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INCOME TAXES | 12 Months Ended
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Jan. 30, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of income before taxes are as follows:
|  | Fiscal Year Ended
|  | January 30, 2021 |  | February 1, 2020 |  | February 2, 2019
|  | (In thousands)
Domestic |  | $ | (250,876) |  |  | $ | 36,660 |  |  | $ | 49,820 |
Foreign |  | 39,118 |  |  | 51,757 |  |  | 58,704 |
Total income before provision (benefit) for income taxes |  | $ | (211,758) |  |  | $ | 88,417 |  |  | $ | 108,524 |
The components of the Company’s provision for income taxes consisted of the following:
|  | Fiscal Year Ended
|  | January 30, 2021 |  | February 1, 2020 |  | February 2, 2019
|  | (In thousands)
Current: |  |  |  |  |  |
Federal |  | $ | (45,072) |  |  | $ | 1,810 |  |  | $ | 594 |
State and local |  | 212 |  |  | 1,186 |  |  | 2,519 |
Foreign |  | 5,728 |  |  | 6,757 |  |  | 10,019 |
|  | (39,132) |  |  | 9,753 |  |  | 13,132 |
Deferred: |  |  |  |  |  |
Federal |  | (14,274) |  |  | 4,240 |  |  | (3,418) |
State and local |  | (15,968) |  |  | 1,066 |  |  | (2,324) |
Foreign |  | (2,019) |  |  | 58 |  |  | 174 |
|  | (32,261) |  |  | 5,364 |  |  | (5,568) |
Total provision (benefit) for income taxes |  | $ | (71,393) |  |  | $ | 15,117 |  |  | $ | 7,564 |
Effective tax rate |  | 33.7 | % |  | 17.1 | % |  | 7.0 | %
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act allows net operating losses ("NOLs") incurred in taxable years 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to offset 100% of taxable income and to generate a refund of previously paid income taxes. The Company has evaluated the impact of the CARES Act, and at present expects that the NOL carryback provision of the CARES Act would result in a material cash benefit. A reconciliation between the calculated tax provision (benefit) on income based on a U.S. federal statutory rate of 21.0% for the years ended January 30, 2021, February 1, 2020, and February 2, 2019, and the effective tax rate is as follows:
|  | Fiscal Year Ended
|  | January 30, 2021 |  | February 1, 2020 |  | February 2, 2019
|  | (In thousands)
Calculated income tax provision at U.S. federal statutory rate |  | $ | (44,471) |  |  | $ | 18,568 |  |  | $ | 22,790 |
State and local income taxes, net of federal benefit (1) |  | (12,447) |  |  | 1,779 |  |  | 154 |
Foreign tax rate differential (2) |  | (5,791) |  |  | (5,019) |  |  | (3,801) |
Non-deductible expenses |  | 2,654 |  |  | 1,491 |  |  | 861 |
Excess tax detriment (benefit) related to stock compensation |  | 2,051 |  |  | (1,914) |  |  | (11,804) |
U.S. transition taxes on deemed repatriation of foreign earnings |  | — |  |  | — |  |  | 338 |
Revaluation of deferred tax assets and liabilities |  | — |  |  | — |  |  | (295) |
Foreign withholding and state tax on unremitted earnings |  | — |  |  | — |  |  | (244) |
Unrecognized tax benefits |  | 1,150 |  |  | 1,304 |  |  | 1,092 |
Change in valuation allowance |  | (10) |  |  | (21) |  |  | (62) |
Global intangible low-taxed income |  | 7,815 |  |  | 836 |  |  | 1,033 |
Federal tax credits |  | (1,422) |  |  | (1,790) |  |  | (2,188) |
CARES Act Carryback (3) |  | (20,954) |  |  | — |  |  | — |
Other |  | 32 |  |  | (117) |  |  | (310) |
Total provision (benefit) for income taxes |  | $ | (71,393) |  |  | $ | 15,117 |  |  | $ | 7,564 |
(1) The total benefit from excess tax benefit related to stock compensation includes state tax (net of federal benefit) of $(0.5) million, $0.5 million, and $3.1 million for Fiscal 2020, Fiscal 2019, and Fiscal 2018, respectively. (2) The foreign tax rate differential is due to the Company having a lower foreign effective tax rate as compared to its U.S. federal statutory tax rate of 21% for Fiscal 2020, Fiscal 2019, and Fiscal 2018. The Company has substantial operations in Hong Kong, which has lower statutory income tax rates as compared to the U.S. The Company’s foreign effective tax rates for Fiscal 2020, Fiscal 2019, and Fiscal 2018 were 7.7%, 13.2%, and 17.4%, respectively. This rate will fluctuate from year to year in response to changes in the mix of income by country as well as changes in foreign jurisdiction tax laws. (3) The CARES Act permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. The Fiscal 2020 estimated tax loss of approximately $150 million is being carried back to earlier tax years when the corporate tax rate was 35% compared to the current corporate tax rate of 21%, resulting in a tax benefit of $21 million. The assessment of the amount of value assigned to our deferred tax assets under the applicable accounting rules is judgmental. We are required to consider all available positive and negative evidence in evaluating the likelihood that we will be able to realize the benefit of our deferred tax assets in the future. Such evidence includes scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and the results of recent operations. Since this evaluation requires consideration of events that may occur some years into the future, there is an element of judgment involved. Realization of our deferred tax assets is dependent on generating sufficient taxable income in future periods. We believe that it is more likely than not that future taxable income will be sufficient to allow us to recover substantially all of the value assigned to our deferred tax assets. However, if future events cause us to conclude that it is not more likely than not that we will be able to recover all of the value assigned to our deferred tax assets, we will be required to adjust our valuation allowance accordingly. The tax effects of temporary differences which give rise to deferred tax assets and liabilities are as follows:
|  | January 30, 2021 |  | February 1, 2020
|  | (In thousands)
Noncurrent Assets: |  |  |  |
Lease liabilities |  | 86,241 |  |  | 115,409 |
ROU assets |  | (75,159) |  |  | (104,392) |
Stock-based compensation |  | 843 |  |  | 2,288 |
Reserves |  | 16,302 |  |  | 8,994 |
Inventory |  | 1,880 |  |  | 1,620 |
Property and equipment, net |  | (7,406) |  |  | (13,016) |
Capitalized research and development, net |  | 2,984 |  |  | 4,156 |
Tradenames and customer databases, net |  | (1,617) |  |  | (737) |
Prepaid expenses |  | (817) |  |  | (735) |
Foreign and state tax on unremitted earnings |  | (1,554) |  |  | (1,561) |
Hedging transactions |  | — |  |  | (270) |
Net operating loss carryforward |  | 11,240 |  |  | 91 |
Tax Credits |  | 10,581 |  |  | 2,010 |
Charitable Contributions |  | 2,977 |  |  | — |
Valuation allowance |  | (916) |  |  | (916) |
Total deferred tax asset, net |  | $ | 45,579 |  |  | $ | 12,941 |
The Company has state NOL carryforwards of approximately $168.3 million which expire between five and twenty years, foreign NOL carryforwards of approximately $0.4 million which does not expire and $4.7 million which expires in twenty years. The Company also has an Alternative Minimum Tax credit (“AMT”) in Puerto Rico of approximately $0.6 million, research tax credits of approximately $3.5 million, and other federal credits of approximately $6.5 million. The Company has concluded that it is more likely than not that certain deferred tax assets cannot be used in the foreseeable future, principally the foreign net operating loss carryforwards and the AMT credit in Puerto Rico. Accordingly, a valuation allowance has been established for these tax benefits. However, to the extent that tax benefits related to these are realized in the future, the reduction of the valuation allowance will reduce income tax expense accordingly. On December 22, 2017, the U.S. government passed the Tax Act. The Tax Act is a comprehensive tax legislation that implements complex changes to the U.S. tax code including, but not limited to, the reduction of the corporate tax rate from 35% to 21% and a move from a global tax regime to a modified territorial regime which requires U.S. companies to pay a mandatory one-time transition tax on historical offshore earnings that have not been repatriated to the U.S. The transition tax is payable over eight years. Included in the consolidated balance sheets under long-term liabilities is the transition tax payable of $14.9 million. While the Company is no longer permanently reinvested to the extent earnings were subject to the transition tax under the Tax Act, no additional income taxes have been provided on any earnings subsequent to the transition or for any additional outside basis differences inherent in these entities, as these amounts continue to be permanently reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any additional outside basis differences in these entities (i.e., basis differences in excess of that subject to the one-time transition tax) is not practicable. The unremitted foreign earnings earned subsequent to the transition tax, which are permanently reinvested, are approximately $129.3 million as of January 30, 2021. Uncertain Tax Benefits Tax positions are evaluated in a two-step process. First, the Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination. Second, if a tax position meets the more-likely-than-not recognition threshold, it is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. A reconciliation of the gross amounts of unrecognized tax benefits, excluding accrued interest and penalties, is as follows:
|  | January 30, 2021 |  | February 1, 2020
|  | (In thousands)
Beginning Balance |  | $ | 6,655 |  |  | $ | 5,002 |
Additions for current year tax positions |  | 1,256 |  |  | 1,399 |
Additions for prior year tax positions |  | 120 |  |  | 270 |
Reductions for prior year tax positions |  | — |  |  | — |
Reductions related to settlements with taxing authorities |  | — |  |  | (57) |
Reductions due to a lapse of the applicable statute of limitations |  | — |  |  | — |
Impact of foreign currency translation |  | 29 |  |  | 41 |
Ending Balance |  | $ | 8,060 |  |  | $ | 6,655 |
Approximately $7.9 million of unrecognized tax benefits, excluding accrued interest and penalties, at January 30, 2021 would affect the Company’s effective tax rate if recognized. The Company does not expect any material unrecognized tax benefits reversals in the next 12 months as a result of settlements with taxing authorities and statute of limitations expirations. The Company accrued interest and penalties related to unrecognized tax benefits as part of the provision for income taxes. At January 30, 2021 and February 1, 2020, accrued interest and penalties included in unrecognized tax benefits were approximately $0.2 million and $0.1 million, respectively. Interest, penalties, and reversals thereof, net of taxes, was an expense of $0.1 million in Fiscal 2020 and $0.1 million in Fiscal 2019.

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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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