Income Taxes

12 Months Ended

Feb. 26, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Earnings before income taxes consisted of the following:

(In thousands)	2022		2021		2020
United States	$	70,039	$	45,651	$	97,297
International	(56,170)		(23,040)		(17,547)
Earnings before income taxes	$	13,869	$	22,611	$	79,750

The components of income tax expense for each of the last three fiscal years are as follows:

(In thousands)	2022		2021		2020
Current
Federal	$	13,806	$	11,495	$	8,493
State and local	4,823		702		2,064
International	39		1,642		(2,720)
Total current	18,668		13,839		7,837
Deferred
Federal	(1,528)		(2,860)		9,513
State and local	(4,270)		538		2,152
International	(2,158)		(4,138)		(1,202)
Total deferred	(7,956)		(6,460)		10,463
Total non-current tax (benefit) expense	(329)		(204)		(464)
Total income tax expense	$	10,383	$	7,175	$	17,836

Income tax payments, net of refunds, were $8.2 million, $14.1 million and $17.8 million in fiscal 2022, 2021 and 2020, respectively.

The following table provides a reconciliation of the statutory federal income tax rate to our consolidated effective tax rates:

	2022		2021		2020
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
State and local income taxes, net of federal tax benefit	16.4		(2.5)		1.8
Foreign tax rate differential	(15.4)		(3.4)		(1.3)
Nondeductible goodwill impairment expense	—		5.6		—
Valuation allowance	63.2		11.4		2.2
Nontaxable gain (loss) on life insurance policies	1.2		(1.8)		(0.4)
Deduction for foreign derived intangible income	(2.6)		(0.8)		(0.3)
Research & development tax credit	(9.4)		(5.3)		(1.6)
§162(m) Executive Compensation Limitation	3.5		3.6		0.3
Tax benefit of share based awards	(5.2)		0.2		0.2
Other, net	2.2		3.7		0.5
Consolidated effective income tax rate	74.9	%	31.7	%	22.4	%

The estimated effective tax rate for fiscal 2022 increased 43.2 percentage points from fiscal 2021, primarily due to the valuation allowance recorded against the tax benefit of the Sotawall impairment and the impact of the permanent items in relation to reduced earnings in fiscal 2022.

Deferred tax assets and deferred tax liabilities at February 26, 2022 and February 27, 2021 were:

(In thousands)	2022		2021
Deferred tax assets
Accrued expenses	$	3,515	$	6,309
Deferred compensation	8,602		9,452
Depreciation	509		—
Employment tax accrual	1,546		1,483
Goodwill and other intangibles	13,237		4,215
Liability for unrecognized tax benefits	1,965		1,916
Unearned income	9,802		5,778
Operating lease liabilities	13,769		16,039
Net operating losses and tax credits	8,580		9,952
Other	2,931		1,984
Total deferred tax assets	64,456		57,128
Less: valuation allowance	(15,370)		(7,435)
Deferred tax assets, net of valuation allowance	49,086		49,693
Deferred tax liabilities
Accrued expenses	558		1,095
Goodwill and other intangibles	2,516		3,263
Depreciation	26,095		34,573
Operating lease, right-of-use assets	12,768		15,435
Other	3,015		820
Total deferred tax liabilities	44,952		55,186
Net deferred tax assets (liabilities)	$	4,134	$	(5,493)

The Company has state and foreign net operating loss carryforwards with a tax effect of $8.6 million. A valuation allowance of $4.5 million has been established for these net operating loss carryforwards due to the uncertainty of the use of the tax benefits in future periods.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing Deferred Tax Assets ("DTAs"). This has resulted in valuation allowances being recorded

against DTAs in prior years in Brazil, Canada and various states. During the fourth quarter of fiscal 2022, an additional valuation allowance of $11.5 million was recorded against Canadian DTAs to recognize only the portion of the DTA that is more likely than not to be realized. As of February 26, 2022, we have a full valuation allowance recorded against our Canadian DTAs. A significant piece of objective negative evidence evaluated in the fourth quarter of fiscal 2022 was the cumulative losses incurred in Canada over the three-year period ended February 26, 2022, driven primarily by the impairments recorded in the fourth quarter of fiscal 2022. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. The amount of the DTA considered realizable could be adjusted if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth or if the Company were to identify and implement a tax strategy to provide a future source of taxable income.

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2019, or state and local income tax examinations for years prior to fiscal 2013. The Company is not currently under U.S. federal examination for years subsequent to fiscal year 2018, and there is very limited audit activity of the Company’s income tax returns in U.S. state jurisdictions or international jurisdictions.

The Company considers the earnings of its non-U.S. subsidiaries to be indefinitely invested outside of the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and specific plans for reinvestment of those subsidiary earnings. Should the Company decide to repatriate the foreign earnings, it would need to adjust the income tax provision in the period it was determined that the earnings will no longer be indefinitely invested outside the U.S.

If we were to prevail on all unrecognized tax benefits recorded, $1.7 million, $2.2 million and $2.6 million for fiscal 2022, 2021 and 2020, respectively, would benefit the effective tax rate. 

Penalties and interest related to unrecognized tax benefits are recorded in income tax expense. For fiscal 2022, 2021 and 2020, we accrued penalties and interest related to unrecognized tax benefits of $0.3 million.

The following table provides a reconciliation of the total amounts of gross unrecognized tax benefits:

(In thousands)	2022		2021		2020
Gross unrecognized tax benefits at beginning of year	$	3,755	$	4,071	$	5,111
Gross increases in tax positions for prior years	108		106		82
Gross decreases in tax positions for prior years	(145)		(351)		(1,100)
Gross increases based on tax positions related to the current year	420		429		425
Settlements	(147)		(96)		(15)
Statute of limitations expiration	(670)		(404)		(432)
Gross unrecognized tax benefits at end of year	$	3,321	$	3,755	$	4,071

On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the ability to carryback net operating losses arising in taxable years from 2018 through 2020. While these provisions did not impact the Company, a provision related to the temporary deferral of the employer share of payroll taxes allowed us to defer remittance of $13.6 million of payroll taxes in calendar 2020. During the fourth quarter of fiscal 2022, we repaid half of the deferred tax payments in the amount of $6.8 million, with the remaining amount of $6.8 million included within accrued payroll and other benefits on our consolidated balance sheets to be repaid in calendar year 2022.