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Income Taxes | 12 Months Ended
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Feb. 02, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES The Company's income (loss) before income taxes in the United States and in foreign jurisdictions is as follows:
(in thousands) | Fiscal 2017 |  | Fiscal 2016 |  | Fiscal 2015
Income (loss) before income taxes: |  |  |  |  |
United States | $ | 9,011 |  |  | $ | (174,461 | ) |  | $ | (31,206 | )
Foreign | (8,563 | ) |  | (4,419 | ) |  | 1,967 |
Total income (loss) before income taxes | $ | 448 |  |  | $ | (178,880 | ) |  | $ | (29,239 | )
The components of the (benefit from) provision for income taxes are as follows:
(in thousands) | Fiscal 2017 |  | Fiscal 2016 |  | Fiscal 2015
United States | $ | (27,623 | ) |  | $ | (70,316 | ) |  | $ | (9,737 | )
Foreign | (124 | ) |  | 1,218 |  |  | 46 |
Total (benefit) provision | $ | (27,747 | ) |  | $ | (69,098 | ) |  | $ | (9,691 | )
(in thousands) | Fiscal 2017 |  | Fiscal 2016 |  | Fiscal 2015
Current: |  |  |  |  |
Federal | $ | 4,804 |  |  | $ | (2,834 | ) |  | $ | 10,524 |
State | 330 |  |  | (229 | ) |  | 2,409 |
Foreign | (124 | ) |  | 1,218 |  |  | 46 |
Total current | 5,010 |  |  | (1,845 | ) |  | 12,979 |
Deferred: |  |  |  |  |
Federal | (34,901 | ) |  | (62,645 | ) |  | (20,956 | )
State | 2,144 |  |  | (4,608 | ) |  | (1,714 | )
Total deferred | (32,757 | ) |  | (67,253 | ) |  | (22,670 | )
Total (benefit) provision | $ | (27,747 | ) |  | $ | (69,098 | ) |  | $ | (9,691 | )
A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:
| Fiscal 2017 |  | Fiscal 2016 |  | Fiscal 2015
Tax at statutory federal income tax rate | 33.8 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of federal tax benefit | 103.5 | % |  | 2.7 | % |  | (1.6 | )%
Foreign differential | 108.6 | % |  | — | % |  | — | %
Permanent differences | 383.1 | % |  | (0.7 | )% |  | (1.9 | )%
Tax reform revaluation of deferred taxes | (7,793.7 | )% |  | — | % |  | — | %
Transition tax on repatriated foreign earnings | 950.9 | % |  | — | % |  | — | %
Uncertain tax benefits | (600.1 | )% |  | 0.8 | % |  | 1.3 | %
Change in foreign valuation allowance | 509.8 | % |  | — | % |  | — | %
Other, net | 110.6 | % |  | 0.8 | % |  | 0.3 | %
Total at effective income tax rate | (6,193.5 | )% |  | 38.6 | % |  | 33.1 | %
Under Internal Revenue Code Section 15(a), companies are required to calculate their federal tax rate by using a blended rate based on the date of enactment of the Tax Act ("Federal Blended Rate"). The Federal Blended Rate for the Company is 33.8% for Fiscal 2017. Deferred tax assets and liabilities consisted of the following:
(in thousands) | February 2, 2018 |  | January 27, 2017
Deferred tax assets: |  |  |
Deferred revenue | $ | 3,292 |  |  | $ | 4,903 |
Legal and other reserves | 1,512 |  |  | 1,892 |
Deferred compensation | 4,029 |  |  | 4,653 |
Reserve for returns | 2,301 |  |  | 3,578 |
Inventory | 3,099 |  |  | 7,817 |
Currency translation adjustment - foreign subsidiaries | 2,816 |  |  | 6,691 |
Other | 4,330 |  |  | 8,197 |
Total deferred tax assets | 21,379 |  |  | 37,731 |
Foreign net operating loss carryforward | 2,284 |  |  | — |
Less valuation allowance | (2,284 | ) |  | — |
Net deferred tax assets | 21,379 |  |  | 37,731 |
Deferred tax liabilities: |  |  |
Intangible assets | 62,754 |  |  | 96,812 |
LIFO reserve | 16,659 |  |  | 24,601 |
Unremitted foreign earnings | — |  |  | 5,208 |
Catalog marketing | 1,103 |  |  | 1,577 |
Total deferred tax liabilities | 80,516 |  |  | 128,198 |
Net deferred tax liability | $ | 59,137 |  |  | $ | 90,467 |
As of February 2, 2018, the Company's foreign subsidiaries had $8.6 million of foreign net operating loss ("NOL") carryforwards (generating a $2.3 million deferred tax asset) available to offset future taxable income. These foreign NOLs can be carried forward indefinitely, however, a valuation allowance was established since the future utilization of these NOLs is uncertain. A reconciliation of the beginning and ending amount of UTBs is as follows:
| Federal, State and Foreign Tax
(in thousands) | Fiscal 2017 |  | Fiscal 2016 |  | Fiscal 2015
Gross UTB balance at beginning of period | $ | 6,901 |  |  | $ | 8,311 |  |  | $ | 9,082 |
Tax positions related to the current period—gross increases | — |  |  | 120 |  |  | 116 |
Tax positions related to the prior periods—gross decreases | (2,370 | ) |  | (1,530 | ) |  | (697 | )
Settlements | — |  |  | — |  |  | (190 | )
Gross UTB balance at end of period | $ | 4,531 |  |  | $ | 6,901 |  |  | $ | 8,311 |
As of February 2, 2018, the Company had UTBs of $4.5 million. Of this amount, $3.0 million would, if recognized, impact its effective tax rate. It is reasonable that UTBs will fluctuate over the next 12 months for audit settlements and expirations of statute of limitations for certain jurisdictions by no more than $2.5 million. Pursuant to the Tax Sharing Agreement, Sears Holdings Corporation is generally responsible for all United States federal, state and local UTBs through the date of the Separation and, as such, the UTBs are recorded in Other liabilities in the Consolidated Balance Sheets, and an indemnification asset from Sears Holdings Corporation for the $4.2 million pre-Separation UTBs is recorded in Other assets in the Consolidated Balance Sheets. Prior to the Separation, the tax provision and related tax accounts represented the tax attributable to the Company as if the Company filed a separate tax return. However, the computed obligations were settled through Sears Holdings Corporation. The Company classifies interest expense and penalties related to UTBs and interest income on tax overpayments as components of income tax expense. As of February 2, 2018, the total amount of interest expense and penalties recognized on the balance sheet was $3.2 million ($2.1 million net of federal benefit). As of January 27, 2017, the total amount of interest and penalties recognized on the balance sheet was $4.9 million ($3.2 million net of federal benefit). The total amount of net interest expense recognized in the Consolidated Statements of Operations were insignificant for all periods presented. Sears Holdings and Lands' End files income tax returns in both the United States and various foreign jurisdictions. The Internal Revenue Service has completed its examination of all federal income tax returns of Sears Holdings through the 2009 return, and all matters arising from such examinations have been resolved. The Company is open to examination by the Internal Revenue Service for the years 2015 and forward. Sears Holdings and the Company are under examination by various state income tax jurisdictions for the years 2011 to 2014. Impacts of Separation At Separation from Sears, the Company entered into a Tax Sharing Agreement with respect to Federal and State Income tax liabilities concerning pre-separation periods. Pursuant to the tax sharing agreement, a $13.7 million receivable was recorded by the Company to reflect the indemnification by Sears Holdings Corporation of the pre-Separation uncertain tax positions (including penalties and interest) for which Sears Holdings is responsible. This receivable is included in Other assets in the Consolidated Balance Sheets and was $7.4 million and $11.4 million at February 2, 2018 and January 27, 2017, respectively. Impacts of the Tax Act On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) ("Tax Act") was signed into law. The Tax Act contains significant changes to corporate taxation, including (i) the reduction of the corporate income tax rate to 21%, (ii) the acceleration of expensing for certain business assets, (iii) the nonrecurring transition tax related to the transition of U.S. international tax from a worldwide tax system to a territorial tax system, (iv) the repeal of the domestic production deduction, (v) additional limitations on the deductibility of interest expense, and (vi) expanded limitations on the deductibility of executive compensation. The key impacts of the Tax Act on the Company's Consolidated Financial Statements for Fiscal 2017, were the re-measurement of deferred tax balances to the new corporate tax rate and the accrual for the nonrecurring transition tax liability. While the Company has not yet finalized its assessment of the effects of the Tax Act, the Company is able to determine reasonable estimates for the impacts of the key items specified above, thus the Company reported provisional amounts for these items. In accordance with Staff Accounting Bulletin No. 118 ("SAB 118"), the Company is providing additional disclosures related to these provisional amounts. In order to calculate the effects of the new corporate tax rate on the deferred tax balances, ASC 740, Income Taxes, ("ASC 740") required the re-measurement of the deferred tax balances as of the enactment date of the Tax Act, based on the rates at which the balances were expected to reverse in the future. The Company is still analyzing the impact of the retroactive provisions of the law on its deferred tax balances and refining its calculations which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount determined, and recorded, for the re-measurement of the deferred tax balances resulted in a net reduction in deferred tax liabilities of $29.7 million. The Company will continue to analyze the impacts of the law on the deferred taxes and will refine the estimate of the balances as of the remeasurement date within 12 months from the date of enactment. Additionally, the Company determined the provisional amount for the nonrecurring transition tax. The nonrecurring transition tax is based on the total post-1986 foreign earnings and profits ("E&P") that were previously deferred from U.S. income tax. The applicable tax rate is based on the amount of those post-1986 earnings that is held in cash and other specified assets ("Cash Position"). While the Company has not yet finalized its calculation of the total post-1986 E&P and Cash Position for foreign corporations or the impact of foreign tax credits, the Company has (i) prepared reasonable estimates of the total post-1986 E&P and Cash Position of foreign corporations, (ii) determined the applicable tax rates using the estimated Cash Position amounts, and, (iii) calculated, and recorded, a provisional amount for the nonrecurring transition tax liability of $4.3 million. This amount is payable over eight years. Of the $4.3 million transition tax liability, $0.4 million is payable in the next 12 months and is recorded in current liabilities. The balance of $3.9 million is recorded in non-current liabilities. This amount is subject to change upon the completion of the total post-1986 E&P calculation, Cash Position calculation, and foreign tax credit determination. The Company will continue to apply its existing accounting under ASC 740 for this matter. The Company recorded a $30.6 million benefit which consisted of the provisional amounts for the re-measurement of deferred tax balances at the new expected tax rates under the Tax Act. This includes a net reduction of deferred liabilities of $29.7 million plus a $5.2 million reduction to deferred liabilities on unremitted foreign earnings previously recorded. Both amounts are offset by the provisional amount for a nonrecurring transition tax liability of $4.3 million related to foreign investments under the Tax Act. The aforementioned provisional amounts related to the deferred tax balances and nonrecurring transition tax are based on information available at this time and may change due to a variety of factors, including, among others, (i) anticipated guidance from the U.S. Department of Treasury about implementing the Tax Act, (ii) potential additional guidance from the Securities and Exchange Commission or the Financial Accounting Standards Board related to the Tax Act, (iii) any impact resulting from the Company's Fiscal 2018 financial closing and reporting processes, and (iv) management's further assessment of the Tax Act and related regulatory guidance. The Company has not finalized its full assessment of the impact of the Tax Act on the business and Consolidated Financial Statements. While the effective date of most of the provisions of the Tax Act do not apply until Fiscal 2018, the Company will continue its assessment of the impact of the Tax Act on the business and Consolidated Financial Statements throughout the one-year measurement period as provided by SAB 118.

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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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