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INCOME TAXES | 12 Months Ended
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Feb. 03, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Total income taxes were allocated as follows:
|  | Year Ended
(in millions) |  | February 3, 2018 |  | January 28, 2017 |  | January 30, 2016
Income from continuing operations |  | $ | (10.3 | ) |  | $ | 433.2 |  |  | $ | 165.8 |
Shareholders' equity, tax benefit on exercises/vesting of equity-based compensation |  | — |  |  | — |  |  | (12.8 | )
|  | $ | (10.3 | ) |  | $ | 433.2 |  |  | $ | 153.0 |
The provision for income taxes consists of the following:
|  | Year Ended
|  | February 3, |  | January 28, |  | January 30,
(in millions) |  | 2018 |  | 2017 |  | 2016
Federal - current |  | $ | 439.3 |  |  | $ | 480.5 |  |  | $ | 126.9 |
State - current |  | 23.8 |  |  | 79.5 |  |  | 14.6 |
Foreign - current |  | 0.3 |  |  | 0.8 |  |  | 0.5 |
Total current |  | $ | 463.4 |  |  | $ | 560.8 |  |  | $ | 142.0 |
Federal - deferred |  | (456.0 | ) |  | (37.7 | ) |  | 7.4 |
State - deferred |  | (17.7 | ) |  | (89.9 | ) |  | 3.3 |
Foreign - deferred |  | — |  |  | — |  |  | 13.1 |
Total deferred |  | $ | (473.7 | ) |  | $ | (127.6 | ) |  | $ | 23.8 |
Included in current tax expense for the years ended February 3, 2018, January 28, 2017 and January 30, 2016, are amounts related to uncertain tax positions associated with temporary differences, in accordance with Accounting Standards Codification (ASC) 740, Income Taxes. A reconciliation of the statutory federal income tax rate and the effective rate follows:
|  | Year Ended
|  | February 3, 2018 |  | January 28, 2017 |  | January 30, 2016
Statutory tax rate |  | 33.7 | % |  | 35.0 | % |  | 35.0 | %
Effect of: |  |  |  |  |  |  |  |  |
State and local income taxes, net of federal income tax benefit |  | 2.5 |  |  | 3.0 |  |  | 3.0 |
Work Opportunity Tax Credit |  | (1.3 | ) |  | (1.6 | ) |  | (3.8 | )
State tax election |  | — |  |  | (1.4 | ) |  | — |
Deferred tax rate change |  | (0.6 | ) |  | (1.6 | ) |  | — |
Incremental tax benefit of exercises/vesting of equity-based compensation |  | (0.8 | ) |  | (0.6 | ) |  | — |
International taxes |  | — |  |  | — |  |  | (4.5 | )
Change in valuation allowance |  | (0.1 | ) |  | 0.1 |  |  | 4.1 |
Nondeductible acquisition costs |  | — |  |  | — |  |  | 1.5 |
Tax Cuts and Jobs Act |  | (33.0 | ) |  | — |  |  | — |
Other, net |  | (1.0 | ) |  | (0.3 | ) |  | 1.7 |
Effective tax rate |  | (0.6 | )% |  | 32.6 | % |  | 37.0 | %
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The TCJA lowered the federal corporate tax rate from 35% to 21% and made numerous other law changes, including a provision that allows the full expensing of certain qualified property and adds limitations on the deductibility of certain executive compensation. GAAP requires companies to recognize the effect of tax law changes in the period of enactment. As a result, the 2017 statutory tax rate is 33.7%, as the Company's fiscal year 2017 includes 34 days in calendar year 2018. Also, the effective tax rate includes a $562.0 million benefit resulting from the re-measurement of the Company's net deferred tax liabilities, primarily related to the Family Dollar trade name, to reflect the lower statutory rate of 21%. Income Tax Accounting Implications of the Tax Cuts and Jobs Act On December 22, 2017, the Securities and Exchange Commission ("SEC") staff issued Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which provides guidance on accounting for the impact of the TCJA, in effect allowing companies to record provisional amounts during a measurement period not to exceed one year from the enactment date. Pursuant to the disclosure provisions of SAB 118, as of February 3, 2018, the Company has not completed its analysis of all of the effects of the TCJA. The Company has evaluated the tax on the mandatory deemed repatriation of undistributed foreign earnings and profits and determined that it is not material; however, the federal corporate tax rate may be affected by other analyses related to the TCJA including, but not limited to, federal temporary differences resulting from accounting method changes or other adjustments. Additionally, future guidance from the Internal Revenue Service ("IRS"), SEC, or the FASB could result in changes to the Company's accounting for the tax effects of the TCJA. The Company's analyses of the following items is not complete. For certain items a provisional adjustment has been reflected in the tax provision; however, for other items, the Company has not been able to make a reasonable estimate of the impact of the TCJA; therefore, no adjustments are included in the tax provision as of February 3, 2018. Items with Provisional Adjustments
• | Net Deferred Tax Liability Valuation. The valuation of the net deferred tax liability is dependent upon the future tax rate. While the Company is able to make a reasonable estimate of the impact of the reduction in the statutory federal corporate tax rate, the rate may be affected by other analyses related to the TCJA including, but not limited to, federal temporary differences resulting from accounting method changes or other adjustments.
• | Acceleration of Depreciation. While the Company has not completed its determination of all capital expenditures that qualify for immediate expensing, the Company recorded a provisional benefit for the year ended February 3, 2018 based on its current intent to fully expense all qualifying expenditures.
• | Executive Compensation. Effective for tax years beginning after December 31, 2017, the performance-based compensation exception to the $1.0 million deduction limitation of Internal Revenue Code Section 162(m) was repealed and the employees subject to the $1.0 million deduction limitation are revised to include the chief executive officer, the chief financial officer and the next three most highly compensated employees required to be reported in the Company's proxy statement. The only exception to this rule is for compensation that is paid pursuant to a binding contract in effect on November 2, 2017 that would have otherwise been deductible under prior Section 162(m) rules. Accordingly, any compensation paid in the future pursuant to new compensation agreements entered into after November 2, 2017, even if performance-based, will count toward the $1.0 million annual deduction limit if paid to an executive subject to 162(m). The Company has not yet completed its analysis of the binding contract requirement on the Company's various compensation plans to determine the impact of the law change.
• | Effect of State Taxes. The Company remeasured certain deferred tax assets and liabilities to account for the reduction in the future federal benefit from state deferred tax assets and liabilities. The Company was able to make a reasonable estimate of the impact of the TCJA on state taxes. However, at this stage it is unclear how many states will incorporate the federal law changes, or portions thereof, into their tax codes from the TCJA. Future guidance from states could result in changes to the Company's accounting for the tax effects of the TCJA.
Items without Provisional Adjustments
• | Global Intangible Low-Taxed Income ("GILTI"). The Company has not yet made a policy election with respect to its treatment of potential GILTI. Companies can either account for taxes on GILTI as incurred or recognize deferred taxes when basis differences exist that are expected to affect the amount of the GILTI inclusion upon reversal. The Company is still in the process of analyzing the provisions of the TCJA associated with GILTI and the expected impact of GILTI on the Company in the future.
Foreign Taxes United States income taxes have not been provided on accumulated but undistributed earnings of the Company's foreign subsidiaries as the Company intends to permanently reinvest earnings. The Company does not consider the tax on the mandatory deemed repatriation of undistributed foreign earnings and profits to be material. Deferred Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. All deferred tax assets and liabilities are classified on the accompanying consolidated balance sheets as noncurrent in accordance with ASU 2015-17 "Income Taxes (Topic 740)" and are netted based on taxing jurisdiction. Significant components of the Company's net deferred tax assets (liabilities) follow:
(in millions) |  | February 3, 2018 |  | January 28, 2017
Deferred tax assets: |  |  |  |
Deferred rent |  | $ | 42.7 |  |  | $ | 59.9 |
Accrued expenses |  | 17.8 |  |  | 71.4 |
Net operating losses and credit carryforwards |  | 75.6 |  |  | 71.4 |
Accrued compensation expense |  | 23.2 |  |  | 71.3 |
State tax election |  | 22.8 |  |  | 20.4 |
Other |  | — |  |  | 3.4 |
Total deferred tax assets |  | 182.1 |  |  | 297.8 |
Valuation allowance |  | (38.6 | ) |  | (49.7 | )
Deferred tax assets, net |  | 143.5 |  |  | 248.1 |
Deferred tax liabilities: |  |  |  |  |  |
Property and equipment |  | (218.5 | ) |  | (331.3 | )
Other intangibles |  | (880.5 | ) |  | (1,368.7 | )
Inventory |  | (27.1 | ) |  | (7.0 | )
Other |  | (2.6 | ) |  | — |
Total deferred tax liabilities |  | (1,128.7 | ) |  | (1,707.0 | )
Net deferred tax liability |  | $ | (985.2 | ) |  | $ | (1,458.9 | )
Deferred tax liabilities have been provided for the tax effects of the differences between the book and tax bases in the assets acquired from Family Dollar. The decrease in the deferred tax liability was primarily related to the tax effects of the decrease in the federal corporate rate from 35% to 21% as part of the TCJA. At February 3, 2018, the Company had certain state tax credit carryforwards, net operating loss carryforwards and capital loss carryforwards totaling approximately $75.6 million. These carryforwards will expire, if not utilized, beginning in 2018 through 2037. A valuation allowance of $38.6 million, net of federal tax benefits, has been provided principally for certain state credit carryforwards, net operating loss and capital loss carryforwards. Since January 28, 2017, the valuation allowance has been decreased primarily as a result of the expiration of certain state tax credit carryforwards and the decreased valuation allowance on capital loss carryforwards. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred taxes will not be realized. Based upon the availability of carrybacks of future deductible amounts to the past two years’ taxable income and the Company's projections for future taxable income over the periods in which the deferred tax assets are deductible, the Company believes it is more likely than not the remaining existing deductible temporary differences will reverse during periods in which carrybacks are available or in which the Company generates net taxable income. Uncertain Tax Positions The Company is participating in the IRS Compliance Assurance Program (“CAP”) for the 2017 fiscal year and will participate in the program for fiscal year 2018. This program accelerates the examination of key transactions with the goal of resolving any issues before the tax return is filed. The Company's federal tax returns have been examined and all issues have been settled through the fiscal 2016 tax year; however, the federal statute of limitations is still open for Family Dollar's tax returns for the fiscal year ended August 30, 2014 and the tax year ended July 6, 2015. Several states completed their examinations during fiscal 2017. In general, fiscal years 2014 and forward are within the statute of limitations for state tax purposes. The statute of limitations is still open prior to 2014 for some states. The balance for unrecognized tax benefits at February 3, 2018 was $43.8 million. The total amount of unrecognized tax benefits at February 3, 2018 that, if recognized, would affect the effective tax rate was $37.8 million (net of the federal tax benefit). The following is a reconciliation of the Company’s total gross unrecognized tax benefits:
(in millions) |  | February 3, 2018 |  | January 28, 2017
Beginning Balance |  | $ | 71.2 |  |  | $ | 71.4 |
Additions, based on tax positions related to current year |  | 2.5 |  |  | 5.9 |
Additions for tax positions of prior years |  | 9.8 |  |  | 3.7 |
Reductions for tax positions of prior years |  | (31.7 | ) |  | — |
Settlements |  | (2.9 | ) |  | (2.2 | )
Lapses in statutes of limitation |  | (5.1 | ) |  | (7.6 | )
Ending balance |  | $ | 43.8 |  |  | $ | 71.2 |
The Company believes it is reasonably possible that $7.0 million to $15.0 million of the reserve for uncertain tax positions may be reduced during the next 12 months principally as a result of the effective settlement of outstanding issues. It is also possible that state tax reserves will be reduced for audit settlements and statute expirations within the next 12 months. At this point it is not possible to estimate a range associated with the resolution of these audits. The Company does not expect any change to have a significant impact to its consolidated financial statements. As of February 3, 2018, the Company has recorded a liability for potential interest and penalties of $5.8 million.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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