Income Taxes

An analysis of the components of income (loss) from continuing operations before income taxes and the related provision for income taxes is presented below:



	Fiscal Year Ended
	December 31, 2011			December 25, 2010			December 26, 2009
Income (loss) from continuing operations before income taxes
U.S.	$	47,158		$	(149,275	)	$	38,368
Non-U.S.	85,504			(184,807		)	113,189
	$	132,662		$	(334,082	)	$	151,557
Income tax provision
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

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.



	December 31, 2011			December 25, 2010
Compensation	$	49,178		$	47,695
Accruals and reserves	3,712			4,725
Financing related	3,193			3,576
Goodwill and other intangibles	(6,523		)	(5,876		)
Net operating loss and credit carryforwards	57,193			36,359
Depreciation related	(34,389		)	(28,400		)
Non-indefinitely reinvested earnings	(146		)	(250		)
Other	(1,795		)	(547		)
	70,423			57,282
Valuation allowance	(12,178		)	(12,041		)
Total deferred taxes	$	58,245		$	45,241

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



	December 31, 2011		December 25, 2010		December 26, 2009
U.S. statutory income tax rate	35.0	%	(35.0	)%	35.0	%
Foreign tax rate differences	(6.7	)%	(1.3	)%	(5.4	)%
State income taxes, net of Federal tax benefit	2.1	%	(0.7	)%	1.3	%
Unbenefitted losses and valuation allowance	0.6	%	0.6	%	1.4	%
Impact of repatriation of non-U.S.earnings	0.5	%	4.6	%	(0.7	)%
Research tax credits and enhanced deductions	(7.6	)%	(3.6	)%	(6.7	)%
Enacted tax rate changes	(1.0	)%	—	%	(0.1	)%
Impact of tax uncertainties	(1.0	)%	3.1	%	1.2	%
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	)%	—	%	—	%
Other	1.6	%	1.0	%	0.6	%
	12.9	%	0.0	%	26.6	%

As of December 31, 2011, we have non-U.S. net operating loss carryforwards, the tax effect of 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 claim SR&ED credits on qualified research and development costs incurred by our Preclinical service 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 service facility in Scotland, in the performance 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.

We record deferred tax assets for stock-based awards based on the amount of stock-based compensation recognized in our Consolidated Statements of Income at the statutory tax rate in the jurisdiction in which we will receive a tax deduction. Differences between the deferred tax assets and the actual tax deduction reported on our income tax returns are recorded in additional paid-in capital. If the tax deduction is less that the deferred tax asset, the calculated shortfall reduces our pool of excess tax benefits. If the pool of excess tax benefits is 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 long form method, was $10,580 as of December 31, 2011 and $12,614 as of December 25, 2010. During 2011, we recorded a tax detriment of $802 to additional paid-in-capital related to the exercise of stock options and vesting of restricted shares.

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 31, 2011 relate to deferred tax assets primarily for net operating losses in China, Hong Kong, India, Luxembourg and the Netherlands, capital losses in the U.S. and Canada, and fixed assets in the U.K. which have resulted in an increase of $137 in the valuation allowance from $12,041 at December 25, 2010 to $12,178 at December 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.

During the fourth quarter of 2010, we took actions to divest of our Phase 1 clinical business. We recorded in discontinued operations a deferred tax asset associated with the excess of the tax outside basis over the basis for financial reporting purposes of the Phase 1 clinical business. As of the fourth quarter of 2010, we determined that we did not meet the more-likely-than-not realization threshold for this deferred tax asset and we recorded a valuation allowance against it as part of discontinued operations. During the first quarter of 2011, we determined that the tax loss would more-likely-than-not be benefitted as a worthless stock deduction. As such, we released the valuation allowance recorded against the tax loss on the Phase 1 clinical business and recognized a $11,111 benefit in continuing operations during the first quarter of 2011.

At December 31, 2011, the amount recorded for unrecognized tax benefits was $27,976. At December 25, 2010 the amount recorded for unrecognized income tax benefits was $33,427. The $5,451 decrease during 2011 is primarily attributable to the settlement reached with the German Tax Office related to an uncertain tax position for the deductibility of interest. This decrease was offset by increases resulting 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 $22,477 as of December 31, 2011 and $28,456 as of December 25, 2010. The $5,979 decrease is primarily attributable to the settlement of the German controversy which is partially offset by increases due to ongoing evaluation of uncertain tax positions in the current and prior periods and foreign exchange movement.

A reconciliation of our beginning and ending unrecognized income tax benefits is as follows:



	December 31, 2011			December 25, 2010			December 26, 2009
Beginning balance	$	33,427		$	21,389		$	28,732
Additions:
Tax positions for current year	1,714			13,142			1,515
Tax positions for prior years	—			693			2,367
Reductions:
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		)
Ending balance	$	27,976		$	33,427		$	21,389

We continue to recognize interest and penalties related to unrecognized income tax benefits in income tax expense. The total amount of accrued interest related to unrecognized income tax benefits as of December 31, 2011 and December 25, 2010 was $1,515 and $2,313, respectively. The $798 decrease is primarily attributable to settlement of the German controversy, which is partially offset by increases due to ongoing evaluation of uncertain tax positions in the current and prior periods and foreign exchange movement. We have not recorded a provision for penalties associated with uncertain tax positions.

We conduct business in a number of tax jurisdictions. As a result, we are subject to tax audits on a regular basis including, but not limited to, such major jurisdictions as the United States, the United Kingdom, Germany and Canada. With few exceptions, we are no longer subject to U.S. and international income tax examinations for years before 2005.

We and certain of our subsidiaries are currently under audit by the Canadian Revenue Authority (CRA), the Minister of Revenue Quebec provincial tax authority (MRQ) and various state tax authorities. We do not believe that resolution of these audits will have a material impact on our financial position or results of operations.

Additionally, we are challenging the reassessments received by the CRA with respect to the SR&ED credits claimed in 2003 and 2004 by our Canadian Preclinical Services subsidiary in the Tax Court of 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 2010. In a related development, during the first quarter of 2010 we received Notices of Reassessment from the MRQ with respect to the Quebec Research and Development tax credit. We filed Notices of Objection with the MRQ in the second quarter of 2010. We disagree with the positions taken by the CRA and MRQ with regard to the credits claimed. We believe that it is reasonably possible that we will conclude the controversies with the TCC and MRQ within the next twelve months. We do not believe that resolution of these controversies will have a material impact on our financial position or results of operations. However, it is possible that the CRA and MRQ will propose similar adjustments for later years.

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

During 2010, we executed 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, we 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 substantially tax-free manner. As a result, in 2010, we changed our indefinite reinvestment assertion with respect to these earnings and accrued the cost to repatriate $10,334, of which $15,264 is reflected as Income Tax Expense, with an offsetting benefit of $4,930, which is recorded in the Cumulative Translation Adjustment account. During 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.

In accordance with our policy, the remaining undistributed earnings of our non-U.S. 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 31, 2011, the earnings of our non-U.S. subsidiaries considered to be indefinitely reinvested totaled $106,504. 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 income taxes and withholding taxes payable to the various foreign countries. It is not practicable to estimate the amount of additional tax that might be payable on this undistributed foreign income.

On June 12, 2006, we issued $300,000 aggregate principal amount of convertible senior notes (2013 Notes) in a private placement with net proceeds to us of approximately $294,000. On June 20, 2006, the initial purchasers associated with this convertible debt offering exercised an option to purchase an additional $50,000 of the 2013 Notes for additional net proceeds of approximately $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 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 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) over the 7 year term. A deferred tax asset was recorded at issuance with an offset to Additional Paid in Capital for tax savings resulting from the excess of the OID over the interest expense to be reported in our Statement of Income during the term of the 2013 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.