Staples 2014 Annual Report Download - page 143

APPENDIX C
STAPLES C-11
STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Revenue arrangements with multiple deliverables that have
value on a standalone basis are divided into separate units
of accounting. Revenue is allocated to each deliverable using
estimated selling prices if the Company does not have vendor-
specific objective evidence or third-party evidence of the
selling prices of the deliverables. The Company recognizes
revenue for each unit of accounting based on the nature of the
deliverable and the revenue recognition guidance applicable
to each unit.
Revenue is recorded net of taxes collected from customers
that are remitted to governmental authorities, with the collected
taxes recorded as current liabilities until remitted to the relevant
government authority.
Cost of Goods Sold and Occupancy Costs: Cost of goods
sold and occupancy costs includes the costs of merchandise
sold, inbound and outbound freight, receiving and distribution,
and store and distribution center occupancy (including real
estate taxes and common area maintenance).
Shipping and Handling Costs: All shipping and handling
costs are included as a component of cost of goods sold and
occupancy costs.
Selling, General and Administrative Expenses: Selling, general
and administrative expenses include payroll, advertising and
other operating expenses for the Company’s stores and
delivery operations not included in cost of goods sold and
occupancy costs.
Advertising: Staples expenses the costs of producing an
advertisement the first time the advertising takes place, except
for the cost of direct response advertising, primarily catalog
production costs, which are capitalized and amortized over
their expected period of future benefits (i.e., the life of the
catalog). Direct catalog production costs included in prepaid
and other assets totaled $10.1 million and $14.3 million at
January 31, 2015 and February 1, 2014, respectively. The
cost of communicating an advertisement is expensed when
the communication occurs. Total advertising and marketing
expense was $495.9 million, $498.9 million and $533.6 million
for 2014, 2013 and 2012, respectively.
Stock-Based Compensation: The Company accounts for
stock-based compensation in accordance with ASC Topics
505 Equity and 718 Stock Compensation. Stock-based
compensation for restricted stock and restricted stock units is
measured based on the closing market price of the Company’s
common stock price on the date of grant, less the present
value of dividends expected to be paid on the underlying
shares but foregone during the vesting period. Stock-based
compensation for stock options is measured based on the
estimated fair value of each award on the date of grant using
a binomial valuation model. For awards with service conditions
only, the Company recognizes stock-based compensation
costs as expense on a straight-line basis over the requisite
service 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.
Pension and Other Post-Retirement Benefits: The Company
maintains pension and post-retirement life insurance plans
for certain employees globally. These plans include significant
obligations, which are calculated based on actuarial valuations.
Key assumptions used in determining these obligations and
related expenses include expected long-term rates of return
on plan assets, discount rates and inflation. The Company also
makes assumptions regarding employee demographic factors
such as retirement patterns, mortality, turnover and the rate
of compensation increases. These assumptions are evaluated
annually. Expected return on plan assets is determined using
fair market value. The Company calculates amortization of
actuarial gains and losses using the corridor approach and the
estimated remaining service of plan participants.
Foreign Currency: The assets and liabilities of Staples’
foreign subsidiaries are translated into U.S. dollars at current
exchange rates as of the balance sheet date, and revenues
and expenses are translated at average monthly exchange
rates. The resulting translation adjustments are recorded as a
separate component of stockholders’ equity. Foreign currency
transaction gains and losses relate to the settlement of assets
or liabilities in a currency other than the functional currency.
Foreign currency transaction (losses) gains were $0.0 million,
$(6.6) million and $(3.1) million for 2014, 2013 and 2012,
respectively. These amounts are included in Other income
(expense), net.
Derivative Instruments and Hedging Activities: The Company
recognizes all derivative financial instruments in the
consolidated financial statements at fair value. Changes in
the fair value of derivative financial instruments that qualify for
hedge accounting are recorded in stockholders’ equity as a
component of accumulated other comprehensive income or
as an adjustment to the carrying value of the hedged item.
Changes in fair values of derivatives not qualifying for hedge
accounting are reported in earnings.
Accounting for Income Taxes: Deferred income tax assets and
liabilities are determined based on the differences between
financial reporting and tax bases of assets and liabilities
and are measured using the enacted income tax rates and
laws that are expected to be in effect when the temporary
differences are expected to reverse. Additionally, deferred
income tax assets and liabilities are separated into current
and non-current amounts based on the classification of the
related assets and liabilities for financial reporting purposes or
the expected reversal date of the deferred income tax assets
and liabilities if they are not related to an asset or liability for
financial reporting purposes.
The Company accounts for uncertain tax provisions in
accordance with ASC Topic 740 Income Taxes. These
provisions require companies to determine whether it is
“more likely than not” that a tax position will be sustained
upon examination by the appropriate taxing authorities before
any benefit can be recorded in the financial statements. An
uncertain income tax position will not be recognized if it has
less than a 50% likelihood of being sustained.