9. INCOME TAXES

The components of earnings before incomes taxes were:

	Year Ended December 31,
	2011		2010		2009
Earnings before income taxes
United States	$	142.1	$	103.4	$	119.1
Foreign		180.9		108.0		85.5
Earnings before income taxes	$	323.0	$	211.4	$	204.6

Income tax expense consists of the following:

	Year Ended December 31,
	2011		2010			2009
Current:
Federal	$	1.8	$	0.5		$	0.8
State		2.3		0.8			1.1
Foreign		28.5		23.0			14.9
		32.6		24.3			16.8
Deferred:
Federal		52.4		39.2			37.5
State		3.9		4.8			5.2
Foreign		6.3		(0.2	)		3.1
		62.6		43.8			45.8
Total income tax expense	$	95.2	$	68.1		$	62.6

The difference between income tax expense and the amount computed by applying the statutory U.S. federal income tax rate (35%) to the pre-tax earnings consists of the following:

	Year Ended December 31,
	2011			2010			2009
Statutory federal income tax expense	$	113.0		$	74.0		$	71.6
U.S. state income taxes		6.0			4.6			4.9
Foreign tax rate differential		(27.8	)		(16.8	)		(15.9	)
Non-deductible charges/losses and other		8.0			9.3			7.5
Research and development credit		(4.0	)		(3.0	)		(5.5	)
	$	95.2		$	68.1		$	62.6

The tax effects of temporary differences and carryforwards that give rise to deferred income tax assets and liabilities consist of the following:

	December 31,
	2011			2010
Deferred tax assets:
Inventory reserves	$	18.3		$	17.3
Warranty reserves		9.3			6.9
Accrued liabilities		15.5			17.5
Net operating loss carryforward		19.6			14.8
Research and development
credit carry forward		38.2			32.6
Alternative minimum
tax credit carryforward		5.0			5.3
Other		4.7			5.1
	$	110.6		$	99.5

Deferred tax liabilities:
Book to tax revenue differences		(37.5	)		(34.5	)
Intangible assets		(92.8	)		(76.1	)
Depreciation		(23.2	)		(14.3	)
Software development costs		(1.3	)		(1.9	)
		(154.8	)		(126.8	)
Net deferred tax liability before valuation
allowance		(44.2	)		(27.3	)
Valuation allowance		(20.1	)		(14.4	)
Net deferred tax liability	$	(64.3	)	$	(41.7	)

The Company maintained a valuation allowance of $20.1 as of December 31, 2011 primarily related to foreign net operating losses.

As of December 31, 2011, the Company had state and foreign net operating loss carryforwards of approximately $63.7 and $62.4, respectively. The state net operating loss carryforwards begin to expire in 2012. As of December 31, 2011, the Company had federal and state research and development tax credit carryforwards of $38.2, which expire from 2012 to 2026.

The Company has not provided for any residual U.S. income taxes on the approximately $370.3 of earnings from its foreign subsidiaries because such earnings are intended to be indefinitely reinvested. It is not practicable to determine the amount of U.S. income and foreign withholding tax payable in the event all such foreign earnings are repatriated.

In 2011, the Company recognized cumulative tax deductions of $85.8 with the Company’s methodology for determining when these deductions are deemed realized under ASC 718, the Company assumes that it utilizes its net operating loss carryforwards to reduce its taxes payable rather than these deductions. Pursuant to ASC 718, these deductions are not deemed realized until they reduce taxes payable. During 2011, the Company recorded a credit to additional paid-in capital of $30.8 for the portion of these deductions that reduced our current year tax liability essentially realizing all of these tax deductions.

A reconciliation of the beginning and ending amounts of gross uncertain tax positions is presented below:

	2011			2010			2009
Balance, beginning of the period	$	21.5		$	18.5		$	15.1
Additions for current year tax positions		6.1			3.1			3.5
Additions for tax positions of prior years		--			--			1.6
Currency fluctuations		(0.1	)		(0.1	)		0.3
Reduction for tax positions of prior years		--			--			(2.0	)
Settlements with taxing authorities		(5.8	)		--			--
Balance, end of the period	$	21.7		$	21.5		$	18.5

The difference between the gross uncertain tax position of $21.7 and the liability for unrecognized tax benefits of $19.2 is due to the netting of certain items when calculating the liability for unrecognized tax benefits. This liability, if recognized, would affect the Company’s effective tax rate. It is reasonably possible that the amount of liability for unrecognized tax benefits will change in the next twelve months; however, the Company does not expect the change to have a material impact on the Company’s consolidated financial statements.

The Company recently completed its U.S. federal income tax examination for year 2006 with immaterial adjustments, and with minor exceptions, the Company is currently open to audit by the tax authorities for the four tax years ending December 31, 2011. There are currently no material income tax audits in progress.

The Company classifies interest and penalties related to income tax as income tax expense. The amount included in the Company’s liability for unrecognized tax benefits for interest and penalties was less than $1.0 as of December 31, 2011 and 2010.