Staples 2013 Annual Report Download - page 157

STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
C-26
The provision (benefit) for income taxes related to continuing operations consists of the following (in thousands):
2013 2012 2011
Current tax expense:
Federal $ 192,875 $ 240,230 $ 253,078
State 36,818 43,661 59,877
Foreign 21,322 30,231 159,872
Deferred tax expense (benefit):
Federal 72,721 77,824 75,233
State 5,551 5,837 (4,666)
Foreign 26,514 28,487 (66,147)
Total income tax expense $ 355,801 $ 426,270 $ 477,247
See Note D - Divestitures for the losses from discontinued operations before income taxes and related income taxes
reported in 2013, 2012 and 2011. All pre-tax income presented in discontinued operations is related to foreign operations.
A reconciliation of the federal statutory tax rate to Staples' effective tax rate on income from continuing operations is
as follows:
2013 2012 2011
Federal statutory rate 35.0% 35.0% 35.0%
State effective rate, net of federal benefit 2.6 12.1 2.6
Effect of foreign taxes (7.8)(3.3)(5.1)
Tax credits (0.4)(0.8)(0.5)
Italian tax refund (previously deemed uncollectible) — — (1.4)
Goodwill impairment — 82.5 —
Change in valuation allowance 3.8 37.1 0.5
Other 0.3 (2.0) 1.5
Effective tax rate 33.5% 160.6% 32.6%
The effective tax rate in any year is impacted by the geographic mix of earnings. Additionally, certain foreign operations
are subject to both U.S. and foreign income tax regulations, and as a result, income before tax by location and the components of
income tax expense by taxing jurisdiction are not directly related. The 2012 effective tax rate was unfavorably impacted by the
goodwill impairment charges recorded in 2012 relating to the Company's Europe Retail and Europe Catalog reporting units (see
Note C - Goodwill and Long-Lived Assets).
The tax impact of the unrealized gain or loss on instruments designated as hedges of net investments in foreign subsidiaries
is reported in accumulated other comprehensive loss in stockholders' equity.
The Company operates in multiple jurisdictions and could be subject to audit in these jurisdictions. These audits can
involve complex issues that may require an extended period of time to resolve and may cover multiple years. In the Company's
opinion, an adequate provision for income taxes has been made for all years subject to audit.
Income tax payments were $265.9 million, $402.9 million and $308.9 million during 2013, 2012 and 2011, respectively.
Income taxes have not been provided on the undistributed earnings of the Company's foreign subsidiaries presented in
continuing operations of approximately $604 million 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.
Uncertain Tax Positions
At February 1, 2014, the Company had $281.0 million of gross unrecognized tax benefits, of which $266.0 million, if
recognized, would affect the Company's tax rate. At February 2, 2013, the Company had $254.7 million of gross unrecognized
tax benefits, of which $242.9 million, if recognized, would affect the Company's tax rate. The Company does not reasonably
expect any material changes to the estimated amount of liability associated with its uncertain tax positions through fiscal 2014.