Staples 2012 Annual Report Download - page 122

C-10
STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
due and scheduled payment dates, are not impacted by suppliers' decisions to finance amounts under these arrangements. The
Company presents these obligations as trade accounts payable.
Property and Equipment: Property and equipment are recorded at cost. Expenditures for normal maintenance and repairs
are charged to expense as incurred. Depreciation and amortization, which includes the amortization of assets recorded under capital
lease obligations, are provided using the straight-line method over the following useful lives: 40 years for buildings; 3-10 years
for furniture and fixtures; and 3-10 years for equipment, which includes computer equipment and software with estimated useful
lives of 3-7 years. Leasehold improvements are amortized over the shorter of the terms of the underlying leases or the estimated
economic lives of the improvements. Asset retirement obligations are recognized when incurred and the related cost is amortized
over the remaining useful life of the related asset.
Lease Acquisition Costs: Lease acquisition costs, which are included in other assets, are recorded at cost and amortized
using the straight-line method over the respective lease terms, including option renewal periods if renewal of the lease is reasonably
assured, which range from 5 to 40 years. Lease acquisition costs, net of accumulated amortization, at February 2, 2013 and
January 28, 2012 were $16.2 million and $20.0 million, respectively.
Impairment of Goodwill: The Company reviews goodwill for impairment annually, in the fourth quarter, and when events
or changes in circumstances indicate that the carrying value of goodwill might exceed its current fair value. The Company determines
fair value using discounted cash flow analysis, which requires significant management assumptions and estimates regarding
industry economic factors and the future profitability of the Company's businesses. It is the Company's policy to allocate goodwill
and conduct impairment testing at a reporting unit level based on its most current business plans, which reflect changes the Company
anticipates in the economy and the industry. The Company established, and continues to evaluate, its reporting units based on its
internal reporting structure and generally defines such reporting units at the operating segment level or one level below.
Fair Value of Financial Instruments: Accounting Standards Codification ("ASC") Topic 820 Fair Value Measurement
(ASC 820) establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest
priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurement), then priority to quoted prices
for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and
model-based valuation techniques for which all significant assumptions are observable in the market (Level 2 measurement), then
the lowest priority to unobservable inputs (Level 3 measurement).
Impairment of Long-Lived Assets: The Company evaluates long-lived assets held for use for impairment whenever events
and circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is measured based upon
the estimated undiscounted cash flows expected to be generated from the use of an asset plus any net proceeds expected to be
realized upon its eventual disposition. An impairment loss is recognized if an asset's carrying value is not recoverable and if it
exceeds its fair value. Staples' policy is to evaluate long-lived assets for impairment at a store level for retail operations and at an
operating unit level for Staples' other operations.
Exit and Disposal Activities: The Company's policy is to recognize costs associated with exit and disposal activities,
including restructurings, when a liability has been incurred. Employee termination costs associated with ongoing benefit
arrangements are accrued when the obligations are considered probable and can be reasonably estimated, while costs associated
with one-time benefit arrangements generally are accrued when the key terms of the arrangement have been communicated to the
affected employees. Costs related to ongoing lease obligations for vacant facilities are recognized once the Company has ceased
using the facility, and the related liability is recorded net of estimated future sublease income. Payments made to terminate a lease
agreement prior to the end of its term are typically accrued when notification is given to the landlord. For property and equipment
that the Company expects to retire at the time of a facility closing, the Company evaluates whether the assets are impaired on a
held for use basis and reassesses the assets' estimated remaining useful lives.
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. The Company offers its customers various coupons, discounts and rebates, which are treated as a
reduction of revenue.
Sales of extended service plans are administered by either an unrelated third-party or by the Company. The unrelated
third-party is the legal obligor in most of the areas they administer, and accordingly bears all performance obligations and risk of
loss related to the service plans sold in such areas. In these areas, Staples recognizes net commission revenue at the time of sale
for the service plans. In certain areas where Staples is the legal obligor, the revenues associated with the sale are deferred and
recognized over the life of the service contract, which is typically one to five years.
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.