Income Taxes

12 Months Ended

Feb. 02, 2019

12. Income Taxes:

Unrecognized tax benefits for uncertain tax positions, primarily recorded in Other noncurrent liabilities, are established in accordance with ASC 740 when, despite the fact that the tax return positions are supportable, the Company believes these positions may be challenged and the results are uncertain. The Company adjusts these liabilities in light of changing facts and circumstances. As of February 2, 2019, the Company had gross unrecognized tax benefits totaling approximately $8.5 million, of which approximately $10.6 million (inclusive of interest) would affect the effective tax rate if recognized. The Company had approximately $3.2 million, $2.8 million and $4.1 million of interest and penalties accrued related to uncertain tax positions as of February 2, 2019, February 3, 2018 and January 28, 2017, respectively. The Company recognizes interest and penalties related to the resolution of uncertain tax positions as a component of income tax expense. The Company recognized $1,023,000, $986,000 and $716,000 of interest and penalties in the Consolidated Statements of Income and Comprehensive Income for the years ended February 2, 2019, February 3, 2018 and January 28, 2017, respectively. The Company is no longer subject to U.S. federal income tax examinations for years before 2015. In state and local tax jurisdictions, the Company has limited exposure before 2008. During the next 12 months, various state and local taxing authorities’ statutes of limitations will expire and certain state examinations may close, which could result in a potential reduction of unrecognized tax benefits for which a range cannot be determined.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):


	February 2, 2019		February 3, 2018		January 28, 2017
Fiscal Year Ended	February 2, 2019		February 3, 2018		January 28, 2017
Balances, beginning	$	9,531	$	10,668	$	9,560
Additions for tax positions of the current year		420		2,537		2,618
Reduction for tax positions of prior years for:
Changes in judgment		-		(1,209)		-
Settlements during the period		(419)		(390)		(328)
Lapses of applicable statutes of limitations		(1,047)		(2,075)		(1,182)
Balances, ending	$	8,485	$	9,531	$	10,668

The provision for income taxes consists of the following (in thousands):

	February 2, 2019		February 3, 2018		January 28, 2017
Fiscal Year Ended	February 2, 2019		February 3, 2018		January 28, 2017
Current income taxes:
Federal	$	281	$	1,726	$	(411)
State		(359)		1,401		873
Foreign		1,371		1,952		2,053
Total		1,293		5,079		2,515
Deferred income taxes:
Federal		2,064		3,816		45
State		(767)		(1,462)		(644)
Foreign		-		-		(14)
Total		1,297		2,354		(613)
Total income tax expense	$	2,590	$	7,433	$	1,902

Significant components of the Company’s deferred tax assets and liabilities as of February 2, 2019 and February 3, 2018 are as follows (in thousands):

				February 2, 2019		February 3, 2018
Deferred tax assets:
	Allowance for doubtful accounts		$	180	$	198
	Inventory valuation			1,604		1,758
	Non-deductible accrued liabilities			1,589		3,248
	Other taxes			1,133		1,152
	Federal benefit of uncertain tax positions			1,111		1,268
	Equity compensation expense			4,242		4,321
	Net Operating Losses			1,484		851
	Charitable contribution carryover			1,568		2,041
	State Tax Credits			1,150		789
	Other			1,242		1,188
		Total deferred tax assets		15,303		16,814
Deferred tax liabilities
	Property and equipment			1,529		1,859
	Deferred lease liability			1,977		1,191
	Accrued self-insurance reserves			481		1,043
	Other			107		151
		Total deferred tax liabilities		4,094		4,244
Net deferred tax assets			$	11,209	$	12,570

As of February 2, 2019, the Company’s position is that its overseas subsidiaries will not invest undistributed earnings indefinitely. Future unremitted earnings when distributed are expected to be either distributions of GILTI-previously taxed income or eligible for a 100% dividends received deduction. The withholding tax rate on any unremitted earnings is zero and state income taxes on such earnings are considered immaterial. Therefore, the Company has not provided deferred U.S. income taxes on approximately $7.1 million of earnings from non-U.S. subsidiaries.

The reconciliation of the Company’s effective income tax rate with the statutory rate is as follows:

	February 2, 2019		February 3, 2018		January 28, 2017
Fiscal Year Ended	February 2, 2019		February 3, 2018		January 28, 2017
Federal income tax rate	21.0	%	33.7	%	35.0	%
State income taxes	1.1		(4.7)		(0.2)
Global Intangible Low-taxed Income	6.2		-		-
Foreign Tax Credit	(4.0)		-		-
Foreign rate differential	(2.6)		(28.8)		(9.3)
Offshore Claim	(5.7)		(15.6)		(4.1)
Deemed Repatriation	-		38.6		-
Work Opportunity Credit	(3.4)		(6.0)		(3.4)
Addback on Wage Related Credits	0.7		2.0		1.2
Tax exempt interest	(2.4)		(4.4)		(1.6)
Charitable contribution of inventory	-		(1.0)		(13.1)
Uncertain tax positions	(1.5)		(4.4)		2.4
Deferred rate change	(2.0)		39.2		-
Other	0.4		(2.1)		(3.0)
Effective income tax rate	7.8	%	46.5	%	3.9	%

The Tax Act enacted in fiscal 2017 significantly revised U.S. corporate income tax law by, among other things, reducing the corporate income tax rate to 21% and implementing a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. In response to the Tax Act, the SEC issued SAB 118, which allows issuers to recognize provisional estimates of the impact of the Tax Act in their financial statements and adjust in the period in which the estimate becomes finalized, or in circumstances where estimates cannot be made, to disclose and recognize within a one-year measurement period. As of February 2, 2019, the accounting for the income tax effects of the Tax Act has been completed.

Implementation of the Tax Act during 2017 resulted in an approximate $6.2 million charge for the revaluation of the Company’s net domestic deferred tax assets and a one-time provisional transition tax charge of approximately $6.1 million, of which $5.7 million was recorded in non-current liabilities in fiscal 2017. As of February 2, 2019, the Company has finalized these amounts. The finalization of the revaluation of the Company’s net domestic deferred tax assets resulted in a $.5 million benefit included as a component of its current year provision for income taxes and the non-current liability associated with the one-time transition tax charge was extinguished in 2018.