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Income Taxes | 12 Months Ended
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Jan. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | NOTE 9. INCOME TAXES The Company's income before income taxes in the United States and in foreign jurisdictions is as follows:
(in thousands) |  | Fiscal 2019 |  |  | Fiscal 2018 |  |  | Fiscal 2017 |
Income before income taxes |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | 21,406 |  |  | $ | 16,297 |  |  | $ | 9,011 |
Foreign |  |  | (44 | ) |  |  | (6,666 | ) |  |  | (8,563 | )
Total income before income taxes |  | $ | 21,362 |  |  | $ | 9,631 |  |  | $ | 448 |
The components of the provision for (benefit from) income taxes are as follows:
(in thousands) |  | Fiscal 2019 |  |  | Fiscal 2018 |  |  | Fiscal 2017 |
United States |  | $ | 2,105 |  |  | $ | (1,959 | ) |  | $ | (27,623 | )
Foreign |  |  | (33 | ) |  |  | — |  |  |  | (124 | )
Total provision (benefit) |  | $ | 2,072 |  |  | $ | (1,959 | ) |  | $ | (27,747 | )
(in thousands) |  | Fiscal 2019 |  |  | Fiscal 2018 |  |  | Fiscal 2017 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 979 |  |  | $ | (4,457 | ) |  | $ | 4,804 |
State |  |  | 1,549 |  |  |  | 2,275 |  |  |  | 330 |
Foreign |  |  | — |  |  |  | — |  |  |  | (124 | )
Total current |  |  | 2,528 |  |  |  | (2,182 | ) |  |  | 5,010 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 340 |  |  |  | 1,650 |  |  |  | (34,901 | )
State |  |  | (763 | ) |  |  | (1,427 | ) |  |  | 2,144 |
Foreign |  |  | (33 | ) |  |  | — |  |  |  | — |
Total deferred |  |  | (456 | ) |  |  | 223 |  |  |  | (32,757 | )
Total provision (benefit) |  | $ | 2,072 |  |  | $ | (1,959 | ) |  | $ | (27,747 | )
A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:
|  | Fiscal 2019 |  |  | Fiscal 2018 |  |  | Fiscal 2017 |  |
Tax at statutory federal tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 33.8 | % | *
State income taxes, net of federal tax benefit |  |  | 2.9 | % |  |  | 10.0 | % |  |  | 103.5 | % |
Foreign differential |  |  | (4.0 | )% |  |  | (4.6 | )% |  |  | 108.6 | % |
Permanent differences |  |  | 4.3 | % |  |  | 23.4 | % |  |  | 383.1 | % |
Tax law changes |  |  | — | % |  |  | — | % |  |  | (7,793.7 | )% |
Repatriation of foreign earnings |  |  | — | % |  |  | (38.4 | )% |  |  | 950.9 | % |
Uncertain tax benefits |  |  | (0.8 | )% |  |  | (38.6 | )% |  |  | (600.1 | )% |
Change in foreign valuation allowance |  |  | 4.2 | % |  |  | 19.2 | % |  |  | 509.8 | % |
Foreign branches |  |  | (15.9 | )% |  |  | — | % |  |  | — | % |
Other, net |  |  | (2.0 | )% |  |  | (12.3 | )% |  |  | 110.6 | % |
Total |  |  | 9.7 | % |  |  | (20.3 | )% |  |  | (6,193.5 | )% |
*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) |  | January 31, 2020 |  |  | February 1, 2019 |  |  | February 2, 2018 |
Deferred tax assets |  |  |  |  |  |  |  |  |  |  |  |
Deferred revenue |  | $ | 3,797 |  |  | $ | 3,053 |  |  | $ | 3,292 |
Legal accruals |  |  | 1,938 |  |  |  | 1,714 |  |  |  | 1,512 |
Deferred compensation |  |  | 12,507 |  |  |  | 10,360 |  |  |  | 4,029 |
Reserve for returns |  |  | 2,654 |  |  |  | 2,271 |  |  |  | 2,301 |
Inventory |  |  | 3,413 |  |  |  | 3,690 |  |  |  | 3,099 |
CTA investment in foreign subsidiaries |  |  | 3,453 |  |  |  | 3,505 |  |  |  | 2,816 |
Operating lease liabilities |  |  | 10,319 |  |  |  | — |  |  |  | — |
Other |  |  | 2,764 |  |  |  | 3,041 |  |  |  | 4,330 |
Net operating loss carryforward |  |  | 6,018 |  |  |  | 5,117 |  |  |  | 2,284 |
Total deferred tax assets |  |  | 46,863 |  |  |  | 32,751 |  |  |  | 23,663 |
Less valuation allowance |  |  | (6,526 | ) |  |  | (5,079 | ) |  |  | (2,284 | )
Net deferred tax assets |  | $ | 40,337 |  |  | $ | 27,672 |  |  | $ | 21,379 |
Deferred tax liabilities |  |  |  |  |  |  |  |  |  |  |  |
Intangible assets |  | $ | 62,397 |  |  | $ | 62,959 |  |  | $ | 62,754 |
LIFO reserve |  |  | 17,503 |  |  |  | 16,382 |  |  |  | 16,659 |
Property and equipment |  |  | 7,208 |  |  |  | 5,098 |  |  |  | — |
Operating lease right-of-use assets |  |  | 8,586 |  |  |  | — |  |  |  | — |
Catalog advertising |  |  | 2,294 |  |  |  | 1,903 |  |  |  | 1,103 |
Total deferred tax liabilities |  |  | 97,988 |  |  |  | 86,342 |  |  |  | 80,516 |
Net deferred tax liability |  | $ | 57,651 |  |  | $ | 58,670 |  |  | $ | 59,137 |
As of January 31, 2020, 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 $14.9 million of NOL carryforwards (generating a $5.0 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:
|  | Fiscal 2019 |  |  | Fiscal 2018 |  |  | Fiscal 2017 |
Gross UTB balance at beginning of period |  | $ | 1,458 |  |  | $ | 4,531 |  |  | $ | 6,901 |
Tax positions related to the current period - gross increase |  |  | — |  |  |  | — |  |  |  | — |
Tax positions related to the prior periods - gross decreases |  |  | (179 | ) |  |  | (2,588 | ) |  |  | (2,370 | )
Settlements |  |  | (77 | ) |  |  | (485 | ) |  |  | — |
Lapse of statutes of limitations |  |  |  |  |  |  | — |  |  |  | — |
Gross UTB balance at end of period |  | $ | 1,202 |  |  | $ | 1,458 |  |  | $ | 4,531 |
As of January 31, 2020, the Company had UTBs of $1.2 million. Of this amount, $1.0 million would, if recognized, impact its effective tax rate. The Company does not expect that UTBs will fluctuate significantly 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 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. However, Sears Holdings rejected the Tax Sharing Agreement, per an order approved on April 3, 2019. The Company classifies interest expense and penalties related to UTBs and interest income on tax overpayments as components of income tax expense. As of January 31, 2020, the total amount of interest expense and penalties recognized on the balance sheet was $0.7 million ($0.6 million net of federal benefit). As of February 1, 2019, the total amount of interest and penalties recognized on the balance sheet was $0.8 million ($0.6 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. 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. Sears Holdings rejected the Tax Sharing Agreement, per an order approved on April 4, 2019. 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 at January 31, 2020 and February 1, 2019. 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 SEC 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 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.

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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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