Staples 2014 Annual Report Download - page 157

APPENDIX C
STAPLES C-25
STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The provision (benefit) for income taxes related to continuing operations consists of the following (in thousands):
2014 2013 2012
Current tax expense:
Federal $117,316 $192,875 $240,230
State 36,136 36,818 43,661
Foreign 28,701 21,322 30,231
Deferred tax expense (benefit):
Federal (52,182) 72,721 77,824
State (8,693) 5,551 5,837
Foreign 12,331 26,514 28,487
Total income tax expense $133,609 $355,801 $426,270
See Note D - Divestitures for the losses from discontinued
operations before income taxes and related income taxes
reported in 2013 and 2012. 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:
2014 2013 2012
Federal statutory rate 35.0% 35.0% 35.0%
State effective rate, net of federal benefit (1.6) 2.3 12.1
Effect of foreign taxes (22.3) (9.9) (11.3)
Tax credits (1.5) (0.4) (0.8)
Changes in uncertain tax positions (13.7) 2.4 8.0
Goodwill impairment 44.1 — 82.5
Change in valuation allowance 12.5 3.8 37.1
Other (2.7) 0.3 (2.0)
Effective tax rate 49.8% 33.5% 160.6%
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 2014 and 2012 effective tax rates were unfavorably
impacted by the goodwill impairment charges recorded in 2014
and 2012 (see Note C - Goodwill and Long-Lived Assets). The
2014 effective tax rate was favorably impacted by changes
in uncertain tax positions. 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 $203.6 million, $265.9 million and
$402.9 million during 2014, 2013 and 2012, respectively.
During 2014, the Company repatriated $127.3 million of cash
held by a foreign subsidiary, and as a result recorded income
tax expense of $11.2 million in 2014 related to the net tax cost
in the U.S. stemming from the repatriation. As of January 31,
2015, the Company had $835 million of undistributed earnings.
It is the Company’s intention to indefinitely reinvest the majority
of the undistributed earnings outside of the U.S., and for
jurisdictions not deemed indefinitely reinvested there would
be no incremental tax due upon remittance. Accordingly,
deferred income taxes have not been provided for these
funds. 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 January 31, 2015, the Company had $216.0 million of
gross unrecognized tax benefits, of which $207.6 million, if
recognized, would affect the Company’s tax rate. 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. The Company does not
reasonably expect any material changes to the estimated
amount of liability associated with its uncertain tax positions
through fiscal 2015.