Note 10. Income Taxes
The provision for income taxes consisted of the following:
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
$ |
— |
|
|
$ |
(53 |
) |
|
$ |
759 |
|
|
State |
|
207 |
|
|
|
522 |
|
|
|
344 |
|
|
Foreign |
|
75 |
|
|
|
— |
|
|
|
— |
|
|
Total current |
|
282 |
|
|
|
469 |
|
|
|
1,103 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
83,323 |
|
|
|
2,994 |
|
|
|
20,416 |
|
|
State |
|
10,121 |
|
|
|
(249 |
) |
|
|
2,475 |
|
|
Total deferred |
|
93,444 |
|
|
|
2,745 |
|
|
|
22,891 |
|
|
Total provision for income taxes |
$ |
93,726 |
|
|
$ |
3,214 |
|
|
$ |
23,994 |
|
The sources of income (loss) before provision for income taxes are from the United States and the Company’s French branch. The Company files U.S. federal income tax returns and income tax returns in various state and local jurisdictions.
Current income taxes are the amounts payable under the respective tax laws and regulations on each year’s earnings. Deferred income tax assets and liabilities represent the tax effects of revenues, costs and expenses, which are recognized for tax purposes in different periods from those used for financial statement purposes.
A reconciliation of the federal statutory income tax rate to the effective tax rate is as follows:
|
|
Fiscal Year |
|
|||||||||
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
Statutory federal rate |
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
State taxes, net of federal benefit |
|
5.5 |
% |
|
|
6.5 |
% |
|
|
5.7 |
% |
|
Nondeductible Tax Receivable Agreement adjustment |
|
0.4 |
% |
|
|
4.1 |
% |
|
—% |
|
|
|
Valuation allowance |
|
(176.8 |
)% |
|
|
(0.5 |
)% |
|
|
(0.7 |
)% |
|
Return to provision adjustment |
|
(0.1 |
)% |
|
|
(2.4 |
)% |
|
—% |
|
|
|
Changes in tax law |
—% |
|
|
|
(3.2 |
)% |
|
—% |
|
||
|
Other |
—% |
|
|
|
(0.8 |
)% |
|
|
0.2 |
% |
|
|
Total |
|
(136.0 |
)% |
|
|
38.7 |
% |
|
|
40.2 |
% |
Deferred income tax assets and liabilities consisted of the following:
|
|
January 28, |
|
|
January 30, |
|
||
|
(in thousands) |
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
$ |
28,353 |
|
|
$ |
17,071 |
|
|
Employee related costs |
|
2,361 |
|
|
|
2,163 |
|
|
Allowance for asset valuations |
|
4,817 |
|
|
|
2,551 |
|
|
Accrued expenses |
|
7,349 |
|
|
|
6,088 |
|
|
Net operating losses |
|
83,670 |
|
|
|
72,465 |
|
|
Tax credits |
|
812 |
|
|
|
812 |
|
|
Other |
|
489 |
|
|
|
457 |
|
|
Total deferred tax assets |
|
127,851 |
|
|
|
101,607 |
|
|
Less: valuation allowances |
|
(122,860 |
) |
|
|
(1,024 |
) |
|
Net deferred tax assets |
|
4,991 |
|
|
|
100,583 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Cancellation of debt income |
|
(4,607 |
) |
|
|
(6,657 |
) |
|
Other |
|
(384 |
) |
|
|
(482 |
) |
|
Total deferred tax liabilities |
|
(4,991 |
) |
|
|
(7,139 |
) |
|
Net deferred tax assets |
$ |
— |
|
|
$ |
93,444 |
|
|
Included in: |
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
$ |
— |
|
|
$ |
4,164 |
|
|
Deferred income taxes |
|
— |
|
|
|
89,280 |
|
|
Net deferred tax assets |
$ |
— |
|
|
$ |
93,444 |
|
Net operating losses as of January 28, 2017 presented above do not include prior deductions related to stock options that exceeded expenses previously recognized for financial reporting purposes, since they have not yet reduced income taxes payable. The excess deduction will reduce income taxes payable and increase additional paid in capital by $2,350 when ultimately deducted in a future year. Net operating losses as of January 30, 2016 presented above do not include prior deductions related to stock options that exceeded expenses previously recognized for financial reporting purposes since they have not yet reduced income taxes payable. The excess deduction that would reduce income taxes payable and increase additional paid in capital was $2,732 as of January 30, 2016.
As of January 28, 2017, the Company had a net operating loss of $224,519 (federal tax effected amount of $78,582) for federal income tax purposes that may be used to reduce future federal taxable income. As of January 28, 2017, the cumulative amount of tax deductions related to shared-based compensation and the corresponding compensation expense adjustment for financial reporting was $5,876 (federal and state tax effected amount of $2,350). The net operating losses for federal income tax purposes will expire between 2030 and 2037.
As of January 28, 2017, the Company recorded a $9,777 deferred tax asset related to net operating loss carryforwards for state income tax purposes that may be used to reduce future state taxable income. The net operating loss carryforwards for state income tax purposes expire between 2022 and 2037.
As of January 28, 2017, the Company had total deferred tax assets related to net operating loss carryforwards, reduced for excess stock deductions and uncertain tax positions, of $83,670, of which $74,752 and $8,918 were attributable to federal and domestic state and local jurisdictions, respectively.
The valuation allowance for deferred tax assets was $122,860 at January 28, 2017, increasing $121,836 from the valuation allowance for deferred tax assets of $1,024 at January 30, 2016. During fiscal 2016, the Company recorded additional valuation allowances in the amount of $121,836 due to the combination of (i) a current year pre-tax loss, including goodwill and tradename impairment charges; (ii) levels of projected pre-tax income; and (iii) the Company’s ability to carry forward or carry back tax losses. The valuation allowance of $1,024 at January 30, 2016, reflected management’s assessment, based on available information, that it was more likely than not that a portion of the deferred tax assets would not be realized due to the inability to generate sufficient state taxable income. The total valuation allowance on deferred tax assets decreased on a net basis by $50 in the fiscal year ended January 30, 2016. Adjustments to the valuation allowance are made when there is a change in management’s assessment of the amount of deferred tax assets that are realizable.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
Beginning balance |
$ |
2,127 |
|
|
$ |
4,487 |
|
|
$ |
3,693 |
|
|
Increases for tax positions in current year |
|
208 |
|
|
|
72 |
|
|
|
2,397 |
|
|
Increases for tax positions in prior years |
|
4 |
|
|
|
27 |
|
|
|
135 |
|
|
Decreases for tax positions in prior years |
|
— |
|
|
|
(2,459 |
) |
|
|
(1,738 |
) |
|
Ending balance |
$ |
2,339 |
|
|
$ |
2,127 |
|
|
$ |
4,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 28, 2017 and January 30, 2016 , unrecognized tax benefits in the amount of $0 and $2,161 (net of tax), respectively, would impact the Company’s effective tax rate if recognized. It is reasonably possible that within the next 12 months certain temporary unrecognized tax benefits could fully reverse. Should this occur, the Company’s unrecognized tax benefits could be reduced by up to $2,339.
The Company includes accrued interest and penalties on underpayments of income taxes in its income tax provision. As of January 28, 2017 and January 30, 2016, the Company did not have any interest and penalties accrued on its Consolidated Balance Sheets and no related provision or benefit was recognized in each of the Company’s Consolidated Statements of Operations for the years ended January 28, 2017, January 30, 2016 and January 31, 2015. Interest is computed on the difference between the tax position recognized net of any unrecognized tax benefits and the amount previously taken or expected to be taken in the Company’s tax returns.
With limited exceptions, the Company is no longer subject to examination for U.S. federal and state income tax for 2007 and prior.