Income Taxes

12 Months Ended

Nov. 30, 2011

Income Taxes [Abstract]

Income Taxes

4. Income Taxes

The Company files a consolidated U.S. federal income tax return with its wholly-owned subsidiaries. The components of the Company’s income tax provision (benefit) from continuing operations are as follows:

	Year Ended
	2011			2010			2009
	(In millions)
Current
U.S. federal	$	2.0		$	(5.2	)	$	(21.3	)
State and local		4.2			3.1			2.4
		6.2			(2.1	)		(18.9	)
Deferred
U.S. federal		(0.4	)		(0.8	)		1.1
State and local		0.3			(1.0	)		0.2
		(0.1	)		(1.8	)		1.3
Income tax provision (benefit)	$	6.1		$	(3.9	)	$	(17.6	)

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

	Year Ended
	2011			2010			2009
Statutory U.S. federal income tax rate		35.0	%		35.0	%		35.0	%
State and local income taxes, net of U.S. federal income tax effect		29.9			93.7			2.3
Tax settlements and refund claims, including interest		3.5			(295.2	)		(41.3	)
Reserve adjustments		0.8			(0.6	)		(10.0	)
Valuation allowance adjustments		(44.0	)		(146.3	)		(32.9	)
Unregistered stock rescission		3.3			13.8			1.1
Non-deductible convertible debt interest		31.6			124.5			—
Deferred net operating loss to additional paid in capital		2.1			—			—
Other, net		5.3			(6.2	)		3.3
Effective income tax rate		67.5	%		(181.3	)%		(42.5	)%

The income tax provision of $6.1 million in fiscal 2011 is primarily related to current federal tax expense of (i) $1.5 million for alternative minimum tax (“AMT”) offset by $1.5 million of deferred tax benefit; (ii) $0.2 million of current federal tax on earnings sheltered by net operating losses generated from equity based compensation, the benefit of which was recorded directly to equity; (iii) $0.3 million true-up of interest accrual on the pending federal refund claims filed in 2010; (iv) current state taxes of $4.2 million; and (v) deferred taxes of $1.4 million, which represents the excess of deferred tax expense from goodwill amortization over deferred tax benefit from research credits.

The income tax benefit of $3.9 million in fiscal 2010 is primarily related to the Company obtaining a Private Letter Ruling (“PLR”) from the Internal Revenue Service (“IRS”) allowing the Company to revoke its election made on the fiscal 2003 income tax return to capitalize and amortize certain research expenditures. The revocation is effective as of the fiscal 2007 income tax return, allowing a deduction on an amended fiscal 2007 tax return of the remaining unamortized balance. As a result of the PLR, an income tax benefit of $6.3 million was recorded. This is offset by federal AMT expense of $1.1 million and state tax expense of $3.1 million. Additionally, the Company recorded a deferred tax benefit of $1.9 million relating to prior years offset by $0.1 million of deferred tax expense recorded for fiscal 2010.

The income tax benefit of $17.6 million in fiscal 2009 is primarily related to new guidance that was published by the Chief Counsel’s Office of the IRS in December 2008 clarifying which costs qualify for ten-year carryback of tax net operating losses for refund of prior years’ taxes. As a result of the clarifying language, the Company recorded during the first quarter of fiscal 2009 an income tax benefit of $19.7 million, of which $14.5 million was for the release of the valuation allowance associated with the utilization of the qualifying tax net operating losses and $5.2 million was for the recognition of affirmative claims related to previous uncertain tax positions associated with prior years’ refund claims related to the qualifying costs.

A valuation allowance has been recorded to offset a substantial portion of the net deferred tax assets at November 30, 2011 and 2010 to reflect the uncertainty of realization. A valuation allowance is required when it is more likely than not that all or a portion of deferred tax assets may not be realized. A review of all available positive and negative evidence is considered, including past and future performance, the market environment in which the Company operates, utilization of tax attributes in the past, length of carryback and carryforward periods, and evaluation of potential tax planning strategies when evaluating the realizability of deferred tax assets.

Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence such as cumulative losses in recent years. The Company determines cumulative losses on a rolling twelve-quarter basis and the analysis includes the retirement benefit plan losses in accumulated other comprehensive loss. Accordingly, the Company has maintained a full valuation allowance on all of its net deferred tax assets except for the indefinite lived deferred tax assets relating to federal AMT credits and California research credits.

The Company is routinely examined by domestic and foreign tax authorities. While it is difficult to predict the outcome or timing of a particular tax matter, the Company believes it has adequately provided reserves for any reasonable foreseeable outcome related to these matters.

A reconciliation of the change in unrecognized tax benefits from December 1, 2008 to November 30, 2011 is as follows (in millions):

Unrecognized tax benefits at December 1, 2008	$	5.8
Gross increases for tax positions taken during the year		4.3
Gross decreases for tax positions taken during the year		(5.2	)
Unrecognized tax benefits at December 1, 2009		4.9
Interest accrual on reserves		0.1
Gross decreases for tax positions taken in prior year		(0.1	)
Unrecognized tax benefits at November 30, 2010		4.9
Interest accrual on reserves		0.1
Gross increases for tax positions taken during the year		0.1
Gross decreases for tax positions taken in prior year		(0.4	)
Unrecognized tax benefits at November 30, 2011	$	4.7

As of November 30, 2011, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $1.5 million. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of November 30, 2011, the Company’s accrued interest and penalties related to uncertain tax positions is $0.2 million. The years ended November 30, 2008 through November 30, 2010 remain open to examination for U.S. federal income tax purposes. For the Company’s other major taxing jurisdictions, the tax years ended November 30, 2007 through November 20, 2010 remain open to examination.

Deferred tax assets and liabilities are as follows:

	As of November 30,
	2011			2010
	(In millions)
Deferred Tax Assets
Accrued estimated costs	$	55.4		$	48.3
Basis difference in assets and liabilities		9.7			9.3
Tax losses and credit carryforwards		40.5			67.9
Net cumulative defined benefit pension plan losses		95.7			75.5
Retiree medical and life benefits		31.0			34.3
Valuation allowance		(211.1	)		(212.5	)
Total deferred tax assets		21.2			22.8
Deferred Tax Liabilities
U.S. federal effect of state deferred taxes		15.6			17.4
Other		13.2			13.0
Total deferred tax liabilities		28.8			30.4
Total net deferred tax liabilities	$	(7.6	)	$	(7.6	)

The year of expiration for the Company’s state and U.S. federal net operating loss carryforwards as of November 30, 2011 were as follows:

Year Ending November 30,	State		Federal
	(In millions)
2013	$	0.2	$	—
2014		1.7		—
2015		24.7		—
2016		28.9		—
2017		30.0		—
2018		48.3		—
2019		105.5		—
2025		—		1.4
	$	239.3	$	1.4

Approximately $1.4 million and $5.4 million of the U.S. federal and state net operating loss carryforwards relate to the exercise of stock options, respectively, the benefit of which will be credited to equity when realized. In addition, the Company has U.S. federal and state capital loss carryforwards of approximately $6.0 million and $1.2 million, respectively, which begin expiring in fiscal 2012.

The Company also has a U.S. federal research credit carryforward of $9.9 million which begins expiring in fiscal 2021, and a California research credit carryforward of $0.7 million which has an indefinite carryforward period. Additionally, the Company has a foreign tax credit carryforward of $2.6 million which begins expiring in fiscal 2012, if not utilized. These tax carryforwards are subject to examination by the tax authorities.