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Income Taxes | 12 Months Ended
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Feb. 29, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Note 22 - Income taxes We reorganized the Company in Bermuda in 1994 and many of our foreign subsidiaries are not directly or indirectly owned by a U.S. parent. As such, a large portion of our foreign income is not subject to U.S. taxation on a permanent basis under current law. Additionally, our intellectual property is largely owned by foreign subsidiaries, resulting in proportionally higher earnings in jurisdictions with lower statutory tax rates, which decreases our overall effective tax rate. The taxable income earned in each jurisdiction, whether U.S. or foreign, is determined by the subsidiary's operating results, and transfer pricing and tax regulations in the related jurisdictions. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted signed into law. The CARES Act is an emergency economic stimulus package in response to the COVID-19 outbreak, which contains numerous tax provisions. Among other things, the CARES Act amended the net operating loss provisions and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. We are currently evaluating the impact of the CARES Act and will begin to reflect any impact during the period of enactment, which is our first quarter of fiscal 2021. On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. Among other changes, the Tax Act lowered the U.S. statutory corporate income tax rate from 35% to 21% and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of certain foreign subsidiaries. The rate change was effective at the beginning of calendar year 2018 and, as a result, we were subject to a blended U.S. federal statutory tax rate of 32.7% for our fiscal 2018 and a tax rate of 21% for subsequent periods. Under accounting standards for income taxes, the impact of new tax legislation must be taken into account in the period in which it is enacted. Subsequent to the Tax Act, the SEC issued Staff Accounting Bulletin 118 (“SAB 118”) allowing companies to use provisional estimates to record the effects of the Tax Act. SAB 118 also provides a measurement period (not to exceed one year from the date of enactment) to complete the accounting for the impacts of the Tax Act. As a result of the enactment, we recorded a provisional tax charge of $17.9 million in fiscal 2018 related to the one-time remeasurement of our U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, the one-time repatriation tax applied to our undistributed foreign earnings and the impact of executive compensation that is no longer deductible under the Tax Act. In accordance with SAB 118, we completed the accounting for the tax effects of the Tax Act and recorded immaterial adjustments to the provisional tax charge during the fourth quarter of fiscal 2019. The Tax Act introduced new provisions for U.S. taxation of certain global intangible low-taxed income (“GILTI”). The Company elected to account for the tax on GILTI as a period cost and therefore has not recorded deferred taxes related to GILTI on its foreign subsidiaries. In connection with the enactment of the Tax Act, we repatriated $48.3 million of cash held in our U.S. owned foreign subsidiaries without such funds being subject to further U.S. federal income tax. As of February 29, 2020, we had approximately $22.3 million of undistributed earnings in these U.S. owned foreign subsidiaries. While U.S. federal tax expense has been recognized as a result of the Tax Act, no deferred tax liabilities with respect to items such as certain foreign exchange gains or losses, foreign withholding taxes or state taxes have been recognized. No deferred taxes have been provided on the undistributed earnings of our subsidiaries since these earnings will continue to be permanently reinvested. Due to the number of legal entities and jurisdictions involved, our legal entity structure, and the tax laws in the relevant jurisdictions, we believe it is not practicable to estimate the amount of additional taxes which may be payable upon distribution of these undistributed earnings. Our components of income before income tax expense are as follows:
| Fiscal Years Ended Last Day of February,
(in thousands) | 2020 |  | 2019 |  | 2018
U.S. | $ | 40,146 |  |  | $ | 32,135 |  |  | $ | 23,824 |
Non-U.S. | 125,794 |  |  | 155,865 |  |  | 131,614 |
Total | $ | 165,940 |  |  | $ | 188,000 |  |  | $ | 155,438 |
Our components of income tax expense (benefit) are as follows:
| Fiscal Years Ended Last Day of February,
(in thousands) | 2020 |  | 2019 |  | 2018
U.S. |  |  |  |  |  |  |  |
Current | $ | 16,732 |  |  | $ | 2,460 |  |  | $ | 3,380 |
Deferred | (4,789 | ) |  | 10,480 |  |  | 19,578 |
| 11,943 |  |  | 12,940 |  |  | 22,958 |
Non-U.S. |  |  |  |  |  |  |  |
Current | 2,571 |  |  | 2,102 |  |  | 1,912 |
Deferred | (907 | ) |  | (1,266 | ) |  | 1,686 |
| 1,664 |  |  | 836 |  |  | 3,598 |
Total | $ | 13,607 |  |  | $ | 13,776 |  |  | $ | 26,556 |
Our total income tax expense differs from the amounts computed by applying the U.S. statutory tax rate to income before income taxes. A income tax rate reconciliation of these differences are as follows:
| Fiscal Years Ended Last Day of February,
| 2020 |  | 2019 |  | 2018
Effective income tax rate at the U.S. statutory rate | 21.0 | % |  | 21.0 | % |  | 32.7 | %
Impact of U.S. state income taxes | 1.6 | % |  | 1.2 | % |  | 0.5 | %
Effect of statutory tax rate in Macau | (13.6 | )% |  | (10.3 | )% |  | (19.5 | )%
Effect of statutory tax rate in Barbados | (5.5 | )% |  | (5.9 | )% |  | (5.2 | )%
Effect of statutory tax rate in Europe | (0.4 | )% |  | (1.9 | )% |  | (5.3 | )%
Effect of income from other non-U.S. operations subject to varying rates | 2.3 | % |  | 1.8 | % |  | 2.1 | %
Effect of foreign exchange fluctuations | 0.7 | % |  | 0.2 | % |  | 0.3 | %
Effect of asset impairment charges | 2.4 | % |  | — | % |  | 2.2 | %
Effect of U.S. tax reform | — | % |  | (0.1 | )% |  | 11.5 | %
Effect of uncertain tax positions | (1.7 | )% |  | (0.6 | )% |  | (1.3 | )%
Effect of nondeductible executive compensation | 1.4 | % |  | 0.9 | % |  | 0.6 | %
Effect of base erosion and anti-abuse tax | — | % |  | 1.0 | % |  | — | %
Other items | — | % |  | — | % |  | (1.5 | )%
Effective income tax rate | 8.2 | % |  | 7.3 | % |  | 17.1 | %
Our Macau subsidiary generates income from the sale of the goods that it has sourced and procured. This subsidiary is responsible for the sourcing and procurement of a large portion of the products that we sell. We currently have an indefinite tax holiday in Macau conditioned on the subsidiary meeting certain employment and investment thresholds. The Macau Offshore Law and its supplementary regulations that grant tax incentives to approved offshore institutions will be abolished on January 1, 2021. Existing approved offshore institutions such as ours can continue to operate under the offshore regime until the end of the calendar year 2020. Beginning in calendar year 2021, we believe our Macau subsidiary will become subject to a statutory corporate income tax of approximately 12%. The ultimate impact of this change, if any, on our overall effective tax rate will depend on a variety of factors including our mix of income by jurisdiction, transfer pricing considerations and the specific tax regulations applicable to us when we are no longer under the Macau Offshore regime. It is not practicable for us to determine the potential impact on our financial statements until the tax changes in Macau are fully established and our transfer pricing analysis is complete. Because our Macau subsidiary is not directly or indirectly owned by a U.S. parent, there is no U.S. tax liability associated with the income generated in Macau. 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 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 2020 and 2019 are as follows:
| Fiscal Years Ended Last Day of February,
(in thousands) | 2020 |  | 2019
Deferred tax assets, gross: |  |  |
Operating loss carryforwards | $ | 13,908 |  |  | $ | 18,300 |
Accounts receivable | 5,467 |  |  | 4,680 |
Inventories | 8,751 |  |  | 7,806 |
Operating lease liabilities | 10,451 |  |  | — |
Accrued expenses and other | 7,692 |  |  | 8,293 |
Total gross deferred tax assets | 46,269 |  |  | 39,079 |
Valuation allowance | (14,073 | ) |  | (17,086 | )
Deferred tax liabilities: |  |  |  |  |
Operating lease assets | (7,573 | ) |  | — |
Depreciation and amortization | (14,212 | ) |  | (19,750 | )
Total deferred tax assets, net | $ | 10,411 |  |  | $ | 2,243 |
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. We consider the scheduled reversal of deferred tax liabilities, expected future taxable income and tax planning strategies in assessing the ultimate realization of 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 be recoverable. In fiscal 2020, the $3.0 million net decrease in our valuation allowance was principally due to a reduction in the value of the operating loss carryforwards to be used in the future. The composition of our operating loss carryforwards at the end of fiscal 2020 is as follows:
|  | February 29, 2020
(in thousands) | Tax Year Expiration Date Range | Deferred Tax Assets | Operating Loss Carryforward
U.S. state operating loss carryforward | 2028-2038 | 245 |  | 4,149 |
Non-U.S. operating loss carryforwards with definite carryover periods | 2021-2037 | 1,823 |  | 6,917 |
Non-U.S. operating loss carryforwards with indefinite carryover periods | Indefinite | 11,840 |  | 43,369 |
Subtotals |  | 13,908 |  | $ | 54,435 |
Less portion of valuation allowance established for operating loss carryforwards |  | (13,406 | ) |
Total |  | $ | 502 |  |  |
Any future amount of deferred tax asset considered realizable could be reduced in the near term if estimates of future taxable income during any carryforward periods are reduced. During fiscal 2020 and 2019, changes in the total amount of unrecognized tax benefits were as follows:
| Fiscal Years Ended Last Day of February,
(in thousands) | 2020 |  | 2019
Total unrecognized tax benefits, beginning balance | $ | 3,205 |  |  | $ | 4,428 |
Resolution of tax dispute | — |  |  | — |
Changes in tax positions taken during a prior period | (2,819 | ) |  | 15 |
Lapse in statute of limitations | — |  |  | (1,057 | )
Impact of foreign currency re-measurement | — |  |  | (161 | )
Settlements | (273 | ) |  | (20 | )
Total unrecognized tax benefits, ending balance | 113 |  |  | 3,205 |
Less current unrecognized tax benefits | — |  |  | (316 | )
Noncurrent unrecognized tax benefits | $ | 113 |  |  | $ | 2,889 |
Included in the balance of unrecognized tax benefits at the end of fiscal 2019 were $3.2 million (includes interest) of tax benefits, which were principally reversed during fiscal 2020. We do not expect any significant changes to our existing unrecognized tax benefits during the next twelve months resulting from any issues currently pending with tax authorities. We classify interest and penalties on uncertain tax positions as income tax expense. At the end of fiscal 2020 and 2019, the liability for tax-related interest and penalties included in unrecognized tax benefits was $0.1 and $0.6 million, respectively. Additionally, during fiscal 2020, 2019 and 2018 we recognized tax benefits from tax-related interest and penalties of $0.5, $0.5 and $0.5 million, respectively, in the consolidated statements of income. We file income tax returns in the U.S. federal jurisdiction and in various states and foreign jurisdictions. We do not expect that any proposed adjustments from these tax jurisdictions will have a material impact on our consolidated financial statements. As of February 29, 2020, tax years under examination or still subject to examination by material tax jurisdictions are as follows:
Jurisdiction | Tax Years Under Examination | Open Tax Years
United Kingdom | - None - | 2019 | — | 2020
United States | 2017 - 2018 | 2017 | — | 2020
Switzerland | - None - | 2016 | — | 2020
Hong Kong | - None - | 2014 | — | 2020
During fiscal 2017 we received an assessment from a state tax authority which adjusted taxable income applicable to the particular state resulting from interpretations of certain state income tax provisions applicable to our legal structure. We believe we have accurately reported our taxable income and are vigorously protesting the assessment through administrative processes with the state. We believe it is unlikely that the outcome of these matters will have a material adverse effect on our consolidated financial position, results of operations, or liquidity.

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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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