Note O – Income Taxes

Our effective income tax rate was (74.7%) of pretax income for the twelve weeks ended February 10, 2018. The effective tax rate was lower than the U.S. statutory federal rate primarily due to a $111.9 million provisional tax benefit resulting from the enactment of the Tax Reform as described in further detail below; $32.1 million of excess tax benefits from option exercises; a $35.3 million benefit from the previously reported quarter one tax expense due to the reduction of the U.S. statutory rate from 35% to approximately 25.9%; and a second quarter tax benefit of $24.2 million due to the reduction of the U.S. statutory rate from 35% to approximately 25.9%.

Our effective income tax rate was 4.2% of pretax income for the twenty-four weeks ended February 10, 2018. The effective tax rate was lower than the U.S. statutory federal rate primarily due to a $111.9 million provisional tax benefit resulting from the enactment of Tax Reform as described in further detail below; $34.3 million of excess tax benefits from option exercises; and a $59.5 million benefit from the reduction of the U.S. statutory rate from 35% to approximately 25.9%.

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 status 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 impacting the current financial statements 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. As the Company has an August 25^th fiscal year-end, 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. 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 Company maintained its permanent reinvestment assertion for non-U.S. subsidiary earnings but will continue to evaluate and analyze potential impacts of any additional foreign and/or state income taxes on cash repatriation. The Company has not recorded deferred taxes attributable to its foreign operations at this time. Based on information currently available and subject to change, the Company currently forecasts its long-term effective tax rate to be approximately 24.5 percent.

The Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of U.S. 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.

Based on the current analysis, the Company recorded a provisional income tax benefit of $111.9 million in its consolidated financial statements for the quarter ended February 10, 2018. The Company was able to determine a reasonable estimate for the mandatory one-time transition tax to increase tax expense by $24.8 million and for the re-measurement of the Company’s net U.S. federal deferred tax liability at the lower rate to reduce tax expense by $136.7 million. The Company’s analysis of these items is incomplete at this time. The Company will complete the accounting for these items during the measurement period, which will not exceed beyond one year from the enactment date.

As of February 10, 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		$	3,507
2019			1,847
2020			1,847
2021			1,847
2022			1,847
2023			3,464
2024			4,619
2025			5,773

Total One-Time Transition Tax Forecasted Obligation Payments		$	24,751