7. INCOME TAXES

The income tax provision includes the following:


	Fiscal Year
		2012			2011		2010
Current:
Federal	$	(696	)	$	2,880	$	2,587
State and local		(194	)		378		(35	)
Foreign		5,077			4,872		2,447
		4,187			8,130		4,999
Deferred:
Federal		(239	)		274		683
State and local		658			32		16
Foreign		(397	)		260		(2,873	)
		22			566		(2,174	)
	$	4,209		$	8,696	$	2,825

On June 30, 2011, Nelco Products Pte, Ltd's qualification and favorable tax rates under the development and expansion tax incentive in Singapore expired, resulting in a $175 increase in tax expense.

The valuation allowance increased a total of $784 as a result of increases in foreign net operating loss carryforwards and domestic tax credits. There was no income statement impact from these changes.

The components of earnings before income taxes were as follows:


	Fiscal Year
		2012			2011		2010

United States	$	(1,447	)	$	8,668	$	2,914
Foreign		29,098			32,649		25,270
Earnings from continuing operations
before income taxes	$	27,651		$	41,317	$	28,184

The Company's effective income tax rate differs from the statutory U.S.

Federal income tax rate as a result of the following:


	2012		2011		2010
Statutory U.S. Federal tax rate	34.0	%	34.0	%	34.0	%
State and local taxes, net of
Federal benefit	(0.6	))	0.6	)	(0.1	))
Foreign tax rate differentials	(19.9	)	(16.4	)	(17.3	)
Valuation allowance on deferred tax
Assets	3.1		2.6		3.6
Adjustment of tax accruals and
reserves	(2.4	)	0.8		4.2
Foreign deferred liability reduction	-		-		(14.2	)
Foreign tax credits	(0.3	)	(0.5	)	(0.2	)
Permanent differences and other	1.3		(0.1	)	-
	15.2	%	21.0	%	10.0	%

The Company had total net operating loss carryforwards of approximately $32,166 and $30,334 in fiscal years 2012 and 2011, respectively. As of fiscal year ended February 26, 2012, $29,262 of net operating loss carryforwards have an indefinite carryforward period and $2,904 have a five year carryforward period.

The Company had New York State investment tax credit carryforwards of $1,728 and $1,131 in fiscal years 2012 and 2011, respectively. In the 2011 fiscal year, a $19 benefit was recognized for utilization of these credits. The New York State Investment tax credits expire in fiscal years 2013 through 2018. The Company has Kansas tax credits of $210 and $202 for fiscal years 2012 and 2011, respectively, and for which no benefit was provided in the 2012 fiscal year. The Company does not believe that realization of the principal portion of the Kansas tax credit or the investment tax credit carryforward is more likely than not. The Kansas credits expire in fiscal years 2028 and 2029, respectively.

The deferred tax asset valuation allowance of $11,661 as of February 26, 2012 is related to foreign net operating losses and state tax credit carryforwards for which the Company does not expect to realize the tax benefit. During fiscal year 2012, the valuation allowance increased by $784 due to current year foreign losses and an adjustment to the prior year balance for which no tax benefit was recognized. 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 for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of February 26,2012 and February 27,2011 were as follows:


		February 26,			February 27,
		2012			2011
Deferred tax assets:
Impairment of fixed assets	$	6,035		$	6,036
Net operating loss carryforwards		9,753			9,545
Tax credits carryforward		2,019			1,382
Other, net		2,220			2,699
		20,027			19,662
Valuation allowance for deferred
tax assets		(11,661	)		(10,877	)
Net deferred tax assets		8,366			8,785
Depreciation		(741	)		(1,279	)
Offshore Singapore earnings
subject to local tax		(321	)		(181	)
Total deferred tax liabilities		(1,062	)		(1,460	)
Net deferred tax	$	7,304		$	7,325

The break down between current and long-term deferred tax assets follows:


		February 26,		February 27,
		2012		2011

Current	$	1,300	$	637
Non-current		7,066		8,148
Total deferred tax assets	$	8,366	$	8,785

On the Consolidated Balance Sheet, the current net deferred tax assets are included in prepaid expenses and other current assets. The non-current net deferred tax assets are included in other assets.

At February 26, 2012, the Company had gross unrecognized tax benefits of $1,066 included in current liabilities and $218 included in other liabilities. Included in unrecognized tax benefits is $2,715 related to a claim for refund filed to recoup the tax benefit for the Company's remaining investment in New England Laminates (U.K.) Ltd. The entire amount reflected in the unrecognized tax benefits table at February 26, 2012, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:


		Unrecognized Tax Benefits
		February 26,			February 27,
	2012			2011

Balance, beginning of year	$	2,044		$	1,715
Gross increases–tax positions
in prior period		2,715			276
Gross decreases-tax positions
in prior period		(268	)		(16	)
Gross increases-current period
tax positions		264			180
Gross decreases-current period
tax positions		-			-
Audit settlements		(756	)
Lapse of statute of limitations		-			(111	)
Balance, end of year	$	3,999		$	2,044

The amount of unrecognized tax benefits may increase or decrease in the future for various reasons, including adding or reducing amounts for current year tax positions, expiration of statutes of limitation on open income tax years, changes in the Company's judgment about the level of uncertainty, status of tax examinations, and legislative changes. Changes in prior period tax positions are as a result of a reevaluation of the probability of realizing the benefit of a particular tax position based on new information.

A list of open tax years by major jurisdiction follows:


United States	2009-2012
Arizona	2008-2012
California	2008-2012
New York	2008-2012
France	2010-2012
Singapore	2005-2012

The Company had approximately $137 and $371 of accrued interest and penalties as of February 26, 2012 and February 27, 2011, respectively. The Company's policy is to include applicable interest and penalties related to unrecognized tax benefits as a component of current income tax expense.

The Internal Revenue Service ("IRS") conducted an examination of the Company's tax returns for the 2006, 2007 and 2008 fiscal years. The examination was closed in June 2011, and the Company was assessed an additional $293 in tax and interest over the amounts reserved in prior years.

In September 2011, the IRS commenced an examination of the Company's tax returns for the 2009, 2010 and 2011 fiscal years. The examination is expected to close in the 2013 fiscal year. The Company recorded additional reserves and current payables of $330 in the 2012 fiscal year based on preliminary findings by the IRS.

During the 2012 fiscal year, the New York State Department of Taxation commenced an examination of the Company's tax returns for the 2008, 2009, 2010 and 2011 fiscal years. As of February 26, 2012, there have been no preliminary findings and no reserves have been recorded.