Note I — Income Taxes

The components of deferred tax assets and liabilities are as follows:

The components of the provision for income taxes are as follows:

A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows:

Uncertain income tax positions:    The Company maintains a reserve for uncertain tax positions. As of May 31, 2012 and May 31, 2011, the total reserve for uncertain tax positions was $36.8 million and $34.4 million, respectively. As of May 31, 2012 and May 31, 2011, $35.9 million and $34.1 million of the total reserve for uncertain tax positions was included in long-term liabilities on the Consolidated Balance Sheets.

A reconciliation of the beginning and ending amounts of the Company’s gross unrecognized tax benefits, not including interest or other potential offsetting effects, is as follows:

The Company is subject to U.S federal income tax, numerous local and state tax jurisdictions within the U.S., and income taxes in Germany.

The Company believes the reserve for uncertain tax positions, including interest and net of federal benefits, of $36.8 million as of May 31, 2012 adequately covers open tax years and uncertain tax positions up to and including fiscal 2012 for major taxing jurisdictions. As of May 31, 2012, $31.6 million of the $36.8 million unrecognized tax benefits, if recognized, would impact the Company’s effective income tax rate. As of May 31, 2011, $29.2 million of the $34.4 million unrecognized tax benefits, if recognized, would have impacted the Company’s effective income tax rate.

A significant portion of the reserve relates to uncertain tax positions currently under audit by New York State for the fiscal year ended May 31, 2004 (“fiscal 2004”) through the fiscal year ended May 31, 2009 (“fiscal 2009”). On July 14, 2010, the Company received a summary of proposed tax adjustments for fiscal 2004 through the fiscal year ended May 31, 2007 from New York State, which was in excess of the reserve recorded as of May 31, 2012. The ultimate outcome of the unresolved state tax matters is uncertain and could be favorable or unfavorable to the Company. An unfavorable resolution of the uncertain tax positions in total could have a material impact on the Company’s results of operations and effective income tax rate, and generate additional cash outlays in the period in which the unfavorable resolution, if any, was recognized. The tax matters that are currently under audit are not expected to have a significant future impact on the Company’s effective income tax rate.

The Company has concluded all U.S. federal income tax matters through fiscal 2009. Fiscal 2010 and fiscal 2011 are still subject to potential audit. With limited exception, state income tax audits by taxing authorities are closed through the fiscal year ended May 31, 2007, primarily due to expiration of the statute of limitations.

The Company continues to follow its policy of recognizing interest and penalties accrued on tax positions as a component of income taxes on the Consolidated Statements of Income. The amount of accrued interest and penalties associated with the Company’s tax positions is immaterial to the Consolidated Balance Sheets. The amount of interest and penalties recognized for fiscal years 2012, 2011, and 2010 was immaterial to the Company’s results of operations.