Income Taxes

12 Months Ended

Apr. 30, 2011

Income Taxes

Income Taxes

 

NOTE 15: INCOME TAXES

The components of income from continuing operations upon which domestic and foreign income taxes have been provided are as follows:

(in 000s)
Year Ended April 30,	2011		2010		2009
Domestic	$	639,914	$	745,912	$	815,614
Foreign		37,111		38,223		23,756
	$	677,025	$	784,135	$	839,370

The components of income tax expense (benefit) for continuing operations are as follows:

						(in 000s)
Year Ended April 30,	2011			2010		2009
Current:
Federal	$	188,086		$	92,992	$	243,085
State		45,068			23,625		38,418
Foreign		21,456			16,052		1,393
		254,610			132,669		282,896
Deferred:
Federal		(799	)		128,900		36,739
State		3,521			33,448		6,582
Foreign		288			172		98
		3,010			162,520		43,419
Total income taxes for continuing operations	$	257,620		$	295,189	$	326,315

The reconciliation between the income tax provision and the amount computed by applying the statutory federal tax rate of 35% to income taxes of continuing operations is as follows:

Year Ended April 30,	2011			2010			2009
U.S. statutory tax rate		35.0	%		35.0	%		35.0	%
Change in tax rate resulting from:
State income taxes, net of federal income tax benefit		4.5	%		3.8	%		4.2	%
Permanent differences		(0.3	)%		(0.5	)%		1.6	%
Uncertain tax positions		1.1	%		0.9	%		0.5	%
Net decrease in valuation allowance		(1.3	)%		(1.0	)%		(1.2	)%
Other		(0.9	)%		(0.6	)%		(1.2	)%
Effective tax rate		38.1	%		37.6	%		38.9	%

The significant components of deferred tax assets and liabilities of continuing operations are reflected in the following table:

(in 000s)
As of April 30,	2011			2010
Gross deferred tax assets:
Accrued expenses	$	61,891		$	17,554
Allowance for credit losses and related reserves		102,587			164,783
Net operating loss carryovers		–			200
Other		–			237
Valuation allowance		(47,300	)		(1,745	)
Current		117,178			181,029
Deferred and stock-based compensation		73,398			71,970
Property and equipment		–			9,071
Deferred revenue		23,166			25,595
Net operating loss carryovers		21,057			26,292
Accrued expenses		32,481			31,892
Capital loss carryover		150,876			144,507
Other		15,953			15,991
Valuation allowance		(94,261	)		(151,838	)
Noncurrent		222,670			173,480
		339,848			354,509
Gross deferred tax liabilities:
Prepaid expenses		(4,734	)		(6,337	)
Current		(4,734	)		(6,337	)
Property and equipment		(10,731	)		–
Basis difference in mortgage-related investment		(49,751	)		(81,118	)
Intangibles		(139,963	)		(124,918	)
Noncurrent		(200,445	)		(206,036	)
Net deferred tax assets	$	134,669		$	142,136

The loss from discontinued operations for fiscal years 2011, 2010 and 2009 of $13.3 million, $9.7 million and $27.4 million, respectively are net of tax benefits of $8.7 million, $8.0 million and $20.3 million, respectively. Our effective tax rate for discontinued operations was 39.4%, 45.1% and 42.5% for fiscal years 2011, 2010 and 2009, respectively.

As of April 30, 2011, we have a capital loss deferred tax asset (DTA) of $147 million. The majority of this capital loss DTA resulted from the sale of our brokerage business in November 2008. Generally, for tax purposes, a capital loss can only be utilized to the extent we realize capital gains within five years of the end of the taxable year the capital loss was incurred. We do not currently expect to be able to realize a tax benefit for substantially all of this loss and, therefore, recorded a valuation allowance of $126.3 million. We have capital loss carryover of approximately $375 million which will expire if not used to offset future capital gains before December 31, 2013.

During fiscal year 2010, our current tax expense was reduced and our deferred tax expense increased by offsetting amounts due to the tax effects of a tax accounting change impacting the timing of taxable income from certain mortgage related assets. Because of this treatment we recorded a noncurrent deferred tax liability of $81.1 million and a long-term receivable of the same amount as a result of this change. During fiscal year 2011, we changed our measurement of the more-likely-than-not tax basis of certain assets of a subsidiary as a result of new information obtained from ongoing interactions with the IRS. The result of this new information was to increase our noncurrent deferred tax liability in the amount of $66.3 million and to establish a long-term receivable for the same amount as it is not expected that these matters will be settled within twelve months.

Certain of our subsidiaries file stand-alone returns in various states and foreign jurisdictions, and others join in filing consolidated or combined returns in such jurisdictions. At April 30, 2011, we had net operating losses (NOLs) in various states and foreign jurisdictions. The amount of state NOLs vary by taxing jurisdiction. We recorded deferred tax assets of $21.1 million for the tax effects of such losses and a valuation allowance of $10.3 million for the portion of such losses that, more likely than not, will not be realized. If not used, the NOLs will expire in varying amounts during fiscal years 2012 through 2031.

We intend to indefinitely reinvest foreign earnings, therefore, a provision has not been made for income taxes that might be payable upon remittance of such earnings. Determination of the amount of unrecognized deferred tax liability on unremitted foreign earnings is not practicable.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal years 2011, 2010 and 2009 is as follows:

(in 000s)
Year Ended April 30,	2011			2010			2009
Balance, beginning of the year	$	129,767		$	124,605		$	137,608
Additions based on tax positions related to prior years		28,262			12,957			14,541
Reductions based on tax positions related to prior years		(1,473	)		(2,427	)		(6,096	)
Additions based on tax positions related to the current year		3,417			3,314			4,110
Reductions related to settlements with tax authorities		(7,639	)		(8,545	)		(18,189	)
Expiration of statute of limitations		(315	)		(1,061	)		(5,007	)
Foreign currency translation		1,057			924			(2,362	)
Other		1,772			–			–
Balance, end of the year	$	154,848		$	129,767		$	124,605

Of the $154.8 million, $129.8 million and $124.6 million ending gross unrecognized tax benefit balance as of April 30, 2011, 2010 and 2009, respectively, $117.6 million, $106.8 million and $107.0 million, respectively, if recognized, would impact the effective rate. This difference results from adjusting the gross balances for such items as federal, state and foreign deferred items, interest and deductible taxes. We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $17 million within the next twelve months due to anticipated settlements of audit issues and expiring statutes of limitations. This amount is included in accrued income taxes in our consolidated balance sheet. The remaining amount is classified as long-term and is included in other noncurrent liabilities in the consolidated balance sheet.

Interest and penalties, if any, accrued on the unrecognized tax benefits are reflected in income tax expense. The amount of gross interest and penalties accrued on uncertain tax positions during fiscal years 2011, 2010 and 2009 totaled $4.4 million, $4.1 million and $15.4 million, respectively. The total gross interest and penalties accrued as of April 30, 2011, 2010 and 2009 totaled $44.1 million, $39.7 million and $42.4 million, respectively.

We file a consolidated federal income tax return in the U.S. and file tax returns in various state and foreign jurisdictions. The consolidated tax returns for the years 2006 and 2007 are currently under examination by the IRS. The consolidated tax returns for the years 1999 – 2005 are at the IRS appellate level. Tax years prior to 1999 are closed by statute. Historically, tax returns in various foreign and state jurisdictions are examined and settled upon completion of the examination.