Income Taxes

9 Months Ended

Nov. 30, 2012

Income Taxes

(10) Income Taxes. The Company evaluates its deferred income taxes on a quarterly basis to determine if valuation allowances are required, in full or in part. This includes considering available positive and negative evidence, such as past operating results, the existence of cumulative losses in the most recent fiscal years and our forecast of future taxable income on a jurisdiction-by-jurisdiction basis. In determining future taxable income, we review the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. At November 30, 2012, MSC had valuation allowances relating to certain state net operating losses.

The Company does not anticipate that the total amount of unrecognized tax benefits of $0.6 million at November 30, 2012, will significantly change during the next 12 months.

For the three and nine months ended November 30, 2012, MSC’s effective income tax rate for continuing operations was an expense of 9.4% and 30.5%, respectively, compared with an expense of 10.3% and 5.9%, respectively in the same periods last year. The low rates in the periods ended November 30, 2011, are due to the utilization of deferred tax assets—principally AMT credits—while having a valuation allowance on the related deferred tax assets. The rate in the three months ended November 30, 2012, is lower than in the first two quarters of fiscal 2013 primarily due to the recognition of previously unrecognized tax benefits, as well as adjustments from finalizing the computation of the income tax liability for the year ended February 29, 2012. We were able to recognize the previously unrecognized tax benefits because the tax years in which they were generated are no longer subject to audit.