Note 4 - Income Taxes

12 Months Ended

Aug. 27, 2016

4. Income Taxes

The provision for income taxes consists of the following (in thousands):

Year ended	August 27, 2016			August 29, 2015			August 30, 2014
Current:
Federal	$	54,654		$	65,656		$	54,005
Foreign		1,672			3,350			3,480
State		9,996			11,184			9,216
Total current	$	66,322		$	80,190		$	66,701

Deferred:
Federal	$	10,803		$	(2,705	)	$	6,838
Foreign		(217	)		34			59
State		1,437			(550	)		1,828
Total deferred	$	12,023		$	(3,221	)	$	8,725

Total	$	78,345		$	76,969		$	75,426

The following table reconciles the provision for income taxes using the statutory federal income tax rate to the actual provision for income taxes:

	August 27, 2016			August 29, 2015			August 30, 2014
Income taxes at the statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes		3.5			3.5			3.8
Adjustments to tax reserves		0.2			0.1			0.1
Foreign tax rate differential		-0.4			-0.7			-0.5
Permanent and other		0.2			0.3			0.2
Total		38.5	%		38.2	%		38.6	%

The tax effect of items giving rise to the Company’s deferred tax assets and liabilities is as follows (in thousands):

	August 27, 2016		August 29, 2015
Deferred Tax Assets
Payroll and benefit related	$	25,091	$	22,533
Insurance related		14,404		14,565
Environmental		10,465		9,119
Other		10,320		10,438
Total deferred tax assets	$	60,280	$	56,655

Deferred Tax Liabilities
Tax in excess of book depreciation	$	48,414	$	36,888
Purchased intangible assets		35,697		33,428
Rental merchandise in service		51,869		51,772
Total deferred tax liabilities		135,980		122,088

Net deferred tax liability	$	75,700	$	65,433

The Company has evaluated its deferred tax assets and believes that they will be fully recovered. As a result, the Company has not established a valuation allowance.

As of August 27, 2016 and August 29, 2015, there was $3.3 million and $0.9 million, respectively, in total unrecognized tax benefits, which if recognized, would favorably impact the Company’s effective tax rate. 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. As of August 27, 2016 and August 29, 2015, the Company had accrued a total of $0.1 million in interest and penalties, in its long-term accrued liabilities. For the years ended August 27, 2016, August 29, 2015 and August 30, 2014 the Company recognized a nominal expense in its Consolidated Statement of Income related to interest and penalties.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance at August 30, 2014	$	1,170
Additions based on tax positions related to the current year		395
Statute expirations		(253	)

Balance at August 29, 2015	$	1,312
Additions based on tax positions related to the current year		424
Additions for tax positions of prior years		2,145
Statute expirations		(138	)

Balance at August 27, 2016	$	3,743

The Company has a significant portion of its operations in the United States and Canada. It is required to file federal income tax returns as well as state income tax returns in a majority of the U.S. states and also in the Canadian provinces of Alberta, British Columbia, Ontario, Saskatchewan, Quebec and New Brunswick. At times, the Company is subject to audits in these jurisdictions, which typically are complex and can require several years to resolve. The final resolution of any such tax audits could result in either a reduction in the Company’s accruals or an increase in its income tax provision, both of which could have a material impact on the consolidated results of operations in any given period.

U.S. and Canadian federal income tax statutes have lapsed for filings up to and including fiscal years 2012 and 2008, respectively, and the Company has concluded an audit of U.S. federal income taxes for 2010 and 2011. With a few exceptions, the Company is no longer subject to state and local income tax examinations for periods prior to fiscal 2011. 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.