Staples 2015 Annual Report Download - page 107

APPENDIX B
STAPLES B-4
STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (continued)
in the Notes to the Consolidated Financial Statements for
additional information). Selling, general and administrative
expenses also reflects accelerated depreciation of $5 million in
2015 and $9 million in 2014 primarily related to our initiatives to
improve efficiencies in our North American delivery fulfillment
operations. As a percentage of sales, selling, general and
administrative expenses were 21.8% in 2015 compared to
21.4% for 2014.
Impairment of Goodwill and Long-Lived Assets: See
Note C - Goodwill and Long-Lived Assets in the Notes to the
Consolidated Financial Statements for information related to
the impairment charges in 2015 and 2014.
Restructuring Charges: See Note B - Restructuring Charges
in the Notes to the Consolidated Financial Statements for
information related to the restructuring charges in 2015
and 2014.
(Loss) Gain on Sale of Businesses and Assets, net: See
Note D - Sale of Businesses and Assets in the Notes to the
Consolidated Financial Statements for information related to
gains and losses related to the sale of businesses and other
assets in 2015 and 2014.
Interest Expense: Interest expense increased to $139 million
for 2015 from $49 million for 2014. The increase was driven
by $94 million of fees related to term loan financing for our
planned acquisition of Office Depot. See Note R - Proposed
Acquisition of Office Depot in the Notes to the Consolidated
Financial Statements for additional information.
Other Income (Expense), Net: Other income (expense), net
was an expense of $13 million for 2015 compared to income
of $4 million for 2014. The expense in 2015 reflects investment
losses associated with our supplemental executive retirement
plan, while 2014 reflects investment income. The expense in
2015 also reflects the impact of foreign exchange losses.
Income Taxes: Our effective tax rate was 23.0% in 2015
compared to 49.8% for 2014. The tax rate for 2015 reflects
the impact of:
• A $60 million reduction in our liability for unrecognized
tax benefits primarily due to the expiration of statutes of
limitations; and
• Restructuring-related charges and costs related to our
planned acquisition of Office Depot, as shown in the table
in the Non-GAAP Measures section above. The majority
of these charges and costs were incurred in the U.S., a
jurisdiction in which the tax rate is higher than our overall
effective tax rate.
Excluding the impact of these items, our effective tax rate in
2015 was 33.5%.
Our tax rate for 2014 reflects the following:
• Non-deductible goodwill impairment charges of
$410 million;
• A $69 million reduction in our liability for unrecognized tax
benefits primarily due to the resolution of certain federal
and foreign audits pertaining to prior fiscal years;
• The impact of material restructuring-related charges
recognized in our U.S. and Canadian entities in 2014;
• $11 million of incremental tax expense stemming
from taxable income generated in the U.S. as a result
of the repatriation of $127 million of cash from a
foreign subsidiary;
• The impact of permanent differences between income tax
expense for book and tax purposes related to the sale of
three businesses; and
• A $4 million credit for a discrete item that is unrelated to
current operations.
Excluding the impact of these items, our effective tax rate in
2014 was 32.0%.
See Note J - Income Taxes in the Notes to the Consolidated
Financial Statements for a reconciliation of the federal
statutory tax rate to our effective tax rates in 2015 and 2014
and for information relating to the undistributed earnings of our
foreign subsidiaries.
Our 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 earnings generated primarily by our entities in
Canada, Hong Kong and the Netherlands contribute to the
foreign tax rate differential impacting the effective tax rate in
2015 and 2014.
2014 Compared with 2013
Sales: Sales for 2014 were $22.5 billion, a decrease of 2.7%
from 2013. The decrease reflects a 4% decline in comparable
store sales in North America, a $310 million unfavorable impact
from changes in foreign exchange rates, an approximate 1%
negative impact from store closures in North America, and to a
lesser extent, ongoing weakness in our European businesses.
These declines were partly offset by a 2.8% sales increase in
North American Commercial and a 7% increase in Staples.com
(increases of 3.3% and 8% in local currency, respectively).
Declines in business machines and technology accessories,
ink and toner, computers and core office supplies were partly
offset by growth in facilities supplies and breakroom supplies,
furniture and copy and print services.