INCOME TAXES

As of February 28, 2013, the Company's gross unrecognized tax benefits totaled $5.1 million. If recognized, $3.7 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 February 28, 2013, the Company had $0.6 million of accrued interest and penalties on unrecognized tax benefits.

During the three months ended February 28, 2013, the Company recorded a reduction of unrecognized tax benefits of $1.8 million related to the settlement of a local tax examination in a foreign jurisdiction 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 2012 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 February 28, 2013 and February 29, 2012 is as follows:



	Three months ended					Three months ended
	February 28, 2013					February 29, 2012
	(In thousands, except for %’s)
Statutory U.S. tax rate	$	2,686		35.0	%	$	4,299		35.0	%
Amount of foreign taxes at less than U.S. statutory tax rate	(1,487		)	(19.4	)	(2,689		)	(21.8	)
U.S. and foreign losses with no tax benefit	1,260			16.4		1,097			8.9
U.S. restructuring and other U.S. unusual charges with no benefit	231			3.0		140			1.1
Valuation allowance changes	(7,049		)	(91.9	)	—			—
Establishment (resolution) of uncertain tax positions	(422		)	(5.5	)	(13		)	(0.1	)
Other	431			5.6		159			1.3
Total income tax expense (benefit)	$	(4,350	)	(56.8	)%	$	2,993		24.4	%

The effective tax rate for the three months ended February 28, 2013 is less than the U.S. statutory rate primarily because of the Company's overall foreign rate being less than the U.S. statutory rate, realization of tax benefits due to changes in valuation allowances, and resolution of uncertain tax positions in various jurisdictions. 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. The change in the effective tax rate as compared with the same period last year was driven primarily by the net benefit recognized due to the change in valuation allowance and resolution of uncertain tax positions.

The effective tax rate for the three months ended February 29, 2012 is 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 second quarter of fiscal 2013, the Company established a valuation allowance against the net operating loss deferred tax asset of its Brazilian entity due to the uncertainty in the realization of this asset. The recording of the valuation allowance resulted in a non-cash charge of approximately $2.4 million.

Additionally, in the second quarter of fiscal 2013, the Company recorded a non-cash tax benefit of approximately $9.4 million to reverse a valuation allowance against certain deferred tax assets in Germany. Due to German tax law changes enacted in the second quarter, it is now more-likely-than-not that the interest expense carryforward deferred tax asset will be realized resulting in the valuation allowance reversal.

A reconciliation of the statutory U.S. federal income tax rate with the effective tax rates for the six months ended February 28, 2013 and February 29, 2012 is as follows:



	Six months ended					Six months ended
	February 28, 2013					February 29, 2012
	(In thousands, except for %’s)
Statutory U.S. tax rate	$	8,140		35.0	%	$	10,114		35.0	%
Amount of foreign taxes at less than U.S. statutory tax rate	(4,873		)	(21.0	)	(6,006		)	(20.8	)
U.S. and foreign losses with no tax benefit	2,038			8.8		1,756			6.0
U.S. restructuring and other U.S. unusual charges with no benefit	554			2.4		250			0.9
Valuation allowance changes	(7,049		)	(30.3	)	(747		)	(2.6	)
Establishment (resolution) of uncertain tax positions	(253		)	(1.1	)	18			0.1
Other	530			2.3		259			0.9
Total income tax expense (benefit)	$	(913	)	(3.9	)%	$	5,644		19.5	%

The effective tax rate for the six months ended February 28, 2013 is less than the U.S. statutory rate primarily because of the Company's overall foreign rate being less than the U.S. statutory rate, realization of tax benefits due to changes in valuation allowances, and resolution of uncertain tax positions in various jurisdictions. 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. The change in the effective tax rate as compared with the same period last year was driven primarily by the net benefit recognized due to the change in valuation allowance and resolution of uncertain tax positions.

The effective tax rate for the six months ended February 29, 2012 is 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 the benefit recorded for the adjustment of valuation allowance. 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.