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Income Taxes | 12 Months Ended
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Jan. 28, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Intra-Entity Transaction During the third quarter of fiscal 2022, the Company completed an intra-entity transfer of intellectual property rights from certain U.S. entities to a wholly-owned Swiss subsidiary, more closely aligning the Company’s intellectual property rights with its business operations. This transaction resulted in a taxable gain in the U.S. The U.S. taxable gain generated by this intercompany transfer of intellectual property was primarily offset by the recognition of a deferred income tax asset in the Swiss subsidiary. The intra-entity transfer of intellectual property rights resulted in a U.S. income tax expense of approximately $103 million. The U.S. income tax expense generated by this intercompany transfer of intellectual property was substantially offset by the benefit recorded as a result of the recognition of a deferred income tax asset in the Swiss subsidiary of approximately $98 million. The net impact to the Company’s income tax expense for this transaction was approximately $5.1 million. For the intra-entity transfer of the intellectual property rights, the Company made U.S. income tax payments of $107.2 million. The Company estimates it will take between 5 and 10 years to amortize the Swiss deferred income tax asset. The Company is in discussions with the Swiss tax authority for potential income tax benefits related to additional business functions being performed in Switzerland. Although the timing and outcome of such discussions is uncertain, if a positive agreement is reached with the Swiss tax authority, it could result in a significant benefit to the Company’s financial statements. Changes in Income Tax Law On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide economic relief from the COVID-19 pandemic. Among other provisions, the CARES Act allows for a full offset of taxable income in a five-year carryback period for net operating losses, which will reduce current period income tax expense and may result in a refund of previously paid income tax amounts at higher historical income tax rates. For fiscal 2021, the Company recognized an income tax benefit of $0.9 million related to the CARES Act. During calendar 2019, Switzerland implemented income tax reform (“Swiss tax reform”) that was effective as of January 1, 2020. The Swiss tax reform eliminates certain preferential income tax treatments and includes transitional relief measures which provides for future income tax deductions. During the fourth quarter of fiscal 2020, the Company recognized a one-time income tax benefit of approximately $8.1 million, excluding a $2.3 million reserve for uncertain income tax positions, related primarily to the recognition of a deferred income tax asset associated with the estimated value of an income tax basis step-up of the Company’s Switzerland subsidiary’s assets. Income Tax Settlement In connection with an income tax audit in Italy, the Italian tax authority indicated it believed certain dividend distributions made in fiscal years 2015 and 2016 from the Company’s Italian subsidiaries to their European parent holding company should be subject to withholding taxes in Italy. While the Company disagreed with the position of the Italian tax authority and was prepared to vigorously defend itself in this matter, the Company continued to work with the Italian tax authority in an attempt to resolve the dispute through standard tax resolution processes. In December 2019, to avoid a potentially long and costly litigation process, the Company reached an agreement with the Italian tax authority to settle the matter for €9.9 million ($11.1 million as of December 2019) (including interest), to be paid in 16 equal quarterly installments starting in December 2019. As a result of the agreement, the Company recorded a charge to income tax expense of €7.0 million ($7.8 million as of fiscal 2020) (net of related offsets in other income tax jurisdictions) during the fourth quarter of fiscal 2020. As of January 28, 2023, the Company had recorded €2.5 million ($2.7 million) in other current liabilities in the accompanying consolidated balance sheets. As of January 29, 2022, the Company had recorded €2.5 million ($2.8 million) and €2.5 million ($2.8 million) in accrued expenses and other long-term liabilities, respectively, in the accompanying consolidated balance sheets. Income Tax Expense Income tax expense (benefit) is summarized as follows (in thousands):
| Year Ended
| Jan 28, 2023 |  | Jan 29, 2022 |  | Jan 30, 2021
Federal: |  |  |  |  |
Current | $ | 8 |  |  | $ | 149,811 |  |  | $ | (2,390) |
Deferred | 10,577 |  |  | 9,859 |  |  | (5,274) |
State: |  |  |  |  |
Current | (1,963) |  |  | 10,433 |  |  | 248 |
Deferred | 85 |  |  | 2,443 |  |  | (598) |
Foreign: |  |  |  |  |
Current | 28,844 |  |  | 13,592 |  |  | 8,285 |
Deferred | (1,049) |  |  | (112,458) |  |  | (6,609) |
Total | $ | 36,502 |  |  | $ | 73,680 |  |  | $ | (6,338) |
Actual income tax expense (benefit) differs from expected income tax expense (benefit) obtained by applying the statutory federal income tax rate to earnings before income taxes as follows:
| Year Ended
| Jan 28, 2023 |  | Jan 29, 2022 |  | Jan 30, 2021
Computed “expected” tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State taxes, net of federal benefit | 1.1 | % |  | 1.6 | % |  | 1.2 | %
Unrecognized tax liabilities (benefits) | 2.5 | % |  | (0.6 | %) |  | (6.6 | %)
GILTI | 2.4 | % |  | 0.6 | % |  | — | %
Non-deductible permanent differences | 1.6 | % |  | 0.6 | % |  | 0.4 | %
Tax Reform - repatriation tax adjustment | 0.4 | % |  | 0.2 | % |  | — | %
Subpart F Income | — | % |  | 4.5 | % |  | — | %
Non-deductible participation loss | — | % |  | 1.8 | % |  | 3.6 | %
Intra-entity intellectual property transfer tax rate difference 1 | — | % |  | 1.6 | % |  | — | %
SERP/TOLI | — | % |  | (0.1 | %) |  | 1.9 | %
Foreign derived intangible income 2 | — | % |  | (1.5 | %) |  | — | %
Share-based compensation | (0.2 | %) |  | (0.4 | %) |  | 1.8 | %
Prior year income tax adjustments | (1.2 | %) |  | 0.4 | % |  | 1.3 | %
Valuation reserve 3 | (4.0 | %) |  | 0.7 | % |  | (26.9 | %)
Non-U.S. tax expense (benefit) versus U.S. federal statutory tax rate 4 | (4.8 | %) |  | (2.4 | %) |  | 9.1 | %
Other, net | (0.4 | %) |  | 1.0 | % |  | 0.5 | %
Effective income tax rate | 18.4 | % |  | 29.0 | % |  | 7.3 | %
______________________________________________________________________ 1 During fiscal 2022, the Company completed an intra-entity transfer of intellectual property rights from a U.S. entity to a wholly-owned Swiss subsidiary, resulting in an income tax rate difference of $4.0 million as of January 29, 2022. As of January 28, 2023, the updated rate difference is $5.1 million. 2 During fiscal 2022, the Company recognized an additional foreign-derived intangible income tax benefits of $37.0 million related to the intra-entity transfer of intellectual property rights. 3 Amounts relate primarily to the release of the valuation reserve offset by valuation reserves on net operating losses, other deferred income tax assets arising during the respective period jurisdictions where there have been cumulative net operating losses, limiting the Company’s ability to consider other subjective evidence to continue to recognize the existing deferred income tax assets. 4 The jurisdictional location of pre-tax income (loss) may represent a significant component of the Company’s effective income tax rate as earnings (loss) in foreign jurisdictions are taxed at rates different from the U.S. statutory income tax rate. These amounts exclude the impact of net changes in valuation allowances, audit and other adjustments related to the Company’s non-U.S. operations, as they are reported separately in the appropriate corresponding line items. Total income tax expense (benefit) is allocated as follows (in thousands):
| Year Ended
| Jan 28, 2023 |  | Jan 29, 2022 |  | Jan 30, 2021
Operations | $ | 36,502 |  |  | $ | 73,680 |  |  | $ | (6,338) |
Stockholders’ equity | 450 |  |  | 2,264 |  |  | (1,534) |
Convertible debt | (6,207) |  |  | — |  |  | — |
Total income tax expense (benefit) | $ | 30,745 |  |  | $ | 75,944 |  |  | $ | (7,872) |
The income tax effects of the components of other comprehensive income (loss) are allocated as follows (in thousands):
| Year Ended
| Jan 28, 2023 |  | Jan 29, 2022 |  | Jan 30, 2021
Derivative financial instruments designated as cash flow hedges | $ | (945) |  |  | $ | 1,627 |  |  | $ | (1,387) |
Defined benefit plans | 1,395 |  |  | 637 |  |  | (147) |
Total income tax expense (benefit) | $ | 450 |  |  | $ | 2,264 |  |  | $ | (1,534) |
Total earnings (loss) before income tax expense (benefit) and noncontrolling interests are comprised as follows (in thousands):
| Year Ended
| Jan 28, 2023 |  | Jan 29, 2022 |  | Jan 30, 2021
Domestic operations | $ | 45,317 |  |  | $ | 141,920 |  |  | $ | (27,984) |
Foreign operations | 152,729 |  |  | 111,809 |  |  | (59,095) |
Earnings (loss) before income tax expense (benefit) and noncontrolling interests | $ | 198,046 |  |  | $ | 253,729 |  |  | $ | (87,079) |
Deferred Income Taxes The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows (in thousands):
| Jan 28, 2023 |  | Jan 29, 2022
Deferred income tax assets: |  |  |
Operating lease liabilities | $ | 156,234 |  |  | $ | 169,771 |
Intangible assets | 95,119 |  |  | 109,887 |
Net operating losses | 45,384 |  |  | 38,583 |
Defined benefit plans | 10,186 |  |  | 11,762 |
Deferred compensation | 7,177 |  |  | 7,632 |
Deferred income | 5,076 |  |  | 5,771 |
Inventory valuation | 4,025 |  |  | 1,679 |
Convertible senior notes hedge transactions | 3,919 |  |  | 6,884 |
Goodwill amortization | 2,019 |  |  | 4,657 |
Sales return and other reserves | 1,615 |  |  | 2,710 |
Account receivable reserve | 1,454 |  |  | 1,780 |
Lease incentives | 1,438 |  |  | 1,918 |
Accrued bonus | 1,046 |  |  | 2,575 |
Uniform capitalization | 919 |  |  | 1,004 |
Excess of financial accounting over tax depreciation/amortization | 649 |  |  | 1,784 |
Other, net | 13,449 |  |  | 13,826 |
Total deferred income tax assets | 349,709 |  |  | 382,223 |
Deferred income tax liabilities: |  |  |
Operating right-of-use assets | (146,243) |  |  | (155,618) |
Convertible senior notes debt discount | — |  |  | (6,207) |
Valuation allowances | (45,063) |  |  | (55,278) |
Net deferred income tax assets | $ | 158,403 |  |  | $ | 165,120 |
Based on the historical earnings of the Company and projections of future taxable earnings in certain jurisdictions, management believes it is more likely than not that the results of operations will not generate sufficient taxable earnings to realize certain net deferred income tax assets. Therefore, the Company has recorded a valuation allowance of $45.1 million, which is a decrease of $10.2 million from the prior year. As of January 28, 2023, certain of the Company’s operations had net operating loss carryforwards of $47.6 million (income tax effected, not net of uncertain income tax positions), including state/provincial net operating loss carryforwards. These are comprised of $8.5 million (income tax effected, not net of uncertain income tax positions) of net operating loss carryforwards with an unlimited carryforward life, $38.6 million (income tax effected, not net of uncertain income tax positions) of foreign net operating loss carryforwards expiring between fiscal 2024 and fiscal 2042 and $0.5 million (income tax effected) of state/provincial net operating loss carryforwards expiring starting fiscal 2024 and beyond. Based on the historical earnings of these operations, management believes it is more likely than not that some of the operations will not generate sufficient earnings to utilize these net operating losses. As of January 28, 2023 and January 29, 2022, the Company had a valuation allowance of $36.0 million and $39.8 million, respectively, related to its net operating loss carryforwards. Unrecognized Income Tax Benefit The Company and its subsidiaries are subject to U.S. federal and foreign income tax, as well as income tax of multiple state and foreign local jurisdictions. From time-to-time, the Company is subject to routine income and other audits on various income tax matters around the world in the ordinary course of business. As of January 28, 2023, no major income tax, and other, audits were ongoing. A reconciliation of the beginning and ending amount of gross unrecognized income tax benefit (excluding interest and penalties) is as follows (in thousands):
| Year Ended
| Jan 28, 2023 |  | Jan 29, 2022 |  | Jan 30, 2021
Beginning balance | $ | 51,736 |  |  | $ | 34,246 |  |  | $ | 29,183 |
Additions: |  |  |  |  |
Income tax positions related to the prior year | 3,954 |  |  | 280 |  |  | 110 |
Income tax positions related to the current year | 454 |  |  | 21,616 |  |  | 8,204 |
Reductions: |  |  |  |  |
Income tax positions related to the prior year | (70) |  |  | (2,405) |  |  | (3,251) |
Income tax positions related to the current year | — |  |  | (2,001) |  |  | — |
Foreign currency translation | — |  |  | — |  |  | — |
Ending balance | $ | 56,074 |  |  | $ | 51,736 |  |  | $ | 34,246 |
The amount of unrecognized income tax benefit as of January 28, 2023 and January 29, 2022 includes $34.9 million and $33.1 million (net of federal benefit on state issues), respectively, which, if ultimately recognized, may reduce our future annual effective income tax rate. As of January 28, 2023 and January 29, 2022, the Company had $64.4 million and $57.5 million, respectively, of aggregate accruals for uncertain income tax positions, including penalties and interest. This includes an accrual of $19.9 million for the estimated transition tax (excluding interest) related to the 2017 Tax Cuts and Jobs Act (the “Tax Reform”) and $20.6 million for the intra-entity transfer of intellectual property rights from certain U.S. entities to a wholly-owned Swiss subsidiary, substantially offset by the related deferred income tax benefit recorded by the Swiss Subsidiary. The Company reviews and updates the estimates used in the accrual for uncertain income tax positions, as appropriate, as more definitive information or interpretations become available from income taxing authorities, and on the completion of income tax audits, the receipt of assessments, expiration of statutes of limitations, or occurrence of other events. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company included interest and penalties related to uncertain income tax positions of a $2.6 million, $0.2 million and $0.9 million in income tax expense for fiscal years 2023, 2022 and 2021, respectively. Total interest and penalties related to uncertain income tax positions was $8.4 million and $5.7 million at January 28, 2023 and January 29, 2022, respectively. During the second quarter of fiscal 2021, the Company became aware of a foreign withholding income tax regulation that could be interpreted to apply to certain of its previous transactions. The Company currently does not expect its exposure, if any, will have a material impact on its consolidated financial position, results of operations or cash flows. Indefinite Reinvestment Assertion The Company has historically considered the undistributed earnings of its foreign subsidiaries to be indefinitely reinvested. As a result of the Tax Reform, the Company had a substantial amount of previously taxed earnings that could be distributed to the U.S. without additional U.S. taxation. As of January 28, 2023, the Company determined that approximately $37.8 million of such foreign earnings are not indefinitely reinvested. The incremental tax cost to repatriate these earnings to the U.S. is immaterial. The Company intends to indefinitely reinvest the remaining earnings from the Company’s foreign subsidiaries for which a deferred income tax liability has not already been recorded. The Company continues to evaluate its plans for reinvestment or repatriation of unremitted foreign earnings and regularly reviews its cash positions and determination of indefinite reinvestment of foreign earnings. If the Company determines that all or a portion of such foreign earnings are no longer indefinitely reinvested, the Company may be subject to additional foreign withholding taxes and U.S. state income taxes, beyond the one-time transition tax.

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