Income Taxes

12 Months Ended

Aug. 26, 2023

Income Taxes

Income Taxes

Note D – Income Taxes

The components of income from continuing operations before income taxes are as follows:

		Year Ended
	August 26,		August 27,		August 28,
(in thousands)	2023		2022		2021
Domestic	$	2,621,714	$	2,429,262	$	2,436,548
International		545,900		649,829		312,642
	$	3,167,614	$	3,079,091	$	2,749,190

The provision for income tax expense consisted of the following:

	Year Ended
	August 26,		August 27,		August 28,
(in thousands)	2023		2022		2021
Current:
Federal	$	423,301	$	293,022	$	438,686
State		86,687		48,490		79,271
International		154,907		122,381		95,351
		664,895		463,893		613,308
Deferred:
Federal		20,266		160,749		(21,366)
State		(21,847)		34,564		(1,707)
International		(24,126)		(9,719)		(11,359)
		(25,707)		185,594		(34,432)
Income tax expense	$	639,188	$	649,487	$	578,876

A reconciliation of the provision for income taxes to the amount computed by applying the federal statutory tax rate to income before income taxes is as follows:

	Year Ended
	August 26,		August 27,		August 28,
(in thousands)	2023		2022		2021
Federal tax at statutory U.S. income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net	1.6	%	2.1	%	2.2	%
Share-based compensation	(2.3)	%	(1.6)	%	(1.7)	%
US Tax on Non-U.S. Income (GILTI and Subpart F)	3.3	%	3.1	%	2.8	%
Non-U.S. Permanent Differences	(1.4)	%	(1.5)	%	(0.4)	%
Foreign Tax Credits	(2.3)	%	(1.9)	%	(1.7)	%
Other	0.3	%	(0.1)	%	(1.1)	%
Effective tax rate	20.2	%	21.1	%	21.1	%

For the year ended August 26, 2023, August 27, 2022, and August 28, 2021, the Company recognized excess tax benefits from stock option exercises of $92.2 million, $63.2 million, and $56.4 million, respectively.

The Company is subject to a tax on global intangible low-taxed income (“GILTI”) which is imposed on foreign earnings. The Company has made the election to record this tax as a period cost, thus has not adjusted the deferred tax assets or liabilities of its foreign subsidiaries for this tax.

Significant components of the Company's deferred tax assets and liabilities were as follows:

	August 26,		August 27,
(in thousands)	2023		2022
Deferred tax assets:
Net operating loss and credit carryforwards	$	45,081	$	33,924
Accrued benefits		82,318		60,561
Operating lease liabilities		698,728		692,730
Other		90,897		79,850
Total deferred tax assets		917,024		867,065
Valuation allowances		(24,940)		(27,790)
Net deferred tax assets		892,084		839,275
Deferred tax liabilities:
Property and equipment		(194,686)		(197,482)
Inventory		(451,360)		(448,273)
Operating lease assets		(652,652)		(650,145)
Other		(43,662)		(25,211)
Deferred tax liabilities		(1,342,360)		(1,321,111)
Net deferred tax liabilities	$	(450,276)	$	(481,836)

For the year ended August 26, 2023, the Company asserts indefinite reinvestment for basis differences and accumulated earnings through fiscal 2020 with respect to its foreign subsidiaries. The Company does not assert permanent reinvestment of fiscal 2021 through current year earnings with respect to its Mexican subsidiaries while maintaining its assertion of indefinite reinvestment of fiscal 2021 through current year earnings of other foreign subsidiaries. Where necessary, taxes resulting from foreign distributions of current and accumulated earnings (e.g., withholding taxes) have been considered in the Company’s provision for income taxes.

As of August 26, 2023, we have not recorded incremental income taxes for outside basis differences of $383.7 million in our investments in foreign subsidiaries, as these amounts are indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to the outside basis differences in these entities is not practicable.

At August 26, 2023 and August 27, 2022, the Company had net operating loss (“NOL”) carryforwards totaling approximately $314.6 million ($37.2 million tax effected) and $241.2 million ($28.9 million tax effected), respectively. Certain NOLs have no expiration date and others will expire, if not utilized, in various years from fiscal 2024 through 2043. At August 26, 2023 and August 27, 2022, the Company had deferred tax assets for income tax credit carryforwards of $7.9 million and $5.0 million, respectively. Income tax credit carryforwards will expire, if not utilized, in various years from fiscal 2024 through 2033.

At August 26, 2023 and August 27, 2022, the Company had a valuation allowance of $24.9 million and $27.8 million, respectively, on deferred tax assets associated with NOL and tax credit carryforwards for which management has determined it is more likely than not that the deferred tax asset will not be realized. Management believes it is more likely than not that the remaining deferred tax assets will be fully realized.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	August 26,		August 27,
(in thousands)	2023		2022
Beginning balance	$	49,316	$	39,797
Additions based on tax positions related to the current year		9,416		17,488
Additions for tax positions of prior years		8,012		3,008
Reductions for tax positions of prior years		(5,336)		(6,806)
Reductions due to settlements		(6,800)		(1,539)
Reductions due to statute of limitations		(5,121)		(2,632)
Ending balance	$	49,487	$	49,316

Included in the August 26, 2023 and the August 27, 2022 balances are $37.0 million and $32.4 million, respectively, of unrecognized tax benefits that, if recognized, would reduce the Company’s effective tax rate. The balances above also include amounts of $8.6 million and $11.5 million for August 26, 2023 and August 27, 2022, respectively, that are accounted for as reductions to deferred tax assets for NOL carryforwards and tax credit carryforwards. It is anticipated that in the event the associated uncertain tax positions are disallowed, the NOL carryforwards and tax credit carryforwards would be utilized to settle the liability.

The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense. The Company had $10.1 million and $5.7 million accrued for the payment of interest and penalties associated with unrecognized tax benefits at August 26, 2023 and August 27, 2022, respectively.

The Company files U.S. federal, U.S. state and local, and international income tax returns. With few exceptions, the Company is no longer subject to U.S. federal, U.S. state and local, or Non-U.S. examinations by tax authorities for fiscal year 2019 and prior. The Company is typically engaged in various tax examinations at any given time by U.S. federal, U.S. state and local, and Non-U.S. taxing jurisdictions. As of August 26, 2023, the Company estimates that the amount of unrecognized tax benefits could be reduced by approximately $6.2 million over the next twelve months as a result of tax audit settlements. While the Company believes that it is adequately accrued for possible audit adjustments, the final resolution of these examinations cannot be determined at this time and could result in final settlements that differ from current estimates.