Income Taxes

9 Months Ended

Feb. 26, 2012

Income Taxes [Abstract]

INCOME TAXES

12. INCOME TAXES

Our income tax expense from continuing operations for the third quarter of fiscal 2012 and 2011 was $107.0 million and $122.5 million, respectively. Income tax expense from continuing operations for the first three quarters of fiscal 2012 and 2011 was $238.3 million and $290.8 million, respectively. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income from continuing operations, inclusive of equity method investment earnings) from continuing operations was approximately 28% and 31% for the third quarter and first three quarters of fiscal 2012, respectively, and 35% and 34% for the third quarter and first three quarters of fiscal 2011, respectively. The decrease in tax rate for fiscal 2012 is due largely to the recognition of a nontaxable gain from the acquisition of a majority interest in ATFL.

The amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of tax benefits, was $51.6 million as of February 26, 2012 and $56.5 million as of May 29, 2011. Included in the balance was $3.1 million as of February 26, 2012 and $3.3 million as of May 29, 2011 for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. Any associated interest and penalties imposed would affect the tax rate. The gross unrecognized tax benefits excluded related liabilities for gross interest and penalties of $14.1 million and $14.7 million as of February 26, 2012 and May 29, 2011, respectively.

The net amount of unrecognized tax benefits at February 26, 2012 and May 29, 2011 that, if recognized, would impact the Company’s effective tax rate was $32.2 million and $35.7 million, respectively. Recognition of these tax benefits would have a favorable impact on the Company’s effective tax rate.

We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by $2 million to $7 million over the next twelve months due to various federal, state, and foreign audit settlements and the expiration of statutes of limitations.