Taxes on Earnings
The provision for income taxes consisted of the following:
|
| | | | | | | | | | | | |
($000) | | 2016 |
| | 2015 |
| | 2014 |
|
Current | | | | | | |
Federal | | $ | 632,872 |
| | $ | 497,710 |
| | $ | 499,009 |
|
State | | 44,333 |
| | 37,030 |
| | 36,547 |
|
| | 677,205 |
| | 534,740 |
| | 535,556 |
|
Deferred | | | | | | |
Federal | | (8,350 | ) | | 55,404 |
| | 23,452 |
|
State | | (353 | ) | | 954 |
| | 1,634 |
|
| | (8,703 | ) | | 56,358 |
| | 25,086 |
|
Total | | $ | 668,502 |
| | $ | 591,098 |
| | $ | 560,642 |
|
In fiscal 2016, 2015, and 2014, the Company realized tax benefits of $23.3 million, $42.4 million and $29.8 million, respectively, related to employee equity programs that were recorded in additional paid-in capital.
The provision for taxes for financial reporting purposes is different from the tax provision computed by applying the statutory federal income tax rate. The differences are reconciled below:
|
| | | | | | | | | |
| | 2016 |
| | 2015 |
| | 2014 |
|
Federal income taxes at the statutory rate | | 35 | % | | 35 | % | | 35 | % |
State income taxes (net of federal benefit) and other, net | | 2 | % | | 2 | % | | 3 | % |
Total | | 37 | % | | 37 | % | | 38 | % |
The components of deferred taxes at January 28, 2017 and January 30, 2016 are as follows: |
| | | | | | | | |
($000) | | 2016 |
| | 2015 |
|
Deferred Tax Assets | | | | |
Accrued liabilities | | $ | 71,796 |
| | $ | 69,144 |
|
Deferred compensation | | 36,101 |
| | 29,932 |
|
Stock-based compensation | | 44,865 |
| | 41,388 |
|
Deferred rent | | 25,221 |
| | 23,903 |
|
State taxes and credits | | 28,484 |
| | 21,973 |
|
Employee benefits | | 23,987 |
| | 22,156 |
|
Other | | 8,223 |
| | 6,835 |
|
Gross Deferred Tax Assets | | 238,677 |
| | 215,331 |
|
Less: Valuation allowance | | (3,730 | ) | | — |
|
Deferred Tax Assets | | 234,947 |
| | 215,331 |
|
| | | | |
Deferred Tax Liabilities | | | | |
Depreciation | | (313,526 | ) | | (304,191 | ) |
Merchandise inventory | | (28,853 | ) | | (28,085 | ) |
Supplies | | (13,418 | ) | | (12,559 | ) |
Other | | (535 | ) | | (584 | ) |
Deferred Tax Liabilities | | (356,332 | ) | | (345,419 | ) |
Net Deferred Tax Liabilities | | $ | (121,385 | ) | | $ | (130,088 | ) |
At the end of fiscal 2016 and 2015, the Company's state tax credit carryforwards for income tax purposes were approximately $22.8 million and $16.1 million, respectively. The state tax credit carryforwards will begin to expire in fiscal 2019. The Company has provided a valuation allowance of $3.7 million for deferred tax assets related to state tax credits that are not expected to be realized.
The changes in amounts of unrecognized tax benefits (gross of federal tax benefits and excluding interest and penalties) at fiscal 2016, 2015, and 2014 are as follows:
|
| | | | | | | | | | | | |
($000) | | 2016 |
| | 2015 |
| | 2014 |
|
Unrecognized tax benefits - beginning of year | | $ | 75,372 |
| | $ | 78,116 |
| | $ | 80,323 |
|
Gross increases: | | | | | | |
Tax positions in current period | | 12,394 |
| | 14,990 |
| | 15,441 |
|
Tax positions in prior period | | 2,897 |
| | — |
| | — |
|
Gross decreases: | | | | | | |
Tax positions in prior periods | | (3,231 | ) | | (10,589 | ) | | (9,432 | ) |
Lapse of statute limitations | | (6,310 | ) | | (4,216 | ) | | (5,732 | ) |
Settlements | | — |
| | (2,929 | ) | | (2,484 | ) |
Unrecognized tax benefits - end of year | | $ | 81,122 |
| | $ | 75,372 |
| | $ | 78,116 |
|
At the end of fiscal 2016, 2015, and 2014, the reserves for unrecognized tax benefits were $98.6 million, $94.2 million, and $101.7 million inclusive of $17.5 million, $18.8 million, and $23.6 million of related interest and penalties, respectively. The Company accounts for interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized, $49.1 million would impact the Company’s effective tax rate. The difference between the total amount of unrecognized tax benefits and the amounts that would impact the effective tax rate relates to amounts attributable to deferred tax assets and liabilities. These amounts are net of federal and state income taxes.
It is reasonably possible that certain federal and state tax matters may be concluded or statutes of limitations may lapse during the next twelve months. Accordingly, the total amount of unrecognized tax benefits may decrease, reducing the provision for taxes on earnings by up to $4.3 million.
The Company is open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2013 through 2016. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2012 through 2016. Certain federal and state tax returns are currently under audit by various tax authorities. The Company does not expect the results of these audits to have a material impact on the consolidated financial statements.