Income Taxes

12 Months Ended

Jan. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 14 - INCOME TAXES

Income/(loss) before provision/(benefit) for income taxes for the fiscal year ended January 31, 2022, 2021 and 2020 on a legal entity basis consists of the following (in thousands):

	2022		2021			2020
U.S. income/(loss) before taxes	$	39,920	$	(121,302	)	$	(1,226	)
Non-U.S. income/(loss) before taxes		77,413		(21,080	)		58,729
Income/(loss) before income taxes	$	117,333	$	(142,382	)	$	57,503

Cash paid for income taxes during fiscal 2022, 2021 and 2020 was $25.3 million, $6.1 million and $16.0 million respectively.

The provision/(benefit) for income taxes for the fiscal years ended January 31, 2022, 2021 and 2020 consists of the following components (in thousands):

	2022			2021			2020
Current:
U.S. Federal	$	9,249		$	(21,657	)	$	558
U.S. State and Local		1,179			(703	)		905
Non-U.S.		14,555			9,464			9,309
		24,983			(12,896	)		10,772
Deferred:
U.S. Federal		(2,145	)		(11,139	)		2,337
U.S. State and Local		2,000			(6,321	)		107
Non-U.S.		(64	)		(832	)		1,908
		(209	)		(18,292	)		4,352
Provision/(benefit) for income taxes	$	24,774		$	(31,188	)	$	15,124

Significant components of the Company’s deferred income tax assets and liabilities for the fiscal years ended January 31, 2022 and 2021 are as follows (in thousands):

	2022 Deferred Taxes					2021 Deferred Taxes
	Assets			Liabilities		Assets			Liabilities
Net operating loss carryforwards	$	9,479		$	—	$	11,000		$	—
Inventory		—			377		—			2,292
Unprocessed returns		1,178			—		862			—
Receivables allowances		765			—		843			—
Deferred compensation		15,764			—		15,567			—
Depreciation/amortization		16,545			—		17,434			—
Other provisions/accruals		2,087			—		1,657			—
Deferred occupancy costs		16,024			14,072		17,064			15,140
Miscellaneous		722			—		1,096			—
		62,564			14,449		65,523			17,432
Valuation allowance		(7,022	)		—		(7,007	)		—
Total deferred tax assets and liabilities	$	55,542		$	14,449	$	58,516		$	17,432

On March 27, 2020, Congress passed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) which provided economic relief to assist American families and companies during the COVID-19 global pandemic. The CARES Act allowed U.S. net operating losses generated in fiscal 2019, 2020 and 2021 to be carried back up to five years to prior taxable years with a U.S. statutory tax rate of 35.0% and to offset 100% of regular taxable income in such years (the “CARES Act NOL Carryback Provision”). The Company generated a U.S. net operating loss of $22.0 million on the fiscal 2021 income tax return which was carried back to prior taxable years.

As of January 31, 2022, the Company had U.S. state and foreign net operating loss carryforwards of $1.3 million and $8.2 million, respectively, with expiration dates ranging from 1-10 years and some foreign jurisdictions with an indefinite carryforward period. Of the foreign net operating losses, $3.4 million is related to China, $1.7 million is related to Germany and the remaining is related to other foreign countries.

A valuation allowance is required to be established unless management determines it is more likely than not that the Company will ultimately utilize the tax benefit associated with a deferred tax asset. The Company has foreign valuation allowances of $7.0 million, which are primarily related to net operating loss carryforwards.

Management will continue to evaluate the appropriate level of valuation allowance on all deferred tax assets considering such factors as prior earnings history, expected future earnings, carryback and carryforward periods and tax and business strategies that could potentially enhance the likelihood of realization of the deferred tax assets.

The provision/(benefit) for income taxes for the fiscal years ended January 31, 2022, 2021 and 2020 differs from the U.S. federal statutory rate due to the following (in thousands):

	Fiscal Year Ended January 31,
	2022			2021			2020
Provision/(benefit) for income taxes at the U.S. statutory rate	$	24,640		$	(29,900	)	$	12,076
Lower effective non-U.S. income tax rate		(1,366	)		(74	)		(1,876	)
State and local taxes, net of federal benefit		2,511			(5,549	)		800
GILTI, net of foreign tax credits		77			—			2,703
Impairment of goodwill and intangible assets		—			11,694			—
Impact of CARES Act		(1,532	)		(10,231	)		—
Compensation and benefits		1,130			976			93
Other permanent differences		(209	)		173			399
Other, net		(477	)		1,723			929
Total provision/(benefit) for income taxes	$	24,774		$	(31,188	)	$	15,124

The effective tax rate for fiscal 2022 was 21.1%, and differed from the U.S. statutory tax rate of 21.0% primarily due to U.S. state and local taxes, net of federal benefit, partially offset by the CARES Act NOL Carryback Provision and related tax effects and foreign profits being taxed in lower taxing jurisdictions. The effective tax rate for fiscal 2021 was 21.9% and differed from the U.S. statutory tax rate of 21.0% primarily due to the CARES Act NOL Carryback Provision and related tax effects, and U.S. state net operating loss carryforwards generated in fiscal 2021, partially offset by impairments of the portion of goodwill of the Watch and Accessory Brands reporting unit which is not tax deductible.

Tax incentives have been granted to the Company for an entity located in Switzerland as a result of the Federal Act on Tax Reform and AHV Financing (“TRAF”). TRAF introduced two transition methods to provide relief to companies which had an expiring preferential tax regime: the dual rate method and the step-up method. The Company adopted the dual rate method which allows a reduction in the cantonal statutory tax rate through 2025 which does not have a material impact on the Company’s earnings per share.

The Company conducts business globally and, as a result, is subject to income taxes in the U.S. federal, state, local and foreign jurisdictions. In the normal course of business, the Company is subject to examinations by taxing authorities in many countries, such as Germany, Hong Kong, Switzerland and the United States. The Company is no longer subject to income tax examination for years ended prior to January 31, 2018, with few exceptions.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (exclusive of interest) for the fiscal years ended January 31, 2022, 2021 and 2020 are as follows (in thousands):

	2022			2021			2020
Beginning balance	$	901		$	826		$	1,351
Tax positions taken in the current year		159			204			106
Tax positions taken in prior years		-			(26	)		(125	)
Lapse of statute of limitations		(166	)		(119	)		(114	)
Settlements		-			-			(389	)
Non-U.S. currency exchange fluctuations		(18	)		16			(3	)
Ending balance	$	876		$	901		$	826

Included in the balances at January 31, 2022, January 31, 2021 and January 31, 2020 are $0.8 million, $0.8 million and $0.8 million, of unrecognized tax benefits which would impact the Company’s effective tax rate, if recognized. As of January 31, 2022, January 31, 2021 and January 31, 2020, the Company had $0.3 million, $0.4 million and $0.5 million, respectively, of accrued interest (net of tax benefit) and penalties related to unrecognized tax benefits. Interest (net of tax benefit) and penalties accrued in fiscal years 2022, 2021 and 2020 were immaterial. The Company does not anticipate any significant increases or decreases to unrecognized tax benefits during the next twelve months.

At January 31, 2022, the Company had no deferred tax liability for the undistributed foreign earnings of approximately $295.8 million because the Company intends to permanently reinvest such earnings in its foreign operations. It is not practicable to estimate the tax liability related to a future distribution of these permanently reinvested foreign earnings.