Income Taxes (Notes)

12 Months Ended

Feb. 29, 2020

Income Taxes

The provision for income taxes for fiscal year 2020, 2019 and 2018 consisted of the following (in thousands):



		2020			2019		2018
Income before income taxes:
Domestic		$	44,406		$	48,261	$	24,282
Foreign		20,484			14,744		6,617
Income before income taxes		$	64,890		$	63,005	$	30,899
Current provision:
	Federal	$	12,563		$	4,251	$	3,445
	Foreign	5,259			2,829		1,958
	State and local	1,451			986		964
Total current provision for income taxes		$	19,273		$	8,066	$	6,367
Deferred provision (benefit):
	Federal	$	(1,452	)	$	2,970	$	(20,220	)
	Foreign	(21		)	539		100
	State and local	(1,144		)	222		(517		)
Total deferred provision for (benefit from) income taxes		$	(2,617	)	$	3,731	$	(20,637	)
Total provision for (benefit from) income taxes		$	16,656		$	11,797	$	(14,270	)

In general, it is the Company's practice and intention to reinvest the earnings of its non-U.S. subsidiaries in those operations. Generally, such amounts become subject to foreign withholding tax upon the remittance of dividends and under certain other circumstances.

The expense recognized in fiscal year 2018 related to the one-time tax on the mandatory deemed repatriation of foreign earnings was $1.4 million of which the Company has elected to pay the one-time tax evenly over a period of eight years with six years remaining. We continue to reinvest cash in foreign jurisdictions and have not recorded the effects of any applicable foreign withholding tax.

A reconciliation from the federal statutory income tax rate to the effective income tax rate is as follows for the prior three fiscal years:



	2020		2019		2018
Statutory federal income tax rate	21.0	%	21.0	%	32.7	%
Permanent differences	0.1		0.5		1.6
State income taxes, net of federal income tax benefit	—		0.4		0.4
Benefit of Section 199 of the Code, manufacturing deduction	—		—		(2.2	)
Valuation allowance	—		(0.7	)	—
Stock compensation	—		0.5		(0.5	)
Tax credits	2.0		(4.1	)	(7.7	)
Foreign tax rate differential	1.4		1.1		(0.4	)
Deferred tax remeasurements	—		—		(78.9	)
Uncertain tax positions	1.4		—		—
Transition tax	—		—		8.6
Other	(0.2	)	—		0.2
Effective income tax rate	25.7	%	18.7	%	(46.2	)%

Deferred federal and state income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial accounting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income tax liability are as follows as of February 29, 2020 and February 28, 2019 (in thousands):



	2020			2019
Deferred income tax assets:
Employee related items	$	3,194		$	4,177
Inventories	823			758
Accrued warranty	548			369
Accounts receivable	1,379			(2,092		)
Lease liabilities	10,601			—
Net operating loss carry forward	5,845			7,173
	22,390			10,385
Less: valuation allowance	(725		)	(3,015		)
Total deferred income tax assets	21,665			7,370
Deferred income tax liabilities:
Depreciation methods and property basis differences	(21,447		)	(19,066		)
Right-of-use lease assets	(10,299		)	—
Other assets and tax-deductible goodwill	(27,845		)	(24,927		)
Total deferred income tax liabilities	(59,591		)	(43,993		)
Net deferred income tax liabilities	$	(37,926	)	$	(36,623	)

The following table summarizes the Net operating loss (NOL) carry-forward balances as of February 29, 2020 and February 28, 2019 (in thousands):



	2020		2019
Federal	$	—	$	—
State	$	5,120	$	6,352
Foreign	$	725	$	821

As of February 29, 2020, the Company had pretax state NOL carry-forwards of $113.1 million which, if unused, will begin to expire in 2026.

As of fiscal year end 2020 and 2019, a portion of the Company's deferred tax assets were the result of state and foreign jurisdiction NOL carry-forwards. The Company believes that it is more likely than not that the benefit from certain foreign NOL carry forwards will not be realized. In recognition of this risk, the Company has provided a valuation allowance of $0.7 million and $3.0 million as of fiscal year end 2020 and 2019, respectively.

The calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across the Company's global operations. Generally accepted accounting principles in the United States of America ("GAAP") states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. The Company may (1) record unrecognized tax benefits as liabilities in accordance with GAAP and (2) adjust these liabilities when the Company's judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available

A reconciliation of the beginning and ending balance of total unrecognized tax benefits for the year ended February 29, 2020 is as follows (in thousands):



	2020
Balance at beginning of period	$	—
Increase for tax positions related to prior periods:
Gross increases	2,531
Balance at end of period	$	2,531

After a review of its deferred tax balances during fiscal 2020, the Company recorded unrecognized tax benefits of $2.5 million within other long-term liabilities related to the amortization of goodwill and certain book reserve balances incorrectly deducted in prior years. The amortization relates to the Company deducting more expense than permitted for tax purposes.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. Accrued interested and penalties included in the long-term liabilities related to penalties and interest for prior periods was $0.9 million as of February 29, 2020.

Certain prior year tax returns are currently being examined by taxing authorities in the United States. The Company believes that it has provided adequate reserves for its income tax uncertainties in all open tax years. As the outcome of the tax audits cannot be predicted with certainty, if any issues addressed in the Company's tax audits are resolved in a manner inconsistent with management's expectations, the Company could adjust its provision for income taxes in the future.

The Company has operations and taxable presence in multiple jurisdictions in the U.S. and outside of the U.S. in Canada, the Netherlands, China, Poland and Brazil. The tax positions of the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions around the world. The Company currently considers U.S. federal and state and Canada, to be significant tax jurisdictions. The Company’s U.S. federal and state tax returns since February 28, 2017 remain open to examination. With some exceptions, tax years prior to fiscal 2017 in jurisdictions outside of U.S. are generally closed. The statute of limitations for fiscal year end 2017 will expire in December 2020. The Company anticipates it is reasonably possible that a decrease of unrecognized tax benefits up to approximately $0.4 million may occur in the next 12 months, as the applicable statutes of limitations lapse.