8. INCOME TAXES

For the years ended May 31, 2013, 2012 and 2011, we were taxed on income from continuing operations at an effective tax rate of 37%, 37% and 38%, respectively. Our income tax provision for May 31, 2013, 2012 and 2011 was $19.2 million, $19.4 million and $13.5 million, respectively, and include federal, state and foreign taxes. The components of our tax provision were as follows (in thousands):


	Current		Deferred			Total
Year ended May 31, 2013:
U.S. Federal	$	7,947	$	4,873		$	12,820
State & local		1,847		236			2,083
Foreign jurisdictions		4,328		(20	)		4,308

	$	14,122	$	5,089		$	19,211

Year ended May 31, 2012:
U.S. Federal	$	10,918	$	379		$	11,297
State & local		1,880		62			1,942
Foreign jurisdictions		7,378		(1,195	)		6,183

	$	20,176	$	(754	)	$	19,422

Year ended May 31, 2011:
U.S. Federal	$	8,546	$	(984	)	$	7,562
State & local		1,676		24			1,700
Foreign jurisdictions		4,872		(586	)		4,286

	$	15,094	$	(1,546	)	$	13,548

The components of pre-tax income for the years ended May 31, 2013, 2012 and 2011 were as follows (in thousands):


	Twelve Months Ended May 31,
	2013		2012		2011
Domestic	$	37,445	$	31,984	$	27,641
Foreign		14,480		20,506		12,531

	$	51,925	$	52,490	$	40,172

Income tax expense attributable to income differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to pre-tax income from continuing operations as a result of the following (in thousands):


	Twelve Months Ended May 31,
	2013			2012			2011
Pre-tax income	$	51,925		$	52,490		$	40,172

Computed income taxes at statutory rate	$	18,174		$	18,371		$	14,060
State income taxes, net of federal benefit		1,570			1,342			1,135
Foreign tax differential		(363	)		(471	)		(326	)
Production activity deduction		(113	)		(161	)		(178	)
Non-deductible expenses		473			470			350
Tax credits		(340	)		(233	)		(197	)
Stock options		—			—			(1,682	)
Other		(190	)		104			386

Total provision for income tax	$	19,211		$	19,422		$	13,548

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands):


	May 31,
	2013			2012
Deferred tax assets:
Accrued compensation and benefits	$	3,819		$	4,386
Receivables		1,686			1,330
Inventory		598			598
Stock options		3,671			4,755
Net operating loss carry forwards		175			242
Other		1,158			818

Deferred tax assets		11,107			12,129
Less: Valuation allowance		(65	)		—

Deferred tax assets, net		11,042			12,129

Deferred tax liabilities:
Property, plant and equipment		(12,548	)		(9,798	)
Goodwill and intangible costs		(5,308	)		(4,406	)
Foreign currency translation and other equity adjustments		(261	)		(672	)
Unremitted earnings of foreign subsidiaries		(1,973	)		(420	)
Prepaids		(1,263	)		(1,518	)
Other		(718	)		(766	)

Deferred tax liabilities		(22,071	)		(17,580	)

Net deferred tax liability	$	(11,029	)	$	(5,451	)

As of May 31, 2013, we had no material valuation allowance reducing our deferred tax assets. In assessing the realizability of deferred tax assets, we consider whether, based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon various sources of taxable income prescribed by ASC 740, against which future deductible temporary differences can be deducted. We consider future reversals of existing temporary differences, projected taxable income and tax planning strategies in making this determination.

As of May 31, 2013, we had net operating loss carry forwards totaling $0.4 million that were expected to be realized in fiscal year 2013. Of this amount $0.1 million will expire in fiscal year 2022, $0.3 million has an unlimited life.

At May 31, 2013, undistributed earnings of foreign operations totaling $14.4 million were considered to be permanently reinvested. We have recognized no deferred tax liability for the remittance of such earnings to the U.S. since it is our intention to utilize those earnings in the foreign operations. Generally, such earnings become subject to U.S. tax upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability on such undistributed earnings.

At May 31, 2013, we have established liabilities for uncertain tax positions of $0.7 million, inclusive of interest and penalties. To the extent these uncertainties are ultimately resolved favorably, the resulting reduction of recorded liabilities would have an effect on our effective tax rate. In accordance with ASC 740-10 our policy is to recognize interest and penalties related to unrecognized tax benefits through the tax provision.

We file income tax returns in the U.S. with federal and state jurisdictions as well as various foreign jurisdictions. With few exceptions, we are no longer subject to U.S. Federal, state and local or non-U.S. income tax examinations by tax authorities for fiscal years prior to fiscal year 2010. The income tax laws and regulations are voluminous and are often ambiguous. As such, we are required to make certain subjective assumptions and judgments regarding our tax positions that may have a material effect on our results of operations, financial position or cash flows. We believe, however, that there is appropriate support for the income tax positions taken, and to be taken, on our returns, and that our accruals for tax liabilities are adequate for all open tax years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

Set forth below is a reconciliation of the changes in our unrecognized tax benefits associated with uncertain tax positions (in thousands):


	Ended May 31
	2013			2012			2011
Balance at beginning of year	$	624		$	421		$	321
Additions based on tax positions related to the current year		—			326			112
Additions based on tax positions related to prior years		191			—			—
Reductions resulting from a lapse of the applicable statute of limitations		(118	)		(123	)		(12	)

Balance at end of year	$	697		$	624		$	421

We believe that in the next 12 months it is reasonably possible $0.1 million of liabilities recorded for tax uncertainties will be effectively settled.

During the third quarter of fiscal year 2011, the Company identified and corrected accounting errors relating to the effect of share-based compensation on tax provisions for fiscal years 2007 through 2010 and the first two quarters of fiscal year 2011. During those periods, reported earnings were understated because effective tax rates were overstated as a result of the previously undetected errors in the tax provision calculation. No restatement of previously issued financial statements was required because the effect on those statements was immaterial. The cumulative effect of the errors in the tax provision calculation was a tax benefit, which was recorded in fiscal year 2011.

Recent Legislation

The American Taxpayer Relief Act of 2012 was signed into law on January 2, 2013 and includes an extension for one year of the 50% bonus depreciation allowance. The provision specifically applies to qualifying property placed in service before January 1, 2014. The acceleration of deductions for the year ended May 31, 2013 on qualifying capital expenditures resulting from the bonus depreciation provision had no impact on our current period effective tax rate because the acceleration of deductions does not result in permanent differences between asset bases for financial reporting purposes and income tax purposes. The act also reinstated the research and development credit retroactively from January 1, 2012 through December 31, 2013. This change in legislation resulted in a permanent decrease in income tax expense for the year ended May 31, 2013 of $0.5 million.