

(In thousands)		2011		2010		2009
Income before income taxes consist of the following components:
U.S. operations	$	377,922	$	315,717	$	332,863
Foreign operations		14,747		28,175		28,730

	$	392,669	$	343,892	$	361,593



(In thousands)		2011		2010		2009
Income taxes consist of the following components:
Current:
Federal	$	70,811	$	106,389	$	135,909
State and local		15,063		12,909		18,962

		85,874		119,298		154,871
Deferred		59,806		8,974		(19,635	)

	$	145,680	$	128,272	$	135,236



(In thousands)		2011			2010			2009
Reconciliation of income tax expense using the statutory rate and actual income tax expense is as follows:
Income taxes at the U.S. federal statutory rate	$	137,434		$	120,362		$	126,558
State and local income taxes, net of federal benefit		11,984			8,631			9,062
Other		(3,738	)		(721	)		(384	)

	$	145,680		$	128,272		$	135,236

The components of deferred income taxes included on the consolidated balance sheets are as follows:



(In thousands)		2011		2010
Deferred tax assets:
Allowance for doubtful accounts	$	5,630	$	4,890
Inventory obsolescence		11,204		12,381
Insurance and contingencies		19,121		16,148
Stock-based compensation		12,585		9,954
Other		15,065		20,622

		63,605		63,995
Deferred tax liabilities:
In service inventory		10,108		8,416
Property		118,413		81,634
Intangibles		77,910		65,868
State taxes and other		7,682		6,222

		214,113		162,140

Net deferred tax liability	$	150,508	$	98,145

Income taxes paid were $105.8 million, $103.8 million and $187.2 million for the fiscal years ended May 31, 2011, 2010 and 2009, respectively.

Undistributed earnings of foreign subsidiaries were approximately $222.0 million, $198.3 million and $181.6 million for the fiscal years ended May 31, 2011, 2010 and 2009, respectively, for which deferred taxes have not been provided. Such earnings are considered indefinitely invested in the foreign subsidiaries. If such earnings were repatriated, additional tax expense may result.

Accounting for uncertain tax positions requires the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Companies may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

As of May 31, 2011 and 2010, there was $18.8 million and $27.8 million, respectively, in total unrecognized tax benefits, which, if recognized, would favorably impact Cintas' effective tax rate. Cintas recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense in the consolidated statements of income, which is consistent with the recognition of these items in prior reporting periods. The total amount accrued for interest and penalties as of May 31, 2011 and 2010, was $9.1 million and $15.7 million, respectively. Cintas records this tax liability as current and long-term accrued liabilities on the consolidated balance sheets, as appropriate.

In the normal course of business, Cintas provides for uncertain tax positions and the related interest, and adjusts its unrecognized tax benefits and accrued interest accordingly. Unrecognized tax benefits related to continuing operations increased by $6.4 million in fiscal 2011, increased by $0.9 million in fiscal 2010 and decreased by $18.7 million in fiscal 2009. Accrued interest decreased by $6.6 million in fiscal 2011, decreased by less than $0.1 million in fiscal 2010 and decreased by $0.6 million in fiscal 2009.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(In thousands)
Balance at June 1, 2009	$	95,165
Additions based on tax positions related to the current year		1,528
Additions for tax positions of prior years		3,760
Settlements		(605	)
Statute expirations		(3,991	)

Balance at May 31, 2010	$	95,857
Additions for tax positions of prior years		10,529
Settlements		(2,194	)
Statute expirations		(1,093	)

Balance at May 31, 2011	$	103,099

The majority of Cintas' operations are in North America. Cintas is required to file federal income tax returns, as well as state income tax returns in a majority of the domestic states and also in certain Canadian provinces. At times, Cintas is subject to audits in these jurisdictions. The audits, by nature, are sometimes complex and can require several years to resolve. The final resolution of any such tax audit could result in either a reduction in Cintas' accruals or an increase in its income tax provision, either of which could have an impact on the consolidated results of operation in any given period.

All U.S. federal income tax returns are closed to audit through fiscal 2008. Cintas is currently in advanced stages of various audits in certain foreign jurisdictions and certain domestic states. The years under audit cover fiscal years back to 2004. Based on the resolution of the various audits and other potential regulatory developments, it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $12.8 million for the fiscal year ended May 31, 2012.