NOTE 12: Income Taxes
The following is a reconciliation of the federal statutory tax rate to the effective tax rate:
|
| | | | | | | | |
| 2013 |
| | 2012 |
| | 2011 |
|
Statutory federal income tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
State income taxes, net of federal tax benefit | 2.9 |
| | 3.1 |
| | 2.8 |
|
Other, net | (0.1 | ) | | (0.5 | ) | | (1.1 | ) |
Effective tax rate | 37.8 | % | | 37.6 | % | | 36.7 | % |
The components of the income tax provision are as follows:
|
| | | | | | | | | | | |
(In millions) | 2013 |
| | 2012 |
| | 2011 |
|
Current: | | | | | |
Federal | $ | 1,342 |
| | $ | 1,162 |
| | $ | 891 |
|
State | 203 |
| | 155 |
| | 124 |
|
Total current | 1,545 |
| | 1,317 |
| | 1,015 |
|
Deferred: | | | |
| | |
|
Federal | (133 | ) | | (133 | ) | | 50 |
|
State | (25 | ) | | (6 | ) | | 2 |
|
Total deferred | (158 | ) | | (139 | ) | | 52 |
|
Total income tax provision | $ | 1,387 |
| | $ | 1,178 |
| | $ | 1,067 |
|
The tax effects of cumulative temporary differences that gave rise to the deferred tax assets and liabilities were as follows:
|
| | | | | | | |
(In millions) | January 31, 2014 |
| | February 1, 2013 |
|
Deferred tax assets: | | | |
Self-insurance | $ | 384 |
| | $ | 375 |
|
Share-based payment expense | 70 |
| | 73 |
|
Deferred rent | 80 |
| | 80 |
|
Net operating losses | 148 |
| | 131 |
|
Other, net | 138 |
| | 113 |
|
Total deferred tax assets | 820 |
| | 772 |
|
Valuation allowance | (164 | ) | | (142 | ) |
Net deferred tax assets | 656 |
| | 630 |
|
| | | |
Deferred tax liabilities: | | | |
|
Property | (646 | ) | | (783 | ) |
Other, net | (49 | ) | | (85 | ) |
Total deferred tax liabilities | (695 | ) | | (868 | ) |
| | | |
Net deferred tax liability | $ | (39 | ) | | $ | (238 | ) |
The Company operates as a branch in various foreign jurisdictions and cumulatively has incurred net operating losses of $547 million and $474 million as of January 31, 2014, and February 1, 2013, respectively. The net operating losses are subject to expiration in 2017 through 2033. Deferred tax assets have been established for these foreign net operating losses in the accompanying consolidated balance sheets. Given the uncertainty regarding the realization of foreign net deferred tax assets, the Company recorded cumulative valuation allowances of $164 million and $142 million at January 31, 2014, and February 1, 2013, respectively.
The Company has not provided for deferred income taxes on approximately $51 million of undistributed earnings of international subsidiaries because of its intention to indefinitely reinvest these earnings outside the U.S. It is not practicable to determine the income tax liability that would be payable on these earnings. The Company will provide for deferred or current income taxes on such earnings in the period it determines requisite to remit those earnings.
A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:
|
| | | | | | | | | | | |
(In millions) | 2013 |
| | 2012 |
| | 2011 |
|
Unrecognized tax benefits, beginning of year | $ | 63 |
| | $ | 146 |
| | $ | 165 |
|
Additions for tax positions of prior years | — |
| | 20 |
| | 11 |
|
Reductions for tax positions of prior years | — |
| | (3 | ) | | (19 | ) |
Additions based on tax positions related to the current year | — |
| | — |
| | 19 |
|
Settlements | (1 | ) | | (100 | ) | | (30 | ) |
Unrecognized tax benefits, end of year | $ | 62 |
| | $ | 63 |
| | $ | 146 |
|
The amounts of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate were $62 million and $4 million as of January 31, 2014, and February 1, 2013, respectively.
During 2013, the Company recognized $6 million of interest expense and an insignificant decrease in penalties related to uncertain tax positions. As of January 31, 2014, the Company had $6 million of accrued interest and an insignificant amount of accrued penalties. During 2012, the Company recognized $27 million of interest income and an insignificant decrease in penalties related to uncertain tax positions. As of February 1, 2013, the Company had $12 million of accrued interest and an insignificant amount of accrued penalties. During 2011, the Company recognized $8 million of interest expense and an insignificant decrease in penalties related to uncertain tax positions.
The Company is subject to examination by various foreign and domestic taxing authorities. During 2013, the Company filed amended federal and state tax returns for fiscal years 2008 through 2010 in conjunction with the resolution of items identified under the previous IRS audit cycle for tax years 2004 through 2007. The Company is currently not under audit by the IRS but continues to work on resolving various other federal items identified through the previous audit cycle. It is reasonably possible that the Company will resolve $62 million in federal and state related audit items within the next 12 months. There are ongoing U.S. state audits covering tax years 2006 to 2012. The Company’s Canadian operations are currently under audit by the Canada Revenue Agency for fiscal years 2009 and 2010. The Company remains subject to income tax examinations for international income taxes for fiscal years 2007 through 2012. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years.
