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SEC Filings

10-Q
ROSS STORES INC filed this Form 10-Q on 12/12/2018
Entire Document
 



The table below shows the components of interest expense and income for the three and nine month periods ended November 3, 2018 and October 28, 2017:
 
Three Months Ended
 
 
Nine Months Ended
($000)
November 3, 2018

 
October 28, 2017

 
 
November 3, 2018

 
October 28, 2017

Interest expense on long-term debt
$
4,646

 
$
4,645

 
 
$
13,937

 
$
13,933

Other interest expense
233

 
233

 
 
768

 
735

Capitalized interest
(700
)
 
(205
)
 
 
(1,832
)
 
(387
)
Interest income
(7,132
)
 
(2,893
)
 
 
(17,722
)
 
(6,991
)
Interest (income) expense, net
$
(2,953
)
 
$
1,780

 
 
$
(4,849
)
 
$
7,290


Revolving credit facility. The Company’s $600 million unsecured revolving credit facility expires in April 2021 and contains a $300 million sublimit for issuance of standby letters of credit (subject to increase in proportion to any increase in the size of the credit facility). The facility also contains an option allowing the Company to increase the size of its credit facility by up to an additional $200 million, with the agreement of the lenders. Interest on any borrowings under this facility is based on LIBOR plus an applicable margin (currently 100 basis points) and is payable quarterly and upon maturity. As of November 3, 2018, the Company had no borrowings or standby letters of credit outstanding under this facility and the $600 million credit facility remains in place and available.
 
The revolving credit facility is subject to a financial leverage ratio covenant. As of November 3, 2018, the Company was in compliance with this covenant.

Note F: Taxes on Earnings

The Tax Cuts and Jobs Act (the “Tax Act” or "tax reform") was signed into law on December 22, 2017. The Tax Act made significant changes to U.S. corporate taxation, including reducing the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. For the three and nine month periods ended November 3, 2018, the Company’s provision for taxes on earnings differed from the Company’s federal corporate income tax rate of 21%, primarily because of the effects of state and local taxes, the net tax benefit associated with share-based compensation, and resolution of tax positions with taxing authorities. These items resulted in an effective tax rate for the three and nine month periods ended November 3, 2018 of 24% as compared to 38% and 37% for the three and nine month periods ended October 28, 2017, respectively.

Also on December 22, 2017, the SEC staff issued Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which provides guidance on accounting for the impact of the Tax Act. As permitted by SAB 118, the Company recorded provisional amounts for both current and deferred income taxes related to the reduced U.S. federal corporate income tax rate in fiscal 2017. The recorded provisional amounts totaling $80.1 million of tax benefit reflected assumptions made based upon the Company’s interpretation of the Tax Act. As of November 3, 2018, the Company has not recorded any adjustment to the provisional amounts recorded in fiscal 2017. With the completion and filing of the 2017 federal return during the quarter ended November 3, 2018, the Company considers the deferred tax remeasurements and other adjustments related to the Tax Act to be complete.
As of November 3, 2018, February 3, 2018, and October 28, 2017, the reserves for unrecognized tax benefits were $130.5 million, $121.3 million, and $109.3 million, inclusive of $25.4 million, $22.6 million, and $20.8 million of related interest and penalties, respectively. The Company accounts for interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized, $87.8 million would impact the Company’s effective tax rate. The difference between the total amount of unrecognized tax benefits and the amounts that would impact the effective tax rate relates to amounts attributable to deferred income tax assets and liabilities. These amounts are net of federal and state income taxes.

Certain federal and state tax returns are under audit by various tax authorities. Subsequent to the three month period ended November 3, 2018, the Company received notice that uncertain tax positions related to fiscal 2015 were resolved with the Internal Revenue Service. As a result, the Company expects to recognize a tax benefit of an approximate $26.2 million in the Consolidated Statement of Earnings, and a decrease in unrecognized tax benefits of approximately $53.3 million, inclusive of $12.8 million of interest and penalties, in the three month period ending February 2, 2019.

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