INCOME TAXES
The components of Earnings before Provision for Income Taxes for fiscal 2013, 2012 and 2011 were as follows (amounts in millions):
|
| | | | | | | | | | | |
| Fiscal Year Ended |
| February 2,
2014 | | February 3,
2013 | | January 29,
2012 |
United States | $ | 7,770 |
| | $ | 6,677 |
| | $ | 5,508 |
|
Foreign | 697 |
| | 544 |
| | 560 |
|
Total | $ | 8,467 |
| | $ | 7,221 |
| | $ | 6,068 |
|
The Provision for Income Taxes consisted of the following (amounts in millions):
|
| | | | | | | | | | | |
| Fiscal Year Ended |
| February 2,
2014 | | February 3,
2013 | | January 29,
2012 |
Current: | | | | | |
Federal | $ | 2,503 |
| | $ | 2,060 |
| | $ | 1,566 |
|
State | 346 |
| | 302 |
| | 234 |
|
Foreign | 265 |
| | 230 |
| | 150 |
|
| 3,114 |
| | 2,592 |
| | 1,950 |
|
Deferred: | | | | | |
Federal | (12 | ) | | 114 |
| | 199 |
|
State | 4 |
| | 1 |
| | 35 |
|
Foreign | (24 | ) | | (21 | ) | | 1 |
|
| (32 | ) | | 94 |
| | 235 |
|
Total | $ | 3,082 |
| | $ | 2,686 |
| | $ | 2,185 |
|
The Company’s combined federal, state and foreign effective tax rates for fiscal 2013, 2012 and 2011 were approximately 36.4%, 37.2% and 36.0%, respectively.
The reconciliation of the Provision for Income Taxes at the federal statutory rate of 35% to the actual tax expense for the applicable fiscal years was as follows (amounts in millions): |
| | | | | | | | | | | |
| Fiscal Year Ended |
| February 2,
2014 | | February 3,
2013 | | January 29,
2012 |
Income taxes at federal statutory rate | $ | 2,964 |
| | $ | 2,527 |
| | $ | 2,125 |
|
State income taxes, net of federal income tax benefit | 227 |
| | 197 |
| | 175 |
|
Other, net | (109 | ) | | (38 | ) | | (115 | ) |
Total | $ | 3,082 |
| | $ | 2,686 |
| | $ | 2,185 |
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of February 2, 2014 and February 3, 2013 were as follows (amounts in millions):
|
| | | | | | | |
| February 2,
2014 | | February 3,
2013 |
Assets: | | | |
Deferred compensation | $ | 252 |
| | $ | 265 |
|
Accrued self-insurance liabilities | 447 |
| | 459 |
|
State income taxes | 117 |
| | 97 |
|
Non-deductible reserves | 275 |
| | 285 |
|
Capital loss carryover | 104 |
| | 104 |
|
Net operating losses | 66 |
| | 71 |
|
Impairment of investment | 120 |
| | 120 |
|
Other | 281 |
| | 174 |
|
Total Deferred Tax Assets | 1,662 |
| | 1,575 |
|
Valuation Allowance | (26 | ) | | (27 | ) |
Total Deferred Tax Assets after Valuation Allowance | 1,636 |
| | 1,548 |
|
| | | |
Liabilities: | | | |
Inventory | (97 | ) | | (92 | ) |
Property and equipment | (1,236 | ) | | (1,194 | ) |
Goodwill and other intangibles | (150 | ) | | (112 | ) |
Other | (138 | ) | | (128 | ) |
Total Deferred Tax Liabilities | (1,621 | ) | | (1,526 | ) |
Net Deferred Tax Assets | $ | 15 |
| | $ | 22 |
|
Current deferred tax assets and current deferred tax liabilities are netted by tax jurisdiction and noncurrent deferred tax assets and noncurrent deferred tax liabilities are netted by tax jurisdiction, and are included in the accompanying Consolidated Balance Sheets as follows (amounts in millions):
|
| | | | | | | |
| February 2,
2014 | | February 3,
2013 |
Other Current Assets | $ | 482 |
| | $ | 313 |
|
Other Assets | 49 |
| | 30 |
|
Other Accrued Expenses | (2 | ) | | (2 | ) |
Deferred Income Taxes | (514 | ) | | (319 | ) |
Net Deferred Tax Assets | $ | 15 |
| | $ | 22 |
|
The Company believes that the realization of the deferred tax assets is more likely than not, based upon the expectation that it will generate the necessary taxable income in future periods, and except for certain net operating losses discussed below, no valuation reserves have been provided.
At February 2, 2014, the Company had state and foreign net operating loss carryforwards available to reduce future taxable income, expiring at various dates beginning 2014 to 2033. Management has concluded that it is more likely than not that the tax benefits related to the state net operating losses will be realized. However, it is unlikely that the Company will be able to utilize certain foreign net operating losses. Therefore, a valuation allowance has been provided to reduce the deferred tax asset related to foreign net operating losses to an amount that is more likely than not to be realized. Total valuation allowances related to net operating losses at February 2, 2014 and February 3, 2013 were $26 million and $27 million, respectively.
In fiscal 2011, the Company was able to utilize a portion of its capital loss carryforward. This utilization combined with other available tax planning strategies enabled the Company to release its $45 million valuation allowance associated with the capital loss carryforward.
The Company has not provided for deferred income taxes on approximately $3.1 billion of undistributed earnings of international subsidiaries because of its intention to indefinitely reinvest these earnings outside the U.S. The determination of the amount of the unrecognized deferred income tax liability related to the undistributed earnings is not practicable; however, unrecognized foreign income tax credits would be available to reduce a portion of this liability.
The Company’s income tax returns are routinely examined by domestic and foreign tax authorities. The Company is currently appealing certain proposed Internal Revenue Service examination adjustments for fiscal years 2005 through 2007. The Company's U.S. federal tax returns for fiscal years 2008 through 2011 are currently under examination by the IRS. There are also ongoing U.S. state and local and other foreign audits covering tax years 2005 through 2012. The Company does not expect the results from any income tax audit to have a material impact on the Company’s financial statements.
Over the next twelve months, it is reasonably possible that the resolution of federal and state tax examinations could reduce the Company's unrecognized tax benefits by $82 million. Final settlement of these audit issues may result in payments that are more or less than this amount, but the Company does not anticipate the resolution of these matters will result in a material change to its consolidated financial position or results of operations.
Reconciliations of the beginning and ending amount of gross unrecognized tax benefits for fiscal 2013, 2012 and 2011 were as follows (amounts in millions):
|
| | | | | | | | | | | |
| February 2,
2014 | | February 3,
2013 | | January 29,
2012 |
Unrecognized tax benefits balance at beginning of fiscal year | $ | 638 |
| | $ | 621 |
| | $ | 662 |
|
Additions based on tax positions related to the current year | 160 |
| | 37 |
| | 37 |
|
Additions for tax positions of prior years | 52 |
| | 92 |
| | 56 |
|
Reductions for tax positions of prior years | (41 | ) | | (15 | ) | | (123 | ) |
Reductions due to settlements | (12 | ) | | (94 | ) | | (4 | ) |
Reductions due to lapse of statute of limitations | (7 | ) | | (3 | ) | | (7 | ) |
Unrecognized tax benefits balance at end of fiscal year | $ | 790 |
| | $ | 638 |
| | $ | 621 |
|
The amount of unrecognized tax benefits that if recognized would affect the annual effective income tax rate on Net Earnings was $344 million, $314 million and $246 million as of February 2, 2014, February 3, 2013 and January 29, 2012, respectively.
Net adjustments to accruals for interest and penalties associated with uncertain tax positions resulted in expense of $7 million and $15 million in fiscal 2013 and 2012, respectively, and provided income of $2 million in fiscal 2011. Total accrued interest and penalties as of February 2, 2014 and February 3, 2013 were $101 million and $97 million, respectively. Interest and penalties are included in Interest Expense and SG&A, respectively, in the accompanying Consolidated Statements of Earnings.
