Note 21. Income Taxes

Total income taxes for the nine months ended November 30, 2013, the three month ended February 28, 2013 and the years ended November 30, 2012 and 2011 were allocated as follows (in thousands):


	Successor		Predecessor
	Nine Months Ended November 30, 2013		Three Months Ended February 28, 2013		Year Ended November 30, 2012		Year Ended November 30, 2011

Income tax expense	$	94,686	$	48,645	$	168,646	$	132,966
Stockholders’ equity, for compensation expense for tax purposes (in excess of) / less than amounts recognized for financial reporting purposes	$	(2,873)	$	17,965	$	(19,789)	$	(32,200)

The provision for income tax expense consists of the following components (in thousands):


	Successor		Predecessor
	Nine Months Ended November 30,		Three Months Ended February 28,		Year Ended November 30,		Year Ended November 30,
	2013		2013		2012		2011
Current:
U.S. Federal	$	50,089	$	22,936	$	62,710	$	65,702
U.S. state and local		6,263		(3,176)		18,520		28,644
Foreign		7,050		(1,950)		2,773		8,443

		63,402		17,810		84,003		102,789

Deferred:
U.S. Federal		25,262		17,392		79,224		7,637
U.S. state and local		8,868		9,761		13,006		(694)
Foreign		(2,846)		3,682		(7,587)		23,234

		31,284		30,835		84,643		30,177

	$	94,686	$	48,645	$	168,646	$	132,966

Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate of 35% to earnings before income taxes as a result of the following (in thousands):


	Successor					Predecessor
	Nine Months Ended November 30,					Three Months Ended February 28,					Year Ended November 30,					Year Ended November 30,
	2013					2013					2012					2011
	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
Computed expected income taxes	$	92,504		35.0	%	$	48,820		35.0	%	$	172,128		35.0	%	$	146,767		35.0	%
Increase (decrease) in income taxes resulting from:
State and city income taxes, net of Federal income tax benefit		9,835		3.7			4,280		3.1			20,492		4.2			18,168		4.3
Bargain purchase gain on the acquisition of the Global Commodities Group		-		-			-		-			-		-			(18,363)		(4.4)
Income allocated to Noncontrolling interest, not subject to tax		(2,946)		(1.1)			(3,553)		(2.5)			(14,161)		(2.9)			(613)		(0.1)
Foreign rate differential		(4,750)		(1.8)			(2,993)		(2.2)			(7,528)		(1.5)			(11,736)		(2.8)
Fines and penalties		4,900		1.9			-		-			-		-			-		-
Other, net		(4,857)		(1.9)			2,091		1.5			(2,285)		(0.5)			(1,257)		(0.3)


Total income taxes	$	94,686		35.8	%	$	48,645		34.9	%	$	168,646		34.3	%	$	132,966		31.7	%

The following table presents a reconciliation of gross unrecognized tax benefits (in thousands):


	Successor		Predecessor
	Nine Months Ended November 30, 2013		Three Months Ended February 28, 2013		Year Ended November 30, 2012		Year Ended November 30, 2011
Balance at beginning of period	$	129,010	$	110,539	$	79,779	$	52,852
Increases based on tax positions related to the current period		8,748		7,185		30,671		14,159
Increases based on tax positions related to prior periods		7,383		15,356		7,549		14,696
Decreases based on tax positions related to prior periods		(18,297)		(4,070)		(5,893)		(1,808)
Decreases related to settlements with taxing authorities		-		-		(487)		(120)
Decreases related to a lapse of applicable statutes of limitation		-		-		(1,080)		-

Balance at end of period	$	126,844	$	129,010	$	110,539	$	79,779

The total amount of unrecognized benefit that, if recognized, would favorably affect the effective tax rate was $85.5 million and $72.4 million (net of federal benefits of taxes) at November 30, 2013 and 2012, respectively.

We recognize interest accrued related to unrecognized tax benefits in Interest expense. Penalties, if any, are recognized in Other expenses in the Consolidated Statements of Earnings. Net interest expense related to income tax liabilities was $5.8 million for the nine months ended November 30, 2013. For the three months ended February 28, 2013 and the years ended November 30, 2012 and November 30, 2011, interest expense was $1.8 million, $4.5 million and $4.4 million, respectively. As of November 30, 2013 and November 30, 2012, we had interest accrued of approximately $22.9 million and $15.3 million, respectively, included in Accrued expenses and other liabilities. No material penalties were accrued for the periods ended November 30, 2013 and November 30, 2012.

The cumulative tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at November 30, 2013 and 2012 are presented below (in thousands):


	Successor		Predecessor
	November 30, 2013		November 30, 2012
Deferred tax assets:
Compensation and benefits	$	373,964	$	333,318
Net operating loss		24,147		22,447
Long-term debt		191,274		-
Other		86,336		30,932

Sub-total		675,721		386,697
Valuation allowance		(11,140)		(11,754)

Total deferred tax assets		664,581		374,943


Deferred tax liabilities:
Long-term debt		-		37,370
Amortization of intangibles		98,798		62,617
Other		30,842		47,811

Total deferred tax liabilities		129,640		147,798


Net deferred tax asset, included in Other assets	$	534,941	$	227,145

The valuation allowance represents the portion of our deferred tax assets for which it is more likely than not that the benefit of such items will not be realized. We believe that the realization of the net deferred tax asset of $534.9 million is more likely than not based on expectations of future taxable income in the jurisdictions in which we operate.

At November 30, 2013, we had gross net operating loss carryforwards in Asia, primarily Japan, and in Europe, primarily the United Kingdom, of approximately $89.1 million, in aggregate. The Japanese losses begin to expire in the year 2017 while the United Kingdom losses have an unlimited carryforward period. A deferred tax asset of $4.6 million related to net operating losses in Asia has been fully offset by a valuation allowance. The remaining valuation allowance relates to deferred tax assets resulting from operating losses in various jurisdictions as well as compensation, capital losses, and tax credits in the United Kingdom.

At November 30, 2013, there is a net current tax payable of $28.5 million, which includes a gross payable to our Parent of $61.2 million. The offsetting balance reflects receivables from various taxing authorities. At November 30, 2012, there was a net current tax receivable of $69.8 million from various taxing authorities.

At November 30, 2013, we had approximately $134.0 million of earnings attributable to foreign subsidiaries for which no U.S. Federal income tax provision has been recorded because these earnings are permanently invested abroad. Accordingly, a deferred tax liability of approximately $35.0 million has not been recorded with respect to these earnings.

We are currently under examination by the Internal Revenue Service and other major tax jurisdictions. We do not expect that resolution of these examinations will have a material effect on our consolidated financial position, but could have a material impact on the consolidated results of operations for the period in which resolution occurs. It is reasonably possible that, within the next twelve months, statutes of limitation will expire which would have the effect of reducing the balance of unrecognized tax benefits by $3.3 million.

The table below summarizes the earliest tax years that remain subject to examination in the major tax jurisdictions in which we operate:


Jurisdiction		Tax Year
United States		2006
United Kingdom		2012
California		2006
Connecticut		2006
Massachusetts		2006
New Jersey		2007
New York State		2001
New York City		2003