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,
	2015		2014		2013
United States	$	146,940	$	113,967	$	118,269
Foreign	158,506		135,562		110,717
	$	305,446	$	249,529	$	228,986

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



	Year Ended December 31,
	2015			2014			2013
Current tax expense:
Federal	$	35,029		$	30,224		$	38,249
State	6,074			5,511			4,413
Foreign	19,884			11,389			13,483
	60,987			47,124			56,145
Deferred tax expense (benefit):
Federal	10,752			1,207			(252		)
State	1,052			(1,115		)	(335		)
Foreign	(9,031		)	2,052			(3,587		)
	2,773			2,144			(4,174		)
Total income tax provision	$	63,760		$	49,268		$	51,971

As described in Note 1, "Nature of Business and Significant Accounting Policies", the Company has elected to retrospectively adopt FASB ASU 2015-17 which requires deferred tax assets and liabilities to be recorded as non-current. This adoption resulted in the reclassification of $34.2 million from current assets to deferred income taxes, net in other assets and $4.7 million from current assets to deferred income taxes in other non-current liabilities on the Consolidated Balance Sheet as of December 31, 2014.

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



	December 31,
	2015			2014 (As reclassified)
Deferred tax assets, non-current	55,429			54,102
Deferred tax liabilities, non-current	(3,623		)	(9,193		)
Net deferred tax assets	$	51,806		$	44,909
Valuation allowance	$	2,607		$	13,277


Note 14.	Income Taxes—(Continued)

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,
	2015			2014
Deferred tax assets:
Accrued liabilities and allowances	$	27,170		$	34,389
Tax credit and loss carry-forwards	29,297			25,858
Stock-based compensation	15,628			19,530
Inventory basis differences	10,494			10,565
Deferred revenue	6,184			4,608
Other assets	1,373			4,334
Gross deferred tax assets	90,146			99,284
Valuation allowance	(2,607		)	(13,277		)
Total deferred tax assets, net	87,539			86,007
Deferred tax liabilities:
Intangible assets	(26,996		)	(34,737		)
Property and equipment	(6,612		)	(4,553		)
Other liabilities	(2,125		)	(1,808		)
Total deferred tax liabilities	(35,733		)	(41,098		)
Net deferred tax assets	$	51,806		$	44,909

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,
	2015		2014		2013
Statutory federal tax rate	35.0	%	35.0	%	35.0	%
Increase (decrease) in rates resulting from:
Foreign rate differential	(7.8	)	(12.7	)	(11.6	)
Foreign, federal and state income tax credits	(2.1	)	(1.7	)	(2.2	)
State taxes	2.4		2.1		1.0
Non-deductible expenses	—		—		1.1
Valuation allowance release	(6.4	)	(0.1	)	—
Other	(0.2	)	(2.9	)	(0.6	)
Effective tax rate	20.9	%	19.7	%	22.7	%

The Company's foreign tax rate differential is primarily the result of a three-year agreement in Belgium, which expired on July 31, 2015, as well as the impact of lower foreign statutory rates.

At December 31, 2015, the Company had United States tax net operating loss carry-forwards totaling approximately $4.6 million which expire between 2019 and 2031. In addition, the Company has various state net operating loss carry-forwards totaling approximately $39.2 million which expire between 2016 and 2033. The federal and state net operating losses were primarily generated by ICx Technologies, prior to its acquisition by the Company in 2010. Finally, the Company has various foreign net operating loss carry-forwards totaling approximately $71.1 million, a portion of which expire between 2018 and 2033, and a portion of which have an indefinite carry-forward period.


Note 14.	Income Taxes—(Continued)

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, 2015, the Company has determined that a valuation allowance against its deferred tax assets of $2.6 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 carry-back and carry-forward 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, 2015, the cumulative amount of earnings upon which United States income taxes have not been provided is approximately $722 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,
	2015			2014			2013
Balance, beginning of year	$	15,401		$	29,533		$	35,143
Increases related to current year tax positions	1,446			1,457			979
Increases related to prior year tax positions	299			12			714
Decreases related to prior year tax positions	(724		)	(781		)	(2,736		)
Lapse of statute of limitations	(1,455		)	(5,165		)	(2,012		)
Settlements	—			(9,655		)	(2,555		)
Balance, end of year	$	14,967		$	15,401		$	29,533

The unrecognized tax benefits at December 31, 2015 relate to the United States, United Kingdom and various other foreign jurisdictions, all of which would affect the Company’s effective tax rate if recognized.

On January 11, 2016, the European Commission announced a decision concluding that certain rules under Belgian tax legislation are deemed to be incompatible with European Union regulations on state aid. As a result of this decision, the European Commission has directed the Belgian Government to recover past taxes from certain entities, reflective of disallowed state aid, which the Company expects to impact one of its subsidiaries covering a three-year period which concluded with the expiration of an agreement in July 2015. Negotiations are ongoing between the Belgian Government and the European Commission to agree on a methodology to calculate the applicable amounts for each company impacted by the decision. Although the Company has not received a request for payment or other official notice, the Company has evaluated the potential impact of the European Commission's decision in accordance with FASB ASC Topic 740, "Income Taxes," noting the recent decision could significantly increase the Company's unrecognized tax benefits within the next twelve months. However, due to the ongoing negotiations and uncertainty surrounding the calculation methodology and litigation process, the Company is currently unable to estimate the range of the potential increase.

The Company classifies interest and penalties related to unrecognized tax benefits in income tax provision. As of December 31, 2015, the Company had $1.1 million of accrued interest and penalties related to unrecognized tax benefits 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 federal, 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 - 2014
State of California	2012 - 2014
State of Massachusetts	2011 - 2014
State of Oregon	2012 - 2014
Sweden	2011 - 2014
United Kingdom	2011 - 2014
Belgium	2011 - 2014