Ulta Beauty, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income taxes

Income taxes

12 Months Ended

Feb. 03, 2018

Income taxes

Income taxes

6. Income taxes

The provision for income taxes consists of the following:


	Fiscal		Fiscal		Fiscal
(In thousands)	2017		2016		2015
Current:
Federal	$	230,006	$	194,199	$	163,048
State		28,714		24,835		18,694
Total current		258,720		219,034		181,742
Deferred:
Federal		(26,256)		24,480		6,981
State		(839)		2,440		(1,291)
Total deferred		(27,095)		26,920		5,690
Provision for income taxes	$	231,625	$	245,954	$	187,432

A reconciliation of the federal statutory rate to the Company’s effective tax rate is as follows:


	Fiscal		Fiscal		Fiscal
	2017		2016		2015
Federal statutory rate	33.7	%	35.0	%	35.0	%
State effective rate, net of federal tax benefit	2.4	%	2.8	%	2.2	%
Re-measurement of deferred tax liabilities	(4.9)	%	0.0	%	0.0	%
Excess deduction of stock compensation	(1.2)	%	0.0	%	0.0	%
Other	(0.6)	%	(0.3)	%	(0.3)	%
Effective tax rate	29.4	%	37.5	%	36.9	%

On December 22, 2017, the Tax Cuts and Jobs Act (Tax Reform) was enacted into law. This new legislation reduces the federal corporate tax rate to 21.0% effective January 1, 2018. In accordance with Section 15 of the Internal Revenue Code, the Company utilized a blended rate of 33.7% for the fiscal 2017 tax year by applying a prorated percentage of the number of days prior to and subsequent to the January 1, 2018 effective date. The Company recorded a provisional estimated after-tax benefit of $38,287 during the fourth quarter of fiscal 2017 based on the re-measurement of net deferred tax liabilities and $9,778 due to the lower tax rate in January 2018. Given the significant complexity of the Tax Reform, the Company will continue to evaluate and analyze the impact of this legislation. The $38,287 estimate is provisional and based on the Company’s initial analysis of the Tax Reform, and may be adjusted in future periods due to, among other things, additional analysis and additional guidance that may be issued by the U.S. Department of Treasury, the Securities and Exchange Commission, and/or the Financial Accounting Standards Board.

Significant components of the Company’s deferred tax assets and liabilities are as follows:


	February 3,		January 28,
(In thousands)	2018		2017
Deferred tax assets:
Reserves not currently deductible	$	23,789	$	33,805
Employee benefits		15,273		15,206
Credit carryforwards		343		398
Accrued liabilities		14,625		10,539
Inventory valuation		847		3,630
Total deferred tax assets		54,877		63,578
Deferred tax liabilities:
Property and equipment		54,210		73,454
Deferred rent obligation		49,518		62,252
Prepaid expenses		10,552		14,370
Total deferred tax liabilities		114,280		150,076
Net deferred tax liability	$	(59,403)	$	(86,498)

At February 3, 2018, the Company had $343 of credit carryforwards for state income tax purposes that expire between 2022 and 2027.

The Company accounts for uncertainty in income taxes in accordance with the ASC rules for income taxes. The reserve for uncertain tax positions was $3,565 and $3,305 at February 3, 2018 and January 28, 2017, respectively. The balance is the Company’s best estimate of the potential liability for uncertain tax positions. A reconciliation of the Company’s unrecognized tax benefits, excluding interest and penalties, is as follows:


	February 3,		January 28,
(In thousands)	2018		2017
Balance at beginning of the period	$	3,305	$	2,262
Increase due to a prior year tax position		1,064		1,048
Decrease due to a prior period position		(804)		(5)
Balance at the end of the period	$	3,565	$	3,305

The Company acknowledges that the amount of unrecognized tax benefits may change in the next twelve months. However, it does not expect the change to have a significant impact on its consolidated financial statements. Income tax-related interest and penalties were insignificant for fiscal 2017 and 2016.

The Company files tax returns in the U.S. Federal and State jurisdictions. The Company is no longer subject to U.S. Federal examinations by the Internal Revenue Services for years before 2014 and is no longer subject to examinations by State authorities before 2013.