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INCOME TAXES

Earnings before income taxes were as follows:


	Year Ended March 31,
	2012		2011		2010
U.S.	$	19,549	$	12,651	$	11,136
Foreign		11,575		12,798		7,348

Total	$	31,124	$	25,449	$	18,484

The provision (benefit) for income taxes includes the following components:


	Year Ended March 31,
	2012			2011			2010
Current payable:
Federal	$	2,580		$	2,481		$	4,608
State and local		(207	)		51			913
Foreign		3,695			3,053			(18	)

Total Current	$	6,068		$	5,585		$	5,503

Deferred:
Federal		5,533			2,037			(1,330	)
State and local		427			176			(256	)
Foreign		(572	)		(760	)		299

Total Deferred		5,388			1,453			(1,287	)

Total	$	11,456		$	7,038		$	4,216

The following is a reconciliation between the U.S. statutory federal income tax rate and the effective tax rate:


	Year Ended March 31,
	2012			2011			2010
U.S. federal statutory rate		35.0	%		35.0	%		35.0	%
State and local income taxes, net of federal income tax benefit		1.8	%		1.7	%		0.9	%
Section 199 deduction		(0.3	)%		(0.8	)%		(0.9	)%
International rate differential		0.1	%		(2.4	)%		(2.3	)%
Unrecognized tax benefits		(2.3	)%		(1.7	)%		(1.6	)%
Foreign permanent differences		(5.6	)%		(5.4	)%		(6.2	)%
Foreign exchange impact on repayment of intercompany loans		—	%		—	%		(3.1	)%
Non-deductible transaction costs		2.0	%		—	%		—	%
Valuation allowances		3.3	%		1.3	%		1.7	%
Other		2.8	%		—	%		(0.7	)%

Effective tax rate		36.8	%		27.7	%		22.8	%

The net deferred tax components consisted of the following at March 31:


	Year Ended March 31,
	2012			2011
Deferred tax liabilities:
Tax depreciation over book depreciation	$	(22,854	)	$	(16,022	)
Tax intangible amortization over book intangible amortization		(32,880	)		(8,324	)
Lease obligations		(2,534	)		(1,552	)
Deferred financing costs		(332	)		—
Other		(348	)		—

Total deferred tax liabilities		(58,948	)		(25,898	)

Deferred tax assets:
Inventory reserves		2,070			441
Inventory capitalization		694			330
Allowance for doubtful accounts		693			65
Stock based compensation expense		1,414			1,288
Minimum pension liability		474			140
Loss carry-forward amounts		30,125			2,491
Credit carry forward amounts		146			—
Interest rate swaps		876			940
State basis over tax basis of fixed assets		421			213
Non-deductible accruals and other		4,343			5,999

Gross deferred tax asset		41,256			11,907
Valuation allowance		(5,198	)		(1,413	)

Net deferred tax asset		36,058			10,494

Net deferred tax liability	$	(22,890	)	$	(15,404	)

As of March 31, 2012, Multi-Color had tax-effected federal, state, and foreign operating loss carryforwards of $19,891, $3,270 and $6,964, respectively. As of March 31, 2011, Multi-Color had tax-effected federal, state, and foreign operating loss carryforwards of $0, $6 and $2,485, respectively. The federal operating loss carryforwards will expire between fiscal 2026 and fiscal 2032. The state operating loss carryforwards will expire between fiscal 2013 and fiscal 2031. The foreign operating loss carryforwards include $2,115 with no expiration date; the remainder will expire between fiscal 2016 and fiscal 2032. The federal and state operating loss carryforwards include losses of $19,891 and $3,270, respectively, that were acquired in connection with business combinations. Utilization of the acquired federal and state tax loss carryforwards may be limited pursuant to Section 382 of the Internal Revenue Code of 1986.

At March 31, 2012 and 2011, respectively, Multi-Color had valuation allowances of $5,198 and $1,413 related to certain deferred tax assets in foreign jurisdictions due to the uncertainty of the realization of future tax benefits from those assets. The Company recorded a $3,785 increase in valuation allowances in fiscal 2012 related to an increase in deferred tax assets in foreign jurisdictions for which the Company believes an income tax benefit will not be realized.

The benefits of tax positions are not recorded unless it is more likely than not the tax position would be sustained upon challenge by the appropriate tax authorities. Tax benefits that are more likely than not to be sustained are measured at the largest amount of benefit that is cumulatively greater than a 50% likelihood of being realized.

As of March 31, 2012 and 2011, the Company had a liability of $3,616 and $3,986, respectively, recorded for unrecognized tax benefits for U.S. federal, state and foreign tax jurisdictions. As of March 31, 2012 and 2011, the Company recognized $(171) and $(115) respectively, for interest and penalties to income tax expense in the consolidated statements of income. The gross amount of interest and penalties included in the liability for March 31, 2012 and 2011, respectively, was $1,690 and $1,883. In addition, the unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate are $3,616. The Company believes it is reasonably possible that approximately $633 of unrecognized tax benefits as of March 31, 2012 will decrease within the next 12 months due to the lapse of statute of limitations and settlements of certain foreign and state income tax matters.

A summary of the activity for the Company's unrecognized tax benefits follows:


	Year Ended March 31,
	2012			2011
Beginning balance	$	3,986		$	3,531
Additions based on tax positions related to the current year		34			145
Additions of tax positions of prior years		297			771
Settlements		(116	)		(83	)
Reductions of tax positions of prior years		(60	)		(106	)
Lapse of statutes of limitations		(525	)		(272	)

Ending balance	$	3,616		$	3,986

The Company files income tax returns in the U.S. federal jurisdiction, various foreign jurisdictions and various state and local jurisdictions where the statutes of limitations generally range from three to five years. At March 31, 2012, the Company is no longer subject to U.S. federal examinations by tax authorities for years before fiscal 2008. The Company is no longer subject to state and local examinations by tax authorities for years before fiscal 2007. In foreign jurisdictions, the Company is no longer subject to examinations by tax authorities for years before fiscal 1999.

The Company did not provide for U.S. federal income taxes or foreign withholding taxes in fiscal 2012 on approximately $2,404 of undistributed earnings of its foreign subsidiaries as such earnings are intended to be reinvested indefinitely. Quantification of the deferred tax liability, if any, associated with these undistributed earnings is not practicable.