PROVISION FOR INCOME TAXES

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

	FISCAL YEAR ENDED
(in thousands)	February 25, 2017		February 27, 2016		February 28, 2015

Current:
Federal	$	313,571	$	389,039	$	504,154
State and local		42,101		39,991		64,486
		355,672		429,030		568,640

Deferred:
Federal		20,295		42,592		(18,245	)
State and local		4,580		14,334		(4,034	)
		24,875		56,926		(22,279	)
	$	380,547	$	485,956	$	546,361

February

25,

2017

and

February

26,

2016,

included in other current assets is a net current deferred income tax asset of

$218.9

million and

$201.5

million, respectively, and included in deferred rent and other liabilities is a net noncurrent deferred income tax liability of

$23.4

million and

$2.4

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:

	February 25,			February 27,
(in thousands)	2017			2016

Deferred tax assets:
Inventories	$	33,120		$	30,470
Deferred rent and other rent credits		73,577			74,182
Insurance		60,789			51,238
Stock-based compensation		41,715			39,417
Nonqualified deferred compensation plan		27,857			21,688
Merchandise credits and gift card liabilities		63,031			66,496
Accrued expenses		57,401			46,226
Obligations on distribution facilities		40,363			40,704
Net operating loss carryforwards and other tax credits		18,186			22,253
Other		84,232			69,088

Deferred tax liabilities:
Depreciation		(137,144	)		(104,781	)
Goodwill		(69,127	)		(62,252	)
Intangibles		(82,688	)		(81,150	)
Other		(15,843	)		(14,525	)
	$	195,469		$	199,054

February

25,

2017,

the Company has federal net operating loss carryforwards of

$9.6

million (tax effected), which will begin expiring in

2025,

state net operating loss carryforwards of

$4.5

million (tax effected), which will expire between

2016

and

2031,

California state enterprise zone credit carryforwards of

$3.1

million (tax effected), which will expire in

2023,

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:

	February 25,			February 27,
(in thousands)	2017			2016

Balance at beginning of year	$	72,807		$	79,985

Increase related to current year positions		14,491			16,662
Increase related to prior year positions		413			2,104
Decrease related to prior year positions		(4,202	)		(14,698	)
Settlements		-			(5,865	)
Lapse of statute of limitations		(7,094	)		(5,381	)

Balance at end of year	$	76,415		$	72,807

Gross unrecognized tax benefits are classified in non-current income taxes payable (or a contra deferred tax asset) on the consolidated balance sheet for uncertain tax positions taken (or expected to be taken) on a tax return. As of

February

25,

2017

and

February

27,

2016,

approximately

$76.3

million and

$72.7

million, respectively, of gross unrecognized tax benefits would impact the Company’s effective tax rate. As of

February

25,

2017

and

February

27,

2016,

the liability for gross unrecognized tax benefits included approximately

$8.1

million and

$10.5

million, respectively, of accrued interest. The Company recorded a decrease of interest of approximately

$2.4

million and

$2.5

million, respectively, for the years ended

February

25,

2017

and

February

27,

2016

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

million in the next

twelve

months. However, actual results could differ from those currently anticipated.

As of

February

25,

2017,

the Company operated in all

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 open to examination for state and local jurisdictions with varying statutes of limitations, generally ranging from

three

five

years.

For fiscal

2016,

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

3.25%,

provision for uncertain tax positions of

0.28%

and other income tax benefits of

2.82%.

For fiscal

2015,

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

3.07%,

provision for uncertain tax positions of

0.07%

and other income tax benefits of

1.53%.

For fiscal

2014,

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

3.01%,

provision for uncertain tax positions of

0.04%

and other income tax benefits of

1.72%.