Kroger 2014 Annual Report Download - page 113

A-48
NO T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S , CO N T I N U E D
At January 31, 2015, the Company had federal capital loss carryforwards of $25. These capital loss
carryforwards expire at the end of 2015. The utilization of certain of the Company’s capital loss carryforwards
may be limited in a given year. Further, based on the analysis described below, the Company has recorded a
valuation allowance against substantially all of the deferred tax assets resulting from its capital losses.
The Company regularly reviews all deferred tax assets on a tax filer and jurisdictional basis to estimate
whether these assets are more likely than not to be realized based on all available evidence. This evidence
includes historical taxable income, projected future taxable income, the expected timing of the reversal of
existing temporary differences and the implementation of tax planning strategies. Projected future taxable
income is based on expected results and assumptions as to the jurisdiction in which the income will be
earned. The expected timing of the reversals of existing temporary differences is based on current tax law
and the Company’s tax methods of accounting. Unless deferred tax assets are more likely than not to be
realized, a valuation allowance is established to reduce the carrying value of the deferred tax asset until such
time that realization becomes more likely than not. Increases and decreases in these valuation allowances are
included in “Income tax expense” in the Consolidated Statements of Operations.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, including positions
impacting only the timing of tax benefits, is as follows:
2014 2013 2012
Beginning balance ......................................... $325 $299 $310
Additions based on tax positions related to the current year ........ 17 23 45
Reductions based on tax positions related to the current year....... (6) (10) (9)
Additions for tax positions of prior years ....................... 9 17 1
Reductions for tax positions of prior years ...................... (36) (4) (27)
Settlements............................................... (63) — (21)
Ending balance............................................ $246 $325 $299
The Company does not anticipate that changes in the amount of unrecognized tax benefits over the next
twelve months will have a significant impact on its results of operations or financial position.
As of January 31, 2015, February 1, 2014 and February 2, 2013, the amount of unrecognized tax benefits
that, if recognized, would impact the effective tax rate was $90, $98 and $70 respectively.
To the extent interest and penalties would be assessed by taxing authorities on any underpayment
of income tax, such amounts have been accrued and classified as a component of income tax expense.
During the years ended January 31, 2015, February 1, 2014 and February 2, 2013, the Company recognized
approximately $3, $10 and $(8), respectively, in interest and penalties (recoveries). The Company recorded
charges for interest and penalties of approximately $30, $41 and $33 as of January 31, 2015, February 1, 2014
and February 2, 2013, respectively.
As of January 31, 2015, the Internal Revenue Service had concluded its examination of our 2008 and
2009 federal tax returns and is currently auditing tax years 2010 through 2013. The 2010 and 2011 audits are
expected to be completed in 2015.
On September 13, 2013, the U.S. Department of the Treasury and Internal Revenue Service released
final tangible property regulations that provide guidance on the tax treatment regarding the deduction
and capitalization of expenditures related to tangible property. These regulations are effective for tax years
beginning on or after January 1, 2014 and will be implemented by the Company on its 2014 tax return to be
filed no later than October 15, 2015. The Company believes adoption of these regulations will not have an
effect on net income and will not have a material effect on the reclassification between long-term deferred tax
liabilities and current income tax liabilities.