Income Taxes

6 Months Ended

Aug. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

(13) Income Taxes

The Company’s provision for income taxes consists of federal, foreign, and state taxes necessary to align the Company’s year-to-date tax provision with the annual effective rate that it expects to achieve for the full year.  At each interim period, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments, as necessary.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act made various tax law changes, including among other things (i) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted technical corrections so that qualified improvement property can be immediately expensed under IRC Section 168(k) and net operating losses arising in tax years beginning in 2017 and ending in 2018 can be carried back two years and carried forward twenty years without a taxable income limitation as opposed to carried forward indefinitely, and (iii) made modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years. With respect to the technical correction to net operating losses, the Company recorded a discrete income tax provision of $4,275 during the six months ended August 31, 2020, as its valuation allowance related to net operating losses with limited carryforward periods increased.

For the three months ended August 31, 2020, the Company recorded an income tax provision of $2,609, which includes a discrete income tax benefit of $142 related primarily to the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations. For the three months ended August 31, 2019, the Company recorded an income tax provision of $1,115, which includes a discrete income tax benefit of $1,400. The Company recorded discrete tax benefits of $1,204 and $196 in connection with excluding the U.S. tax jurisdiction from the estimated annual effective tax rate and the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations, respectively.

The effective tax rates for the three months ended August 31, 2020 and 2019 were an income tax provision of 28.5% on pre-tax income of $9,164 and an income tax provision of 18.4% on a pre-tax loss of $6,049, respectively. The effective tax rate for the three months ended August 31, 2020 differs from the U.S. statutory rate of 21% primarily due to the anticipated reversal of a portion of the U.S. valuation allowance based on projected current year earnings, immediate U.S. taxation of foreign earnings, non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, and income taxed in foreign jurisdictions at varying tax rates. The effective tax rate for the three months ended August 31, 2019 differed from the statutory rate of 21% primarily due to the calculation of the U.S. taxation provision on a discrete basis, nondeductible permanent differences, non-controlling interest related to EyeLock LLC, an increase in the valuation allowance primarily for capital assets, state and local income taxes, and income taxed in foreign jurisdictions at varying tax rates.

For the six months ended August 31, 2020, the Company recorded an income tax provision of $4,390, which includes a discrete income tax provision of $4,151. The Company recorded a discrete tax provision of $4,275 related to an increase in valuation allowance as a result of the technical correction to net operating losses as provided in the CARES Act, and a discrete income tax benefit of $155 related to the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations, offset with a discrete tax provision of $31 related to the accrual for interest for unrecognized tax benefits. For the six months ended August 31, 2019, the Company recorded an income tax benefit of $1,530, which includes a discrete income tax benefit of $1,380. The Company recorded discrete tax benefits of $1,204 and $176 in connection with excluding the U.S. tax jurisdiction from the estimated annual effective tax rate and the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations, respectively.

The effective tax rates for the six months ended August 31, 2020 and 2019 were an income tax provision of 238.6% on pre-tax income of $1,840 and an income tax benefit of 13.8% on a pre-tax loss of $11,066, respectively. The effective tax rate for the six months ended August 31, 2020 differs from the U.S. statutory rate of 21% primarily due to the anticipated reversal of a portion of the U.S. valuation allowance based on projected current year earnings, immediate U.S. taxation of foreign earnings, non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, and income taxed in foreign jurisdictions at varying tax rates. The effective tax rate for the six months ended August 31, 2019 differed from the statutory rate of 21% primarily due to the calculation of the U.S. taxation provision on a discrete basis, nondeductible permanent differences, non-controlling interest related to EyeLock LLC, an increase in the valuation allowance primarily for capital assets, state and local income taxes, and income taxed in foreign jurisdictions at varying tax rates.

At August 31, 2020, the Company had an uncertain tax position liability of $1,094, including interest and penalties. The unrecognized tax benefits include amounts related to various U.S. federal, state and local, and foreign tax issues.