Staples 2014 Annual Report Download - page 141

APPENDIX C
STAPLES C-9
STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations: Staples, Inc. and subsidiaries (“Staples”
or “the Company”) is a world-class provider of products and
services that serve the needs of business customers and
consumers. Through its leading retail, online and delivery
capabilities, Staples lets customers shop however and
whenever they want, whether it’s in-store, online or on mobile
devices. The Company has three reportable segments: North
American Stores & Online, North American Commercial, and
International Operations. The North American Stores & Online
segment consists of the U.S. and Canadian businesses that sell
products and services through retail stores and Staples.com.
The North American Commercial segment consists of the U.S.
and Canadian businesses that sell and deliver products and
services directly to businesses and includes Staples Advantage
and Quill.com. The International Operations segment consists
of business units that sell and deliver products and services
directly to customers in 23 countries in Europe, Australia,
South America and Asia.
Basis of Presentation: The consolidated financial statements
include the accounts of Staples, Inc. and its wholly and majority
owned subsidiaries. All material intercompany accounts and
transactions are eliminated in consolidation. The Company
accounts for investments in businesses in which it owns
between 20% and 50% of the voting interest using the equity
method, if the Company has the ability to exercise significant
influence over the investee company.
On July 11, 2014, Staples completed its acquisition of PNI
Digital Media, Inc. (“PNI”) for a net $67.9 million. PNI’s results
of operations are included in the Company’s consolidated
results from that date forward.
The Company’s former European Printing Systems
Division business (“PSD”) is presented as a discontinued
operation in the consolidated statement of income in 2012
and 2013. The Company completed the sale of PSD on
October 5, 2013. Unless otherwise stated, any reference to
the consolidated statement of income items in the notes to
the consolidated financial statements refers to results from
continuing operations.
Fiscal Year: Staples’ fiscal year is the 52 or 53 weeks ending on
the Saturday closest to January 31. Fiscal year 2014 (“2014”)
consisted of the 52 weeks ended January 31, 2015, fiscal year
2013 (“2013”) consisted of the 52 weeks ended February 1,
2014 and fiscal year 2012 (“2012”) consisted of the 53 weeks
ended February 2, 2013.
Use of Estimates: The preparation of financial statements in
conformity with accounting principles generally accepted
in the United States of America (“U.S. GAAP”) requires
management of Staples to make estimates and assumptions
that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from
those estimates.
Cash Equivalents: Staples considers all highly liquid
investments with an original maturity of three months or less to
be cash equivalents.
Receivables: Receivables include trade receivables financed
under regular commercial credit terms and other non-trade
receivables. Gross trade receivables were $1.43 billion at
January 31, 2015 and $1.38 billion at February 1, 2014.
Concentrations of credit risk with respect to trade receivables
are limited due to Staples’ large number of customers and their
dispersion across many industries and geographic regions.
An allowance for doubtful accounts has been recorded
to reduce trade receivables to an amount expected to be
collectible from customers based on specific evidence
as well as historic trends. The allowance recorded at
January 31, 2015 and February 1, 2014 was $38.3 million and
$30.8 million, respectively.
Other non-trade receivables were $539.6 million at January 31,
2015 and $489.5 million at February 1, 2014 and consisted
primarily of purchase and advertising rebates due from
vendors under various incentive and promotional programs.
Amounts expected to be received from vendors relating to
the purchase of merchandise inventories are recognized as
a reduction of inventory cost and realized as part of cost of
goods sold as the merchandise is sold. Amounts expected
to be received from vendors that represent reimbursement for
specific, incremental costs incurred by the Company related to
selling a vendor’s products, such as advertising, are recorded
as an offset to those costs when they are recognized in the
consolidated statement of income.
Inventory: Inventory is valued at the lower of weighted-average
cost or market value. The Company reserves for obsolete,
overstocked and inactive inventory based on the difference
between the weighted-average cost of the inventory and the
estimated market value using assumptions of future demand
and market conditions.
Accounts Payable: The Company has agreements with third
parties to provide accounts payable tracking and payment
services which facilitate participating suppliers’ ability to finance
payment obligations from the Company with designated third-
party financial institutions. Participating suppliers may, at their
sole discretion, make offers to finance one or more payment
obligations of the Company prior to their scheduled due dates
at a discounted price to participating financial institutions.
The Company has no economic interest in the sale of these
receivables. The Company’s obligations to its suppliers,
including amounts due and scheduled payment dates, are not
impacted by suppliers’ decisions to finance amounts under
these arrangements. The Company presents these obligations
as trade accounts payable.