Income Taxes

The effective tax rates for the Company’s continuing operations for the three and nine months ended May 31, 2011 were 34.6% and 33.5%, respectively, compared to 34.2% and 33.0%, for the same periods in the prior year.

A reconciliation of the difference between the federal statutory rate and the Company’s effective rate is as follows:



	Three Months Ended May 31,				Nine Months Ended May 31,
	2011		2010		2011		2010
Federal statutory rate	35.0	%	35.0	%	35.0	%	35.0	%
State taxes, net of credits	1.7		0.9		1.3		1.2
Foreign income taxed at different rates	(0.4	)	(1.0	)	(1.2	)	(0.8	)
Section 199 deduction	(0.3	)	(1.3	)	(0.7	)	(1.3	)
Prior year Section 199 deduction, reinstated	—		—		—		(1.2	)
Non-deductible officers’ compensation	0.3		0.9		0.3		1.0
Noncontrolling interests	(0.9	)	(0.7	)	(1.1	)	(1.1	)
Other	(0.8	)	0.4		(0.1	)	0.2
Effective tax rate	34.6	%	34.2	%	33.5	%	33.0	%

The Company files federal and state income tax returns in the United States and foreign tax returns in Puerto Rico and Canada. The federal statute of limitations has expired for fiscal 2003 and prior years, and the Company is no longer subject to state and foreign tax examinations for those years. Canadian and several state tax authorities are currently examining the Company’s income tax returns for fiscal years 2004 to 2008.

The Company currently pays a 7% tax rate on earnings in Puerto Rico. The Company is aware that regulatory agencies there are reevaluating the Company’s entitlement to a manufacturing tax exemption. While the Company currently believes it will continue to be entitled to the 7% tax rate under existing exemptions, a change in the Company’s tax exemption status could cause an increase in the tax rate on Puerto Rico earnings and in the overall effective tax rate on consolidated earnings. Based on current known facts, Management does not expect that the resolution of the issue will have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Deferred taxes included the benefits from state net operating loss carry forwards of $1 million and state tax credits of $2 million that will expire if not used between 2011 and 2023. As of May 31, 2011, the Company had a valuation allowance of $1 million for a federal capital loss carry forward and for state tax credits that are expected to expire unused in the future. Management believes it is more likely than not that the Company will generate sufficient taxable income prior to the expiration of the remaining deferred tax assets to ensure their realization.