In the retail channel, selling, general and administrative expenses as a percentage of net revenues
increased for year-to-date fiscal 2018 compared to year-to-date fiscal 2017, primarily
driven by an increase in general expenses primarily associated with the reclassification of other income from selling, general and administrative expenses into net revenues and impairment and early lease termination charges related to
underperforming retail stores.
Accounting Bulletin No. 118 (SAB 118) issued by the SEC in December 2017 provides us with up to one year to finalize our measurement of the income tax effects of the 2017 Tax Cuts and Jobs Act (U.S. Tax Reform) on our
fiscal year ended January 28, 2018. As of January 28, 2018, we had made reasonable estimates of the income tax effects of U.S. Tax Reform, including the transition tax under Internal Revenue Code section 965.
As a result of the issuance of IRS Notice 2018-26, we recorded a measurement period adjustment in the first quarter of
fiscal 2018 to increase the transition tax by approximately $2,871,000. In the second quarter of fiscal 2018, we finalized our valuation of intangible assets acquired in connection with the acquisition of Outward. As a result, we recorded an
increase to tax expense of approximately $1,757,000 representing an adjustment to the re-measurement of our deferred tax liabilities. In the third quarter of fiscal 2018, we finalized our measurement of the
income tax effect of U.S. Tax Reform for certain items, which resulted in an $11,677,000 tax benefit from the re-measurement of our deferred tax assets and a $2,909,000 tax benefit related to the transition
We have historically elected not to provide for U.S. income taxes with respect to the undistributed earnings of our foreign subsidiaries as we
intended to utilize those earnings in our foreign operations for an indefinite period of time. Under Internal Revenue Code section 965 of U.S. Tax Reform, we are deemed to have distributed all of the post-1986 accumulated earnings of our foreign
subsidiaries to the U.S. as of December 31, 2017. In light of the transition tax under U.S. Tax Reform, we made a determination that any undistributed foreign earnings as of January 28, 2018 are no longer indefinitely reinvested, resulting
in an accrual of approximately $2,507,000 of foreign withholding tax and additional U.S. income tax in the third quarter of fiscal 2018. We currently intend to utilize the undistributed earnings of our foreign subsidiaries subsequent to
January 28, 2018 in our foreign operations and will only repatriate such earnings when it is tax effective to do so.
The effective tax rate was
22.5% for year-to-date fiscal 2018 and 35.5% for year-to-date fiscal 2017. The decrease
in the effective tax rate was primarily due to the reduction of the U.S. corporate income tax rate from 35% to 21% as a result of U.S. Tax Reform, and the tax benefit from the remeasurement of our deferred tax assets.
In fiscal 2018, we are subject to several provisions of U.S. Tax Reform including a tax on global intangible low-taxed
income (GILTI), the base erosion anti-abuse tax (BEAT) and a deduction for foreign-derived intangible income (FDII). We are accounting for GILTI as a periodic expense when the tax arises.
The ultimate impact of U.S. Tax Reform may differ from our provisional amounts due to changes in interpretations and assumptions and/or additional regulatory
guidance that may be issued. We expect to revise our U.S. Tax Reform impact estimates as we refine our analysis of the new rules and as new guidance is issued. We expect to finalize accounting for the impact of U.S. Tax Reform under SAB 118 once our
2017 corporate income tax returns are filed in the fourth quarter of fiscal 2018.
LIQUIDITY AND CAPITAL RESOURCES
As of October 28, 2018, we held $164,414,000 in cash and cash equivalents, the majority of which was held in interest bearing demand deposit accounts and
money market funds, and of which $104,614,000 was held by our foreign subsidiaries. As is consistent within our industry, our cash balances are seasonal in nature, with the fourth quarter historically representing a significantly higher level of
cash than other periods.
In fiscal 2018, we plan to use our cash resources to fund our inventory and inventory related purchases, advertising and
marketing initiatives, property and equipment purchases, stock repurchases and dividend payments. In addition to our cash balances on hand, we have a $500,000,000 unsecured revolving line of credit (revolver) under our credit facility.
The revolver may be used to borrow revolving loans or request the issuance of letters of credit. We may, upon notice to the administrative agent, request existing or new lenders to increase the revolver by up to $250,000,000 at such lenders
option, to provide for a total of $750,000,000 of unsecured revolving credit. For year-to-date fiscal 2018, we had borrowings of $60,000,000 under the revolver, all of
which was outstanding as of October 28, 2018. For year-to-date fiscal 2017, we borrowed $170,000,000 under the revolver, all of which was outstanding as of
October 29, 2017. As of October 28, 2018, we had $300,000,000 outstanding under our term loan. The term loan matures on January 8, 2021, at which point all outstanding principal and any accrued interest must be repaid. Additionally,
as of October 28, 2018, a total of $11,728,000 in issued but undrawn standby letters of credit were outstanding under the credit facility. The standby letters of credit were issued to secure the liabilities associated with workers
compensation and other insurance programs.