Income Taxes

12 Months Ended

Feb. 29, 2024

Income Tax Disclosure [Abstract]

Income Taxes

(13) Income Taxes

The following table represents components of the provision for income taxes for fiscal years ended (in thousands):

	2024			2023			2022
Current:
Federal	$	13,842		$	15,784		$	7,284
State and local		4,337			3,647			2,516
Total current		18,179			19,431			9,800
Deferred:
Federal		(1,133	)		(1,341	)		3,004
State and local		(520	)		(460	)		158
Total deferred		(1,653	)		(1,801	)		3,162
Total provision for income taxes	$	16,526		$	17,630		$	12,962

The following summary reconciles the statutory U.S. federal income tax rate to the Company’s effective tax rate for the fiscal years ended:

	2024			2023			2022
Statutory rate		21.0	%		21.0	%		21.0	%
Provision for state income taxes, net of federal    income tax benefit		4.3			3.9			5.8
Federal true-up		1.8			1.5			0.3
Stock compensation and Section 162(m) limitation		0.9			0.8			3.8
		28.0	%		27.2	%		30.9	%

Deferred taxes are recorded to give recognition to temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The tax effects of these temporary differences are recorded as deferred tax assets and deferred tax liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in future years. Deferred tax liabilities generally represent items that have been deducted for tax purposes, but have not yet been recorded in the consolidated statements of operations. To the extent there are deferred tax assets that are more likely than not to be realized, a valuation allowance would be recorded. Management does not expect to be able to utilize the foreign tax credit before it expires in 2026. Therefore, a full valuation allowance was established in fiscal year 2020. IRS code Section 162(m) limits the amount of deductible compensation for tax purposes paid to certain covered employees. The components of deferred income tax assets and liabilities are summarized as follows (in thousands) for fiscal years ended:

Deferred tax assets	2024			2023
Allowance for credit losses	$	385		$	345
Inventories		1,128			1,170
Employee compensation and benefits		712			833
Pension and noncurrent employee compensation    benefits		952			1,009
Property tax		-			161
Operating lease liabilities		2,529			3,274
Net operating loss and foreign tax credits		878			996
Other		-			277
Total deferred tax assets		6,584			8,065
Less: valuation allowance		(408	)		(1,242	)
Total deferred tax assets, net	$	6,176		$	6,823
Deferred tax liabilities
Property, plant and equipment	$	3,137		$	4,902
Goodwill and other intangible assets		9,739			9,683
Right-of-use assets		2,466			3,204
Other		139			132
Total deferred tax liabilities	$	15,481		$	17,921
Net deferred income tax liabilities	$	9,305		$	11,098

At fiscal year ended 2024, the Company had federal net operating loss (“NOL”) carry forwards of approximately $2.7 million. This NOL is related to the acquisitions of Flesh and Impressions Direct. The NOL is subject to a Section 382 limitation of $0.2 million per year and expiring in 2040. Based on historical earnings and expected sufficient future taxable income, management believes it will be able to fully utilize the NOL.

Accounting standards require a two-step approach to determine how to recognize tax benefits in the financial statements where recognition and measurement of a tax benefit must be evaluated separately. A tax benefit will be recognized only if it meets a “more-likely-than-not” recognition threshold. For tax positions that meet this threshold, the tax benefit recognized is based on the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority.

At fiscal years ended 2024 and 2023, unrecognized tax benefits related to uncertain tax positions, including accrued interest and penalties of $0.1 million and $0.1 million, respectively, are included in other liabilities on the consolidated balance sheets and would impact the effective rate if recognized. The interest expense associated with the unrecognized tax benefit is not material. A reconciliation of the change in the unrecognized tax benefits for fiscal years ended 2024 and 2023 is as follows (in thousands):

	2024			2023
Balance at March 1, 2023	$	202		$	166
Additions based on tax positions		66			66
Reductions due to lapses of statues of limitations		(30	)		(30	)
Balance at February 29, 2024	$	238		$	202

The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company has concluded all U.S. federal income tax matters for years through 2020. All material state and local income tax matters have been concluded for years through 2019.

The Company recognizes interest expense on underpayments of income taxes and accrued penalties related to unrecognized non-current tax benefits as part of the income tax provision. Other than amounts included in the unrecognized tax benefits, the Company did not recognize any interest or penalties for the fiscal years ended 2024, 2023 and 2022.