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Income Taxes | 12 Months Ended
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Feb. 01, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | 14. Income Taxes On December 22, 2017, the U.S. government enacted comprehensive tax legislation in the form of the Tax Act. The Tax Act made broad and complex changes to the U.S. tax code including reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, and implementing a one-time transition tax on undistributed earnings of foreign subsidiaries. During the fourth quarter of Fiscal 2018, the Company completed its accounting for the tax effects of the Tax Act with no material net changes to the provisional amounts recorded for the one-time transition tax and the re-measurement of deferred tax assets and liabilities. Additionally, the Tax Act included a provision designed to currently tax global intangible low-taxed income (“GILTI”) earned by non-U.S. corporate subsidiaries of large U.S. shareholders starting in 2018. The Company has elected, as permitted in FASB Staff Q&A - Topic 740 - No. 5, to treat any future GILTI tax liabilities as period costs and will expense those liabilities in the period incurred. The Company therefore will not record deferred taxes associated with the GILTI provision of the Tax Act. The Company has no changes to this election for Fiscal 2019. The components of income before income taxes from continuing operations were:
|  | For the Years Ended |
|  | February 1, |  |  | February 2, |  |  | February 3, |
(In thousands) |  | 2020 |  |  | 2019 |  |  | 2018 |
U.S. |  | $ | 229,906 |  |  | $ | 308,424 |  |  | $ | 255,621 |
Foreign |  |  | 15,372 |  |  |  | 36,676 |  |  |  | 31,552 |
Total |  | $ | 245,278 |  |  | $ | 345,100 |  |  | $ | 287,173 |
The significant components of the Company’s deferred tax assets and liabilities were as follows:
|  | February 1, |  |  | February 2, |
(in thousands) |  | 2020 |  |  | 2019 |
Deferred tax assets: |  |  |  |  |  |  |  |
Operating lease ROU assets |  | $ | 406,473 |  |  | $ | — |
Inventories |  |  | 9,908 |  |  |  | 9,276 |
Deferred compensation |  |  | 9,005 |  |  |  | 8,874 |
Accruals not currently deductible |  |  | 7,332 |  |  |  | 7,675 |
State tax credits |  |  | 7,092 |  |  |  | 7,216 |
Net operating loss |  |  | 5,983 |  |  |  | 8,757 |
Employee compensation and benefits |  |  | 3,176 |  |  |  | 12,476 |
Foreign tax credits |  |  | 1,056 |  |  |  | 564 |
Rent (under ASC 840) |  |  | — |  |  |  | 21,649 |
Other |  |  | 5,580 |  |  |  | 5,000 |
Gross deferred tax assets |  |  | 455,605 |  |  |  | 81,487 |
Valuation allowance |  |  | (5,861 | ) |  |  | (6,992 | )
Total deferred tax assets |  | $ | 449,744 |  |  | $ | 74,495 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Operating lease liabilities |  | $ | (370,617 | ) |  | $ | — |
Property and equipment |  |  | (50,288 | ) |  |  | (53,774 | )
Prepaid expenses |  |  | (2,996 | ) |  |  | (4,128 | )
Other |  |  | (3,119 | ) |  |  | (2,531 | )
Total deferred tax liabilities |  | $ | (427,020 | ) |  | $ | (60,433 | )
Total deferred tax assets, net |  | $ | 22,724 |  |  | $ | 14,062 |
The net increase in deferred tax assets and liabilities was primarily due to increases resulting from the implementation of ASC 842, Leases, partially offset by a decrease in the deferred tax liability for property and equipment basis differences. Refer to Note 2 for further information about the Company’s adoption of ASC 842. As of February 1, 2020, the Company had deferred tax assets related to state and foreign net operating loss carryovers of $2.3 million and $3.7 million, respectively that could be utilized to reduce future years’ tax liabilities. A portion of these net operating loss carryovers began expiring in the year 2019 and some have an indefinite carryforward period. Management believes it is more likely than not that the foreign net operating loss carryovers will not reduce future years’ tax liabilities in certain jurisdictions. As such, valuation allowances of $3.5 million and $5.2 million have been recorded on the deferred tax assets related to the cumulative foreign net operating loss carryovers as of February 1, 2020 and February 2, 2019 respectively. We also provided for valuation allowances of approximately $0.7 million and $0.7 million related to other foreign deferred tax assets as of February 1, 2020 and February 2, 2019, respectively. The Company had foreign tax credit carryovers in the amount of $1.1 million and $0.6 million as of February 1, 2020 and February 2, 2019, respectively. The foreign tax credit carryovers begin to expire in Fiscal 2028 to the extent not utilized. Management believes it is more likely than not that this category of foreign tax credit carryover will not reduce future years’ tax liabilities. As such, valuation allowances of $1.1 million and $0.6 million have been recorded on the deferred tax assets related to the foreign tax credit carryovers as of February 1, 2020 and February 2, 2019, respectively. The Company had state income tax credit carryforwards of $7.1 million (net of federal tax) and $7.2 million (net of federal tax) as of February 1, 2020 and February 2, 2019, respectively. These income tax credits can be utilized to offset future state income taxes, with the majority having a carryforward period of 16 years. They will begin to expire in Fiscal 2024. Management believes it is more likely than not that a portion of the state income tax credit carryovers will not reduce future years’ tax liabilities in certain jurisdictions. As such, valuation allowances of $0.5 million and $0.5 million have been recorded on the deferred tax assets related to the cumulative state income tax credit carryovers as of February 1, 2020 and February 2, 2019, respectively. Significant components of the provision for income taxes from continuing operations were as follows:
|  | For the Years Ended |
|  | February 1, |  |  | February 2, |  |  | February 3, |
(In thousands) |  | 2020 |  |  | 2019 |  |  | 2018 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 25,745 |  |  | $ | 60,453 |  |  | $ | 31,763 |
Foreign taxes |  |  | 8,137 |  |  |  | 7,343 |  |  |  | 3,404 |
State |  |  | 13,598 |  |  |  | 19,815 |  |  |  | 9,600 |
Total current |  |  | 47,480 |  |  |  | 87,611 |  |  |  | 44,767 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 12,289 |  |  | $ | (148 | ) |  | $ | 36,345 |
Foreign taxes |  |  | (1,213 | ) |  |  | (2,367 | ) |  |  | (1,130 | )
State |  |  | (4,535 | ) |  |  | (1,898 | ) |  |  | 3,028 |
Total deferred |  |  | 6,541 |  |  |  | (4,413 | ) |  |  | 38,243 |
Provision for income taxes |  | $ | 54,021 |  |  | $ | 83,198 |  |  | $ | 83,010 |
As of February 1, 2020, the undistributed earnings of the Company’s foreign subsidiaries were approximately $67.3 million (USD). Earnings of $24.9 million were previously subject to tax due to the one-time transition tax on undistributed foreign earnings required by the Tax Act. The Company intends to permanently reinvest a portion of its earnings outside of the United States for the foreseeable future. On the remaining earnings, the Company has not recognized deferred tax expense because we expect any potential distribution to be made out of previously taxed earnings, or qualify for the 100 percent dividends received deduction provided for in the Tax Act, along with little to no foreign withholding taxes. The following table summarizes the activity related to our unrecognized tax benefits:
|  | For the Years Ended |
(In thousands) |  | February 1, 2020 |  |  | February 2, 2019 |  |  | February 3, 2018 |
Unrecognized tax benefits, beginning of the year balance |  | $ | 6,534 |  |  | $ | 7,286 |  |  | $ | 7,093 |
Increases in current period tax positions |  |  | 422 |  |  |  | 565 |  |  |  | 1,913 |
Increases in tax positions of prior periods |  |  | 151 |  |  |  | 2,279 |  |  |  | 624 |
Settlements |  |  | (2,223 | ) |  |  | (1,397 | ) |  |  | (744 | )
Lapse of statute of limitations |  |  | (720 | ) |  |  | (545 | ) |  |  | (517 | )
Decreases in tax positions of prior periods |  |  | (1,383 | ) |  |  | (1,654 | ) |  |  | (1,083 | )
Unrecognized tax benefits, end of the year balance |  | $ | 2,781 |  |  | $ | 6,534 |  |  | $ | 7,286 |
As of February 1, 2020, the gross amount of unrecognized tax benefits was $2.8 million, of which $2.3 million would affect the effective income tax rate if recognized. The gross amount of unrecognized tax benefits as of February 2, 2019 was $6.5 million, of which $6.0 million would affect the effective income tax rate if recognized. Unrecognized tax benefits decreased by $3.8 million during Fiscal 2019, decreased by $0.8 million during Fiscal 2018, and increased by $0.2 million during Fiscal 2017. Over the next twelve months, the Company believes it is reasonably possible that the unrecognized tax benefits could decrease by as much as $0.7 million as a result of federal and state tax settlements, statute of limitations lapses, and other changes to the reserves. The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense. Accrued interest and penalties related to unrecognized tax benefits included in the Consolidated Balance Sheet were $0.7 million and $0.9 million as of February 1, 2020 and February 2, 2019, respectively. An immaterial amount of interest and penalties was recognized in the provision for income taxes during Fiscal 2019, Fiscal 2018, and Fiscal 2017. The Company and its subsidiaries file income tax returns in the U.S. federal and various state and foreign jurisdictions. The Company voluntarily participates in the IRS Compliance Assurance Program (“CAP”) which allows the Company to work collaboratively with the IRS to audit the Company’s tax filings on a real-time basis so that many tax matters are resolved prior to the filing of the federal tax return. The IRS has completed examinations under CAP through February 2, 2019, for which the majority of the issues have been resolved. The Company does not anticipate that any adjustments will result in a material change to its consolidated financial position, results of operations or cash flows. With respect to state and local jurisdictions and countries outside of the United States, with limited exceptions, generally, the Company and its subsidiaries are no longer subject to income tax audits for tax years before Fiscal 2013 (ended February 1, 2014). Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest, and penalties have been provided for any adjustments that are expected to result from these years. A reconciliation between the statutory federal income tax rate and the effective income tax rate from continuing operations follows:
|  | For the Years Ended |
|  | February 1, |  |  | February 2, |  |  | February 3, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Federal income tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 33.7 | %
State income taxes, net of federal income tax effect |  |  | 3.6 |  |  |  | 3.8 |  |  |  | 2.9 |
Foreign rate differential |  |  | (0.6 | ) |  |  | (0.7 | ) |  |  | (1.9 | )
Impact of Tax Act |  |  | (2.1 | ) |  |  | (0.6 | ) |  |  | (3.0 | )
Valuation allowance changes, net |  |  | 0.3 |  |  |  | 0.4 |  |  |  | (0.2 | )
Change in unrecognized tax benefits |  |  | 0.1 |  |  |  | (0.2 | ) |  |  | 0.3 |
Other |  |  | (0.3 | ) |  |  | 0.4 |  |  |  | (2.9 | )
|  |  | 22.0 | % |  |  | 24.1 | % |  |  | 28.9 | %

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- Definition 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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