Income and Other Taxes

3 Months Ended

Apr. 29, 2016

Income Tax Disclosure [Abstract]

Income and Other Taxes

INCOME AND OTHER TAXES

For the three months ended April 29, 2016 and May 1, 2015, the Company’s effective income tax rate was 37.6% and 34.3%, respectively, on pretax losses of $18.6 million and $27.1 million, respectively. The change in SecureWorks’ effective income tax rate was primarily attributable to a change in the mix of geographic losses as well as an additional tax benefit from domestic tax credits. The income tax rate for future quarters of fiscal 2017 will be impacted by the actual mix of jurisdictions in which results are generated.

During the periods presented in the financial statements, SecureWorks did not file separate federal tax returns, as the Company generally was included in the tax grouping of other Dell entities within the respective entity’s tax jurisdiction. The income tax benefit has been calculated using the separate return method modified to apply the benefits-for-loss approach. Under the benefits-for-loss approach, net operating losses or other tax attributes are characterized as realized by SecureWorks when those attributes are utilized by other members of the Dell consolidated group.

As of April 29, 2016 and January 29, 2016, SecureWorks had $1.6 million and $2.4 million of deferred tax assets, respectively, related to net operating loss carryforwards for state tax returns that are not included with those of other Dell entities. These net operating loss carryforwards begin expiring in fiscal 2017. Due to the uncertainty surrounding the realization of these net operating loss carryforwards, the Company has provided valuation allowances for the full amount as of April 29, 2016 and January 29, 2016. Because the Company is included in the tax filings of certain other Dell entities, management has determined that it will be able to realize the remainder of its deferred tax assets. If the Company’s tax provision had been prepared using the separate return method, the unaudited pro forma pre-tax loss, tax benefit and net loss for the three months ended April 29, 2016 would have been $18.6 million, $7.4 million and $11.2 million, respectively, as a result of the recognition of a valuation allowance that would be recorded on certain deferred tax assets.

The cumulative undistributed earnings in the Company’s non-U.S jurisdictions are currently negative. The Company, therefore, has no unrecognized deferred tax liability on these earnings. The Company had $0.2 million of unrecognized tax benefits as of April 29, 2016 and no unrecognized tax benefits as of January 29, 2016. The Company is no longer subject to tax examinations for years prior to fiscal 2012.