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,
	2014		2013		2012
United States	$	113,967	$	118,269	$	180,022
Foreign	135,562		110,717		111,890
	$	249,529	$	228,986	$	291,912

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



	Year Ended December 31,
	2014			2013			2012
Current tax expense (benefit):
Federal	$	30,224		$	38,249		$	53,187
State	5,511			4,413			(3,075		)
Foreign	11,389			13,483			21,138
	47,124			56,145			71,250
Deferred tax expense (benefit):
Federal	1,207			(252		)	3,194
State	(1,115		)	(335		)	1,887
Foreign	2,052			(3,587		)	(9,775		)
	2,144			(4,174		)	(4,694		)
Total income tax provision	$	49,268		$	51,971		$	66,556


Note 14.	Income Taxes—(Continued)

Net deferred tax assets (liabilities) were classified on the balance sheet as follows (in thousands):



	December 31,
	2014			2013
Deferred tax assets - current	$	38,873		$	38,389
Deferred tax assets - non-current	19,941			17,883
Deferred tax liabilities - non-current	(13,905		)	(12,255		)
Net deferred tax assets	$	44,909		$	44,017
Valuation allowance	$	13,277		$	13,456

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and deferred tax liabilities were as follows (in thousands):



	December 31,
	2014			2013
Deferred tax assets:
Accrued liabilities and allowances	$	34,389		$	28,677
Tax credit and loss carryforwards	25,858			32,637
Stock-based compensation	19,530			17,239
Inventory basis differences	10,565			11,421
Deferred revenue	4,608			1,775
Other assets	4,334			5,181
Gross deferred tax assets	99,284			96,930
Valuation allowance	(13,277		)	(13,456		)
Total deferred tax assets, net	86,007			83,474
Deferred tax liabilities:
Intangible assets	(34,737		)	(32,978		)
Property and equipment	(4,553		)	(5,455		)
Other liabilities	(1,808		)	(1,024		)
Total deferred tax liabilities	(41,098		)	(39,457		)
Net deferred tax assets	$	44,909		$	44,017

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,
	2014		2013		2012
Statutory federal tax rate	35.0	%	35.0	%	35.0	%
Increase (decrease) in rates resulting from:
Foreign rate differential	(12.7	)	(11.6	)	(10.4	)
Foreign, federal and state income tax credits	(1.7	)	(2.2	)	(2.7	)
State taxes	2.1		1.0		0.3
Non-deductible expenses	—		1.1		0.7
Other	(3.0	)	(0.6	)	(0.1	)
Effective tax rate	19.7	%	22.7	%	22.8	%


Note 14.	Income Taxes—(Continued)

The Company's foreign tax 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, 2014, the Company had United States tax net operating loss carry-forwards totaling approximately $16.9 million which expire between 2018 and 2031. In addition, the Company has various state net operating loss carry-forwards totaling approximately $49.6 million which expire between 2015 and 2033. The federal and state net operating losses were primarily 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 $74.5 million which expire between 2018 and 2033.

The tax benefits described above are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of the assets and liabilities. 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. As of December 31, 2014, we have determined that a valuation allowance against our deferred tax assets of $13.3 million is required, primarily related to certain acquired net operating losses. 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 believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets.

United States income taxes have not been provided on accumulated undistributed earnings of certain subsidiaries outside the United States, as the Company intends to reinvest the earnings in operations outside the United States indefinitely. As of December 31, 2014, the cumulative amount of earnings upon which United States income taxes have not been provided is approximately $886 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,
	2014			2013			2012
Balance, beginning of year	$	29,533		$	35,143		$	29,200
Increases related to current year tax positions	1,457			979			7,220
Increases related to prior year tax positions	569			714			1,559
Decreases related to prior year tax positions	(781		)	(2,736		)	(343		)
Lapse of statute of limitations	(5,165		)	(2,012		)	(1,887		)
Settlements	(9,655		)	(2,555		)	(606		)
Balance, end of year	$	15,401		$	29,533		$	35,143

The unrecognized tax benefits at December 31, 2014 relate to the United States, United Kingdom and various other foreign jurisdictions. As of December 31, 2014, the Company had approximately $15.4 million of unrecognized tax benefits, all 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, 2014, the Company had $1.2 million of accrued interest and penalties 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	2012 - 2013
State of California	2012 - 2013
State of Massachusetts	2011 - 2013
State of Oregon	2012 - 2013
Sweden	2011 - 2013
United Kingdom	2011 - 2013
Belgium	2011 - 2013