Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.19.1
INCOME TAXES
12 Months Ended
Feb. 02, 2019
INCOME TAXES  
INCOME TAXES

9. 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

 

 

    

2018

 

    

2017

 

 

2016

 

Income taxes at statutory rate

 

$

87,581

 

21.0

%

 

$

204,256

 

33.7

%

 

$

203,621

 

35.0

%

State income taxes, net of federal benefit

 

 

13,095

 

3.1

 

 

 

18,224

 

3.0

 

 

 

10,665

 

1.8

 

Foreign tax rate differential

 

 

(22,718)

 

(5.4)

 

 

 

(31,570)

 

(5.2)

 

 

 

(8,820)

 

(1.5)

 

Tax Act adjustments

 

 

987

 

0.2

 

 

 

14,557

 

2.4

 

 

 

 —

 

 —

 

Tax on global intangible low-taxed income, net

 

 

3,799

 

0.9

 

 

 

 —

 

 —

 

 

 

 —

 

 —

 

Taxing authority examinations

 

 

5,861

 

1.4

 

 

 

 —

 

 —

 

 

 

 —

 

 —

 

Other

 

 

8,904

 

2.2

 

 

 

9,776

 

1.6

 

 

 

(1,852)

 

(0.3)

 

Total

 

$

97,509

 

23.4

%

 

$

215,243

 

35.5

%

 

$

203,614

 

35.0

%

 

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 2018.

 

The Tax Act subjects us to a tax on global intangible low-taxed income (“GILTI”) earned by our foreign subsidiaries. FASB Topic 740, Accounting for Global Intangible Low-Taxed Income, allows us to make a policy election to either defer GILTI taxes to future years or provide for the tax expense in the year the tax is incurred. We have elected to record the GILTI tax in the year it is incurred.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year

 

    

2018

    

2017

    

2016

Current:

 

 

 

 

 

 

 

 

 

Federal

  

$

61,910

  

$

186,784

  

$

171,934

State

 

 

15,502

 

 

26,434

 

 

15,970

Foreign

 

 

12,626

 

 

(2,027)

 

 

8,487

Total current income tax expense

 

 

90,038

 

 

211,191

 

 

196,391

 

 

 

 

 

 

 

 

 

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

9,200

 

 

3,961

 

 

4,055

State

 

 

1,073

 

 

(966)

 

 

1,139

Foreign

 

 

(2,802)

 

 

1,057

 

 

2,029

Total deferred income tax expense

 

 

7,471

 

 

4,052

 

 

7,223

 

 

 

 

 

 

 

 

 

 

Income taxes

 

$

97,509

 

$

215,243

 

$

203,614

 

The pretax income from foreign operations for fiscal 2018, fiscal 2017 and fiscal 2016 totaled $109.9 million, $119.9 million and $48.2 million, respectively.

 

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

 

 

 

 

 

 

 

 

 

 

February 2,

 

February 3,

 

 

2019

  

2018

Deferred income tax assets:

  

 

 

 

 

 

Accrued liabilities

 

$

13,031

 

$

12,378

Self-insurance

 

 

14,028

 

 

14,740

Deferred rent

 

 

14,529

 

 

14,108

Gift cards

 

 

8,784

 

 

8,392

Share-based compensation

 

 

8,255

 

 

7,119

Original issue discount

 

 

 —

 

 

2,829

State income taxes

 

 

3,949

 

 

5,033

State and foreign net operating losses

 

 

7,286

 

 

6,247

Tax credits and deferred interest

 

 

3,833

 

 

2,657

Other

 

 

3,739

 

 

1,783

Total gross deferred income tax assets

 

 

77,434

 

 

75,286

Valuation allowance

 

 

(5,430)

 

 

(2,640)

Total deferred income tax assets, net of valuation allowance

 

 

72,004

 

 

72,646

 

 

 

 

 

 

 

Deferred income tax liabilities:

 

 

 

 

 

 

Property and equipment

 

 

(39,046)

 

 

(25,398)

Merchandise inventories

 

 

(3,198)

 

 

(8,447)

Prepaid expenses

 

 

(4,755)

 

 

(2,538)

Cancellation of debt

 

 

 —

 

 

(4,783)

Total deferred income tax liabilities

 

 

(46,999)

 

 

(41,166)

 

 

 

 

 

 

 

Net deferred income tax assets

 

$

25,005

 

$

31,480

 

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 2, 2019, we had state net operating loss carryforwards to reduce future taxable income of $7.1 million, net of federal tax benefits, and $0.2 million of foreign net operating loss carryforwards expiring at various dates between fiscal 2019 and fiscal 2038. Cash paid for income taxes totaled $134.4 million, $181.3 million and $162.4 million in fiscal 2018, fiscal 2017 and fiscal 2016, respectively.

 

Unrecognized Tax Benefits

 

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. In accordance with ASC 740, Income Taxes, we recognize these tax benefits in our consolidated financial statements only after determining that it is more likely than not that the tax benefits will be sustained.

 

A reconciliation of gross unrecognized tax benefits from the end of fiscal 2017 through the end of fiscal 2018 is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

 

$

46,894

Additions related to the current year

 

 

6,556

Additions related to prior years

 

 

12,870

Reductions related to prior years

 

 

(4,937)

Settlement of tax positions

 

 

(2,355)

Expiration of applicable statute of limitations

 

 

(208)

Balance at end of year

 

$

58,820

 

Included in the balance of unrecognized tax benefits at February 2, 2019 is $36.1 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 2, 2019 and February 3, 2018, the total amount of interest accrued within the tax liability was $4.9 million and $3.0 million, respectively. There was no material interest or penalty expense recognized in the consolidated statements of comprehensive income in fiscal 2018, fiscal 2017 or fiscal 2016.

 

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 2017 and fiscal 2011 to fiscal 2017 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 or settlements. Our income tax returns for fiscal 2011 and fiscal 2012 are currently under examination by the Canadian tax authorities. Our federal returns for fiscal 2013 and fiscal 2014 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.