Income Taxes

12 Months Ended

Feb. 24, 2017

Income Tax Disclosure [Abstract]

Income Taxes

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
	February 24, 2017		February 26, 2016			February 27, 2015
Current income taxes:
Federal	$	18.4	$	47.7		$	40.0
State and local	9.5		12.5			8.8
Foreign	17.0		12.6			1.7
	44.9		72.8			50.5
Deferred income taxes:
Federal	21.4		(12.7		)	4.9
State and local	1.2		(3.3		)	1.3
Foreign	4.2		(52.3		)	(5.8		)
	26.8		(68.3		)	0.4
Income tax expense	$	71.7	$	4.5		$	50.9

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
	February 24, 2017		February 26, 2016		February 27, 2015
Domestic	$	136.0	$	114.9	$	146.2
Foreign	60.3		59.9		(9.2		)
	$	196.3	$	174.8	$	137.0

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
	February 24, 2017			February 26, 2016			February 27, 2015
Tax expense at the U.S. federal statutory rate	$	68.7		$	61.2		$	48.0
State and local income taxes, net of federal	6.5			6.7			6.3
Valuation allowance provisions and adjustments (1)	(2.2		)	(59.9		)	6.1
Foreign investment tax credits (2)	—			(1.5		)	(5.7		)
COLI income (3)	(3.3		)	(0.7		)	(2.0		)
Foreign operations, less applicable foreign tax credits (4)	(2.0		)	(1.6		)	(1.7		)
Impact of change to statutory tax rates (5)	9.3			(0.1		)	0.2
Research tax credit	(1.8		)	(1.9		)	(1.7		)
Tax reserve adjustments (6)	(5.3		)	—			(2.0		)
Other	1.8			2.3			3.4
Total income tax expense recognized	$	71.7		$	4.5		$	50.9

________________________

(1) 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.

(2) Investment tax credits were granted by the Czech Republic for investments in qualifying manufacturing equipment.

(3) The increase in the cash surrender value of COLI policies, net of normal insurance expenses, plus death benefit gains are non-taxable.

(4) The foreign operations, less applicable foreign tax credits, amounts include the rate differential from the U.S. rate on foreign operations.

(5) During Q4 2017 a reduction to the French corporate tax rate was enacted and the rate reduction resulted in the revaluation of certain deferred tax assets of our French tax group, causing an increase of $7.9 to tax expense. Also during 2017, further reductions to the United Kingdom statutory rate were recognized, and these reductions increased tax expense by $1.5. Other tax rate changes in various jurisdictions accounted for $0.1 of net reductions in tax expense.

(6) Tax reserve adjustments in 2017 related to a French income tax audit that was effectively settled upon completion in 2017. Tax reserve adjustments in 2015 related to a German income tax audit which was completed in 2015.

Deferred Income Taxes

The significant components of deferred income taxes are as follows:

Deferred Income Taxes	February 24, 2017			February 26, 2016
Deferred income tax assets:
Employee benefit plan obligations and deferred compensation	$	108.8		$	114.4
Foreign and domestic net operating loss carryforwards	57.0			69.7
Reserves and accruals	29.8			29.1
Tax credit carryforwards	17.4			28.2
Other, net	21.2			18.9
Total deferred income tax assets	234.2			260.3
Valuation allowances	(7.9		)	(10.6		)
Net deferred income tax assets	226.3			249.7
Deferred income tax liabilities:
Property, plant and equipment	40.9			36.4
Intangible assets	3.6			2.7
Prepaid expenses	3.1			—
Total deferred income tax liabilities	47.6			39.1
Net deferred income taxes	$	178.7		$	210.6
Net deferred income taxes is comprised of the following components:
Deferred income tax assets—non-current	179.6			211.6
Deferred income tax liabilities—non-current	(0.9		)	(1.0		)

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 24, 2017, we have not made a provision for U.S. or additional foreign withholding taxes on approximately $121.0 of unremitted foreign earnings and profits we consider permanently reinvested. We believe the U.S. tax cost, net of related foreign tax credits, on the unremitted foreign earnings would be approximately $13.5 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 assets 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 24, 2017, the valuation allowance of $7.9 included $7.5 relating to foreign deferred tax assets. In 2017, there was an aggregate decrease of $2.7 in the valuation allowances, including tax rate changes and expirations of $2.2 and currency fluctuations and other adjustments of $0.5. In Q4 2015, we implemented changes in EMEA to align our tax structure with the management of our globally integrated business. Our U.S. parent company became the principal in a contract manufacturing model with Steelcase European subsidiaries. In Q4 2016, we reached the conclusion that there was sufficient positive evidence, including acceptance of our new tax structure by the U.S. Internal Revenue Service, sustained profitability in our French subsidiaries and other factors, which caused us to reverse valuation allowances of $56.0 recorded against net deferred tax assets in France.

In updating our assessment of the ultimate realization of deferred tax assets, we considered the following factors:

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

• the predictability of future income,

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

• the effect of reversing taxable temporary differences.

Based on our evaluation of these factors, particularly increasing cumulative losses, we were unable to assert that it is more likely than not that the deferred tax assets in our owned dealers in France and the United Kingdom, Morocco, China, Singapore, Hong Kong, Belgium and Brazil would be realized as of February 24, 2017.

Taxes Payable or Refundable

During 2017, we amended certain of our U.S. federal income tax returns for prior periods to claim certain foreign tax credits. We believe that the refunds generated by these amendments will not be received within the next 12 months, and we have classified them as non-current assets.

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

Income Taxes	February 24, 2017		February 26, 2016
Other current assets:
Income taxes receivable	$	19.0	$	5.5
Other long-term assets:
Income taxes receivable	$	18.5	—
Accrued expenses:
Income taxes payable	$	6.4	$	5.2

Net Operating Loss and Tax Credit Carryforwards

Operating loss and tax credit carryforwards expire as follows:

Year Ending February	Net Operating Loss Carryforwards (Gross)						Net Operating Loss Carryforwards (Tax Effected)											Tax Credit Carryforwards
	Federal		State		International		Federal		State			International			Total
2018	$	—	$	—	$	2.4	$	—	$	—		$	0.8		$	0.8		$	—
2019	—		—		2.5		—		—			0.7			0.7			—
2020	—		—		2.4		—		—			0.5			0.5			—
2021	—		—		—		—		—			—			—			—
2022-2037	—		23.1		—		—		1.3			—			1.3			17.4
No expiration	—		—		202.9		—		—			53.7			53.7			—
	$	—	$	23.1	$	210.2	—		1.3			55.7			57.0			17.4
Valuation allowances							—		(0.4		)	(7.5		)	(7.9		)	—
Net benefit							$	—	$	0.9		$	48.2		$	49.1		$	17.4

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 $66.5 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 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 2017, Canada 2014 through 2017, France 2013 through 2017 and Germany 2013 through 2017. 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 have recorded no 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 2017, 2016 and 2015.

As of February 24, 2017 and February 26, 2016, 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 24, 2017		February 26, 2016
Other accrued expenses	$	—	$	—
Other long-term liabilities	0.2		0.2
	$	0.2	$	0.2

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

Unrecognized Tax Benefits	Year Ended
	February 24, 2017			February 26, 2016			February 27, 2015
Balance as of beginning of period	$	8.6		$	8.8		$	12.7
Gross decreases—tax positions in prior period	(5.3		)	—			(1.9		)
Currency translation adjustment	(0.5		)	(0.2		)	(2.0		)
Balance as of end of period	$	2.8		$	8.6		$	8.8

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 an $2.6 liability for uncertain tax positions.

Unrecognized tax benefits of $2.8, if favorably resolved, would be recorded as an income tax benefit. It is unlikely that the amount of unrecognized tax benefits will significantly change due to expiring statutes or audit activity in the next twelve months.