NOTE 18 – INCOME TAXES

Income from continuing operations before income taxes:


	2013			2012		2011
United States	$	88,405		$	73,811	$	135,859
International		(2,491	)		24,004		20,148

	$	85,914		$	97,815	$	156,007

Income tax expense from the Corporation’s continuing operations has been provided as follows:


	2013		2012		2011
Current:
Federal	$	6,007	$	6,793	$	23,263
International		839		8,767		8,980
State and local		1,620		9,666		8,104

		8,466		25,226		40,347
Deferred		27,530		15,391		28,642

	$	35,996	$	40,617	$	68,989

Reconciliation of the Corporation’s income tax expense from continuing operations from the U.S. statutory rate to the actual effective income tax rate is as follows:


	2013			2012			2011
Income tax expense at statutory rate	$	30,070		$	34,235		$	54,602
State and local income taxes, net of federal tax benefit		3,638			3,870			5,568
Corporate-owned life insurance		(1,682	)		(726	)		(1,909	)
International items, net of foreign tax credits		1,880			135			697
Accruals and settlements		233			4,031			8,866
Other		1,857			(928	)		1,165

Income tax at effective tax rate	$	35,996		$	40,617		$	68,989

During 2012, of the $27,154 goodwill impairment charge, $5,900 had no tax basis, and therefore, is permanently nondeductible. The effect of this is included in the “International items, net of foreign tax credits” line above.

During 2011, estimated accruals and settlements increased because the Corporation received new information associated with anticipated settlements related to open years which were under examination.

Income taxes paid from continuing operations were $25,925 in 2013, $30,420 in 2012 and $23,519 in 2011.

Significant components of the Corporation’s deferred tax assets and liabilities are as follows:


	February 28, 2013			February 29, 2012
Deferred tax assets:
Employee benefit and incentive plans	$	63,889		$	65,897
Goodwill and other intangible assets		52,054			56,720
Net operating loss carryforwards		26,255			26,185
Reserves not currently deductible		24,271			27,675
Foreign tax credit carryforwards		15,177			25,957
Accrued expenses deductible as paid		11,713			5,473
Deferred capital loss		4,309			2,124
Inventory costing		4,287			2,194
Deferred revenue		2,439			6,501
Other (each less than 5 percent of total assets)		10,042			13,412

		214,436			232,138
Valuation allowance		(16,713	)		(14,504	)

Total deferred tax assets		197,723			217,634
Deferred tax liabilities:
Property, plant and equipment		47,744			37,640
Other		5,177			2,402

Total deferred tax liabilities		52,921			40,042

Net deferred tax assets	$	144,802		$	177,592

Net deferred tax assets are included on the Consolidated Statement of Financial Position in the following captions:


	February 28, 2013			February 29, 2012
Deferred and refundable income taxes (current)	$	54,351		$	57,450
Deferred and refundable income taxes (noncurrent)		91,401			121,056
Deferred income taxes and noncurrent income taxes payable		(950	)		(914	)

Net deferred tax assets	$	144,802		$	177,592

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases as well as from net operating loss and tax credit carryforwards, and are stated at tax rates expected to be in effect when taxes are actually paid or recovered. Deferred income tax assets represent amounts available to reduce income tax payments in future years.

The Corporation periodically reviews the need for valuation allowances against deferred tax assets and recognizes these deferred tax assets to the extent that realization is more likely than not. Based upon a review of earnings history and trends, forecasted earnings and the relevant expiration of carryforwards, the Corporation believes that the valuation allowances provided are appropriate. At February 28, 2013, the valuation allowance of $16,713 related principally to certain international and domestic net operating loss carryforwards and deferred capital losses.

At February 28, 2013, the Corporation had deferred tax assets of approximately $5,092 for international net operating loss carryforwards, of which $3,835 have no expiration dates and $1,257 have expiration dates ranging from 2028 through 2032. In addition, the Corporation had deferred tax assets related to domestic net operating loss, state net operating loss, charitable contribution and foreign tax credit (“FTC”) carryforwards of approximately $13,504, $7,659, $9 and $15,177, respectively. The federal net operating loss carryforwards have expiration dates ranging from 2020 to 2028. The state net operating loss carryforwards have expiration dates ranging from 2013 to 2033. The charitable contribution carryforward has an expiration date of 2015. The FTC carryforwards have expiration dates ranging from 2016 to 2022.

Deferred taxes have not been provided on approximately $57,358 of undistributed earnings of international subsidiaries since substantially all of these earnings are necessary to meet their business requirements. It is not practicable to calculate the deferred taxes associated with these earnings; however, foreign tax credits would be available to reduce federal income taxes in the event of distribution.

At February 28, 2013, the Corporation had unrecognized tax benefits of $21,659 that, if recognized, would have a favorable effect on the Corporation’s income tax expense of $18,515 compared to unrecognized tax benefits of $30,360 that, if recognized, would have a favorable effect on the Corporation’s income tax expense of $19,160 at February 29, 2012. It is reasonably possible that the Corporation’s unrecognized tax positions as of February 28, 2013 could decrease approximately $3,106 during 2014 due to anticipated settlements and resulting cash payments related to open years after 1996, which are currently under examination.

The following chart reconciles the Corporation’s total gross unrecognized tax benefits for the years ended February 28, 2013, February 29, 2012 and February 28, 2011:


	2013			2012			2011
Balance at beginning of year	$	30,360		$	43,323		$	45,661
Additions based on tax positions related to current year		—			270			2,177
Additions for tax positions of prior years		2,106			5,404			1,239
Reductions for tax positions of prior years		(184	)		(8,959	)		(2,405	)
Settlements		(9,122	)		(9,444	)		(2,972	)
Statute lapse		(1,501	)		(234	)		(377	)

Balance at end of year	$	21,659		$	30,360		$	43,323

The Corporation recognizes interest and penalties accrued on unrecognized tax benefits and income taxes as a component of income tax expense. During the year ended February 28, 2013, the Corporation recognized a net expense of $432 for interest and penalties on unrecognized tax benefits and income taxes. As of February 28, 2013, the total amount of gross accrued interest and penalties related to unrecognized tax benefits and income taxes netted to a payable of $3,835. During the year ended February 29, 2012, the Corporation recognized a net expense of $6,530 for interest and penalties related to unrecognized tax benefits and refundable income taxes. As of February 29, 2012, the total amount of gross accrued interest and penalties related to unrecognized tax benefits and income taxes netted to a payable of $8,558.

The Corporation is subject to examination by the IRS for tax years 2010 to the present and various U.S. state and local jurisdictions for tax years 1996 to the present. The Corporation is also subject to tax examination in various international tax jurisdictions, including Canada, the United Kingdom, Australia, Italy, Mexico and New Zealand for tax years 2006 to the present.