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Income Taxes | 12 Months Ended
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Aug. 31, 2020
Income Taxes [Abstract] |
Income Taxes | ﻿ ﻿ 14.INCOME T AXES ﻿ Our provision for income taxes consisted of the following (in thousands):
﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿YEAR ENDED |  |  |  |  |  |
﻿AUGUST 31, |  | 2020 |  | 2019 |  | 2018
﻿Current: |  |  |  |  |  |
﻿Federal | $ | (15) | $ | 93 | $ | 29
﻿State |  | (87) |  | (14) |  | 210
﻿Foreign |  | (1,145) |  | (2,745) |  | (2,947)
﻿ |  | (1,247) |  | (2,666) |  | (2,708)
﻿ |  |  |  |  |  |
﻿Deferred: |  |  |  |  |  |
﻿Federal |  | 2,306 |  | 3,112 |  | 1,426
﻿State |  | 98 |  | 102 |  | (314)
﻿Foreign |  | (77) |  | (120) |  | (281)
﻿Operating loss carryforward |  | (50) |  | (1,625) |  | 2,636
﻿Adjustment for changes in U.S. |  |  |  |  |  |
﻿ income tax rates |  | - |  | - |  | 1,654
﻿Valuation allowance |  | (11,261) |  | (418) |  | (2,780)
﻿ |  | (8,984) |  | 1,051 |  | 2,341
﻿ | $ | (10,231) | $ | (1,615) | $ | (367)
﻿ The allocation of our total income tax provision is as follows (in thousands):
﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿YEAR ENDED |  |  |  |  |  |
﻿AUGUST 31, |  | 2020 |  | 2019 |  | 2018
﻿Net loss | $ | (10,231) | $ | (1,615) | $ | (367)
﻿Other comprehensive income (loss) |  | 16 |  | (5) |  | (75)
﻿ | $ | (10,215) | $ | (1,620) | $ | (442)
﻿ Income (loss) before income taxes consisted of the following (in thousands):
﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿YEAR ENDED |  |  |  |  |  |
﻿AUGUST 31, |  | 2020 |  | 2019 |  | 2018
﻿United States | $ | 3,062 | $ | (1,910) | $ | (8,960)
﻿Foreign |  | (2,266) |  | 2,502 |  | 3,440
﻿ | $ | 796 | $ | 592 | $ | (5,520)
﻿ The differences between income taxes at the statutory federal income tax rate and the consolidated income tax rate reported in our consolidated statements of operations and comprehensive loss were as follows: ﻿
﻿ |  |  |
YEAR ENDED AUGUST 31, | 2020 | 2019 | 2018
﻿Federal statutory income tax rate | (21.0)% | (21.0)% | 25.7%
﻿State income taxes, net of federal effect | 16.9 | (5.4) | 2.6
﻿Effect of change in U.S. federal tax rate | - | - | 30.0
﻿Valuation allowance | (1,412.9) | (70.8) | (50.4)
﻿Executive stock options | 199.9 | - | -
﻿Foreign jurisdictions tax differential | 1.4 | (72.8) | (6.8)
﻿Tax differential on income subject to both U.S. and foreign taxes | 11.9 | (64.7) | 2.3
﻿Uncertain tax positions | 13.8 | 34.0 | (5.1)
﻿Non-deductible executive compensation | (18.2) | (8.8) | (2.7)
﻿Non-deductible meals and entertainment | (22.3) | (52.9) | (8.9)
﻿Payout of deferred compensation (NQDC) | 6.1 | 0.3 | 4.4
﻿Other | (59.3) | (10.7) | 2.2
﻿ | (1,283.7)% | (272.8)% | (6.7)%
﻿ Due to the near break-even amount of pre-tax income during fiscal 2020 and 2019, the effect of non-temporary items on our effective income tax rate was greatly amplified. ﻿ In consideration of the relevant accounting guidance, we reevaluated our deferred tax assets during fiscal 2020 and considered both positive and negative evidence in determining whether it is more likely than not that some portion or all of our deferred tax assets will be realized. Because of the cumulative pre-tax losses over the past three fiscal years, combined with the expected continued disruptions and negative impact to our business resulting from uncertainties related to the recovery from the pandemic, we were unable to overcome accounting guidance indicating that it is more-likely-than-not that insufficient taxable income will be available to realize all of our deferred tax assets before they expire, primarily foreign tax credit carryforwards and a portion of our net operating loss carryforwards. Based on this assessment, we increased the valuation allowance against our deferred tax assets, which generated $11.3 million of additional income tax expense in fiscal 2020. ﻿ The Tax Cut and Jobs Act (the 2017 Tax Act) was signed into law on December 22, 2017. The 2017 Tax Act significantly revised the U.S. corporate income tax code by, among other things, lowering the statutory corporate tax rate from 35 percent to 21 percent; eliminating certain deductions; imposing a mandatory one-time transition tax, or deemed repatriation tax, on accumulated earnings of foreign subsidiaries as of 2017 that were previously tax deferred; introducing new tax regimes; and changing how foreign earnings are subject to U.S. tax. ﻿ Since we have an August 31 fiscal year end, the lower corporate income tax rate was phased in, resulting in a U.S. statutory federal rate of 25.7 percent for fiscal 2018 and a 21 percent rate for fiscal 2019 and subsequent years. Other provisions of the 2017 Tax Act became effective for us in fiscal 2019, including limitations on the deductibility of interest and executive compensation as well as anti-deferral provisions on Global Intangible Low-Taxed Income (GILTI). We have elected to treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost method”). ﻿ In fiscal 2020, we recorded $0.2 million of income tax expense resulting from limitations added by the 2017 Tax Act on the deductibility of executive compensation. Because of losses in foreign jurisdictions, we recorded no income tax expense in fiscal 2020 under the GILTI provisions. During fiscal 2019, we recorded income tax expense of $0.3 million under the GILTI provisions. We recorded $0.1 million of tax expense resulting from limitations added by the 2017 Tax Act on the deductibility of executive compensation. ﻿ In fiscal 2018, we recorded income tax benefits totaling $1.7 million, including a one-time income tax benefit of $0.9 million as of the date of enactment. We recognized $0.8 million of the one-time benefit from re-measuring our net deferred tax liabilities at the reduced U.S. federal tax rate and $0.2 million of the benefit from other changes enacted by the 2017 Tax Act. These benefits were partially offset by $0.1 million of expense from the deemed repatriation of accumulated earnings from our foreign subsidiaries. ﻿ On September 1, 2017, we adopted the provisions of ASU 2016-09, which requires that the benefits of deductions resulting from stock-based compensation in excess of the corresponding book expense be recorded as a component of our income tax provision or benefit for the period, instead of being recorded to additional paid-in capital. In fiscal 2020, as a result of our CEO and CFO’s exercise of stock options, we recorded an income tax benefit of $1.8 million for stock-based compensation deductions that were greater than the corresponding book expense. We recorded income tax expense of $0.1 million in fiscal 2019 and an immaterial amount of income tax expense in fiscal 2018 for stock-based compensation deductions that were less than the corresponding book expense. ﻿ The significant components of our deferred tax assets and liabilities were as follows (in thousands):
﻿ |  |  |  |
﻿ |  |  |  |
﻿AUGUST 31, |  | 2020 |  | 2019
﻿Deferred income tax assets: |  |  |  |
﻿Foreign income tax credit |  |  |  |
﻿carryforward | $ | 9,150 | $ | 8,140
﻿Net operating loss carryforward |  | 7,694 |  | 7,516
﻿Sale and financing of corporate |  |  |  |
﻿headquarters |  | 3,939 |  | 4,431
﻿Bonus and other accruals |  | 1,607 |  | 1,622
﻿Stock-based compensation |  | 1,431 |  | 1,973
﻿Inventory and bad debt reserves |  | 1,328 |  | 1,376
﻿Deferred revenue |  | 1,268 |  | 829
﻿Other |  | 530 |  | 264
﻿Total deferred income tax assets |  | 26,947 |  | 26,151
﻿Less: valuation allowance |  | (15,076) |  | (3,815)
﻿Net deferred income tax assets |  | 11,871 |  | 22,336
﻿ |  |  |  |
﻿Deferred income tax liabilities: |  |  |  |
﻿Intangibles step-ups – indefinite lived |  | (5,494) |  | (5,424)
﻿Intangibles step-ups – finite lived |  | (2,786) |  | (3,406)
﻿Intangible asset impairment and |  |  |  |
﻿amortization |  | (3,306) |  | (2,906)
﻿Deferred commissions |  | (2,231) |  | (2,056)
﻿Property and equipment depreciation |  | (1,904) |  | (2,880)
﻿Unremitted earnings of foreign |  |  |  |
﻿subsidiaries |  | (354) |  | (456)
﻿Other |  | - |  | (343)
﻿Total deferred income tax liabilities |  | (16,075) |  | (17,471)
﻿Net deferred income taxes | $ | (4,204) | $ | 4,865
﻿ Deferred income tax amounts are recorded as follows in our consolidated balance sheets (in thousands):
﻿ |  |  |  |
﻿ |  |  |  |
﻿AUGUST 31, |  | 2020 |  | 2019
﻿Long-term assets | $ | 1,094 | $ | 5,045
﻿Long-term liabilities |  | (5,298) |  | (180)
﻿ Net deferred income tax asset (liability) | $ | (4,204) | $ | 4,865
﻿ Our U.S. federal net operating loss carryforwards were comprised of the following at August 31, 2020 (in thousands): ﻿
﻿ |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |
﻿ |  | Loss Carryforward |  |  |  | Loss |  | Loss |  | Operating
﻿Loss Carryforward |  | Expires |  |  |  | Deductions |  | Deductions |  | Loss Carried
﻿for Year Ended |  | August 31, |  | Amount |  | in Prior Years |  | in Current Year |  | Forward
﻿December 31, 2014 |  | 2033 | $ | 1,285 | $ | (1,019) | $ | (266) | $ | -
﻿December 31, 2015 |  | 2034 |  | 1,491 |  | - |  | (580) |  | 911
﻿December 31, 2016 |  | 2035 |  | 3,052 |  | - |  | - |  | 3,052
﻿July 15, 2017 |  |  |  |  |  |  |  |  |  |
﻿ Acquired NOL |  | 2036 |  | 1,117 |  | - |  | - |  | 1,117
﻿ |  |  |  | 6,945 |  | (1,019) |  | (846) |  | 5,080
﻿August 31, 2017 |  | 2037 |  | 16,361 |  | (6,627) |  | (1,366) |  | 8,368
﻿August 31, 2018 |  | 2038 |  | 10,506 |  | - |  | - |  | 10,506
﻿ |  |  | $ | 33,812 | $ | (7,646) | $ | (2,212) | $ | 23,954
﻿ We have U.S. state net operating loss carryforwards generated in fiscal 2009 and before in various jurisdictions that expire primarily between September 1, 20 20 and August 31, 2029. The U.S. state net operating loss carryforwards generated in fiscal 2017 and fiscal 2018 primarily expire on August 31, 2037 and 2038, respectively. The state net operating loss carryforwards acquired through the purchase of Jhana Education stock expire between August 31, 203 3 and August 31, 2036. ﻿ Our U.S. foreign income tax credit carryforwards were comprised of the following at August 31, 2020 (in thousands): ﻿
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﻿ |  |  |  |  |  |  |  |  |  |
﻿Credit Generated in |  |  |  |  |  | Credits Used |  | Credits Used |  | Credits
﻿Fiscal Year Ended |  | Credit Expires |  | Credits |  | in Prior |  | in Current |  | Carried
﻿August 31, |  | August 31, |  | Generated |  | Years |  | Year |  | Forward
﻿2011 |  | 2021 | $ | 3,445 | $ | (414) | $ | - | $ | 3,031
﻿2012 |  | 2022 |  | 2,563 |  | (2,563) |  | - |  | -
﻿2013 |  | 2023 |  | 2,815 |  | (2,815) |  | - |  | -
﻿2014 |  | 2024 |  | 1,378 |  | (1,378) |  | - |  | -
﻿2015 |  | 2025 |  | 1,422 |  | (1,422) |  | - |  | -
﻿2016 |  | 2026 |  | 1,569 |  | (1,569) |  | - |  | -
﻿2017 |  | 2027 |  | 1,804 |  | - |  | - |  | 1,804
﻿2018 |  | 2028 |  | 1,727 |  | - |  | - |  | 1,727
﻿2019 |  | 2029 |  | 1,578 |  | - |  | - |  | 1,578
﻿2020 |  | 2030 |  | 1,010 |  | - |  | - |  | 1,010
﻿ |  |  | $ | 19,311 | $ | (10,161) | $ | - | $ | 9,150
﻿ In fiscal 2020, we in creased our valuation allowance on our deferred income tax assets as previously explained. During fiscal 2019, we determined that it was more likely than not that deferred income tax assets of certain foreign sub sidiaries would not be realized and we increased the valuation allowance accordingly. In fiscal 2018, we established a valuation allowance of $3.0 million against our foreign tax credit carryforward from fiscal 2011, after concluding it is more likely than not that the carryforward will expire unused at the end of fiscal 2021. Our emphasis of the All Access Pass has generated, and will likely continue to generate, substantial amounts of deferred revenue for both book and tax purposes. This situation has produced a cumulative U.S. domestic pre-tax loss for the past three fiscal years and a more-likely-than-not presumption that insufficient taxable income will be available to realize the fiscal 2011 foreign tax carryforward, which expires at the end of fiscal 2021. ﻿ Activity in our deferred income tax asset valuation allowance was as follows for the periods indicated (in thousands): ﻿
﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿YEAR ENDED |  |  |  |  |  |
﻿AUGUST 31, |  | 2020 |  | 2019 |  | 2018
﻿Beginning balance | $ | 3,815 | $ | 3,397 | $ | 612
﻿Charged to costs and expenses |  | 11,269 |  | 663 |  | 3,035
﻿Deductions |  | (8) |  | (245) |  | (250)
﻿Ending balance | $ | 15,076 | $ | 3,815 | $ | 3,397
﻿ Except for the deferred tax assets subject to valuation allowances, we have determined that projected future taxable income is adequate to allow for realization of all deferred tax assets. We considered sources of taxable income, including reversals of taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, and reasonable, practical tax-planning strategies to generate additional taxable income. Based on the factors described above, we concluded that realization of our deferred tax assets, except those subject to the valuation allowances described above, is more likely than not at August 31, 2020. ﻿ A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
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﻿ |  |  |  |  |  |
﻿YEAR ENDED |  |  |  |  |  |
﻿AUGUST 31, |  | 2020 |  | 2019 |  | 2018
﻿Beginning balance | $ | 1,895 | $ | 2,111 | $ | 2,359
﻿Additions based on tax positions |  |  |  |  |  |
﻿related to the current year |  | 172 |  | 157 |  | 27
﻿Additions for tax positions in |  |  |  |  |  |
﻿prior years |  | 10 |  | 7 |  | 367
﻿Reductions for tax positions of prior |  |  |  |  |  |
﻿years resulting from the lapse of |  |  |  |  |  |
﻿applicable statute of limitations |  | (289) |  | (370) |  | (253)
﻿Other reductions for tax positions of |  |  |  |  |  |
﻿prior years |  | (148) |  | (10) |  | (389)
﻿Ending balance | $ | 1,640 | $ | 1,895 | $ | 2,111
﻿ The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $1.3 million at August 31, 2020, and $1.6 million at August 31, 2019. Included in the ending balance of gross unrecognized tax benefits at August 31, 2020 is $1.6 million related to individual states’ net operating loss carryforwards. Interest and penalties related to uncertain tax positions are recognized as components of income tax expense. The net accruals and reversals of interest and penalties increased or decreased our income tax expense by an insignificant amount in each of fiscal 2020, fiscal 2019, and fiscal 2018. The balance of interest and penalties included in other long-term liabilities on our consolidated balance sheets at each of August 31, 2020 and 201 9 was $0.2 million. ﻿ During the next 12 months, we expect a decrease in unrecognized tax benefits totaling $0.1 million relating to non-deductible expenses and state net operating loss deductions upon the lapse of the applicable statute of limitations. ﻿ We file United States federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The tax years that remain subject to examinations for our major tax jurisdictions are shown below. ﻿
﻿ 20 13-2020 | Canada and Australia
2014-2020 | Japan
201 5-2020 | Germany, Switzerland, and Austria
2016-2020 | China
2016-2020 | United Kingdom, Singapore
2016-2020 | United States – state and local income tax
201 7-2020 | United States – federal income tax
﻿

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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