Income Taxes

12 Months Ended

Feb. 03, 2024

Income Taxes [Abstract]

Income Taxes

11.   Income Taxes

Reconciliations of the federal statutory income tax rate to income tax expense were as follows ($ in millions):

	2024			2023			2022
Federal income tax at the statutory rate	$	340		$	376		$	635
State income taxes, net of federal benefit		57			63			88
Change in unrecognized tax benefits		(6)			(45)			(88)
Benefit from foreign operations		(8)			(4)			(8)
Other		(2)			(20)			(53)
Income tax expense	$	381		$	370		$	574
Effective income tax rate		23.5	%		20.7	%		19.0	%

Earnings before income tax expense and equity in income of affiliates by jurisdiction were as follows ($ in millions):

	2024		2023		2022
United States	$	1,389	$	1,533	$	2,677
Foreign		232		255		347
Earnings before income tax expense and equity in income of affiliates	$	1,621	$	1,788	$	3,024

Income tax expense (benefit) was comprised of the following ($ in millions):

	2024		2023		2022
Current:
Federal	$	452	$	213	$	367
State		104		64		132
Foreign		39		42		61
		595		319		560
Deferred:
Federal		(177)		33		22
State		(37)		19		(9)
Foreign		-		(1)		1
		(214)		51		14
Income tax expense	$	381	$	370	$	574

Deferred taxes are the result of differences between the bases of assets and liabilities for financial reporting and income tax purposes. Deferred tax assets and liabilities were comprised of the following ($ in millions):

	February 3, 2024		January 28, 2023
Deferred revenue	$	127	$	67
Compensation and benefits		91		41
Stock-based compensation		32		29
Other accrued expenses		45		47
Operating lease liabilities		730		729
Loss and credit carryforwards		173		161
Other		42		43
Total deferred tax assets		1,240		1,117
Valuation allowance		(175)		(150)
Total deferred tax assets after valuation allowance		1,065		967
Inventory		(45)		(37)
Property and equipment		(49)		(169)
Operating lease assets		(701)		(698)
Goodwill and intangibles		(81)		(71)
Other		(22)		(39)
Total deferred tax liabilities		(898)		(1,014)
Net deferred tax assets (liabilities)	$	167	$	(47)

Deferred taxes were presented as follows ($ in millions):

Balance Sheet Location	February 3, 2024		January 28, 2023
Other assets	$	167	$	4
Long-term liabilities		-		(51)
Net deferred tax assets (liabilities)	$	167	$	(47)

As of February 3, 2024, we had deferred tax assets for net operating loss carryforwards from international operations of $118 million, of which $32 million will expire in various years through 2040 and the remaining amounts have no expiration; acquired U.S. federal net operating loss carryforwards of $5 million, of which $2 million will expire in various years between 2025 and 2029 and the remaining amounts have no expiration; U.S. federal foreign tax credit carryforwards of $29 million, which will expire between 2025 and 2034; state credit carryforwards of $2 million, which will expire between 2025 and 2033; state net operating loss carryforwards of $10 million, which will expire between 2025 and 2044; international credit carryforwards of $1 million, which have no expiration; and international capital loss carryforwards of $8 million, which have no expiration.

As of February 3, 2024, a valuation allowance of $175 million had been established, of which $29 million is against U.S. federal foreign tax credit carryforwards, $14 million is against international, federal and state capital loss carryforwards, $124 million is against international and state net operating loss carryforwards, $1 million is against international and state credit carryforwards, and $7 million is against other foreign deferred tax assets. The increase in fiscal 2024 was primarily due to current year loss activity from international net operating loss carryforwards, and the set-up of additional valuation allowances against U.S. federal foreign tax credit and capital loss carryforwards and certain foreign deferred tax assets. These increases were partially offset by disposals and releases relating to certain international net operating loss carryforwards.

Reconciliations of changes in unrecognized tax benefits were as follows ($ in millions):

(1)

(1)

	2024		2023		2022
Balances at beginning of period	$	163	$	235	$	327
Gross increases related to prior period tax positions		10		28		3
Gross decreases related to prior period tax positions(1)		(11)		(75)		(103)
Gross increases related to current period tax positions		20		21		28
Settlements with taxing authorities		(3)		-		(7)
Lapse of statute of limitations		(39)		(46)		(13)
Balances at end of period	$	140	$	163	$	235

(1)Represents multi-jurisdiction, multi-year resolutions of certain discrete tax matters.

Unrecognized tax benefits of $121 million, $141 million and $214 million as of February 3, 2024, January 28, 2023, and January 29, 2022, respectively, would favorably impact our effective income tax rate if recognized.

We recognize interest and penalties (not included in the “unrecognized tax benefits” above), as well as interest received from favorable tax settlements, as components of income tax expense. Interest expense of $3 million, interest income of $6 million and interest income of $20 million was recognized in fiscal 2024, fiscal 2023 and fiscal 2022, respectively. As of February 3, 2024, January 28, 2023, and January 29, 2022, we had accrued interest of $43 million, $42 million and $46 million, respectively.

We file a consolidated U.S. federal income tax return, as well as income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by taxing authorities for years before fiscal 2014.

Changes in state, federal and foreign tax laws may increase or decrease our tax contingencies. The timing of the resolution of income tax examinations and controversies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next twelve months we will receive additional assessments by various taxing authorities or reach resolutions of income tax examinations or controversies in one or more jurisdictions. These assessments, resolutions or law changes could result in changes to our gross unrecognized tax benefits. The actual amount of any changes could vary significantly depending on the ultimate timing and nature of any assessments, resolutions or law changes. An estimate of the amount or range of such changes cannot be made at this time.