INCOME TAXES

12 Months Ended

Feb. 27, 2021

The components of income tax expense (benefit) consisted of the following (in millions):


	Fiscal 2020		Fiscal 2019		Fiscal 2018
Current
Federal (1)	$	307.0	$	87.2	$	9.0
State (2)	84.5		49.2		(6.7)
Foreign	(0.7)		2.3		0.3
Total Current	390.8		138.7		2.6

Deferred
Federal	(92.5)		(14.1)		(77.9)
State	(27.3)		(1.1)		(3.6)
Foreign	7.5		9.3		—
Total Deferred	(112.3)		(5.9)		(81.5)
Income tax expense (benefit)	$	278.5	$	132.8	$	(78.9)

(1) Federal current tax expense net of $5.7 million, $66.8 million and $12.8 million tax benefit of net operating losses ("NOL") in fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

(2) State current tax expense net of $16.7 million, $22.6 million and $9.5 million tax benefit of NOLs in fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

The difference between the actual tax provision and the tax provision computed by applying the statutory federal income tax rate to Income before income taxes was attributable to the following (in millions):


	Fiscal 2020		Fiscal 2019		Fiscal 2018
Income tax expense at federal statutory rate	$	237.0	$	125.8	$	11.0
State income taxes, net of federal benefit	58.0		32.3		0.7
Change in valuation allowance	(0.5)		(7.2)		(3.3)
Tax Cuts and Jobs Act	—		—		(56.9)
Unrecognized tax benefits	8.6		7.7		(16.2)
Charitable donations	(8.2)		(6.9)		(4.4)
Tax Credits	(23.3)		(23.5)		(10.8)
Other	6.9		4.6		1.0
Income tax expense (benefit)	$	278.5	$	132.8	$	(78.9)

The Tax Act, enacted in December 2017, resulted in significant changes to U.S. income tax and related laws. The Company is impacted by a number of aspects of the Tax Act, most notably the reduction in the top U.S. corporate income tax rate from 35% to 21%, a one-time transition tax on the accumulated unremitted foreign earnings and profits of the Company's foreign subsidiaries and 100% expensing of certain qualified property acquired and placed in service after September 27, 2017.

The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which allowed companies to record a provisional amount during a measurement period not to extend beyond one year from the date of enactment, which ended in the fourth quarter of fiscal 2018. In fiscal 2018, the Company recorded a provisional non-cash tax benefit of $56.9 million, primarily to account for refinement of transition tax and the remeasurement of deferred taxes. The Company completed its analysis of the Tax Act in fiscal 2018 based on currently available technical guidance. The Company will continue to assess further guidance issued by the Internal Revenue Service ("IRS") and record the impact of such guidance, if any, in the year issued.

Deferred income taxes reflect the net tax effects of temporary differences between the bases of assets and liabilities for financial reporting and income tax purposes. The Company's deferred tax assets and liabilities consisted of the following (in millions):


	February 27, 2021		February 29, 2020
Deferred tax assets:
Compensation and benefits	$	275.0	$	135.7
Net operating loss	118.4		117.0
Pension & postretirement benefits	333.1		235.5
Self-Insurance	271.0		263.5
Tax credits	39.0		41.7
Lease obligations	1,785.7		1,728.2
Other	96.2		143.8
Gross deferred tax assets	2,918.4		2,665.4
Less: valuation allowance	(130.4)		(135.1)
Total deferred tax assets	2,788.0		2,530.3

Deferred tax liabilities:
Depreciation and amortization	1,233.7		1,249.1
Inventories	335.9		346.8

Operating lease assets	1,570.4		1,521.7
Other	181.7		26.5
Total deferred tax liabilities	3,321.7		3,144.1

Net deferred tax liability	$	(533.7)	$	(613.8)

Noncurrent deferred tax asset	$	—	$	—
Noncurrent deferred tax liability	(533.7)		(613.8)
Total	$	(533.7)	$	(613.8)

The valuation allowance activity on deferred tax assets was as follows (in millions):


	February 27, 2021		February 29, 2020		February 23, 2019
Beginning balance	$	135.1	$	139.5	$	134.9
Additions charged to income tax expense	2.7		3.5		3.5
Reductions credited to income tax expense	(3.2)		(10.7)		(6.8)
Changes to other comprehensive income or loss and other	(4.2)		2.8		7.9
Ending balance	$	130.4	$	135.1	$	139.5

The Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. On the basis of this evaluation, as of February 27, 2021, a valuation allowance of $130.4 million has been recorded for the portion of the deferred tax asset that is not more likely than not to be realized, consisting primarily of tax credits and carryovers in jurisdictions where the Company has minimal presence or does not expect to have future taxable income. The Company will continue to evaluate the need to adjust the valuation allowance. The amount of the deferred tax asset considered realizable, however, could be adjusted depending on the Company's performance in certain subsidiaries or jurisdictions.

The Company currently has federal and state NOL carryforwards of $23.7 million and $1,430.7 million, respectively, which will begin to expire in 2021 and continue through the fiscal year ending February 2040. As of February 27, 2021, the Company had $39.0 million of state credit carryforwards, the majority of which will expire in 2023. The Company had no federal credit carryforwards as of February 27, 2021.

Changes in the Company's unrecognized tax benefits consisted of the following (in millions):


	Fiscal 2020		Fiscal 2019		Fiscal 2018
Beginning balance	$	373.8	$	376.2	$	356.0

Increase related to tax positions taken in the current year	1.5		0.9		1.6
Increase related to tax positions taken in prior years	1.8		3.0		35.1
Decrease related to tax position taken in prior years	(1.1)		(2.2)		(0.4)

Decrease related to settlements with taxing authorities	(3.7)		(4.1)		(8.3)
Decrease related to lapse of statute of limitations	(3.5)		—		(7.8)
Ending balance	$	368.8	$	373.8	$	376.2

Included in the balance of unrecognized tax benefits as of February 27, 2021, February 29, 2020 and February 23, 2019 are tax positions of $277.4 million, $268.2 million and $267.7 million, respectively, which would reduce the Company's effective tax rate if recognized in future periods. Of the $277.4 million that could impact tax expense, the Company has recorded $7.2 million of indemnification assets that would offset any future recognition. As of February 27, 2021, the Company is no longer subject to federal income tax examinations for the fiscal years prior to 2012 and in most states, is no longer subject to state income tax examinations for fiscal years before 2007. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company recognized expense related to interest and penalties, net of settlement adjustments, of $8.2 million, $9.6 million and $1.8 million for fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

The Company believes it is reasonably possible that the reserve for uncertain tax positions may be reduced by approximately $121.5 million in the next 12 months due to ongoing tax examinations and expiration of statutes of limitations.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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