Staples 2014 Annual Report Download - page 147

APPENDIX C
STAPLES C-15
STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The Company expects that payments related to employee
related liabilities associated with the 2012 Plan will be
substantially completed by the end of 2015. The Company
anticipates payments related to facility lease obligations will be
complete by fiscal year 2024.
During 2014, the Company recorded an adjustment to
reduce the severance liability related to the 2012 restructuring
plan by $3.7 million due to changes in estimates for the
amount of severance benefits to be paid under this plan
(primarily related to the Company’s North American Stores
& Online segment).
For the restructuring liabilities associated with the 2012
Plan, $5.9 million of the contractual obligations are included
in Other long-term obligations and the remaining balances
are included within Accrued expenses and other current
liabilities in the Company’s consolidated balance sheet as of
January 31, 2015.
The restructuring charges related to continuing operations are presented within Restructuring charges in the Company’s
consolidated statements of income. The table below summarizes how the $207.0 million of restructuring charges would have been
allocated if the Company had recorded the expenses within the functional department of the restructured activities (in thousands):
Fiscal Year Ended
February 2, 2013
Cost of goods sold and occupancy costs $118,693
Selling, general and administrative 88,323
Total $207,016
As a result of the closure of the 46 retail stores in Europe and
the 15 retail stores in the United States and the consolidation of
certain sub-scale delivery businesses in Europe, the Company
incurred long-lived asset impairment charges of $34.7 million
in 2012 (see Note C - Goodwill and Long-Lived Assets).
Also during 2012, the Company recorded a pre-tax charge
of $20.1 million primarily for severance and benefit costs in
connection with the Company’s decision to pursue the sale of
PSD. These charges were reflected in Loss from discontinued
operations, net of tax in the Company’s consolidated
statements of income. The Company completed the sale of
PSD in the third quarter of 2013 (see Note E - Divestitures).
NOTE C — GOODWILL AND LONG-LIVED ASSETS
Goodwill
2014 Goodwill Impairment
In the fourth quarter of 2014, the Company performed its
annual goodwill impairment testing. See Note A for the
Company’s accounting policy related to testing goodwill for
impairment. The Company measured fair value in step one of
the impairment test using the income approach, specifically the
discounted cash flow (“DCF”) method. The key assumptions
and estimates used in the DCF method included:
• The reporting unit’s projections of financial results over
periods that range from five to eleven years, depending
on the maturity of the underlying business. For more
established businesses, such as U.S. Stores & Online and
the Company’s European and Australian operations, the
Company used projection periods of five to seven years,
while in its emerging market businesses an eleven year
projection period was used which reflects management’s
expectations of the development time for these growth-
oriented businesses. In general, the reporting units’ fair
values are most sensitive to assumptions related to
sales growth and operating profit rates, which represent
estimates based on the Company’s current and projected
sales mix, profit improvement opportunities and
market conditions.
• The discount rate, which is used to measure the present
value of the reporting unit’s projected future cash flows,
including those relating to the reporting unit’s terminal
value, is based on a weighted-average cost of capital
(“WACC”) that reflects market and industry data as
well as Company-specific risk factors that are likely
to be considered by a market participant. The WACC
represents the Company’s best estimate of the overall
after-tax rate of return required by equity and debt holders
of a business enterprise.
• The reporting unit’s perpetual growth rate, which is based
on projections for long-term GDP growth in the reporting
unit’s local economy and a consideration of trends that
indicate its long-term market opportunity. While the
Company believes its growth assumptions are reasonable,
actual growth rates may be lower due to a variety of
potential causes, such as a secular decline in demand for
products and services, unforeseen competition, long-term
GDP growth rates in established economies being lower
than projected growth rates, or a long-term deceleration
in the growth rates of emerging markets.