INCOME TAXES

As of May 31, 2012, the Company’s gross unrecognized tax benefits totaled approximately $6.0 million. If recognized, approximately $4.5 million of the total unrecognized tax benefits would favorably affect the Company’s effective tax rate. The Company reports interest and penalties related to income tax matters in income tax expense. As of May 31, 2012, the Company had approximately $1.0 million of accrued interest and penalties on unrecognized tax benefits.

During the three months ended May 31, 2012, the Company recorded additional unrecognized tax benefits of approximately $1.6 million relating primarily to proposed local tax examination adjustments arising in various jurisdictions during the period.

The Company is open to potential income tax examinations in Germany from fiscal 2005 onward, in the U.S. from fiscal 2009 onward and in Belgium from fiscal 2009 onward. The Company is open to potential examinations from fiscal 2007 onward for most other foreign jurisdictions.

The amount of unrecognized tax benefits is expected to change in the next 12 months; however, the change is not expected to have a significant impact on the financial position of the Company.

A reconciliation of the statutory U.S. federal income tax rate with the effective tax rates for the three months ended May 31, 2012 and 2011 is as follows:



	Three months ended					Three months ended
	May 31, 2012					May 31, 2011
	(In thousands, except for %’s)
Statutory U.S. tax rate	$	7,585		35.0	%	$	8,802		35.0	%
Amount of foreign taxes at less than U.S. statutory tax rate	(4,177		)	(19.3	)	(3,915		)	(15.6	)
U.S. and foreign losses with no tax benefit	518			2.4		1,320			5.3
U.S. restructuring and other U.S. unusual charges with no benefit	391			1.8		(147		)	(0.6	)
Italian valuation allowance adjustment	(1,633		)	(7.5	)	—			—
Establishment (resolution) of uncertain tax positions	1,674			7.7		34			0.1
Other	65			0.3		131			0.6
Total income tax expense (benefit)	$	4,423		20.4	%	$	6,225		24.8	%

The effective tax rate for the three months ended May 31, 2012 was less than the U.S. statutory rate primarily because of the Company's overall foreign rate being less than the U.S. statutory rate and an adjustment to the Italian valuation allowance. These favorable effects on the Company's tax rate were partially offset by no tax benefits being recognized for U.S. and certain foreign losses as well as the establishment of uncertain tax positions. The change in the effective rate as compared with the same period last year was driven primarily by a decrease in the U.S. and foreign losses with no tax benefit.

The effective tax rate for the three months ended May 31, 2011 was less than the U.S. statutory rate primarily because of the Company's overall foreign rate being less than the U.S. statutory rate. This favorable effect on the Company's tax rate was partially offset by no tax benefits being recognized for U.S. and certain foreign losses.

During the three months ended May 31, 2012, the Company recorded an adjustment to reverse the remainder of the valuation allowance against certain deferred tax assets in Italy. A portion of the valuation allowance had been reversed during the three months ended November 30, 2011 due to an Italian tax law change. During the third quarter of fiscal 2012, the Company concluded that it is more likely than not that the Company will realize a benefit for the Italian deferred tax assets and therefore the remainder of the valuation allowance was reversed. Positive evidence for the reversal of the valuation allowance included the Italian entity becoming profitable on a three year cumulative basis and forecasted positive earnings for the current year.

A reconciliation of the statutory U.S. federal income tax rate with the effective tax rates for the nine months ended May 31, 2012 and 2011 is as follows:



	Nine months ended					Nine months ended
	May 31, 2012					May 31, 2011
	(In thousands, except for %’s)
Statutory U.S. tax rate	$	17,699		35.0	%	$	17,239		35.0	%
Amount of foreign taxes at less than U.S. statutory tax rate	(10,183		)	(20.1	)	(10,945		)	(22.2	)
U.S. and foreign losses with no tax benefit	2,274			4.5		5,655			11.5
U.S. restructuring and other U.S. unusual charges with no benefit	641			1.3		1,061			2.2
Italian valuation allowance adjustment	(2,380		)	(4.7	)	—			—
Establishment (resolution) of uncertain tax positions	1,692			3.3		21			—
Other	324			0.6		644			1.3
Total income tax expense (benefit)	$	10,067		19.9	%	$	13,675		27.8	%

The effective tax rate for the nine months ended May 31, 2012 was less than the U.S. statutory rate primarily because of the Company's overall foreign rate being less than the U.S. statutory rate and an adjustment to the Italian valuation allowance. These favorable effects on the Company's tax rate were partially offset by no tax benefits being recognized for U.S. and certain foreign losses as well as the establishment of uncertain tax positions. The change in the effective tax rate as compared with the same period last year was driven primarily by a decrease in the U.S. and foreign losses with no tax benefit.

The effective tax rate for the nine months ended May 31, 2011 was less than the U.S. statutory rate primarily because of the Company's overall foreign tax rate being less than the U.S. statutory rate. This favorable effect on the Company's tax rate was partially offset by no tax benefits being recognized for U.S. and certain foreign losses.