PROVISION FOR INCOME TAXES

12 Months Ended

Mar. 02, 2013

PROVISION FOR INCOME TAXES

PROVISION FOR INCOME TAXES

7. PROVISION FOR INCOME TAXES

The components of the provision for income taxes are as follows:

	FISCAL YEAR ENDED
(in thousands)	March 2, 2013		February 25, 2012		February 26, 2011
Current:
Federal	$	522,812	$	475,280	$	426,956
State and local	55,889		74,438		90,689
	578,701		549,718		517,645
Deferred:
Federal	15,710		28,695		(7,698		)
State and local	1,860		1,538		(8,302		)
	17,570		30,233		(16,000		)
	$	596,271	$	579,951	$	501,645

At March 2, 2013 and February 25, 2012, included in other current assets is a net current deferred income tax asset of $212.7 million and $209.4 million, respectively, and included in other assets is a net noncurrent deferred income tax asset of $36.0 million and $43.7 million, respectively. These amounts represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company’s deferred tax assets and liabilities consist of the following:

(in thousands)	March 2, 2013			February 25, 2012
Deferred tax assets:
Inventories	$	33,699		$	33,058
Deferred rent and other rent credits	82,123			78,292
Insurance	55,070			53,607
Stock-based compensation	33,486			37,633
Merchandise credits and gift card liabilities	22,683			12,376
Accrued expenses	81,069			80,012
Obligations on distribution centers	42,024			—
Net operating loss carryforwards and other tax credits	42,506			—
Other	57,129			47,422
Deferred tax liabilities:
Depreciation	(40,276		)	(25,510		)
Goodwill	(42,719		)	(36,590		)
Intangibles	(78,106		)	—
Other	(39,957		)	(27,228		)
	$	248,731		$	253,072

At March 2, 2013, as a result of the World Market acquisition (See “Acquisitions,” Note 2), the Company has federal net operating loss carryforwards of $22.3 million (tax effected), which will begin expiring in 2025, state net operating loss carryforwards of $9.3 million (tax effected), which will expire between 2012 and 2031, California state enterprise zone credit carryforwards of $9.9 million (tax effected), which have no expiration dates but require taxable income in the enterprise zone to be realizable and other tax credits of $1.0 million (tax effected).

The Company has not established a valuation allowance for the net deferred tax asset as it is considered more likely than not that it is realizable through a combination of future taxable income and the deductibility of future net deferred tax liabilities.

The following table summarizes the activity related to the gross unrecognized tax benefits from uncertain tax positions:

(in thousands)	March 2, 2013			February 25, 2012
Balance at beginning of year	$	124,963		$	141,869
Increase related to current year positions	24,892			23,286
Increase related to prior year positions	1,183			12,533
Decrease related to prior year positions	(36,104		)	(33,191		)
Settlements	(15,670		)	(17,822		)
Lapse of statute of limitations	(1,372		)	(1,712		)
Balance at end of year	$	97,892		$	124,963

At March 2, 2013, the Company has recorded approximately $17.8 million and $80.1 million of gross unrecognized tax benefits in current and non-current taxes payable, respectively, on the consolidated balance sheet of which approximately $97.4 million would impact the Company’s effective tax rate. At February 25, 2012, the Company has recorded approximately $1.4 million and $123.6 million of gross unrecognized tax benefits in current and non-current taxes payable, respectively, on the consolidated balance sheet of which approximately $123.3 million would impact the Company’s effective tax rate. As of March 2, 2013 and February 25, 2012, the liability for gross unrecognized tax benefits included approximately $18.9 million and $27.1 million, respectively, of accrued interest. The Company recorded a decrease of interest of approximately $4.9 million and an increase of interest of approximately $2.3 million for the years ended March 2, 2013 and February 25, 2012, respectively, for gross unrecognized tax benefits in the consolidated statement of earnings.

The Company anticipates that any adjustments to gross unrecognized tax benefits which will impact income tax expense, due to the expiration of statutes of limitations, could be approximately $17.0 to $18.0 million in the next twelve months. However, actual results could differ from those currently anticipated.

As of March 2, 2013, the Company operated in all 50 states, the District of Columbia, Puerto Rico, Canada and several other international countries and files income tax returns in the United States and various state, local and international jurisdictions. The Company is currently under examination by the Internal Revenue Service for tax years 2009 through 2011. The Company is also open to examination for state and local jurisdictions with varying statutes of limitations, generally ranging from three to five years.

For fiscal 2012, the effective tax rate is comprised of the Federal statutory income tax rate of 35.00%, the State income tax rate, net of Federal benefit, of 2.93%, provision for uncertain tax positions of 0.07% and other income tax benefits of 1.50%. For fiscal 2011, the effective tax rate is comprised of the Federal statutory income tax rate of 35.00%, the State income tax rate, net of Federal benefit, of 2.90%, provision for uncertain tax positions of 0.23% and other income tax benefits of 1.13%. For fiscal 2010, the effective tax rate is comprised of the Federal statutory income tax rate of 35.00%, the State income tax rate, net of Federal benefit, of 2.77%, provision for uncertain tax positions of 1.86% and other income tax benefits of 0.83%.