Staples 2013 Annual Report Download - page 126

STAPLES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
B-12
For long-lived assets that are held for use, we believe our operating results would need to be significantly less favorable
than currently projected to result in a material impairment charge. With the exception of a limited number of retail stores in new
markets or challenging markets where short and long-term initiatives are underway to improve current cash flows, our projected
future cash flows are sufficient to recover the carrying values of the underlying assets. If there was an impairment of these store
assets, it would not have a material effect on the Company's consolidated financial results.
For long-lived assets that will be disposed of in connection with an exit or disposal activity, we first reassess the assets'
estimated remaining useful lives and evaluate whether the assets are impaired on a held for use basis, and then accelerate depreciation
as warranted. Certain exit activities, such as the store closures associated with our 2012 Restructuring Plan and the recently
announced commitment to close up to 225 stores in North America by the end of 2015, may result in material impairment charges.
Pension Benefits: Our pension costs and obligations are dependent on various assumptions. Our major assumptions
primarily relate to expected long-term rates of return on plan assets, discount rates and inflation. In estimating the expected return
on plan assets, we take into account the historical performance for the major asset classes held, or anticipated to be held, by the
applicable pension funds and current forecasts of future rates of return for those asset classes. We base the discount rate on the
interest rate on high quality (AA rated) corporate bonds that have a maturity approximating the term of the related obligations.
We also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and the rate
of compensation increases.
Based on our analysis of the financial impact of pension obligation assumptions and estimates, we do not believe these
assumptions and estimates will have a material impact on our financial statements. The effect on pension obligations at February 1,
2014 of a change in discount rate and other assumptions is included in Note L - Pension and Other Post-Retirement Benefit Plans
of the Notes to the Consolidated Financial Statements.
Income Taxes: The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities,
which may result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental.
We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the
facts, circumstances and information available at the reporting date. For those tax positions for which it is more likely than not
that a tax benefit will be sustained, we record the largest amount of tax benefit likely of being realized upon settlement with a
taxing authority that has full knowledge of all relevant information. Interest is accrued, where applicable. We recognize net tax-
related interest and penalties in income tax expense. If we do not believe that it is more likely than not that a tax benefit will be
sustained, no tax benefit is recognized. However, our future results may include favorable or unfavorable adjustments to our
estimated tax liabilities due to closure of income tax examinations, new regulatory or judicial pronouncements, or other relevant
events. As a result, our effective tax rate may fluctuate significantly on a quarterly and annual basis.
We record deferred income tax assets for timing differences related to tax payments. We record a valuation allowance to
reduce our deferred income tax assets to the amount that is more likely than not to be realized. We have considered estimated
future taxable income and ongoing tax planning strategies in assessing the amount needed for the valuation allowance. If actual
results differ unfavorably from those estimates used, we may not be able to realize all or part of our net deferred tax assets and
additional valuation allowances may be required.
Recently Adopted Accounting Pronouncements
Effective February 3, 2013, we adopted a new pronouncement which requires the disclosure of certain information related
to items reclassified from accumulated other comprehensive loss to net income. The adoption of this guidance requires changes
in presentation only and, therefore, does not have a significant impact on our consolidated financial statements.
In March 2013, a pronouncement was issued providing guidance with respect to the release of cumulative translation
adjustments into net income when a parent company sells either a part or all of an investment in a foreign entity. The guidance
requires the release of cumulative translation adjustments when a company no longer holds a controlling financial interest in a
foreign subsidiary or a group of assets that constitutes a business within a foreign entity. The pronouncement is effective for fiscal
years beginning after December 15, 2013, with early adoption permitted. We elected to adopt this guidance as of February 3,
2013. The adoption of this guidance did not have a significant impact on our consolidated financial statements.
Liquidity and Capital Resources
Cash Flows
2013 Compared to 2012
Cash provided by operations was $1.11 billion for 2013 compared to $1.22 billion for 2012. The decrease in operating
cash flow from 2012 to 2013 was primarily due to a decline in net income adjusted for non-cash expenses compared with 2012.