Income Taxes

6 Months Ended

Feb. 23, 2019

13.

Income Taxes

In accordance with ASC 740, Income Taxes (“ASC 740”), each interim period is considered integral to the annual period and tax expense is measured using an estimated annual effective tax rate. An entity is required to record income tax expense each quarter based on its annual effective tax rate estimated for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, adjusted for discrete taxable events that occur during the interim period.

The Company’s effective tax rate for the thirteen weeks ended February 23, 2019 was a provision of 24.9% compared to a benefit of (34.0)% for the corresponding period in the prior year. The Company’s effective tax rate for the twenty-six weeks ended February 23, 2019 was 25.5% compared to 4.2% for the corresponding period in the prior year. The increase in the effective tax rates in the thirteen and twenty-six weeks ended February 23, 2019 as compared to the corresponding periods in the prior year was due primarily to the impact of the Tax Cuts and Jobs Act (the “Act”) enacted on December 22, 2017

on the prior periods effective tax rates

As a result of the Act, U.S. corporations are subject to lower income tax rates. For the twenty-six weeks ended February 23, 2019, the statutory tax rate for the period was 21.0% compared to the applicable blended statutory tax rate of 25.9% for the corresponding period in the prior year.

U.S. Tax Reform

The Act, among other matters, reduced the U.S. federal corporate income tax rate from 35.0% to 21.0%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and created new taxes on certain foreign sourced earnings.

On December 22, 2017, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing SEC registrants to consider the impact of the U.S. legislation as “provisional” when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. In accordance with SAB 118, during fiscal 2018 the Company recorded its best estimates based on its interpretation of the U.S. legislation while it continued to accumulate data to finalize the underlying calculations. This resulted in the Company recording a provisional net income tax benefit of $20.1 million for the fiscal year ended August 25, 2018 related to remeasuring its U.S. net deferred tax liabilities at the lower tax rate and the one-time transition tax.

During the thirteen weeks ended February 23, 2019, the Company completed its accounting for the tax effects of enactment of the Act as required by SAB 118. There were no changes from the provisional calculation as recorded through August 25, 2018 to the final calculation.

Deferred tax assets and liabilities

The Company recorded a provisional net reduction of its deferred tax liabilities of $22.6 million for the year ended August 25, 2018 related to the Act, as compared to the Company’s initial provisional net reduction of $22.7 million as of February 24, 2018. The Act resulted in a tax benefit pertaining to the re-measurement of certain U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21.0%, partially offset by executive compensation deduction disallowances.

Foreign tax effects

The one-time transition tax is based on the Company’s total post-1986 earnings and profits (E&P), which were previously deferred from U.S. income taxes, resulting in an increase in income tax expense of $2.5 million in the fiscal year ended August 25, 2018.

Uncertain tax positions

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense, which is consistent with the recognition of these items in prior reporting periods. During the thirteen and twenty-six weeks ended February 23, 2019, there were no material changes in the amount of unrecognized tax benefits or the amount accrued for interest and penalties.

All U.S. and Canadian federal income tax statutes have lapsed for filings up to and including fiscal years 2014 and 2011, respectively. With a few exceptions, the Company is no longer subject to state and local income tax examinations for periods prior to fiscal 2014. The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change significantly in the next 12 months.