Note 11 – Income Taxes

Income tax expense for the three- and six-months ended August 31, 2016 was 15.9 and 10.8 percent of income before income taxes, respectively, compared to 18.2 and 16.4 percent, respectively, for the same periods last year. The year-over-year decrease in our effective tax rate was primarily due to:

a $1.40 million tax benefit recorded in the fiscal quarter ended May 31, 2016 related to the resolution of uncertain tax positions; and

$0.23 and $1.34 million in tax benefits, respectively, for the three- and six-months ended August 31,

2016, resulting from the recognition of excess tax benefits from share-based compensation in income tax expense rather than paid-in capital. This was due to our adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” Note 2 to these consolidated condensed financial statements provides further information regarding the impact of this recent accounting change.

Our tax rates are also impacted by the mix of taxable income in our various tax jurisdictions. Due to the Company’s organization in Bermuda and the ownership structure of its foreign subsidiaries, many of which are not owned directly or indirectly by a U.S. parent company, an immaterial amount of the Company’s foreign income is subject to U.S. taxation on a permanent basis under current law. Additionally, the Company’s intellectual property is largely owned by foreign subsidiaries of the Company, resulting in proportionally higher earnings in jurisdictions with lower statutory tax rates, which decreases the Company’s overall effective tax rate.