| Provision for Income Taxes | Provision for Income Taxes Income (loss) before income taxes is as follows: Year Ended December 31, (In thousands) 2019 2018 2017 Income (loss) before income taxes United States $ 81,122 $ (121,396) $ (131,475) Foreign 128,720 53,608 121,166 Total $ 209,842 $ (67,788) $ (10,309) The components of the income tax expense (benefit) consisted of the following: Year Ended December 31, (In thousands) 2019 2018 2017 Current Federal $ 7,232 $ (15,005) $ (46,931) State 771 3,253 (8,336) Foreign 21,952 34,975 34,005 29,955 23,223 (21,262) Deferred Federal 12,750 (27,808) 51,447 State 25,508 (6,202) 12,080 Foreign 1,811 (9,765) (4,314) 40,069 (43,775) 59,213 Income tax expense (benefit) $ 70,024 $ (20,552) $ 37,951 A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate is as follows: Year Ended December 31, 2019 2018 2017 U.S. federal statutory income tax rate $ 44,067 21.0 % $ (14,235) 21.0 % $ (3,608) 35.0 % State taxes, net of federal tax impact 4,620 2.2 % (6,715) 9.9 % (9,537) 92.5 % Unrecognized tax benefits (2,031) (1.0) % (7,598) 11.2 % 1,178 (11.4) % Permanent tax benefits/nondeductible expenses 328 0.2 % 5,609 (8.2) % 2,246 (21.8) % Intercompany asset sale — — % (18,834) 27.8 % — — % Goodwill impairment — — % — — % 8,522 (82.7) % Foreign rate differential (10,494) (5.0) % (12,294) 18.1 % (25,563) 248.0 % Valuation allowances 30,137 14.4 % 33,058 (48.8) % 29,563 (286.8) % Impacts related to Tax Act — — % 1,536 (2.3) % 38,833 (376.7) % Other 3,397 1.6 % (1,079) 1.6 % (3,683) 35.7 % Effective income tax rate $ 70,024 33.4 % $ (20,552) 30.3 % $ 37,951 (368.2) % The Company's income tax expense (benefit) for 2019, as compared to 2018, was higher primarily due to pre-tax income in 2019 compared to pre-tax losses in 2018, increases in valuation allowances recorded for certain U.S. state jurisdictions, and the one-time benefit in 2018 for an intercompany intangible asset sale. These increases were partially offset by a decrease in valuation allowances recorded for certain foreign jurisdictions in 2019 compared to 2018. Deferred tax assets and liabilities consisted of the following: December 31, (In thousands) 2019 2018 Deferred tax assets Lease liability and deferred rent 140,673 17,555 Foreign net operating loss carry-forwards 31,524 23,164 Reserves and accrued liabilities 25,676 47,509 Tax basis inventory adjustment 25,620 20,165 U.S. state net operating loss carryforward 24,124 23,818 Allowance for doubtful accounts and sales return reserves 23,257 28,620 Intangible assets 20,041 21,886 Stock-based compensation 14,828 14,119 Foreign tax credit carry-forwards 11,807 10,274 State tax credits, net of federal impact 7,480 8,432 Inventory obsolescense reserves 6,589 8,529 Other 4,835 2,209 Total deferred tax assets 336,454 226,280 Less: valuation allowance (101,997) (72,710) Total net deferred tax assets 234,457 153,570 Deferred tax liabilities Right-of-use asset (118,917) — Property, plant and equipment (16,956) (27,480) Prepaid expenses (15,862) (11,058) Other (1,717) (4,041) Total deferred tax liabilities (153,452) (42,579) Total deferred tax assets, net $ 81,005 $ 110,991 All deferred tax assets and liabilities are classified as non-current on the consolidated balance sheets as of December 31, 2019 and December 31, 2018. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and actual operating results in future years could differ from the current assumptions, judgments and estimates. A significant portion of the Company’s deferred tax assets relate to U.S. federal and state taxing jurisdictions. Realization of these deferred tax assets is dependent on future U.S. pre-tax earnings. In evaluating the recoverability of these deferred tax assets at December 31, 2019, the Company has considered all available evidence, both positive and negative, including but not limited to the following: Positive • 2019 pre-tax income plus tax permanent differences and taxable income in the U.S. federal and certain state jurisdictions; • Three year cumulative pre-tax income plus tax permanent differences in the U.S. federal jurisdiction; • Forecasted future pre-tax income plus tax permanent differences in the U.S. federal and certain state jurisdictions; • No history of U.S. federal and state tax attributes expiring unused; • Restructuring plans undertaken in 2017, 2018, and being assessed for 2020, which aim to improve future profitability; • Available prudent and feasible tax planning strategies may exist; • Reversal of deferred tax liabilities and timing thereof. Negative • Three year cumulative pre-tax losses plus tax permanent differences in certain state jurisdictions; • Forecasted year over year U.S. revenue declines in 2020 which decrease profitability in the U.S. federal and certain state jurisdictions; • Restructuring plans undertaken in 2017, 2018, and being assessed for 2020, which result in significant one-time charges, which reduce profitability in the U.S. federal and certain state jurisdictions; • Inherent challenges in forecasting future pre-tax earnings which rely, in part, on improved profitability from restructuring efforts; • The continued challenges in the U.S. consumer retail business environment. The Company believes that the weight of the positive evidence outweighs the negative evidence regarding the realization of its U.S. federal deferred tax assets. The Company will continue to evaluate its ability to realize these assets on a quarterly basis. The Company believes the weight of the negative evidence outweighs the positive evidence regarding the realization of the majority of the state deferred tax assets, including state net operating loss carryforwards, state tax credit carryforwards, and certain other state deferred tax assets, and has recorded valuation allowances of $54.5 million against these state deferred tax assets. As of December 31, 2019, the Company had $24.1 million in deferred tax assets associated with $383.6 million in state net operating loss carryforwards and $7.5 million in deferred tax assets associated with state tax credits, net of federal benefit, the majority of which are definite lived. Certain of the definite lived state net operating losses and state tax credits will begin to expire within 1 to 5 years, and the majority will begin to expire within 5 to 20 years. As of December 31, 2019, the Company had $31.5 million in deferred tax assets associated with approximately $124.8 million in foreign net operating loss carryforwards and $11.8 million in deferred tax assets associated with foreign tax credit carryforwards. While the majority of the foreign net operating loss carryforwards and foreign tax credit carryforwards have an indefinite carryforward period, certain are definite lived, with the majority to expire within 5 to 12 years. Additionally, as of December 31, 2019, the Company is not able to forecast the utilization of a majority of the deferred tax assets associated with foreign net operating loss carryforwards, foreign tax credit carryforwards and certain other foreign deferred tax assets and has recorded a valuation allowance of $47.5 million against these foreign deferred tax assets. As of December 31, 2019, approximately $165.4 million of cash and cash equivalents was held by the Company's non-U.S. subsidiaries whose cumulative undistributed earnings total $765.5 million. The Tax Act imposed U.S. federal tax on all post-1986 foreign unrepatriated earnings accumulated through December 31, 2017. The portion of these earnings not subject to U.S. federal income tax as part of the one-time transition tax should, in general, not be subject to U.S. federal income tax. The Company will continue to permanently reinvest these earnings, as well as future earnings from our foreign subsidiaries, to fund international growth and operations. If the Company were to repatriate indefinitely reinvested foreign funds, the Company would still be required to accrue and pay certain taxes upon repatriation, including foreign withholding taxes and certain U.S. state taxes and record foreign exchange rate impacts. Determination of the unrecorded deferred tax liability that would be incurred if such amounts were repatriated is not practicable. As of December 31, 2019 and 2018, the total liability for unrecognized tax benefits, including related interest and penalties, was approximately $44.3 million and $60.0 million, respectively. The following table represents a reconciliation of the Company's total unrecognized tax benefits balances, excluding interest and penalties, for the years ended December 31, 2019, 2018 and 2017. Year Ended December 31, (In thousands) 2019 2018 2017 Beginning of year $ 55,855 $ 51,815 $ 64,359 Increases as a result of tax positions taken in a prior period 1,545 1,978 457 Decreases as a result of tax positions taken in a prior period (11,005) (1,600) (40) Increases as a result of tax positions taken during the current period 1,158 12,802 14,580 Decreases as a result of settlements during the current period (6,359) — (13,885) Reductions as a result of a lapse of statute of limitations during the current period — (9,140) (13,656) End of year $ 41,194 $ 55,855 $ 51,815 As of December 31, 2019, $32.8 million of unrecognized tax benefits, excluding interest and penalties, would impact the Company's effective tax rate if recognized. As of December 31, 2019, 2018 and 2017, the liability for unrecognized tax benefits included $3.1 million, $4.2 million, and $3.5 million, respectively, for the accrual of interest and penalties. For each of the years ended December 31, 2019, 2018 and 2017, the Company recorded $2.0 million, $1.9 million, and $1.6 million, respectively, for the accrual of interest and penalties in its consolidated statements of operations. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the consolidated statements of operations. The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is currently under audit by the U.S. Internal Revenue Service for the years 2015 through 2017 and by the Chilean Internal Revenue Service for the years 2015 through 2018. The majority of the Company's other returns for years before 2016 are no longer subject to U.S. federal, state and local or foreign income tax examinations by tax authorities. The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing tax audits and assessments and the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, the Company does not anticipate that the balance of gross unrecognized tax benefits, excluding interest and penalties, will change significantly during the next twelve months. However, changes in the occurrence, expected outcomes, and timing of such events could cause the Company's current estimate to change materially in the future. |
