|12 Months Ended|
Jan. 31, 2015
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities as of the respective year-end balance sheets for The Michaels Companies, Inc. and MSI are as follows (in millions):
The reconciliation between the actual provision for income tax and the provision for income tax calculated by applying the federal statutory tax rate of 35% is as follows (in millions):
The federal, state and international provision for income tax for The Michaels Companies, Inc. and MSI are as follows (in millions):
A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized. In evaluating our ability to realize our deferred tax assets we considered sources of future taxable income, including future reversals of existing taxable temporary differences, forecast of future profitability, taxable income in prior carryback years and tax-planning strategies. The valuation allowance recorded, net of the federal benefit, against our deferred tax assets totaled $5 million and $9 million as of January 31, 2015 and February 1, 2014, respectively.
At January 31, 2015, we had state net operating loss carryforwards to reduce future taxable income of approximately $8 million, net of federal tax benefits, expiring at various dates between fiscal 2015 and fiscal 2032. Cash paid for income taxes totaled $112 million, $145 million and $108 million in fiscal 2014, fiscal 2013 and fiscal 2012, respectively.
Uncertain Tax Positions
We operate in a number of tax jurisdictions and are subject to examination of our income tax returns by tax authorities in those jurisdictions who may challenge any item on these tax returns. Because the tax matters challenged by tax authorities are typically complex, the ultimate outcome of these challenges is uncertain. In accordance with ASC 740, Income Taxes, we recognize the benefits of uncertain tax positions in our consolidated financial statements only after determining that it is more likely than not that the uncertain tax positions will be sustained.
A reconciliation of gross unrecognized tax benefits, including reduction of deferred tax assets for state operating losses, from the end of fiscal year 2013 through the end of fiscal 2014 is as follows (in millions):
Included in the balance of unrecognized tax benefits at January 31, 2015 is $5 million which, if recognized, would affect tax expense. Our policy is to classify all income-tax related interest and penalties as income tax expense. At January 31, 2015 and February 1, 2014, the total amount of interest and penalties accrued within the tax liability was $3 million and $2 million, respectively. There was no material interest and penalties recognized in the consolidated statements of comprehensive income in fiscal years 2014, 2013 and 2012.
In the normal course of business, we are subject to examination by taxing authorities in major Canadian, U.S. Federal and U.S. State jurisdictions. The periods subject to examination for our federal return are fiscal 2010 to fiscal 2014, fiscal 2007 to fiscal 2014 for our Canadian returns and fiscal 2009 to fiscal 2014 for all major state tax returns. The pretax income from foreign operations for fiscal 2014, fiscal 2013 and fiscal 2012 totaled $38 million, $39 million and $52 million, respectively.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef