Note 11 – Income Taxes

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

For the three months ended August 31, 2017, income tax expense as a percentage of pre-tax income was 45.3%, compared to 15.9% for the same period last year, primarily due to the recognition of tax benefits from impairment charges over the course of the year in relation to pre-tax income, as opposed to the periods in which the charges were incurred. The net effect of this treatment resulted in an additional tax expense of $6.5 million in the second quarter of fiscal 2018. For the six months ended August 31, 2017, the Company has recognized $6.4 million of the expected $19.9 million tax benefit from impairment charges. The remaining tax benefit of $13.5 million will be recognized in the third and fourth quarters of fiscal 2018 relative to pre-tax income each quarter.

In addition to the tax expense of $6.5 million referred to above, income taxes for the three months ended August 31, 2017 also includes a tax benefit of $2.2 million related to the favorable resolution of an uncertain tax position. There were no comparable expenses or benefits in the same period last year.

For the six months ended August 31, 2017, income tax expense as a percentage of pre-tax income was (57.2)% compared to 10.8% for the same period last year. Income taxes for the six months ended August 31, 2017 includes:

net tax benefits of $6.4 million related to asset impairment charges, as described above;

$2.6 million in excess tax benefits from share-based compensation settlements and exercises; and

tax benefits of $2.8 million related to the resolution of uncertain tax positions.

Income taxes for the six months ended August 31, 2016 includes tax benefits of $1.4 million related the resolution of uncertain tax positions and $1.3 million in excess tax benefits from share-based compensation settlements and exercises.