INCOME TAXES

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law, making significant changes to the U.S. Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective January 1, 2018, the transition of U.S. international taxation from a worldwide tax system to a quasi-territorial tax system and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings. The Company has calculated its best estimate of the impact of the Act in its income tax provision in accordance with its understanding of the Act and guidance available as of February 3, 2018 and, as a result, has recorded a $0.3 million income tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. This provisional income tax benefit is comprised of a $24.6 million deferred tax benefit for the remeasurement of deferred tax assets and liabilities to the 21% rate at which they are expected to reverse, partially offset by a one-time tax expense on deemed repatriation of $22.9 million and $1.4 million deferred tax expense recorded in connection with Internal Revenue Code section 162(m) and other provisions in the Act.

In December 2017, the SEC issued Staff Accounting Bulletin 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. SAB 118 permits provisional amounts to be recorded during a measurement period, not to exceed one year beyond the enactment date. In accordance with SAB 118, the Company has determined that the tax benefits and expenses described above are provisional amounts and reasonable estimates at February 3, 2018. The Company continues to analyze these provisional estimates and the impact of these changes may be material. Further analysis of all provisional amounts associated with the Act is necessary as a result of pending issuance of Notices and Regulations related to the Act and finalization of foreign earnings and profits for 2017. Any subsequent adjustment to these amounts will be recorded to the Company's income tax provision in 2018 when the analysis is complete.

The Act also includes the Global Intangibles Low-taxed Income ("GILTI") provision, a new minimum tax on global intangible low-taxed income, and the Base Erosion Anti-Avoidance ("BEAT"), a new tax for certain payments to foreign related parties. As of the date of this filing, the Company is still evaluating the GILTI and BEAT provisions on future periods and has not yet elected an accounting policy related to its treatment of these future tax liabilities.

The components of earnings before income taxes consisted of domestic earnings before income taxes of $78.2 million, $60.9 million and $68.2 million in 2017, 2016 and 2015, respectively, and foreign earnings before income taxes of $44.5 million, $36.4 million and $40.6 million in 2017, 2016 and 2015, respectively.

The components of income tax provision (benefit) on earnings were as follows:



($ thousands)	2017			2016			2015
Federal
Current	$	31,102		$	10,577		$	9,530
Deferred	(10,358		)	14,164			11,202
	20,744			24,741			20,732
State
Current	7,691			3,844			497
Deferred	913			(1,157		)	1,176
	8,604			2,687			1,673

Foreign	6,127			3,740			4,537
Total income tax provision	$	35,475		$	31,168		$	26,942

The Company made federal, state and foreign tax payments, net of refunds, of $18.7 million, $16.9 million and $22.1 million in 2017, 2016 and 2015, respectively.

The differences between the income tax provision reflected in the consolidated financial statements and the amounts calculated at the federal statutory income tax rate were as follows:



($ thousands)	2017			2016			2015
Income taxes at statutory rate ⁽¹⁾	$	41,376		$	34,039		$	38,068
State income taxes, net of federal tax benefit	3,579			3,149			2,481
Foreign earnings taxed at lower rates	(8,072		)	(8,404		)	(9,491		)
Excess tax benefit related to share-based plans	(1,265		)	—			—
Tax Cuts and Jobs Act, net benefit	(294		)	—			—
Valuation allowance release on state loss carryforwards	(100		)	—			(1,635		)
Disposal and settlement of Shoes.com	—			—			(1,701		)
Valuation allowance release on other tax carryforwards	—			(179		)	(1,367		)
Valuation allowance for impairment of investment in nonconsolidated affiliate	—			2,450			—
Non-deductibility of acquisition costs	—			1,280			—
Settlement of federal and state audit matters	—			(945		)	—
Other	251			(222		)	587
Total income tax provision	$	35,475		$	31,168		$	26,942
(1) The federal statutory tax rate was 33.7% in 2017, reflecting a single month impact from tax reform, and was 35.0% in both 2016 and 2015.

In 2017, the Company's effective tax rate was impacted by several discrete tax benefits, which totaled $2.3 million for the year. The discrete tax benefits include $1.3 million related to share-based compensation as a result of the adoption of ASU 2016-09 in 2017. The ASU requires prospective recognition of excess tax benefits in the statements of earnings, rather than in additional paid-in-capital. If these discrete tax benefits had not been recognized, the Company's full fiscal year 2017 effective tax rate would have been 30.8%.

The other category of income tax provision principally represents the impact of expenses that are not deductible or partially deductible for federal income tax purposes and adjustments in the amounts of deferred tax assets that are anticipated to be realized.

Significant components of the Company’s deferred income tax assets and liabilities were as follows:



($ thousands)	February 3, 2018			January 28, 2017
Deferred Tax Assets
Employee benefits, compensation and insurance	$	10,011		$	18,783
Accrued expenses	12,122			18,843
Postretirement and postemployment benefit plans	401			706
Deferred rent	6,438			8,319
Accounts receivable reserves	5,105			7,479
Net operating loss (“NOL”) carryforward/carryback	7,540			23,302
Capital loss carryforward	1,450			2,185
Inventory capitalization and inventory reserves	3,058			3,871
Impairment of investment in nonconsolidated affiliate	1,470			2,590
Alternative minimum tax credit carryforward	—			270
Other	1,234			1,580
Total deferred tax assets, before valuation allowance	48,829			87,928
Valuation allowance	(5,763		)	(7,890		)
Total deferred tax assets, net of valuation allowance	43,066			80,038

Deferred Tax Liabilities
Retirement plans	(13,071		)	(8,421		)
LIFO inventory valuation	(42,032		)	(61,301		)
Capitalized software	(4,141		)	(8,715		)
Depreciation	(1,786		)	(9,076		)
Intangible assets	(28,831		)	(41,645		)
Other	(1,567		)	(1,096		)
Total deferred tax liabilities	(91,428		)	(130,254		)
Net deferred tax liability	$	(48,362	)	$	(50,216	)

As of February 3, 2018, the Company had various federal and state net operating loss carryforwards totaling $7.5 million, with expiration dates between 2018 and 2037. The Company's state net operating loss carryforwards have tax values totaling $7.0 million, for which the Company has recorded a valuation allowance of $2.8 million. The remaining net operating loss will be carried forward to future tax years. The Company also has valuation allowances of $1.5 million related to the impairment of an investment in a nonconsolidated affiliate, as further described in Note 4 to the consolidated financial statements, and $1.5 million related to capital loss carryforwards. In connection with the Allen Edmonds acquisition, the Company acquired net operating loss carryforwards totaling $15.6 million, which were fully utilized during 2017.

As of February 3, 2018, no deferred taxes have been provided on the accumulated unremitted earnings of the Company’s foreign subsidiaries that are not subject to United States income tax, beyond the amounts recorded for the one-time transition tax for the mandatory deemed repatriation of cumulative foreign earnings, as required by the Act. The Company periodically evaluates its foreign investment opportunities and plans, as well as its foreign working capital needs, to determine the level of investment required and, accordingly, determines the level of foreign earnings that is considered indefinitely reinvested. Based upon that evaluation, earnings of the Company’s foreign subsidiaries that are not otherwise subject to United States taxation are considered to be indefinitely reinvested, and accordingly, deferred taxes have not been provided. If changes occur in future investment opportunities and plans, those changes will be reflected when known and may result in providing residual United States deferred taxes on unremitted foreign earnings. If the Company’s unremitted foreign earnings were not considered indefinitely reinvested as of February 3, 2018, an immaterial amount of additional deferred taxes would have been provided.

Uncertain Tax Positions

ASC 740, Income Taxes, establishes a single model to address accounting for uncertain tax positions. The standard clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The standard also provides guidance on derecognition, measurement classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company had no unrecognized tax benefits as of February 3, 2018 or January 28, 2017.

For federal purposes, the Company’s tax years 2014 to 2016 (fiscal years ending January 31, 2015, January 30, 2016 and January 28, 2017) remain open to examination. The Company also files tax returns in various foreign jurisdictions and numerous states for which various tax years are subject to examination. The Company does not expect any significant changes to its liability for unrecognized tax benefits during the next 12 months.