Staples 2012 Annual Report Download - page 134

C-22
STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The following table shows the Company’s assets and liabilities as of February 2, 2013 and January 28, 2012 that are
measured and recorded in the financial statements at fair value on a recurring basis (in thousands):
February 2, 2013
Quoted Prices in Active
Markets for Identical
Assets or Liabilities Significant Other Observable Inputs Unobservable Inputs
Level 1 Level 2 Level 3
Assets
Money market funds $ 585,479 $ — $ —
Liabilities
Derivative liabilities — (20,153)—
January 28, 2012
Quoted Prices in Active
Markets for Identical
Assets or Liabilities Significant Other Observable Inputs Unobservable Inputs
Level 1 Level 2 Level 3
Assets
Money market funds $ 468,913 $ — $ —
Liabilities
Derivative liabilities — (36,418)—
The fair values of the Company’s money market funds are based on quotes received from third-party banks. The fair
values of the Company’s derivative liabilities are based on quotes received from third-party banks and represent the estimated
amount the Company would pay to terminate the agreements taking into consideration current interest and forward exchange rates
as well as the creditworthiness of the counterparty.
The fair values of the assets in the Company's pension plans are described in detail in Note N - Pension and Other Post-
Retirement Benefit Plans
Non-Recurring Fair Value Measurements
During 2012, the Company recognized goodwill impairment charges of $771.5 million and long-lived asset impairment
charges of $39.5 million. These charges were based on fair value measurements derived using the income approach, specifically
the discounted cash flow, relief from royalty, and multi-period excess earnings methods. The valuation methodologies incorporated
unobservable inputs reflecting significant estimates and assumptions made by management. Accordingly, the Company classified
these measurements as Level 3 within the fair value hierarchy. The charges were also based, in part, on property appraisals prepared
by third-party valuation specialists. The appraisals incorporate a significant amount of judgment on the part of the valuation
specialists regarding appropriate comparable properties and an assessment of current market conditions. The Company has also
classified these measurements as Level 3 within the fair value hierarchy. Refer to Note C - Goodwill and Long-Lived Assets for
further detailed information related to the significant unobservable inputs.
Note J — Derivative Instruments and Hedging Activities
Staples uses interest rate swap agreements, foreign currency swap and foreign currency forward agreements to offset
certain operational and balance sheet exposures related to changes in interest or foreign exchange rates. These agreements are
entered into to support transactions made in the normal course of business and accordingly are not speculative in nature. These
derivatives qualify for hedge accounting treatment as the derivatives have been highly effective in offsetting the underlying
exposures related to the hedge.
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