(continued) Note E—Income Taxes At August 30, 2003, the Company had net operating loss carryforwards (NOLs) for federal income tax purposes of approximately $27.5  million that expire in years 2007 through 2017. These carryforwards resulted from the Company’s acquisition of ADAP, Inc. (which had been doing business as “Auto Palace”) in fiscal 1998. The use of the federal tax NOLs is subject to annual limitations. A valuation allowance of $8.6 million in fiscal 2003 and $8.7 million in fiscal 2002 relates to these carryforwards. In addition, some of the Company’s subsidiaries have state income tax NOLs that expire in years 2004 through 2022. These state NOLs resulted from the Company’s acquisition of Chief Auto Parts Inc. and ADAP, Inc. The use of the NOLs is limited to future taxable earnings of these subsidiaries and may be subject to annual limitations. Valuation allowances of $5.7 million in fiscal 2003 and fiscal 2002 relate to these carryforwards. The following table presents a reconciliation of the provision for income taxes to the amount computed by applying the federal statutory tax rate of 35% to income before income taxes. Significant components of the Company’s deferred tax assets and liabilities were as follows: Year Ended August 30, August 31, (in thousands) 2003 2002 Net deferred tax assets: Net operating loss and credit carryforwards $ 29,181 $ 25,590 Insurance reserves 29,319 25,930 Warranty reserves 28,786 30,660 Closed store reserves 10,321 20,398 Inventory — 4,108 Minimum pension liability 18,072 — Other 6,236 12,847 Total deferred tax assets 121,915 119,533 Less: Valuation allowance (14,329) (14,367) Net deferred tax assets 107,586 105,166 Deferred tax liabilities: Property and equipment 23,401 6,218 Inventory 27,997 — Derivatives 15,710 — Other 10,939 6,070 Deferred tax liabilities 78,047 12,288 Net deferred tax assets $ 29,539 $ 92,878 40 Year Ended August 30, August 31, August 25, (in thousands) 2003 2002 2001 Expected tax at statutory rate $291,552 $241,902 $100,459 State income taxes, net 22,665 17,123 6,072 Other 1,186 3,975 4,969 $315,403 $263,000 $111,500 Year Ended August 30, August 31, August 25, (in thousands) 2003 2002 2001 Current: Federal $219,699 $210,457 $144,538 State 30,003 24,060 13,943 249,702 234,517 158,481 Deferred: Federal 60,835 26,200 (42,380) State 4,866 2,283 (4,601) 65,701 28,483 (46,981) $315,403 $263,000 $111,500 The provision for income tax expense for each of the last three fiscal years consisted of the following: Notes to Consolidated Financial Statements