Staples 2012 Annual Report Download - page 135

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C-23
STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
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
derivative, 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 treated as hedges are classified in the Company's consolidated statement
of cash flows in the same category as the item being hedged.
The table below presents the fair value of the Company's derivative financial instruments that qualify for hedge accounting
as well as their classification on the consolidated balance sheet as of February 2, 2013 and January 28, 2012 (in thousands):
Fair Value
Consolidated Balance Sheet
Location February 2, 2013 January 28, 2012
Liability derivatives:
Foreign currency forward Other long-term liabilities (9,967)(21,974)
Foreign currency swaps Other long-term liabilities — (14,353)
Total $ (9,967)$ (36,327)
The tables below present pre-tax gains and losses recognized in Other Comprehensive Income ("OCI") during 2012, 2011
and 2010 related to derivative financial instruments designated as cash flow hedges or net investment hedges, as well as the amount
of gains and losses reclassified into earnings during those periods (in thousands):
Gain (loss) recognized in OCI Gain (loss) reclassified into earnings Location of gain
(loss) recognized in
earningsDerivative Type Hedge
Designation 2012 2011 2010 2012 2011 2010
Interest rate swaps Cash flow $ 705 $ — $ — $ — $ (300) $ — Interest expense
Foreign currency
swaps Cash flow ————948—Other expense
Foreign currency
swaps Net investment (505) (2,904) (17,514)——— —
Foreign currency
forward Net investment 2,795 ————— —
Interest Rate Swaps: During 2012, Staples entered into a series of interest rate swap agreements for an aggregate notional
amount of $325.0 million. These swaps were designated as cash flow hedges of interest rate risk, and were used to hedge the
Company's exposure to the variability in future cash flows associated with the forecasted issuances of the January 2018 Notes and
the January 2023 Notes (see Note H - Debt and Credit Agreements). Upon issuance of these notes in January 2013, the Company
terminated these swaps, realizing a gain of $1.3 million. Of this amount, $0.7 million will be amortized to interest expense over
the terms of the January 2018 Notes and January 2023 Notes and $0.6 million was recognized as a gain in Other (expense) income
in the consolidated statement of income in 2012 due to ineffectiveness associated with these cash flow hedges.
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 is being amortized to interest expense
over the remaining term of the January 2014 Notes. In January 2013, the Company repurchased approximately $632.8 million
of the unhedged portion of the January 2014 Notes pursuant to a cash tender offer (see Note H - Debt and Credit Agreements).
The gain will continue to be amortized over the remaining term of the hedged portion of the January 2014 Notes.
In connection with Staples’ acquisition of Corporate Express, the Company assumed interest rate swaps designed to
convert Corporate Express’ variable rate credit facilities into fixed rate obligations. On May 5, 2011, the Company repaid the
outstanding balance on these variable rate credit facilities and terminated the related interest rate swap agreements. As a result of
the termination of these interest rate swap agreements, the Company recognized a loss of $0.3 million during the second quarter
of 2011.