Income Taxes

6 Months Ended

May 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

On December 22, 2017, U.S. federal tax legislation, commonly referred to as the Tax Cuts and Job Act (the “Tax Act”) was signed into law which, among other changes: reduced the U.S. corporate income tax rate effective January 1, 2018 from 35% to 21%; repealed the Alternative Minimum Tax (“AMT”); imposed a one-time transition tax on accumulated foreign earnings not previously subject to U.S. taxation; provides a U.S. federal tax exemption on future distributions of foreign earnings; and beginning in fiscal 2019, creates a new minimum tax on certain foreign-sourced earnings.

The Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries. Potential impacts of GILTI can either be treated as a period expense in the period incurred or considered in the determination of the Company’s deferred tax balances. The Company will account for GILTI in the year the tax is incurred as a period cost.

At November 30, 2018, the Company had provisionally estimated minimal income inclusion for the transition tax related to foreign earnings on which U.S. income taxes were previously deferred. As permitted under SAB 118 guidance, the Company adjusted the income inclusion related to transition tax to $27.7 million during the first quarter of 2019. The adjustment was the result of additional analysis, changes in interpretation and assumptions, as well as additional regulatory guidance that was issued subsequent to the Tax Act enactment. The Company completed the analysis of the impact of the Tax Act in accordance with SAB 118 and the amount is no longer considered provisional. The Company intends to utilize existing net operating loss carryforwards ("NOLC's") to offset the income inclusion, and therefore will have no cash taxes related to the transition tax.

The Company recorded income tax expense of $1.6 million and $2.5 million for the three months ended May 31, 2019 and 2018, respectively and income tax expense of $0.8 million and income tax benefit of $2.6 million for the six months ended May 31, 2019 and 2018, respectively. The Company’s effective tax rate for the second quarter of 2019 was similar to the U.S. federal statutory tax rate of 21%. The Company’s effective tax rate for the second quarter of 2018 was similar to the U.S. blended federal statutory tax rate of 22.2%. The Company's effective tax rate for the first six months of 2019 was different than the U.S. federal statutory tax rate primarily due to losses in jurisdictions in which no tax benefit was recognized. The Company's effective tax rate for the first six months of 2018 was different than its U.S. federal statutory rate primarily due to discrete items related to the Tax Act. These items included a $4.1 million income tax benefit related to the re-measurement of the U.S. deferred taxes as the U.S. federal tax rate was reduced from 35.0% to 21.0% and a $0.9 million income tax benefit associated with the reversal of the valuation allowance against the existing AMT credit carryforward as it is refundable under the Tax Act. In addition, during the first quarter of 2018, the Company recognized a $0.8 million income tax benefit related to the impact of a French tax rate change on the Company’s deferred tax liabilities. The French tax rate was reduced to 25.0% beginning in 2022 and the Company's deferred tax liabilities were reduced to appropriately reflect this legislation as a current period tax benefit. These discrete tax benefits were partially offset by losses in jurisdictions in which no tax benefit was recognized.

As of May 31, 2019, the Company has $65.4 million of U.S. federal NOLC's, $8.1 million of U.S. federal capital loss carryforwards, $0.1 million of foreign tax credit carryforwards, $0.3 million of AMT credit carryforwards, and $78.9 million of state NOLC's. The $65.4 million of U.S. NOLC's reflects the impact of the $27.7 million utilization for transition tax as part of U.S. tax reform. Due to the NOLC's, cash tax payments in the U.S. are expected to be minimal for the foreseeable future. The majority of the federal, state, and local NOLC's will expire in tax years 2024 through 2034 while the foreign tax credit carryforwards will expire in the tax years 2020 through 2022, and the capital loss carryforwards will expire beginning in tax year 2022. The Company has a valuation allowance against the U.S. federal and state NOLC's and the U.S. federal capital loss carryforward. As of May 31, 2019, the Company had approximately $52.2 million of foreign NOLC's of which $32.1 million

have an indefinite carryforward period. The Company has recognized a valuation allowance against the $32.1 million foreign NOLC's which have an indefinite carryforward period as the Company does not anticipate utilizing these carryforwards.

The Company operates in numerous taxing jurisdictions and is subject to regular examinations by various tax authorities. With limited exceptions, the Company is no longer open to audits by U.S. and foreign jurisdictions for years prior to 2014.