Note 9. Taxes on Income

Provision (benefit) for income taxes in the consolidated statements of income consisted of the following components (in thousands):


	Fiscal Year Ended
	February 28,			February 29,
	2013			2012
Current:
Federal	$	(2	)	$	484
State		145			391

		143			875

Deferred:
Federal		(217	)		781
State		(77	)		117

		(294	)		898

Total	$	(151	)	$	1,773

Income before provision for taxes consisted of the following (in thousands):


	Fiscal Year Ended
	February 28,			February 29,
	2013			2012
U.S. operations	$	(143	)	$	5,350
Foreign operations		—			—

	$	(143	)	$	5,350

The provision for income taxes differs from the amount computed by applying the federal statutory rate of 34% to income before income taxes as follows (in thousands):


	Fiscal Year Ended
	February 28, 2013			February 29, 2012
Statutory U.S. federal income tax rate	$	(49	)	$	1,819
State income taxes, net of federal benefit		(6	)		212
Research and experimentation credits		(82	)		(128	)
Deferred tax rate change		—			—
Non-deductible expenses		19			14
Domestic production activities deduction		(38	)		(145	)
Other		5			1

Taxes at effective income tax rate	$	(151	)	$	1,773

The effective tax rate for fiscal 2013 was a negative 105% compared to 33.1% for fiscal 2012. The lower effective rate in 2013 compared to the effective rate in 2012 was primarily due to research and experimentation credits, the domestic production activities deduction and various other permanent items.

Deferred income taxes as of February 28, 2013 and February 29, 2012 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 and certain tax loss carry forwards.

The sources of the temporary differences and carry forwards, and their effect on the net deferred tax asset consisted of the following (in thousands):


	Fiscal Year Ended
	February 28,			February 29,
	2013			2012
Deferred tax assets:
Uniform capitalization costs	$	586		$	410
Inventory reserves		1,120			1,203
Accrued liabilities		500			465
Allowance for doubtful accounts		22			65
Amortization of intangibles		720			624

		2,948			2,767
State net operating loss carry-forward		165			106
Foreign tax credit carry-forward		99			99
Deferred tax liabilities:
Basis difference of property, plant and equipment		(299	)		(329	)
Other		(35	)		(59	)

Net deferred tax assets	$	2,878		$	2,584

Current asset Non-current asset	$	2,219 659		$	1,936 648

	$	2,878		$	2,584

Undistributed earnings of the Company’s foreign subsidiary have been considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has 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 foreign country. The Company closed the foreign subsidiary and has determined the tax liability to be immaterial.