Staples 2013 Annual Report Download - page 141

STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
C-10
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
obligations, are provided using the straight-line method over the following useful lives: 40 years for buildings; 3-10 years 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 1, 2014 and
February 2, 2013 were $13.8 million and $16.2 million, respectively.
Fair Value of Financial Instruments: The Company measures the fair value of financial instruments pursuant to the
guidelines of Accounting Standards Codification ("ASC") Topic 820 Fair Value Measurement (ASC 820), which 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 Goodwill: The Company reviews goodwill for impairment annually, in the fourth quarter, and whenever
events or changes in circumstances indicate that the carrying value of a reporting unit might exceed its current fair value. For the
annual test, the Company may perform an initial qualitative assessment for certain reporting units to determine whether it is more
likely than not that the fair value of the reporting unit is less than its carrying amount. This assessment is used as a basis for
determining whether it is necessary to perform the two step goodwill impairment test. For those reporting units for which the
Company performs the two step impairment test, the Company determines fair value using discounted cash flow analysis, which
requires management to make 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 defines such
reporting units at the operating segment level or one level below.
Impairment of Long-Lived Assets: The Company evaluates long-lived assets 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 the lowest level for which there are identifiable cash
flows that are largely independent of the cash flows or other assets and liabilities.
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 first reassesses the assets' estimated remaining
useful lives and evaluates whether the assets are impaired on a held for use basis, and then accelerates depreciation as warranted.
Revenue Recognition: The Company recognizes revenue from the sale of products and services when the following four
criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling
price is fixed or determinable, and collectibility is reasonably assured. Revenue is recognized for product sales 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.
The Company evaluates whether it is appropriate to record the gross amount of product and service sales and related
costs or the net amount earned as a commission. In making this determination, the Company considers several factors, including
which party in the transaction is the primary obligor, the degree of inventory risk, which party establishes pricing, the Company's
ability to select vendors, and whether it earns a fixed amount per transaction. Generally, when the Company is the party in the
transaction with the primary obligation to the customer or is subject to inventory risk, revenue is recorded at the gross sale price,