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Income Taxes
 9 Months Ended
May 31, 2012
Income Taxes [Abstract]  
Income Taxes

Note 13. Income Taxes

The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

The provision for income taxes was 29.0% and 31.4% of income before income taxes for the three months ended May 31, 2012 and 2011, respectively. The decrease in the effective income tax rate from period to period was primarily driven by the addition of an uncertain tax position liability during the third quarter of fiscal year 2011 associated with the Company’s foreign operations. No such uncertain tax position liability was recorded in the third quarter of the current fiscal year. Also contributing to the overall decrease in the effective income tax rate from period to period was a decrease in the effective state tax rates in specific states, primarily in California due to a recent change in state tax law, and a continuing shift in the Company’s net income from the U.S. to certain foreign jurisdictions with lower tax rates, primarily the United Kingdom.

 

The provision for income taxes was 29.3% and 32.0% of income before income taxes for the nine months ended May 31, 2012 and 2011, respectively. The decrease in the effective income tax rate from period to period was primarily driven by a decrease in the effective state tax rates in specific states, primarily in California due to a recent change in state tax law. The nonrecurring addition of an uncertain tax position liability during the third quarter of fiscal year 2011 associated with the Company’s foreign operations and a continuing shift in the Company’s net income from the U.S. to certain foreign jurisdictions with lower tax rates, primarily the U.K., also caused the effective income tax rate to be lower for the nine months ended May 31, 2012 as compared to the same time period in the prior fiscal year.

The total amount of unrecognized tax benefits was $0.8 million as of May 31, 2012 and $1.4 million as of August 31, 2011, of which $0.5 million and $1.0 million, respectively, would impact the effective tax rate if recognized. The gross liability for income taxes related to unrecognized tax benefits is included in other long-term liabilities in the Company’s condensed consolidated balance sheets.

The total balance of accrued interest and penalties related to uncertain tax positions was $0.3 million and $0.4 million as of May 31, 2012 and August 31, 2011, respectively. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense and the accrued interest and penalties are included in deferred and other long-term liabilities in the Company’s condensed consolidated balance sheets. There were no material interest or penalties included in income tax expense for each of the three and nine months ended May 31, 2012 and 2011.

During the three and nine months ended May 31, 2012, the Company released a portion of its reserve for uncertain tax positions and recorded on the condensed consolidated balance sheets a tax benefit, excluding interest, of $0.2 million and $0.7 million, respectively, associated primarily with the expiration of the statute of limitations for years in which the Company had recorded a reserve for uncertain tax positions. This benefit was partially offset by a charge to tax expense for $0.1 million, excluding interest, relating to a reserve for uncertain tax positions in the current fiscal year. The Company has accordingly reduced the tax liability on the condensed consolidated balance sheets and recorded a net benefit of $0.1 million and $0.5 million, excluding interest, for its net change in uncertain tax positions for the three and nine month periods ended May 31, 2012, respectively.

During the three and nine months ended May 31, 2012, the Company recognized net tax benefits, including interest, of $0.2 million and $0.7 million, respectively, in its condensed consolidated statements of operations primarily due to the expiration of statutes in certain foreign and state jurisdictions.

The Company is subject to taxation in the U.S. and in various state and foreign jurisdictions. Due to expired statutes, the Company’s federal income tax returns for years prior to fiscal year 2009 are not subject to examination by the U.S. Internal Revenue Service. Generally, for the majority of state and foreign jurisdictions where the Company does business, periods prior to fiscal year 2008 are no longer subject to examination. The Company is currently under audit in state jurisdictions for fiscal years 2008 through 2011. The Company has estimated that up to $0.2 million of unrecognized tax benefits related to income tax positions may be affected by the resolution of tax examinations or expiring statutes of limitation within the next twelve months. Audit outcomes and the timing of settlements are subject to significant uncertainty.