Note 7 - Income Taxes

12 Months Ended

Feb. 01, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

7.    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.  The Act 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 2019 and 2018, the Company recorded an income tax provision of $0.7 million and $0.6 million, respectively, related to the GILTI, BEAT and FDII provisions of the Act.

The components of earnings (loss) before income taxes consisted of domestic earnings before income taxes of $37.3 million, $40.0 million and $78.2 million in 2019, 2018 and 2017, respectively.  The Company's foreign earnings before incomes taxes were $41.3 million and $44.5 million in 2019 and 2017, respectively, and foreign loss before income taxes was $45.8 million in 2018, reflecting the impairment of the tradename and goodwill for the Allen Edmonds business. 

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

($ thousands)	2019		2018			2017
Federal
Current	$	4,003	$	1,953		$	31,102
Deferred		5,390		4,451			(10,358	)
Total federal income tax provision (benefit)		9,393		6,404			20,744
State
Current		290		(718	)		7,691
Deferred		2,403		1,284			913
Total state income tax provision (benefit)		2,693		566			8,604
Foreign		4,425		(7,243	)		6,127
Total income tax provision (benefit)	$	16,511	$	(273	)	$	35,475

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

($ thousands)	2019			2018			2017
Income taxes at statutory rate (1)	$	16,505		$	(1,208	)	$	41,376
State income taxes, net of federal tax benefit		2,218			2,519			3,579
Foreign earnings taxed at lower rates		(3,199	)		(4,210	)		(8,072	)
Share-based compensation		86			(347	)		(1,265	)
Income tax reform, net benefit		—			(3,891	)		(294	)
GILTI, BEAT and FDII provisions		668			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	)
Non-deductibility of acquisition costs		—			46			—
Other		233			616			251
Total income tax provision (benefit)	$	16,511		$	(273	)	$	35,475

⁽¹⁾ The federal statutory tax rate was 21.0% in 2019 and 2018, and 33.7% in 2017.

In 2019, the Company's effective tax rate was impacted by discrete tax benefits totaling $1.4 million, primarily reflecting adjustments to changes in tax rates in state and other international jurisdictions.  In 2018, the Company's effective tax rate was impacted by several factors, including the non-deductibility of our goodwill impairment charge of $38.0 million, as further discussed in Note 11 to the consolidated financial statements.  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").  If the impairment charges had not been recognized in 2018 and the discrete tax benefits had not been recognized in 2019 and 2018, the Company's effective tax rates would have been 22.7% and 22.3%, respectively.  The tax rates in 2019 and 2018 are lower than in prior periods due to the lower tax rates associated with income tax reform effective beginning in 2018. 

The other category of income tax provision (benefit) 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 2019, the other category includes the effect of non-deductible expenses, net of the discrete benefits.  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 1, 2020			February 2, 2019
Deferred Tax Assets
Employee benefits, compensation and insurance	$	12,812		$	14,599
Accrued expenses		18,762			14,936
Postretirement and postemployment benefit plans		314			327
Deferred rent		—			6,524
Lease obligations		200,408			—
Accounts receivable reserves		3,109			7,350
Net operating loss (“NOL”) carryforward/carryback		6,671			6,714
Capital loss carryforward		14			14
Inventory capitalization and inventory reserves		4,123			3,339
Impairment of investment in nonconsolidated affiliate		1,470			1,470
Other		1,349			1,831
Total deferred tax assets, before valuation allowance		249,032			57,104
Valuation allowance		(4,809	)		(4,199	)
Total deferred tax assets, net of valuation allowance	$	244,223		$	52,905
Deferred Tax Liabilities
Lease right-of-use assets	$	(187,978	)	$	—
Retirement plans		(10,466	)		(10,212	)
LIFO inventory valuation		(44,774	)		(42,427	)
Capitalized software		(4,420	)		(3,879	)
Depreciation		(8,416	)		(10,662	)
Intangible assets		(29,636	)		(24,763	)
Other		(3,811	)		(1,115	)
Total deferred tax liabilities		(289,501	)		(93,058	)
Net deferred tax liability	$	(45,278	)	$	(40,153	)

As of February 1, 2020, the Company had various state and international net operating loss carryforwards totaling $6.7 million, with expiration dates between 2020 and 2039.  The Company has recorded a valuation allowance of $3.3 million on these state and international net operating loss carryforwards.  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 in 2016.

As of February 1, 2020, 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 1, 2020, 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.  As of February 1, 2020 and   February 2, 2019, the Company had unrecognized tax benefits of $1.9 million and $2.5 million, respectively, associated with international jurisdictions.

For federal purposes, the Company’s tax years 2016 to 2018 (fiscal years ending January 28, 2017,  February 3, 2018 and February 2, 2019) remain open to examination, but are not currently being examined.  The Company also files tax returns in various foreign jurisdictions and numerous states for which various tax years are subject to examination and currently involved in audits.  While the Company is involved in examinations in certain jurisdictions, it does not expect any significant changes in its liability for uncertain tax positions during the next 12 months.