3.     Income Taxes

 

As of May 31, 2011, the Company had $4,954 of unrecognized tax benefits, including $837 of interest and penalties.  During the first nine months of fiscal year 2011, the liability for unrecognized tax benefits decreased by $675.  The majority of the change was due to the settlement of a state tax audit in the first quarter of fiscal year 2011, which resulted in a decrease to state unrecognized tax positions from prior years. The Company recognizes estimated interest and penalties as a component of its income tax expense, net of federal benefit.  If recognized, $3,217 of unrecognized tax benefits would favorably impact the effective tax rate.

 

The Company or one of its subsidiaries is subject to U.S. federal income tax and income tax in multiple U.S. state jurisdictions.  The Company is currently undergoing examinations or appeals by various state and federal authorities.  The Company anticipates that the finalization of these examinations or appeals, combined with the expiration of applicable statutes of limitations and the additional accrual of interest related to unrecognized benefits on various return positions taken in years still open for examination, could result in a change to the liability for unrecognized tax benefits during the next 12 months ranging from a decrease of $120 to a decrease of $3,635 depending on the timing and terms of the examination resolutions.

 

After the adoption of FASB Accounting Standards Codification ("ASC") Topic 810 – "Consolidation," noncontrolling interests are presented pre-tax as "net income-noncontrolling interests" on the Condensed Consolidated Statements of Income and no longer as a component of operating income.  As a result, the Company's effective tax rate appears lower than its actual tax rate. The following table reconciles the difference in the effective tax rate as a result of this presentation:

 

	Three months ended			Nine months ended
	May 31,			May 31,
	2011	2010		2011	2010
Effective tax rate (including income attributable to noncontrolling interests) (1)	38.6%	22.2%		22.4%	23.9%
Book income attributable to noncontrolling interests(1)	(1.5)	1.7		1.6	4.4
Effective tax rate (excluding income attributable to noncontrolling interests) (1)	37.1%	23.9%		24.0%	28.3%

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(1)    See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for an explanation of the changes in noncontrolling interests and the Company's effective tax rate.