4 .	Income Taxes

The Tax Act was enacted on

December 22, 2017.

The Tax Act made comprehensive changes to the U.S. Tax Code, including, but

not

limited to, (i) reducing the U.S. corporate tax rate from

35%

21%,

(ii) changing the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after

December 31, 2017, (

iii) immediate expensing of certain qualified property, (iv) eliminating certain deductions, (v) repealing the corporate minimum tax, and (vi) changing the manner in which international operations are taxed in the U.S., including a mandatory

one

-time transition tax on the accumulated untaxed earnings of foreign subsidiaries of U.S. shareholders. Although the majority of the changes resulting from the Tax Act are effective for tax years beginning in

2018,

U.S. GAAP requires that certain impacts of the Tax Act be recognized in the income tax provision in the period of enactment. The corporate tax rate reduction is effective on

January 1, 2018,

and under tax law, the Company’s Federal statutory tax rate for the

2018

fiscal year is a blended rate of

32.85%.

In response to the enactment of the Tax Act, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”)

118,

which provides guidance on accounting for the tax effects of the Tax Act. SAB

118

provides a measurement period that should

not

extend beyond

one

year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification (“ASC”)

740.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but is able to determine a reasonable estimate, the company must record the estimate in its financial statements.

Under the mandatory

one

-time transition tax provision, the Company incurred a current income tax expense of approximately

$23,139

on its untaxed foreign earnings. In accordance with the guidelines provided by the Tax Act, the Company aggregated untaxed foreign earnings and profits and utilized participation exemption deductions and foreign tax credits in arriving at a provisional transition tax liability. Companies are permitted to pay this

one

-time transition tax over an

eight

year period.

The provisional

one

-time transition tax liability, after utilizing current year domestic losses of

$21,887,

was recorded as a current income tax payable and a non-current income tax payable of

$1,751

and

$20,136

respectively, and is payable over an

eight

year period. The Company concurrently reversed

$44,309

of deferred tax liability previously accrued for untaxed foreign earnings and profits. The net impact was an income tax benefit of

$18,456

recorded in the income tax (benefit) provision in the Consolidated Statements of Operations.

In connection with the enactment of the Tax Act, the Company re-measured its U.S. deferred tax assets and liabilities based on the rates at which they are expected to be realized in future tax years. During the

fourth

quarter of fiscal year

2018,

the Company recorded a provisional income tax provision and corresponding reduction in the net U.S. deferred tax asset of approximately

$1,963.

The potential global intangible low-taxed income (“GILTI”) provisions are effective for tax years of foreign corporations beginning after

December 31, 2017.

The Company has

not

yet made a policy election with respect to its treatment of potential GILTI. Companies can either account for taxes on GILTI as incurred or recognize deferred taxes when basis differences exist that are expected to affect the amount of the GILTI inclusion upon reversal. The Company is still in the process of analyzing the provisions of the Tax Act associated with GILTI and the expected impact of GILTI on the Company in the future.

While the Company was able to make a reasonable estimate of the impact of the reduction in the U.S. federal corporate tax rate and the mandatory

one

-time transition tax, the provisional amounts recorded could change for a variety of factors, including, but

not

limited to, (i) anticipated guidance from the U.S. Department of Treasury about implementing the Tax Act, (ii) potential additional guidance from the Securities and Exchange Commission related to the Tax Act, and (iii) the Company’s further assessment of the Tax Act and related regulatory guidance.

The Company is continuing to evaluate the Tax Act and its requirements, as well as its application to the Company and its impact on the Company’s effective tax rate.

The income tax (benefit) provision includes the following:

	Fiscal Year
	2018			2017			2016

Current:
Federal	$	21,568		$	(532	)	$	10,118
State and local		219			(40	)		(120	)
Foreign		808			3,083			3,883
		22,595			2,511			13,881

Deferred:
Federal		(42,054	)		(369	)		(11,273	)
State and local		(52	)		(590	)		(205	)
Foreign		46			(574	)		66
		(42,060	)		(1,533	)		(11,412	)
	$	(19,465	)	$	978		$	2,469

State income tax benefits from loss carryforwards to future years were recognized as deferred tax assets in the

2018,

2017

and

2016

fiscal years.

The Company continuously evaluates the liquidity and capital requirements of its operations in the United States and of its foreign subsidiaries. As a result of such evaluations, the Company repatriated

$135,300,

$6,800

and

$61,000

in cash from Nelco Products Pte Ltd. in Singapore in the

2018,

2017

and

2016

fiscal years, respectively.

The Company’s pre-tax earnings from the United States and foreign locations are as follows:

	Fiscal Year
	2018			2017			2016

United States	$	(8,164	)	$	(4,742	)	$	(3,331	)
Foreign		9,294			15,003			23,829
Earnings before income taxes	$	1,130		$	10,261		$	20,498

The Company’s effective income tax rate differs from the statutory U.S. Federal income tax rate as a result of the following:

	Fiscal Year
	2018			2017			2016

Statutory U.S. Federal tax rate		32.9	%		34.0	%		35.0	%
State and local taxes, net of Federal benefit		(13.3	%)		2.4	%		1.2	%
Foreign tax rate differentials		(131.8	%)		(24.4	%)		(21.0	%)
Valuation allowance on deferred tax assets		2.8	%		(5.3	%)		(0.2	%)
Adjustment on tax accruals		17.2	%		6.8	%		3.3	%
FIN 48 change		(44.1	%)		-			-
Foreign tax credits		(31.4	%)		(3.3	%)		(1.1	%)
U.S. Tax Reform		(1,633.4	%)		-			-
Deferred tax liability on undistributed foreign earnings		-			(3.4	%)		(4.5	%)
Subpart F		77.2	%		-			-
Permanent differences and other		1.3	%		2.7	%		(0.7	%)
		(1,722.6	%)		9.5	%		12.0	%

The Company had federal net operating loss carryforwards of

in the

2018

and

2017

fiscal years, state net operating loss carryforwards of approximately

$11,430

and

$16,343

in the

2018

and

2017

fiscal years, respectively, and total net foreign operating loss carryforwards of approximately

$30,745

and

$30,647

in the

2018

and

2017

fiscal years, respectively. The foreign net operating loss carryforwards were

not

utilized in the

2018

fiscal year, and the Company has set up a valuation allowance for such carryforwards. The state net operating loss carryforwards will expire in

2019

through

2038.

The Company had research and development and other credits of

and

$47

February 25, 2018

and

February 26, 2017,

respectively.

The Company had Kansas tax credits of

$225

in the

2018

and

2017

fiscal years, for which

benefit has been provided. The Company does

not

believe that realization of the principal portion of the Kansas tax credit or the investment tax credit carryforward is more likely than

not.

The Kansas credits do

not

have expiration dates. The Company had Arizona tax credits of

$135

in the

2018

and

2017

fiscal years, for which

benefit has been provided.

The deferred tax asset valuation allowance of

$10,602

as of

February 25, 2018

relates to foreign net operating losses and state tax credit carryforwards for which the Company does

not

expect to realize any tax benefit. During the

2018

fiscal year, the valuation allowance increased by

$31.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes.

Significant components of the Company's deferred tax assets and liabilities as of

February 25, 2018

and

February 26, 2017

were as follows:

	February 25,			February 26,
	2018			2017

Deferred tax assets:
Depreciation and amortization	$	2,323		$	3,740
Net operating loss carryforwards		10,809			11,049
Tax credits carryforward		360			677
Stock options		1,269			1,865
Other, net		671			282
		15,432			17,613
Valuation allowance on deferred tax assets		(10,602	)		(10,571	)
Total deferred tax assets, net of valuation allowance		4,830			7,042
Deferred tax liabilities:
Depreciation		(619	)		(572	)
Undistributed earnings		(3,200	)		(47,509	)
Other		(771	)		(781	)
Total deferred tax liabilities		(4,590	)		(48,862	)
Net deferred tax asset (liability)	$	240		$	(41,820	)

On the Consolidated Balance Sheets, deferred tax assets, net of valuation allowance, of

$624

February 25, 2018

and

$268

February 26, 2017

were included in other assets.

February 25, 2018

and

February 26, 2017,

the Company had gross unrecognized tax benefits of

$543

and

$1,041,

respectively, included in other liabilities. If any portion of the unrecognized tax benefits at

February 25, 2018

were recognized, the Company’s effective tax rate would change.

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

	Unrecognized Tax Benefits
	February 25,			February 26,			February 28,
	2018			2017			2016

Balance, beginning of year	$	1,024		$	1,255		$	1,135
Gross decreases-tax positions in prior period		(688	)		(293	)		-
Gross increases-current period tax positions		320			274			271
Audit settlements		-			(42	)		(57	)
Lapse of statute of limitations		(155	)		(170	)		(94	)
Balance, end of year	$	501		$	1,024		$	1,255

The amount of unrecognized tax benefits

may

increase or decrease in the future for various reasons, including adding or subtracting amounts for current year tax positions, expiration of statutes of limitations on open income tax years, changes in the Company’s judgment about the level of uncertainty, status of tax examinations, and legislative changes. Changes in prior period tax positions are the result of a re-evaluation of the probability of realizing the benefit of a particular tax position based on new information. It is reasonably possible that

none

of the unrecognized tax benefits will be recognized in the

2019

fiscal year upon the expiration of statutes of limitations.

A list of open tax years by major jurisdiction follows:

U.S. Federal		2014-2018
California		2015-2018
New York		2016-2018
France		2015-2018
Singapore		2014-2018

The Company had approximately

$41

and

$16

of accrued interest and penalties as of

February 25, 2018

and

February 26, 2017,

respectively. The Company’s policy is to include applicable interest and penalties related to unrecognized tax benefits as a component of current income tax expense.

The New York State Department of Taxation has completed its examination of the Company’s tax returns for the

2012,

2013,

2014

and

2015

fiscal years with

adjustments.