Income Taxes

The following is a reconciliation of the federal statutory income tax rate to income tax expense in fiscal 2012, 2011 and 2010:



	2012			2011			2010
Federal income tax at the statutory rate	$	365		$	816		$	815
State income taxes, net of federal benefit	45			46			68
Benefit from foreign operations	(96		)	(86		)	(54		)
Non-taxable interest income	—			—			(1		)
Other	—			3			7
Goodwill impairment	395			—			—
Income tax expense	$	709		$	779		$	835
Effective income tax rate	68.0		%	33.4		%	35.9		%

Earnings from continuing operations before income tax expense and equity in (loss) income of affiliates by jurisdiction was as follows in fiscal 2012, 2011 and 2010:



	2012			2011		2010
United States	$	1,537		$	1,739	$	1,944
Outside the United States	(494		)	592		385
Earnings from continuing operations before income tax expense and equity in (loss) income of affiliates	$	1,043		$	2,331	$	2,329

Income tax expense was comprised of the following in fiscal 2012, 2011 and 2010:



	2012			2011			2010
Current:
Federal	$	447		$	735		$	686
State	61			73			116
Foreign	173			105			63
	681			913			865
Deferred:
Federal	94			(113		)	(13		)
State	1			(2		)	(11		)
Foreign	(67		)	(19		)	(6		)
	28			(134		)	(30		)
Income tax expense	$	709		$	779		$	835

Deferred taxes are the result of differences between the bases of assets and liabilities for financial reporting and income tax purposes. Deferred tax assets and liabilities were comprised of the following:



	March 3, 2012			February 26, 2011
Accrued property expenses	$	146		$	154
Other accrued expenses	108			122
Deferred revenue	128			141
Compensation and benefits	103			86
Stock-based compensation	157			137
Loss and credit carryforwards	310			303
Other	121			125
Total deferred tax assets	1,073			1,068
Valuation allowance	(204		)	(212		)
Total deferred tax assets after valuation allowance	869			856
Property and equipment	(376		)	(316		)
Convertible debt	—			(79		)
Goodwill and intangibles	(118		)	(123		)
Inventory	(85		)	(25		)
Other	(27		)	(22		)
Total deferred tax liabilities	(606		)	(565		)
Net deferred tax assets	$	263		$	291

Deferred tax assets and liabilities included in our Consolidated Balance Sheets were as follows:



	March 3, 2012			February 26, 2011
Other current assets	$	226		$	261
Other assets	53			98
Other long-term liabilities	(16		)	(68		)
Net deferred tax assets	$	263		$	291

At March 3, 2012, we had total net operating loss carryforwards from international operations of $223, of which $99 will expire in various years through 2027 and the remaining amounts have no expiration. Additionally, we had acquired U.S. federal net operating loss carryforwards of $29 which expire between 2021 and 2030, and U.S. federal foreign tax credits of $58 which expire between 2015 and 2022.

At March 3, 2012, a valuation allowance of $204 had been established against certain international net operating loss carryforwards and other international deferred tax assets. The $8 decrease from February 26, 2011, is primarily due to valuation allowances on disposed operations, partially offset by valuation allowances arising in fiscal 2012.

We have not provided deferred taxes on unremitted earnings attributable to foreign operations that have been considered to be reinvested indefinitely. These earnings relate to ongoing operations and were $2,232 at March 3, 2012. It is not practicable to determine the income tax liability that would be payable if such earnings were not indefinitely reinvested.

The following table provides a reconciliation of changes in unrecognized tax benefits for fiscal 2012 and 2011:



Balance at February 27, 2010	$	393
Gross increases related to prior period tax positions	36
Gross decreases related to prior period tax positions	(90		)
Gross increases related to current period tax positions	40
Settlements with taxing authorities	—
Lapse of statute of limitations	(20		)
Balance at February 26, 2011	$	359
Gross increases related to prior period tax positions	69
Gross decreases related to prior period tax positions	(35		)
Gross increases related to current period tax positions	43
Settlements with taxing authorities	(20		)
Lapse of statute of limitations	(29		)
Balance at March 3, 2012	$	387

Unrecognized tax benefits of $239 and $233 at March 3, 2012, and February 26, 2011, respectively, would favorably impact our effective income tax rate if recognized.

We recognize interest and penalties (not included in the "unrecognized tax benefits" above), as well as interest received from favorable tax settlements, as components of income tax expense. No interest expense was recognized in fiscal 2012. At March 3, 2012, and February 26, 2011, we had accrued interest of $79 and $84, respectively. No penalties were recognized in fiscal 2012 or accrued for at March 3, 2012, and February 26, 2011, respectively.

We file a consolidated U.S. federal income tax return, as well as income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before fiscal 2004.

Because existing tax positions will continue to generate increased liabilities for us for unrecognized tax benefits over the next 12 months, and since we are routinely under audit by various taxing authorities, it is reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months. An estimate of the amount or range of such change cannot be made at this time. However, we do not expect the change, if any, to have a material effect on our consolidated financial condition, results of operations or cash flows within the next 12 months.