) — 1,034 (11,724 ) 2009,2011, the fair value of our business units exceeded their carrying value and, therefore, our goodwill was not impaired. AtIf the beginningfuture growth and operating results of our businesses are not as strong as anticipated and/or our market capitalization declines, this could impact the fourth quarter of 2008, based on our initial assessment (step one) for 2008,assumptions used in calculating the fair value of our business units exceeded theirgoodwill in the future. To the extent goodwill is impaired, its carrying value thereforewill be written down to its implied fair value and a charge will be made to our goodwill was not impaired. As economic conditions worsened late in the fourth quarterearnings. Such an impairment charge could materially and adversely affect our business performanceoperating results and outlook was not as strong as anticipated coupled with a decrease infinancial condition.market capitalization, management determined that circumstances had changed enough to trigger another goodwill impairment test as of December 27, 2008. Our analysis resulted in the determination thatassessment (step one) for 2010, the fair value of our PCS business was less than its carrying value. The second step of the goodwill impairment test involved us calculating the implied goodwill for the PCS business. The carrying value of the goodwill assigned to the PCS business exceeded the implied fair value of goodwill resulting in a goodwill$700,000.$305,000.2009, 20082011, 2010 and 20072009 was $28,447, $30,312$21,796, $24,405 and $33,509,$25,716, respectively. 27,359 22,811 18,632 $ 17,670 14,801 14,131 12,224 11,738 2015 9,291 2016 7,693 4. December 26,
2009 December 27,
2008 December 31, 2011 December 25, 2010 $ 349,995 $ 350,000 (48,597 ) (60,767 ) Principal $ 349,995 $ 349,995 Unamortized debt discount (21,533 ) (35,583 ) 301,398 289,233 328,462 314,412 100,433 134,967 356,322 386,213 90,000 90,000 33,000 — 792 806 Other long-term debt, represents secured and unsecured promissory notes, interest rates ranging from 0% to 0.5%, 0% to 0.5% and 0% to 0.5% at December 31, 2011, December 25, 2010 and December 26, 2009, respectively, maturing between 2012 and 2013 118 127 492,623 515,006 717,902 700,752 (35,310 ) (35,322 ) (14,732 ) (30,535 ) $ 457,313 $ 479,684 $ 703,170 $ 670,217 26, 200931, 2011 are as follows: $ 35,310 155,907 8 $ 14,732 349,995 388,965 — 58,455 2015 77,941 2016 199,342 — — $ 541,220 Total $ 739,435 July 31, 2006,August 26, 2010, we amended and restated our $660,000$428,000 credit agreement to (1) pay off loans outstanding under the credit agreement, (2) extend the maturity date under the new $750,000 credit facility to August 26, 2015 and (3) terminate and payoff the remaining term loan under our $50,000 credit agreement. The $750,000 credit agreement provided for a $230,000 U.S. term loan, a €133,763 Euro term loan and a $350,000 revolver. On February 24, 2011, we amended the credit agreement primarily to provide for an incremental $150,000 term loan and to modify the leverage ratio used in calculating the interest rate applicable to amounts outstanding. On September 23, 2011, we further amended the credit agreement to reduce the current interest rate modify certain restrictive covenantsmargin applicable to the term loans and the revolving loans based on our leverage ratio and extend the term.maturity date by approximately one year to September 2016. The amount of debt outstanding under the original $660,000current credit agreement remained the same at the time of amendment. The now $428,000 credit agreement providedprovides for a $156,000 U.S.$299,750 term loan, facility, a $200,000 U.S. revolving facility, a C$57,800€69,414 Euro term loan facility and a C$12,000$350,000 revolving facility for a Canadian subsidiary, and a GBP 6,000credit facility. Under specified circumstances, we have the ability to increase the term loans and/or revolving facility for a U.K. subsidiary.line of credit by up to $250,000 in the aggregate. The $156,000 term loan facility matures in 20 quarterly installments with the last installment due June 30, 2011. As of December 26, 2009, we had $54,600 outstanding on the U.S. term loan.September 23, 2016. The $200,000 U.S.$350,000 revolving facility also matures on July 31, 2011September 23, 2016 and requires no scheduled payment before that date. Under specified circumstances, the $200,000 U.S.The book value of our term and revolving facility may be increased by $100,000. The Canadian term loan was repaid during 2007. The Canadian and U.K. revolving facilities were both terminated in the first quarter of 2008. loans approximates fair value.raterates applicable to U.S.our term loanloans and revolving loanloans under the credit agreement are, at our option, equal to either the base rate (which is the higher of (1) the prime rate, or(2) the federal funds rate plus 0.5% or (3) the one-month adjusted LIBOR rate plus 1%) plus an applicable interest rate margin based upon the leverage ratio or the adjusted LIBOR rate plus an4. Long-Term Debt and Capital Lease Obligations (Continued)plus 0.50%) or the adjusted LIBOR rate plus an interest rate margin based upon our leverage ratio. Based on our leverage ratio, the margin range for base rate loans is 0% to 0.75% and the margin range for LIBOR based loans is 0.625%1% to 0.875%1.75%. TheAs of December 31, 2011, the interest rate margin for base rate loans was 0.75% and for adjusted LIBOR loans was 1.75%.December 26, 2009. We have pledged the capital stock of certain first-tier foreign subsidiaries as well as certainand domestic disregarded entities, and mortgages on owned real property in the U.S. assets forhaving a book value in excess of $10,000. In addition, the $428,000 credit agreement. The $428,000 credit agreement includes certain customary representations and warranties, events of default, noticenotices of material adverse changechanges to our business and negative and affirmative covenants. These covenants includinginclude (1) the ratio of consolidated earnings before interest, taxes, depreciation and amortization less capital expenditures to consolidated cash interest expense, which for any period of four consecutive fiscal quarters, of no less than 3.5 to 1.0 as well as (2) the ratio of consolidated indebtedness to consolidated earnings before interest, taxes, depreciation and amortization for any period of four consecutive fiscal quarters, of no more than 3.04.0 to 1.1.0 , which will step down to 3.5 to 1.0 effective in the second and third fiscal quarters in 2012, and thereafter will step down to 3.25 to 1.0 . As of December 26, 2009,31, 2011, we were compliant with all financial covenants specified in the credit agreement. We had $3,162 and $5,627$4,475 outstanding under letters of credit as of December 26, 2009 and December 27, 2008, respectively. As of December 26, 2009, $90,000 was outstanding on our U.S. revolving credit facility. The book value of our credit agreement approximates fair value. On July 27, 2005 we entered into a $50,000 credit agreement ($50,000 credit agreement), which was subsequently amended on December 20, 2005 and again on July 31, 2006 to reflect substantially the same modifications made to the covenants in the $660,000 and $428,000 credit agreements, respectively. On June 15, 2007, we executed a third amendment to the $50,000 credit agreement to extend the maturity date and reduce the interest rate. The $50,000 credit agreement provides for a $50,000 term loan facility which matures on June 22, 2010. Prior to the June 15, 2007 amendment, the interest rate applicable to term loans under the $50,000 credit agreement was, at our option, equal to either the base rate (which was the higher of the prime rate or the federal funds rate plus 0.50%) or the LIBOR rate plus 0.75%2011 From June 15, 2007 through June 21, 2008, the interest rates applicable to term loans under the credit agreement were, at our option, equal to either the base rate (which is the higher of the prime rate or the federal funds rate plus 0.50%) minus 2.25% or the LIBOR rate plus 0.50%. Commencing June 22, 2008 through June 22, 2010, the applicable interest rates are equal to either the base rate (which is the higher of the prime rate or the federal funds rate plus 0.50%) or the adjusted LIBOR rate plus an interest rate margin based on our leverage ratio. We have pledged certain U.S. assets for the $50,000 credit agreement. As of December 26, 2009, we were compliant with all financial covenants specified in the credit agreement. The $50,000 credit agreement includes certain customary representations and warranties, negative and affirmative covenants and events of default. As of December 26, 2009, $45,833 of the $50,000 credit agreement was outstanding. On January 27, 2010, we executed a fourth amendment to the credit agreement to extend the maturity date to July 31, 2011. The book value of our credit agreement approximates fair value.$350,000$350,000 of 2.25% Convertible Senior Notes (the 2013 Notes) due in June 2013 with interest payable semi-annually are convertible into cash for the principal amount and shares of our common stock for the conversion premium (or, at our election, cash in lieu of some or all of such common stock), if any, based on an initial conversion rate, subject to adjustment, of 20.4337 shares of our common stock per $1,000$1,000 principal amount of notes (which represents an initial conversion price of $48.94$48.94 per share), only in the following circumstances and to the following extent: (1) during any fiscal quarter beginning after July 1, 2006 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is more than 130% of the conversion price on the last day of such preceding fiscal quarter; (2) during the five business-day period after any five consecutive trading-day period, or the measurement period, in which the trading priceCHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)4. Long-Term Debt and Capital Lease Obligations (Continued) The conversion trigger tests are repeated each fiscal quarter and no conversion triggers were met in any quarter of 2009. 26, 2009,31, 2011, the fair value of our outstanding 2013 Notes was approximately $335,995$339,530 based on their quoted market value. Effective December 28, 2008, we adopted a newly issued accounting standard for our 2013 Notes which specifies that issuers of convertible debt instruments that may be settled in cash uponvalue and no conversion should separately account for the liability and equity components in a manner that reflects the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. Accordingly, $261,508 of the total proceeds from our $350,000 convertible debt was allocated to the liability component, which represents the estimated fair value of similar debt instruments without the conversion option as of June 12, 2006, the date of issuance. The remaining $88,492 was allocated to the equity component. The debt discount of $88,492 will be amortized to interest expense over the seven-year period from June 2006 to June 2013, the expected life of the instrument. In addition, $8,463 of capitalized interest expense was recorded retrospectively and will amortize over a weighted average life of 32 years. Additionally, approximately $1,903 of deferred financing costs capitalized at the time of issuance was reclassified to equity as equity issuance costs and will not be amortized to interest expense. As a result of the establishment of the debt discount as of the date of issuance, the non-current deferred tax asset relating to the original issue discount has been reduced by $36,437 as of the date of issuance by offsetting additional paid in capital.26, 2009, $48,59731, 2011, $21,533 of debt discount remained and will be amortized over 146 quarters. As of December 26, 200931, 2011 and December 27, 2008,25, 2010, the equity component of our convertible debt was $88,492.$88,492. Interest expense related to our convertible debt of $12,170$14,050 and $11,381$13,013 for the years ended ending December 26, 200931, 2011 and December 27, 200825, 2010 respectively, yieldingyielded an effective interest rate of 6.93% on the liability component. In addition, $7,853$7,962 and $7,831$7,853 of contractual interest expense was recognized on our convertible debt during the years ended December 26, 200931, 2011 and December 27, 200825, 2010, respectively. Capitalized interest related to the new accounting treatment for our 2013 Notes was $989 and $2,777 for the years ended December 26, 2009 and December 27, 2008 respectively.$210$43 and $331$101 at December 26, 200931, 2011 and December 27, 2008,25, 2010, respectively.CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)5.2009, 20082011, 2010 and 20072009 was computed by dividing earnings available to common shareowners for these periods by the weighted average number of common shares outstanding in the respective periods adjusted for contingently issuable shares. The weighted average number of common shares outstanding for 20092011 and 20072009 have been adjusted to include common stock equivalents for the purpose of calculating diluted earnings per share for these periods.4,272,6474,249,564 shares, 4,481,1206,594,313 shares and 243,3574,272,647 shares were outstanding at December 31, 2011, December 25, 2010 and December 26, 2009 December 27, 2008 and December 29, 2007,, respectively, but were not included in computing diluted earnings per share because their inclusion would have been anti-dilutive.2009, 20082011, 2010 and 20072009 excluded the weighted average impact of 896,393, 777,494703,011, 777,740 and 711,896896,393 shares, respectively, of non-vested fixed restricted stock awards. December 26,
2009 December 27,
2008 December 29,
2007 December 31, 2011 December 25, 2010 December 26, 2009 $ 111,221 $ (524,929 ) $ 153,794 $ 115,111 $ (328,657 ) $ 113,042 $ 3,220 $ 424 $ (3,146 ) (5,545 ) $ (8,012 ) $ 1,399 65,366,319 67,273,748 66,960,515 50,823,063 62,561,294 65,366,319 — — 481,136 267,650 — 1,160,369 1,926 — 133,916 2.25% senior convertible debentures — — — Stock options and contingently issued restricted stock 495,179 — 267,650 Warrants — — 1,926 65,635,895 67,273,748 68,735,936 51,318,242 62,561,294 65,635,895 $ 1.70 $ (7.80 ) $ 2.30 $ 2.26 $ (5.25 ) $ 1.73 $ 0.05 $ 0.01 $ (0.05 ) $ (0.11 ) $ (0.13 ) $ 0.02 $ 1.69 $ (7.80 ) $ 2.24 $ 2.24 $ (5.25 ) $ 1.72 $ 0.05 $ 0.01 $ (0.05 ) $ (0.11 ) $ (0.13 ) $ 0.02 5. Equity (Continued)Treasury Shares The Boardstock over the course of Directors has authorized a sharecalculation period. We received the final 871,829 shares based on the settlement of the ASR, which were recorded at $32,509.program, originally authorized on July 27, 2005 and subsequently amended on October 26, 2005, May 9, 2006, August 1, 2007 and July 24, 2008 to acquire up to a total of $600,000$150,000 of common stock. Under the ASR, we paid $150,000 from cash on hand, including funds borrowed under our credit facility. Upon signing the ASR on February 24, 2011, we received the initial delivery of 3,759,398 shares, which was recorded at $135,860 based on the market value at the date of the transaction, and recorded $14,140 as a forward contract indexed to our common stock. The program does not haveASR was settled on May 16, 2011 based on a fixed expiration date. Asdiscount to the daily volume weighted average price (VWAP) of December 26, 2009, approximately $144,753 remains authorized for share repurchases.2009, 20082011, 2010 and 2007,2009, we repurchased 1,592,5003,790,762 shares of common stock for $42,387, 2,159,908,$130,853, 1,759,857 shares of common stock for $109,260$52,888 and 724,2001,592,500 shares of common stock for $38,911,$42,387, respectively, under our Rule 10b5-1 Purchase Plans.Plan and in open market trading. In May 2009, we terminated our Rule 10b5-1 Purchase Plan. The timing and amount of any future repurchases will depend on market conditions and corporate considerations.2009, 20082011, 2010 and 20072009 were as follows: Fiscal Year Ended Fiscal Year Ended December 26, 2009 December 27, 2008 December 29, 2007 December 31, 2011 December 25, 2010 December 26, 2009 1,592,500 2,159,908 724,200 8,428,494 9,759,857 1,592,500 $ 42,387 $ 109,260 $ 38,911 $ 299,479 $ 294,534 $ 42,387 December 27, 2008 and December 29, 2007,, we acquired 80,23479,704 shares for $2,216, 104,662$2,942, 100,489 shares for $6,292$3,638 and 71,45680,234 shares for $3,506,$2,216, respectively, as a result of such withholdings. Accumulated of our accumulated deficit includes approximately $2,000 which is restricted due to statutory requirements in the local jurisdiction of a foreign subsidiary as of December 26, 200931, 2011 and December 27, 2008. Foreign
Currency
Translation
Adjustment Pension Gains/(Losses)
and Prior Service
(Cost)/Credit Not Yet
Recognized as
Components of Net
Periodic Benefit Costs Net Unrealized
Gain on
Marketable
Securities Accumulated
Other
Comprehensive
Income $ 81,975 $ 3,635 $ (51 ) $ 85,559 (79,278 ) (12,023 ) (2,167 ) (93,468 ) 6,690 4,566 — 11,256 $ 9,387 $ (3,822 ) $ (2,218 ) $ 3,347 45,907 (7,102 ) 768 39,573 1,343 774 — 2,117 $ 56,637 $ (10,150 ) $ (1,450 ) $ 45,037 Balance at December 26, 2009 $ 56,637 $ (10,150 ) $ (1,450 ) $ 45,037 Period change (10,122 ) (10,776 ) 854 (20,044 ) Tax 5,319 3,323 — 8,642 Balance at December 25, 2010 $ 51,834 $ (17,603 ) $ (596 ) $ 33,635 Period change (12,329 ) (22,660 ) (325 ) (35,314 ) Tax (820 ) 7,092 — 6,272 Balance at December 31, 2011 $ 38,685 $ (33,171 ) $ (921 ) $ 4,593
WarrantsTable of ContentsCHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)5. Equity (Continued)Warrants$59.925,$59.925 and expire between September 13, 2013 and January 22, 2014 over 90 equal increments. The total proceeds from the issuance of the warrants were $65,423. As partrecapitalizationoutside joint venture partners in 1999,these joint ventures have been recorded as noncontrolling interest totaling $1,780 and $1,304 at December 31, 2011 and December 25, 2010, respectively.issued 150,000 units, each comprisedpurchased for $4,000 the remaining interest in our Charles River—PCS-China joint venture. The transaction closed on December 24, 2010 with the cash transferred on the following business day. On the date of a $1 senior subordinated note and a warrant tothe purchase, 7.6 shareswe recorded the purchase price of our common stock for total proceeds of $150,000. We allocated the $150,000 offering proceeds between the senior subordinated notes ($147,872)$4,000 and the warrants ($2,128), based upon the estimated fair value. The portionbalance of the proceeds allocatednoncontrolling interests of $8,623 to the warrants is reflected as capital in excess of par in the accompanying consolidated financial statements. Each warrant entitles the holder, subject to certain conditions, to purchase 7.6 shares of common stock at an exercise price of $5.19 per share of common stock, subject to adjustment under some circumstances. All warrants were exercised before they expired on October 1, 2009.6.equity. Fiscal Year Ended Fiscal Year Ended December 26,
2009 December 27,
2008 December 29,
2007 December 31, 2011 December 25, 2010 December 26, 2009 $ 37,490 $ 97,004 $ 87,369 111,617 (566,446 ) 123,572 $ 149,107 $ (469,442 ) $ 210,941 U.S. $ 47,158 $ (149,275 ) $ 38,368 Non-U.S. 85,504 (184,807 ) 113,189 $ 132,662 $ (334,082 ) $ 151,557 Current: Federal $ 3,957 $ 11,378 $ (4,607 ) Foreign 20,727 23,782 26,851 State and local 1,124 2,416 1,086 Total current $ 25,808 $ 37,576 $ 23,330 Deferred: Federal $ 2,961 $ (24,604 ) $ 16,968 Foreign (11,649 ) (9,696 ) (1,487 ) State and local 20 (3,253 ) 1,543 Total deferred $ (8,668 ) $ (37,553 ) $ 17,024 $ 17,140 $ 23 $ 40,354 $ (3,902 ) $ 21,922 $ 39,907 26,719 28,355 21,547 1,117 1,278 7,732 $ 23,934 $ 51,555 $ 69,186 $ 15,958 $ 4,472 $ (5,890 ) (1,657 ) (4,884 ) (4,564 ) 1,490 5,031 (2,055 ) $ 15,791 $ 4,619 $ (12,509 ) $ 39,725 $ 56,174 $ 56,677 CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)6. Income Taxes (Continued) December 26,
2009 December 27,
2008 December 31, 2011 December 25, 2010 $ 38,334 $ 38,973 $ 49,178 $ 47,695 1,791 1,502 3,712 4,725 2,228 2,308 3,193 3,576 (9,370 ) (5,805 ) (6,523 ) (5,876 ) 26,064 27,446 57,193 36,359 (54,871 ) (38,950 ) (34,389 ) (28,400 ) (704 ) (2,039 ) (146 ) (250 ) (755 ) 1,052 (1,795 ) (547 ) 70,423 57,282 2,717 24,487 (6,126 ) (4,197 ) (12,178 ) (12,041 ) $ (3,409 ) $ 20,290 $ 58,245 $ 45,241 December 26,
2009 December 27,
2008 December 29,
2007 December 31, 2011 December 25, 2010 December 26, 2009 35.0 % (35.0 )% 35.0 % 35.0 % (35.0 )% 35.0 % (5.3 )% (2.6 )% (4.0 )% (6.7 )% (1.3 )% (5.4 )% 1.3 % 1.3 % 1.5 % 2.1 % (0.7 )% 1.3 % 1.4 % 0.8 % 0.3 % 0.6 % 0.6 % 1.4 % (0.7 )% (1.5 )% 0.0 % Impact of repatriation of non-U.S.earnings 0.5 % 4.6 % (0.7 )% (6.8 )% (3.1 )% (6.2 )% (7.6 )% (3.6 )% (6.7 )% (0.1 )% 0.3 % (1.3 )% (1.0 )% — % (0.1 )% 1.3 % 0.5 % 2.3 % (1.0 )% 3.1 % 1.2 % 0.0 % 51.6 % 0.0 % Impact of goodwill and other impairments — % 31.3 % — % Releasing valuation allowance on loss from disposition of the Phase 1 Clinical business (8.4 )% — % — % Non taxable gain from settlement of life insurance policy (2.2 )% — % — % 0.5 % (0.3 )% (0.7 )% 1.6 % 1.0 % 0.6 % 12.9 % 0.0 % 26.6 % 26.6 % 12.0 % 26.9 % Duringfourth quartertax effect of 2009,which is $18,372. Of this amount, $1,125 will expire in 2013, $1,856 will expire in 2014, $915 will expire in 2015, $2,533 will expire in 2016, $150 will expire in 2017 and $390 will expire in 2018. The remainder of $11,403 can be carried forward indefinitely. We have U.S. net operating loss carryforwards at the state level, the tax effect of which is $421, which will expire between 2015 and 2031. We have U.S. foreign tax credit carryforwards of $25,481. Of this amount, $16,428 will expire in 2019, $6,285 will expire in 2020, $2,448 will expire in 2021, and the remaining $320 thereafter. We have Canadian Scientific Research and Experimental Development (SR&ED) Credit carryforwards of $18,402, which begin to expire in 2029. In accordance with Canadian Federal tax law, we recorded a detrimentclaim SR&ED credits on qualified research and development costs incurred by our Preclinical service facility in Canada, in the performance of $719projects for non-Canadian clients. Additionally, in accordance with the tax law of the United Kingdom, we claim enhanced deductions related to qualified research and development costs incurred by our Preclinical service facility in Scotland, in the reductionperformance of certain client contracts. We have unrealized capital losses in the U.S. and Canada, the tax effect of which is $341 and $277, respectively.associatedis reduced to zero, the subsequent shortfalls would increase our income tax expense. Our pool of excess tax benefits, which is computed in accordance with the suspensionlong form method, was $10,580 as of operations at our PCS facility in Massachusetts.December 31, 2011 and $12,614 as of December 25, 2010. During 2009,2011, we recorded a tax detriment of $2,203$802 to additional paid-in-capital related to the exercise of stock options and vesting of restricted shares. As of December 26, 2009, we have non-U.S. net operating loss carryforwards, the tax effect of which is $12,441. Of this amount, $1,083 will expire in 2013, $1,825 will expire in 2014 and $521 will expire in 2017. The remainder can be carried forward indefinitely. We have U.S. net operating loss carryforwards, the tax effect of which is $192. Of this amount, $22 will expire in 2018 and $170 will expire in 2028. We have U.S. foreign tax credit carryforwards of $11,196 which will expire in 2019. We have Canadian Investment Tax Credit carryforwards of $8,718 as a result of our research andTable of ContentsCHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)6. Income Taxes (Continued)development activity in Montreal, which begin to expire in 2028. We have unrealized capital losses in the U.S., the tax effect of which is $464.26, 200931, 2011 relate to deferred tax assets primarily for net operating losses in China, Hong Kong, India, Luxembourg and the Netherlands, and a capital losslosses in the U.S., and Canada, and fixed assets in the U.K. which have resulted in an increase of $1,929$137 in the valuation allowance from $4,197$12,041 at December 27, 200825, 2010 to $6,126$12,178 at December 26, 2009.31, 2011. We increased the valuation allowance against these tax attributes due to the determination, after consideration of all evidence, both positive and negative, that it is more likely than not that these deferred tax assets will not be realized. Effective2006, we adopted a new accounting standard for uncertainty in income taxes. The cumulative effect of adopting the new accounting standard did not result in a change to our opening retained earnings. At December 26, 2009,2011, the amount recorded for unrecognized tax benefits was $21,389.$27,976. At December 27, 200825, 2010 the amount recorded for unrecognized income tax benefits was $28,732.$33,427. The $7,343$5,451 decrease during 20092011 is primarily dueattributable to concluded auditsthe settlement reached with the IRSGerman Tax Office related to an uncertain tax position for the deductibility of interest. This decrease was offset by increases due toresulting from ongoing evaluation of uncertain tax positions in the current and prior periods and foreign exchange movement. The amount of unrecognized income tax benefits that, if recognized, would favorably impact the effective tax rate was $17,313$22,477 as of December 26, 200931, 2011 and $21,441$28,456 as of December 27, 2008.25, 2010. The $4,128$5,979 decrease is primarily dueattributable to concluded audits with the IRSsettlement of the German controversy which is partially offset by an increaseincreases due to ongoing evaluation of uncertain tax positions in the current and prior periods and foreign exchange movement. December 26,
2009 December 27,
2008 December 29,
2007 December 31, 2011 December 25, 2010 December 26, 2009 $ 28,732 $ 22,129 $ 16,896 $ 33,427 $ 21,389 $ 28,732 1,515 2,071 3,612 2,367 8,041 2,413 Tax positions for current year 1,714 13,142 1,515 Tax positions for prior years — 693 2,367 — (252 ) (65 ) (1,024 ) (3,011 ) (43 ) (10,113 ) — (177 ) (88 ) (246 ) (507 ) Tax positions for current year — — — Tax positions for prior years (239 ) (1,797 ) (1,024 ) Settlements (6,926 ) — (10,113 ) Expiration of statute of limitations — — (88 ) $ 21,389 $ 28,732 $ 22,129 $ 27,976 $ 33,427 $ 21,389 26, 200931, 2011 and December 27, 200825, 2010 was $1,689$1,515 and $2,729,$2,313, respectively. The $1,040 decline$798 decrease is primarily dueattributable to concluded audits reached withsettlement of the IRSGerman controversy, which is partially offset by an increaseincreases due to ongoing evaluation of uncertain tax positions.positions in the current and prior periods and foreign exchange movement. We have not recorded a provision for penalties associated with uncertain tax positions.CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)6. Income Taxes (Continued)2003.German Tax OfficeCanadian Revenue Authority (CRA), the Minister of Revenue Quebec provincial tax authority (MRQ) and various state and local tax authorities. We do not believe that resolution of these audits will have a material impact on our financial position or results of operations.Canada Revenue Agency ("CRA")CRA with respect to the Scientific Research and Experimental DevelopmentSR&ED credits claimed in 2003 and 2004 by our Canadian Preclinical Services Subsidiarysubsidiary in the Tax Court of Canada.2009,2010. In a related development, during the first quarter of 2010 we received Notices of Reassessment from the CRAMRQ with respect to Scientificthe Quebec Research and Experimental Development credits claimed in 2003 and 2004 by our Canadian Preclinical Services subsidiary. In the third quarter of 2009, wetax credit. We filed Notices of Objection with the CRAMRQ in connection with the Notices of Reassessment. In the fourthsecond quarter of 2009, we filed Notices of Appeal with the Tax Court of Canada to contest the Notices of Reassessment.2010. We disagree with the positions taken by the CRA and MRQ with regard to the credits claimed in 2003 and 2004 by our Canadian Preclinical Services subsidiary.claimed. We believe that it is reasonably possible that this matterwe will be resolvedconclude the controversies with the TCC and MRQ within the next this matter in Tax Courtthese controversies will have a material impact on our financial position or results of operations. However, pending resolution of the reassessments in Tax Court, it is possible that the CRA and MRQ will propose similar adjustments for later years. During the third quarter of 2009, we concluded audits with the IRS Appeals Division related to the 2004 and 2005 tax filings for the Company and an acquired subsidiary. As a result of these concluded audits, we recognized an additional tax benefit of $1,945. During the fourth quarter of 2009, we concluded audits with the IRS Field Division for years 2006 and 2007 and with the Commonwealth of Massachusetts for years 2004 through 2006. An additional tax benefit of $297 was recognized during the fourth quarter as a result of these concluded audits plus an adjustment for the state tax impact relating to the conclusion of the IRS audit for years 2004 and 2005. During the fourth quarter of 2009, there has been no change in the status of the ongoing examination by the German Tax Office.2009,2010, we repatriated $120,000executed an agreement to implement an accelerated share repurchase (ASR) program to repurchase $300,000 of common stock. The ASR resulted in a cash need in the United States that was previously unforeseen. In accordance with our policy with respect to the unremitted earnings of our non-U.S. subsidiaries, pursuantwe evaluated whether a portion of the foreign earnings could be repatriated in order to fund the ASR. We determined that approximately $229,792 of earnings that were previously indefinitely reinvested and approximately $63,640 in basis in our non-U.S. subsidiaries could be repatriated in a plan established in the fourth quarter of 2008.substantially tax-free manner. As a result, ofin 2010, we changed our indefinite reinvestment assertion with respect to these earnings and accrued the repatriation, we recorded tax benefits primarily duecost to foreign tax credits in 2008 of $7,227,repatriate $10,334, of which $4,045 was$15,264 is reflected in the effective tax rate and $3,182 was reflected in the Cumulative Translation Adjustment account, and in 2009as Income Tax Expense, with an offsetting benefit of $3,504, of$4,930, which $1,084 was reflected in the effective tax rate and $2,420 was reflectedis recorded in the Cumulative Translation Adjustment account. The proceeds from the repatriation were used for general corporate purposes. We continue to maintain our permanent reinvestment assertion with respectDuring 2010, we repatriated approximately $293,432 to the U.S. to partially fund the ASR and the $30,000 termination fee for a proposed acquisition.unremittedundistributed earnings of our non-U.S. subsidiaries.26, 2009,31, 2011, the earnings of our non-U.S. subsidiaries considered to be indefinitely reinvested totaled $278 million. CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)6. Income Taxes (Continued)$300,000("the 2013 Notes")(2013 Notes) in a private placement with net proceeds to us of approximately $294,000.$294,000. On June 20, 2006, the initial purchasers associated with this convertible debt offering exercised an option to purchase an additional $50,000$50,000 of the 2013 Notes for additional net proceeds of approximately $49,000.$49,000. The 2013 Notes bear stated interest at 2.25% per annum, payable semi-annually, and mature on June 15, 2013. In accordance with the applicable accounting rules, a debt discount of $88,492$88,492 was recorded upon issuance of the 2013 Notes. Concurrently with the issuance of the 2013 Notes, we entered into convertible note hedge transactions with respect to its obligation to deliver common stock under the notes.2013 Notes. Separately and concurrently with the pricing of the 2013 Notes, we issued warrants for approximately 7.2 million shares of its common stock. We elected to apply the rules of the Integration Regulations under Treas. Reg. 1.1275-6 to treat the 2013 Notes and the associated hedge as synthetic debt instruments and accordingly we deduct the option premium paid for the hedge as original issue discount ("OID")(OID) over the 7 year term. A deferred tax asset was recorded at issuance with an offset to Additional Paid in Capital for tax savingsnotes.Notes. Also, pursuant to Internal Revenue Code Section 1032, we will not recognize any gain or loss for tax purpose with respect to the exercise or lapse of the warrants.7.$6,253, $6,377$4,178, $4,694 and $4,074,$6,253, in 2009, 20082011, 2010 and 2007,2009, respectively.65.65. Amounts may also be distributed during employment, subject to a minimum deferral requirement of three years.CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)7. Employee Benefits (Continued)$2,309, $2,819$2,048, $3,082 and $3,462$3,562 in 2009, 20082011, 2010 and 2007,2009, respectively.26, 200931, 2011 and December 27, 200825, 2010 the cash surrender value of these life insurance policies were $25,099$25,057 and $19,652,$31,054, respectively.$674$674 associated with the sale of our Phase I PCS business in the UK. The Charles River Laboratories, Inc. Pension Plan is a qualified, non-contributory defined benefit plan that covers certain U.S. employees. Benefits are based on participants' final average monthly compensation and years of service. Participants' rights vest upon completion of five years of service. Effective January 1, 2002, this plan was amended to exclude new participants from joining. Benefit criteria offered to existing participants as of the amendment date did not change. During 2008, our Board of Directors voted to freeze the accrual of benefits under the Pension Plan effective April 30, 2008. Accordingly, we recorded a curtailment gain of $3,276 in 2008. Based on a remeasurement of the U.S. pension plan's assets and liabilities at April 30, 2008, the benefit accrual freeze reduced the projected benefit obligation by $8,298 and resulted in a corresponding adjustment, net of tax, to accumulated other comprehensive income. In addition during 2009 as a result of realigning our work force, we terminated approximately 11% of the participants in our U.S. Pension Plan resulting in a curtailment. Because the accrual of benefits under this plan was frozen effective April 30, 2008, there is no curtailment gain or loss or change in the projected benefit obligation in 2009.CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)7. Employee Benefits (Continued) Pension Benefits Supplemental
Retirement Benefits Pension Benefits 2009 2008 2009 2008 2011 2010 2011 2010 $ 166,261 $ 232,852 $ 31,113 $ 29,925 2,283 4,037 623 908 9,771 12,014 1,485 1,718 654 789 — — — (14,483 ) — — (613 ) (3,454 ) — — (5,799 ) (5,404 ) (726 ) (704 ) 23,425 (24,564 ) (4,198 ) (734 ) — 137 — — (158 ) — — — 10,089 (35,663 ) — — $ 205,913 $ 166,261 $ 28,297 $ 31,113 Benefit obligation at beginning of year $ 228,810 $ 205,913 $ 30,572 $ 28,297 Service cost 3,056 2,617 636 597 Interest cost 12,107 11,214 1,201 1,341 Plan participants' contributions 574 585 — — Curtailment — — — — Settlements (158 ) (579 ) (5,113 ) — Benefit payments (6,664 ) (5,849 ) (764 ) (764 ) Actuarial loss (gain) 13,319 19,011 (76 ) 1,101 Plan amendments 53 — — — Administrative expenses paid (272 ) (307 ) — — Effect of foreign exchange 1,091 (3,795 ) — — Benefit obligation at end of year $ 251,916 $ 228,810 $ 26,456 $ 30,572 $ 134,034 $ 196,214 $ — $ — — — — — 25,618 (35,272 ) — — (613 ) (3,454 ) — — 10,889 14,169 726 704 654 789 — — (5,799 ) (5,404 ) (726 ) (704 ) — — — — (158 ) — — — 9,397 (33,008 ) — — $ 174,022 $ 134,034 $ — $ — Fair value of plan assets at beginning of year $ 192,429 $ 174,022 $ — $ — Plan assets assumed — — — — Actual return on plan assets 3,661 20,512 — — Settlements (158 ) (578 ) (5,113 ) — Employer contributions 12,170 7,515 5,877 764 Plan participants' contributions 574 585 — — Benefit payments (6,664 ) (5,849 ) (764 ) (764 ) Premiums paid (272 ) — — — Other — (307 ) — — Effect of foreign exchange 912 (3,471 ) — — Fair value of plan assets at end of year $ 202,652 $ 192,429 $ — $ — Funded status Projected benefit obligation $ 251,916 $ 228,810 $ 26,456 $ 30,572 Fair value of plan assets 202,652 192,429 — — Net balance sheet liability $ 49,264 $ 36,381 $ 26,456 $ 30,572 Classification of net balance sheet liability Non-current assets $ 11 $ — $ — $ — Current liabilities 52 46 717 5,913 Non-current liabilities 49,223 36,335 25,739 24,659 7. Employee Benefits (Continued) Pension Benefits Supplemental
Retirement Benefits 2009 2008 2009 2008 $ 205,913 $ 166,261 $ 28,297 $ 31,113 174,022 134,034 — — $ 31,891 $ 32,227 $ 28,297 $ 31,113 $ 688 $ — $ — $ — 63 52 5,408 5,159 $ 32,516 $ 32,175 $ 22,889 $ 25,954 Pension Benefits Supplemental
Retirement Benefits Pension Benefits 2009 2008 2009 2008 2011 2010 2011 2010 $ 18,710 $ 14,309 $ 2,977 $ 6,365 $ 52,384 $ 30,045 $ 3,190 $ 2,988 (6,698 ) (9,124 ) 2,043 3,475 (7,117 ) (7,734 ) 1,981 2,479 $ 12,012 $ 5,185 $ 5,020 $ 9,840 $ 45,267 $ 22,311 $ 5,171 $ 5,467 $ 202,363 $ 162,843 $ 26,746 $ 20,614 $ 245,705 $ 224,127 $ 24,663 $ 29,073 Pension Benefits Supplemental
Retirement Benefits Pension Benefits 2009 2008 2009 2008 2011 2010 2011 2010 $ 195,239 $ 157,068 $ 28,297 $ 31,113 $ 247,232 $ 216,088 $ 26,457 $ 30,572 194,167 156,017 26,746 20,614 242,467 214,802 24,663 29,073 162,862 125,143 — — 198,689 180,587 — — Pension Benefits Supplemental
Retirement Benefits Pension Benefits 2009 2008 2009 2008 2011 2010 2011 2010 $ 200,056 $ 166,261 $ 28,297 $ 31,112 $ 251,723 $ 228,810 $ 26,457 $ 30,572 197,827 162,843 26,746 20,614 245,574 224,127 24,663 29,073 167,476 134,034 — — 202,448 192,429 — — CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)7. Employee Benefits (Continued) Pension
Benefits Supplemental
Retirement
Benefits $ 712 $ 153 $ 2,338 $ 261 (618 ) 498 (596 ) 660 Pension Benefits Supplemental
Retirement Benefits Pension Benefits 2009 2008 2007 2009 2008 2007 2011 2010 2009 2011 2010 2009 $ 2,283 $ 4,037 $ 6,204 $ 623 $ 908 $ 882 $ 3,056 $ 2,617 $ 2,283 $ 636 $ 597 $ 623 9,771 12,014 11,663 1,485 1,718 1,581 12,107 11,214 9,771 1,201 1,341 1,485 (9,783 ) (13,499 ) (12,630 ) — — — (13,677 ) (12,185 ) (9,783 ) — — — (618 ) (684 ) (526 ) 498 498 498 (617 ) (598 ) (618 ) 498 498 498 1,271 (31 ) 386 125 413 568 978 749 1,271 210 155 125 2,924 1,837 5,097 2,731 3,537 3,529 1,847 1,797 2,924 2,545 2,591 2,731 43 — — — — — 23 27 43 (487 ) — — (674 ) (3,345 ) 326 — — — — — (674 ) — — — $ 2,293 $ (1,508 ) $ 5,423 $ 2,731 $ 3,537 $ 3,529 $ 1,870 $ 1,824 $ 2,293 $ 2,058 $ 2,591 $ 2,731 Pension Benefits 2011 2010 2011 2010 Beginning balance $ 22,311 $ 12,012 $ 5,467 $ 5,020 Amortization of prior service cost 617 598 (497 ) (498 ) Amortization of net gain (loss) (978 ) (749 ) (210 ) (155 ) Asset loss/(gain) 10,016 (8,327 ) — — Liability loss/(gain) 13,319 19,011 (76 ) 1,100 Recognized prior service (cost) credit due to curtailment 53 — — — Recognized (loss)/gain due to settlement (23 ) (27 ) 487 — Currency impact (48 ) (207 ) — — Ending balance $ 45,267 $ 22,311 $ 5,171 $ 5,467 Pension Benefits Supplemental
Retirement
Benefits 2009 2008 2009 2008 2011 2010 2011 2010 5.41 % 5.74 % 5.22 % 6.15 % 4.47 % 5.20 % 3.42 % 4.34 % 3.19 % 2.90 % 2.50 % 4.75 % 3.12 % 2.50 % 2.50 % 2.50 % Pension Benefits Supplemental
Retirement Benefits Pension Benefits 2009 2008 2007 2009 2008 2007 2011 2010 2009 2011 2010 2009 5.74 % 5.69 % 5.14 % 6.15 % 5.88 % 5.56 % 5.20 % 5.63 % 5.74 % 4.34 % 5.22 % 6.15 % 6.84 % 7.10 % 7.00 % — — — 6.79 % 7.11 % 6.84 % — — — 3.24 % 4.07 % 3.94 % 4.75 % 4.75 % 4.75 % 3.48 % 2.50 % 3.24 % 2.50 % 2.50 % 4.75 % CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)7. Employee Benefits (Continued) Target
Allocation Pension
Benefits 2010 2009 2008 2012 2011 2010 67 % 64 % 56 % 67 % 59 % 65 % 31 % 32 % 36 % 31 % 37 % 31 % 2 % 4 % 8 % 2 % 4 % 4 % 100 % 100 % 100 % 100 % 100 % 100 % 26, 200931, 2011 and December 27, 2008. Fair Value Measurements at
December 26, 2009 using Fair Value Measurements at December 31, 2011 Quoted Prices in
Active Markets
for Identical
Assets
Level 1 Significant Other
Observable
Inputs
Level 2 Significant
Unobservable
Inputs
Level 3 Assets at
Fair Value $ 641 $ — $ — $ 641 $ 1,132 $ — $ — $ 1,132 106,243 — — 106,243 85,288 — — 85,288 36,519 — — 36,519 54,067 — — 54,067 12,013 16,921 — 28,934 45,818 14,559 — 60,377 — 260 — 260 — 284 1,419 1,703 259 (e) — 1,166 (d) 1,425 Other (d) 85 — — 85 $ 155,675 $ 17,181 $ 1,166 $ 174,022 $ 186,390 $ 14,843 $ 1,419 $ 202,652 (a)This category comprises investments valued at the closing price reported on the active market on which the individual securities are traded.(b)This category comprises mutual funds valued at the net asset value of shares held at year end.(c)This category comprises life insurance policies valued at cash surrender value at year end.(d)This comprises annuity policies held with various insurance companies valued at face value.(e)This comprises other investments valued at market value.(a) This category comprises investments valued at the closing price reported on the active market on which the individual securities are traded. (b) This category comprises mutual funds valued at the net asset value of shares held at year end. 7. Employee Benefits (Continued)(c) This category comprises life insurance policies valued at cash surrender value at year end. (d) This comprises annuity policies held with various insurance companies valued at face value. Fair Value Measurements
Using Significant
Unobservable
Inputs
(Level 3) $ 1,103 157 — (94 ) — $ 1,166 Balance at December 25, 2010 $ 1,203 Actual return on plan assets: Relating to assets still held at December 31, 2011 334 Relating to assets sold during the period Purchases, sales and settlements (118 ) Transfers in and/or out of Level 3 — Balance at December 31, 2011 $ 1,419 Contributions2009,2011, we contributed $10,819$18,047 to our pension plans. We expect to contribute $7,711$13,868 to our pension plan in 2010. Pension
Benefits Supplemental
Retirement
Benefits $ 5,556 $ 5,546 5,311 714 6,014 684 $ 5,961 $ 731 6,349 12,582 6,869 10,760 7,139 702 6,679 797 46,220 8,636 2015 7,379 739 2016 8,357 5,379 2017-2021 $ 49,874 $ 3,432 8.2009, 20082011, 2010 and 2007,2009, the primary share-based awards and their general terms and conditions are as follows:•••CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)8. Stock Plans and Stock Based Compensation (Continued)("(2007 Plan). The 2007 Plan was subsequently amended in 2009 and 2011, and in each case the 2007 Plan").amendments were approved by our shareholders at the respective annual meeting of shareholders. The 2007 Plan provides that effective upon approval, no further awards will 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 6.326, 2009,31, 2011, approximately 4.35.8 million shares were authorized for future grants under our share-based compensation plans. We settle employee share-based compensation awards with newly issued shares. December 26,
2009 December 27,
2008 December 29,
2007 December 31, 2011 December 25, 2010 December 26, 2009 $ 7,048 $ 6,406 $ 8,258 16,765 17,927 17,759 23,813 24,333 26,017 (8,445 ) (8,612 ) (8,423 ) Cost of sales $ 5,983 $ 7,186 $ 7,006 Selling and administration 15,723 18,340 16,646 Income from continuing operations, before income taxes 21,706 25,526 23,652 Provision for income taxes (7,784 ) (9,179 ) (8,388 ) $ 15,368 $ 15,721 $ 17,594 $ 13,922 $ 16,347 $ 15,264 did not capitalize anycapitalized no stock-based compensation related costs for the years ended 2009, 20082011, 2010 and 2007.2009.2009, 20082011, 2010 and 20072009 was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions: December 26,
2009 December 27,
2008 December 29,
2007 December 31, 2011 December 25, 2010 December 26, 2009 4.5 4.5 5.0 4.2 4.5 4.5 25 % 24 % 30 % 33 % 34 % 25 % 1.87 % 2.8 % 4.6 % 2.21 % 2.35 % 1.87 % 0.0 % 0.0 % 0.0 % 0 % 0 % 0 % $ 6.15 $ 14.85 $ 16.49 $ 11.32 $ 11.96 $ 6.15 8. Stock Plans and Stock Based Compensation (Continued) Shares Weighted Average
Exercise Price Weighted Average
Remaining
Contractual Life
(in years) Aggregate
Intrinsic
Value 5,392,613 $ 36.50 934,690 $ 46.95 (1,737,413 ) $ 31.47 (122,087 ) $ 41.49 4,467,803 $ 40.50 820,200 $ 58.59 (706,755 ) $ 38.98 (100,128 ) $ 46.14 Shares Weighted Average
Exercise Price Weighted Average
Remaining
Contractual Life
(in years) Aggregate
Intrinsic
Value 4,481,120 $ 43.93 4,481,120 $ 43.93 2,252,704 $ 25.34 2,252,704 $ 25.34 (48,411 ) $ 16.46 (48,411 ) $ 16.46 (468,470 ) $ 40.47 (468,470 ) $ 40.47 6,216,943 $ 37.67 2,708,268 $ 37.92 2,729,255 $ 39.65 Options outstanding as of December 26, 2009 6,216,943 $ 37.67 Options granted 1,367,780 $ 37.32 Options exercised (188,585 ) $ 24.34 Options canceled (801,825 ) $ 38.61 Options outstanding as of December 25, 2010 6,594,313 $ 37.87 Options granted 929,980 $ 37.27 Options exercised (722,355 ) $ 28.41 Options canceled (720,675 ) $ 43.33 Options outstanding as of December 31, 2011 6,081,263 $ 38.25 3,096,990 $ 41.69 3.68 years $ 1,961 3,096,990 $ 41.69 Options exercisable as of December 25, 2010 3,732,025 $ 40.61 Options exercisable as of December 31, 2011 3,593,374 $ 40.58 2.65 years $ 1,319 26, 2009,31, 2011, the unrecognized compensation cost related to 2,932,7562,464,331 unvested stock options expected to vest was $19,862.$16,062. This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 2828.13 months. December 27, 2008 was $7,950, $1,767 and December 29, 2007 was $909, $17,197 and $37,342,$909, respectively, with intrinsic value defined as the difference between the market price on the date of exercise and the grant date price. The total amount of cash received from the exercise of options during 20092011 was $797.$20,625. The actual tax benefit realized for the tax deductions from option exercises totaled $316$2,898 for the year ended December 26, 2009.31, 2011.CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)8. Stock Plans and Stock Based Compensation (Continued)26, 2009: Options Outstanding Options Exercisable Options Outstanding Options Exercisable Number
Outstanding Weighted
Average
Remaining
Contractual
Life
(In years) Weighted
Average
Exercise
Price Aggregate
Intrinsic
Value Optionsp
Exercisable Weighted
Average
Remaining
Contractual
Life
(In years) Weighted
Average
Exercise
Price Aggregate
Intrinsic
Value Number
Outstanding Weighted
Average
Remaining
Contractual
Life
(In years) Weighted
Average
Exercise
Price Aggregate
Intrinsic
Value Options
Exercisable Weighted
Average
Remaining
Contractual
Life
(In years) Weighted
Average
Exercise
Price Aggregate
Intrinsic
Value 2,291 2.12 $ 0.43 $ 75 2,291 2.12 $ 0.43 $ 75 657 0.16 $ 0.24 $ 18 657 0.16 $ 0.24 $ 18 73,388 1.66 14.47 1,357 73,388 1.66 14.47 1,357 29,264 0.55 13.35 409 29,264 0.55 13.35 409 2,064,727 6.13 25.11 16,204 35,697 3.51 27.67 189 1,167,411 4.11 25.20 2,576 468,256 4.02 25.61 892 1,400,324 3.45 34.55 456 1,166,409 3.18 34.35 340 2,916,283 4.11 36.33 — 1,318,068 2.24 35.19 — 1,899,471 4.27 46.08 — 1,542,263 4.29 45.98 — 1,415,972 2.69 45.65 — 1,340,657 2.49 45.95 — 712,652 5.09 58.04 — 218,546 4.90 57.01 — 503,356 3.08 57.96 — 389,108 3.05 57.78 — 64,090 5.33 62.51 — 58,396 5.32 62.31 — 48,320 3.30 62.56 — 47,364 3.29 62.52 — 6,216,943 4.77 years $ 37.67 $ 18,092 3,096,990 3.86 years $ 41.69 $ 1,961 6,081,263 3.67 $ 38.25 $ 3,003 3,593,374 2.65 $ 40.58 $ 1,319 $32.96$27.33 as of December 26, 2009,31, 2011, that would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of December 26, 200931, 2011 was 893,768.431,077.26, 2009:31, 2011: Stock Options Weighted Average
Exercise Price 1,751,865 $ 50.60 Non-vested Stock Options Weighted Average
Exercise PriceDecember 25, 2010 2,862,288 $ 34.30 2,252,704 25.34 929,980 37.27 (268,482 ) 37.92 (221,080 ) 33.52 (616,134 ) 15.14 (1,083,299 ) 35.65 3,119,953 $ 33.68 December 31, 2011 2,487,889 $ 34.89 CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)8. Stock Plans and Stock Based Compensation (Continued)2009: Restricted Stock Weighted
Average
Grant Date
Fair Value 716,394 $ 50.58 539,440 25.15 (273,660 ) 50.09 (85,781 ) 39.96 896,393 $ 36.45 Restricted Stock Weighted
Average
Grant Date
Fair ValueOutstanding as of December 25, 2010 777,740 $ 35.97 Granted 292,840 37.04 Vested (295,572 ) 37.18 Canceled (71,997 ) 37.88 Outstanding as of December 31, 2011 703,011 $ 35.70 26, 2009,31, 2011, the unrecognized compensation cost related to shares of unvested restricted stock expected to vest was $23,672.$15,253. This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 28 months.29 months. The total fair value of restricted stock grants that vested during the fiscal years ending December 31, 2011, December 25, 2010 and December 26, 2009 December 27, 2008 was $10,989, $13,072 and December 29, 2007 was $13,707, $16,049 and $10,661,$13,707, respectively. The actual tax benefit realized for the tax deductions from restricted stock grants that vested totaled $2,936$3,952 for the year ended December 26, 2009. During 2008 and 2007, we31, 2011executives.executives during 2007, 2008 and 2009. Payout of these awards was contingent upon achievement of individualized stretch goals as determined by the Compensation Committee of the Board of Directors.goals. Compensation expense associated with these awards of $412$188, $496 and $2,360$412 has been recorded during 20092011, 2010 and 2008,2009, respectively.9.$24,777, $23,781$18,778, $22,635 and $25,548$19,952 in 2009, 20082011, 2010 and 2007,2009, respectively. Future minimum payments by year and in the aggregate, under noncancellable operating leases with initial or remaining terms of one year or more, consist of the following at December 26, 2009:31, 2011: $ 20,712 18,472 13,338 $ 14,740 10,902 11,483 8,951 8,961 2015 5,980 2016 4,959 $ 34,125 $ 14,108 Insuranceinsurancesinsurance which maintain large deductibles up to $500,$750, some with or without stop-loss limits, depending on market availability. Aggregate loss limits for workers compensation and auto liability are projected at $5,200.
LitigationCHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)9. Commitments and Contingencies (Continued)Construction We have certain purchase commitments related to the completion of our ongoing construction projects which amounted to approximately $2,592 as of December 26, 2009.Litigation10.On July 29, 2010, we signed a termination agreement with WuXi to terminate the previously announced acquisition agreement. In accordance with the terms of the termination agreement, on July 29, 2010, we paid WuXi a $30,000termination fee for full satisfaction of the parties' obligations under the acquisition agreement. The termination agreement also included mutual releases of any claims and liabilities arising out of or relating to the acquisition agreement. called Research Models and Services (RMS) and Preclinical Services (PCS). Operating segments are components of an enterprise for which separate financial information is available and is regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.genetically engineered modelsGEMS, IS, RADS, DS, in vitro products and services, (GEMS), consulting and staffing services, research animal diagnostics, discovery and imaging services,in vitroand avian vaccine products and services. Our PCS segment includes services required to take a drug through the development process, including toxicology, pathology services, bioanalysis, pharmacokinetics and drug metabolism,which include discovery support, safety assessment and biopharmaceutical services as well as Phase I clinical trials.services. 2009 2008 2007 $ 659,929 $ 659,941 $ 577,231 278,670 284,639 249,348 193,349 198,696 177,151 717,975 675,571 616,417 284,809 276,370 256,288 33,501 28,239 23,394 31,859 61,878 53,037 $ 542,622 $ 683,552 $ 653,395 150,698 226,070 228,843 37,127 (596,437 ) 103,541 1,486,118 1,461,422 2,156,702 636,178 611,692 582,630 60,052 63,051 63,017 48,153 137,980 177,901 10. Business Segment and Geographic Information (Continued) 2011 2010 2009 Research Models and Services Net sales $ 705,419 $ 666,986 $ 659,929 Gross margin 297,327 278,391 278,670 Operating income 206,319 184,464 193,349 Total assets 687,346 711,824 717,975 Long-lived assets 282,388 277,193 284,809 Depreciation and amortization 37,240 37,657 33,501 Capital expenditures 34,257 27,694 31,859 Preclinical Services Net sales $ 437,228 $ 466,430 $ 511,713 Gross margin 104,915 106,369 144,322 Operating income 24,925 (379,726 ) 39,814 Total assets 869,881 1,016,864 1,469,488 Long-lived assets 513,302 537,786 632,115 Depreciation and amortization 47,990 55,992 56,461 Capital expenditures 14,886 15,166 47,994 Fiscal Year Ended Fiscal Year Ended December 26,
2009 December 27,
2008 December 29,
2007 December 31, 2011 December 25, 2010 December 26, 2009 $ 230,476 $ (397,741 ) $ 280,692 $ 231,244 $ (195,262 ) $ 233,163 (63,550 ) (52,128 ) (53,533 ) (56,938 ) (73,250 ) (63,550 ) Termination fee (Note 11) — (30,000 ) — $ 166,926 $ (449,869 ) $ 227,159 $ 174,306 $ (298,512 ) $ 169,613 Fiscal Year Ended December 31, 2011 December 25, 2010 December 26, 2009 Research models $ 358,027 $ 355,218 $ 362,669 Research model services 222,110 208,363 194,663 Other products 125,282 103,405 102,597 Total research models 705,419 666,986 659,929 Total preclinical services 437,228 466,430 511,713 Total sales $ 1,142,647 $ 1,133,416 $ 1,171,642 following:following: December 26,
2009 December 27,
2008 December 29,
2007 December 31, 2011 December 25, 2010 December 26, 2009 $ 10,757 $ 11,968 $ 11,902 $ 11,159 $ 11,893 $ 10,757 5,336 (161 ) 7,074 3,802 3,921 5,336 2,609 2,727 3,455 3,069 2,805 2,609 17,239 18,943 15,652 18,486 19,617 17,239 9,309 8,282 5,004 13,253 13,678 9,309 1,622 (2,774 ) (908 ) 3,329 1,822 1,675 Employee health, LDP and fringe benefit expense (2,952 ) (2,231 ) 1,622 Consulting and professional services 8,432 7,686 3,329 Depreciation expense 6,312 5,796 648 2,625 — — (65 ) 4,153 2,625 3,445 1,313 — Transaction (acquisition/disposition) costs 1,329 6,669 3,445 Contingent consideration write-down (5,598 ) (4,335 ) — 7,279 10,008 9,679 (289 ) 3,598 6,631 $ 63,550 $ 52,128 $ 53,533 Total unallocated corporate overhead costs $ 56,938 $ 73,250 $ 63,550 India and Mexico.India. Sales to unaffiliated customersclients represent net sales originating in entities physically located inCHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)10. Business Segment and Geographic Information (Continued) U.S. Europe Canada Japan Other
Non-U.S. Consolidated $ 605,280 $ 328,447 $ 188,206 $ 70,848 $ 9,770 $ 1,202,551 579,906 137,281 141,687 42,084 20,029 920,987 $ 697,227 $ 362,751 $ 204,252 $ 66,749 $ 12,514 $ 1,343,493 570,253 129,340 123,492 45,035 19,942 888,062 $ 620,915 $ 339,347 $ 201,936 $ 56,435 $ 11,993 $ 1,230,626 506,277 145,048 143,561 37,420 6,612 838,918 U.S Europe Canada Japan Other Non-U.S. Consolidated 2011 Sales to unaffiliated clients $ 545,185 $ 348,455 $ 158,997 $ 75,992 $ 14,018 $ 1,142,647 Long lived assets 497,197 123,634 127,531 45,857 1,470 795,689 2010 Sales to unaffiliated clients $ 535,790 $ 327,492 $ 181,028 $ 73,852 $ 15,254 $ 1,133,416 Long lived assets 507,089 124,428 136,846 44,818 1,798 814,979 2009 Sales to unaffiliated clients $ 575,574 $ 327,244 $ 188,206 $ 70,848 $ 9,770 $ 1,171,642 Long lived assets 577,808 135,316 141,687 42,084 20,029 916,924 11.2006,the fourth quarter of 2010, we soldinitiated actions to divest our Phase II-IVI clinical services business. On December 25, 2010, taking into account the planned divestiture of the Phase I clinical services business, we performed an impairment test on the long-lived assets of the Phase I clinical services business. Based on this analysis, we determined that the book value of assets assigned to the Phase I clinical services business exceeded its future cash flows, which included the proceeds from the sale of the business, and therefore recorded an impairment of the assets of $6,402 during 2010.ClinicalPhase I clinical business and closed our Interventional and Surgical Services (ISS) business,for a nominal amount. As part of the disposition we remained the guarantor of the Phase I facility lease. During the second quarter of 2011, we recognized the value of the guarantee net of the buyer's related indemnity as a liability of $2,994, which were formerly includedwe are amortizing ratably over the remaining term of the lease. The facility lease runs through January 2021 with remaining lease payments totaling $14,711 as of December 31,the PCS segment. Accordingly,thousands, except per share amounts)thesethe businesses are reported asbeing discontinued operations for all periods presented. Fiscal Year Ended Fiscal Year Ended December 26,
2009 December 27,
2008 December 29,
2007 December 31, 2011 December 25, 2010 December 26, 2009 $ — $ — $ 599 $ 2,112 $ 17,508 $ 30,907 Asset impairment — 6,402 — 5,655 122 267 (8,964 ) (13,465 ) 3,205 2,435 (302 ) 3,413 Provision (benefit) for income taxes (3,419 ) (5,453 ) 1,806 $ 3,220 $ 424 $ (3,146 ) $ (5,545 ) $ (8,012 ) $ 1,399 The net income fromin 2009 of $3,220 represents a decrease in the loss recognized in 2006 from the sale of Phase II—IVat December 2011 and December 2010 consisted of the Clinical Services business, netfollowing: December 31,
2011 December 25,
2010Current assets $ 107 $ 3,862 Long-term assets 986 822 Total assets $ 1,093 $ 4,684 Current liabilities $ 1,165 $ 3,284 Long-term liabilities 2,522 — Total liabilities $ 3,687 $ 3,284 applicableaccounts payable, deferred income tax. This resulted from our tax settlement with the IRS Appeals Division in the third quarter of 2009.12. Subsequent Event In January 2010, we announced our decision to suspend operations at our PCS facility in Shrewsbury, Massachusetts, by the middle of 2010 when ongoing in-life studies will have been completed. We intend to resume operations when global preclinical market conditions improve and we require additional capacity. Suspension of operations at the facility is expected to reduce operating costs by approximately $20,000 in 2010, with an annualized run-rate of approximately $25,000. As a Fiscal Year Ended December 31, 2011 Total net sales $ 285,843 $ 288,263 $ 277,579 $ 290,962 Gross profit 102,638 106,320 92,716 100,568 Operating income 42,251 53,314 37,094 41,647 Income from continuing operations, net of tax 35,377 34,156 18,911 27,078 (Loss) income from discontinued businesses, net of tax (3,945 ) (1,732 ) (18 ) 150 Net income attributable to common shareowners 31,335 32,318 18,798 $ 27,115 Earnings (loss) per common share Basic Continuing operations attributable to common shareowners $ 0.65 $ 0.67 $ 0.38 $ 0.55 Discontinued operations attributable to common shareowners (0.07 ) (0.03 ) — — Net income attributable to common shareowners $ 0.58 $ 0.63 $ 0.38 $ 0.56 Diluted Continuing operations attributable to common shareowners $ 0.65 $ 0.66 $ 0.37 $ 0.55 Discontinued operations attributable to common shareowners (0.07 ) (0.03 ) — — Net income attributable to common shareowners $ 0.57 $ 0.63 $ 0.37 $ 0.55 Fiscal Year Ended December 25, 2010 Total net sales $ 292,287 $ 288,592 $ 270,885 $ 281,652 Gross profit 100,191 100,764 90,500 93,305 Operating income (loss) 30,194 29,985 6,468 (365,159 ) Income from continuing operations, net of tax 17,338 15,234 (24,248 ) (342,429 ) Income (loss) from discontinued businesses, net of tax (338 ) (1,139 ) (986 ) (5,549 ) Net income attributable to common shareowners $ 17,382 $ 14,454 $ (24,941 ) $ (343,564 ) Earnings (loss) per common share Basic Continuing operations attributable to common shareowners $ 0.27 $ 0.24 $ (0.38 ) $ (5.94 ) Discontinued operations attributable to common shareowners (0.01 ) (0.02 ) (0.02 ) (0.1 ) Net income attributable to common shareowners $ 0.27 $ 0.22 $ (0.4 ) $ (6.04 ) Diluted Continuing operations attributable to common shareowners $ 0.27 $ 0.24 $ (0.38 ) $ (5.94 ) Discontinued operations attributable to common shareowners (0.01 ) (0.02 ) (0.02 ) (0.1 ) Net income attributable to common shareowners $ 0.26 $ 0.22 $ (0.4 ) $ (6.04 ) Fiscal Year Ended December 31, 2011 Research Models and Services Sales $ 173,371 $ 178,163 $ 171,471 $ 182,414 Gross margin 73,839 78,307 70,514 74,667 Operating income 51,742 55,691 48,534 50,352 Depreciation and amortization 9,269 9,318 9,327 9,326 Capital expenditures 4,403 4,010 5,789 20,055 Preclinical Services Sales $ 112,472 $ 110,100 $ 106,108 $ 108,548 Gross margin 28,799 28,013 22,202 25,902 Operating income 9,306 7,875 3,663 4,082 Depreciation and amortization 11,996 12,498 11,840 11,656 Capital expenditures 2,387 2,650 2,433 7,416 Unallocated corporate overhead $ (18,797 ) $ (10,252 ) $ (15,103 ) $ (12,786 ) Total Sales $ 285,843 $ 288,263 $ 277,579 $ 290,962 Gross margin 102,638 106,320 92,716 100,569 Operating income 42,251 53,314 37,094 41,648 Depreciation and amortization 21,265 21,816 21,167 20,982 Capital expenditures 6,790 6,660 8,222 27,471 Fiscal Year Ended December 25, 2010 Research Models and Services Sales $ 172,205 $ 167,140 $ 159,259 $ 168,382 Gross margin 74,279 71,346 64,383 68,383 Operating income 49,984 47,258 42,817 44,405 Depreciation and amortization 9,721 8,811 9,422 9,703 Capital expenditures 4,960 6,245 4,622 11,867 Preclinical Services Sales $ 120,082 $ 121,452 $ 111,626 $ 113,270 Gross margin 25,912 29,418 26,117 24,922 Operating income 429 6,509 5,178 (391,842 ) Depreciation and amortization 13,859 14,114 14,063 13,956 Capital expenditures 4,333 2,187 4,505 4,141 Unallocated corporate overhead $ (20,219 ) $ (23,782 ) $ (41,527 ) $ (17,722 ) Total Sales $ 292,287 $ 288,592 $ 270,885 $ 281,652 Gross margin 101,191 100,764 90,500 93,305 Operating income 30,194 29,985 6,468 (365,159 ) Depreciation and amortization 23,580 22,925 23,485 23,659 Capital expenditures 9,293 8,432 9,127 16,008 CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(dollars in thousands, except per share amounts)12. Subsequent Event (Continued)result of this decision, we expect to record charges of approximately $6,000, in 2010, for severance and related costs. We anticipate that suspension of operations will likely result in some loss of revenue in 2010, but expects to retain the majority of the business and provide the services at other PCS sites. At this time we do not anticipate an asset impairment on the facility. On January 27, 2010, we executed a fourth amendment to our $50,000 credit agreement to extend the maturity date to July 31, 2011. In accordance with applicable accounting standards relevant for the accounting and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued, we have evaluated subsequent events through the date these financial statements were issued, February 19, 2010.CHARLES RIVER LABORATORIES INTERNATIONAL, INC.SUPPLEMENTARY DATAQuarterly Information (Unaudited) First
Quarter Second
Quarter Third
Quarter Fourth
Quarter $ 301,526 $ 308,159 $ 297,485 $ 295,381 108,220 114,463 106,564 100,121 39,893 50,662 44,447 31,924 24,869 33,655 33,540 17,318 — — 3,451 (231 ) $ 25,405 $ 34,154 $ 37,313 $ 17,569 $ 0.39 $ 0.53 $ 0.52 $ 0.27 — — 0.05 — $ 0.39 $ 0.53 $ 0.57 $ 0.27 $ 0.38 $ 0.52 $ 0.52 $ 0.27 — — 0.05 — $ 0.38 $ 0.52 $ 0.57 $ 0.27 $ 337,685 $ 352,134 $ 342,227 $ 311,447 130,377 137,987 130,270 112,075 63,486 69,308 68,173 (650,836 ) 44,056 48,808 45,493 (663,973 ) — — — 424 $ 44,139 $ 49,066 $ 45,488 $ (663,198 ) $ 0.65 $ 0.73 $ 0.68 $ (9.93 ) — — — 0.01 $ 0.65 $ 0.73 $ 0.68 $ (9.93 ) $ 0.63 $ 0.70 $ 0.64 $ (9.93 ) — — — 0.01 $ 0.63 $ 0.70 $ 0.64 $ (9.93 ) CHARLES RIVER LABORATORIES INTERNATIONAL, INC.SUPPLEMENTARY DATAQuarterly Segment Information (Unaudited) First
Quarter Second
Quarter Third
Quarter Fourth
Quarter $ 161,490 $ 165,682 $ 163,313 $ 169,444 68,313 71,206 68,623 70,528 47,444 50,894 46,131 48,880 7,673 8,049 9,346 8,433 7,624 6,307 8,933 8,995 $ 140,036 $ 142,477 $ 134,172 $ 125,937 39,907 43,257 37,941 29,593 10,546 16,336 10,044 201 14,297 14,851 15,492 15,412 17,001 14,130 9,532 7,490 $ (18,097 ) $ (16,568 ) $ (11,728 ) $ (17,157 ) $ 301,526 $ 308,159 $ 297,485 $ 295,381 108,220 114,463 106,564 100,121 39,893 50,662 44,447 31,924 21,970 22,900 24,838 23,845 24,625 20,437 18,465 16,485
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 168,596 $ 172,848 $ 165,656 $ 152,841 76,256 76,429 70,813 61,141 55,813 52,199 50,673 40,011 6,666 7,023 7,062 7,488 10,609 23,898 12,819 14,552 $ 169,089 $ 179,286 $ 176,571 $ 158,606 54,121 61,558 59,457 50,934 23,268 28,849 30,390 (678,944 ) 15,681 16,012 15,913 15,445 30,021 41,055 33,824 33,080 $ (15,595 ) $ (11,740 ) $ (12,890 ) $ (11,903 ) $ 337,685 $ 352,134 $ 342,227 $ 311,447 130,377 137,987 130,270 112,075 63,486 69,308 68,173 (650,836 ) 22,347 23,035 22,975 22,933 40,630 64,953 46,643 47,632 26, 200931, 2011 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures. We continually are in the process of further reviewing and documenting our disclosure controls and procedures, and our internal control over financial reporting, and accordingly may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.(b) Changes in Internal Controls(b) Changes in Internal Controls 26, 200931, 2011 that materially affected, or were reasonably likely to materially affect, the Company's internal control over financial reporting.A. Directors and Compliance with Section 16(a) of the Exchange ActA. Directors and Compliance with Section 16(a) of the Exchange Act theour directors of the Company and compliance with Section 16(a) of the Exchange Act by the Company'sour officers and directors will be included in the 20102012 Proxy Statement under the sectionsections captioned "Section“Nominees for Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance"Compliance” and is incorporated herein by reference thereto. The information required by this Item regarding the Company'sour corporate governance will be included in the 20102012 Proxy Statement under the section captioned "Corporate Governance"“Corporate Governance” and is incorporated herein by reference thereto.B. Executive Officers of the CompanyB. Our Executive Officers theour executive officers of the Company is reported in Part I of this Form 10-K under the heading "Supplementary“Supplementary Item. Executive Officers of the Registrant pursuant to Instruction 3 to Item 401(b) of Regulation S-K."C. Audit Committee Financial ExpertC. Audit Committee Financial Expert 20102012 Proxy Statement under the section captioned "The“The Board of Directors and its Committees—AuditCommittees-Audit Committee and Financial Experts"Experts” and is incorporated herein by reference thereto.D. Code of Ethics D. Code of Ethics The Company hasWe have adopted a Code of Business Conduct and Ethics that applies to all of itsour employees and directors, including theour principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions. The Company'sOur Code of Business Conduct and Ethics is posted on our website by selecting the "Corporate Governance"“Corporate Governance” link athttp://ir.criver.com. The CompanyWe will provide to any person, without charge, a copy of itsour Code of Business Conduct and Ethics by requesting a copy from the Secretary, Charles River Laboratories, Inc., 251 Ballardvale Street, Wilmington, MA 01887. Information on our website is not incorporated by reference in this annual report.E. Changes to Board Nomination ProceduresE. Changes to Board Nomination Procedures Company'sour Board of Directors.20102012 Proxy Statement under the sections captioned "Compensation“2011 Director Compensation,” “Compensation Discussion and Analysis," "2009 Director” “Executive Compensation" "Compensation and Related Information,” “Compensation Committee Interlocks and Insider Participation," "Executive CompensationParticipation” and Related Information" and "Report“Report of Compensation Committee"Committee” and is incorporated herein by reference thereto.20102012 Proxy Statement under the sections captioned "Beneficial“Beneficial Ownership of Securities" and "Equity Compensation Plan Information"Securities” and is incorporated herein by reference thereto. See also Item 5. "Market“Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—SecuritiesSecurities-Securities Authorized for Issuance Under Equity Compensation Plans"Plans” for the disclosure required by Item 201(d) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended.20102012 Proxy Statement under the sections captioned "Related“Related Person Transaction Policy"Policy” and "Corporate Governance—Director“Corporate Governance-Director Qualification Standards; Director Independence"Independence” and is incorporated herein by reference thereto.20102012 Proxy Statement under the section captioned "Statement“Statement of Fees Paid to Independent Registered Public Accounting Firm"Firm” and is incorporated herein by reference thereto.The Company hasWe have identified in the Exhibit Index each management contract and compensation plan filed as an exhibit to this CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
Date:February 19, 201027, 2012
By:By:Signatures Title Date By: /s/ JAMES C. FOSTER President, Chief Executive Officer and Chairman February 27, 2012 James C. Foster By: /s/ THOMAS F. ACKERMAN Corporate Executive Vice President and February 27, 2012 Thomas F. Ackerman Chief Financial Officer and Principal Accounting Officer By: /s/ ROBERT J. BERTOLINI Director February 27, 2012 Robert J. Bertolini By: /s/ STEPHEN D. CHUBB Director February 27, 2012 Stephen D. Chubb By: /s/ GEORGE E. MASSARO Director February 27, 2012 George E. Massaro By: /s/ DEBORAH KOCHEVAR Director February 27, 2012 Deborah Kochevar By: /s/ GEORGE M. MILNE, JR. Director February 27, 2012 George M. Milne, Jr. By: /s/ C. RICHARD REESE Director February 27, 2012 C. Richard Reese By: /s/ SAMUEL O. THIER Director February 27, 2012 Samuel O. Thier By: /s/ RICHARD F. WALLMAN Director February 27, 2012 Richard F. Wallman By: /s/ WILLIAM H. WALTRIP Director February 27, 2012 William H. Waltrip Exhibit No. Description Filed with this Form 10-K Incorporated by Reference Form Filing Date Exhibit No. 3.1 Second Amended and Restated Certificate of Incorporation of Charles River Laboratories International, Inc. dated June 5, 2000 S-1/A June 23, 2000 3.1 3.2 Second Amended and Restated By-laws of Charles River Laboratories International, Inc. 8-K December 5, 2008 3.2 4.1 Form of common stock certificate, $0.01 par value, of Charles River Laboratories International, Inc. S-1 June 23, 2000 4.1 4.2 Charles River Laboratories International, Inc. as Issuer and U.S. Bank National Association as Trustee Indenture dated June 12, 2006 8-K June 12, 2006 4.1 4.3 Charles River Laboratories International, Inc. Form of 2.25% Convertible Senior Note due 2013 8-K June 12, 2006 4.1 10.1* Charles River Corporate Officer Separation Plan dated April 30, 2010 10-Q August 3, 2010 10.1 10.2* Charles River Laboratories Holdings 1999 Management Incentive Plan 10-K March 14, 2006 10.6 10.3* Charles River Laboratories International, Inc. 2000 Incentive Plan amended May 9, 2005 10-K March 14, 2006 10.7 10.4* Charles River Laboratories International, Inc. 2000 Incentive Plan Inland Revenue Approved Rules for UK Employees 10-Q November 5, 2001 99.1 10.5* Form of change in control agreement 10-K February 23, 2009 10.7 10.6* Executive Incentive Compensation Plan dated January 1, 2009 10-K February 23, 2009 10.8 10.7* Charles River Laboratories International, Inc. Form of Stock Option Award letter granted under 2000 Incentive Plan 10-Q November 1, 2004 10.3 10.8* Charles River Laboratories International. Inc. Form of Restricted Stock Award granted under 2000 Incentive Plan 10-Q November 1, 2004 10.4 10.9* Inveresk Research Group, Inc. 2002 Stock Option and Incentive Compensation Plan amended and restated as of May 4, 2004 S-8 October 20, 2004 99.1 10.10* Charles River Laboratories, Inc. Executive Life Insurance/Supplemental Retirement Income Plan 10-K March 9, 2005 10.23 10.11* X 10.12 Charles River Laboratories International, Inc. Fourth Amended and Restated Credit Agreement dated September 23, 2011 8-K September 23, 2011 10.1 10.13* Charles River Laboratories International, Inc. 2007 Incentive Plan amended March 18, 2009 and March 22, 2011 X 10.14* Charles River Laboratories International, Inc. Form of Stock Option granted under 2007 Incentive Plan 10-K February 20, 2008 10.17 10.15* Charles River Laboratories International, Inc. Form of Restricted Stock Award granted under 2007 Incentive Plan 10-K February 20, 2008 10.18 10.16* Letter Agreements with Dr. Davide Molho dated May 22, 2009 10-K February 23, 2011 10.17 SignaturesTitleDate
21.1By:/s/ JAMES C. FOSTERJames C. FosterPresident, Chief Executive Officer andChairmanFebruary 19, 2010By:/s/ THOMAS F. ACKERMANThomas F. AckermanCorporate Executive Vice President andChief Financial OfficerFebruary 19, 2010By:/s/ NANCY T. CHANGNancy T. ChangDirectorFebruary 19, 2010By:/s/ STEPHEN D. CHUBBStephen D. ChubbDirectorFebruary 19, 2010By:/s/ GEORGE E. MASSAROGeorge E. MassaroDirectorFebruary 19, 2010By:/s/ DEBORAH KOCHEVARDeborah KochevarDirectorFebruary 19, 2010By:/s/ GEORGE M. MILNE, JR.George M. Milne, Jr.DirectorFebruary 19, 2010SignaturesTitleDateBy:/s/ C. RICHARD REESEC. Richard ReeseDirectorFebruary 19, 2010By:/s/ DOUGLAS E. ROGERSDouglas E. RogersDirectorFebruary 19, 2010By:/s/ SAMUEL O. THIERSamuel O. ThierDirectorFebruary 19, 2010By:/s/ WILLIAM H. WALTRIPWilliam H. WaltripDirectorFebruary 19, 2010Exhibit No.Description3.1Second Amended and Restated Certificate of Incorporation of Charles River Laboratories International, Inc. (Filed as Exhibit 3.1)(1)3.2Second Amended and Restated By-laws of Charles River Laboratories International, Inc. (Filed as Exhibit 3.2)(2)4.1Form of certificate representing shares of common stock, $0.01 par value per share. (Filed as Exhibit 4.1)(1)4.2Indenture dated June 12, 2006, among Charles River Laboratories International, Inc. and U.S. Bank National Association. (Filed as Exhibit 4.1)(3)4.3Form of 2.25% Convertible Senior Note due 2013. (Filed as Exhibit 4.2)(3)10.1Severance Agreement between Charles River Laboratories, Inc. and Real H. Renaud, dated January 20, 1992, amended December 15, 2008. (Filed as Exhibit 10.1)(4)+10.21999 Charles River Laboratories Corporate Officer Separation Plan. (Filed as Exhibit 10.2)(4)+10.3Charles River Laboratories 1999 Management Incentive Plan. (Filed as Exhibit 10.6)(5)+10.4Charles River Laboratories 2000 Incentive Plan, as amended May 2005. (Filed as Exhibit 10.7)(5)+10.5Charles River Laboratories 2000 Incentive Plan Inland Revenue Approved Rules for UK Employees. (Filed as Exhibit 99.1)(6)+10.7Form of Change in Control Agreement. (Filed as Exhibit 10.7)(7)+10.8Executive Incentive Compensation Plan, as amended. (Filed as Exhibit 10.8)(7)+10.9Form of Stock Option Award Agreement under 2000 Incentive Plan. (Filed as Exhibit 10.3)(8)+10.10Form of Restricted Stock Award Agreement under 2000 Incentive Plan. (Filed as Exhibit 10.4)(8)+10.11Inveresk Research Group, Inc. 2002 Stock Option and Incentive Compensation Plan, as amended and restated as of May 4, 2004. (Filed as Exhibit 99.1)(9)+10.12Charles River Laboratories Executive Life Insurance/Supplemental Retirement Income Plan. (Filed as Exhibit 10.23)(10)+10.13Deferred Compensation Plan. (Filed as Exhibit 10.3)(7)+10.14Second Amended and Restated Credit Agreement, dated as of July 31, 2006, among Charles River Laboratories International, Inc., the Subsidiary Borrowers party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A. as administrative agent, Credit Suisse Securities (USA) LLC, as syndication agent, and Bank of America, N.A., Citizens Bank of Massachusetts and Wachovia Bank, National Association, as co-documentation agents. (Filed as Exhibit 10.1)(11)10.15Charles River Laboratories International, Inc. 2007 Incentive Plan. (Filed as Exhibit 10.1)(4)+10.16Form of Performance Award Agreement. (Filed as Exhibit 10.2)(12)+Exhibit No.Description10.17Form of Stock Option Award Agreement Under 2007 Incentive Plan. (Filed as Exhibit 10.17)(13)+10.18Form of Restricted Stock Award Agreement Under 2007 Incentive Plan. (Filed as Exhibit 10.18)(13)+21.1*
Subsidiaries of Charles River Laboratories International, Inc.X
23.123.1*
Consent of PricewaterhouseCoopers LLP.LLPX
31.131.1*
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.OfficerX
31.231.2*
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.OfficerX
32.132.1*
Section 1350 Certification of the Chief Executive Officer and the Chief Financial Officer.OfficerX 101.1 The following materials from our Annual Report on Form 10-K for the year ended December 31, 2011 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Shareholders' Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these financial statements, tagged as blocks of text. X Filed herewith.+(1)Previously filed as an exhibit to Amendment No. 1 to the Company's Registration Statement on Form S-1 (File No. 333-35524), as amended, filed June 23, 2000.(2)Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed on December 5, 2008.(3)Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed on June 12, 2006.(4)Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q, filed on May 6, 2009.(5)Previously filed as an exhibit to the Company's Annual Report on Form 10-K, filed on March 14, 2006.(6)Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q, filed on November 5, 2001.(7)Previously filed as an exhibit to the Company's Annual Report on Form 10-K, filed on February 23, 2009.(8)Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q, filed on November 1, 2004.(9)Previously filed as an exhibit to the Company's Registration Statement on Form S-8, filed on October 20, 2004.(10)Previously filed as an exhibit to the Company's Annual Report on Form 10-K, filed March 9, 2005.(11)Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed on August 2, 2006.(12)Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q, filed on May 9, 2007.(13)Previously filed as an exhibit to the Company's Annual Report on Form 10-K, filed February 20, 2008.