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Income Taxes | 9 Months Ended
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Feb. 02, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | 17. Income Taxes Effective Income Tax Rate We recorded income tax expense of $2.6 million, or 142.8% of income before income taxes, for the nine-month period ended February 2, 2020, compared with income tax expense of $3.4 million, or 32.5% of income before income taxes, for the nine-month period ended January 27, 2019. Our effective income tax rates for the nine-month periods ended February 2, 2020, and January 27, 2019, were based upon the estimated effective income tax rate applicable for the full year after giving effect to any significant items related specifically to interim periods. The effective income tax rate can be affected over the fiscal year by the mix and timing of actual earnings from our U.S. operations and foreign subsidiaries located in China and Canada versus annual projections, as well as changes in foreign currency exchange rates in relation to the U.S. dollar. The following schedule summarizes the principal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements:
|  | 2020 |  |  | 2019 |
U.S. federal income tax rate |  |  | 21.0 | % |  |  | 21.0 | %
Global Intangible Low Taxed Income Tax (GILTI) |  | 58.2 |  |  |  | 2.6 |
Foreign income tax rate differential |  |  | 35.7 |  |  |  | 10.1 |
Non-controlling interest income attributable to a consolidated partnership |  |  | 21.0 |  |  |  | - |
Tax effects of Chinese foreign exchange gains |  |  | 4.4 |  |  |  | 1.4 |
Change in estimate of U.S. valuation allowance |  | 2.5 |  |  |  | 1.0 |
Stock-based compensation |  |  | 1.2 |  |  |  | 0.7 |
Tax effects of the 2017 Tax Cuts and Jobs Act |  |  | - |  |  |  | (5.7 | )
Other |  |  | (1.2 | ) |  |  | 1.4 |
|  |  | 142.8 | % |  |  | 32.5 | %
The increase in our effective income tax rate reflects the significant decline in our projected annual consolidated taxable income, particularly in the U.S., and the mix of our consolidated taxable income that is earned by our foreign operations located in China and Canada that have higher income tax rates in relation to the U.S. This current mix of taxable income has led to a significant increase in our effective income tax rate that is associated with our Global Intangible Low Tax Income (GILTI) tax, which represents a U.S. income tax on foreign earnings. Additionally, our effective income tax rate significantly increased due to the income tax effects of our asset impairments associated with our home accessories segment incurred during the third quarter that were attributable to our non-controlling interest. Deferred Income Taxes Valuation Allowance In accordance with ASC Topic 740, we evaluate our deferred income taxes to determine if a valuation allowance is required. ASC Topic 740 requires that companies assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard, with significant weight being given to evidence that can be objectively verified. Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, taking into account the effects of local tax law. Based on our assessments at February 2, 2020, January 27, 2019, and April 28, 2019, valuation allowances against our deferred income taxes pertain to the following jurisdictions:
(dollars in thousands) |  | February 2, 2020 |  |  | January 27, 2019 |  |  | April 28, 2019 |
U.S. state loss carryforwards and credits |  | $ | 711 |  |  |  | 903 |  |  |  | 666 |
U.S. foreign income tax credits |  |  | — |  |  |  | 4,550 |  |  |  | 82 |
|  | $ | 711 |  |  |  | 5,453 |  |  |  | 748 |
Undistributed Earnings In accordance with ASC Topic 740, we assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S. parent company. ASC Topic 740 requires that a deferred tax liability should be recorded for undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely. Based on our assessment as of February 2, 2020, it is our intention not to permanently invest our undistributed earnings from our foreign subsidiaries. Also, we assess the recognition of U.S. foreign income tax credits associated with foreign withholding and income tax payments and whether it is more-likely-than-not that our foreign income tax credits will not be realized. If it is determined that any foreign income tax credits need to be recognized or it is more-likely-than-not our foreign income tax credits will not be realized, an adjustment to our provision for income taxes will be recognized at that time. As a result of the 2017 Tax Cuts and Jobs Act, a U.S. corporation is allowed a 100% dividend received deduction for earnings and profits received from a 10% owned foreign corporation. Therefore, a deferred tax liability will be required for withholding taxes that are incurred by our foreign subsidiaries at the time earnings and profits are distributed. As a result, at February 2, 2020, January 27, 2019, and April 28, 2019, we recorded a deferred income tax liability of $3.4 million, $3.4 million, and $3.5 million, respectively, for withholding taxes on undistributed earnings and profits from our foreign subsidiaries. Uncertainty In Income Taxes In accordance with ASC Topic 740, an unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the reporting period, or is effectively settled through examination, negotiation, or litigation, or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. If it is determined that any of the above conditions occur regarding our uncertain income tax positions, an adjustment to our unrecognized income tax benefits will be recorded at that time. At February 2, 2020, we had a $914,000 total gross unrecognized income tax benefit that was recorded to income taxes payable- long-term in the accompanying Consolidated Balance Sheets. At January 27, 2019, we had a $880,000 total gross unrecognized income tax benefit, of which $500,000 and $380,000 were classified as income taxes payable – long-term and non-current deferred income taxes, respectively, in the accompanying Consolidated Balance Sheets. At April 28, 2019, we had a $903,000 total gross unrecognized income tax benefit, of which $523,000 and $380,000 were classified as income taxes payable – long-term and non-current deferred income taxes respectively, in the accompanying Consolidated Balance Sheets. At February 2, 2020, our $914,000 total gross unrecognized income tax benefit would favorably affect the income tax rate in future periods. At January 27, 2019, our $880,000 total gross unrecognized income tax benefit included $500,000 that, if recognized, would favorably affect the income tax rate in future periods. At April 28, 2019, our $903,000 total gross unrecognized income tax benefit included $523,000 that, if recognized, would favorably affect the income tax rate in future periods. Our gross unrecognized income tax benefit of $914,000 relates to income tax positions for which significant change is currently not expected within the next year. This amount primarily relates to double taxation under applicable income tax treaties with foreign tax jurisdictions.

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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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