Income Taxes

12 Months Ended

Jan. 29, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Prior to the Separation, the Company's U.S. operations and certain of its non-U.S. operations were historically included in the income tax returns of the Former Parent or its subsidiaries that may not be part of the Company. For the periods prior to the Separation, the income tax expense (benefit) and all tax liabilities that are presented in these financial statements were calculated on a "carve-out" basis, which applied the accounting guidance as if we filed income tax returns for the Company on a standalone, separate return basis. The Company believes the assumptions supporting its allocation and presentation of income taxes on a separate return basis are reasonable. However, the Company's tax results, as presented in these financial statements for periods prior to the Separation, may not be reflective of the results that the Company expects to generate in the future.

Post-Separation, the Company will file a consolidated U.S. federal income tax return as well as separate and combined income tax returns in numerous state, local and international jurisdictions. Income tax expense (benefit) for the period prior to the Separation is based on the combined financial statements prepared on a "carve-out" basis. Income tax expense (benefit) for the period after the Separation is based on the consolidated results of the Company on a standalone basis.

The following table provides the components of the Company’s provision for income taxes for 2021, 2020 and 2019:

	2021		2020		2019
	(in millions)
Current:
U.S. Federal	$	129	$	7	$	15
U.S. State	44		16		(6)
Non-U.S.	23		7		19
Total	196		30		28
Deferred:
U.S. Federal	6		(68)		(10)
U.S. State	(4)		(14)		(1)
Non-U.S.	(1)		18		(19)
Total	1		(64)		(30)
Provision (Benefit) for Income Taxes	$	197	$	(34)	$	(2)

The non-U.S. component of pre-tax income, arising principally from overseas operations, was income of $92 million, income of $11 million and loss of $241 million for 2021, 2020 and 2019, respectively.

The following table provides the reconciliation between the statutory federal income tax rate and the effective tax rate for 2021, 2020 and 2019:

	2021		2020		2019
Federal Income Tax Rate	21.0	%	21.0	%	21.0	%
State Income Taxes, Net of Federal Income Tax Effect	4.3	%	(5.8	%)	(0.6	%)
Impact of Non-U.S. Operations	(0.9	%)	(16.6	%)	(1.9	%)
Share-Based Compensation	(1.2)	%	(4.0	%)	(0.9	%)
Restructuring of Foreign Investments	0.2	%	23.3	%	—	%
Uncertain Tax Positions	(0.2	%)	19.3	%	2.4	%
U.S. Permanent Items	0.1	%	(2.8	%)	(0.1	%)
Change in Valuation Allowance	—	%	(2.6	%)	(3.6	%)
Impairment of Goodwill	—	%	—	%	(16.3	%)
Other Items, Net	—	%	0.1	%	0.2	%
Effective Tax Rate	23.3	%	31.9	%	0.2	%

Deferred Taxes

The following table provides the effect of temporary differences that cause deferred income taxes as of January 29, 2022 and January 30, 2021. Deferred tax assets and liabilities represent the future effects on income taxes resulting from temporary differences and carryforwards at the end of the respective year.

	January 29, 2022						January 30, 2021
	Assets		Liabilities		Total		Assets		Liabilities		Total
	(in millions)
Loss Carryforwards	$	118	$	—	$	118	$	346	$	—	$	346
Leases	371		(322)		49		426		(365)		61
Share-based Compensation	11		—		11		29		—		29
Deferred Revenue	42		—		42		7		—		7
Property and Equipment	—		(79)		(79)		—		(106)		(106)
Trade Name and Other Intangibles	—		(57)		(57)		—		(64)		(64)
Other, Net	34		(11)		23		72		(28)		44
Valuation Allowance	(148)		—		(148)		(316)		—		(316)
Total Deferred Income Taxes	$	428	$	(469)	$	(41)	$	564	$	(563)	$	1

As of January 29, 2022, the Company had loss carryforwards of $118 million, of which $31 million has an indefinite carryforward. The remainder of the non-U.S. carryforwards, if unused, will expire at various dates from 2022 through 2038. For certain jurisdictions where the Company has determined that it is more likely than not that the loss carryforwards will not be realized, a valuation allowance has been provided on those loss carryforwards as well as other net deferred tax assets.

Income tax payments were $56 million for 2021, $59 million for 2020 and $115 million for 2019.

Uncertain Tax Positions

The following table summarizes the activity related to the Company’s unrecognized tax benefits for U.S. federal, state & non-U.S. tax jurisdictions for 2021, 2020 and 2019, without interest and penalties:

	2021		2020		2019
	(in millions)
Gross Unrecognized Tax Benefits, as of the Beginning of the Fiscal Year	$	126	$	41	$	78
Decreases to Unrecognized Tax Benefits Transferred to Former Parent	(126)		—		—
Increases to Unrecognized Tax Benefits for Prior Years	—		—		2
Decreases to Unrecognized Tax Benefits for Prior Years	—		(16)		(20)
Increases to Unrecognized Tax Benefits as a Result of Current Year Activity	10		105		1
Decreases to Unrecognized Tax Benefits Relating to Settlements with Taxing Authorities	—		—		(15)
Decreases to Unrecognized Tax Benefits due to Lapse of Statute of Limitations	—		(4)		(5)
Gross Unrecognized Tax Benefits, as of the End of the Fiscal Year	$	10	$	126	$	41

Of the total gross unrecognized tax benefits, approximately $9 million, $121 million and $38 million, at January 29, 2022, January 30, 2021, and February 1, 2020, respectively, represent the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. These amounts are net of the offsetting tax effects from other tax jurisdictions.

We do not believe it is reasonably possible the unrecognized tax benefits could change in the next 12 months due to audit settlements, expiration of statute of limitations or other resolution of uncertainties. Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in amounts which could be different from this estimate. In such case, the Company will record additional tax expense or tax benefit in the period in which such matters are effectively settled.

The Company recognizes interest and penalties related to unrecognized tax benefits when applicable as components of income tax expense. The Company did not recognize any interest and penalties in 2021 and did not have an accrual for interest and penalties as of January 29, 2022. The Company recognized an income tax benefit from interest and penalties of approximately $2 million and $1 million in 2020 and 2019, respectively. The Company accrued $6 million for the payment of interest and penalties as of January 30, 2021. Accrued interest and penalties are included within Other Long-term Liabilities on the Consolidated and Combined Balance Sheets.

The Company will file a U.S. federal income tax return as well as income tax returns in various states and in non-U.S. jurisdictions. The Company has not filed its initial consolidated U.S. federal income tax return; therefore, there are no open IRS examinations. The Company is currently under examination, or may be subject to examination, by various state, local and non-U.S. tax jurisdictions for fiscal year 2015 through 2020. The Company is no longer subject to state and local examinations for years prior to fiscal year 2015 or examinations in any material non-U.S. jurisdictions prior to 2016.

On August 2, 2021, the Company and the Former Parent entered into a Tax Matters Agreement. Under the agreement, the Former Parent will generally be responsible for all U.S. federal, state, local and non-U.S. income taxes of the Company for any taxable period, or portion of such period, ending on or before the Separation. Accordingly, the net liabilities associated with uncertain tax positions that were presented in the financial statements in prior periods on a carve-out basis were not transferred to the Company as part of the Separation.