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Income Taxes | 12 Months Ended
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Feb. 28, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES In Q4 2018, the U.S. government enacted the Tax Act. The Tax Act made broad and complex changes to the U.S. tax code. 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.
In 2019, we finalized our policy and elected to use the period cost method for the tax on GILTI provisions and therefore did not record deferred taxes for basis differences expected to reverse in future periods. We were not required to record income taxes under the BEAT provisions in 2020 and 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 28, 2020 | February 22, 2019 | February 23, 2018
Current income taxes: |  |  |  |  |  |
Federal | $ | 6.8 |  |  | $ | 18.4 |  |  | $ | 15.0 |  |
State and local | 10.9 |  |  | 6.0 |  |  | 0.8 |  |
Foreign | 15.4 |  |  | 14.6 |  |  | 12.1 |  |
| 33.1 |  |  | 39.0 |  |  | 27.9 |  |
Deferred income taxes: |  |  |  |  |  |
Federal | 10.3 |  |  | (3.6 | ) |  | 37.9 |  |
State and local | (2.8 | ) |  | 1.2 |  |  | 7.0 |  |
Foreign | 4.9 |  |  | 1.3 |  |  | 8.0 |  |
| 12.4 |  |  | (1.1 | ) |  | 52.9 |  |
Income tax expense | $ | 45.5 |  |  | $ | 37.9 |  |  | $ | 80.8 |  |
Income taxes were based on the following sources of income before income tax expense:
Source of Income Before Income Tax Expense | Year Ended
February 28, 2020 | February 22, 2019 | February 23, 2018
Domestic | $ | 195.8 |  |  | $ | 119.4 |  |  | $ | 120.2 |  |
Foreign | 49.4 |  |  | 44.5 |  |  | 41.3 |  |
| $ | 245.2 |  |  | $ | 163.9 |  |  | $ | 161.5 |  |
The total income tax expense we recognized is reconciled to that computed by applying the U.S. federal statutory tax rate of 21.0% for 2020 and 2019 and 32.9% for 2018, as follows:
Income Tax Provision Reconciliation | Year Ended
February 28, 2020 | February 22, 2019 | February 23, 2018
Tax expense at the U.S. federal statutory rate | $ | 51.5 |  |  | $ | 34.4 |  |  | $ | 53.2 |  |
Impact of the Tax Act (1) | — |  |  | (1.6 | ) |  | 27.9 |  |
State and local income taxes, net of federal | 6.4 |  |  | 5.7 |  |  | 6.7 |  |
Sale of PolyVision (2) | (11.6 | ) |  | — |  |  | — |  |
Valuation allowance provisions and adjustments (3) | (1.3 | ) |  | (1.3 | ) |  | 0.4 |  |
Foreign investment tax credits (4) | — |  |  | — |  |  | (1.6 | ) |
COLI income (5) | (1.4 | ) |  | (1.6 | ) |  | (3.4 | ) |
Foreign operations, less applicable foreign tax credits (6) | 4.9 |  |  | 7.8 |  |  | 1.4 |  |
Impact of change to non-U.S. federal statutory tax rates (7) | (1.2 | ) |  | (0.8 | ) |  | 4.0 |  |
Research tax credit | (2.9 | ) |  | (2.9 | ) |  | (2.3 | ) |
Tax reserve adjustments | — |  |  | — |  |  | (0.2 | ) |
Other | 1.1 |  |  | (1.8 | ) |  | (5.3 | ) |
Total income tax expense recognized | $ | 45.5 |  |  | $ | 37.9 |  |  | $ | 80.8 |  |
________________________
(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 21.0%. Those items that reversed in 2018 were remeasured using a tax rate of 32.9%. We recorded a provisional decrease to deferred tax assets of $23.9 attributable to the rate reduction and a provisional tax liability of $4.0 related to transition tax for 2018. During 2019, we recorded adjustments reducing the impact of the rate change and the transition tax by $1.0 and $0.6 respectively, representing a tax rate reduction of 1%.
(2) | The tax basis of PolyVision exceeded the book equity of the entity. For United States federal tax purposes this generated a capital loss and related benefit, which varied from the expected US Federal tax expense on the financial statement gain on disposal.
(3) | The valuation allowance provisions were based on current year activity, and the valuation allowance adjustments, including a reversal of valuation allowance at an affiliate in the U.K., were based on various factors, which are further detailed below.
(4) | Investment tax credits were granted by the Czech Republic for investments in qualifying manufacturing equipment.
(5) | The increase in the cash surrender value of COLI policies, net of normal insurance expenses, plus maturity benefits are non-taxable.
(6) | 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.
(7) | Scheduled changes to the French corporate tax rate resulted in the revaluation of certain deferred tax assets of our French tax group.
Deferred Income Taxes The significant components of deferred income taxes are as follows:
Deferred Income Taxes | February 28, 2020 | February 22, 2019
Deferred income tax assets: |  |  |  |
Employee benefit plan obligations and deferred compensation | $ | 68.9 |  |  | $ | 59.2 |  |
Lease obligation (1) | 64.2 |  |  | — |  |
Foreign and domestic net operating loss carryforwards | 39.1 |  |  | 46.1 |  |
Reserves and accruals | 17.1 |  |  | 16.2 |  |
Tax credit carryforwards | 19.1 |  |  | 38.7 |  |
Other, net | 17.1 |  |  | 17.4 |  |
Total deferred income tax assets | 225.5 |  |  | 177.6 |  |
Valuation allowances | (5.7 | ) |  | (7.8 | ) |
Net deferred income tax assets | 219.8 |  |  | 169.8 |  |
Deferred income tax liabilities: |  |  |  |
Right-of-use operating lease assets (1) | 61.4 |  |  | — |  |
Property, plant and equipment | 28.6 |  |  | 29.4 |  |
Intangible assets | 9.8 |  |  | 10.6 |  |
Prepaid expenses | 2.2 |  |  | 2.2 |  |
Total deferred income tax liabilities | 102.0 |  |  | 42.2 |  |
Net deferred income taxes | $ | 117.8 |  |  | $ | 127.6 |  |
Net deferred income taxes is comprised of the following components: |  |  |  |
Deferred income tax assets—non-current | 124.6 |  |  | 135.8 |  |
Deferred income tax liabilities—non-current | 6.8 |  |  | 8.2 |  |
____________________
(1) | In 2020, we adopted ASU 2016-02, Leases (Topic 842), and recorded a deferred tax asset related to our operating lease obligations and a deferred tax liability related to our right-of-use operating lease assets. See Note 3 for additional information.
At February 28, 2020, the valuation allowance of $5.7 included $3.7 relating to foreign deferred tax assets. In updating our assessment of the ultimate realization of deferred tax assets, we considered the following factors:
• | recent financial performance including cumulative losses,
• | 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 cumulative losses, we were unable to assert that it is more likely than not that the deferred tax assets in our owned dealers and sales offices in France, Australia, Singapore, Hong Kong and Brazil would be realized as of February 28, 2020. During 2020, we determined that it was more likely than not that all of the deferred tax assets, including net operating losses, of our owned dealer in the U.K. would be utilized, and the reversal of the valuation allowance on these items reduced tax expense by $3.1. Also during 2020, we determined that it was not more likely than not that all of the deferred tax assets, including net operating losses, of our owned dealer in Australia would be utilized, and recorded a valuation allowance which increased tax expense by $1.2. We have the ability to repatriate foreign subsidiary earnings to our U.S. parent without incurring additional U.S. federal income tax. These earnings have been subject to U.S. federal income taxes in 2018 and additional U.S. taxes under the Tax Act during 2019 and 2020. We have provided deferred income taxes where appropriate on earnings of subsidiaries expected to be distributed. However, we have not recorded deferred taxes on any remaining historical outside basis differences in non-U.S. subsidiaries as we continue to assert indefinite reinvestment on those basis differences that are not related to amounts previously taxed in the U.S. or undistributed earnings generated after 2018. Taxes Payable or Refundable Income taxes currently payable or refundable are reported on the Consolidated Balance Sheets as follows:
Income Taxes | February 28, 2020 | February 22, 2019
Other current assets: |  |  |  |
Income taxes receivable | $ | 8.0 |  |  | $ | 11.6 |  |
Other long-term assets: |  |  |  |
Income taxes receivable | $ | 7.8 |  |  | $ | — |  |
Accrued expenses: |  |  |  |
Income taxes payable | $ | 13.9 |  |  | $ | 3.5 |  |
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
2021 | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |
2022-2038 | 0.9 |  |  | 2.1 |  |  | — |  |  | 0.2 |  |  | 0.7 |  |  | — |  |  | 0.9 |  |  | 19.1 |  |
No expiration | — |  |  | — |  |  | 160.2 |  |  | — |  |  | — |  |  | 38.4 |  |  | 38.4 |  |  | — |  |
| $ | 0.9 |  |  | $ | 2.1 |  |  | $ | 160.2 |  |  | 0.2 |  |  | 0.7 |  |  | 38.4 |  |  | 39.3 |  |  | 19.1 |  |
Valuation allowances |  |  |  |  |  |  | — |  |  | — |  |  | (3.2 | ) |  | (3.2 | ) |  | (2.0 | ) |
Net benefit |  |  |  |  |  |  | $ | 0.2 |  |  | $ | 0.7 |  |  | $ | 35.2 |  |  | $ | 36.1 |  |  | $ | 17.1 |  |
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 $53.2 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. 2019 and 2020, Canada 2016 through 2020, France 2015 through 2020 and Germany 2013 through 2020. 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 2020, 2019 and 2018. A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:
Unrecognized Tax Benefits | Year Ended
February 28, 2020 | February 22, 2019 | February 23, 2018
Balance as of beginning of period | $ | 2.0 |  |  | $ | 2.2 |  |  | $ | 2.8 |  |
Gross decreases—tax positions in prior period | — |  |  | — |  |  | (1.0 | ) |
Currency translation adjustment | — |  |  | (0.2 | ) |  | 0.4 |  |
Balance as of end of period | $ | 2.0 |  |  | $ | 2.0 |  |  | $ | 2.2 |  |
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. Since the tax positions have increased net operating loss carryforwards, the underlying deferred tax asset is shown net of a $2.0 liability for uncertain tax positions as of February 28, 2020 and February 22, 2019. No other amounts are recorded as a liability for uncertain tax positions, including interest and penalties, on the Consolidated Balance Sheets. Unrecognized tax benefits of $2.0, 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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