Staples 2002 Annual Report Download - page 74

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STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE A Summary of Significant Accounting Policies (Continued)
Staples RD and Staples.com Stock:
26 Weeks Ended Fiscal Year Ended
August 4, 2001 February 3, 2001
Staples RD Staples.com Staples RD Staples.com
Net income (loss) as reported ............................. $79,740 $ 120 $71,197 $(11,485)
Stock based compensation excluded from reported net income ..... 24,035 565 45,225 1,474
Pro forma net income (loss) .............................. $55,705 $ (445) $25,972 $(12,959)
Pro forma basic earnings (loss) per common share .............. $ 0.12 $(0.06) $ 0.06 $ (0.95)
Pro forma diluted earnings (loss) per common share ............. $ 0.12 $(0.06) $ 0.06 $ (0.95)
The weighted-average fair values of options granted during fiscal years 2002, 2001 and 2000 were $6.84, $5.32 and
$5.54, respectively.
Foreign Currency Translation: 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, and the net exchange gains and losses resulting from the
translation of investments in Staples’ foreign subsidiaries, are recorded as a separate component of stockholders’ equity.
Revenue Recognition: Revenue is recognized at the point of sale for the Company’s retail operations and at the
time of shipment for its delivery sales.
Sales of extended service plans are administered by an unrelated third party. The unrelated third party is the legal
obligor in most states and accordingly bears all performance obligations and risk of loss related to the service plans. In
such states, Staples recognizes a net commission revenue at the time of sale for the service plans. In certain states where
Staples is the legal obligor, the revenues and direct expenses associated with the sale are deferred and recognized over
the life of the service contract, which is typically one to five years.
Derivative Instruments and Hedging Activities: As of February 4, 2001, the Company adopted Financial Accounting
Standards Board Statement No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities,’’ which was issued
in June 1998 and its amendments, Statements 137 ‘‘Accounting for Derivative Instruments and Hedging Activities—
Deferral of the Effective Date of FASB Statement No. 133’’ and No. 138, ‘‘Accounting for Certain Derivative
Instruments and Certain Hedging Activities’’ issued in June 1999 and June 2000, respectively (collectively referred to as
Statement 133).
As a result of adoption of Statement 133, the Company recognizes all derivative financial instruments in the
consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. Changes in
the fair value of derivative financial instruments that qualify for hedge accounting are recorded in stockholders’ equity as
a component of 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. No transition adjustment was recorded
by the Company upon adoption of Statement 133.
New Accounting Pronouncements: In April 2002, the Financial Accounting Standards Board (‘‘FASB’’) issued
Statement No. 145, ‘‘Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections’’. This statement eliminates extraordinary accounting treatment for a gain or loss reported on the
extinguishment of debt and amends other existing authoritative pronouncements to make technical corrections, clarify
meanings, or describe their applicability under changed conditions. The provisions of this statement are effective for the
Company with the beginning of fiscal year 2003. The Company does not believe the adoption of this statement will have
a material impact on its overall financial position or results of operations.
In June 2002, the FASB issued Statement No. 146, ‘‘Accounting for Costs Associated with Exit or Disposal
Activities’’ (‘‘SFAS No. 146’’). SFAS No. 146 requires that the fair value of a liability associated with an exit or disposal
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