Note O – Income Taxes

The Company’s effective income tax rate was 27.2% of pretax income for the twelve weeks ended May 5, 2018. The effective tax rate was higher than the U.S. statutory federal rate primarily due to domestic state income taxes.

The Company’s effective income tax rate was 14.8% of pretax income for the thirty-six weeks ended May 5, 2018. As described in further detail below, the effective tax rate was lower than the U.S. statutory federal rate primarily due to the enactment of Tax Reform and its tax benefit of $103 million due to the reduction of the U.S. statutory rate from 35% to approximately 25.9%, and the $34.7 million tax benefit associated with stock option accounting.

At the end of each interim period, the Company estimates its effective tax rate and applies that rate to its ordinary quarterly earnings. The tax expense or benefit related to significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur. In addition, the effects of changes in enacted tax laws or rates or tax statutes are recognized in the interim period in which the change occurs.

On December 22, 2017, Tax Reform was enacted by the U.S. government. Tax Reform contains several key provisions that affected the Company. The enacted provisions include a mandatory one-time transition tax on certain earnings of foreign subsidiaries and a permanent reduction of the U.S. corporate income tax rate from 35 to 21 percent, effective January 1, 2018. The impact of the lower rate will be phased in, resulting in a U.S. statutory federal tax rate of approximately 25.9% for the fiscal year ending August 25, 2018 and a 21% U.S. statutory federal rate for fiscal years thereafter and as long as the provisions of Tax Reform remain in effect. Other enacted provisions which may impact the Company beginning in fiscal 2019 include: limitations on the deductibility of executive compensation, eliminating U.S. federal taxation of future remitted foreign earnings and other new provisions requiring current inclusion of certain earnings of controlled foreign corporations.

The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations where 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 Tax Reform. To the extent that a company’s accounting for certain income tax effects of Tax Reform is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of Tax Reform. The ultimate impact may differ from provisional amounts recorded, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, and additional regulatory guidance that may be issued. The accounting is expected to be completed within one year from the enactment date of Tax Reform.

The Company recorded a provisional income tax benefit of $136.7 million in its consolidated financial statements for its second quarter ended February 10, 2018 for the re-measurement of the Company’s net U.S. federal deferred tax liability at the lower rate. The Company is continuing to analyze certain aspects of Tax Reform and is refining its calculations which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.

In addition, during the second quarter ended February 10, 2018, upon enactment of Tax Reform, the Company was able to determine a reasonable estimate for the mandatory one-time transition tax and included a provisional increase to tax expense of $24.8 million. Due to the new guidance issued during the quarter ended May 5, 2018, the Company has revised its provisional estimate for the mandatory one-time transition tax to $25.4 million, an increase to tax expense of $0.6 million versus previous provisional estimates. Our analysis of these items is incomplete at this time as the Company continues to finalize the calculation of post-1986 foreign earnings and profits previously deferred from U.S. federal taxation and the amounts held in cash or other specified assets. The provisional amount may also change as new guidance and clarifications are issued by the Internal Revenue Service. We will complete the accounting for these items during the measurement period.

Per GAAP, foreign withholding taxes are not included when foreign earnings are indefinitely reinvested. The Company regularly reviews and assesses whether there are any changes to its indefinite reinvestment assertion. Through the second quarter ended February 10, 2018, the Company had determined that the undistributed earnings for all of its foreign subsidiaries were indefinitely reinvested. During the current quarter ended May 5, 2018, the Company made the determination that the undistributed earnings of certain foreign subsidiaries were no longer indefinitely reinvested while also maintaining its indefinite reinvestment assertion for other foreign subsidiaries. As a result, the Company has analyzed and included foreign withholding taxes on undistributed earnings where applicable, which has no significant impact on the Company’s consolidated results.

As of May 5, 2018, the Company has estimated the following obligations with respect to the mandatory deemed repatriation of the Company’s foreign subsidiaries. The estimate may change, possibly materially, due to among other things, further refinement of the Company’s calculations, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of Tax Reform.


(in thousands)	Scheduled Payments

2018		$	3,372
2019			1,918
2020			1,918
2021			1,918
2022			1,918
2023			3,597
2024			4,795
2025			5,994

Total One-Time Transition Tax Forecasted Obligation Payments		$	25,430