Income Taxes |
9 Months Ended |
|---|---|
Feb. 29, 2016 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes |
INCOME TAXES
Income tax expense (benefit) is recognized based on management’s best estimate of the annual effective income tax rate expected for the full fiscal year applied to income (loss) before income taxes of the interim period. Deferred tax assets are recorded to the extent the Company believes these assets are more likely than not to be realized. In evaluating its ability to realize the tax benefits associated with deferred tax assets, the Company considers all available positive and negative evidence, including historical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry-back years and the availability of tax planning strategies. A valuation allowance is provided against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
During the three months ended February 29, 2016, the Company’s operating losses were greater than anticipated. As a result of the operating loss, the Company entered into a three-year cumulative loss position for certain taxable jurisdictions during the third quarter of fiscal 2016. After consideration of these factors and an evaluation of all positive and negative evidence, the Company has determined that it is more likely than not that it will not be able to realize the benefits of its deferred tax assets. Accordingly, at February 29, 2016, the Company recorded an incremental charge of $19,227 to establish a full valuation allowance against the impacted deferred tax assets, including net operating loss carryforwards that expire at various dates in the next 17 years. Realization of the Company’s deferred tax assets is dependent on generating sufficient taxable income in future years. These events and circumstances contributed to the Company recording income tax expense for the three and nine months ended February 29, 2016, despite incurring pre-tax losses in those periods of $177,335 and $186,694, respectively.
Income tax expense for the three and nine months ended February 29, 2016 was $10,722 and $10,217, respectively. Income tax expense for both periods was comprised primarily of discrete items, including a $19,227 expense to record a valuation allowance on deferred tax assets, partially offset by a benefit of $6,131 on impairment expense and a benefit of $3,051 for the amount of tax recoverable by carryback of the current year’s loss to prior years.
Income tax benefit for the three months ended February 28, 2015 was $2,071 on a pre-tax loss of $14,535, for an effective tax rate (“ETR”) of 14.2%. The relatively low ETR was primarily due to unrealized capital losses for which no tax benefit could be recognized. Income tax expense for the nine months ended February 28, 2015 was $3,665 on pre-tax income of $2,979, for an ETR of 123.0%. The high ETR was primarily due to unrealized capital losses for which no tax benefit could be recognized.
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