XML 28 R11.htm IDEA: XBRL DOCUMENT
v3.19.1

Income Taxes | 12 Months Ended
--- | ---
Feb. 01, 2019
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 2018 |  | Fiscal 2017 |  | Fiscal 2016
Income (loss) before income taxes: |  |  |  |  |
United States | $ | 16,297 |  |  | $ | 9,011 |  |  | $ | (174,461 | )
Foreign | (6,666 | ) |  | (8,563 | ) |  | (4,419 | )
Total income (loss) before income taxes | $ | 9,631 |  |  | $ | 448 |  |  | $ | (178,880 | )
The components of the (benefit from) provision for income taxes are as follows:
(in thousands) | Fiscal 2018 |  | Fiscal 2017 |  | Fiscal 2016
United States | $ | (1,959 | ) |  | $ | (27,623 | ) |  | $ | (70,316 | )
Foreign | — |  |  | (124 | ) |  | 1,218 |
Total (benefit) provision | $ | (1,959 | ) |  | $ | (27,747 | ) |  | $ | (69,098 | )
(in thousands) | Fiscal 2018 |  | Fiscal 2017 |  | Fiscal 2016
Current: |  |  |  |  |
Federal | $ | (4,457 | ) |  | $ | 4,804 |  |  | $ | (2,834 | )
State | 2,275 |  |  | 330 |  |  | (229 | )
Foreign | — |  |  | (124 | ) |  | 1,218 |
Total current | (2,182 | ) |  | 5,010 |  |  | (1,845 | )
Deferred: |  |  |  |  |
Federal | 1,650 |  |  | (34,901 | ) |  | (62,645 | )
State | (1,427 | ) |  | 2,144 |  |  | (4,608 | )
Total deferred | 223 |  |  | (32,757 | ) |  | (67,253 | )
Total (benefit) provision | $ | (1,959 | ) |  | $ | (27,747 | ) |  | $ | (69,098 | )
A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:
| Fiscal 2018 |  | Fiscal 2017 |  | Fiscal 2016
Tax at statutory federal income tax rate* | 21.0 | % |  | 33.8 | % |  | 35.0 | %
State income taxes, net of federal tax benefit | 10.0 | % |  | 103.5 | % |  | 2.7 | %
Foreign differential | (4.6 | )% |  | 108.6 | % |  | — | %
Permanent differences | 23.4 | % |  | 383.1 | % |  | (0.7 | )%
Tax law changes | — | % |  | (7,793.7 | )% |  | — | %
Repatriation of foreign earnings | (38.4 | )% |  | 950.9 | % |  | — | %
Uncertain tax benefits | (38.6 | )% |  | (600.1 | )% |  | 0.8 | %
Change in foreign valuation allowance | 19.2 | % |  | 509.8 | % |  | — | %
Other, net | (12.3 | )% |  | 110.6 | % |  | 0.8 | %
Total at effective income tax rate | (20.3 | )% |  | (6,193.5 | )% |  | 38.6 | %
*Under Internal Revenue Code Section 15(a), companies are required to calculate their federal tax rate 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 1, 2019 |  | February 2, 2018
Deferred tax assets: |  |  |
Deferred revenue | $ | 3,053 |  |  | $ | 3,292 |
Legal and other reserves | 1,714 |  |  | 1,512 |
Deferred compensation | 10,360 |  |  | 4,029 |
Reserve for returns | 2,271 |  |  | 2,301 |
Inventory | 3,690 |  |  | 3,099 |
Currency translation adjustment - foreign subsidiaries | 3,505 |  |  | 2,816 |
Other | 3,041 |  |  | 4,330 |
Total deferred tax assets | 27,634 |  |  | 21,379 |
Net operating loss carryforward | 5,117 |  |  | 2,284 |
Less valuation allowance | (5,079 | ) |  | (2,284 | )
Net deferred tax assets | $ | 27,672 |  |  | $ | 21,379 |
Deferred tax liabilities: |  |  |
Intangible assets | $ | 62,959 |  |  | $ | 62,754 |
LIFO reserve | 16,382 |  |  | 16,659 |
Property, plant and equipment | 5,098 |  |  | — |
Catalog marketing | 1,903 |  |  | 1,103 |
Total deferred tax liabilities | 86,342 |  |  | 80,516 |
Net deferred tax liability | $ | 58,670 |  |  | $ | 59,137 |
As of February 1, 2019, the Company had $13.9 million of state net operating loss (“NOL”) carryforwards (generating a $1.0 million deferred tax asset) available to offset future taxable income. The state NOL carryforwards generally expire between 2022 and 2038 with certain state NOLs generated after 2017 having indefinite carryforward. The Company’s foreign subsidiaries had $15.2 million of NOL carryforwards (generating a $4.1 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 2018 |  | Fiscal 2017 |  | Fiscal 2016
Gross UTB balance at beginning of period | $ | 4,531 |  |  | $ | 6,901 |  |  | $ | 8,311 |
Tax positions related to the current period—gross increases | — |  |  | — |  |  | 120 |
Tax positions related to the prior periods—gross decreases | (2,588 | ) |  | (2,370 | ) |  | (1,530 | )
Settlements | (485 | ) |  | — |  |  | — |
Gross UTB balance at end of period | $ | 1,458 |  |  | $ | 4,531 |  |  | $ | 6,901 |
As of February 1, 2019, the Company had UTBs of $1.5 million. Of this amount, $1.2 million would, if recognized, impact its effective tax rate. The Company does not expect that UTBs will fluctuate in the next 12 months for tax audit settlements and the expiration of the statute of limitations for certain jurisdictions. 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. 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 1, 2019, the total amount of interest expense and penalties recognized on the balance sheet was $0.8 million ($0.6 million net of federal benefit). As of February 2, 2018, the total amount of interest and penalties recognized on the balance sheet was $3.2 million ($2.5 million net of federal benefit). The total amount of net interest expense recognized in the Consolidated Statements of Operations was 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. For Fiscal 2018, the asset was written down $4.8 million related to favorable state tax audit settlements. In addition, due to filings by Sears in the US Bankruptcy Court in the third quarter of Fiscal 2018, the Company believes that the recovery of the remaining UTB’s provided by the Tax Sharing Agreement to be uncertain. As a result, in the third quarter of Fiscal 2018, the Company recorded a charge of $2.6 million to establish a reserve on the remaining balance of the indemnification asset. Therefore, the indemnification asset was $0 and $7.4 million at February 1, 2019 and February 2, 2018, 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. In December 2017, the U.S. Securities and Exchange Commission staff issued Staff Accounting Bulletin (SAB) 118 to provide guidance for companies that had not completed their accounting for the income tax effects of the Tax Act. Due to the complexities involved in accounting for the enactment of the Tax Act, SAB 118 allowed for a provisional estimate of the impacts of the Tax Act in our earnings for the year ended February 2, 2018, as well as up to a one-year measurement period that ended on December 22, 2018, for any subsequent adjustments to such provisional estimate. Pursuant to SAB 118, in Fiscal 2017, 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 Company has completed its analysis of the impacts of the Tax Act, including analyzing the effects of any Internal Revenue Service (IRS) and U.S. Treasury guidance issued, and state tax law changes enacted, within the maximum one-year measurement period resulting in an additional $3.7 million benefit, in Fiscal 2018, to the $30.6 million provisional amount previously recorded.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration