Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.1
Income Taxes
 12 Months Ended
Feb. 29, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES

Income (loss) before income taxes was generated as follows:
 
For the Years Ended
 
February 29,
2020
 
February 28,
2019
 
February 28,
2018
(in millions)
 
 
 
 
 
Domestic
$
(2,230.1
)
 
$
1,615.9

 
$
591.5

Foreign
1,284.9

 
2,529.1

 
1,746.5

 
$
(945.2
)
 
$
4,145.0

 
$
2,338.0



The income tax provision (benefit) consisted of the following:
 
For the Years Ended
 
February 29,
2020
 
February 28,
2019
 
February 28,
2018
(in millions)
 
 
 
 
 
Current
 
 
 
 
 
Federal
$
66.5

 
$
4.1

 
$
261.1

State
12.1

 
15.7

 
20.4

Foreign
108.5

 
239.2

 
158.4

Total current
187.1

 
259.0

 
439.9

 
 
 
 
 
 
Deferred
 
 
 
 
 
Federal
(459.9
)
 
223.9

 
(475.9
)
State
(118.3
)
 
75.0

 
0.4

Foreign
(575.5
)
 
128.0

 
58.3

Total deferred
(1,153.7
)
 
426.9

 
(417.2
)
Income tax provision (benefit)
$
(966.6
)
 
$
685.9

 
$
22.7



For the third quarter of fiscal 2020, we recognized a net income tax benefit of $547.4 million resulting from the remeasurement of our deferred tax assets in connection with the September 2019 enactment of tax reform in Switzerland.

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 recognized a provisional net income tax benefit of $351.2 million for the year ended February 28, 2018. This amount is comprised primarily of (i) a benefit of $311.2 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.

For the third quarter of fiscal 2019, we completed our analysis of the income tax implications of the TCJ Act. We recognized an additional income tax benefit of $37.6 million resulting from a decrease in the mandatory one-time transition tax on unremitted earnings of our foreign businesses.

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:
 
For the Years Ended
 
February 29, 2020
 
February 28, 2019
 
February 28, 2018
 
Amount
 
% of
Pretax
Income (Loss)
 
Amount
 
% of
Pretax
Income (Loss)
 
Amount
 
% of
Pretax
Income (Loss)
(in millions, except % of pretax income (loss) data)
 
 
 
 
 
 
 
 
 
 
Income tax provision (benefit) at statutory rate
$
(198.5
)
 
21.0
%
 
$
870.5

 
21.0
%
 
$
765.4

 
32.7
%
State and local income taxes, net of federal income tax benefit (1)
(82.3
)
 
8.7
%
 
81.3

 
2.0
%
 
18.0

 
0.8
%
Net income tax provision (benefit) from legislative changes (2)
(547.4
)
 
57.9
%
 
(37.6
)
 
(0.9
%)
 
(351.2
)
 
(15.0
%)
Earnings taxed at other than U.S. statutory rate (3)
(46.5
)
 
5.0
%
 
(81.0
)
 
(1.9
%)
 
(323.9
)
 
(13.9
%)
Excess tax benefits from stock-based compensation awards (4)
(56.2
)
 
5.9
%
 
(82.9
)
 
(2.0
%)
 
(68.6
)
 
(2.9
%)
Net income tax provision (benefit) recognized for adjustment to valuation allowance
(32.8
)
 
3.5
%
 
(74.1
)
 
(1.8
%)
 
4.8

 
0.2
%
Miscellaneous items, net
(2.9
)
 
0.3
%
 
9.7

 
0.1
%
 
(21.8
)
 
(0.9
%)
Income tax provision (benefit) at effective rate
$
(966.6
)
 
102.3
%
 
$
685.9

 
16.5
%
 
$
22.7

 
1.0
%
(1) 
Includes differences resulting from adjustments to the current and deferred state effective tax rates.
(2) 
The year ended February 29, 2020, represents the recognition of a net income tax benefit resulting from the remeasurement of our deferred tax assets in connection with the September 2019 enactment of tax reform in Switzerland. The years ended February 28, 2019, and February 28, 2018, represent net income tax benefits related to the TCJ Act.
(3) 
Consists of the following (i) difference between the U.S. statutory rate and local jurisdiction tax rates, (ii) the provision for incremental U.S. taxes on earnings of certain foreign subsidiaries offset by foreign tax credits, (iii) the non-U.S. portion of tax provision (benefit) recorded on the net unrealized gain (loss) from the changes in fair value of our investments in Canopy, and (iv) the non-U.S. portion of tax benefits recorded on the Canopy equity in earnings (losses) and related activities.
(4) 
Represents the recognition of the income tax effect of stock-based compensation awards in the income statement when the awards vest or are settled.

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:
 
February 29,
2020
 
February 28,
2019
(in millions)
 
 
 
Deferred tax assets
 
 
 
Intangible assets
$
2,045.8

 
$
1,616.7

Loss carryforwards
225.9

 
147.8

Stock-based compensation
75.6

 
33.4

Lease liabilities
89.2

 
—

Inventory
32.4

 
20.3

Investments in unconsolidated investees
106.1

 
—

Other accruals
35.0

 
85.5

Gross deferred tax assets
2,610.0

 
1,903.7

Valuation allowances
(54.1
)
 
(86.9
)
Deferred tax assets, net
2,555.9

 
1,816.8

 
 
 
 
Deferred tax liabilities
 
 
 
Property, plant, and equipment
(175.5
)
 
(191.5
)
Investments in unconsolidated investees
—

 
(448.9
)
Provision for unremitted earnings
(27.5
)
 
(22.8
)
Right-of-use assets
(80.5
)
 
—

Total deferred tax liabilities
(283.5
)
 
(663.2
)
Deferred tax assets (liabilities), net
$
2,272.4

 
$
1,153.6


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 as well as tax planning strategies. 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 29, 2020, operating loss carryforwards, which are primarily state and foreign, totaling $1.5 billion 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, $1.4 billion will expire in fiscal 2021 through fiscal 2040 and $87.4 million of operating losses in certain jurisdictions may be carried forward indefinitely. Additionally, as of February 29, 2020, federal capital losses totaling $173.2 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 29, 2020, primarily relates to the reversal of valuation allowances for capital loss carryforwards in connection with the Wine and Spirits Transaction.

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:
 
For the Years Ended
 
February 29,
2020
 
February 28,
2019
 
February 28,
2018
(in millions)
 
 
 
 
 
Balance as of March 1
$
224.3

 
$
89.3

 
$
39.5

Increases as a result of tax positions taken during a prior period
11.4

 
56.4

 
7.5

Decreases as a result of tax positions taken during a prior period
(14.8
)
 
(1.4
)
 
(0.1
)
Increases as a result of tax positions taken during the current period
29.0

 
88.8

 
43.8

Decreases related to settlements with tax authorities
(0.1
)
 
(0.8
)
 
(0.4
)
Decreases related to lapse of applicable statute of limitations
(0.4
)
 
(8.0
)
 
(1.0
)
Balance as of last day of February
$
249.4

 
$
224.3

 
$
89.3


As of February 29, 2020, and February 28, 2019, we had $276.2 million and $239.0 million, respectively, of non-current unrecognized tax benefit liabilities, including interest and penalties, recognized 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 29, 2020, and February 28, 2019, we had $249.4 million and $224.3 million, respectively, of unrecognized tax benefit liabilities that, if recognized, would decrease the effective tax rate in the year of resolution.

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, Mexico, Switzerland, 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 29, 2020, we estimate that unrecognized tax benefit liabilities could change by a range of $1 million to $19 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, 2013.

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.