Income Taxes

12 Months Ended

Feb. 29, 2024

Income Tax Disclosure [Abstract]

Income taxes

12. Income Taxes

The provision for income taxes for continuing and discontinued operations for fiscal year 2024, 2023 and 2022 consisted of the following (in thousands):

		Year Ended February 29/28,
		2024		2023		2022
Income from continuing operations before income taxes
Domestic		$	123,955	$	80,508	$	67,697
Foreign		6,148		8,167		5,334
Income from continuing operations before income taxes		$	130,103	$	88,675	$	73,031
Current provision:
	Federal	$	19,839	$	(1,848)	$	17,994
	Foreign	2,189		2,127		2,003
	State and local	1,716		5,918		2,761
Total current provision for income taxes		$	23,744	$	6,197	$	22,758
Deferred provision (benefit):
	Federal	$	3,920	$	17,273	$	933
	Foreign	(316)		(24)		(491)
	State and local	1,148		(1,110)		14
Total deferred provision for (benefit from) income taxes for continuing operations		$	4,752	$	16,139	$	456
Total provision for income taxes for continuing operations		$	28,496	$	22,336	$	23,214
Income taxes (benefit) on discontinued operations		—		(19,544)		(891)
Total provision for income taxes		$	28,496	$	2,792	$	22,323

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:

	Year Ended February 29/28,
	2024		2023		2022
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
Permanent differences	0.5		0.6		(0.2)
State income taxes, net of federal income tax benefit	1.9		4.4		3.0
Stock compensation	0.1		0.1		0.1
Tax credits	(1.7)		—		(0.3)
Foreign tax rate differential	0.2		0.4		0.4
ASC 740-10 Uncertain tax positions	(1.8)		(1.5)		(1.7)
Audit settlement	—		—		0.6
Management fee	—		3.2		6.2
Outside basis - AVAIL JV	—		(3.7)		—
Other	1.7		0.7		2.8
Effective income tax rate	21.9	%	25.2	%	31.9	%

The provision for income taxes from continuing operations was 21.9% for fiscal 2024 compared to 25.2% for fiscal 2023. The decrease in the effective tax rate is the result of favorable changes to our state footprint following the divestiture of the AIS business, as well as an increase in tax credits that were generated in the current year compared to the prior year

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 2024 and 2023 (in thousands):

	As of February 29/28,
	2024		2023
Deferred income tax assets:
Employee related items	$	12,148	$	12,607
Inventories	5,756		6,639
Accrued warranty	1,268		761
Accounts receivable	2,061		1,603
Lease liabilities	6,033		6,643
Net operating loss and other credit carryforwards	4,739		1,842
Research and experiment expenses	5,688		5,222
Interest expense limitation	13,580		15,362
Outside basis difference—JV	—		3,471
Other deferred income tax assets	281		860
Total deferred income tax assets	51,554		55,010
Deferred income tax liabilities:
Depreciation methods and property basis differences	$	(42,508)	$	(48,604)
Right-of-use lease assets	(5,858)		(6,384)
Outside basis difference	(1,466)		—
Other assets and tax-deductible goodwill	(34,683)		(28,091)
Total deferred income tax liabilities	(84,515)		(83,079)
Net deferred income tax liabilities	$	(32,961)	$	(28,069)

The increase in the net deferred tax liability is primarily related to a decrease in inventories, additional interest expense that was previously capitalized that is now deductible, an increase in book over tax basis related to goodwill and an increase in

book over tax basis related to the Company's investment in the AVAIL JV, offset by an increase in state net operating losses and a decrease in book over tax basis related to fixed assets. As of February 29, 2024, the Company had pretax state NOL carry-forwards of $71.6 million which, if unused, will begin to expire in 2026 and pretax foreign NOL carry-forwards of $0.4 million, which, if unused, will begin to expire in 2044.

As of February 29, 2024 and February 28, 2023, 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 as of February 29, 2024.

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. 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, based on 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 because 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 29, 2024 and February 28, 2023 is as follows (in thousands):

	As of February 29/28,
	2024		2023
Balance at beginning of period	$	3,667	$	2,294
Increase for tax positions related to current periods:
Gross increases	177		195
Increase for tax positions related to prior periods:
Gross increases	100		2,653
Gross decreases	(1,699)		(729)
Decreases related to settlements with taxing authorities	—		(175)
Lapse of statute of limitations	(437)		(571)
Balance at end of period	$	1,808	$	3,667

Current year increases to our UTPs primarily relate to matters related to research and development credits. Current year decreases primarily relate to the resolution of certain state tax issues and the lapse of the statute of limitations in various jurisdictions within which we do business.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. Penalties and interest recorded to tax expense (benefit) for fiscal 2024 and 2023 were $(0.4) million and $0.1 million, respectively.

The Company has prior year tax returns currently being examined in two states 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 29, 2024, 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, 2021 remain open to examination. The Company's Canada tax returns since February 28, 2020

remain open to examination. The statute of limitations for fiscal year 2021 for U.S. and fiscal year 2020 for Canada will expire in December 2024. The Company anticipates it is reasonably possible that a decrease of unrecognized tax benefits related to various federal, foreign and state positions of $0.2 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 most of its previously unremitted foreign earnings. As of February 29, 2024, 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.