Income Taxes (Notes)

6 Months Ended

Aug. 31, 2019

Income Taxes

The Company’s quarterly provision for income taxes is measured using an estimated annual effective tax rate, adjusted for discrete items that occur within the quarter. The following table presents income tax related items for the periods (in thousands, except percentages):



	Three Months Ended August 31,						Six Months Ended August 31,
	2019			2018			2019			2018
Income tax expense	$	2,415		$	2,738		$	8,097		$	7,169
Effective tax rate	13.4		%	19.6		%	18.0		%	21.0		%

The calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across the Company's global operations. Generally accepted accounting principles in the United States of America ("GAAP") states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. The Company may (1) record unrecognized tax benefits as liabilities in accordance with GAAP and (2) adjust these liabilities when the Company's judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

A reconciliation of the beginning and ending balance of total unrecognized tax benefits for the six months ended August 31, 2019 is as follows (in thousands):



	August 31, 2019
Balance at beginning of period	$	—
Tax positions taken in current period:
Gross increases	3,899
Balance at end of period	$	3,899

After a review of its deferred tax balances during six months ended August 31, 2019, the Company recorded unrecognized tax benefits of $3.9 million within other long-term liabilities related to the amortization of goodwill and certain book reserve balances incorrectly deducted in prior years. The amortization relates to the Company deducting more expense than permitted for tax purposes. The total unrecognized tax benefits, if recognized, would reduce income tax expense and the Company’s effective tax rate. Additionally, as a part of this review of its deferred tax balances, the Company corrected other current and deferred income tax expense amounts related to prior periods which netted to $1.4 million and were recorded as a tax benefit in the three months ended August 31, 2019.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the income tax expense. The balance in the non-current income tax payable related to penalties and interest for prior periods was $1.0 million for the three and six months ended August 31, 2019.

Certain prior year tax returns are currently being examined by taxing authorities in the United States. The Company believes that it has provided adequate reserves for its income tax uncertainties in all open tax years. As the outcome of the tax audits cannot be predicted with certainty, if any issues addressed in the Company's tax audits are resolved in a manner inconsistent with management's expectations, the Company could adjust its provision for income taxes in the future.

The Company has operations and taxable presence in multiple jurisdictions in the U.S. and outside of the U.S. in Canada, the Netherlands, China, and Brazil. The tax positions of the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions around the world. The Company currently considers U.S. federal and state and Canada, to be major tax jurisdictions. The Company’s U.S. federal and state tax returns since February 28, 2016 remain open to examination. With some exceptions, tax years prior to fiscal 2016 in jurisdictions outside of U.S. are generally closed. The statute of limitations for fiscal year end 2016 will expire in November 2019. The Company anticipates it is reasonably possible that a decrease of unrecognized tax benefits up to approximately $1.4 million may occur in the next 12 months, as the applicable statutes of limitations lapse.