INCOME TAXES

Provision for Income Taxes

The provision for income taxes on income before income taxes consists of:



Provision for Income Taxes—Expense	Year Ended
Provision for Income Taxes—Expense	February 22, 2013			February 24, 2012			February 25, 2011
Current income taxes:
Federal	$	12.1		$	—		$	3.3
State and local	1.4			0.4			1.0
Foreign	5.6			11.3			15.4
	19.1			11.7			19.7
Deferred income taxes:
Federal	(48.8		)	18.0			17.4
State and local	3.1			2.5			1.2
Foreign	42.7			(6.9		)	(7.3		)
	(3.0		)	13.6			11.3
Income tax expense	$	16.1		$	25.3		$	31.0

Income taxes were based on the following sources of income (loss) before income tax expense:



Source of Income (Loss) Before Income Tax Expense	Year Ended
Source of Income (Loss) Before Income Tax Expense	February 22, 2013			February 24, 2012		February 25, 2011
Domestic	$	83.8		$	63.8	$	39.7
Foreign	(28.9		)	18.2		11.7
	$	54.9		$	82.0	$	51.4

The total income tax expense we recognized is reconciled to that computed by applying the U.S. federal statutory tax rate of 35% as follows:



Income Tax Provision Reconciliation	Year Ended
Income Tax Provision Reconciliation	February 22, 2013			February 24, 2012			February 25, 2011
Tax expense at the U.S. federal statutory rate	$	19.2		$	28.7		$	18.0
Foreign tax credits (1)	(57.6		)	1.3			5.0
Valuation allowance provisions and adjustments (2)	40.0			0.7			1.2
Goodwill impairment (3)	12.3			—			—
Healthcare reform (4)	—			—			11.4
COLI income (5)	(3.1		)	(2.9		)	(5.7		)
Sale of subsidiary (6)	—			(2.3		)	(1.7		)
State and local income taxes, net of federal	2.9			1.9			1.4
Tax balance adjustments (7)	—			(1.0		)	4.3
Foreign operations, less applicable foreign tax credits (8)	2.5			0.7			(1.5		)
Research tax credit	(1.9		)	(1.6		)	(1.7		)
Tax reserve adjustments	0.7			1.1			—
Other	1.1			(1.3		)	0.3
Total income tax expense recognized	$	16.1		$	25.3		$	31.0

________________________

(1)

In 2013, we converted a wholly owned French holding company from a disregarded entity to a controlled foreign corporation for U.S. tax purposes, and that conversion caused outstanding intercompany debt to be treated as a deemed dividend taxable in the U.S. Foreign taxes paid on the income that generated the deemed dividend exceeded the U.S. tax cost creating an excess foreign tax credit of $56.7. Additionally, other cash dividends received from our Canadian subsidiary resulted in excess foreign tax credits of $0.9. These credits are expected to be utilized $21.0 in 2014 and $36.6 within the allowable 10 year carryfoward period.


(2)	The valuation allowance provisions were based on current year activity, and the valuation allowance adjustments were based on various factors, which are further detailed below.


(3)	The impairment charges related to goodwill recorded in purchase accounting are non-deductible.

(4)

In Q1 2011, the U.S. enacted significant healthcare reform legislation which effectively changed the tax treatment of the federal subsidies received by employers who provide certain prescription drug benefits for retirees (the “Medicare Part D subsidy”) for fiscal years beginning after December 31, 2012. We had previously recorded deferred tax assets based on the liability for post-retirement benefit obligations related to prescription drug benefits for retirees. As a result of the law change during Q1 2011, deferred tax assets were reduced as these obligations will no longer be deductible for purposes of determining taxable income to the extent they are reimbursed by the Medicare Part D subsidy.


(5)	The net returns in cash surrender value, normal insurance expenses and death benefit gains related to our investments in COLI policies are non-taxable.


(6)	In Q2 2012, we completed the sale of PolyVision’s remaining low margin whiteboard fabrication business in Europe to a third party for proceeds totaling $2.3. The transaction included the sale of PolyVision SAS (France) and PolyVision A/S (Denmark). Basis differences resulted in a tax benefit of $2.3.

(7)

The tax balance adjustments in 2011 relate to prior periods. Management has evaluated the relevant qualitative and quantitative factors related to these adjustments and concluded that had the adjustments been recorded in the appropriate period the impact individually and in the aggregate would not have been material to the current or previously reported financial information for any prior fiscal year.


(8)	The foreign operations, less applicable foreign tax credits amount includes the rate differential on foreign operations, U.S. tax cost of foreign branches and the impact of rate reductions in foreign jurisdictions.

Deferred Income Taxes

The significant components of deferred income taxes are as follows:



Deferred Income Taxes	February 22, 2013			February 24, 2012
Deferred income tax assets:
Employee benefit plan obligations	$	90.7		$	94.7
Foreign and domestic net operating loss carryforwards	85.0			91.4
Reserves and accruals	26.5			33.2
Tax credit carryforwards	60.2			20.5
Other, net	6.1			4.5
Total deferred income tax assets	268.5			244.3
Valuation allowances	(70.4		)	(34.5		)
Net deferred income tax assets	198.1			209.8
Deferred income tax liabilities:
Property, plant and equipment	31.7			37.8
Intangible assets	14.2			21.1
Total deferred income tax liabilities	45.9			58.9
Net deferred income taxes	$	152.2		$	150.9
Net deferred income taxes is comprised of the following components:
Deferred income tax assets—current	$	56.2		$	42.4
Deferred income tax assets—non-current	101.7			110.4
Deferred income tax liabilities—current	—			—
Deferred income tax liabilities—non-current	5.7			1.9

In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. Under U.S. GAAP, we are generally required to record U.S. deferred taxes on the anticipated repatriation of foreign income as the income is recognized for financial reporting purposes. An exception under certain accounting guidance permits us not to record a U.S. deferred tax liability for foreign income that we expect to reinvest in foreign operations and for which remittance will be postponed indefinitely. If it becomes apparent that some or all undistributed income will be remitted in the foreseeable future, the related deferred taxes are recorded in that period. In determining indefinite reinvestment, we regularly evaluate the capital needs of our foreign operations considering all available information, including operating and capital plans, regulatory capital requirements, debt requirements and cash flow needs, as well as, the applicable tax laws to which our foreign subsidiaries are subject. We expect existing foreign cash, cash equivalents and cash flows from future foreign operations to be sufficient to fund foreign operations. Debt and capital financing are available from the U.S. in the event foreign circumstances change. In addition, we expect our existing domestic cash balances and availability of domestic financing sources to be sufficient to fund domestic operating activities for at least the next 12 months and thereafter for the foreseeable future. Should we require more capital in the U.S. than is available domestically, we could repatriate future earnings from foreign jurisdictions, which could result in higher effective tax rates. As of February 22, 2013, we have not made a provision for U.S. or additional foreign withholding taxes on approximately $174.4 of unremitted foreign earnings we consider permanently reinvested. We believe the U.S. tax cost on the unremitted foreign earnings would be approximately $11.0 if the amounts were not considered permanently reinvested.

We establish valuation allowances against deferred tax assets when it is more likely than not that all or a portion of the deferred tax asset will not be realized. All evidence, both positive and negative, is identified and considered in making the determination. Future realization of the existing deferred tax asset ultimately depends, in part, on the existence of sufficient taxable income of appropriate character within the carryforward period available under tax law applicable in the jurisdiction in which the losses were incurred.

At February 22, 2013, the valuation allowance of $70.4 is comprised of $70.0 relating to foreign deferred tax assets for which $64.5, $3.4 and $2.1 relates to our French, U.K. and Moroccan subsidiaries, respectively, and $0.4 relates to U.S. state and local deferred tax assets. In 2013, we recorded a net increase of $40.0 to the valuation allowance, which was comprised of an increase in the valuation allowance on deferred tax assets in France of $44.2, in Morocco of $0.4 and in various U.S state and local jurisdictions of $0.3, and a decrease in the valuation allowance on deferred tax assets in the U.K. of $4.9.

In adjusting the French valuation allowance, we considered the following factors:


•	the nature, frequency and severity of cumulative financial reporting losses in recent years,


•	the predictability of future operating income,


•	prudent and feasible tax planning strategies that could be implemented, to protect the loss of the deferred tax asset and


•	the effect of reversing taxable temporary differences.

Despite several favorable changes to the cost structure of our French operating entity, we have recent negative evidence of cumulative operating losses and a lack of predictable profits. Based on this evidence we are unable to assert that it is more likely than not that any French deferred tax assets will be realized as of February 22, 2013.

In adjusting the U.K. valuation allowance, we considered the following factors:


•	consistent and improving financial reporting profit in recent years,


•	the predictability of future operating income and


•	the unlimited loss carryforward period.

Based on our evaluation of these factors, we were able to assess that it is more likely than not that deferred tax assets of our operating entity in the U.K. will be realized within the carryforward period and a valuation allowance is no longer necessary. In addition to the U.K. operating entity discussed above, we also own a dealer in the U.K. We continue to maintain a valuation allowance of $3.4 against the deferred tax assets of this owned dealer.

During 2013, we identified errors in our accounting for deferred income taxes which relate to periods prior to 2010. We believe the errors are not material to any prior period financial statements. The correction of the errors had the effect of reducing long-term deferred income tax assets and retained earnings by $22.1. The Consolidated Balance Sheet as of February 24, 2012, the Consolidated Statements of Changes in Shareholders Equity as of February 24, 2012 and February 25, 2011, and the relevant income tax and segment asset disclosures presented in this Form 10-K have been restated to reflect this correction. These errors were associated with periods prior to 2010, and therefore did not impact the Consolidated Statements of Income or the Consolidated Statements of Cash Flows for 2012 and 2011.

Current Taxes Payable or Refundable

Income taxes currently payable or refundable are reported on the Consolidated Balance Sheets as follows:



Current Income Taxes	February 22, 2013		February 24, 2012
Other current assets:
Income taxes receivable	$	4.7	$	3.0
Accrued expenses:
Income taxes payable	$	2.7	$	3.1

Net Operating Loss and Tax Credit Carryforwards

Operating loss and tax credit carryforwards expire as follows:



Year Ending February	Net Operating Loss Carryforwards (Gross)						Tax Effected Net Operating Loss Carryforwards											Tax Credit Carryforwards
Year Ending February	Federal		State		International		Federal		State			International			Total			Tax Credit Carryforwards
2014	$	—	$	—	$	1.8	$	—	$	—		$	0.5		$	0.5		$	—
2015	—		0.3		1.4		—		—			0.4			0.4			—
2016	—		0.1		5.4		—		—			1.6			1.6			—
2017	—		0.1		3.8		—		—			1.1			1.1			—
2018-2033	—		185.9		3.7		—		4.8			0.8			5.6			52.6
No expiration	—		—		236.7		—		1.0			74.8			75.8			7.6
	$	—	$	186.4	$	252.8	—		5.8			79.2			85.0			60.2
Valuation allowances							—		(0.5		)	(66.0		)	(66.5		)	—
Net benefit							$	—	$	5.3		$	13.2		$	18.5		$	60.2

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 $78.7 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 that 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 United States 2013, Canada 2009 through 2013, France 2010 through 2013 and Germany 2009 through 2013. 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 2013, 2012 and 2011.

As of February 22, 2013 and February 24, 2012, the liability for uncertain tax positions, including interest and penalties, reported on the Consolidated Balance Sheets was as follows:



Liability for Uncertain Tax Positions	February 22, 2013		February 24, 2012
Other accrued expenses	$	0.3	$	—
Other long-term liabilities	1.6		1.2
	$	1.9	$	1.2

A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:



Unrecognized Tax Benefits	Year Ended
Unrecognized Tax Benefits	February 22, 2013			February 24, 2012			February 25, 2011
Balance as of beginning of period	$	11.5		$	0.1		$	0.2
Gross increases—tax positions in prior period	1.6			—			—
Gross decreases—tax positions in prior period	(0.9		)	—			—
Gross increases—tax positions in current period	—			11.5			—
Lapse of statute of limitations	—			(0.1		)	(0.1		)
Balance as of end of period	$	12.2		$	11.5		$	0.1

Unrecognized tax benefits of $1.9, if favorably resolved would affect our effective tax rate. We do not expect the balance of unrecognized tax benefits to significantly increase or decrease within the next year.

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 the liability for uncertain tax positions. If we prevail on these tax positions, which total $10.3, the resolution of these items would not impact tax expense, since the positions were taken in countries where we have recorded valuation allowances.