Staples 2014 Annual Report Download - page 154

APPENDIX C
C-22 STAPLES Form 10-K
STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
All derivatives are recorded at fair value and the changes in fair
value are immediately included in earnings if the derivatives
do not qualify as effective hedges. If a derivative is designated
as a fair value hedge, then changes in the fair value of the
derivative are offset against the changes in the fair value
of the underlying hedged item in earnings. If a derivative is
designated as a cash flow hedge, then the effective portion
of the changes in the fair value of the derivative is recognized
as a component of accumulated other comprehensive
income (loss) until the underlying hedged item is recognized in
earnings or the forecasted transaction is no longer probable of
occurring. If a derivative or a nonderivative financial instrument
is designated as a hedge of the Company’s net investment in a
foreign subsidiary, then changes in the fair value of the financial
instrument are recognized as a component of accumulated
other comprehensive income (loss) to offset a portion of
the change in the translated value of the net investment
being hedged, until the investment is sold or liquidated. The
Company formally documents all hedging relationships for all
derivatives, nonderivative hedges and the underlying hedged
items, as well as its risk management objectives and strategies
for undertaking the hedge transactions. There are no amounts
excluded from the assessment of hedge effectiveness.
The Company classifies the fair value of all derivative contracts
and the fair value of its hedged firm commitments as either
current or long-term depending on whether the maturity date
of the derivative contract is within or beyond one year from
the balance sheet date. The cash flows from derivatives are
classified in the Company’s consolidated statement of cash
flows in the same category as the item being hedged.
Interest Rate Swaps
In March 2010, Staples entered into interest rate swaps for
an aggregate notional amount of $750 million. These swaps
were designated as a fair value hedge and designed to
convert half of the aggregate principal amount of the January
2014 Notes into a variable rate obligation. In September
2011, the Company terminated the $750 million interest rate
swaps, realizing a gain of $30.3 million which was recorded
as an adjustment to the carrying value of the debt and was
amortized to interest expense over the remaining term of the
hedged portion of the January 2014 Notes.
Foreign Currency Swaps and Forwards:
In December 2011, the Company entered into a foreign
currency forward designed to convert a series of intercompany
loans denominated in Canadian dollars into a fixed U.S. dollar
amount. The loans totaled 750 million Canadian dollars in the
aggregate and matured at various dates between October
2012 and October 2013. Staples, upon full maturity of the
agreements in October 2013, had collected $720 million
and paid 750 million Canadian dollars per the terms of the
contracts. The forward agreements were accounted for as a
fair value hedge. In 2012, the Company settled 500 million
Canadian dollars of the notional amount relating to this forward,
realizing a loss of $24.2 million which was recorded within
Other income (expense), net. In 2013, the Company settled
the remaining 250 million Canadian dollars of notional amount
relating to this forward, realizing a loss of $4.2 million, which
was recorded within Other income (expense), net. During
2013 and 2012, unrealized gains (losses) of $5.8 million and
$12.2 million, respectively, were recognized in Other income
(expense), net related to the outstanding portion of this fair
value hedge. No amounts were included in the consolidated
statements of income related to ineffectiveness associated
with this fair value hedge.
NOTE I — COMMITMENTS AND CONTINGENCIES
Commitments
Staples leases certain retail and support facilities under
long-term non-cancelable lease agreements. Most lease
agreements contain renewal options and rent escalation
clauses and, in some cases, allow termination within a certain
number of years with notice and a fixed payment. Certain
agreements provide for contingent rental payments based
on sales.
Other long-term obligations at January 31, 2015 include
$76.5 million relating to future rent escalation clauses and
lease incentives under certain existing operating lease
arrangements. These rent obligations are recognized on a
straight-line basis over the respective terms of the leases.
Future minimum lease commitments due for retail, distribution,
fulfillment and support facilities (including restructured facilities