Staples 2015 Annual Report Download - page 108

APPENDIX B
B-5 STAPLES Form 10-K
STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Gross Profit: Gross profit as a percentage of sales was 25.8%
for 2014 compared to 26.1% for 2013. The decrease in gross
profit rate was driven by pricing investments in Staples.com
and Quill, and increased delivery expense in North America
primarily resulting from growth in delivery sales. These factors
were partly offset by improved product margins in Europe
resulting from our ongoing assortment and pricing optimization
initiatives. Our gross profit rate in 2014 also reflects $26 million
of inventory write-downs related to our initiatives to improve
efficiencies in our North American delivery fulfillment operations
and the closure of North American retail stores.
Selling, General and Administrative Expenses: Selling, general
and administrative expenses in 2014 increased by $81 million
or 1.7% from 2013. The increase was driven by increased
incentive compensation expense, investments to drive growth
online in both North America and Europe, and investments
to support our strategic reinvention. These costs were partly
offset by lower labor costs due to headcount reductions.
Selling, general and administrative expenses in 2014 also
reflects $9 million of accelerated depreciation 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 increased to 21.4% in
2014 compared to 20.5% for 2013, reflecting the negative
impact of lower sales.
Restructuring Charges: See Note B - Restructuring Charges
in the Notes to the Consolidated Financial Statements for
information relating to restructuring charges recorded in 2014
and 2013.
Amortization of Intangibles: Amortization of intangibles was
$62 million for 2014 compared to $55 million for 2013 due to
the acquisition of two businesses in 2014 and bringing on the
related Intangibles.
Interest Expense: Interest expense decreased to $49 million
for 2014 from $119 million for 2013. The decrease in interest
expense was primarily the result of the repayment of the
remaining $867 million principal balance of our 9.75% notes
upon their maturity in January 2014.
Other Income (Expense), Net: Other income (expense), net
was $4 million for 2014 compared to an insignificant amount
for 2013. The $4 million of income in 2014 reflects investment
income associated with our supplemental executive retirement
plan. In 2013, investment income was offset by foreign
exchange losses.
Income Taxes: Our tax rate related to continuing operations
was 49.8% in 2014 compared to 33.5% for 2013. See the
Consolidated Performance - 2015 Compared with 2014
section above for a discussion related to certain items that
impacted our tax rate in 2014. Excluding the impact of these
items, our effective tax rate in 2014 was 32.0%.
Our tax rate for 2013 reflects the impact of $64 million of net
restructuring charges incurred in 2013, certain portions of
which did not result in a tax benefit. Excluding the impact of
these charges, our effective tax rate in 2013 was 32.5%.
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 2014 and 2013
and for information relating to the undistributed earnings of our
foreign subsidiaries.
Discontinued Operations: On October 5, 2013, we completed
the sale of our European Printing Systems Division business
(“PSD”), a former component of our International Operations
segment. Loss from discontinued operations, net of tax,
was $87 million during 2013 through the date of disposal,
which included a preliminary loss on disposal of $81 million
that was subject to a working capital adjustment to the
purchase price. The amount of the working capital adjustment
is in dispute between the parties in the transaction. See
Note I - Commitments and Contingencies in the Notes to the
Consolidated Financial Statements for an update on the status
of the dispute.
SEGMENT PERFORMANCE
As noted in Note P - Segment Reporting in the Notes to the
Consolidated Financial Statements, we have three reportable
segments: North American Stores & Online, North American
Commercial and International Operations. See additional
geographic information and a reconciliation of total business
unit income to income before income taxes in Note P in the
Notes to the Consolidated Financial Statements.
The following tables provide a summary of our sales and business unit income by reportable segment:
Sales:
(Amounts in millions) 2015 Increase
(Decrease)
From Prior Year
2014
(Decrease)
From Prior Year2015 2014 2013
North American Stores & Online $9,538 $10,449 $11,103 (8.7)% (5.9)%
North American Commercial 8,361 8,270 8,042 1.1% 2.8%
International Operations 3,160 3,773 3,969 (16.3)% (4.9)%
Total segment sales $21,059 $22,492 $23,114 (6.4)% (2.7)%