Income Taxes

The components of income before the provision for income taxes are as follows:



	Year Ended		Year Ended		Year Ended
	February 29, 2012		February 28, 2011		February 28, 2010
Domestic Operations	$	28,229	$	6,276	$	4,569
Foreign Operations	10,663		6,220		6,586
	$	38,892	$	12,496	$	11,155

The provision (benefit) for income taxes is comprised of the following:



	Year Ended			Year Ended			Year Ended
	February 29, 2012			February 28, 2011			February 28, 2010
Current provision (benefit)
Federal	$	5,296		$	278		$	(11,326	)
State	629			(35		)	(1,349		)
Foreign	3,324			3,120			(605		)
Total current provision (benefit)	$	9,249		$	3,363		$	(13,280	)
Deferred provision (benefit)
Federal	$	4,396		$	(12,103	)	$	1,374
State	(561		)	(1,355		)	157
Foreign	159			(440		)	421
Total deferred (benefit) provision	$	3,994		$	(13,898	)	$	1,952
Total provision (benefit)
Federal	$	9,692		$	(11,825	)	$	(9,952	)
State	68			(1,390		)	(1,192		)
Foreign	3,483			2,680			(184		)
Total provision (benefit)	$	13,243		$	(10,535	)	$	(11,328	)

The effective tax rate before income taxes varies from the current statutory U.S. federal income tax rate as follows:



	Year Ended					Year Ended					Year Ended
	February 29, 2012					February 28, 2011					February 28, 2010
Tax provision at Federal statutory rates	$	13,612		35.0	%	$	4,373		35.0	%	$	3,904		35.0	%
State income taxes, net of Federal benefit	1,145			2.9		167			1.3		208			1.9
Change in valuation allowance	192			0.5		(16,254		)	(130.1	)	(9,902		)	(88.8	)
Change in tax reserves	(241		)	(0.6	)	159			1.3		(4,623		)	(41.4	)
US effects of foreign operations	(135		)	(0.4	)	92			0.8		668			6.0
Gain on bargain purchase	—			—		—			—		(1,896		)	(17.0	)
Permanent differences and other	921			2.3		928			7.4		313			2.8
Change in tax rate	(885		)	(2.2	)	—			—		—			—
Research & development credits	(1,366		)	(3.5	)	—			—		—			—
Effective tax rate	$	13,243		34.0	%	$	(10,535	)	(84.3	)%	$	(11,328	)	(101.5	)%

The U.S. effects of foreign operations include differences in the statutory tax rate of the foreign countries as compared to the statutory tax rate in the U.S. and foreign operating losses for which no tax benefit has been provided.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:



	February 29, 2012			February 28, 2011
Deferred tax assets:
Accounts receivable	$	480		$	905
Inventory	3,028			2,373
Property, plant and equipment	170			1,133
Intangible assets	—			3,734
Accruals and reserves	6,599			5,258
Unrealized gains and losses	1,894			2,860
Foreign and state operating losses	3,180			3,392
Tax credits	5,244			3,376
Deferred tax assets before valuation allowance	20,595			23,031
Less: valuation allowance	(9,035		)	(7,044		)
Total deferred tax assets	11,560			15,987
Deferred tax liabilities:
Intangible assets	(39,546		)	(10,732		)
Prepaid expenses	(1,802		)	(1,213		)
Deferred financing fees	(1,002		)	—
Unremitted foreign earnings	—			(348		)
Total deferred tax liabilities	(42,350		)	(12,293		)
Net deferred tax (liability) asset	$	(30,790	)	$	3,694

In assessing the realizability of deferred tax assets, Management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating loss carryforwards can be utilized. We consider the level of historical taxable income, scheduled reversal of temporary differences, tax planning strategies and projected future taxable income in determining whether a valuation allowance is warranted.

The Company maintains a valuation allowance against deferred tax assets in certain foreign jurisdictions and with respect to its foreign tax credits and various investments which are more likely than not to generate capital losses in the future. Any decline in the valuation allowance could have a favorable impact on our income tax provision and net income in the period in which such determination is made.

The Company recorded net deferred tax liabilities of $30.4 million in connection with the Klipsch acquisition.

As of February 29, 2012, the Company has approximately $5.3 million of foreign tax credits that expire in 2012 through 2019 if not utilized. Such amounts have been fully reserved. In addition, the Company has various state net operating loss carryforwards that expire in varying amounts through fiscal year 2030.

The Company has not provided for U.S. federal and foreign withholding taxes on its foreign subsidiaries undistributed earnings in Germany and Venezuela as of February 29, 2012, because such earnings are intended to be indefinitely reinvested overseas. The amount of unrecognized deferred tax liabilities for temporary differences related to investments in undistributed earnings is not practicable to determine at this time.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:



Balance at February 28, 2010	$	2,625
Additions based on tax positions taken in the current and prior years	773
Change in tax law	—
Settlements	—
Lapse in statute of limitations	(63		)
Balance at February 28, 2011	$	3,335
Additions in connection with acquisitions	624
Additions based on tax positions taken in the current and prior years	1,192
Change in tax law	—
Settlements	(30		)
Lapse in statute of limitations	(471		)
Recognition of excess tax benefits	(1,738		)
Balance at February 29, 2012	$	2,912

Of the amounts reflected in the table above at February 29, 2012, the entire amount, if recognized, would reduce our effective tax rate. The Company records both accrued interest and penalties related to income tax matters in the provision for income taxes in the accompanying consolidated statement of operations. Included in the reconciliation of unrecognized tax benefits additions based on tax positions taken in prior years for Fiscal 2011 are excess tax benefits for stock based compensation deductions which have not yet reduced the Company's current taxes payable as prescribed by ASC 718. In addition, the Company believes that the uncertain tax positions will not materially change within the next twelve months.

The Company, or one of its subsidiaries, files its tax returns in the U.S. and certain state and foreign income tax jurisdictions with varying statutes of limitations. The earliest years' tax returns filed by the Company that are still subject to examination by the tax authorities in the major jurisdictions are as follows:



Jurisdiction		Tax Year

U.S.		2008
Netherlands		2008
Germany		2008
Canada		2009