Staples 2003 Annual Report Download - page 70

STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A Summary of Significant Accounting Policies
Nature of Operations: Staples, Inc. and subsidiaries (‘‘Staples’’ or ‘‘the Company’’) pioneered the office products
superstore concept and is a leading office products distributor. Staples operates three business segments: North
American Retail, North American Delivery and European Operations. The Company’s North American Retail segment
consists of the U.S. and Canadian business units that operate office supply stores. The North American Delivery segment
consists of the U.S. and Canadian business units that sell and deliver office products and services directly to customers,
and includes Staples Business Delivery (North American catalog and internet operations), the Company’s contract
operations (Staples National Advantage and Staples Business Advantage) and Quill. The European Operations segment
consists of operating units that operate office supply stores in the United Kingdom, Germany, the Netherlands and
Portugal and that sell and deliver office products and services directly to customers throughout the United Kingdom,
Germany, France, Belgium, Spain and Italy.
Basis of Presentation: The consolidated financial statements include the accounts of Staples, Inc. and its wholly
owned subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.
Fiscal Year: Staples’ fiscal year is the 52 or 53 weeks ending on the Saturday closest to January 31. Fiscal year 2002
and 2001 consisted of the 52 weeks ended February 1, 2003 and February 2, 2002, respectively, while fiscal year 2000,
consisted of the 53 weeks ended February 3, 2001.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting
principles requires management of Staples to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from those estimates.
Cash Equivalents: Staples considers all highly liquid investments with an original maturity of three months or less
to be cash equivalents.
Merchandise Inventories: Merchandise inventories are valued at the lower of weighted-average cost or market
value.
Receivables: Receivables include trade receivables financed under regular commercial credit terms and other
non-trade receivables. Trade receivables were $256.6 million at February 1, 2003 and $188.5 million at February 2, 2002,
net of accounts receivable securitized of $25.0 million at February 1, 2003 and February 2, 2002. Concentrations of credit
risk with respect to trade receivables are limited due to Staples’ large number of customers and their dispersion across
many industries and geographic regions. Other non-trade receivables were $107.8 million at February 1, 2003 and
$150.1 million at February 2, 2002 and consisted primarily of amounts due from vendors under various incentive and
promotional programs.
In fiscal year 2000, Staples entered into a receivables securitization agreement under which it sells, through special
purpose entities which are fully consolidated in Staples’ financial statements, participating interests in non-interest
bearing accounts receivable of Quill and the contract stationer business at a discount to an unrelated third party financier
who purchases and receives ownership interest in those receivables. The transfers qualify for sales treatment under
SFAS 140 ‘‘Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities’’.
The utilized balance under the receivables securitization agreement, $25.0 million at February 1, 2003 and
February 2, 2002, is not included in debt on the Consolidated Balance Sheets but rather is reflected as a reduction of
receivables. The maximum availability under the agreement is $140 million. The actual amount available at any time
depends on the amount and characteristics of the receivables outstanding. At February 1, 2003, the maximum availability
under the agreement was $109.2 million and the balance remaining available was $84.2 million. Staples’ special purpose
entities retain the risk of credit loss on the receivables and, accordingly, the full amount of the allowance for doubtful
accounts has been reflected in the Consolidated Balance Sheets. Staples retains collection and administrative
responsibilities for the participating interests in the receivables and is entitled to a fee for such services. The receivables
securitization agreement contains restrictive covenants, including a material adverse change and credit rating downgrade
clause, the breach of which would constitute a default under the agreement.
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