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 ("IRC"). Changes included, but were 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. 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 permitted provisional amounts to be recorded until December 2018. In accordance with SAB 118, the Company recorded a provisional income tax benefit of $0.3 million in the fourth quarter of 2017, the period in which the legislation was enacted. The provisional income tax benefit was 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 were 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 IRC section 162(m) and other provisions in the Act. Certain states and other international jurisdictions also enacted changes to their tax statutes. During the fourth quarter of 2018, the Company completed its analysis of the impacts of the Act, as well as changes to state and other jurisdictions, and recorded an aggregate net tax benefit of $3.9 million associated with adjustments related to income tax reform across all jurisdictions.

The Act also includes the Global Intangibles Low-Taxed Income ("GILTI") provision, a new minimum tax on global intangible low-taxed income, the Base Erosion Anti-Avoidance ("BEAT"), a new tax for certain payments to foreign related parties and the Foreign-Derived Intangible Income ("FDII") provision, a tax incentive to earn income from the sale, lease or license of goods and services abroad. The Company has elected to account for the GILTI provision as a period cost in the year the taxes are incurred. During 2018, the Company recorded an income tax provision of $0.6 million related to the GILTI and FDII provisions of the Act.

The components of (loss) earnings before income taxes consisted of domestic earnings before income taxes of $40.0 million, $78.2 million and $60.9 million in 2018, 2017 and 2016, respectively. The Company's foreign loss before income taxes was $45.8 million in 2018, reflecting the impairment of the tradename and goodwill for the Allen Edmonds business, and foreign earnings before incomes taxes were $44.5 million and $36.4 million in 2017 and 2016, respectively.

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



($ thousands)	2018			2017			2016
Federal
Current	$	1,953		$	31,102		$	10,577
Deferred	4,451			(10,358		)	14,164
	6,404			20,744			24,741
State
Current	(718		)	7,691			3,844
Deferred	1,284			913			(1,157		)
	566			8,604			2,687

Foreign	(7,243		)	6,127			3,740
Total income tax (benefit) provision	$	(273	)	$	35,475		$	31,168

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



($ thousands)	2018			2017			2016
Income taxes at statutory rate ⁽¹⁾	$	(1,208	)	$	41,376		$	34,039
State income taxes, net of federal tax benefit	2,519			3,579			3,149
Foreign earnings taxed at lower rates	(4,210		)	(8,072		)	(8,404		)
Excess tax benefit related to share-based plans	(347		)	(1,265		)	—
Income tax reform, net benefit	(3,891		)	(294		)	—
GILTI and FDII provisions	613			—			—
Non-deductibility of goodwill impairment	7,989			—			—
Impairment of foreign tradename taxed at higher rate	(2,400		)	—			—
Valuation allowance release on state loss carryforwards	—			(100		)	—
Valuation allowance release on other tax carryforwards	—			—			(179		)
Valuation allowance for impairment of investment in nonconsolidated affiliate	—			—			2,450
Non-deductibility of acquisition costs	46			—			1,280
Settlement of federal and state audit matters	—			—			(945		)
Other	616			251			(222		)
Total income tax (benefit) provision	$	(273	)	$	35,475		$	31,168
(1) The federal statutory tax rate was 21.0% in 2018, 33.7% in 2017, and 35.0% in 2016.

In 2018, the Company's effective tax rate was impacted by several factors, including the non-deductibility of the Company's goodwill impairment charge of $38.0 million. In addition, discrete tax benefits totaling $5.9 million were recognized in 2018, primarily reflecting adjustments associated with the Act and related actions for state and other international jurisdictions (in aggregate, "income tax reform"). In addition, our foreign earnings are generally subject to lower tax rates, and therefore a higher mix of foreign earnings generally results in a lower consolidated effective tax rate. If these discrete tax benefits and the impairment charges had not been recognized, the Company's effective tax rate would have been 22.3%, which is lower than prior periods due to the lower statutory tax rates associated with income tax reform.

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. In 2018, the other category includes a $2.1 million provision related to the 162(m) provisions related to the non-deductibility of certain executive compensation, partially offset by a $1.3 million benefit related to the Company's return-to-provision settlement for the 2017 tax year.

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



($ thousands)	February 2, 2019			February 3, 2018
Deferred Tax Assets
Employee benefits, compensation and insurance	$	14,599		$	10,011
Accrued expenses	14,936			12,122
Postretirement and postemployment benefit plans	327			401
Deferred rent	6,524			6,438
Accounts receivable reserves	7,350			5,105
Net operating loss (“NOL”) carryforward/carryback	6,714			7,540
Capital loss carryforward	14			1,450
Inventory capitalization and inventory reserves	3,339			3,058
Impairment of investment in nonconsolidated affiliate	1,470			1,470
Other	1,831			1,234
Total deferred tax assets, before valuation allowance	57,104			48,829
Valuation allowance	(4,199		)	(5,763		)
Total deferred tax assets, net of valuation allowance	$	52,905		$	43,066

Deferred Tax Liabilities
Retirement plans	$	(10,212	)	$	(13,071	)
LIFO inventory valuation	(42,427		)	(42,032		)
Capitalized software	(3,879		)	(4,141		)
Depreciation	(10,662		)	(1,786		)
Intangible assets	(24,763		)	(28,831		)
Other	(1,115		)	(1,567		)
Total deferred tax liabilities	(93,058		)	(91,428		)
Net deferred tax liability	$	(40,153	)	$	(48,362	)

As of February 2, 2019, the Company had various state and international net operating loss carryforwards totaling $6.7 million, with expiration dates between 2019 and 2038. The Company's state net operating loss carryforwards have tax values totaling $6.3 million, for which the Company has recorded a valuation allowance of $2.7 million. The remaining net operating loss will be carried forward to future tax years. The Company also has a valuation allowance of $1.5 million related to the impairment of an investment in a nonconsolidated affiliate, as further described in Note 5 to the consolidated financial statements.

As of February 2, 2019, 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 2, 2019, 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 2, 2019 or February 3, 2018.

For federal purposes, the Company’s tax years 2015 to 2017 (fiscal years ending January 30, 2016, January 28, 2017 and February 3, 2018) 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 in its liability for uncertain tax positions during the next 12 months.