INCOME TAXES

12 Months Ended

Feb. 24, 2024

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

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

	Fiscal  2023		Fiscal  2022		Fiscal  2021
Current
Federal (1)	$	348.2	$	320.5	$	211.1
State	56.4		88.1		49.2
Foreign	1.0		0.5		0.6
Total Current	405.6		409.1		260.9
Deferred
Federal	(83.1)		(7.6)		198.3
State	31.7		11.1		12.4
Foreign	(61.2)		9.4		8.3
Total Deferred	(112.6)		12.9		219.0
Income tax expense	$	293.0	$	422.0	$	479.9

(1) Federal current tax expense is net of $0.3 million, $0.5 million and $0.5 million tax benefit of net operating losses ("NOL") in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

The difference between the actual tax provision and the tax provision computed by applying the statutory federal income tax rate of 21% to Income before income taxes was attributable to the following (in millions):

	Fiscal  2023		Fiscal  2022		Fiscal  2021
Income tax expense at federal statutory rate	$	333.7	$	406.4	$	440.9
State income taxes, net of federal benefit	58.5		85.9		100.7
Change in valuation allowance	3.2		0.1		(2.5)
Unrecognized tax benefits	(67.3)		(41.8)		(33.9)
Tax credits	(37.1)		(26.2)		(20.3)
Other	2.0		(2.4)		(5.0)
Income tax expense	$	293.0	$	422.0	$	479.9

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 24, 2024		February 25, 2023
Deferred tax assets:
Compensation and benefits	$	204.3	$	190.6
Net operating loss	71.2		99.5
Pension & postretirement benefits	215.9		248.9
Self-Insurance	299.8		289.7
Tax credits	8.5		26.2
Lease obligations	1,735.1		1,722.4
Other	104.4		110.9
Gross deferred tax assets	2,639.2		2,688.2
Less: valuation allowance	(65.6)		(102.3)
Total deferred tax assets	2,573.6		2,585.9
Deferred tax liabilities:
Depreciation and amortization	1,359.9		1,360.2
Inventories	374.9		373.1
Operating lease assets	1,543.3		1,518.9
Other	103.1		187.7
Total deferred tax liabilities	3,381.2		3,439.9
Net deferred tax liability	$	(807.6)	$	(854.0)
Noncurrent deferred tax asset	$	—	$	—
Noncurrent deferred tax liability	(807.6)		(854.0)
Total	$	(807.6)	$	(854.0)

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

	February 24, 2024		February 25, 2023		February 26, 2022
Beginning balance	$	102.3	$	113.6	$	130.4
Additions charged to income tax expense	6.0		3.1		2.1
Reductions credited to income tax expense	(2.8)		(3.0)		(4.6)
Changes to other comprehensive income or loss and other	(39.9)		(11.4)		(14.3)
Ending balance	$	65.6	$	102.3	$	113.6

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 24, 2024, a valuation allowance of $65.6 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 $17.5 million and $1,222.0 million, respectively, which will begin to expire in 2024 and continue through the fiscal year ending February 2044. As of

February 24, 2024, the Company had $8.5 million of state credit carryforwards, which will begin to expire in 2024 and continue through the fiscal year ending February 2029. The Company had no federal credit carryforwards as of February 24, 2024.

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

	Fiscal  2023		Fiscal  2022		Fiscal  2021
Beginning balance	$	216.0	$	276.0	$	368.8
Increase related to tax positions taken in the current year	9.6		5.0		1.2
Increase related to tax positions taken in prior years	—		2.1		0.3
Decrease related to tax position taken in prior years	(0.9)		—		(0.1)
Decrease related to settlements with taxing authorities	(5.6)		(20.7)		(72.9)
Decrease related to lapse of statute of limitations	(40.3)		(46.4)		(21.3)
Ending balance	$	178.8	$	216.0	$	276.0

Included in the balance of unrecognized tax benefits as of February 24, 2024, February 25, 2023 and February 26, 2022 are tax positions of $118.1 million, $151.1 million and $202.6 million, respectively, which would reduce the Company's effective tax rate if recognized in future periods. Of the $118.1 million that could impact tax expense, the Company has recorded $3.6 million of indemnification assets that would offset any future recognition. As of February 24, 2024, the Company is no longer subject to federal income tax examinations for the fiscal years prior to 2020 and in most states, is no longer subject to state income tax examinations for fiscal years before 2012. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company recognized a benefit related to interest and penalties, net of settlement adjustments, of $27.2 million for fiscal 2023, and expense for fiscal 2022 and fiscal 2021 of $2.4 million and $3.0 million, respectively.

The Company believes it is reasonably possible that the reserve for uncertain tax positions may be reduced by approximately $130 million in the next 12 months due to ongoing tax examinations and expiration of statutes of limitations.