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Income Taxes | 12 Months Ended
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Feb. 23, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES In Q4 2018, the U.S. government enacted the Tax Act, which was effective January 1, 2018. The Tax Act makes broad and complex changes to the U.S. tax code that affect 2018 and future periods. The following is a summary of the key corporate income tax provisions of the Tax Act:
• | reduced the U.S. federal corporate income tax rate from 35% to 21%,
• | implemented a one-time tax on the deemed repatriation of undistributed non-U.S. subsidiary earnings and generally eliminated the U.S. federal corporate income taxes on dividends from foreign subsidiaries,
• | included global intangible low-taxed income ("GILTI") provisions, which impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations, and
• | included base-erosion and anti-abuse tax ("BEAT") provisions, which eliminate the deduction of certain base-erosion payments made to related foreign corporations, and imposed a minimum tax if greater than regular tax.
The staff of the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance on the accounting and reporting impacts of the Tax Act. SAB 118 states that, in situations where companies do not have enough information to complete the accounting in the period of enactment, a company must either:
1) | record an estimated provisional amount if the impact of the change can be reasonably estimated, or
2) | continue to apply the accounting guidance that was in effect immediately prior to the Tax Act if the impact of the change cannot be reasonably estimated.
If estimated provisional amounts are recorded, or if no amounts are recorded because the impact cannot be reasonably estimated, SAB 118 provides a measurement period of no longer than one year during which companies should adjust those amounts as additional information becomes available. We have made reasonable estimates of the impact of the Tax Act and have recorded provisional amounts as follows:
• | We recorded a charge of $23.9 due to the remeasurement of our deferred taxes. While we were able to make a reasonable estimate of the impact of the reduction in the corporate tax rate, the final impact may be affected by other elements related to the Tax Act including, but not limited to, our calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences.
• | We recorded a charge of $4.0 due to the net tax on deemed repatriation of net undistributed earnings of our non-U.S. subsidiaries. In order to finalize the impact of the tax on deemed repatriation, we must determine the amount of earnings of certain foreign subsidiaries as well as the amount of non-U.S. income taxes paid on these earnings. In Q4 2018, we were able to make reasonable estimates of these amounts; however, we are continuing to gather information to more precisely calculate the tax on deemed repatriation.
We were not able to reasonably estimate, and therefore have not recorded, deferred taxes with respect to the GILTI provisions. We have not yet determined our policy election with respect to whether to record deferred taxes on basis differences that are expected to affect the amount of GILTI inclusions upon reversal or to record the impact of the GILTI tax in the period in which that tax is incurred. We have not included any impacts of BEAT in our consolidated financial statements for 2018, because this provision does not apply until 2019. Provision for Income Taxes The provision for income taxes on income before income taxes consists of:
Provision for Income Taxes—Expense | Year Ended
February 23, 2018 | February 24, 2017 | February 26, 2016
Current income taxes: |  |  |  |  |  |
Federal | $ | 15.0 |  |  | $ | 18.4 |  |  | $ | 47.7 |  |
State and local | 0.8 |  |  | 9.5 |  |  | 12.5 |  |
Foreign | 12.1 |  |  | 17.0 |  |  | 12.6 |  |
| 27.9 |  |  | 44.9 |  |  | 72.8 |  |
Deferred income taxes: |  |  |  |  |  |
Federal | 37.9 |  |  | 21.4 |  |  | (12.7 | ) |
State and local | 7.0 |  |  | 1.2 |  |  | (3.3 | ) |
Foreign | 8.0 |  |  | 4.2 |  |  | (52.3 | ) |
| 52.9 |  |  | 26.8 |  |  | (68.3 | ) |
Income tax expense | $ | 80.8 |  |  | $ | 71.7 |  |  | $ | 4.5 |  |
Income taxes were based on the following sources of income before income tax expense:
Source of Income Before Income Tax Expense | Year Ended
February 23, 2018 | February 24, 2017 | February 26, 2016
Domestic | $ | 120.2 |  |  | $ | 136.0 |  |  | $ | 114.9 |  |
Foreign | 41.3 |  |  | 60.3 |  |  | 59.9 |  |
| $ | 161.5 |  |  | $ | 196.3 |  |  | $ | 174.8 |  |
The total income tax expense we recognized is reconciled to that computed by applying the U.S. federal blended statutory tax rate of 32.9% for 2018 and 35.0% for 2017 and 2016, as follows:
Income Tax Provision Reconciliation | Year Ended
February 23, 2018 | February 24, 2017 | February 26, 2016
Tax expense at the U.S. federal statutory rate | $ | 53.2 |  |  | $ | 68.7 |  |  | $ | 61.2 |  |
Impact of the Tax Act (1) | 27.9 |  |  | — |  |  | — |  |
State and local income taxes, net of federal | 6.7 |  |  | 6.5 |  |  | 6.7 |  |
Valuation allowance provisions and adjustments (2) | 0.4 |  |  | (2.2 | ) |  | (59.9 | ) |
Foreign investment tax credits (3) | (1.6 | ) |  | — |  |  | (1.5 | ) |
COLI income (4) | (3.4 | ) |  | (3.3 | ) |  | (0.7 | ) |
Foreign operations, less applicable foreign tax credits (5) | 1.4 |  |  | (2.0 | ) |  | (1.6 | ) |
Impact of change to non-U.S. federal statutory tax rates (6) | 4.0 |  |  | 9.3 |  |  | (0.1 | ) |
Research tax credit | (2.3 | ) |  | (1.8 | ) |  | (1.9 | ) |
Tax reserve adjustments (7) | (0.2 | ) |  | (5.3 | ) |  | — |  |
Other | (5.3 | ) |  | 1.8 |  |  | 2.3 |  |
Total income tax expense recognized | $ | 80.8 |  |  | $ | 71.7 |  |  | $ | 4.5 |  |
________________________
(1) | We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which are generally 21%. Those items that reversed in 2018 were remeasured using a tax rate of 32.9%. We have recorded a provisional decrease of $23.9 with respect to the Tax Act in 2018. As required by the Tax Act, we have recorded a provisional tax liability of $4.0 related to the U.S. federal income taxes on approximately $76.2 of undistributed earnings of our non-U.S. subsidiaries, net of $12.0 of related U.S. foreign tax credits.
(2) | The valuation allowance provisions were based on current year activity, and the valuation allowance adjustments were based on various factors, which are further detailed below. In Q4 2015, we implemented changes in EMEA to align our tax structure with the management of our globally integrated business. Our U.S. parent company became the principal in a contract manufacturing model with Steelcase European subsidiaries. In Q4 2016, we reached the conclusion that there was sufficient positive evidence, including acceptance of our new tax structure by the U.S. Internal Revenue Service, sustained profitability in our French subsidiaries and other factors, which caused us to reverse valuation allowances of $56.0 recorded against net deferred tax assets in France.
(3) | Investment tax credits were granted by the Czech Republic for investments in qualifying manufacturing equipment.
(4) | The increase in the cash surrender value of COLI policies, net of normal insurance expenses, plus death benefit gains are non-taxable.
(5) | The foreign operations, less applicable foreign tax credits, amounts include the rate differential between local statutory rates and the U.S. rate on foreign operations.
(6) | Reductions to the French corporate tax rate resulted in the revaluation of certain deferred tax assets of our French tax group, causing increases to income tax expense of $4.0 and $7.9 in 2018 and 2017, respectively. During 2017, reductions to the United Kingdom corporate tax rate increased tax expense by $1.5.
(7) | Adjustments in 2017 related to a French income tax audit that was settled in 2017.
Deferred Income Taxes The significant components of deferred income taxes are as follows:
Deferred Income Taxes | February 23, 2018 | February 24, 2017
Deferred income tax assets: |  |  |  |
Employee benefit plan obligations and deferred compensation | $ | 55.8 |  |  | $ | 108.8 |  |
Foreign and domestic net operating loss carryforwards | 55.8 |  |  | 57.0 |  |
Reserves and accruals | 18.9 |  |  | 29.8 |  |
Tax credit carryforwards | 31.8 |  |  | 17.4 |  |
Other, net | 16.1 |  |  | 21.2 |  |
Total deferred income tax assets | 178.4 |  |  | 234.2 |  |
Valuation allowances | (9.5 | ) |  | (7.9 | ) |
Net deferred income tax assets | 168.9 |  |  | 226.3 |  |
Deferred income tax liabilities: |  |  |  |
Property, plant and equipment | 28.4 |  |  | 40.9 |  |
Intangible assets | 3.4 |  |  | 3.6 |  |
Prepaid expenses | 1.7 |  |  | 3.1 |  |
Total deferred income tax liabilities | 33.5 |  |  | 47.6 |  |
Net deferred income taxes | $ | 135.4 |  |  | $ | 178.7 |  |
Net deferred income taxes is comprised of the following components: |  |  |  |
Deferred income tax assets—non-current | 135.4 |  |  | 179.6 |  |
Deferred income tax liabilities—non-current | — |  |  | (0.9 | ) |
At February 23, 2018, the valuation allowance of $9.5 included $9.0 relating to foreign deferred tax assets. In updating our assessment of the ultimate realization of deferred tax assets, we considered the following factors:
• | the nature, frequency and severity of cumulative losses in recent years,
• | the predictability of future income,
• | prudent and feasible tax planning strategies that could be implemented to protect the loss of the deferred tax assets and
• | the effect of reversing taxable temporary differences.
Based on our evaluation of these factors, particularly increasing cumulative losses, we were unable to assert that it is more likely than not that the deferred tax assets in our owned dealers in France and the United Kingdom, Morocco, Singapore, Hong Kong and Brazil would be realized as of February 23, 2018. As a result of the Tax Act, we have the ability to repatriate the cash associated with foreign subsidiary earnings to our U.S. parent without incurring additional U.S. federal income tax, as these earnings were subject to U.S. federal income taxes in 2018. However, this cash may be subject to foreign withholding taxes and/or U.S. state and local taxes if repatriated to the U.S. We are currently evaluating the capital needs of our foreign operations to determine the amount of cash that can be repatriated to the U.S. with minimal additional tax cost. Until such time that we complete this analysis, we maintain our assertion of indefinite reinvestment in our foreign earnings. Pursuant to SAB 118, we have not made a provision for foreign withholding or U.S. state and local taxes on $139.5 of unremitted foreign earnings and profits as of February 23, 2018. Taxes Payable or Refundable Income taxes currently payable or refundable are reported on the Consolidated Balance Sheets as follows:
Income Taxes | February 23, 2018 | February 24, 2017
Other current assets: |  |  |  |
Income taxes receivable | $ | 19.7 |  |  | $ | 19.0 |  |
Other long-term assets: |  |  |  |
Income taxes receivable | $ | — |  |  | $ | 18.5 |  |
Accrued expenses: |  |  |  |
Income taxes payable | $ | 8.6 |  |  | $ | 6.4 |  |
Net Operating Loss and Tax Credit Carryforwards Operating loss and tax credit carryforwards expire as follows:
Fiscal Year Ending February | Net Operating Loss Carryforwards (Gross) | Net Operating Loss Carryforwards (Tax Effected) | Tax Credit Carryforwards
Federal | State | International | Federal | State | International | Total
2019 | $ | — |  |  | $ | — |  |  | $ | 2.0 |  |  | $ | — |  |  | $ | — |  |  | $ | 0.6 |  |  | $ | 0.6 |  |  | $ | — |  |
2023-2038 | — |  |  | 17.0 |  |  | — |  |  | — |  |  | 1.9 |  |  | — |  |  | 1.9 |  |  | 31.8 |  |
No expiration | — |  |  | — |  |  | 217.7 |  |  | — |  |  | — |  |  | 53.3 |  |  | 53.3 |  |  | — |  |
| $ | — |  |  | $ | 17.0 |  |  | $ | 219.7 |  |  | — |  |  | 1.9 |  |  | 53.9 |  |  | 55.8 |  |  | 31.8 |  |
Valuation allowances |  |  |  |  |  |  | — |  |  | (0.5 | ) |  | (7.3 | ) |  | (7.8 | ) |  | (1.7 | ) |
Net benefit |  |  |  |  |  |  | $ | — |  |  | $ | 1.4 |  |  | $ | 46.6 |  |  | $ | 48.0 |  |  | $ | 30.1 |  |
Future tax benefits for net operating loss and tax credit carryforwards are recognized to the extent that realization of these benefits is considered more likely than not. It is considered more likely than not that a benefit of $78.1 will be realized on these net operating loss and tax credit carryforwards. This determination is based on the expectation that related operations will be sufficiently profitable or various tax, business and other planning strategies available to us will enable utilization of the carryforwards. We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Valuation allowances are recorded to the extent realization of these carryovers is not more likely than not. Uncertain Tax Positions We are subject to taxation in the U.S. and various states and foreign jurisdictions with varying statutes of limitation. Tax years that remain subject to examination by major tax jurisdictions include: the U.S. 2018, Canada 2015 through 2018, France 2014 through 2018 and Germany 2014 through 2018. We adjust these reserves, as well as the related interest and penalties, in light of changing facts and circumstances. We are audited by the U.S. Internal Revenue Service under the Compliance Assurance Process (“CAP”). Under CAP, the U.S. Internal Revenue Service works with large business taxpayers to identify and resolve issues prior to the filing of a tax return. Accordingly, we record minimal liabilities for U.S. federal uncertain tax positions. We recognize interest and penalties associated with uncertain tax positions in income tax expense, and these items were insignificant for 2018, 2017 and 2016. As of February 23, 2018 and February 24, 2017, the liability for uncertain tax positions, including interest and penalties, reported on the Consolidated Balance Sheets was as follows:
Liability for Uncertain Tax Positions | February 23, 2018 | February 24, 2017
Other long-term liabilities | $ | — |  |  | $ | 0.2 |  |
A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:
Unrecognized Tax Benefits | Year Ended
February 23, 2018 | February 24, 2017 | February 26, 2016
Balance as of beginning of period | $ | 2.8 |  |  | $ | 8.6 |  |  | $ | 8.8 |  |
Gross decreases—tax positions in prior period | (1.0 | ) |  | (5.3 | ) |  | — |  |
Currency translation adjustment | 0.4 |  |  | (0.5 | ) |  | (0.2 | ) |
Balance as of end of period | $ | 2.2 |  |  | $ | 2.8 |  |  | $ | 8.6 |  |
We have taken tax positions in a non-U.S. jurisdiction that do not meet the more likely than not test required under the uncertain tax position accounting guidance. Of the gross decreases shown above, $0.8 relates to changes in the French statutory tax rate. Since the tax positions have increased net operating loss carryforwards, the underlying deferred tax asset is shown net of a $2.2 liability for uncertain tax positions. Unrecognized tax benefits of $2.2, if favorably resolved, would be recorded as an income tax benefit. We do not expect the amount of unrecognized tax benefits will significantly change due to expiring statutes or audit activity in the next twelve months.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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