Entity information:
7.
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
  
 
At
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
  
 
 
At
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
$3
to
$4
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
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 open to examination for state and local jurisdictions with varying statutes of limitations, generally ranging from
three
to
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%.