XML 77 R13.htm IDEA: XBRL DOCUMENT

Income Taxes

12 Months Ended

Aug. 31, 2019

Note D – Income Taxes

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


	Year Ended
(in thousands)	August 31, 2019		August 25, 2018		August 26, 2017
Domestic	$	1,745,625	$	1,412,963	$	1,737,401
International		285,708		223,366		188,088

	$	2,031,333	$	1,636,329	$	1,925,489

The provision for income tax expense consisted of the following:


	Year Ended
(in thousands)	August 31, 2019		August 25, 2018			August 26, 2017
Current:
Federal	$	274,504	$	328,963		$	487,492
State		45,457		36,389			31,733
International		59,100		57,702			50,493

		379,061		423,054			569,718
Deferred:
Federal		25,757		(131,926	)		72,208
State		6,914		8,167			7,769
International		2,380		(502	)		(5,075	)

		35,051		(124,261	)		74,902

Income tax expense	$	414,112	$	298,793		$	644,620

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
(in thousands)	August 31, 2019			August 25, 2018			August 26, 2017
Federal tax at statutory U.S. income tax rate		21.0%			25.9%			35.0%
State income taxes, net		2.0%			1.9%			1.3%
Transition tax		—			1.6%			—
Share-based compensation		(1.8%	)		(1.6%	)		(1.4%	)
Impact of tax reform		(0.4%	)		(9.6%	)		—
Other		(0.4%	)		0.1%			(1.4%	)

Effective tax rate		20.4%			18.3%			33.5%

On December 22, 2017, Tax Reform was enacted into law. Tax Reform significantly revises the U.S. federal corporate income tax by, among other things, lowering the statutory federal corporate rate from 35% to 21%, eliminating certain deductions, imposing a mandatory

one-time

transition tax on accumulated earnings of foreign subsidiaries, and changing how foreign earnings are subject to U.S. federal tax. Also in December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when the registrant does not have the necessary information available, prepared, analyzed in reasonable detail to complete the accounting for certain income tax effects of Tax Reform.

During the year ended August 25, 2018, the Company recorded a provisional tax benefit of $131.5 million related to Tax Reform, comprised of a $157.3 million remeasurement of its net deferred tax assets, offset by $25.8 million of transition tax. During the year ended August 31, 2019, the Company completed its analysis of Tax Reform and recorded adjustments to the previously-recorded provisional amounts, resulting in an $8.8 million tax benefit, primarily related to transition tax.

For the year ended August 31, 2019, August 25, 2018, and August 26, 2017, the Company recognized excess tax benefits from stock option exercises of $46.0 million, $31.3 million and $31.2 million, respectively.

Beginning with the year ending August 31, 2019, the Company is subject to a new tax on global intangible

low-taxed

income (“GILTI”) that 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 the new tax. Net impacts for GILTI were immaterial and are included in the provision for income taxes for the year ended August 31, 2019.

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


(in thousands)	August 31, 2019			August 25, 2018
Deferred tax assets:
Net operating loss and credit carryforwards	$	42,958		$	47,190
Accrued benefits		58,900			62,867
Other		59,237			46,375

Total deferred tax assets		161,095			156,432
Less: Valuation allowances		(23,923	)		(19,619	)

Net deferred tax assets		137,172			136,813
Deferred tax liabilities:
Property and equipment		(114,956	)		(101,049	)
Inventory		(259,827	)		(242,138	)
Prepaid expenses		(46,487	)		(42,019	)
Other		(1,021	)		(2,191	)

Total deferred tax liabilities		(422,291	)		(387,397	)

Net deferred tax liabilities	$	(285,119	)	$	(250,584	)

The Company has historically asserted its intention to indefinitely reinvest foreign current and accumulated earnings and other basis differences in certain foreign subsidiaries. For the year ended August 31, 2019, with few exceptions, the Company no longer considers current and accumulated earnings to be indefinitely reinvested in our foreign subsidiaries. Where necessary, withholding tax provisions resulting from foreign distributions of current and accumulated earnings have been considered in the Company’s provision for income taxes.

The Company maintains its assertion related to other basis differences in foreign subsidiaries. It is impracticable for the Company to determine the amount of unrecognized deferred tax liability on these indefinitely reinvested basis differences.

At August 31, 2019 and August 25, 2018, the Company had deferred tax assets of $29.9 million and $30.9 million, respectively, from net operating loss (“NOL”) carryforwards available to reduce future taxable income totaling approximately $226.3 million and $219.1 million, respectively. Certain NOLs have no expiration date and others will expire, if not utilized, in various years from

fiscal

2020

through

2039

. At August 31, 2019 and August 25, 2018, the Company had deferred tax assets for income tax credit carryforwards of $13.0 million and $16.3 million, respectively. Income tax credit carryforwards will expire, if not utilized, in various years from fiscal

2020

through

2029

At August 31, 2019 and August 25, 2018, the Company had a valuation allowance of $23.9 million and $19.6 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:


(in thousands)	August 31, 2019			August 25, 2018
Beginning balance	$	26,077		$	22,201
Additions based on tax positions related to the current year		8,621			8,184
Additions for tax positions of prior years		2,115			1,404
Reductions for tax positions of prior years		(1,219	)		(482	)
Reductions due to settlements		(1,918	)		(1,930	)
Reductions due to statute of limitations		(2,784	)		(3,300	)

Ending balance	$	30,892		$	26,077

Included in the August 31, 2019 and the August 25, 2018 balances are $16.8 million and $13.5 million, respectively, of unrecognized tax benefits that, if recognized, would reduce the Company’s effective tax rate.

The balances above also include amounts totaling $11.9 million and $10.3 million for August 31, 2019 and August 25, 2018, 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 $1.4 million and $0.7 million accrued for the payment of interest and penalties associated with unrecognized tax benefits at August 31, 2019 and August 25, 2018, 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 2013 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 31, 2019, the Company estimates that the amount of unrecognized tax benefits could be reduced by approximately $1.4 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.