|12 Months Ended|
Jan. 28, 2017
7. INCOME TAXES
Earnings (loss) before income taxes (in thousands):
The provision (benefit) for income taxes consists of the following (in thousands):
No provision for U.S. income taxes or Canadian withholding taxes has been made on the cumulative undistributed earnings of foreign companies (approximately $307.8 million at January 28, 2017) because we intend to permanently reinvest all the foreign earnings outside of the U.S. The potential deferred tax liability associated with these earnings, net of related foreign tax credits, is estimated to be approximately $43.7 million.
A reconciliation of the statutory federal income tax rate to our effective tax rate is as follows:
In fiscal 2016, our effective income tax rate was 21.0% and is lower than the U.S. statutory rate primarily due to foreign earnings and the lower tax rates in these jurisdictions. In fiscal 2015, our effective income tax rate was a benefit of 14.1% and is lower than the U.S. statutory rate due to our overall net loss, partially offset by the non-deductibility of the goodwill impairment charge. Our effective tax rate is affected by recurring items, such as tax rates in foreign jurisdictions, which are lower than the federal rate, and the amounts we earn in those jurisdictions.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that a portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of January 28, 2017, it is more likely than not that we will realize the benefits of the deferred tax assets, except as discussed below.
At January 28, 2017, we had net non-current deferred tax liabilities of $70.6 million. At January 30, 2016, we had net non-current deferred tax liabilities of $91.1 million. The decrease in the net deferred tax liabilities is primarily due to the decrease in inventory and property and equipment. We have a valuation allowance of $9.8 million against certain state deferred tax assets and foreign tax credits for which we have concluded it is more likely than not that we will not recognize the asset.
Total deferred tax assets and liabilities and the related temporary differences as of January 28, 2017 and January 30, 2016 were as follows (in thousands):
In accordance with the guidance regarding accounting for uncertainty in income taxes, we classify uncertain tax positions as non‑current income tax liabilities unless expected to be paid within one year and recognize interest and/or penalties related to income tax matters in income tax expense. As of January 28, 2017 and January 30, 2016, the total amount of accrued interest related to uncertain tax positions was $1.5 million and $1.1 million, respectively.
The following table summarizes the activity related to our uncertain tax positions (in thousands):
Of the $19.5 million in uncertain tax positions as of January 28, 2017, $19.4 million, if recognized, would reduce our income tax expense and effective tax rate. We do not expect material changes in the total amount of uncertain tax positions within the next 12 months as the outcome of tax matters is uncertain and unforeseen results can occur.
We are subject to routine compliance examinations on tax matters by various tax jurisdictions in the ordinary course of business. Tax return years which are open to examinations range from fiscal 2011 through fiscal 2015. Our tax jurisdictions include the United States, Canada, the United Kingdom, The Netherlands, Hong Kong and France as well as their states, territories, provinces and other political subdivisions. A number of U.S. state examinations are ongoing.
At January 28, 2017, we had federal, state and foreign net operating loss (“NOL”) carryforwards of approximately $15.8 million, $146.6 million and $3.0 million, respectively. The federal and state NOL carryforwards will expire between fiscal 2017 and 2036 while the $3.0 million of foreign NOLs can be carried forward indefinitely. We also had $0.7 million of foreign tax credit carryforwards at January 28, 2017 which will expire in fiscal 2019.
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.
Reference 1: http://www.xbrl.org/2003/role/presentationRef