XML 42 R28.htm IDEA: XBRL DOCUMENT
v3.21.1

Income taxes | 12 Months Ended
--- | ---
Feb. 28, 2021
Income Tax Disclosure [Abstract] |
Income taxes | Note 20 - 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 11, 2021, the American Rescue Plan Act (the “ARM”) was enacted and signed into law. The ARM is an economic stimulus package in response to the COVID-19 outbreak, which contains tax provisions that are not expected to have a material impact to our consolidated financial statements. In accordance with accounting standards for income taxes, the impact of this new tax legislation will be taken into account in our first quarter of fiscal 2022, the period in which it was enacted. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted and signed into law. The CARES Act is an emergency economic stimulus package in response to the COVID-19 outbreak that contains numerous tax provisions. Among other things, the CARES Act included technical corrections to the effective date language in the Tax Cuts and Jobs Act, enacted into law on December 22, 2017 (the “Tax Act”), related to net operating loss carrybacks. Upon the enactment of the Tax Act in fiscal 2018, there was a net operating loss on our balance sheet, which was measured using the U.S. statutory tax rate in effect prior to enactment. As a result of the Tax Act, we were required to record a one-time charge of $17.9 million in fiscal 2018, which included a charge of $9.4 million to remeasure the net operating loss at the reduced rate at which it was expected to reverse in the future. The CARES Act effectively reversed the impact of the Tax Act on our net operating loss, resulting in a corresponding tax benefit of $9.4 million recorded in the first quarter of fiscal 2021. 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 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 28, 2021, we had approximately $23.0 million of undistributed earnings in 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) | 2021 |  | 2020 |  | 2019
U.S. | $ | 48,693 |  |  | $ | 40,146 |  |  | $ | 32,135 |
Non-U.S. | 220,737 |  |  | 125,794 |  |  | 155,865 |
Total | $ | 269,430 |  |  | $ | 165,940 |  |  | $ | 188,000 |
Our components of income tax expense (benefit) are as follows:
| Fiscal Years Ended Last Day of February,
(in thousands) | 2021 |  | 2020 |  | 2019
U.S. |  |  |  |  |
Current | $ | 10,232 |  |  | $ | 16,732 |  |  | $ | 2,460 |
Deferred | (5,623) |  |  | (4,789) |  |  | 10,480 |
| 4,609 |  |  | 11,943 |  |  | 12,940 |
Non-U.S. |  |  |  |  |
Current | 9,652 |  |  | 2,571 |  |  | 2,102 |
Deferred | 1,223 |  |  | (907) |  |  | (1,266) |
| 10,875 |  |  | 1,664 |  |  | 836 |
Total | $ | 15,484 |  |  | $ | 13,607 |  |  | $ | 13,776 |
Our total income tax expense differs from the amounts computed by applying the U.S. statutory tax rate to income before income taxes. An income tax rate reconciliation of these differences are as follows:
| Fiscal Years Ended Last Day of February,
| 2021 |  | 2020 |  | 2019
Effective income tax rate at the U.S. statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Impact of U.S. state income taxes | 0.6 | % |  | 1.6 | % |  | 1.2 | %
Effect of statutory tax rate in Macau | (3.4) | % |  | (13.6) | % |  | (10.3) | %
Effect of statutory tax rate in Barbados | (15.4) | % |  | (5.5) | % |  | (5.9) | %
Effect of statutory tax rate in Switzerland | (1.5) | % |  | (0.4) | % |  | (1.9) | %
Effect of income from other non-U.S. operations subject to varying rates | 3.8 | % |  | 2.3 | % |  | 1.8 | %
Effect of foreign exchange fluctuations | (0.1) | % |  | 0.7 | % |  | 0.2 | %
Effect of asset impairment charges | 0.3 | % |  | 2.4 | % |  | — | %
Effect of U.S. tax reform | (3.5) | % |  | — | % |  | (0.1) | %
Effect of uncertain tax positions | 3.2 | % |  | (1.7) | % |  | (0.6) | %
Effect of non-deductible executive compensation | 1.0 | % |  | 1.4 | % |  | 0.9 | %
Effect of base erosion and anti-abuse tax | (0.6) | % |  | — | % |  | 1.0 | %
Other items | 0.3 | % |  | — | % |  | — | %
Effective income tax rate | 5.7 | % |  | 8.2 | % |  | 7.3 | %
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 previously had 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 was abolished on January 1, 2021. Existing approved offshore institutions such as ours continued to operate under the offshore regime until the end of the calendar year 2020. Beginning in calendar year 2021, our Macau subsidiary transitioned to onshore status and is now subject to a statutory corporate income tax of approximately 12%. We expect the impact of this change to increase our overall effective tax rate by 1.5 to 2.0 percentage points on an annual basis, beginning with our fiscal year 2022. 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 are as follows:
| Fiscal Years Ended Last Day of February,
(in thousands) | 2021 |  | 2020
Deferred tax assets, gross: |  |  |
Operating loss carryforwards | $ | 14,785 |  |  | $ | 13,908 |
Accounts receivable | 8,905 |  |  | 5,467 |
Inventories | 12,432 |  |  | 8,751 |
Operating lease liabilities | 10,388 |  |  | 10,451 |
Accrued expenses and other | 10,731 |  |  | 7,692 |
Total gross deferred tax assets | 57,241 |  |  | 46,269 |
Valuation allowance | (15,021) |  |  | (14,073) |
Deferred tax liabilities: |  |  |
Operating lease assets | (7,500) |  |  | (7,573) |
Depreciation and amortization | (18,707) |  |  | (14,212) |
Total deferred tax assets, net | $ | 16,013 |  |  | $ | 10,411 |
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 2021, the $0.9 million net increase in our valuation allowance was principally due to changes in estimates of the operating loss carryforwards to be used in the future. The composition of our operating loss carryforwards at the end of fiscal 2021 is as follows:
|  | February 28, 2021
(in thousands) | Tax Year Expiration Date Range | Deferred Tax Assets |  | Operating Loss Carryforward
U.S. state operating loss carryforward | 2030-2038 | $ | 334 |  |  | $ | 4,550 |
Non-U.S. operating loss carryforwards with definite carryover periods | 2022-2038 | 1,899 |  |  | 7,387 |
Non-U.S. operating loss carryforwards with indefinite carryover periods | Indefinite | 12,552 |  |  | 46,066 |
Subtotal |  | 14,785 |  |  | $ | 58,003 |
Less portion of valuation allowance established for operating loss carryforwards |  | (14,257) |  |  |
Total |  | $ | 528 |  |  |
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 2021 and 2020, changes in the total amount of unrecognized tax benefits (excluding interest and penalties) were as follows:
| Fiscal Years Ended Last Day of February,
(in thousands) | 2021 |  | 2020
Total unrecognized tax benefits, beginning balance | $ | 113 |  |  | $ | 3,205 |
Tax positions taken during the current period | 1,542 |  |  | — |
Changes in tax positions taken during a prior period | 4,280 |  |  | (2,819) |
Settlements | (499) |  |  | (273) |
Total unrecognized tax benefits, ending balance | 5,436 |  |  | 113 |
Less current unrecognized tax benefits | — |  |  | — |
Non-current unrecognized tax benefits | $ | 5,436 |  |  | $ | 113 |
If we are able to sustain our positions with the relevant taxing authorities, approximately $5.4 million (excluding interest and penalties) of uncertain tax position liabilities as of February 28, 2021 would favorably impact our effective tax rate in future periods. 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 2021 and 2020, the liability for tax-related interest and penalties included in unrecognized tax benefits was $2.9 million and $0.1 million, respectively. Additionally, during fiscal 2021, we recognized tax expense from tax-related interest and penalties of $2.9 million and tax benefits of $0.5 million and $0.5 million during fiscal 2020 and 2019, 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 28, 2021, 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 - | 2020 | — | 2021
U.S. | - None - | 2017 | — | 2021
Switzerland | - None - | 2017 | — | 2021
Hong Kong | - None - | 2014 | — | 2021
China | 2009-2018 | 2009 | — | 2021
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. During the time the dispute was ongoing, we believed we accurately reported our taxable income and vigorously protested the assessment through administrative processes with the state. During fiscal 2021, we reached an agreement to settle the $6.0 million assessment in dispute for $0.5 million.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration