Income Taxes
Earnings before income taxes were $3,103 million, $4,609 million and $4,456 million during 2013, 2012 and 2011, respectively, including losses incurred by our foreign entities of ($881) million, ($309) million, and ($11) million. Our foreign entities are subject to tax outside of the U.S.
|
| | | | | | |
Tax Rate Reconciliation | 2013 |
| 2012 |
| 2011 |
|
Federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % |
State income taxes, net of the federal tax benefit | 3.1 |
| 2.0 |
| 1.0 |
|
International | 0.3 |
| (0.6 | ) | (0.7 | ) |
Other | (1.9 | ) | (1.5 | ) | (1.0 | ) |
Effective tax rate | 36.5 | % | 34.9 | % | 34.3 | % |
Certain discrete state income tax items reduced our effective tax rate by 0.5 percentage points, 1.0 percentage points, and 2.0 percentage points in 2013, 2012 and 2011, respectively.
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| | | | | | | | | |
Provision for Income Taxes (millions) | 2013 |
| 2012 |
| 2011 |
|
Current: | | | |
Federal | $ | 1,213 |
| $ | 1,471 |
| $ | 1,069 |
|
State | 148 |
| 135 |
| 74 |
|
International | 25 |
| 18 |
| 13 |
|
Total current | 1,386 |
| 1,624 |
| 1,156 |
|
Deferred: | | | |
Federal | 66 |
| 124 |
| 427 |
|
State | 2 |
| 14 |
| — |
|
International | (322 | ) | (152 | ) | (56 | ) |
Total deferred | (254 | ) | (14 | ) | 371 |
|
Total provision | $ | 1,132 |
| $ | 1,610 |
| $ | 1,527 |
|
|
| | | | | | |
Net Deferred Tax Asset/(Liability) (millions) | February 1,
2014 |
| February 2,
2013 |
|
Gross deferred tax assets: | | |
Accrued and deferred compensation | $ | 509 |
| $ | 537 |
|
Foreign operating loss carryforward | 394 |
| 189 |
|
Accruals and reserves not currently deductible | 348 |
| 352 |
|
Self-insured benefits | 231 |
| 249 |
|
Other | 193 |
| 123 |
|
Allowance for doubtful accounts and lower of cost or fair value adjustment on credit card receivables held for sale | — |
| 67 |
|
Total gross deferred tax assets | 1,675 |
| 1,517 |
|
Gross deferred tax liabilities: | | |
Property and equipment | (2,062 | ) | (1,995 | ) |
Inventory | (270 | ) | (210 | ) |
Other | (130 | ) | (133 | ) |
Deferred credit card income | — |
| (91 | ) |
Total gross deferred tax liabilities | (2,462 | ) | (2,429 | ) |
Total net deferred tax asset/(liability) | $ | (787 | ) | $ | (912 | ) |
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year the temporary differences are expected to be recovered or settled. Tax rate changes affecting deferred tax assets and liabilities are recognized in income at the enactment date.
At February 1, 2014, we had foreign net operating loss carryforwards of $1,466 million which are available to offset future income. These carryforwards are primarily related to the start-up operations of the Canadian Segment and expire between 2031 and 2033. We have evaluated the positive and negative evidence and consider it more likely than not that these carryforwards will be fully utilized prior to expiration.
We have not recorded deferred taxes when earnings from foreign operations are considered to be indefinitely invested outside the U.S. These accumulated net earnings relate to certain ongoing operations and were $77 million at February 1, 2014 and $52 million at February 2, 2013. It is not practicable to determine the income tax liability that would be payable if such earnings were repatriated.
We file a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. The U.S. Internal Revenue Service has completed exams on the U.S. federal income tax returns for years 2010 and prior. With few exceptions, we are no longer subject to state and local or non-U.S. income tax examinations by tax authorities for years before 2003.
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| | | | | | | | | |
Reconciliation of Liability for Unrecognized Tax Benefits (millions) | 2013 |
| 2012 |
| 2011 |
|
Balance at beginning of period | $ | 216 |
| $ | 236 |
| $ | 302 |
|
Additions based on tax positions related to the current year | 15 |
| 10 |
| 12 |
|
Additions for tax positions of prior years | 28 |
| 19 |
| 31 |
|
Reductions for tax positions of prior years | (57 | ) | (42 | ) | (101 | ) |
Settlements | (19 | ) | (7 | ) | (8 | ) |
Balance at end of period | $ | 183 |
| $ | 216 |
| $ | 236 |
|
If we were to prevail on all unrecognized tax benefits recorded, $120 million of the $183 million reserve would benefit the effective tax rate. In addition, the reversal of accrued penalties and interest would also benefit the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense. During the years ended February 1, 2014, February 2, 2013 and January 28, 2012, we recorded a net benefit from the reversal of accrued penalties and interest of $1 million, $16 million and $12 million, respectively. As of February 1, 2014, February 2, 2013 and January 28, 2012 total accrued interest and penalties were $58 million, $64 million and $82 million, respectively.
It is reasonably possible that the amount of the unrecognized tax benefits with respect to our other unrecognized tax positions will increase or decrease during the next twelve months; however, an estimate of the amount or range of the change cannot be made at this time.
