Income Taxes

12 Months Ended

Feb. 01, 2013

Income Taxes

Income Taxes

NOTE 11: Income Taxes

The following is a reconciliation of the federal statutory tax rate to the effective tax rate:

	2012		2011		2010
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	3.1		2.8		3.0
Other, net	(0.5)		(1.1)		(0.3)
Effective tax rate	37.6	%	36.7	%	37.7	%

The components of the income tax provision are as follows:

(In millions)		2012		2011		2010
Current:
Federal	$	1,162	$	891	$	1,171
State		155		124		188
Total current		1,317		1,015		1,359
Deferred:
Federal		(133)		50		(117)
State		(6)		2		(24)
Total deferred		(139)		52		(141)
Total income tax provision	$	1,178	$	1,067	$	1,218

The tax effects of cumulative temporary differences that gave rise to the deferred tax assets and liabilities were as follows:

(In millions)		February 1, 2013		February 3, 2012
Deferred tax assets:
Self-insurance	$	375	$	316
Share-based payment expense		73		105
Deferred rent		80		80
Net operating losses		131		100
Other, net		113		121
Total deferred tax assets		772		722
Valuation allowance		(142)		(101)
Net deferred tax assets		630		621
Deferred tax liabilities:
Property		(783)		(903)
Other, net		(85)		(66)
Total deferred tax liabilities		(868)		(969)
Net deferred tax liability	$	(238)	$	(348)

The Company operates as a branch in various foreign jurisdictions and cumulatively has incurred net operating losses of $474 million and $379 million as of February 1, 2013, and February 3, 2012, respectively. The net operating losses are subject to expiration in 2017 through 2032. 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 $142 million and $101 million atFebruary 1, 2013, and February 3, 2012, respectively.

The Company has not provided for deferred income taxes on approximately $36 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.

A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:

(In millions)		2012		2011		2010
Unrecognized tax benefits, beginning of year	$	146	$	165	$	154
Additions for tax positions of prior years		20		11		22
Reductions for tax positions of prior years		(3)		(19)		(19)
Additions based on tax positions related to the current year		-		19		9
Settlements		(100)		(30)		(1)
Unrecognized tax benefits, end of year	$	63	$	146	$	165

The amounts of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate were $4 million and $10 million as of February 1, 2013, and February 3, 2012, respectively.

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 $8million of interest expense and an insignificant decrease in penalties related to uncertain tax positions. As of February 3, 2012, the Company had $27 million of accrued interest and an insignificant amount of accrued penalties. During 2010, the Company recognized $7million of interest expense and an insignificant increase in penalties related to uncertain tax positions.

The Company is subject to examination by various foreign and domestic taxing authorities. During 2012, the Company reached asettlement with the IRS for the exam periods 2004 through 2007.The Company is working to resolve federal items identified under the previous audit cycles for fiscal years 2008 through 2011. However, the Company does not believe that these items, as well as the resultant state impact, will be determined within the next 12 months. It is reasonably possible that the Company will resolve $4 million in state related audit items, within the next 12 months. There are also ongoing U.S. state audits covering tax years 2004 to 2011. The Company's Canadian operations are currently under audit by the Canada Revenue Agency for fiscal years 2008 and 2009. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years.