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Income Taxes | 3 Months Ended
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Apr. 28, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The Company’s effective tax rate differs from the statutory federal income tax rate of 21% primarily due to the regional mix of income, changes in valuation allowance and research and development ("R&D") tax credits. The Tax Cuts and Jobs Act requires R&D costs incurred for tax years beginning after December 31, 2021 to be capitalized and amortized ratably over five or fifteen years for tax purposes, depending on where the research activities are conducted. The Company has elected to treat global intangible low-taxed income ("GILTI") as a period cost and the additional capitalization of R&D costs within GILTI increases the Company's provision for income taxes. In December 2021, the Organization for Economic Cooperation and Development ("OECD") published a framework for a new global minimum tax of 15% ("Pillar Two") on income arising in low-tax jurisdictions, and certain governments in countries where the Company operates have enacted local Pillar Two legislation, with an effective date from January 1, 2024. The Company currently does not expect Pillar Two to have a material impact on its provision for income taxes; however, any future changes in OECD guidance or interpretations could adversely impact the Company’s initial assessment. During the second quarter of fiscal year 2024, the Company determined utilization of its net deferred tax assets ("DTAs") in the United States ("U.S.") was limited, and accordingly recorded a full valuation allowance reserve. This determination was made after evaluating both the positive and negative evidence regarding the recoverability of the Company’s net U.S. DTAs. The amount of the DTA considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased, 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 the Company’s projections for future growth. The Company uses a two-step approach to recognize and measure uncertain tax positions ("UTP"). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (before the federal impact of state items) is as follows:
(in thousands) |
Balance at January 28, 2024 | $ | 36,548 |
Additions based on tax positions related to the current fiscal year | 341 |
Decreases based on tax positions related to prior fiscal years | (272) |
Balance at April 28, 2024 | $ | 36,617 |
Included in the balance of gross unrecognized tax benefits at both April 28, 2024 and January 28, 2024 was $14.6 million of net tax benefits (after the federal impact of state items), that, if recognized, would impact the effective tax rate, prior to consideration of any required valuation allowance. The liability for UTP is reflected in the Balance Sheets as follows:
(in thousands) | April 28, 2024 |  | January 28, 2024
Deferred tax assets - non-current | $ | 20,623 |  |  | $ | 20,519 |
Other long-term liabilities | 14,593 |  |  | 14,632 |
Total accrued taxes | $ | 35,216 |  |  | $ | 35,151 |
The Company’s policy is to include net interest and penalties related to unrecognized tax benefits in the "Provision (benefit) for income taxes" in the Statements of Operations. Tax years prior to 2013 (the Company’s fiscal year 2014) are generally not subject to examination by the U.S. Internal Revenue Service except for items involving tax attributes that have been carried forward to tax years whose statute of limitations remains open. For state returns in the U.S., the Company is generally not subject to income tax examinations for calendar years prior to 2012 (the Company’s fiscal year 2013). The Company has a significant tax presence in Switzerland for which Swiss tax filings have been examined through fiscal year 2020. The Company is also subject to routine examinations by various foreign tax jurisdictions in which it operates. The Company believes that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with the Company's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. The Company’s regional income or loss before taxes and equity method income or loss was as follows:
| Three Months Ended |  |
(in thousands) | April 28, 2024 |  | April 30, 2023 |  |  |  |
Domestic | $ | (18,869) |  |  | $ | (18,841) |  |  |  |  |
Foreign | (1,384) |  |  | (12,986) |  |  |  |  |
Total | $ | (20,253) |  |  | $ | (31,827) |  |  |  |  |

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