Staples 2003 Annual Report Download - page 84

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STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE I Income Taxes (Continued)
The provision for income taxes consists of the following (in thousands):
Fiscal Year Ended
February 1, February 2, February 2,
2003 2002 2001
Current tax expense:
Federal ....................................... $155,421 $172,875 $101,147
State ......................................... 22,203 45,594 26,674
Foreign ....................................... 38,113 27,776 35,919
215,737 246,245 163,740
Deferred tax expense (benefit) ........................ 226 (80,370) 20,733
Total ........................................... $215,963 $165,875 $184,473
A reconciliation of the federal statutory tax rate to Staples’ effective tax rate on historical net income is as follows:
Fiscal Year Ended
February 1, February 2, February 3,
2003 2002 2001
Federal statutory rate ............................... 35.0% 35.0% 35.0%
State statutory rate, net of federal benefit ................ 5.0 5.0 5.0
Goodwill ........................................ 0.0 0.5 1.8
Impaired assets ................................... (4.4) 0.0 33.8
Other .......................................... (3.0) (2.0) 0.0
Effective tax rate .................................. 32.6% 38.5% 75.6%
The effective income tax rate in 2002 declined to 37.0% net of the impaired asset, primarily reflecting the increase in
international activity taxed at lower rates.
The tax benefit recorded in fiscal 2002 and the corresponding charge in 2000 for impaired assets relates to the tax
deductibility of losses arising from the disposition of Staples Communications. In 2000, the Company recorded an
impairment charge related to the goodwill and fixed assets of Staples Communications. As management was not certain
of the ultimate deductibility of these losses no corresponding tax benefit was recognized. In 2002, the Company received
approval from the Internal Revenue Service to take an ordinary deduction for the Company’s investment in, and
advances to, Staples Communications. This deduction was recorded as a tax benefit in fiscal 2002.
Income tax payments were $189 million, $169 million and $132 million during fiscal years ended February 1, 2003,
February 2, 2002 and February 3, 2001, respectively.
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $124.5 million as of
February 1, 2003. The Company has not provided any additional federal or state income taxes or foreign withholding
taxes on the undistributed earnings as such earnings have been indefinitely reinvested in the business. The determination
of the amount of the unrecognized deferred tax liability related to the undistributed earnings is not practicable because
of the complexities associated with its hypothetical calculation.
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