Income Taxes

9 Months Ended

Oct. 25, 2020

The Company’s effective tax rate differs from the statutory federal income tax rate of 21% primarily due to the regional mix of income, return-to-provision adjustments, excess tax benefits from share-based compensation, withholding taxes on certain foreign earnings and research and development tax credits.

The Company uses a two-step approach to recognize and measure uncertain tax positions ("UTP"). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (before the federal impact of state items) is as follows:


(in thousands)
Balance at January 26, 2020	$	25,466
Additions/(decreases) based on tax positions related to the current fiscal year	278
Additions/(decreases) based on tax positions related to the prior fiscal years	1,240

Balance at October 25, 2020	$	26,984

Included in the balance of gross unrecognized tax benefits at October 25, 2020 and January 26, 2020 are $9.9 million and $8.6 million, respectively, of net tax benefits (after the federal impact of state items), that, if recognized, would impact the effective tax rate, prior to consideration of any required valuation allowance.

The liability for UTP is reflected in the Balance Sheets as follows:


(in thousands)	October 25, 2020		January 26, 2020
Deferred tax assets - non-current	$	15,736	$	15,575
Other long-term liabilities	9,903		8,555
Total accrued taxes	$	25,639	$	24,130

The Company’s policy is to include net interest and penalties related to unrecognized tax benefits in the "Provision for income taxes" in the Statements of Income.

Tax years prior to 2013 (the Company’s fiscal year 2014) are generally not subject to examination by the U.S. Internal Revenue Service except for items involving tax attributes that have been carried forward to tax years whose statute of limitations remains open. For state returns, the Company is generally not subject to income tax examinations for calendar years prior to 2012 (the Company’s fiscal year 2013). The Company has a significant tax presence in Switzerland for which Swiss tax filings have been examined through fiscal year 2019. The Company is also subject to routine examinations by various foreign tax jurisdictions in which it operates. The Company believes that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with the Company's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

The Company’s regional income (loss) from continuing operations before taxes and equity in net gains of equity method investments was as follows:


	Three Months Ended				Nine Months Ended
(in thousands)	October 25, 2020		October 27, 2019		October 25, 2020		October 27, 2019
Domestic	$	(2,054)	$	(1,845)	$	(19,065)	$	(20,907)
Foreign	21,957		18,183		65,813		58,373
Total	$	19,903	$	16,338	$	46,748	$	37,466

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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