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 from continuing operations are as follows (in thousands):



	Year Ended December 31,
	2012		2011		2010
United States	$	180,022	$	192,219	$	248,357
Foreign	111,890		118,860		114,343
	$	291,912	$	311,079	$	362,700

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



	Year Ended December 31,
	2012			2011			2010
Current tax expense (benefit):
Federal	$	53,187		$	62,858		$	79,551
State	(3,075		)	9,262			16,511
Foreign	21,138			24,452			32,883
	71,250			96,572			128,945
Deferred tax expense (benefit):
Federal	3,194			(5,185		)	(10,183		)
State	1,887			(993		)	(1,571		)
Foreign	(9,775		)	(1,967		)	(2,865		)
	(4,694		)	(8,145		)	(14,619		)
Total provision	$	66,556		$	88,427		$	114,326


Note 14.	Income Taxes—(Continued)

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



	December 31,
	2012			2011
Allowance for doubtful accounts	$	1,123		$	595
Accrued product warranties	3,099			2,964
Inventory basis differences	9,225			10,295
Accrued liabilities	7,206			9,499
Deferred revenue	2,205			2,568
Current net operating loss	8,085			844
Other	(1,025		)	(1,602		)
Foreign accrued liabilities	—			1,402
Foreign other	1,042			878
Net current deferred tax assets	$	30,960		$	27,443

Net operating loss carry-forwards	$	11,588		$	28,826
Credit carry-forwards	7,034			6,175
Domestic depreciation	(7,222		)	(8,682		)
Supplemental Executive Retirement Plan	7,491			7,684
Stock-based compensation	13,745			11,978
Intangibles	(15,999		)	(22,436		)
Deferred revenue	—			5,599
Accrued Liabilities	6,033			—
Other	4,018			7,561
Foreign credit carry-forwards	3,590			—
Foreign intangibles	(1,259		)	—
Foreign net operating loss carry-forwards	8,119			—
Foreign other	(78		)	—
Valuation allowance	(4,837		)	(5,062		)
Net long-term deferred tax assets	$	32,223		$	31,643

Foreign depreciation	$	3,196		$	3,431
Foreign intangibles	(12,522		)	(23,074		)
Foreign net operating loss carry-forwards	5,336			2,877
Foreign other	504			1,189
Valuation allowance	(4,510		)	(1,660		)
Long-term deferred tax liabilities	$	(7,996	)	$	(17,237	)

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,
	2012		2011		2010
Statutory federal tax rate	35.0	%	35.0	%	35.0	%
Increase (decrease) in rates resulting from:
Foreign rate differential	(10.4	)	(3.8	)	(1.9	)
Foreign, federal and state income tax credits	(2.7	)	(2.9	)	(1.5	)
State taxes	0.3		2.2		2.6
Non-deductible expenses	0.7		(1.2	)	(1.6	)
Other	(0.1	)	(0.9	)	(1.1	)
Effective tax rate	22.8	%	28.4	%	31.5	%


Note 14.	Income Taxes—(Continued)

The Company's foreign rate differential is primarily the result of a multi-year agreement, effective August 1, 2012, with a European jurisdiction as well as the impact of lower foreign statutory rates.

At December 31, 2012, the Company had United States tax net operating loss carry-forwards totaling approximately $57.9 million which expire between 2018 and 2031. In addition, the Company has various state net operating loss carry-forwards totaling approximately $79.5 million which expire between 2018 and 2031. The federal and state net operating losses were generated by ICx Technologies, prior to the acquisition by the Company in 2010. Finally, the Company has various foreign net operating loss carry-forwards totaling approximately $93.5 million which expire between 2018 and 2033.

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 $55.2 million reflected on the December 31, 2012 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 $9.3 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, 2012, the cumulative amount of earnings upon which United States income taxes have not been provided is approximately $680 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,
	2012			2011			2010
Balance, beginning of year	$	29,200		$	30,949		$	8,297
Increases related to current year tax positions	7,220			1,225			2,339
Increases related to prior year tax positions	1,559			4,192			1,561
Decreases related to prior year tax positions	(343		)	(4,608		)	(11		)
Acquisitions	—			—			25,716
Lapse of statute of limitations	(1,887		)	(2,558		)	(6,953		)
Settlements	(606		)	—			—
Balance, end of year	$	35,143		$	29,200		$	30,949

The unrecognized tax benefits at December 31, 2012 relate to the United States, United Kingdom and various foreign jurisdictions. As of December 31, 2012, the Company had approximately $35.1 million of unrecognized tax benefits, $22.8 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.

The Company classifies interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2012, the Company had $2.3 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.


Note 14.	Income Taxes—(Continued)

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	2009 – 2011
State of California	2008 – 2011
State of Massachusetts	2009 – 2011
State of Oregon	2009 – 2011
Sweden	2007 – 2011
United Kingdom	2006 – 2011
Belgium	2011