

	Fiscal Year
	2019			2018			2017
Current tax (benefit) expense:
Federal	$	(25.3	)	$	45.0		$	104.7
State	1.5			12.8			14.2
Foreign	(0.1		)	38.5			28.5
	(23.9		)	96.3			147.4
Deferred tax expense (benefit):
Federal	12.6			(36.0		)	23.4
State	3.2			(4.0		)	(1.3		)
Foreign	45.7			(14.6		)	(16.0		)
	61.5			(54.6		)	6.1
Total income tax expense	$	37.6		$	41.7		$	153.5

The following is a reconciliation of income tax expense (benefit) from continuing operations computed at the U.S. Federal statutory tax rate to income tax expense (benefit) reported in our consolidated statements of operations. Certain prior year rates have been reclassified to conform with current year presentation:



	Fiscal Year
	2019		2018		2017
Federal statutory tax rate⁽¹⁾	21.0	%	21.0	%	33.7	%
State income taxes, net of federal effect	(1.0	)	(0.9	)	3.0
Foreign income tax rate differential	(0.5	)	2.8		(1.1	)
Change in valuation allowance	(17.9	)	—		(1.1	)
Change in unrecognized tax benefits	3.4		0.2		(1.5	)
Transition tax	—		3.0		2.7
Tax reform	—		—		8.3
Intercompany sale of intangible assets	—		—		(3.4	)
Foreign tax credit	0.2		0.1		(2.5	)
Withholding tax expense	(0.2	)	(0.3	)	2.3
Impairment of goodwill	(15.4	)	(25.6	)	0.1
Nondeductible interest	(0.1	)	(4.2	)	0.5
Simply Mac Loss on Sale	1.6		—		—
Other (including permanent differences)⁽²⁾	0.1		(1.6	)	(1.0	)
	(8.8	)%	(5.5	)%	40.0	%

___________________

Under U.S. GAAP we are allowed to make an accounting policy choice to either: (1) treat taxes due on future global intangible low-taxed income ("GILTI") inclusions in U.S. taxable income as a current-period expense when incurred (the “period cost method”); or (2) factor in such amounts into our measurement of our deferred taxes (the “deferred method”). Our policy, as elected, is to account for GILTI as a period cost in the year the tax is incurred. Accordingly, no GILTI-related deferred amounts were recorded.

Differences between financial accounting principles and tax laws cause differences between the bases of certain assets and liabilities for financial reporting purposes and tax purposes. The tax effects of these differences, to the extent they are temporary, are recorded as deferred tax assets and liabilities which are presented in the table below (in millions).



	February 1, 2020			February 2, 2019
Deferred tax asset:
Inventory	$	10.7		$	14.7
Deferred rents	1.0			3.9
Operating lease liabilities	201.3			—
Stock-based compensation	1.7			1.8
Net operating losses	77.3			78.5
Customer liabilities	11.6			18.6
Property and equipment	3.5			11.3
Credits	27.9			18.2
Accrued compensation	9.6			12.1
Intangible assets	28.5			21.8
Goodwill	1.5			—
Other	22.4			13.1
Total deferred tax assets	397.0			194.0
Valuation allowance	(112.7		)	(32.9		)
Total deferred tax assets, net	284.3			161.1
Deferred tax liabilities:
Goodwill	—			(10.2		)
Prepaid expenses	(3.3		)	(3.6		)
Operating lease right-of-use assets	(198.5		)	—
Other	(0.2		)	(0.1		)
Total deferred tax liabilities	(202.0		)	(13.9		)
Net deferred tax assets	$	82.3		$	147.2
The above amounts are reflected in the consolidated financial statements as:
Deferred income taxes - assets	$	83.0		$	147.3
Deferred income taxes - liabilities	$	(0.7	)	$	(0.1	)

During the year ended February 1, 2020, we increased our valuation allowance by approximately $79.8 million in various jurisdictions where realization of existing gross and or net deferred tax assets was determined to be less than more likely than not, primarily due to cumulative losses in those jurisdictions. The Company will continue to assess the realizability of its gross and net deferred tax assets in all tax jurisdictions within which we do business in future periods.

With respect to state and local jurisdictions and countries outside of the United States, we and our subsidiaries are typically subject to examination for three years to six years after the income tax returns have been filed. Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, interest and penalties have been provided for in the accompanying consolidated financial statements for any adjustments that might be incurred due to state, local or foreign audits.

In fiscal 2018, we settled a tax matter with the French Tax Administration (the “FTA”), where certain of our French subsidiaries had been under audit for fiscal years 2008 through 2015. The FTA had asserted our French subsidiaries were ineligible to claim certain tax deductions. As a result of the final settlement, which covers fiscal years 2008 through 2018, we recognized charges totaling $30.3 million in income tax expense during fiscal 2018.

As of February 1, 2020, we have approximately $25.8 million of net operating loss ("NOL") carryforwards in various foreign jurisdictions that expire in years 2019 through 2035 (primarily related to Puerto Rico), as well as $244.5 million of foreign NOL carryforwards that have no expiration date. In addition, we have approximately $19.5 million of foreign tax credit carryforwards that expire in years 2024 through 2027. We also have approximately $56.1 million of Federal NOL carryovers acquired through the ThinkGeek acquisition that will expire in years 2020 through 2035.

As of February 1, 2020, the gross amount of unrecognized tax benefits was approximately $6.5 million. If we were to prevail on all uncertain tax positions, the net effect would be a benefit to our effective tax rate of approximately $5.5 million, exclusive of any benefits related to interest and penalties. A reconciliation of the changes in the gross balances of unrecognized tax benefits follows (in millions):



	Fiscal Year
	2019			2018			2017
Beginning balance of unrecognized tax benefits	$	22.5		$	24.9		$	42.1
Increases related to current period tax positions	0.4			1.1			1.0
Increases related to prior period tax positions	1.6			35.5			11.2
Decreases related to prior period tax positions	(10.2		)	—			—
Reductions as a result of a lapse of the applicable statute of limitations	(4.3		)	(0.6		)	(1.3		)
Reductions as a result of settlements with taxing authorities	(3.5		)	(38.4		)	(28.1		)
Ending balance of unrecognized tax benefits	$	6.5		$	22.5		$	24.9

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of February 1, 2020, February 2, 2019 and February 3, 2018, we had approximately $2.8 million, $5.4 million and $6.9 million, respectively, in interest and penalties related to unrecognized tax benefit accrued, of which approximately $2.6 million of benefit, $1.5 million of benefit and $0.3 million of expense were recognized through income tax expense in fiscal 2019, 2018 and 2017. If we were to prevail on all uncertain tax positions, the reversal of these accruals related to interest and penalties would also be a benefit to our effective tax rate.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of our unrecognized tax positions could significantly increase or decrease within the next 12 months as a result of settling ongoing audits. However, as audit outcomes and the timing of audit resolutions are subject to significant uncertainty, and given the nature and complexity of the issues involved, we are unable to reasonably estimate the possible amount of change in the unrecognized tax benefits, if any, that may occur within the next 12 months as a result of ongoing examinations. Nevertheless, we believe we are adequately reserved for our uncertain tax positions as of February 1, 2020.

Prior to enactment of H.R. 1, formerly known as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), the Company asserted that all unremitted earnings of its foreign subsidiaries were considered indefinitely reinvested. As a result of the Tax Act, the Company reported and paid U.S. tax on the majority of its previously unremitted foreign earnings. As of February 1, 2020, the Company continues to be indefinitely reinvested with respect to investments in its foreign subsidiaries. Additionally, the Company has not recorded approximately $31.1 million of deferred tax liabilities associated with remaining unremitted earnings considered indefinitely reinvested, primarily associated with foreign withholding taxes that would be due upon remittance.