Staples 2015 Annual Report Download - page 141

APPENDIX C
STAPLES C-24
STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Uncertain Tax Positions
At January 30, 2016, the Company had $136 million of gross
unrecognized tax benefits, of which $127 million, if recognized,
would affect the Company’s tax rate. At January 31, 2015,
the Company had $216 million of gross unrecognized tax
benefits, of which $208 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 2016.
The following summarizes the activity related to the Company’s unrecognized tax benefits, including those related to discontinued
operations (in millions):
2015 2014 2013
Balance at beginning of fiscal year $216 $281 $255
Additions for tax positions related to current year 19 22 28
Additions for tax positions of prior years 5 36 4
Reductions for tax positions of prior years (5) (88) —
Reduction for statute of limitations expiration (69) (17) (6)
Settlements (30) (18) —
Balance at end of fiscal year $136 $216 $281
The decline in the liability for unrecognized tax benefits during
2015 was primarily driven by statute of limitations expirations.
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 2011. All material state, local and
foreign income tax matters for years through 2002 have been
substantially concluded.
The Company recognized interest (benefits) expense and
penalties related to income tax matters of $(6) million,
$2 million, $9 million in 2015, 2014 and 2013, respectively,
which was classified in income tax expense. The Company
had $28 million and $49 million accrued for gross interest
and penalties as of January 30, 2016 and January 31, 2015,
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 $63
million, $64 million and $81 million of compensation expense
for 2015, 2014 and 2013, respectively. The total income tax
benefit related to stock-based compensation was $20 million,
$18 million, $23 million for 2015, 2014 and 2013, respectively.
As of January 30, 2016, Staples had $71 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.