TAXES BASED ON INCOME

12 Months Ended

Jan. 28, 2012

TAXES BASED ON INCOME

TAXES BASED ON INCOME

4.TAXES BASED ON INCOME

The provision for taxes based on income consists of:

	2011			2010			2009
Federal
Current	$	146		$	697		$	193
Deferred	78			(136		)	275
	224			561			468
State and local
Current	42			95			41
Deferred	(19		)	(55		)	23
	23			40			64
Total	$	247		$	601		$	532

A reconciliation of the statutory federal rate and the effective rate follows:

	2011		2010		2009
Statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	1.8	%	1.5	%	7.1	%
Credits	(3.6	)%	(1.3	)%	(3.4	)%
Favorable resolution of issues	(3.4	)%	(.8	)%	(2.5	)%
Goodwill impairment	—		—		53.9	%
Other changes, net	(0.5	)%	0.3	%	0.3	%
	29.3	%	34.7	%	90.4	%

The 2011 effective tax rate was significantly lower than 2010 due to the effect on pre-tax income of the UFCW consolidated pension plan charge of $953 ($591 after-tax).  The effect of the UFCW consolidated pension plan charge on our effective tax rate is reflected in the increased percentages for credits and favorable resolution of issues.

The tax effects of significant temporary differences that comprise tax balances were as follows:

	2011			2010
Current deferred tax assets:
Net operating loss and credit carryforwards	$	1		$	2
Compensation related costs	171			165
Total current deferred tax assets	172			167
Current deferred tax liabilities:
Insurance related costs	(111		)	(113		)
Inventory related costs	(220		)	(229		)
Other	(31		)	(45		)
Total current deferred tax liabilities	(362		)	(387		)
Current deferred taxes	$	(190	)	$	(220	)
Long-term deferred tax assets:
Compensation related costs	$	749		$	474
Lease accounting	93			97
Closed store reserves	66			61
Insurance related costs	76			75
Net operating loss and credit carryforwards	44			47
Other	23			11
Long-term deferred tax assets	1,051			765
Long-term deferred tax liabilities:
Depreciation	(1,698		)	(1,515		)
Long-term deferred taxes	$	(647	)	$	(750	)

At January 28, 2012, the Company had net operating loss carryforwards for state income tax purposes of $595 that expire from 2013 through 2031.  The utilization of certain of the Company’s net operating loss carryforwards may be limited in a given year.

At January 28, 2012, the Company had State credits of $20, some of which expire from 2012 through 2027.  The utilization of certain of the Company’s credits may be limited in a given year.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, including positions impacting only the timing of tax benefits, is as follows:

	2011			2010			2009
Beginning balance	$	333		$	586		$	492
Additions based on tax positions related to the current year	38			38			111
Reductions based on tax positions related to the current year	—			(237		)	(4		)
Additions for tax positions of prior years	26			13			33
Reductions for tax positions of prior years	(10		)	(51		)	(16		)
Settlements	(12		)	(16		)	(30		)
Ending balance	$	375		$	333		$	586

The Company does not anticipate that changes in the amount of unrecognized tax benefits over the next twelve months will have a significant impact on its results of operations or financial position.

As of January 28, 2012, January 29, 2011 and January 30, 2010, the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $123, $116 and $132 respectively.

To the extent interest and penalties would be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and classified as a component of income tax expense.  During the years ended January 28, 2012, January 29, 2011 and January 30, 2010, the Company recognized approximately $(24), $(2) and $4 respectively, in interest and penalties (recoveries).  The Company had accrued approximately $54 and $101 for the payment of interest and penalties as of January 28, 2012 and January 29, 2011, respectively.

The IRS concluded a field examination of the Company’s 2005 — 2007 U.S. tax returns during the second quarter of 2010 and is currently auditing years 2008 — 2009.  The audit is expected to be completed in the next twelve months.  Additionally, the Company has a case in the U.S. Tax Court.  A favorable ruling on the Company’s motion for partial summary judgment was issued on January 27, 2011.  A final decision in the case, and the filing of any appeals, should occur within the next 12 months.  Refer to Note 11 for additional information regarding this U.S. Tax Court case.  In connection with this case, the Company has extended the statute of limitations on our tax years after 1991 and those years remain open to examination.  States have a limited time frame to review and adjust federal audit changes reported.  Assessments made and refunds allowed are generally limited to the federal audit changes reported.