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INCOME TAXES

12 Months Ended

Jan. 31, 2021

NOTE J — INCOME TAXES

The income tax provision is comprised of the following:


	Year Ended January 31,
	2021		2020		2019

	(In thousands)
Current
Federal	$	(15,828)	$	22,471	$	23,463
State and city		(491)		4,856		5,907
Foreign		3,803		10,615		10,989
		(12,516)		37,942		40,359
Deferred
Federal		22,770		8,250		4,419
State and city		3,364		315		191
Foreign		(1,415)		(8,246)		794
		24,719		319		5,404
Income tax expense	$	12,203	$	38,261	$	45,763
Income before income taxes
United States	$	37,727	$	138,292	$	137,748
Non-United States		(2,001)		43,806		46,082
	$	35,726	$	182,098	$	183,830

The United States government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020, which includes various income tax provisions aimed at providing economic relief. One of those provisions allows any loss generated in 2020 to be carried back to each of the 5 taxable years preceding the taxable year of such a loss. The Company has elected to use this relief and will carry back the 2020 net operating loss to a tax year with a 35%

federal rate. Additionally, the CARES Act permits Qualified Improvement Property to qualify for 15-year depreciation and therefore be also eligible for 100 percent first-year bonus depreciation. The Company has elected to take 100% bonus depreciation for all qualified improvement property.

During the fourth quarter of fiscal 2020, the United States Treasury issued final regulations related to certain aspects of the TCJA. The tax implications of the final regulations were not material to the Company’s consolidated financial statements as the majority of the TCJA tax implications were recorded in fiscal years prior to the year ended January 31, 2021.

Effective January 1, 2018, TCJA subjects a U.S. parent company to current tax on its GILTI. At January 31, 2021, there was no net tax impact to the Company for GILTI.

The significant components of the Company’s net deferred tax asset at January 31, 2021 and 2020 are summarized as follows:


	2021		2020

	(In thousands)
Deferred income tax assets:
Compensation	$	2,673	$	8,379
Inventory		6,780		4,498
Provision for bad debts and sales allowances		18,531		34,197
Supplemental employee retirement plan		584		511
Net operating loss		12,703		4,877
Operating lease liability		35,658		67,044
Foreign tax credit carryforward		4,962		—
Other		3,792		1,148
Gross deferred income tax assets		85,683		120,654
Less: valuation allowance		(13,272)		(4,929)
Net deferred income tax assets		72,411		115,725
Deferred income tax liabilities:
Depreciation and amortization		(41,185)		(33,539)
Intangibles		(14,271)		(13,602)
Operating lease asset		(30,182)		(55,801)
Prepaid expenses and other		(2,028)		(2,600)
Total deferred income tax liabilities		(87,666)		(105,542)
Net deferred tax (liabilities) assets	$	(15,255)	$	10,183

The total undistributed earnings of the Company’s foreign subsidiaries are approximately $80.0 million for the fiscal year ended January 31, 2021. Upon distribution of those earnings in the form of dividends, the Company does not anticipate any material tax costs. As such, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of undistributed foreign earnings. Those earnings are considered indefinitely reinvested. Even though the undistributed earnings can be distributed back generally without U.S. federal income tax as a result of the one-time transition tax under the TCJA regime, the Company does not expect to change its indefinite reinvestment categorization with respect to those earnings.

The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial statements for the years ended January 31:


	2021		2020		2019
Provision for Federal income taxes at the statutory rate	21.0	%	21.0	%	21.0	%
State and local income taxes, net of Federal tax benefit	(0.6)		1.9		2.4
Permanent differences resulting in Federal taxable income	12.8		5.9		6.6
Foreign tax rate differential	(0.3)		(3.8)		0.5
Share-based payments	12.5		(0.8)		(0.6)
Foreign tax credit	(7.3)		(3.5)		(5.5)
Valuation allowance	13.7		0.9		0.2
Net operating loss carryback	(18.6)		—		—
Other, net	1.0		(0.6)		0.3
Actual provision for income taxes	34.2	%	21.0	%	24.9	%

The Company’s effective tax rate increased 13.2% percent in fiscal 2021 compared to fiscal 2020. This increase in the Company’s effective tax rate is primarily the result of the Company’s significant reduction in pretax book income in relation to its tax expense. The Company’s effective tax rate decreased 3.9% percent in fiscal 2020 as compared to fiscal 2019. The decrease in the tax rate is primarily attributable to the Swiss tax reform that was enacted in May 2019.

Valuation allowances represent deferred tax benefits where management is uncertain if the Company will have the ability to recognize those benefits in the future. During the year ended January 31, 2021, the Company recorded an additional valuation allowance of $8.3 million against its deferred tax assets for its standalone state tax losses and foreign retail losses.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (excluding interest and penalties) is as follows:



	2021		2020		2019

	(In thousands)
Balance at February 1,	$	2,111	$	—	$	82
Additions for tax positions of prior years		182		2,111		—
Lapses of statues of limitations		—		—		(82)
Balance at January 31,	$	2,293	$	2,111	$	—

The Company accounts for uncertain income tax positions in accordance with ASC 740 — Income Taxes. The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. As of January 31, 2021, there was an increase in the unrecognized tax position reserve of $0.2 million related to recent state and local tax return filings.

The Company’s policy on classification is to include interest in interest and financing charges, net and penalties in selling, general and administrative expenses in the accompanying Consolidated Statements of Income and Comprehensive Income. The Company and certain of its subsidiaries are subject to U.S. Federal income tax as well as the income tax of multiple state, local, and foreign jurisdictions.

Of the major jurisdictions, the Company and its subsidiaries are subject to examination in the United States and various foreign jurisdictions for fiscal year 2014 and forward. The Company is currently under audit examination by New York, New Jersey and Canada for fiscal years 2014 through 2018. The Company believes that it is reasonably possible there will be no change to its unrecognized income tax position reserves during the next twelve months due to the applicable statues of limitations.

- 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.

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