|12 Months Ended|
Feb. 28, 2018
|Income Tax Disclosure [Abstract]|
Income before income taxes was generated as follows:
The income tax provision (benefit) consisted of the following:
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was signed into law. The TCJ Act significantly changes U.S. corporate income taxes by, among other items, lowering the federal statutory rate from 35% to 21%, eliminating certain deductions, changing how foreign earnings are subject to U.S. tax and imposing a mandatory one-time transition tax on accumulated earnings of foreign subsidiaries. In December 2017, the SEC issued guidance related to the income tax accounting implications of the TCJ Act. This guidance provides a measurement period, which extends no longer than one year from the enactment date of the TCJ Act, during which a company may complete its accounting for the income tax implications of the TCJ Act. In accordance with this guidance, we recorded a provisional net income tax benefit of $363.0 million for the year ended February 28, 2018. This amount is comprised primarily of (i) a benefit of $323.0 million from the remeasurement of our deferred tax assets and liabilities to the new, lower federal statutory rate and (ii) a benefit of $220.0 million from the reversal of deferred tax liabilities previously provided for unremitted earnings of foreign subsidiaries which were not considered to be indefinitely reinvested; partially offset by the recording of the mandatory one-time transition tax of $180.0 million on unremitted earnings of our foreign subsidiaries. Additionally, we will reflect any adjustments to the recorded provisional amounts in the reporting period in which the adjustments are determined.
The TCJ Act also creates a new requirement that certain income earned by foreign subsidiaries (“GILTI”), must be included in U.S. gross income. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current period expense when incurred. Our provisional net income tax benefit does not include deferred taxes relating to GILTI as we expect to recognize such differences as a current period tax when incurred.
Due to the timing of the enactment and the complexity involved in applying the provisions of the TCJ Act, we have made reasonable estimates of the effects and, as previously noted, recorded provisional amounts in our financial statements as of and for the year ended February 28, 2018, based on currently available information. Specific to the provisional net income tax benefit recorded for the remeasurement of our deferred tax assets and liabilities, although the tax rate reduction is known, we have not collected certain information necessary to fully complete our analysis of the effect of the TCJ Act on the underlying deferred taxes. Specific to the provisional income tax expense for the mandatory one-time transition tax on unremitted earnings of our foreign subsidiaries, further analysis is required for certain foreign taxable earnings and profits and foreign tax credits, as well as an interpretive determination on the classification of certain cash equivalents.
As we complete our analysis of the income tax effects of the TCJ Act and incorporate additional guidance that may be issued by the U.S. Treasury Department, the Internal Revenue Service (“IRS”) or other standard-setting bodies, we may identify additional income tax effects not reflected as of February 28, 2018, which may result in adjustment to the recorded provisional amounts in subsequent reporting periods as discrete adjustments to our income tax provision. Those adjustments may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. The accounting for the income tax effects of the TCJ Act will be completed no later than one year from the enactment date of the TCJ Act.
Prior to the third quarter of fiscal 2017, we had historically provided deferred income taxes for the repatriation to the U.S. of earnings from our foreign subsidiaries. During the third quarter of fiscal 2017, in connection with the agreement to divest the Canadian wine business and the ongoing Beer capacity expansion activities in Mexico, including the agreement to acquire the Obregon Brewery, we changed our assertion regarding our ability and intent to indefinitely reinvest unremitted earnings of certain foreign subsidiaries. Approximately $420 million of our earnings for the year ended February 28, 2017, and all future earnings for these foreign subsidiaries were expected to be indefinitely reinvested. Therefore, no deferred income taxes had been provided on these applicable unremitted earnings. Although we expect to continue to reinvest these foreign earnings, as the TCJ Act reduces the tax impact of repatriation, beginning in the fourth quarter of fiscal 2018, we have provided deferred income taxes, consisting primarily of foreign withholding and state taxes, on all applicable unremitted earnings of our foreign subsidiaries.
A reconciliation of the total tax provision (benefit) to the amount computed by applying the statutory U.S. Federal income tax rate to income before provision for (benefit from) income taxes is as follows:
Deferred tax assets and liabilities reflect the future income tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income.
Significant components of deferred tax assets (liabilities) consist of the following:
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some or all of the deferred tax assets will not be realized. In making this assessment, we consider the projected reversal of deferred tax liabilities and projected future taxable income. Based upon this assessment, we believe it is more likely than not that we will realize the benefits of these deductible differences, net of any valuation allowances.
As of February 28, 2018, operating loss carryforwards, which are primarily state and foreign, totaling $307.2 million are being carried forward in a number of jurisdictions where we are permitted to use tax operating losses from prior periods to reduce future taxable income. Of these operating loss carryforwards, $216.7 million will expire in fiscal 2019 through fiscal 2038 and $90.5 million of operating losses in certain jurisdictions may be carried forward indefinitely. Additionally, as of February 28, 2018, federal capital losses totaling $269.5 million are being carried forward and will expire in fiscal 2022.
We have recognized valuation allowances for operating loss carryforwards, capital loss carryforwards and other deferred tax assets when we believe it is more likely than not that these items will not be realized. The decrease in our valuation allowances as of February 28, 2018, primarily relates to the reduction in the federal statutory rate from 35% to 21% under the TCJ Act.
The liability for income taxes associated with uncertain tax positions, excluding interest and penalties, and a reconciliation of the beginning and ending unrecognized tax benefit liabilities is as follows:
As of February 28, 2018, and February 28, 2017, we had $93.7 million and $42.7 million, respectively, of non-current unrecognized tax benefit liabilities, including interest and penalties, recorded on our balance sheets. These liabilities are recorded as non-current as payment of cash is not anticipated within one year of the balance sheet date.
As of February 28, 2018, and February 28, 2017, we had $89.3 million and $39.5 million, respectively, of unrecognized tax benefit liabilities that, if recognized, would decrease the effective tax rate.
We file U.S. Federal income tax returns and various state, local and foreign income tax returns. Major tax jurisdictions where we are subject to examination by tax authorities include Canada, Luxembourg, Mexico, New Zealand and the U.S. Various U.S. Federal, state and foreign income tax examinations are currently in progress. It is reasonably possible that the liability associated with our unrecognized tax benefit liabilities will increase or decrease within the next twelve months as a result of these examinations or the expiration of statutes of limitation. As of February 28, 2018, we estimate that unrecognized tax benefit liabilities could change by a range of $1 million to $79 million. With few exceptions, we are no longer subject to U.S. Federal, state, local or foreign income tax examinations for fiscal years prior to February 28, 2011.
We provide for additional tax expense based on probable outcomes of ongoing tax examinations and assessments in various jurisdictions. While it is often difficult to predict the outcome or the timing of resolution of any tax matter, we believe the reserves reflect the probable outcome of known tax contingencies. Unfavorable settlement of any particular issue would require the use of cash. Favorable resolution would be recognized as a reduction to the effective tax rate in the year of resolution.
During the fourth quarter of fiscal 2018, we successfully concluded the IRS Appeals process related to certain issues under examination for our fiscal years ended February 28, 2010, and February 28, 2011, with no incremental liability. For other items that were effectively settled for the second quarter of fiscal 2016, we reduced our liability for uncertain tax positions and recorded a tax benefit of $31.9 million. In addition, during the year ended February 29, 2016, various U.S. state and international examinations were finalized. In total, tax benefits of $51.0 million were recorded for the year ended February 29, 2016, related to the resolution of certain tax positions in connection with those examinations and the expiration of statutes of limitation.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef