Staples 2012 Annual Report Download - page 100

B-4
STAPLES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
information regarding the restructuring charges recorded in 2012, see Note B Restructuring Charges in the Notes to the Consolidated
Financial Statements.
Amortization of Intangibles: Amortization of intangibles was $78.9 million for 2012 compared to $64.9 million for 2011,
primarily reflecting the amortization of Corporate Express related tradenames and customer relationships. Amortization for 2012
includes $20.0 million of accelerated amortization related to a strategic decision to rebrand our Australian business from the
Corporate Express tradename to the Staples tradename as we continue to move towards one global brand. Prior to the decision to
rebrand this business, the carrying value of the tradename was scheduled to be amortized through the end of our fiscal year 2014.
Amortization of intangibles resulting from our acquisition of Corporate Express, excluding the accelerated amortization, was $48.7
million for 2012 compared to $53.1 million for 2011.
Interest Income: Interest income decreased to $5.3 million for 2012 from $7.4 million for 2011. This decrease was
primarily due to lower global weighted average interest rates, partially offset by higher cash balances internationally.
Interest Expense: Interest expense decreased to $162.5 million for 2012 from $173.4 million for 2011. This decrease
was primarily due to a reduction in debt balances resulting from the repayment of the $500 million, 7.75% Notes (the “April 2011
Notes”) on April 1, 2011, the repayment of the $325 million, 7.375% Notes (the "October 2012 Notes") on October 1, 2012 and
the repayment or refinancing of certain debt and liquidity facilities in 2011. Our interest rate swap agreements reduced interest
expense by $21.0 million in 2012 and by $26.3 million for 2011.
Loss on Early Extinguishment of Debt: In January 2013, the Company repurchased approximately $632.8 million of the
January 2014 Notes (see Note H - Debt and Credit Agreements in the Notes to the consolidated financial statements) pursuant to
a cash tender offer. As a result of this tender offer, the Company incurred a pre-tax loss on early extinguishment of debt of $57.0
million in 2012, related to debt tender premiums and fees.
Other Income (Expense), Net: Other expense was $30.5 million for 2012 compared to $3.1 million for 2011. The expense
in 2012 was primarily driven by a $26.2 million charge related to the termination of our joint venture arrangement in India.
Income Taxes: Our tax rate related to continuing operations was 160.6% in 2012 compared to 32.6% for 2011. The high
effective tax rate for 2012 reflects the fact that we incurred charges of $811.0 million for goodwill and long-lived asset impairment,
$207.0 million related to restructuring activities, and $26.2 million related to the termination of our joint venture arrangement in
India, the majority of which do not result in a related income tax benefit. Our tax rate in 2012 also reflects additional tax expense
related to establishing valuation allowances for previously recorded deferred tax assets as a result of the closure of certain operations
in our Europe Retail and Europe Catalog reporting units. Excluding the impact of these items, our effective tax rate was 32.5%
in 2012. Our tax rate in 2011 reflected a tax benefit of $20.8 million related to a refund due to Corporate Express from the Italian
government that was previously deemed uncollectible, which was recorded as a discrete item. Excluding the impact of this benefit,
our effective tax rate in 2011 was 34.0%. See the non-GAAP reconciliations under the "Non-GAAP Measures" section above.
A reconciliation of the federal statutory tax rate to our effective tax rate on historical net income is as follows:
2012 2011
Federal statutory rate 35.0 % 35.0 %
State effective rate, net of federal benefit 12.1 % 2.6 %
Effect of foreign taxes (3.3)% (5.1)%
Tax credits (0.8)% (0.5)%
Italian tax refund (previously deemed uncollectible) — % (1.4)%
Goodwill impairment 82.5 % — %
Change in valuation allowance 37.1 % 0.5 %
Other (2.0)% 1.5 %
Effective tax rate 160.6 % 32.6 %
The effective tax rate in any year is impacted by the geographic mix of earnings. The earnings generated primarily by
Staples in Australia, Canada, Hong Kong and the Netherlands contribute to the foreign tax rate differential noted above. Income
taxes have not been provided on certain undistributed earnings of foreign subsidiaries of approximately $902.0 million, net of the
noncontrolling interest, because such earnings are considered to be 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.