Income Taxes

12 Months Ended

Feb. 28, 2023

Income Tax Disclosure [Abstract]

Income taxes

The provision for income taxes for continuing and discontinued operations for fiscal year 2023, 2022 and 2021 consisted of the following (in thousands):

		2023		2022		2021
Income from continuing operations before income taxes
Domestic		$	80,508	$	67,697	$	36,087
Foreign		8,167		5,334		2,344
Income from continuing operations before income taxes		$	88,675	$	73,031	$	38,431
Current provision:
	Federal	$	(1,848)	$	17,994	$	11,003
	Foreign	2,127		2,003		177
	State and local	5,918		2,761		2,292
Total current provision for income taxes		$	6,197	$	22,758	$	13,472
Deferred provision (benefit):
	Federal	$	17,273	$	933	$	(3,331)
	Foreign	(24)		(491)		(775)
	State and local	(1,110)		14		1,882
Total deferred provision for (benefit from) income taxes for continuing operations		$	16,139	$	456	$	(2,224)
Total provision for income taxes for continuing operations		$	22,336	$	23,214	$	11,248
Income taxes (benefit) on discontinued operations		(19,544)		(891)		135
Total provision for income taxes		$	2,792	$	22,323	$	11,383

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

	2023		2022		2021
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
Permanent differences	0.6		(0.2)		(12.5)
State income taxes, net of federal income tax benefit	4.4		3.0		7.3
Stock compensation	0.1		0.1		1.5
Tax credits	(0.0)		(0.3)		(1.8)
Foreign tax rate differential	0.4		0.4		—
Uncertain tax positions	(1.5)		(1.7)		1.1
Audit settlement	—		0.6		2.5
Management fee	3.2		6.2		10.0
Outside basis - AIS JV	(3.7)		—		—
Other	0.7		2.8		0.2
Effective income tax rate	25.2	%	31.9	%	29.3	%

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 for continuing operations are as follows for fiscal year 2023 and 2022 (in thousands):

	2023		2022
Deferred income tax assets:
Employee related items	$	12,607	$	3,750
Inventories	6,639		6,536
Accrued warranty	761		459
Accounts receivable	1,603		—
Lease liabilities	6,643		7,981
Net operating loss and other credit carry-forwards	1,842		5,575
Research and experiment expense	5,222		—
Interest expense limitation	15,362		686
Outside basis difference - JV	3,471		—
Other deferred income tax assets	860		92
	$	55,010	$	25,079
Less: valuation allowance	—		—
Total deferred income tax assets	55,010		25,079
Deferred income tax liabilities:
Depreciation methods and property basis differences	$	(48,604)	$	(20,723)
Right-of-use lease assets	(6,384)		(7,596)
Accounts receivable	—		(619)
Other assets and tax-deductible goodwill	(28,091)		(40,358)
Total deferred income tax liabilities	(83,079)		(69,296)
Net deferred income tax liabilities	$	(28,069)	$	(44,217)

The decrease in the net deferred tax liability is primarily related to the impact of increases in certain deferred tax assets related to the current deductibility of interest, additional capitalized research and development expenditures, due to recently effective tax legislation and increased limitations on the current deductibility of certain employee related costs, partially offset by overall net increases in deferred tax liabilities principally associated with property, plant and equipment. As of February 28, 2023, the Company had pretax state NOL carry-forwards of $15.1 million which, if unused, will begin to expire in 2023 and pretax foreign NOL carry-forwards of $0.3 million, which, if unused, will begin to expire in 2043.

As of fiscal year end 2023 and 2022, a portion of the Company's deferred tax assets were the result of state and foreign jurisdiction NOL carry-forwards and state credit carry-forwards. The Company believes that it is more-likely-than-not that the benefit from certain foreign NOL carry-forwards and state credit carry-forwards will be realized. Therefore, the Company has not provided a valuation allowance for fiscal year 2023.

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 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 becomes available.

A reconciliation of the beginning and ending balance of total unrecognized tax benefits, which is included in "Other long-term liabilities" in the consolidated balance sheets for the years ended February 28, 2023 and 2022 is as follows (in thousands):

	2023		2022
Balance at beginning of period	$	2,294	$	3,350
Increase for tax positions related to current periods:
Gross increases	195		513
Gross decreases	—		(260)
Increase for tax positions related to prior periods:
Gross increases	2,653		997
Gross decreases	(729)		(356)
Decreases related to settlements with taxing authorities	(175)		(691)
Lapse of statute of limitations	(571)		(1,259)
Balance at end of period	$	3,667	$	2,294

Current year increases to our Uncertain Tax Positions ("UTPs") primarily relate to matters related to research and development credits and filing positions in certain jurisdictions. Current year decreases primarily relate to the lapse of the statute of limitations in certain jurisdictions and settlements with taxing authorities.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. Penalties and interest credited for fiscal 2023 and 2022 were $0.1 million and $(0.2) million, respectively.

The Company has prior year tax returns currently being examined in one state and does not have any other returns currently being examined by taxing authorities. The Company believes that it has provided adequate reserves for its income tax uncertainties in all open tax years. As the outcome of any 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.

As of February 28, 2023, the Company has operations and taxable presence in the U.S. and Canada. The tax positions of the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions. 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, 2020 remain open to examination. The Company's Canada tax returns since February 28, 2019 remain open to examination. The statute of limitations for fiscal year 2020 for US and fiscal year 2019 for Canada will expire in December 2023. The Company anticipates it is reasonably possible that a decrease of unrecognized tax benefits related to various federal, foreign and state positions of $3.1 million may be resolved in the next 12 months.

Prior to enactment of H.R. 1, formerly known as the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), the Company asserted that all unremitted earnings of its foreign subsidiaries were considered indefinitely reinvested. As a result of the Tax Act, the Company reported and paid U.S. tax on the majority of its previously unremitted foreign earnings. As of February 28, 2023, the Company continues to be indefinitely reinvested with respect to investments in its foreign subsidiaries. Additionally, the Company has not recorded deferred tax liabilities associated with the remaining unremitted earnings that are considered indefinitely reinvested. It is impracticable for the Company to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings, due to the complexities associated with the hypothetical calculation.