Income Taxes

The components of income before the (benefit) provision for income taxes are as follows:



	Year Ended			Year Ended			Year Ended
	February 28, 2019			February 28, 2018			February 28, 2017
Domestic Operations	$	(49,984	)	$	(27,214	)	$	(12,834	)
Foreign Operations	(8,979		)	3,110			3,904
	$	(58,963	)	$	(24,104	)	$	(8,930	)

The provision (benefit) for income taxes is comprised of the following:



	Year Ended			Year Ended			Year Ended
	February 28, 2019			February 28, 2018			February 28, 2017
Current provision (benefit)
Federal	$	(54	)	$	(1,451	)	$	(2,118	)
State	(401		)	150			238
Foreign	1,392			1,814			1,580
Total current provision (benefit)	$	937		$	513		$	(300	)
Deferred (benefit) provision
Federal	$	(4,772	)	$	(17,198	)	$	658
State	(392		)	(827		)	279
Foreign	(1,904		)	67			(299		)
Total deferred (benefit) provision	$	(7,068	)	$	(17,958	)	$	638
Total (benefit) provision
Federal	$	(4,826	)	$	(18,649	)	$	(1,460	)
State	(793		)	(677		)	517
Foreign	(512		)	1,881			1,281
Total (benefit) provision	$	(6,131	)	$	(17,445	)	$	338

The effective tax rate before income taxes varies from the current statutory U.S. federal income tax rate as follows:



	Year Ended					Year Ended					Year Ended
	February 28, 2019					February 28, 2018					February 28, 2017
Tax benefit at Federal statutory rates	$	(12,383	)	21.0	%	$	(7,891	)	32.7	%	$	(3,123	)	35.0	%
State income taxes, net of Federal benefit	(809		)	1.4		(249		)	1.0		(788		)	8.8
Change in valuation allowance	6,164			(10.5	)	(2,546		)	10.6		6,588			(73.8	)
Change in tax reserves	(697		)	1.2		(2,443		)	10.1		(5,974		)	66.9
Non-controlling interest	1,416			(2.4	)	2,404			(10.0	)	2,668			(29.9	)
US effects of foreign operations	53			(0.1	)	614			(2.5	)	556			(6.2	)
Permanent differences and other	636			(1.1	)	1,190			(4.9	)	589			(6.6	)
Foreign exchange loss	—			—		(3,376		)	14.0		—			—
NOL carryback	—			—		—			—		1,413			(15.8	)
Change in tax rate	55			(0.1	)	(2,462		)	10.2		(110		)	1.2
Research & development credits	(566		)	1.0		(524		)	2.2		(625		)	7.0
Tax credits	—			—		(2,162		)	9.0		(856		)	9.6
Effective tax rate	$	(6,131	)	10.4	%	$	(17,445	)	72.4	%	$	338		(3.8	)%

The U.S. effects of foreign operations include differences in the statutory tax rate of the foreign countries as compared to the statutory tax rate in the U.S.

On December 22, 2017, the U.S. government enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). Under Accounting Standards Codification (“ASC”) 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The TCJA makes broad and complex changes to the U.S. tax code, including, but not limited to: (1) a reduction in the U.S. federal corporate tax rate from 35% to 21%; (2) changed the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; (3) permits acceleration of expensing on certain qualified property; (4) created a new limitation on deductible interest expense to 30% of tax adjusted EBITDA through 2021 and then 30% of tax adjusted EBIT thereafter; (5) eliminated the corporate alternative minimum tax; (6) provided further limitations on the deductibility of executive compensation under IRC §162(m) for tax years beginning after December 31, 2017 ; (7) required a one-time transition tax related to the transition of U.S. international tax from a worldwide tax system to a territorial tax system; and (8) made additional changes to the U.S. international tax rules including imposing a minimum tax on global intangible low taxed income (“GILTI”) and other base erosion anti-abuse provisions.

In response to the TCJA, the U.S. Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of TCJA. The purpose of SAB 118 was to address any uncertainty or diversity of view in applying ASC Topic 740, Income Taxes in the reporting period in which the TCJA was enacted. Additionally, SAB 118 allowed for a measurement period to finalize the impacts of the TCJA, not to extend beyond one year from the date of enactment.

In connection with the Company’s initial analysis of the impact of the TCJA during the fiscal year ended February 28, 2018, the Company recorded a provisional decrease in its deferred tax assets and liabilities of $4,706 related to the remeasurement of the deferred tax assets and liabilities at the reduced U.S. federal tax rate of 21%. The Company was subject to a one-time transition tax based on the total post-1986 earnings and profits which was principally offset by the Company's tax attributes.

The Company made a policy election to treat the income tax due on U.S. inclusion of the new GILTI provisions as a period expense when incurred.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:



	February 28, 2019			February 28, 2018
Deferred tax assets:
Accounts receivable	$	357		$	52
Inventory	2,374			2,011
Property, plant and equipment	1,900			479
Accruals and reserves	4,008			2,375
Deferred compensation	632			806
Warranty reserves	699			976
Unrealized gains and losses	4,179			1,335
Partnership investments	496			—
Net operating losses	12,267			13,191
Foreign tax credits	3,805			4,501
Other tax credits	4,752			3,530
Deferred tax assets before valuation allowance	35,469			29,256
Less: valuation allowance	(22,026		)	(15,881		)
Total deferred tax assets	13,443			13,375
Deferred tax liabilities:
Intangible assets	(17,145		)	(23,157		)
Partnership investments	—			(100		)
Prepaid expenses	(1,286		)	(1,995		)
Deferred financing fees	(217		)	(316		)
Total deferred tax liabilities	(18,648		)	(25,568		)
Net deferred tax liability	$	(5,205	)	$	(12,193	)

In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating loss carryforwards can be utilized. We consider the level of historical taxable income, scheduled reversal of temporary differences, tax planning strategies and projected future taxable income in determining whether a valuation allowance is warranted.

During Fiscal 2019, the Company maintained a valuation allowance against certain U.S. deferred tax assets including tax attributes with limited carryforward periods, capital loss attributes and certain deferred tax assets in foreign jurisdictions. The Company's valuation allowance increased by $6,164 during the year ended February 28, 2019. Any further increase or decrease in the valuation allowance could have a favorable or unfavorable impact on our income tax provision and net income in the period in which such determination is made.

Notwithstanding the U.S. taxation of the deemed repatriated foreign earnings as a result of the one-time transition tax, the Company intends to continue to invest these earnings indefinitely outside the U.S. If these future earnings are repatriated to the U.S., or if the Company determines that such earnings will be remitted in the foreseeable future, the Company may be required to accrue U.S. deferred taxes (if any) and applicable withholding taxes. It is not practicable to estimate the tax impact of the reversal of the outside basis difference, or the repatriation of cash due to the complexity of its hypothetical calculation.

The Company has U.S. federal net operating losses of $40,777, of which $17,703 expire in Fiscal 2035 through 2037 if not utilized, and $22,955 that have an indefinite carryforward period. These net operating loss carryforwards are available to offset 100% of future taxable income. The remaining $119 of U.S. federal net operating loss carryforwards have an indefinite carryforward period, but are only available to offset 80% of future taxable income. The Company has capital loss carryforwards of approximately $14,904 which expire in 2024 and are only available to offset capital gain income. The Company has foreign tax credits of $3,804 which expire in tax years 2025 through 2028. The Company has research and development tax credits of $2,742, which expire in tax years 2035 through 2039. The Company has various foreign net operating loss carryforwards, state net operating loss carryforwards, and state tax credits that expire in various years and amounts through tax year 2039.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:



Balance at February 29, 2016	$	14,472
Additions based on tax positions taken in the current and prior years	3,147
Settlements	—
Decreases based on tax positions taken in the prior years	(6,470		)
Other	(305		)
Balance at February 28, 2017	$	10,844
Additions based on tax positions taken in the current and prior years	630
Settlements	—
Decreases based on tax positions taken in the prior years	(2,945		)
Other	578
Balance at February 28, 2018	$	9,107
Additions based on tax positions taken in the current and prior years	2,125
Settlements	—
Decreases based on tax positions taken in prior years	(1,923		)
Other	(227		)
Balance at February 28, 2019	$	9,082

Of the amounts reflected in the table above at February 28, 2019, $9,082, if recognized, would reduce our effective tax rate. If recognized, $7,959 of the unrecognized tax benefits are likely to attract a full valuation allowance, thereby offsetting the favorable impact to the effective tax rate. Our unrecognized tax benefit non-current consolidated balance sheet liability, including interest and penalties, is $1,332. The Company records accrued interest and penalties related to income tax matters in the provision for income taxes in the accompanying Consolidated Statements of Operations and Comprehensive (Loss) Income. For the years ended February 28, 2019, February 28, 2018 and February 28, 2017, interest and penalties on unrecognized tax benefits were $(389), $(145) and $98, respectively. The balance as of February 28, 2019 and February 28, 2018 was $210 and $602, respectively. It is reasonably possible that unrecognized tax benefits will decrease by approximately $1,500 to $2,000 within the next 12 months.

The Company, or one of its subsidiaries, files its tax returns in the U.S. and certain state and foreign income tax jurisdictions with varying statutes of limitations. The earliest years' tax returns filed by the Company that are still subject to examination by the tax authorities in the major jurisdictions are as follows:



Jurisdiction		Tax Year

U.S.		2015
Netherlands		2015
Germany		2015