Note 11. Income Taxes

The gross liability for unrecognized tax benefits at September 30, 2011 and December 31, 2010 was $11,025 and $5,723, respectively, exclusive of interest and penalties, of which $9,826 and $4,870 would affect the effective tax rate if the Company were to recognize the tax benefit.

The Company classifies interest and penalties on unrecognized tax benefits as income tax expense. As of September 30, 2011 and December 31, 2010, the combined amount of accrued interest and penalties related to tax positions taken on tax returns was $701 and $689, respectively.


	September 30, 2011		December 31, 2010
Gross liability for unrecognized tax benefits, exclusive of interest and penalties	$	11,025	$	5,723
Interest and penalties on unrecognized benefits		701		689

Total gross uncertain tax positions	$	11,726	$	6,412

Amount included in Current liabilities	$	554	$	767
Amount included in Other long-term liabilities		11,172		5,645

	$	11,726	$	6,412

The Company's effective tax rates were 33.8 percent and 37.8 percent for the three months ended September 30, 2011 and 2010, respectively. For the nine months ended September 30, 2011 and 2010, the Company's tax rates were 35.3 percent and 37.8 percent, respectively. In December 2010, the research and development tax credit was reinstated for calendar year 2010 and 2011. The 2011 tax rate reflects a benefit for research and development tax credit whereas the 2010 tax rate for the nine months ended September 30, 2010 did not reflect any benefit. During the three months ended September 30, 2011, the Company amended prior Federal income tax returns to reflect the Domestic Production Activity Deduction. The effective rate in the three months ended September 30, 2011 reflects the benefit of this deduction for 2008 and 2009. The effective rate in the nine months ended September 30, 2011 reflects the benefit of this deduction for 2008 to 2011.

The Company files income tax returns in the United States on a consolidated basis and in many U.S. state and foreign jurisdictions. The Company is subject to examination of income tax returns by the Internal Revenue Service (IRS) and other domestic and foreign tax authorities. The Company is no longer subject to U.S. federal income tax examination for years before 2008 and is no longer subject to state, local or foreign income tax examinations by authorities for years before 2006.

The Company estimates it will recognize $554 of unrecognized tax benefits within the next twelve months due to the expiration of the statute of limitations and resolution of income tax audits. These unrecognized tax benefits are related to tax positions taken on certain federal, state, and foreign tax returns. However, the timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. While it is reasonably possible that some issues under examination could be resolved in the next twelve months, based upon the current facts and circumstances, the Company cannot reasonably estimate the timing of such resolution or total range of potential changes as it relates to the current unrecognized tax benefits that are recorded as part of the Company's financial statements.