Staples 2014 Annual Report Download - page 158

APPENDIX C
C-26 STAPLES Form 10-K
STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The following summarizes the activity related to the Company’s unrecognized tax benefits, including those related to discontinued
operations (in thousands):
2014 2013 2012
Balance at beginning of fiscal year $280,959 $254,724 $250,397
Additions for tax positions related to current year 21,695 28,390 39,989
Additions for tax positions of prior years 36,522 4,350 11,058
Reductions for tax positions of prior years (87,995) — —
Reduction for statute of limitations expiration (17,236) (6,240) (30,116)
Settlements (17,984) (265) (16,604)
Balance at end of fiscal year $215,961 $280,959 $254,724
The decline in the liability for unrecognized tax benefits during
2014 reflects, in part, a $69.1 million net reduction in the
liability for discrete items, partially offset by a net increase to
the reserve related to current year activity that impacted the
Company’s income tax rate. The primary driver of this net
reduction was the resolution of federal and foreign audits. The
federal audit primarily pertained to the utilization of certain net
operating loss carryforwards that the Company acquired by
virtue of its acquisition of Corporate Express.
Staples is subject to U.S. federal income tax, as well as
income tax of multiple state and foreign jurisdictions. The
Company has substantially concluded all U.S. federal income
tax matters for years through 2008. All material state, local and
foreign income tax matters for years through 2002 have been
substantially concluded.
Staples’ continuing practice is to recognize interest and
penalties related to income tax matters in income tax expense.
The Company recognized interest and penalties related to
income tax matters of $2.3 million, $9.1 million and $7.2 million
in 2014, 2013 and 2012, respectively. The Company had
$49.0 million and $46.7 million accrued for gross interest
and penalties as of January 31, 2015 and February 1, 2014,
respectively.
NOTE K — EQUITY BASED EMPLOYEE BENEFIT PLANS
Staples offers its associates share ownership through certain
equity-based employee compensation and benefit plans. In
connection with these plans, Staples recognized approximately
$64.1 million, $80.6 million and $117.8 million of compensation
expense for 2014, 2013 and 2012, respectively. The total
income tax benefit related to stock-based compensation
was $17.8 million, $22.7 million, $36.0 million for 2014, 2013
and 2012, respectively. As of January 31, 2015, Staples had
$71.6 million of unamortized stock compensation expense
associated with its equity-based plans, which will be expensed
over a weighted-average period of 1.5 years.
Stock Award Plan
Under the 2014 Stock Incentive Plan, the Company may
grant restricted stock and restricted stock units (collectively,
“Restricted Shares”) and non-qualified stock options to
associates. Prior to June 2014, Restricted Shares and non-
qualified stock options were granted under the Company’s
Amended and Restated 2004 Stock Incentive Plan. Shares
issued pursuant to restricted stock awards are restricted in
that they are not transferable until they vest. Shares underlying
awards of restricted stock units are not issued until the units
vest. Non-qualified stock options cannot be exercised until they
vest. For stock awards with service conditions only, vesting
occurs over different periods, depending on the terms of the
individual award, but expenses relating to these awards are
recognized on a straight line basis over the applicable vesting
period. For awards that include performance conditions,
the Company recognizes compensation expense during
the performance period to the extent achievement of the
performance condition is deemed probable relative to targeted
performance. A change in the Company’s estimate of the
probable outcome of a performance condition is accounted
for in the period of the change by recording a cumulative
catch-up adjustment.
Performance Shares
In April 2013 and March 2014, the Company entered into
long-term performance share agreements with certain
executives. Payout under these arrangements may range from
25% to 200% of target, depending on actual performance.
Vesting is based on performance in each fiscal year, not
cumulative performance, with metrics established within
the first 90 days of each year. Any award earned based on
performance will be increased or decreased by 25% if the
Company’s cumulative total shareholder return (“TSR”) over
the three year performance period is in the top or bottom
one-third of the S&P 500 TSR, respectively. Shares earned,
if any, will be issued on a fully-vested basis at the conclusion
of the three-year performance period only if the grantee is
still actively employed by or serving as a consultant to the
Company at that time, with certain exceptions for retirement,
death, disability, and termination without cause.