Income Taxes
Components of income tax expense for the fiscal years indicated were as follows (in millions):
|
| | | | | | | | | | | |
| 2017 |
| | 2016 |
| | 2015 |
|
Current federal income tax | $ | 168 |
| | $ | 223 |
| | $ | 310 |
|
Current state income tax | 58 |
| | 52 |
| | 76 |
|
Current foreign income tax | 1 |
| | (1 | ) | | (1 | ) |
Total current tax | 227 |
| | 274 |
| | 385 |
|
Deferred federal income tax | (56 | ) | | 41 |
| | (40 | ) |
Deferred state income tax | 2 |
| | 8 |
| | (2 | ) |
Deferred foreign income tax | (1 | ) | | (3 | ) | | (1 | ) |
Total deferred tax | (55 | ) | | 46 |
| | (43 | ) |
Total income tax expense | $ | 172 |
| | $ | 320 |
| | $ | 342 |
|
Actual income tax expense for the fiscal years indicated differed from the amount computed by applying statutory corporate income tax rates to income before income taxes as follows (in millions):
|
| | | | | | | | | | | |
| 2017 |
| | 2016 |
| | 2015 |
|
Federal income tax based on statutory rates | $ | 146 |
| | $ | 289 |
| | $ | 307 |
|
Increase (reduction) in income taxes resulting from: | | | | | |
Tax-exempt interest | (1 | ) | | — |
| | (1 | ) |
Excess charitable contributions | (11 | ) | | (10 | ) | | (9 | ) |
Merger transaction costs | 12 |
| | — |
| | — |
|
Federal income tax credits | (3 | ) | | (4 | ) | | (3 | ) |
Other, net | (2 | ) | | 10 |
| | 2 |
|
Total federal income taxes | 141 |
| | 285 |
| | 296 |
|
State income taxes, net of federal income tax benefit | 30 |
| | 39 |
| | 48 |
|
Tax impact of foreign operations | 1 |
| | (4 | ) | | (2 | ) |
Total income tax expense | $ | 172 |
| | $ | 320 |
| | $ | 342 |
|
Current income taxes receivable were not material at September 24, 2017 or September 25, 2016.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows (in millions):
|
| | | | | | | |
| September 24,
2017 | | September 25,
2016 |
Deferred tax assets: | | | |
Compensation-related costs | $ | 131 |
| | $ | 215 |
|
Insurance-related costs | 70 |
| | 60 |
|
Inventories | 8 |
| | 5 |
|
Lease and other termination accruals | 18 |
| | 10 |
|
Lease negotiation legal fees | 7 |
| | 7 |
|
Rent differential | 207 |
| | 189 |
|
Tax basis of fixed assets in excess of financial basis | 7 |
| | 8 |
|
Net domestic and international operating loss carryforwards | 13 |
| | 14 |
|
Accrued liabilities | 5 |
| | — |
|
Charitable contribution carryforward | 20 |
| | — |
|
Deferred revenue | 14 |
| | 13 |
|
Other | 9 |
| | — |
|
Gross deferred tax assets | 509 |
| | 521 |
|
Valuation allowance | (24 | ) | | (23 | ) |
Deferred tax assets | 485 |
| | 498 |
|
Deferred tax liabilities: | | | |
Financial basis of fixed assets in excess of tax basis | (192 | ) | | (197 | ) |
Capitalized costs expensed for tax purposes | (4 | ) | | (4 | ) |
Deferred tax liabilities | (196 | ) | | (201 | ) |
Net deferred tax asset | $ | 289 |
| | $ | 297 |
|
Deferred taxes have been classified on the Consolidated Balance Sheets as follows (in millions):
|
| | | | | | | |
| September 24,
2017 | | September 25,
2016 |
Current assets | $ | 215 |
| | $ | 197 |
|
Noncurrent assets | 74 |
| | 100 |
|
Net deferred tax asset | $ | 289 |
| | $ | 297 |
|
At September 24, 2017, the Company had international operating loss carryforwards totaling approximately $70 million, all of which have an indefinite life. The Company provided a valuation allowance totaling approximately $24 million for deferred tax assets associated with international operating loss carryforwards, federal credit carryforwards, and certain equity investments, for which management has determined it is more likely than not that the deferred tax asset will not be realized. Management believes that it is more likely than not that we will fully realize the remaining domestic deferred tax assets in the form of future tax deductions based on the nature of these deductible temporary differences and a history of profitable operations.
The Company intends to utilize earnings in foreign operations for an indefinite period of time, or to repatriate such earnings only when tax-efficient to do so. If these amounts were distributed to the United States, in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, is dependent on circumstances existing if and when remittance occurs.
The Company and its domestic subsidiaries file income tax returns with federal, state and local tax authorities within the United States. The Company’s foreign affiliates file income tax returns in Canada and the United Kingdom. The IRS of the United States completed its examination of the Company’s federal tax returns for fiscal year 2015 during the first quarter of fiscal year 2017. With limited exceptions, the Company is no longer subject to federal income tax examinations for fiscal years before 2015 and is no longer subject to state and local income tax examinations for fiscal years before 2011. Additionally, the Company entered into a Compliance Agreement Program (“CAP”) with the IRS under which the Company’s federal income tax return is reviewed and accepted by the Internal Revenue Service in conjunction with the filing of its tax return.