Income Taxes

3 Months Ended

Apr. 30, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The quarterly provision for income taxes is based on the current estimate of the annual effective income tax rate and the tax effect of discrete items occurring during the quarter. The Company’s quarterly provision and the estimate of the annual effective tax rate are subject to significant variation due to several factors. These factors include variability in the pre-tax jurisdictional mix of earnings, changes in how the Company does business including entering into new businesses or geographies, changes in foreign currency exchange rates, changes in laws, regulations, interpretations and administrative practices, relative changes in expenses or losses for which tax benefits are not recognized and the impact of discrete items. In addition, jurisdictions where the Company anticipates an ordinary loss for the fiscal year for which the Company does not anticipate future tax benefits are excluded from the overall computation of estimated annual effective tax rate and no tax benefits are recognized in the period related to losses in such jurisdictions. The impact of these items on the effective tax rate will be greater at lower levels of pre-tax earnings.

Impact of valuation allowances and other tax charges

During the thirteen weeks ended April 30, 2022, the Company did not recognize income tax benefits on $13.4 million of pretax

losses, primarily in Switzerland, resulting in adverse tax impacts of $2.4 million.

During the thirteen weeks ended May 1, 2021, the Company recognized $3.1 million of tax benefits due to the anticipated utilization of deferred tax assets against projected pre-tax income for the full fiscal year, primarily in the U.S. based on information available, on which a valuation allowance had previously been established.

As of April 30, 2022, there were approximately $11.4 million of net deferred tax assets in China. The realization of these net deferred tax assets is dependent upon the future generation of sufficient taxable profits in China. While the Company believes that the net deferred tax assets are more-likely-than-not to be realized, it is not a certainty, as there are continued issues and related responses due to emerging situations, such as the COVID-19 pandemic. The company is closely monitoring its operations in China. Should circumstances change, the net deferred tax assets may become subject to a valuation allowance in the future. Additional valuation allowances would result in additional tax expense.

Share-based compensation

Refer to Note 11, “SHARE-BASED COMPENSATION,” for details on income tax benefits and charges related to share-based compensation awards during the thirteen weeks ended April 30, 2022 and May 1, 2021.