Income Taxes

12 Months Ended

Feb. 27, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Earnings before income taxes consisted of the following:

(In thousands)	2021		2020		2019
United States	$	45,651	$	97,297	$	60,042
International	(23,040)		(17,547)		(1,380)
Earnings before income taxes	$	22,611	$	79,750	$	58,662

The components of income tax expense (benefit) for each of the last three fiscal years are as follows:

(In thousands)	2021		2020		2019
Current
Federal	$	11,495	$	8,493	$	22,746
State and local	702		2,064		(4,437)
International	1,642		(2,720)		(459)
Total current	13,839		7,837		17,850
Deferred
Federal	(2,860)		9,513		(12,409)
State and local	538		2,152		6,275
International	(4,138)		(1,202)		628
Total deferred	(6,460)		10,463		(5,506)
Total non-current tax (benefit) expense	(204)		(464)		624
Total income tax expense	$	7,175	$	17,836	$	12,968

Income tax payments, net of refunds, were $14.1 million, $17.8 million and $16.5 million in fiscal 2021, 2020 and 2019, respectively.

The following table provides a reconciliation of the statutory federal income tax rate to our consolidated effective tax rates:

	2021		2020		2019
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
State and local income taxes, net of federal tax benefit	1.0		4.0		2.7
Foreign tax rate differential	4.6		(0.3)		0.8
Nondeductible goodwill impairment expense	5.6		—		—
Research & development tax credit	(5.3)		(1.6)		(2.7)
§162(m) Executive Compensation Limitation	3.6		—		—
Other, net	1.2		(0.7)		0.3
Consolidated effective income tax rate	31.7	%	22.4	%	22.1	%

The estimated effective tax rate for fiscal 2021 increased 9.3 percentage points from fiscal 2020, primarily due to nondeductible goodwill impairment expense in Canada and the impact of the unfavorable permanent items in relation to reduced earnings in fiscal 2021.

Deferred tax assets and deferred tax liabilities at February 27, 2021 and February 29, 2020 were:

(In thousands)	2021		2020
Deferred tax assets
Accrued expenses	$	6,309	$	15,832
Deferred compensation	9,452		7,934
Employment tax accrual	1,483		—
Goodwill and other intangibles	4,215		—
Liability for unrecognized tax benefits	1,916		1,941
Unearned income	5,778		5,238
Operating lease liabilities	16,039		6,640
Net operating losses and tax credits	9,952		11,093
Other	1,984		1,502
Total deferred tax assets	57,128		50,180
Less: valuation allowance	(7,435)		(8,727)
Deferred tax assets, net of valuation allowance	49,693		41,453

(In thousands)	2021		2020
Deferred tax liabilities
Accrued expenses	1,095		—
Goodwill and other intangibles	3,263		8,166
Depreciation	34,573		32,296
Operating lease, right-of-use assets	15,435		6,666
Other	820		—
Total deferred tax liabilities	55,186		47,128
Net deferred tax liabilities	$	(5,493)	$	(5,675)

The Company has state and foreign net operating loss carryforwards with a tax effect of $10.0 million. A valuation allowance of $7.4 million has been established for these net operating loss carryforwards due to the uncertainty of the use of the tax benefits in future periods.

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2018, or state and local income tax examinations for years prior to fiscal 2013. The Company is not currently under U.S. federal examination for years subsequent to fiscal year 2017, and there is very limited audit activity of the Company’s income tax returns in U.S. state jurisdictions or international jurisdictions.

The Company considers the earnings of its non-U.S. subsidiaries to be indefinitely invested outside of the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and specific plans for reinvestment of those subsidiary earnings. Should the Company decide to repatriate the foreign earnings, it would need to adjust the income tax provision in the period it was determined that the earnings will no longer be indefinitely invested outside the U.S.

If we were to prevail on all unrecognized tax benefits recorded, $2.2 million, $2.6 million and $3.1 million for fiscal 2021, 2020 and 2019, respectively, would benefit the effective tax rate. Also included in the balance of unrecognized tax benefits for fiscal 2021, 2020 and 2019, are $1.6 million, $1.5 million and $2.0 million, respectively, of tax benefits that, if recognized, would result in adjustments to deferred taxes.

Penalties and interest related to unrecognized tax benefits are recorded in income tax expense. For fiscal 2021, 2020 and 2019, we accrued penalties and interest related to unrecognized tax benefits of $0.3 million.

The following table provides a reconciliation of the total amounts of gross unrecognized tax benefits:

(In thousands)	2021		2020		2019
Gross unrecognized tax benefits at beginning of year	$	4,071	$	5,111	$	4,705
Gross increases in tax positions for prior years	106		82		500
Gross decreases in tax positions for prior years	(351)		(1,100)		(377)
Gross increases based on tax positions related to the current year	429		425		1,067
Settlements	(96)		(15)		(303)
Statute of limitations expiration	(404)		(432)		(481)
Gross unrecognized tax benefits at end of year	$	3,755	$	4,071	$	5,111

On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the ability to carryback net operating losses arising in taxable years from 2018 through 2020. While these provisions did not impact the Company, a provision related to the temporary deferral of the employer share of payroll taxes allowed us to defer remittance of $13.6 million of payroll taxes in calendar 2020, which will be repaid equally in calendar years 2021 and 2022.