Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.20.4
INCOME TAXES
12 Months Ended
Jan. 30, 2021
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

    

2020

    

2019

2018

Income taxes at statutory rate

$

75,727

21.0

%

$

75,258

21.0

%

$

87,581

21.0

%

State income taxes, net of federal benefit

 

13,899

3.9

 

14,716

4.1

 

13,095

3.1

Foreign tax rate differential

(19,949)

(5.5)

(22,740)

(6.4)

(22,718)

(5.4)

U.S. tax on foreign operations

13,312

3.7

10,959

3.1

8,648

2.1

Share-based compensation

3,742

1.0

4,225

1.2

843

0.2

Taxing authority examinations

5,861

1.4

U.S. net operating loss carryback rate differential

(28,668)

(8.0)

Other

 

7,606

2.1

 

3,358

0.9

 

4,199

1.0

Total

$

65,669

18.2

%

$

85,776

23.9

%

$

97,509

23.4

%

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act includes various payroll and income tax provisions, including modifications to federal net operating loss and business interest deduction limitation rules and bonus depreciation eligibility for qualified improvement property, among other items. In connection with the CARES Act, we recorded a net income tax benefit of $18.4 million in fiscal 2020.

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

Fiscal Year

    

2020

    

2019

    

2018

Current:

Federal

  

$

(11,333)

  

$

58,966

  

$

61,910

State

 

16,977

 

12,995

 

15,502

Foreign

 

7,676

 

4,596

 

12,626

Total current income tax expense

13,320

76,557

90,038

Deferred:

Federal

 

51,878

 

2,762

 

9,200

State

 

616

 

5,632

 

1,073

Foreign

 

(145)

 

825

 

(2,802)

Total deferred income tax expense

52,349

9,219

7,471

Income taxes

$

65,669

$

85,776

$

97,509

The pretax income from foreign operations for fiscal 2020, fiscal 2019 and fiscal 2018 totaled $122.0 million, $131.2 million and $109.9 million, respectively. Cash paid for income taxes totaled $18.9 million, $58.7 million and $134.4 million in fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

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

January 30,

February 1,

2021

  

2020

Deferred income tax assets:

  

Operating lease liabilities

$

447,152

$

367,390

Accrued liabilities

16,469

13,804

Self-insurance

14,073

14,028

Gift cards

12,880

10,225

Share-based compensation

5,018

6,760

State income taxes

5,068

4,540

Goodwill

4,198

4,760

Other intangible assets

3,674

3,305

Interest rate swaps

 

3,407

4,306

State and foreign net operating losses

23,513

7,843

Tax credits

6,390

4,184

Other

 

6,366

2,664

Total gross deferred income tax assets

 

548,208

443,809

Valuation allowance

 

(12,589)

(9,209)

Total deferred income tax assets, net of valuation allowance

535,619

434,600

Deferred income tax liabilities:

Operating lease assets

(417,248)

(351,964)

Tax method changes (1)

(91,701)

Property and equipment

 

(49,399)

(49,604)

Merchandise inventories

(7,697)

(9,866)

Prepaid expenses

(4,380)

(4,965)

Total deferred income tax liabilities

 

(570,425)

(416,399)

Net deferred income tax (liabilities) assets

$

(34,806)

$

18,201

(1) Future taxable income primarily related to property and equipment and gift cards.

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 January 30, 2021, we had state net operating loss carryforwards to reduce future taxable income of $23.2 million, net of federal tax benefits, and $0.3 million of foreign net operating loss carryforwards expiring at various dates between fiscal 2021 and fiscal 2040.

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 2019 through the end of fiscal 2020 is as follows (in thousands):

Balance at beginning of year

$

68,417

Additions related to the current year

 

7,953

Additions related to prior years

 

1,940

Reductions related to prior years

(5,642)

Expiration of applicable statute of limitations

 

(2,019)

Settlement of tax positions

(585)

Balance at end of year

$

70,064

Included in the balance of unrecognized tax benefits resulting from uncertain tax positions at January 30, 2021 is $48.2 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 January 30, 2021 and February 1, 2020, the total amount of interest accrued within the tax liability was $8.3 million and $6.6 million, respectively. There was no material interest or penalty expense recognized in the consolidated statements of comprehensive income in fiscal 2020, fiscal 2019 or fiscal 2018.

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 2019 and fiscal 2011 to fiscal 2019 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 income tax returns in the process of examination, appeals 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 2018 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.