Derivative, fixed interest rate

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)  
Contingent ConsiderationThe following table provides a rollforward of the contingent consideration related to the Company’s acquisitions.

|  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |
|  | Nine Months Ended |
|  | September 24, 2022 |  | September 25, 2021 |
|  | (in thousands) |
| Beginning balance | $ | 37,244  |  |  | $ | 2,328  |  |
| Additions | —  |  |  | 72,476  |  |
| Payments | (11,476) |  |  | (2,889) |  |
| Total gains or losses (realized/unrealized): |  |  |  |
| Adjustment of previously recorded contingent liability | (15,340) |  |  | (10,360) |  |
| Foreign currency translation | (1,767) |  |  | (226) |  |
| Ending balance | $ | 8,661  |  |  | $ | 61,329  |  |

The Company estimates the fair value of contingent consideration obligations through valuation models, such as probability-weighted and option pricing models, that incorporate probability adjusted assumptions and simulations related to the achievement of the milestones and the likelihood of making related payments. The unobservable inputs used in the fair value measurements include the probabilities of successful achievement of certain financial targets, forecasted results or targets, volatility, and discount rates. The remaining maximum potential payments are approximately $53 million, of which the value accrued as of September 24, 2022 is approximately $9 million. The weighted average probability of achieving the maximum target is approximately 16%. The average volatility and weighted average cost of capital are approximately 40% and 16%, respectively. Increases or decreases in these assumptions may result in a higher or lower fair value measurement, respectively.Debt InstrumentsThe book value of the Company’s term and revolving loans, which are variable rate loans carried at amortized cost, approximates the fair value based on current market pricing of similar debt. As the fair value is based on significant other observable inputs, including current interest and foreign currency exchange rates, it is deemed to be Level 2 within the fair value hierarchy.The book value of the Company’s Senior Notes are fixed rate obligations carried at amortized cost. Fair value is based on quoted market prices as well as borrowing rates available to the Company. As the fair value is based on significant other observable outputs, it is deemed to be Level 2 within the fair value hierarchy. The book value and fair value of the Company’s Senior Notes is summarized below:

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | September 24, 2022 |  | December 25, 2021 |
|  | Book Value |  | Fair Value |  | Book Value |  | Fair Value |
| 4.25% Senior Notes due 2028 | $ | 500,000  |  |  | $ | 446,250  |  |  | $ | 500,000  |  |  | $ | 521,250  |  |
| 3.75% Senior Notes due 2029 | 500,000  |  |  | 422,500  |  |  | 500,000  |  |  | 506,700  |  |
| 4.0% Senior Notes due 2031 | 500,000  |  |  | 413,750  |  |  | 500,000  |  |  | 507,500  |  |

Derivative InstrumentEarly in November 2022, the Company entered into an interest rate swap with a notional amount of $500 million to manage interest rate fluctuation related to floating rate borrowings under the Credit Facility, at a fixed rate of 4.700% making the total interest rate 5.825% at our current spread. The Company designated this derivative instrument as a cash flow hedge at the inception of the contract and expects it to be highly effective.21
