Income Taxes

9 Months Ended

Nov. 27, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXESThe effective income tax rate for the three months ended November 27, 2021 was (171.3)% compared with 46.4% for the three months ended November 28, 2020. The effective income tax rate for the three months ended November 27, 2021 reflects the impact of a charge to record a valuation allowance in the fiscal third quarter of $181.5 million, discussed below, as well as a benefit of $2.4 million resulting from an adjustment to the estimated net operating loss incurred in fiscal 2020 which was carried back, under the provisions of the CARES Act, to a year in which the tax rate was 35%. For the three months ended November 28, 2020, the effective tax rate included the impact of impairment charges for leasehold improvements and lease assets, a $0.7 million benefit related to fiscal 2019 net operating loss carry-back under the CARES Act and other discrete tax items.

The effective income tax rate for the nine months ended November 27, 2021 was (37.9)% compared with 45.7% for the nine months ended November 28, 2020. The effective income tax rate for the nine months ended November 27, 2021 reflects the impact of a charge to record a valuation allowance in the fiscal third quarter of $181.5 million, discussed below, as well as a benefit of $18.6 million resulting from an adjustment to the estimated net operating loss incurred in fiscal 2020 which was carried back, under the provisions of the CARES Act, to a year in which the tax rate was 35%. For the nine months ended November 28, 2020, the effective tax rate included the impact of impairment charges for leasehold improvements and lease assets, a $43.7 million benefit related to fiscal 2019 net operating loss carry-back under the CARES Act and other discrete tax items.

In assessing the recoverability of its deferred tax assets, the Company evaluates the available objective positive and negative evidence to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit use of existing deferred tax assets in each taxpaying jurisdiction. For any deferred tax asset in excess of the amount for which it is more likely than not that the Company will realize a benefit, the Company establishes a valuation allowance. A valuation allowance is a non-cash charge, and does not limit the Company's ability to utilize its deferred tax assets, including its ability to utilize tax loss and credit carryforward amounts, against future taxable income.

During the three months ended November 27, 2021, the Company concluded that, based on its evaluation of available objective positive and negative evidence, it is no longer more likely than not that its net U.S. federal and state deferred tax assets are recoverable. In assessing the realizability of deferred tax assets, the key assumptions used to determine positive and negative evidence included the Company’s cumulative taxable loss for the past three years, current trends related to actual taxable earnings or losses, and expected future reversals of existing taxable temporary differences, as well as timing and cost of the Company's transformation initiatives and their expected associated benefits. Accordingly, the Company recorded a charge of $181.5 million in the third fiscal quarter of 2021 as a reserve against its net U.S. federal and state deferred tax assets. As of November 27, 2021 and February 27, 2021, the total valuation allowance relative to U.S. federal and state deferred tax assets was $192.0 million and $10.5 million, respectively.

As of November 27, 2021 and February 27, 2021, the Company had also recorded a valuation allowance of $15.5 million relative to the Company's Canadian net deferred tax asset, as the Company did not believe the deferred tax assets in that jurisdiction were more likely than not to be realized.

The amount of the deferred tax assets considered realizable, and the associated valuation allowance, could be adjusted in a future period if estimates of future taxable income change or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for future growth.

During the three and nine months ended November 27, 2021, the change in the gross amount of unrecognized tax benefits and accrued interest and penalties was not significant.

As of November 27, 2021, the Company operated in all 50 states, the District of Columbia, Puerto Rico, Canada and Mexico and files income tax returns in the United States and various state, local and international jurisdictions. The Company is currently under examination by the Internal Revenue Service for the tax year 2014. The Company is open to examination for state, foreign and local jurisdictions with varying statutes of limitations, generally ranging from 3 to 9 years.