Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
May 31, 2013
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The components of deferred tax assets and liabilities are as follows:
 
 
May 31,
In millions
 
2013
 
2012
Deferred tax assets:
 
 
 
 
Compensation and employee benefit liabilities
 
$
16.3

 
$
15.8

Other current liabilities
 
6.3

 
6.7

Tax credit carry forward
 
35.3

 
31.7

Depreciation
 
8.5

 
8.0

Stock-based compensation
 
24.6

 
28.5

Other
 
16.6

 
17.4

Gross deferred tax assets
 
107.6

 
108.1

Deferred tax liabilities:
 
 
 
 
Capitalized software
 
45.8

 
39.3

Depreciation
 
20.2

 
21.8

Intangible assets
 
41.0

 
36.8

Revenue not subject to current taxes
 
11.7

 
11.1

Unrealized gains on available-for-sale securities
 
13.3

 
21.8

Other
 
0.6

 
1.0

Gross deferred tax liabilities
 
132.6

 
131.8

Net deferred tax liability
 
$
(25.0
)
 
$
(23.7
)

 
The components of the provision for income taxes are as follows:
 
 
Year ended May 31,
In millions
 
2013
 
2012
 
2011
Current:
 
 
 
 
 
 
Federal
 
$
274.2

 
$
259.8

 
$
234.0

State
 
62.9

 
40.8

 
29.3

Total current
 
337.1

 
300.6

 
263.3

Deferred:
 
 
 
 
 
 
Federal
 
5.5

 
9.3

 
12.0

State
 
(0.2
)
 
2.4

 
1.6

Total deferred
 
5.3

 
11.7

 
13.6

Provision for income taxes
 
$
342.4

 
$
312.3

 
$
276.9


A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows:
 
 
Year ended May 31,
 
 
2013
 
2012
 
2011
Federal statutory tax rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
Increase/(decrease) resulting from:
 
 
 
 
 
 
State income taxes, net of federal tax benefit
 
3.0
 %
 
3.3
 %
 
2.5
 %
Tax settlement
 
1.5
 %
 
—
 %
 
—
 %
Tax-exempt municipal bond interest
 
(1.7
)%
 
(1.8
)%
 
(2.2
)%
Other items
 
(0.2
)%
 
(0.2
)%
 
(0.3
)%
Effective income tax rate
 
37.6
 %
 
36.3
 %
 
35.0
 %

Uncertain income tax positions:    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 maintains a reserve for uncertain tax positions. As of May 31, 2013 and May 31, 2012, the total reserve for uncertain tax positions was $19.8 million and $36.8 million, respectively. As of May 31, 2013 and May 31, 2012, $19.7 million and $35.9 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:
 
 
Year ended May 31,
In millions
 
2013
 
2012
 
2011
Balance as of beginning of fiscal year
 
$
41.7

 
$
41.2

 
$
35.8

Additions for tax positions of the current year
 
28.5

 
0.4

 
6.0

Additions for tax positions of prior years
 
12.2

 
1.3

 
0.1

Reductions for tax positions of prior years
 
(0.5
)
 
(0.1
)
 
(0.1
)
Settlements with tax authorities
 
(55.0
)
 
(0.7
)
 
—

Expiration of the statute of limitations
 
(0.2
)
 
(0.4
)
 
(0.6
)
Balance as of end of fiscal year
 
$
26.7

 
$
41.7

 
$
41.2


In May 2013, the Company executed a closing agreement that resolved tax matters related to the audits by New York State for the fiscal year ended May 31, 2004 ("fiscal 2004") through fiscal 2011. As a result, the reserve for uncertain tax positions was increased by $21.2 million in May 2013. The resolution and execution of the closing agreement in May 2013 on the open tax matters for fiscal 2004 through fiscal 2011 impacted the Company's effective income tax rate for fiscal 2013, as noted in the reconciliation of the U.S. federal statutory rate to the Company's effective income tax rate.
The reserve as of May 31, 2013 substantially relates to uncertain tax positions for state income tax matters. The Company believes the reserve for uncertain tax positions, including interest and net of federal benefits, of $19.8 million as of May 31, 2013 adequately covers open tax years and uncertain tax positions up to and including fiscal 2013 for major taxing jurisdictions. As of May 31, 2013, $14.6 million of the $19.8 million unrecognized tax benefits, if recognized, would impact the Company’s effective income tax rate. As of May 31, 2012, $31.6 million of the $36.8 million unrecognized tax benefits, if recognized, would have impacted the Company’s effective income tax rate.
The Company has concluded all U.S. federal income tax matters through the fiscal year ended May 31, 2010. Fiscal 2011 and fiscal 2012 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, 2008, 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 and Comprehensive 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 2013, 2012, and 2011 was immaterial to the Company’s results of operations.