Income Taxes

The effective tax rate for the Company’s operations for the three and nine months ended May 31, 2014 was a benefit of 1,182.4% and 148.1%, respectively, compared to an expense of 65.8% and 32.1%, respectively, for the three and nine months ended May 31, 2013.

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,
	2014⁽¹⁾		2013		2014⁽¹⁾		2013
Federal statutory rate	35.0	%	35.0	%	35.0	%	35.0	%
State taxes, net of credits	(38.7	)	(1.3	)	(0.3	)	(1.1	)
Foreign income taxed at different rates	197.4		41.0		10.1		14.7
Section 199 deduction	—		(10.4	)	—		(12.0	)
Non-deductible officers’ compensation	25.6		3.0		3.1		1.4
Noncontrolling interests	(105.4	)	(5.7	)	(12.9	)	(5.3	)
Research and development credits	—		(3.9	)	—		(3.7	)
Fixed asset tax basis adjustment	601.2		—		78.8		—
Tax return to provision adjustment	47.8		—		6.3		—
Valuation allowance on deferred tax assets	226.0		—		4.2		—
Unrecognized tax benefits	167.4		—		20.2		—
Other non-deductible expenses	20.2		9.3		2.5		3.4
Other	5.9		(1.2	)	1.1		(0.3	)
Effective tax rate	1,182.4	%	65.8	%	148.1	%	32.1	%

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(1)	For periods with reported pre-tax losses, the effect of reconciling items with positive signs is tax benefit in excess of the benefit calculated by applying the federal statutory rate to the pre-tax loss.

The effective tax rate for the first nine months of fiscal 2014 was impacted primarily by a discrete tax benefit of $2 million related to the adjustment of the tax basis in certain fixed assets, as well as the impact of applying a projected annual effective tax rate in excess of the federal statutory rate to the low absolute level of pre-tax results for the period. The effective tax rate for the third quarter of fiscal 2014 benefited primarily from the fixed asset tax basis adjustment of $2 million and the partial realization of previously reserved tax benefits as a result of taxable income in a foreign jurisdiction generated during the period.

The effective tax rate for the third quarter of fiscal 2013 was higher than the federal statutory rate due to the impact of the low level of pre-tax income in the quarter and lower financial performance in foreign operations, which are taxed at more favorable rates. The effective tax rate for the first nine months of fiscal 2013 also benefited from the recognition of certain discrete tax benefits of $1 million in the second quarter of fiscal 2013.

The Company will continue to regularly assess the realizability of deferred tax assets. Changes in historical earnings performance and future earnings projections, among other factors, may cause the Company to adjust its valuation allowance on deferred tax assets, which would impact its results of operations in the period it determines that these factors have changed.

The Company files federal and state income tax returns in the U.S. and foreign tax returns in Puerto Rico and Canada. The federal statute of limitations has expired for fiscal 2009 and prior years. The Canadian and several state tax authorities are currently examining returns for fiscal years 2005 to 2012.