Staples 2013 Annual Report Download - page 152

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STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
C-21
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 H — Derivative Instruments and Hedging Activities
From time to time, 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. The derivatives qualify for hedge accounting treatment if 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
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
derivatives, 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 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 1, 2014 and February 2, 2013 (in thousands):
Fair Value
Consolidated Balance Sheet Location February 1, 2014 February 2, 2013
Liability derivatives:
Foreign currency forwards Other long-term liabilities $ — $ (9,967)
Total $ — $ (9,967)