10. INCOME TAXES

Income before income taxes consists of (in thousands):

For the Years Ended February 29 and 28,	2012			2011			2010
Income (loss) from domestic operations	$	50,848		$	29,252		$	(3,926	)
Loss from foreign operations		(22,622	)		(10,347	)		(9,757	)
	$	28,226		$	18,905		$	(13,683	)

The provision for (benefit from) income taxes included in the consolidated statements of operations consists of the following (in thousands):

For the Years Ended February 29 and 28,	2012			2011			2010
Currrent:
Federal provision	$	3,869		$	7,689		$	4,021
State and local provision		618			181			292
Foreign provision (benefit)		4,062			1,847			(152	)
Deferred:
Federal provision (benefit)		13,835			(1,576	)		(7,235	)
State and local benefit		(1,455	)		(70	)		(138	)
Foreign benefit		(3,365	)		207			(2,493	)
Provision (benefit)	$	17,564		$	8,278		$	(5,705	)

The items accounting for the difference between the provision for (benefit from) income taxes computed at the U.S. federal statutory rate and the Company's provision for (benefit from) income taxes are as follows (in thousands):

For the Years Ended February 29 and 28,	2012			2011			2010
Provision (benefit) at statutory rate	$	9,874		$	6,617		$	(4,789	)
State and local tax, net of federal tax benefit		(546	)		73			99
International tax rate differential		794			1,448			910
Foreign losses not benefitted		6,026			4,075			-
Tax exempt income		(61	)		(154	)		(222	)
Adjustments to prior years' taxes		(183	)		323			(10	)
Impact of rate change		60			-			-
Tax credits and incentives		(2,280	)		(2,348	)		(1,362	)
Equity-based compensation		(3	)		524			324
Non-deductible executive compensation		23			397			237
Change in liability for unrecognized tax benefits		4,363			(2,288	)		(994	)
Acquisition costs		(305	)		(1,133	)		-
Valuation allowance		(206	)		-			-
Other		8			744			102
	$	17,564		$	8,278		$	(5,705	)

For fiscal years 2011 and 2010 certain items were reclassified for presentation purposes.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as tax attributes. The components of the Company's deferred income taxes are as follows (in thousands):

As of February 29 and 28,	2012			2011
Deferred tax assets:
Reserves and Accruals	$	13,969		$	26,188
Inventory Valuation		2,782			3,392
Restructuring Costs		552			367
Equity Impairment		2,385			2,259
Research and Development Credit		4,037			3,894
ITC Carryforward		683			802
Stock Compensation		7,735			6,070
NOL Carryforward		14,332			5,757
Pension / Retirement		3,714			3,521
Other		339			381
Total deferred tax assets	$	50,528		$	52,631
Valuation allowance		(16,728	)		(8,036	)
Net deferred tax assets	$	33,800		$	44,595

Deferred tax liabilities:
Property, Plant and Equipment	$	(5,443	)	$	(5,328	)
Goodwill and Other Intangible Assets		(4,750	)		(7,126	)
Other		(53	)		-
Total deferred tax liabilities	$	(10,246	)	$	(12,454	)

Net deferred tax asset	$	23,554		$	32,141

The Company has net New York State tax credit carryforwards in fiscal 2012 and 2011 of $0.7 million and 0.8 million, respectively. The Company also has various net state tax credits carryforwards for fiscal 2012 of $4.0 million with a valuation allowance of $3.2 million. These credit carryforwards expire at various dates from fiscal 2018 through fiscal 2029, and certain credits can be utilized without limitation.

As of February 29, 2012, the Company had approximately $12.2 million of foreign net operating losses with a valuation allowance of $10.7 million. A portion of these net operating losses will expire in 2013 through 2021, while certain foreign NOLs have an indefinite life. As of February 29, 2012, undistributed earnings of the Company's foreign subsidiaries amounted to $2.0 million. Those earnings are considered to be indefinitely reinvested and, accordingly, no U.S. federal and state income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practical because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credits would be available to reduce a portion of the U.S. tax liability.

The Company has recorded net deferred tax assets of $23.6 million and $32.1 million for years ending February 29, 2012 and February 28, 2011, respectively. Included in the net deferred tax assets, is a valuation allowance of $16.8 million and $8.0 million for years ending February 29, 2012 and February 28, 2011 to reduce its deferred tax assets to the amount that is more likely than not to be realized, respectively. In assessing the need for the valuation allowance, the Company considered, among other things, its projections of future taxable income and ongoing prudent and feasible tax planning strategies.

The Company is routinely audited by federal, state and foreign tax authorities with respect to its income taxes. The Company's primary tax jurisdiction is the United States. Tax returns open for examination are for fiscal 2008 and subsequent years. The Company regularly reviews and evaluates the likelihood of audit assessments and believes there are no uncertain tax positions to be recorded.

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

Balance at March 1, 2009	$	4,784
Additions based on tax positions related to the current year		550
Additions for tax positions of prior years		13
Reductions for tax positions due to lapse of statutes of limitations		(783	)
Balance at February 28, 2010	$	4,564
Additions based on tax positions related to the current year		182
Additions for tax positions of prior years		968
Reductions for tax positions due to lapse of statutes of limitations		(1,727	)
Balance at February 28, 2011	$	3,987
Additions based on tax positions related to the current year		3,219
Additions for tax positions of prior years		1,506
Reductions for tax positions due to lapse of statutes of limitations		(949	)
Balance at February 29, 2012	$	7,763

The Company accrues interest and penalties associated with unrecognized tax benefits in income tax expense in its consolidated statements of operations. The net expense for interest and penalties reflected in the consolidated statements of operations was approximately $0.3 million, $0.1 million and $0.1 million for each of the fiscal years ended 2012, 2011 and 2010, respectively. The total accrued interest and penalties reflected as of February 29, 2012 is $1.0 million.

As of February 29, 2012, the unrecognized tax benefits, excluding interest and penalties that would affect the effective tax rate within the next twelve months, if recognized would have been $0.5 million.