Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.20.1
INCOME TAXES
12 Months Ended
Feb. 01, 2020
INCOME TAXES  
INCOME TAXES

8. INCOME TAXES

The reconciliation of income tax expense computed at the U.S. federal statutory tax rate to income tax expense reported in our consolidated statements of comprehensive income is as follows (in thousands):

Fiscal Year

    

2019

    

2018

2017

Income taxes at statutory rate

$

75,258

21.0

%

$

87,581

21.0

%

$

204,256

33.7

%

State income taxes, net of federal benefit

 

14,716

4.1

 

13,095

3.1

 

18,224

3.0

Foreign tax rate differential

(22,740)

(6.4)

(22,718)

(5.4)

(31,570)

(5.2)

Tax Act adjustments

 

 

987

0.2

14,557

2.4

Tax on GILTI, net

 

7,865

2.2

 

3,799

0.9

Share-based compensation

4,225

1.2

843

0.2

(2,685)

(0.4)

Taxing authority examinations

5,861

1.4

Other

 

6,452

1.8

 

8,061

2.0

 

12,461

2.0

Total

$

85,776

23.9

%

$

97,509

23.4

%

$

215,243

35.5

%

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted in the U.S. The Tax Act included a number of changes to U.S. tax laws that impact the Company, including the reduction of the federal statutory tax rate from 35% to 21% effective January 1, 2018. As a result of the Tax Act, we recorded an $8.5 million charge in fiscal 2017. The charge consists of adjustments totaling $14.6 million related to repatriation taxes for accumulated earnings of foreign subsidiaries and the revaluation of net deferred tax assets, partially offset by a $6.1 million benefit due to the decrease in the federal statutory tax rate. The Tax Act adjustments were not material to the consolidated financial statements in fiscal 2019 and fiscal 2018.

The components of our income tax expense are as follows (in thousands):

Fiscal Year

    

2019

    

2018

    

2017

Current:

Federal

  

$

58,966

  

$

61,910

  

$

186,784

State

 

12,995

 

15,502

 

26,434

Foreign

 

4,596

 

12,626

 

(2,027)

Total current income tax expense

76,557

90,038

211,191

Deferred:

Federal

 

2,762

 

9,200

 

3,961

State

 

5,632

 

1,073

 

(966)

Foreign

 

825

 

(2,802)

 

1,057

Total deferred income tax expense

9,219

7,471

4,052

Income taxes

$

85,776

$

97,509

$

215,243

The pretax income from foreign operations for fiscal 2019, fiscal 2018 and fiscal 2017 totaled $131.2 million, $109.9 million and $119.9 million, respectively. Cash paid for income taxes totaled $58.7 million, $134.4 million and $181.3 million in fiscal 2019, fiscal 2018 and fiscal 2017, respectively.

Significant components of deferred income tax assets and liabilities are as follows (in thousands):

February 1,

February 2,

2020

  

2019

Deferred income tax assets:

  

Operating lease liabilities

$

367,390

$

14,529

Accrued liabilities

13,804

13,031

Self-insurance

14,028

14,028

Gift cards

10,225

8,784

Share-based compensation

6,760

8,255

Interest rate swaps

4,306

1,655

Goodwill

4,760

678

Other intangible assets

3,305

638

State income taxes

 

4,540

3,949

State and foreign net operating losses

7,843

7,286

Tax credits

4,184

3,833

Other

 

2,664

768

Total gross deferred income tax assets

 

443,809

77,434

Valuation allowance

 

(9,209)

(5,430)

Total deferred income tax assets, net of valuation allowance

434,600

72,004

Deferred income tax liabilities:

Operating lease assets

(351,964)

Property and equipment

 

(49,604)

(39,046)

Merchandise inventories

(9,866)

(3,198)

Prepaid expenses

(4,965)

(4,755)

Total deferred income tax liabilities

 

(416,399)

(46,999)

Net deferred income tax assets

$

18,201

$

25,005

A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized. In evaluating our ability to realize our deferred tax assets we considered sources of future taxable income, including future reversals of existing taxable temporary differences, forecast of future profitability and tax planning strategies.

At February 1, 2020, we had state net operating loss carryforwards to reduce future taxable income of $7.5 million, net of federal tax benefits, and $0.3 million of foreign net operating loss carryforwards expiring at various dates between fiscal 2020 and fiscal 2039.

Unrecognized Tax Benefits Resulting from Uncertain Tax Positions

We operate in a number of tax jurisdictions and are subject to examination of our income tax returns by tax authorities in those jurisdictions who may challenge any item on these tax returns. Because the tax matters challenged by tax authorities are typically complex, the ultimate outcome of these challenges is uncertain. We recognize these tax benefits in our consolidated financial statements only after determining that it is more likely than not that the tax positions will be sustained.

A reconciliation of unrecognized tax benefits from the end of fiscal 2018 through the end of fiscal 2019 is as follows (in thousands):

Balance at beginning of year

$

58,820

Additions related to the current year

 

7,076

Additions related to prior years

 

5,837

Reductions related to prior years

(2,972)

Expiration of applicable statute of limitations

 

(336)

Settlement of tax positions

(8)

Balance at end of year

$

68,417

Included in the balance of unrecognized tax benefits resulting from uncertain tax positions at February 1, 2020 is $44.7 million which, if recognized, would affect income tax expense. We do not expect any material changes to our liability for uncertain tax positions during the next 12 months. At February 1, 2020 and February 2, 2019, the total amount of interest accrued within the tax liability was $6.6 million and $4.9 million, respectively. There was no material interest or penalty expense recognized in the consolidated statements of comprehensive income in fiscal 2019, fiscal 2018 or fiscal 2017.

Our income tax returns are subject to examination by taxing authorities in the jurisdictions in which we operate. The periods subject to examination for our U.S. federal returns are fiscal 2013 to fiscal 2018 and fiscal 2011 to fiscal 2018 for our Canadian returns. State and provincial income tax returns are generally subject to examination for a period of three to seven years after filing. We have various state and provincial income tax returns in the process of examination, appeals, litigation or settlement. Our income tax returns for fiscal 2011 and fiscal 2012 are currently under examination by the Canadian tax authorities. Our U.S. federal returns for fiscal 2013 through fiscal 2017 are currently under examination by the Internal Revenue Service. We are not aware of any issues which would result in a material assessment of net tax obligations.