Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events and basis differences that have been recognized in the Company’s financial statements and tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amount and the tax basis of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse.

Pre-tax earnings by significant geographical locations are as follows (in thousands):



	Year Ended December 31,
	2011		2010⁽¹⁾		2009
United States	$	192,219	$	248,357	$	241,470
Foreign	118,860		114,343		98,923
	$	311,079	$	362,700	$	340,393

_______________

(1) Amounts have been adjusted for the reclassification of certain discontinued operations to continuing operations

The provisions for income taxes from continuing operations are as follows (in thousands):



	Year Ended December 31,
	2011			2010			2009
Current tax expense:
Federal	$	62,858		$	79,551		$	75,698
State	9,262			16,511			10,621
Foreign	24,452			32,883			24,931
	96,572			128,945			111,250
Deferred tax expense (benefit):
Federal	(5,185		)	(10,183		)	1,744
State	(993		)	(1,571		)	92
Foreign	(1,967		)	(2,865		)	(2,906		)
	(8,145		)	(14,619		)	(1,070		)
Total provision	$	88,427		$	114,326		$	110,180


Note 14.	Income Taxes—(Continued)

Deferred tax assets (liabilities) are composed of the following components (in thousands):



	December 31,
	2011			2010
Allowance for doubtful accounts	$	595		$	800
Accrued product warranties	2,964			2,862
Inventory basis differences	10,295			7,957
Accrued liabilities	9,499			10,121
Deferred revenue	2,568			1,256
Current net operating loss	844			376
Other	(1,602		)	(746		)
Foreign accrued liabilities	1,402			568
Foreign intangibles	(255		)	(1,312		)
Foreign inventory	—			893
Foreign other	1,133			353
Net current deferred tax assets	$	27,443		$	23,128

Net operating loss carry-forwards	$	28,826		$	39,531
Credit carry-forwards	6,175			2,477
Domestic depreciation	(8,682		)	(11,796		)
Supplemental Executive Retirement Plan	7,684			6,415
Stock-based compensation	11,978			10,690
Intangibles	(22,436		)	(26,888		)
Deferred revenue	5,599			3,704
Other	7,561			4,172
Valuation allowance	(5,061		)	(5,563		)
Net long-term deferred tax assets	$	31,644		$	22,742

Foreign net operating loss recapture	$	(550	)	$	(531	)
Foreign credit carry-forwards	632			166
Foreign depreciation	3,431			3,426
Foreign stock-based compensation	788			1,080
Foreign social costs	(462		)	(860		)
Foreign intangibles	(23,074		)	(17,543		)
Foreign pension	33			26
Foreign net operating loss carry-forwards	2,877			2,438
Foreign other	747			381
Valuation allowance	(1,659		)	(1,746		)
Long-term deferred tax liabilities	$	(17,237	)	$	(13,163	)


Note 14.	Income Taxes—(Continued)

The provision for income taxes differs from the amount of tax determined by applying the applicable United States statutory federal income tax rate to pretax income as a result of the following differences:



	Year Ended December 31,
	2011		2010		2009
Statutory federal tax rate	35.0	%	35.0	%	35.0	%
Increase (decrease) in rates resulting from:
Foreign rate differential	(3.8	)	(1.9	)	(4.0	)
Federal and state income tax credits	(2.9	)	(1.5	)	(4.7	)
State taxes	2.2		2.6		2.6
Non-deductible expenses	(1.2	)	(1.6	)	3.0
Other	(0.9	)	(1.1	)	0.5
Effective tax rate	28.4	%	31.5	%	32.4	%

At December 31, 2011, the Company had United States tax net operating loss carry-forwards totaling approximately $77.7 million which expire between 2025 and 2030. In addition, the Company has various state net operating loss carry-forwards totaling approximately $67.5 million which expire between 2012 and 2030. The federal and state net operating losses were generated by ICx Technologies, prior to the acquisition by the Company in 2010.

The tax benefits described above are recorded as an asset when the benefits are more likely than not to be recognized. To the extent that management assesses the realization of such assets to not be more likely than not, a valuation allowance is required to be recorded. We believe that the net deferred tax assets of $41.8 million reflected on the December 31, 2011 Consolidated Balance Sheet are mostly realizable based on future forecasts of taxable income over a relatively short time horizon, but we have determined that a valuation allowance against our net deferred tax assets of $6.7 million is required, primarily related to certain acquired net operating losses. A valuation allowance is required when it is more-likely-than-not that all or a portion of deferred tax assets may not be realized. A review of all available positive and negative evidence is considered, including past and future performance, the market environment in which the Company operates, utilization of tax attributes in the past, length of carryback and carryforward periods, and evaluation of potential tax planning strategies when evaluating the realizability of deferred tax assets. The Company may be required to record additional valuation allowance against the deferred tax assets in future periods if its future forecasts of taxable income are not achieved.

United States income taxes have not been provided on accumulated undistributed earnings of certain subsidiaries outside the United States, as the Company currently intends to reinvest the earnings in operations outside the United States indefinitely. As of December 31, 2011, the cumulative amount of earnings upon which United States income taxes have not been provided is approximately $552 million. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.

The following table summarizes the activity related to unrecognized tax benefits, including amounts accrued for potential interest and penalties (in thousands):



	Year Ended December 31,
	2011			2010			2009
Balance, beginning of year	$	30,949		$	8,297		$	5,697
Increases related to current year tax positions	1,225			2,339			2,528
Increases related to prior year tax positions	4,192			1,561			227
Decreases related to prior year tax positions	(4,608		)	(11		)	(29		)
Acquisitions	—			25,716			—
Lapse of statute of limitations	(2,558		)	(6,953		)	—
Settlements	—			—			(126		)
Balance, end of year	$	29,200		$	30,949		$	8,297

The unrecognized tax benefits at December 31, 2011 relate to the United States, United Kingdom and various foreign jurisdictions. As of December 31, 2011, the Company had approximately $29.2 million of unrecognized tax benefits, $17.5 million of which would affect the Company’s effective tax rate if recognized. Over the next twelve months, the Company expects to have minimal changes to its unrecognized tax benefits.


Note 14.	Income Taxes—(Continued)

The Company classifies interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2011, the Company had $2.4 million of accrued interest and penalties ($2.2 million net of federal and state benefits) related to uncertain tax positions that are recorded as current and non-current accrued income taxes on the Consolidated Balance Sheet.

The Company files United States, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company currently has the following tax years open to examination by major taxing jurisdictions:



	Tax Years:
United States Federal	2008 – 2010
State of California	2007 – 2010
State of Massachusetts	2008 – 2010
State of Oregon	2008 – 2010
France	2007 – 2010
Sweden	2006 – 2010
United Kingdom	2005 – 2010
Belgium	2009 – 2010