Income Taxes

12 Months Ended

Aug. 31, 2024

Income Taxes

Income Taxes

Note E – Income Taxes

The components of operating income before income taxes are as follows:

		Year Ended
	August 31,		August 26,		August 27,
(in thousands)	2024		2023		2022
Domestic	$	2,663,148	$	2,621,714	$	2,429,262
International		673,982		545,900		649,829
	$	3,337,130	$	3,167,614	$	3,079,091

The provision for income tax expense consisted of the following:

	Year Ended
	August 31,		August 26,		August 27,
(in thousands)	2024		2023		2022
Current tax provision (benefit):
Federal	$	846,176	$	491,338	$	341,462
State		54,837		86,687		48,490
International		193,794		154,907		122,381
Purchased tax credits		(368,870)		(68,037)		(48,440)
		725,937		664,895		463,893
Deferred tax provision (benefit):
Federal		(163,775)		26,858		157,807
State		12,264		(21,847)		34,564
International		(10,616)		(24,126)		(9,719)
Purchased tax credits		110,893		(6,592)		2,942
		(51,234)		(25,707)		185,594
Income tax expense	$	674,703	$	639,188	$	649,487

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 31,		August 26,		August 27,
(in thousands)	2024		2023		2022
Federal tax at statutory U.S. income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net	1.6	%	1.6	%	2.1	%
Share-based compensation	(1.9)	%	(2.3)	%	(1.6)	%
US Tax on Non-U.S. Income (Subpart F)	2.9	%	2.5	%	2.3	%
US Tax on Non-U.S. Income (GILTI)	1.2	%	0.8	%	0.8	%
Non-U.S. Permanent Differences	(1.3)	%	(1.4)	%	(1.5)	%
Non-US Rate Differences	1.1	%	0.4	%	1.0	%
Foreign Tax Credits	(2.9)	%	(2.3)	%	(1.9)	%
Other	(1.5)	%	(0.1)	%	(1.1)	%
Effective tax rate	20.2	%	20.2	%	21.1	%

For the year ended August 31, 2024, August 26, 2023, and August 27, 2022, the Company recognized excess tax benefits from stock option exercises of $81.4 million, $92.2 million, and $63.2 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 31,		August 26,
(in thousands)	2024		2023
Deferred tax assets:
Net operating loss and credit carryforwards	$	47,030	$	45,081
Accrued benefits		86,119		82,318
Operating lease liabilities		722,156		698,728
Federal credit carryforwards		131,895		—
Other		102,820		90,897
Total deferred tax assets		1,090,020		917,024
Valuation allowances		(26,922)		(24,940)
Net deferred tax assets		1,063,098		892,084
Deferred tax liabilities:
Property and equipment		(228,184)		(194,686)
Inventory		(499,022)		(451,360)
Operating lease assets		(660,949)		(652,652)
Other		(38,320)		(43,662)
Deferred tax liabilities		(1,426,475)		(1,342,360)
Net deferred tax liabilities	$	(363,377)	$	(450,276)

For the year ended August 31, 2024, 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 31, 2024, we have not recorded incremental income taxes for outside basis differences of $386.7 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.

The Organization for Economic Co-operation and Development has issued Pillar Two model rules introducing a new global minimum tax of 15% intended to be effective for our tax periods ending August 30, 2025 and forward. While the U.S. has not yet adopted the Pillar Two rules, various other governments around the world are enacting similar legislation. As currently designed, Pillar Two will ultimately apply to our worldwide operations. There remains uncertainty as to the final Pillar Two model rules. We are continuing to evaluate the Pillar Two rules and their potential impact on future periods, but we do not expect the rules to have a material impact on our effective tax rate.

At August 31, 2024 and August 26, 2023, the Company had net operating loss (“NOL”) carryforwards totaling approximately $309.8 million ($37.2 million tax effected) and $314.6 million ($37.2 million tax effected), respectively. Certain NOLs have no expiration date and others will expire, if not utilized, in various years from fiscal 2025 through 2043. At August 31, 2024 and August 26, 2023, the Company had deferred tax assets for income tax credit carryforwards of $141.7 million and $7.9 million, respectively. Income tax credit carryforwards will expire, if not utilized, in various years from fiscal 2025 through 2051.

Pursuant to provisions under the Inflation Reduction Act, enacted in August of 2022, the Company purchased transferable federal tax credits during fiscal year 2024 from various counterparties. Such federal tax credits were purchased at negotiated discounts, resulting in an income tax benefit recorded during the year ended August 31,

2024. Receivables associated with transferable federal tax credits are recorded (netted) within taxes payable and deferred tax liabilities

At August 31, 2024 and August 26, 2023, the Company had a valuation allowance of $26.9 million and $24.9 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 given the extended carryforward periods referenced.

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

	August 31,		August 26,
(in thousands)	2024		2023
Beginning balance	$	49,487	$	49,316
Additions based on tax positions related to the current year		5,386		9,416
Additions for tax positions of prior years		5,373		8,012
Reductions for tax positions of prior years		(8,595)		(5,336)
Reductions due to settlements		(8,600)		(6,800)
Reductions due to statute of limitations		(5,065)		(5,121)
Ending balance	$	37,986	$	49,487

Included in the August 31, 2024 and the August 26, 2023 balances are $32.1 million and $37.0 million, respectively, of unrecognized tax benefits that, if recognized, would reduce the Company’s effective tax rate. The balances above also include amounts of $3.8 million and $8.6 million for August 31, 2024 and August 26, 2023, 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 $11.2 million and $10.1 million accrued for the payment of interest and penalties associated with unrecognized tax benefits at August 31, 2024 and August 26, 2023, 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 2020 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, 2024, the Company estimates that the amount of unrecognized tax benefits could be reduced by approximately $13.1 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.