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Note 8 - Income Taxes | 12 Months Ended
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Feb. 02, 2019
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
( 8 ) | Income Taxes
The Company’s income (loss) before income taxes from domestic and foreign operations (which include the U.K., Canada, China, Denmark and Ireland), is as follows (in thousands):
|  | Fiscal year ended |  |  | Five weeks ended |
|  | February 2, |  |  | December 30, |  |  | February 3, |
|  | 2019 |  |  | 2017 |  |  | 2018 |
Domestic |  | $ | (4,175 | ) |  | $ | 13,081 |  |  | $ | (1,275 | )
Foreign |  |  | (14,332 | ) |  |  | 732 |  |  |  | 247 |
Total income (loss) before income taxes |  | $ | (18,507 | ) |  | $ | 13,813 |  |  | $ | (1,028 | )
The components of the income tax expense (benefit) are as follows (in thousands):
|  | Fiscal year ended |  |  | Five weeks ended |
|  | February 2, |  |  | December 30, |  |  | February 3, |
|  | 2019 |  |  | 2017 |  |  | 2018 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  | $ | (508 | ) |  | $ | 683 |  |  | $ | (125 | )
U.S. State |  |  | (263 | ) |  |  | 609 |  |  |  | 21 |
Foreign |  |  | (448 | ) |  |  | (313 | ) |  |  | 78 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | (836 | ) |  |  | 3,815 |  |  |  | (181 | )
U.S. State |  |  | 239 |  |  |  | (113 | ) |  |  | 10 |
Foreign |  |  | 1,242 |  |  |  | 1,216 |  |  |  | 14 |
Income tax expense (benefit) |  | $ | (574 | ) |  | $ | 5,897 |  |  | $ | (183 | )
The provision for income taxes was a benefit of $0.6 million in fiscal 2018 compared to income tax expense of $5.9 million in fiscal 2017. The 2018 effective rate of 3.1% differed from the statutory rate of 21% primarily due to the valuation allowance recorded in certain foreign jurisdictions. The 2017 effective rate of 42.7% differed from the statutory rate of 34% primarily due to the effect of the provisional tax charge of $1.4 million for the re-measurement of U.S. net deferred tax assets as a result of the enactment of the Act reducing the U.S. federal statutory rate to 21% effective January 1, 2018. For the five weeks ended February 3, 2018, the income tax provision was a benefit of $0.2 million with an effective rate of 17.8% compared to the statutory rate of 21%. As the Company has incurred a cumulative book loss in the U.K. over the three -year period ended February 2, 2019, management evaluated the realizability of the Company’s U.K. deferred tax assets, including an analysis of all available positive and negative evidence. The three -year cumulative loss is a significant piece of negative evidence. ASC 740 requires objective historical evidence be given more weight than subjective evidence, such as forecasts of future income. Accordingly, in the fourth quarter of fiscal 2018, the Company recorded a $3.7 million valuation allowance on its U.K. deferred tax assets. In fiscal 2018, the Company recorded an additional allowance of $0.5 million in certain other foreign jurisdictions. In fiscal 2017, the Company recorded an additional allowance of $0.3 million on its deferred tax assets in certain foreign jurisdictions due to cumulative losses and uncertainty about future earnings forecast. Temporary differences that gave rise to deferred tax assets and liabilities are as follows (in thousands):
|  | February 2, |  |  | December 30, |
|  | 2019 |  |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 4,371 |  |  | $ | 764 |
Deferred revenue |  |  | 2,661 |  |  |  | 3,120 |
Deferred compensation |  |  | 1,729 |  |  |  | 1,414 |
Accrued rents |  |  | 1,203 |  |  |  | 1,625 |
Intangible assets |  |  | 1,201 |  |  |  | 1,466 |
Inventories |  |  | 987 |  |  |  | 1,179 |
Carryforward of tax credits |  |  | 861 |  |  |  | 25 |
Receivable write-offs |  |  | 477 |  |  |  | 40 |
Accrued compensation |  |  | 88 |  |  |  | 533 |
Other |  |  | 1,056 |  |  |  | 1,188 |
Total gross deferred tax assets |  |  | 14,634 |  |  |  | 11,354 |
Less: Valuation allowance |  |  | 5,079 |  |  |  | 1,301 |
Total deferred tax assets, net of valuation allowance |  |  | 9,555 |  |  |  | 10,053 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Deferred revenue |  |  | (4,088 | ) |  |  | - |
Depreciation |  |  | (1,113 | ) |  |  | (1,704 | )
Deferred expense |  |  | (763 | ) |  |  | (1,907 | )
Other |  |  | (492 | ) |  |  | (61 | )
Total deferred tax liabilities |  |  | (6,456 | ) |  |  | (3,672 | )
Net deferred tax assets |  | $ | 3,099 |  |  | $ | 6,381 |
As of February 2, 2019, the Company had gross net operating loss (NOL) carryforwards of approximately $21.0 million, most of which relate to the U.K. and U.S. federal jurisdictions where NOLs have no expiration date. As of February 2, 2019, the Company had tax credit carryforwards of $0.9 million primarily related to U.S. federal credits which expire in 2038. The NOL and credit carryforward amounts were not material as of December 30, 2017. The Company continues to assert its investments in foreign subsidiaries are permanent in duration and it is not practical to estimate the income tax liability on the outside basis differences. On December 22, 2017, the Act was enacted, which significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Act permanently reduces the U.S. federal statutory rate to 21%, effective January 1, 2018. The Act also provided for a one -time deemed repatriation of post- 1986 undistributed foreign subsidiary E&P through the year ended December 30, 2017. Under SAB 118, the Company recorded a provisional tax charge of $1.4 million for the re-measurement of its U.S. net deferred tax assets and estimated no cost for this one -time deemed repatriation in fiscal 2017. The Company has completed its analysis based on legislative updates relating to the Act currently available, which resulted in a tax benefit of $0.2 million for fiscal 2018. A favorable adjustment of $0.1 million was recorded for the revaluation of deferred tax assets and liabilities. In addition, a favorable adjustment of $0.1 million was recorded for the impact of the one -time deemed repatriation of undistributed foreign subsidiary E&P. As of February 2, 2019, the Company had total unrecognized tax benefits of $0.4 million, of which approximately $0.2 million would favorably impact the Company’s provision for income taxes if recognized. As of December 30, 2017, the Company had total unrecognized tax benefits of $0.7 million, of which approximately $0.3 million would favorably impact the Company’s provision for income taxes if recognized. The Company reviews its uncertain tax positions periodically and accrues interest and penalties accordingly. Accrued interest and penalties included within other liabilities in the consolidated balance sheets were less than $0.1 million for both years ended as of February 2, 2019 and December 30, 2017. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes within the consolidated statement of operations. For the years ended February 2, 2019 and December 30, 2017, the Company recognized an expense of less than $0.1 million for interest and penalties for each year. For the five weeks ended February 3, 2018, the Company recognized an expense of less than $0.1 million for interest and penalties. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance as of December 31, 2016 |  | $ | 961 |
Increases for prior year tax positions |  |  | 57 |
Decreases for prior year tax positions |  |  | (359 | )
Balance as of December 30, 2017 (1) |  |  | 659 |
Increases for prior year tax positions |  |  | 288 |
Decreases for prior year tax positions |  |  | (333 | )
Settlements |  |  | (183 | )
Lapse of statute of limitations |  |  | (13 | )
Balance as of February 2, 2019 |  | $ | 418 |
( 1 ) For the five week transition period ending February 3, 2018, there was no activity. Management estimates it is reasonably possible that the amount of unrecognized tax benefits could decrease by as much as $0.4 million in the next twelve months as a result of the resolution of audits currently in progress involving issues common to multinational corporations and the lapsing of the statute of limitations. The following tax years remain open in the Company’s major taxing jurisdictions as of February 2, 2019:
United States (Federal) | 2016 through 2018
United Kingdom | 2016 through 2018

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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