INCOME TAXES

The following table provides a reconciliation of the provision for income taxes on the condensed consolidated statements of income:



	Three Months Ended						Nine Months Ended
	September 28, 2013			September 29, 2012			September 28, 2013			September 29, 2012
Income from continuing operations before income taxes	$	42,726		$	28,395		$	115,221		$	103,541
Effective tax rate	26.7		%	21.2		%	25.5		%	23.3		%
Provision for income taxes	$	11,390		$	6,011		$	29,331		$	24,140

Our overall effective tax rate was 26.7% in the third quarter of 2013 and 21.2% in the third quarter of 2012. The increase was primarily attributable to a $2,006 reduction of a tax asset related to the ongoing transfer pricing controversy with the Canadian Revenue Authority (CRA), a reduction in benefits from the U.K. research and development enhanced deduction regime due to the early adoption of the new refundable research and development credit that was enacted in the third quarter of 2013, and a French tax law change enacted in the first quarter of 2013 that limits the deductibility of interest by our French affiliates. These tax costs were partially offset in the third quarter of 2013 by a favorable mix of earnings, increased benefits from Canadian Scientific Research and Experimental Development credits (SR&ED), and an increased tax benefit from the U.S. domestic production deduction. The effective tax rate for the third quarter of 2012 reflects a tax benefit of $1,226 related to the settlement of a Canadian tax controversy for the SR&ED credits claimed in 2003 and 2004.

The effective tax rate for the nine months ended September 28, 2013 reflects the items noted above as well as a discrete tax cost of $703 due to the retroactive impact of the French tax law change to 2012, a $525 discrete tax cost related to nondeductible transaction costs incurred in 2012 for the acquisition of Vital River, which closed in the first quarter of 2013, and a discrete tax benefit of $330 for the retroactive impact to 2012 of a change in U.S. Federal tax law enacted during the first quarter of 2013 related to the U.S. anti deferral regime. Additionally the effective tax rate for the nine months ended September 29, 2012 reflects an unbenefitted capital loss of $712 on the sale of auction rate securities recorded in the first quarter of 2012.

In accordance with Canadian Federal tax law, we claim SR&ED credits on qualified research and development costs incurred by our preclinical services facility in Canada in the performance of projects 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 services facility in Scotland, in the performance of certain client contracts. On July 17, 2013, the U.K. government enacted a tax law change that replaces the existing research and development enhanced deduction with a research and development credit. In the third quarter of 2013 we elected to adopt the tax law change with retroactive application to April 1, 2013. The benefit of the new refundable credit for the period April 1, 2013 through September 28, 2013 of $1,714 is reported in Cost of Services Provided in our Condensed Consolidated Statements of Income.

During the third quarter of 2013, our unrecognized tax benefits recorded decreased by $13,325 to $18,782 due primarily to a settlement reached during the quarter with the CRA related to SR&ED credits claimed in 2005 through 2011. This reduction was partially offset with an increase 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 would impact the effective tax rate favorably decreased by $8,628 to $17,268. The decrease was due primarily to the Canadian SR&ED settlement. The amount of accrued interest on unrecognized tax benefits decreased by $1,788 to $637 in the third quarter of 2013 primarily due to the Canadian SR&ED settlement. It is reasonably possible as of September 28, 2013 that the liability for unrecognized tax benefits for the uncertain tax position associated with an acquisition agreement termination fee could decrease within the next twelve months by approximately $11,000 due to the potential expiration of a statute of limitations.

We conduct business in a number of tax jurisdictions. As a result, we are subject to tax audits in jurisdictions including, but not limited to, the United States, the United Kingdom, Japan, France, Germany and Canada. With few exceptions, we are no longer subject to U.S. and international income tax examinations for years before 2006.

We are currently under audit by the CRA for the years 2006 through 2009. In the fourth quarter of 2012, we received a draft reassessment from the CRA related to the transfer pricing in our preclinical services operations in Montreal. We received revised draft reassessments in the second quarter of 2013. The CRA proposes to disallow certain deductions related to headquarter service charges for the years 2006 through 2009. We intend to file an objection with the CRA upon receipt of the Notice of Reassessment and apply to the Internal Revenue Service (IRS) and the CRA for relief pursuant to the competent authority procedure provided in the tax treaty between the U.S. and Canada. We believe that the controversy will likely be settled via the competent authority process. In the fourth quarter of 2012, we established a reserve for this uncertain tax position of $2,408 related to years 2006 through 2012 to reduce the tax benefit recognized for these deductions in Canada to the level that we believe will likely be realized upon the ultimate resolution of this controversy. Additionally, in the fourth quarter of 2012, we recognized a tax asset of $2,981, which is included in Other Assets, that represents the correlative relief that we believe would more likely than not be received in the U.S. via the competent authority process. In the third quarter of 2013 there was a U.S. tax court opinion issued that could impact our ability to recognize the full benefit of the correlative relief recorded in 2012. As a result, in the third quarter of 2013, the U.S. tax asset recorded in the fourth quarter of 2012 was reduced by $2,006 to $975. The actual amounts of the liability for Canadian taxes and the asset for the correlative relief in the U.S. could be different based upon the agreement reached between the IRS and CRA.

On October 9, 2013 we were notified by the German Tax Office of an upcoming audit of our German operations for years 2008 through 2011. We do not believe that resolution of this audit will have a material impact on our financial position or results of operations.

We believe we have appropriately provided for all uncertain tax positions.

In the third quarter of 2013 the French government proposed a change to French tax law that, if enacted, could further reduce the deductibility of interest by our French affiliates in 2013 and beyond. We are currently analyzing the potential impact of the proposed law change.

In accordance with our policy, the undistributed earnings of our non-U.S. subsidiaries remain indefinitely reinvested as of the end of the third quarter of 2013 as they are required to fund needs outside the U.S. and cannot be repatriated in a manner that is substantially tax free.

The income tax expense (benefit) related to items of other comprehensive income are as follows:



	Three Months Ended						Nine Months Ended
	September 28, 2013			September 29, 2012			September 28, 2013		September 29, 2012
Income tax expense (benefit) related to foreign currency translation adjustment	$	(615	)	$	(60	)	$	42	$	(98	)
Income tax expense related to change in unrecognized pension gains, losses and prior service costs	289			216			832		799
Income tax expense (benefit) related to items of other comprehensive income	$	(326	)	$	156		$	874	$	701