Staples 2013 Annual Report Download - page 142

STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
C-11
assuming other factors corroborate that the Company is the principal party in the transaction. If the Company is not primarily
obligated and does not have inventory risk, it generally records the net amount as a commission earned.
Revenue arrangements with multiple deliverables that have value on a standalone basis are divided into separate units of
accounting. Revenue is allocated to each deliverable using estimated selling prices if the Company does not have vendor-specific
objective evidence or third-party evidence of the selling prices of the deliverables. The Company recognizes revenue for each
unit of accounting based on the nature of the deliverable and the revenue recognition guidance applicable to each unit.
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.
Cost of Goods Sold and Occupancy Costs: Cost of goods sold and occupancy costs includes the costs of merchandise
sold, inbound and outbound freight, receiving and distribution, and store and distribution center occupancy (including real estate
taxes and common area maintenance).
Shipping and Handling Costs: All shipping and handling costs are included as a component of cost of goods sold and
occupancy costs.
Selling, General and Administrative Expenses: Selling, general and administrative expenses include payroll, advertising
and other operating expenses for the Company's stores and delivery operations not included in cost of goods sold and occupancy
costs.
Advertising: Staples expenses the costs of producing an advertisement the first time the advertising takes place, except
for the cost of direct response advertising, primarily catalog production costs, which are capitalized and amortized over their
expected period of future benefits (i.e., the life of the catalog). Direct catalog production costs included in prepaid and other assets
totaled $14.3 million and $19.5 million at February 1, 2014 and February 2, 2013, respectively. The cost of communicating an
advertisement is expensed when the communication occurs. Total advertising and marketing expense was $498.9 million, $533.6
million and $582.6 million for 2013, 2012 and 2011, respectively.
Stock-Based Compensation: The Company accounts for stock-based compensation in accordance with ASC Topics 505
Equity and 718 Stock Compensation. Stock-based compensation for stock options is measured based on the estimated fair value
of each award on the date of grant using a binomial valuation model. Stock-based compensation for restricted stock and restricted
stock units is measured based on the closing market price of the Company's common stock price on the date of grant, less the
present value of dividends expected to be paid on the underlying shares but foregone during the vesting period. For awards with
service conditions only, the Company recognizes stock-based compensation costs as expense on a straight-line basis over the
requisite service period. For awards that include performance conditions, the Company recognizes compensation expense during
the performance period to the extent achievement of the performance condition is deemed probable relative to targeted performance.
A change in the Company's estimate of the probable outcome of a performance condition is accounted for in the period of the
change by recording a cumulative catch-up adjustment.
Pension and Other Post-Retirement Benefits: The Company maintains pension and post-retirement life insurance plans
for certain employees globally. These plans include significant obligations, which are calculated based on actuarial valuations.
Key assumptions used in determining these obligations and related expenses include expected long-term rates of return on plan
assets, discount rates and inflation. The Company also makes assumptions regarding employee demographic factors such as
retirement patterns, mortality, turnover and the rate of compensation increases. These assumptions are evaluated annually.
Foreign Currency: The assets and liabilities of Staples' foreign subsidiaries are translated into U.S. dollars at current
exchange rates as of the balance sheet date, and revenues and expenses are translated at average monthly exchange rates. The
resulting translation adjustments are recorded as a separate component of stockholders' equity. Foreign currency transaction gains
and losses relate to the settlement of assets or liabilities in a currency other than the functional currency. Foreign currency
transaction (losses) gains were $(6.6) million, $(3.1) million and $0.5 million for 2013, 2012 and 2011, respectively. These amounts
are included in Other income (expense), net.
Derivative Instruments and Hedging Activities: The Company recognizes all derivative financial instruments in the
consolidated financial statements at fair value. Changes in the fair value of derivative financial instruments that qualify for hedge
accounting are recorded in stockholders' equity as a component of accumulated other comprehensive income or as an adjustment
to the carrying value of the hedged item. Changes in fair values of derivatives not qualifying for hedge accounting are reported
in earnings.