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INCOME TAXES | 12 Months Ended
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Feb. 28, 2014
INCOME TAXES |
INCOME TAXES | NOTE 10 – INCOME TAXES Our components of income before income tax expense are as follows: COMPONENTS OF INCOME BEFORE TAXES
(in thousands) |  |  |  |  |  |
|  |  | Fiscal Years Ended the Last Day of February, |
|  |  | 2014 |  | 2013 | 2012
U.S. |  |  | $ | 38,147 |  | $ | 50,834 | $ | 26,445
Non-U.S. |  |  | 68,987 |  | 84,680 | 99,647
Total |  |  | $ | 107,134 |  | $ | 135,514 | $ | 126,092
Our components of income tax expense (benefit) are as follows: COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)
(in thousands) |  |  |  |  |  |
|  |  | Fiscal Years Ended the Last Day of February, |
|  |  | 2014 |  | 2013 | 2012
U.S. |  |  |  |  |  |
Current |  |  | $ | 24,736 |  | $ | 26,369 | $ | 5,342
Deferred |  |  | (9,021) |  | (8,776) | 4,630
|  |  | 15,715 |  | 17,593 | 9,972
Non-U.S. |  |  |  |  |  |
Current |  |  | 6,254 |  | 5,464 | 5,204
Deferred |  |  | (1,083) |  | (3,209) | 542
|  |  | 5,171 |  | 2,255 | 5,746
Total |  |  | $ | 20,886 |  | $ | 19,848 | $ | 15,718
Our total income tax expense differs from the amounts computed by applying the statutory tax rate to income before income taxes. A summary of these differences are as follows: INCOME TAX RATE RECONCILIATION
|  |  | Fiscal Years Ended the Last Day of February, |
|  |  | 2014 |  | 2013 | 2012
Expected effective income tax rate at the U.S. statutory rate |  |  | 35.0% |  | 35.0% | 35.0%
Impact of U.S. state income taxes and other |  |  | 2.2% |  | -0.2% | 1.5%
Decrease in income taxes resulting from income from non-U.S. operations |  |  |  |  |  |
subject to varying income tax rates |  |  | -9.3% |  | -11.4% | -13.6%
Effect of zero tax rate in Macau |  |  | -12.3% |  | -8.8% | -9.5%
Decrease in income taxes resulting from tax audit settlements |  |  | 0.0% |  | 0.0% | -0.9%
Effect of asset impairment charges, most of which are non-deductible |  |  | 3.9% |  | 0.0% | 0.0%
Effective income tax rate |  |  | 19.5% |  | 14.6% | 12.5%
Each year there are significant transactions or events that are incidental to our core businesses and that by a combination of their nature and jurisdiction, can have a disproportionate impact on our reported effective tax rates. Without these transactions or events, the trend in our effective tax rates would follow a more normalized pattern. The acquisitions of Kaz and PUR have increased the proportion of U.S. taxable income relative to total taxable income, which has resulted in higher effective income tax rates. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of the last day of February 2014 and 2013 are as follows: COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES (in thousands)
|  |  | Last Day of February,
|  |  | 2014 |  | 2013
Deferred tax assets, gross: |  |  |  |  |
Operating loss carryforwards |  |  | $ | 17,455 |  | $ | 21,385
Accounts receivable |  |  | 4,068 |  | 5,885
Inventories |  |  | 8,528 |  | 8,648
Accrued expenses and other |  |  | 20,307 |  | 10,600
Foreign currency contracts, interest rate swaps and deferred exchange gains |  |  | 528 |  | 930
Total gross deferred tax assets |  |  | 50,886 |  | 47,448
Valuation allowance |  |  | (15,602) |  | (19,040)
Deferred tax liabilities: |  |  |  |  |
Depreciation and amortization |  |  | (60,670) |  | (62,807)
Total deferred tax assets (liabilities), net |  |  | $ | (25,386) |  | $ | (34,399)
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, expected future taxable income and tax planning strategies in making this assessment. In fiscal year 2014, the net decrease in our valuation allowance was $3.44 million, principally due to the utilization and expiration of operating loss carryforwards previously reserved with a valuation allowance and changes in estimates regarding the value of operating loss carryforwards to be used in the future. The schedule below shows the composition of our operating loss carryforwards and the approximate future taxable income we will need to generate in order to utilize all carryforwards prior to their expiration. SUMMARY OF OPERATING LOSS CARRYFORWARDS (in thousands)
| At February 28, 2014
|  | Tax Year |  | Gross |  | Required |
|  | Expiration |  | Deferred Tax |  | Future Taxable |
|  | Date Range |  | Assets |  | Income |
U.S. operating loss carryforwards |  | 2016 - 2032 |  | $ | 2,253 |  | $ | 8,991 |
Non-U.S. operating loss carryforwards with definite |  |  |  |  |  |  |
carryover periods |  | 2014 - 2029 |  | 4,063 |  | 32,368 |
Non-U.S. operating loss carryforwards with indefinite |  |  |  |  |  |  |
carryover periods |  | Indefinite |  | 11,139 |  | 37,116 |
Subtotals |  |  |  | 17,455 |  | 78,475 |
Less portion of valuation allowance established for |  |  |  |  |  |  |
operating loss carryforwards |  |  |  | (12,695 | ) | (47,633) |
Total |  |  |  | $ | 4,760 |  | $ | 30,842 |
As of February 28, 2014, subject to the valuation allowances provided, we believe it is more likely than not that we will realize the net benefits of these deferred tax assets. Any future amount of deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during any carryforward periods are reduced. United States Income Taxes - In fiscal year 2012, the Company and the IRS reached an agreement with respect to the U.S. federal income tax returns of Kaz, Inc. and its subsidiaries for tax years 2004 and 2006 resulting in a decrease to fiscal year 2012 tax expense of $1.13 million. The U.S. federal income tax returns of Kaz, Inc. and its U.S. subsidiaries for tax years 2003, 2007 and 2008 continue to be under examination as of February 28, 2014. During fiscal year 2012, the Company received notices of proposed adjustments related to Kaz’s 2007 and 2008 tax years. The Company is protesting the adjustments and does not expect them to have a material impact on our results of operations or financial position. During fiscal year 2014, the IRS began an audit of the U.S. Federal income tax returns of Helen of Troy Texas Corporation and its subsidiaries for the 2011 and 2012 tax years. As of February 28, 2014, no adjustments have been proposed. Hungary Income Taxes - The Company is currently under audit in Hungary with respect to the 2005, 2006 and 2009 tax years and has received notices of proposed adjustments for each year. We are currently challenging these adjustments through judicial proceedings and have recorded an unrecognized tax benefit of $2.99 million. Income Tax Provisions - We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments must be used in the calculation of certain tax assets and liabilities because of differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. As changes occur in our assessments regarding our ability to recover our deferred tax assets, our tax provision is increased in any period in which we determine that the recovery is not probable. Uncertainty in Income Taxes - The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. When there is uncertainty in a tax position taken or expected to be taken in a tax return, a liability is recorded for the amount of the position that could be challenged and overturned through any combination of audit, appeals or litigation processes. This amount is determined through criteria and a methodology prescribed by GAAP and is referred to as an “unrecognized tax benefit.” In the period these liabilities are established, we record an associated charge to our provision for taxes. If based on new information in a later period, we determine that payment of these amounts are not probable, or that the recorded tax liability differs from what we expect the ultimate assessment to be, we adjust the liability accordingly and recognize a related tax benefit or expense. During fiscal years 2014 and 2013, changes in the total amount of unrecognized tax benefits were as follows: UNRECOGNIZED TAX BENEFITS (in thousands)
|  |  | Fiscal Years Ended
|  |  | 2014 |  | 2013
Total unrecognized tax benefits, beginning balance |  |  | $ | 15,759 |  | $ | 13,213
Changes in tax positions taken during a prior period |  |  | 536 |  | 3,194
Changes due to lapse in statute of limitations |  |  | (2,363) |  | (466)
Impact of foreign currency remeasurement on unrecognized tax benefits in the current period |  |  | 216 |  | (182)
Changes resulting from agreements with taxing authorities |  |  | (224) |  | -
Total unrecognized tax benefits, ending balance |  |  | 13,924 |  | 15,759
Less current unrecognized tax benefits |  |  | (453) |  | -
Noncurrent unrecognized tax benefits |  |  | $ | 13,471 |  | $ | 15,759
We do not expect any additional material changes to our existing unrecognized tax benefits during the next twelve months resulting from any issues currently pending with tax authorities. The Company classifies all interest and penalties on uncertain tax positions as income tax expense. As of February 28, 2014 and February 28, 2013, the liability for tax-related interest expense and penalties included in unrecognized tax benefits was $2.66 and $2.45 million for interest expense and $1.48 and $1.43 million for penalties, respectively. Additionally, the 2014, 2013 and 2012 provisions for income tax include combined tax-related interest and penalties expense of $0.56, $1.03 and $1.25 million, respectively. We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. As of February 28, 2014, tax years under examination or still subject to examination by material tax jurisdictions are as follows:
Jurisdiction |  | Tax Years Under Examination |  | Open Tax Years
Mexico |  | 2008 |  | 2008 | - | 2013
United Kingdom |  | - None - |  | 2013 | - | 2014
United States * |  | 2003, 2007, 2008, 2011, 2012 |  | 2003, 2007, 2008, 2011 - 2014
Switzerland |  | - None - |  | 2007 | - | 2014
Hong Kong |  | - None - |  | 2006 | - | 2014
France |  | 2007 - 2010 |  | 2007 | - | 2014
Hungary |  | 2005, 2006, 2009 |  | 2005, 2006, 2009 - 2014
* Kaz, Inc. and its U.S. subsidiaries are under examination for the 2003, 2007 and 2008 tax years. Helen of Troy Texas Corporation and its subsidiaries are currently under examination for the 2011 and 2012 tax years.

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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 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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