Income Taxes

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



	Year Ended			Year Ended		Year Ended
	February 28, 2014			February 28, 2013		February 29, 2012
Domestic Operations	$	(27,488	)	$	27,485	$	28,229
Foreign Operations	833			8,170		10,663
	$	(26,655	)	$	35,655	$	38,892

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



	Year Ended			Year Ended			Year Ended
	February 28, 2014			February 28, 2013			February 29, 2012
Current provision
Federal	$	5,210		$	8,349		$	5,296
State	446			1,075			629
Foreign	2,923			4,327			3,324
Total current provision	$	8,579		$	13,751		$	9,249
Deferred (benefit) provision
Federal	$	(5,235	)	$	1,739		$	4,396
State	(778		)	42			(561		)
Foreign	(2,624		)	(2,369		)	159
Total deferred (benefit) provision	$	(8,637	)	$	(588	)	$	3,994
Total provision (benefit)
Federal	$	(25	)	$	10,088		$	9,692
State	(332		)	1,117			68
Foreign	299			1,958			3,483
Total provision (benefit)	$	(58	)	$	13,163		$	13,243

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 28, 2014					February 28, 2013					February 29, 2012
Tax provision at Federal statutory rates	$	(9,329	)	35.0	%	$	12,479		35.0	%	$	13,612		35.0	%
State income taxes, net of Federal benefit	126			(0.5	)	637			1.8		1,145			2.9
Change in valuation allowance	868			(3.3	)	1,034			2.9		192			0.5
Change in tax reserves	(387		)	1.5		315			0.9		(241		)	(0.6	)
Worthless stock deduction	(2,664		)	10.0		—			—		—			—
Impairment of non-deductible goodwill	11,257			(42.2	)	—			—		—			—
US effects of foreign operations	(828		)	3.1		(1,090		)	(3.1	)	(135		)	(0.4	)
Permanent differences and other	2,016			(7.6	)	388			1.1		921			2.3
Change in tax rate	(614		)	2.3		(270		)	(0.8	)	(885		)	(2.2	)
Research & development credits	(248		)	0.9		(330		)	(0.9	)	(1,366		)	(3.5	)
Tax credits	(255		)	1.0		—			—		—			—
Effective tax rate	$	(58	)	0.2	%	$	13,163		36.9	%	$	13,243		34.0	%

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 28, 2014			February 28, 2013
Deferred tax assets:
Accounts receivable	$	575		$	419
Inventory	2,516			2,657
Property, plant and equipment	286			447
Accruals and reserves	2,296			3,231
Deferred compensation	2,563			1,298
Warranty reserves	3,050			3,811
Unrealized gains and losses	2,944			1,696
Foreign and state operating losses	3,616			3,685
Foreign tax credits	5,439			5,778
Other tax credits	499			488
Deferred tax assets before valuation allowance	23,784			23,510
Less: valuation allowance	(10,347		)	(10,413		)
Total deferred tax assets	13,437			13,097
Deferred tax liabilities:
Intangible assets	(42,185		)	(50,723		)
Prepaid expenses	(1,827		)	(1,378		)
Deferred financing fees	(579		)	(832		)
Total deferred tax liabilities	(44,591		)	(52,933		)
Net deferred tax liability	$	(31,154	)	$	(39,836	)

The Company recorded net deferred tax liabilities of $10,701 in connection with the Hirschmann acquisition for the year ended February 28, 2013.

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.

During Fiscal 2014, the Company increased its valuation allowance by approximately $66. 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.

As of February 28, 2014, the Company has not provided for U.S. federal and foreign withholding taxes of approximately $14,908 on its foreign subsidiaries, cumulative undistributed earnings in Germany as such earnings are indefinitely reinvested overseas. If these future earnings are repatriated to the United States, or if the Company determines that such earnings will be remitted in the foreseeable future, additional tax provisions may be required. Due to the complexities of the tax laws and the assumptions that would have to be made, it is not practicable to estimate the amounts of income tax provisions that may be required. The amount of unrecognized deferred tax liabilities for temporary differences related to investments in undistributed earnings is not practicable to determine at this time.

The Company has various foreign net operating loss carryforwards, state net operating loss carryforwards, and state tax credits that expire in various years and amounts through 2034.

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



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
Settlements	$	(30	)
Lapse in statute of limitations	$	(471	)
Recognition of excess tax benefits	$	(1,738	)
Balance at February 29, 2012	$	2,912
Additions based on tax positions taken in the current and prior years	8,744
Additions in connection with acquisitions	—
Settlements	—
Lapse in statute of limitations	(25		)
Recognition of excess tax benefits	(168		)
Balance at February 28, 2013	$	11,463
Additions based on tax positions taken in the current and prior years	4,210
Settlements	(29		)
Lapse in statute of limitations	(77		)
Decrease in prior year tax positions	(1,002		)
Balance at February 28, 2014	$	14,565

Of the amounts reflected in the table above at February 28, 2014, $10,268, if recognized, would reduce our effective tax rate. At February 28, 2014 and February 28, 2013, the Company accrued $38 and $430, respectively, for the payment of interest and penalties. The Company records accrued interest and penalties related to income tax matters in the provision for income taxes in the accompanying Consolidated Statement of Operations and Comprehensive Income (Loss). The balance as of February 28, 2014 and February 28, 2013 was $791 and $753, respectively. The Company is under examination in various jurisdictions. An estimate of the range of the reasonably possible change in the unrecognized tax benefit cannot be made.

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.		2010
Netherlands		2010
Germany		2009