|12 Months Ended|
Feb. 02, 2019
9. INCOME TAXES
The following table provides details on our earnings (loss) before income taxes (in thousands):
The provision (benefit) for income taxes consists of the following (in thousands):
In December 2017, the U.S. enacted the Tax Reform Act. The changes included in the Tax Reform Act are broad and complex, which impacted our consolidated financial statements in fiscal 2017 and fiscal 2018 including, but not limited to: reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018 and requiring a one-time transition tax on certain unrepatriated earnings of non-U.S. subsidiaries that may electively be paid over eight years. The transition tax resulted in certain previously untaxed non-U.S. earnings being included in the U.S. federal and state 2017 taxable income.
The Tax Reform Act also enacted new tax laws which include, but are not limited to: a Base Erosion Anti-abuse Tax (“BEAT”), which is a new minimum tax, generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, a provision designed to tax currently global intangible low taxed income (“GILTI”), a provision that may limit the amount of currently deductible interest expense, the repeal of the domestic production incentives, limitations on the deductibility of certain executive compensation, and limitations on the utilization of foreign tax credits to reduce the U.S. income tax liability.
Shortly after the Tax Reform Act was enacted, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) which provides guidance on accounting for the Tax Reform Act’s impact. SAB 118 provided a measurement period, which in no case should extend beyond one year from the Tax Reform Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Reform Act. In accordance with SAB 118, a company must reflect the income tax effects of the Tax Reform Act in the reporting period in which the accounting is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Reform Act is incomplete, a company can determine a reasonable estimate for those effects and record a provisional estimate in the financial statements in the first reporting period in which a reasonable estimate can be determined.
As a result, in fiscal 2017, we recorded a provisional discrete net tax benefit of $0.3 million related to the Tax Reform Act, which consisted of a benefit from deferred tax remeasurement offset by additional provision for transition tax. During the fourth quarter of fiscal 2018, we completed our accounting for the effects of the Tax Reform Act and recorded a discrete net tax benefit of $6.1 million, including finalization of deferred tax remeasurement, transition tax and a rate change for foreign exchange remeasurement on previously taxed earnings and profits.
In addition, during 2018, we finalized our policy and have elected to use the period cost method for GILTI provisions and therefore have not recorded deferred taxes for basis differences expected to reverse in future periods.
A reconciliation of the statutory federal income tax rate to our effective tax rate is as follows:
In fiscal 2018, our effective income tax rate was 18.9% and is lower than the U.S. statutory rate primarily due to the impact of the Tax Reform Act and usage of tax credits, which are partially offset by state income tax changes related to the Tax Reform Act and foreign earnings with higher tax rates in these jurisdictions. In fiscal 2017, our effective income tax rate was 28.3% and was lower than the U.S. statutory rate primarily due to foreign earnings and the lower tax rates in these jurisdictions and the release of specific uncertain tax positions liabilities, partially offset by a change in our position on permanently reinvested foreign earnings and valuation allowance changes.
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 February 2, 2019, it is more likely than not that we will realize the benefits of the deferred tax assets, except as discussed below.
At February 2, 2019, we had federal, state and foreign net operating loss (“NOL”) carryforwards of approximately $9.5 million, $178.7 million and $0.1 million, respectively. The federal and state NOL carryforwards will expire between fiscal 2019 and 2038; the foreign NOLs can be carried forward indefinitely. At February 2, 2019, we also had $16.5 million of foreign tax credit carryforwards, which will expire between fiscal 2020 and fiscal 2028.
At February 2, 2019 and February 3, 2018, we had net non-current deferred tax liabilities of $43.0 million and $68.8 million, respectively. We have a valuation allowance of $20.7 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 February 2, 2019 and February 3, 2018 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 February 2, 2019 and February 3, 2018, the total amount of accrued interest related to uncertain tax positions was $0.1 million and $0.2 million, respectively.
The following table summarizes the activity related to our uncertain tax positions (in thousands):
Of the $0.6 million in uncertain tax positions as of February 2, 2019, $0.6 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 2013 through fiscal 2017. Our tax jurisdictions include the United States, Canada, the UK, 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.
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://fasb.org/us-gaap/role/ref/legacyRef