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Income Taxes | 12 Months Ended
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Feb. 25, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Earnings before income taxes consisted of the following:
(In thousands) |  | 2023 |  | 2022 |  | 2021
United States |  | $ | 126,859 |  |  | $ | 70,039 |  |  | $ | 45,651 |
International |  | (10,238) |  |  | (56,170) |  |  | (23,040) |
Earnings before income taxes |  | $ | 116,621 |  |  | $ | 13,869 |  |  | $ | 22,611 |
The components of income tax expense for each of the last three fiscal years are as follows:
(In thousands) |  | 2023 |  | 2022 |  | 2021
Current |  |  |  |  |  |
Federal |  | $ | 9,621 |  |  | $ | 13,806 |  |  | $ | 11,495 |
State and local |  | 7,670 |  |  | 4,823 |  |  | 702 |
International |  | 231 |  |  | 39 |  |  | 1,642 |
Total current |  | 17,522 |  |  | 18,668 |  |  | 13,839 |
Deferred |  |  |  |  |  |
Federal |  | (5,120) |  |  | (1,528) |  |  | (2,860) |
State and local |  | (2,487) |  |  | (4,270) |  |  | 538 |
International |  | 422 |  |  | (2,158) |  |  | (4,138) |
Total deferred |  | (7,185) |  |  | (7,956) |  |  | (6,460) |
Total non-current tax (benefit) expense |  | 2,177 |  |  | (329) |  |  | (204) |
Total income tax expense |  | $ | 12,514 |  |  | $ | 10,383 |  |  | $ | 7,175 |
Income tax payments, net of refunds, were $27.4 million, $8.2 million and $14.1 million in fiscal 2023, 2022 and 2021, respectively. The following table provides a reconciliation of the statutory federal income tax rate to our consolidated effective tax rates:
|  | 2023 |  | 2022 |  | 2021
Statutory federal income tax rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State and local income taxes, net of federal tax benefit |  | 3.5 |  |  | 16.4 |  |  | (2.5) |
Foreign tax rate differential |  | (0.2) |  |  | (15.4) |  |  | (3.4) |
Nondeductible goodwill impairment expense |  | — |  |  | — |  |  | 5.6 |
Valuation allowance |  | (4.7) |  |  | 63.2 |  |  | 11.4 |
Nontaxable gain (loss) on life insurance policies |  | 0.2 |  |  | 1.2 |  |  | (1.8) |
Deduction for foreign derived intangible income |  | (0.2) |  |  | (2.6) |  |  | (0.8) |
Research & development tax credit |  | (1.5) |  |  | (9.4) |  |  | (5.3) |
§162(m) Executive Compensation Limitation |  | 0.8 |  |  | 3.5 |  |  | 3.6 |
Tax benefit of share based awards |  | (0.8) |  |  | (5.2) |  |  | 0.2 |
Worthless stock deduction |  | (6.0) |  |  | — |  |  | — |
Other, net |  | (1.4) |  |  | 2.2 |  |  | 3.7 |
Consolidated effective income tax rate |  | 10.7 | % |  | 74.9 | % |  | 31.7 | %
The estimated effective tax rate for fiscal 2023 decreased 64.2 percentage points from fiscal 2022, primarily due to the non-deductible intangible impairment charge in Canada in fiscal 2022 as well as the tax benefits claimed in fiscal 2023 related to a worthless stock loss deduction related to the Company's investment in Sotawall Limited, a Canadian subsidiary. Deferred tax assets and deferred tax liabilities at February 25, 2023 and February 26, 2022 were:
(In thousands) |  | 2023 |  | 2022
Deferred tax assets |  |  |  |
Accrued expenses |  | $ | 1,862 |  |  | $ | 3,515 |
Deferred compensation |  | 9,666 |  |  | 8,602 |
Section 174 capitalized costs |  | 12,222 |  |  | — |
Goodwill and other intangibles |  | 4,316 |  |  | 13,237 |
Liability for unrecognized tax benefits |  | 1,884 |  |  | 1,965 |
Unearned income |  | 11,007 |  |  | 9,802 |
Operating lease liabilities |  | 13,639 |  |  | 13,769 |
(In thousands) |  | 2023 |  | 2022
Net operating losses and tax credits |  | 11,459 |  |  | 8,580 |
Other |  | 3,656 |  |  | 4,986 |
Total deferred tax assets |  | 69,711 |  |  | 64,456 |
Less: valuation allowance |  | (9,048) |  |  | (15,370) |
Deferred tax assets, net of valuation allowance |  | 60,663 |  |  | 49,086 |
Deferred tax liabilities |  |  |  |
Depreciation |  | 21,965 |  |  | 26,095 |
Operating lease, right-of-use assets |  | 12,660 |  |  | 12,768 |
Bad debt |  | 8,262 |  |  | — |
Prepaid expenses |  | 2,467 |  |  | 3,015 |
Other |  | 3,546 |  |  | 3,074 |
Total deferred tax liabilities |  | 48,900 |  |  | 44,952 |
Net deferred tax assets (liabilities) |  | $ | 11,763 |  |  | $ | 4,134 |
The Company has state and foreign net operating loss carryforwards with a tax effect of $11.5 million. A valuation allowance of $8.4 million has been established for these net operating loss carryforwards due to the uncertainty of the use of the tax benefits in future periods. The Tax Cuts and Jobs Act of 2017 ("TCJA") requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code ("IRC") Section 174. Although Congress may consider legislation that would defer capitalization and amortization requirements to later years, we have no assurance that the requirement will be repealed or otherwise modified. The requirement was effective for the company beginning 2/27/2022. For the tax year ended 2/25/2023, the Company recorded an increase to income tax payable as well as deferred tax assets of approximately $12.2 million due to Section 174 capitalization. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing Deferred Tax Assets ("DTAs"). This has resulted in valuation allowances being recorded against DTAs in prior years in Brazil, Canada and various states. During the second quarter of fiscal 2023, the Company recorded a worthless stock deduction related to the Sotawall business. Additionally, the Company concluded that a portion of the Canadian DTAs were more likely than not to be realized. The related valuation allowance was reduced by $8.3 million, as we expect to realize this amount in the future. The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2020, or state and local income tax examinations for years prior to fiscal 2013. The Company is not currently under U.S. federal examination for years subsequent to fiscal year 2019, and there is very limited audit activity of the Company’s income tax returns in U.S. state jurisdictions or international jurisdictions. The Company considers the earnings of its non-U.S. subsidiaries to be indefinitely invested outside of the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and specific plans for reinvestment of those subsidiary earnings. Should the Company decide to repatriate the foreign earnings, it would need to increase the income tax provision in the period it was determined that the earnings will no longer be indefinitely invested outside the U.S. If we were to prevail on all unrecognized tax benefits recorded, $3.8 million, $1.7 million and $2.2 million for fiscal 2023, 2022 and 2021, respectively, would benefit the effective tax rate. Also included in the balance of unrecognized tax benefits for fiscal 2023, 2022 and 2021 are $1.5 million, $1.7 million, and $1.6 million, respectively, of tax benefits that, if recognized, would result in decreases to deferred taxes. Penalties and interest related to unrecognized tax benefits are recorded in income tax expense. For fiscal 2023, 2022 and 2021, we accrued penalties and interest related to unrecognized tax benefits of $0.4 million, $0.3 million, and $0.3 million, respectively. The following table provides a reconciliation of the total amounts of gross unrecognized tax benefits:
(In thousands) |  | 2023 |  | 2022 |  | 2021
Gross unrecognized tax benefits at beginning of year |  | $ | 3,321 |  |  | $ | 3,755 |  |  | $ | 4,071 |
Gross increases in tax positions for prior years |  | 2,298 |  |  | 108 |  |  | 106 |
Gross decreases in tax positions for prior years |  | (255) |  |  | (145) |  |  | (351) |
Gross increases based on tax positions related to the current year |  | 291 |  |  | 420 |  |  | 429 |
Gross decreases based on tax positions related to the current year |  | (27) |  |  | — |  |  | — |
Settlements |  | — |  |  | (147) |  |  | (96) |
Statute of limitations expiration |  | (316) |  |  | (670) |  |  | (404) |
Gross unrecognized tax benefits at end of year |  | $ | 5,312 |  |  | $ | 3,321 |  |  | $ | 3,755 |

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