(13) Income Taxes

Income before income taxes for the years ended June 30, 2012, 2011 and 2010, was taxed under the following jurisdictions (in thousands):


		2012		2011			2010
U.S.	$	8,542	$	(1,419	)	$	(17,043	)
Non-U.S.		323,403		305,126			277,632
	$	331,945	$	303,707		$	260,589

The provision for income taxes is presented below (in thousands):


			2012			2011			2010
Current:	Federal	$	16,201		$	10,461		$	8,348
	State		2,163			1,435			1,561
	Non-U.S.		71,353			61,469			57,272
			89,717			73,365			67,181
Deferred:	Federal		(352	)		217			2,053
	State		(178	)		(226	)		(176	)
	Non-U.S.		(12,092	)		3,365			1,446
			(12,622	)		3,356			3,323
Provision for income taxes		$	77,095		$	76,721		$	70,504

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. federal income tax rate of 35% to pretax income as a result of the following (in thousands):


		2012			2011			2010
Taxes computed at statutory U.S. rate	$	116,181		$	106,297		$	91,206
Increase (decrease) in income taxes resulting from:
State income taxes, net of U.S. tax benefit		1,206			1,060			886
Non-deductible expenses		2,260			1,113			594
Research and development credit		(4,210	)		(7,463	)		(6,942	)
Tax effect of dividends		33,656			40,038			35,795
Change in valuation allowance		1,645			(2,748	)		733
Effect of non-U.S. tax rates		(57,252	)		(38,269	)		(27,975	)
Foreign tax credits		(18,179	)		(25,738	)		(24,816	)
Stock-based compensation expense		2,558			2,027			2,080
Other		(770	)		404			(1,057	)
	$	77,095		$	76,721		$	70,504

We classify deferred tax assets and liabilities as current or non-current according to the related asset or liability's classification. The components of our deferred tax assets and liabilities at June 30, 2012 and 2011 are as follows (in thousands):


		2012			2011
Deferred tax assets:
Employee liabilities	$	10,748		$	8,012
Inventories		9,811			4,837
Provision for warranties		4,334			4,701
Provision for doubtful debts		1,960			3,239
Net operating loss carryforwards		8,363			3,704
Capital loss carryover		1,247			360
Stock-based compensation expense		17,355			17,938
Other		1,337			739
		55,155			43,530
Less valuation allowance		(5,910	)		(2,066	)
Deferred tax assets		49,245			41,464
Deferred tax liabilities:
Unrealized foreign exchange gains		(5,369	)		(6,036	)
Property, plant and equipment		(1,573	)		(1,148	)
Goodwill and other intangibles		(9,129	)		(10,174	)
Deferred tax liabilities		(16,071	)		(17,358	)
Net deferred tax asset	$	33,174		$	24,106

We reported the net deferred tax assets and liabilities in our consolidated balance sheets at June 30, 2012 and 2011 as follows (in thousands):


		2012			2011
Current deferred tax asset	$	19,590		$	13,875
Non-current deferred tax asset		23,500			18,922
Current deferred tax liability		(1,073	)		(640	)
Non-current deferred tax liability		(8,843	)		(8,051	)
Net deferred tax asset	$	33,174		$	24,106

At June 30, 2012, we had $9.9 million of U.S. state net operating loss carryforwards and $37.3 million of non-U.S. net operating loss carryforwards, which expire in various years through 2025 or carry forward indefinitely.

The valuation allowance at June 30, 2012 relates to a provision for uncertainty as to the utilization of net operating loss carryforwards for certain non-U.S. countries of $4.4 million and capital loss items of $1.5 million. We believe that it is more likely than not that the benefits of deferred tax assets, net of any valuation allowance, will be realized.

We have not provided for U.S. income and foreign withholding taxes on undistributed earnings from non-U.S. subsidiaries indefinitely invested outside the United States as of June 30, 2012. The total amount of these undistributed earnings at June 30, 2012 amounted to approximately $1.1 billion. Should we repatriate foreign earnings, we would have to adjust the income tax provision in the period management determined that we would repatriate earnings.

In accounting for uncertainty in income taxes, we recognize a tax benefit in the financial statements for an uncertain tax position only if management's assessment is that the position is "more likely than not" (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term "tax position" refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for annual periods.

The following table indicates the changes to our unrecognized tax benefits for the year ended June 30, 2012 and June 30, 2011 (in thousands). The term "unrecognized tax benefits", or UTB, refers to the differences between a tax position taken or expected to be taken in a tax return and the benefit measured and recognized in the consolidated financial statements.


		2012			2011
Gross UTB balance	$	4,284		$	2,833
Additions for tax positions of prior years		138			3,286
Reductions due to lapse of applicable statute of limitations		0			(2,242	)
Foreign exchange movement		(554	)		407
Gross UTB balance	$	3,868		$	4,284

Included in the balance at June 30, 2012, are tax positions of $3.9 million that, if recognized, would affect our effective tax rate. As of June 30, 2012, we have accrued approximately $1.6 million ($1.1 million, net of tax benefit) for interest and penalties related to uncertain tax positions in the income taxes payable balance on the consolidated balance sheet.

We file numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. We are no longer subject to U.S. federal income tax examination for tax years prior to fiscal year 2008, and no longer subject to state income tax examinations for the tax years prior to fiscal year 2007. With few exceptions, we are no longer subject to foreign income tax examinations for fiscal years before 2005.

Within the next 12 months, we do not anticipate a potential decrease in the unrecognized tax benefit or any other significant changes within the next 12 months to our tax reserves.