Staples 2015 Annual Report Download - page 137

APPENDIX C
STAPLES C-20
STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
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.
Foreign Currency Swaps and Forwards:
In December 2011, the Company entered into a foreign
currency forward designed to convert a series of intercompany
loans denominated in Canadian dollars into a fixed U.S. dollar
amount. The loans totaled 750 million Canadian dollars in the
aggregate and matured at various dates between October
2012 and October 2013. Staples, upon full maturity of the
agreements in October 2013, had collected $720 million and
paid 750 million Canadian dollars per the terms of the contracts.
The forward agreements were accounted for as a fair value
hedge. In 2012, the Company settled 500 million Canadian
dollars of the notional amount relating to this forward, realizing
a loss of $24 million which was recorded within Other income
(expense), net. In 2013, the Company settled the remaining
250 million Canadian dollars of notional amount relating to
this forward, realizing a loss of $4 million, which was recorded
within Other income (expense), net. During 2013 unrealized
gains of $6 million were recognized in Other income (expense),
net related to the outstanding portion of this fair value hedge.
No amounts were included in the consolidated statements
of income related to ineffectiveness associated with this fair
value hedge.
NOTE I — COMMITMENTS AND CONTINGENCIES
Commitments
Staples leases certain retail and support facilities under long-
term non-cancelable lease agreements. Most lease agreements
contain renewal options and rent escalation clauses and, in
some cases, allow termination within a certain number of years
with notice and a fixed payment. Certain agreements provide for
contingent rental payments based on sales.
Other long-term obligations at January 30, 2016 include $63
million relating to future rent escalation clauses and lease
incentives under certain existing operating lease arrangements.
These rent obligations are recognized on a straight-line basis
over the respective terms of the leases. Future minimum lease
commitments due for retail, distribution, fulfillment and support
facilities (including restructured facilities) and equipment
leases under non-cancelable operating leases are as follows
(in millions):
Fiscal Year: Total
2016 $685
2017 563
2018 424
2019 317
2020 230
Thereafter 443
$2,662
Future minimum lease commitments exclude the impact of
$36 million of minimum rentals due under non-cancelable
subleases. Rent expense was $691 million, $767 million and
$801 million for 2015, 2014 and 2013, respectively.
As of January 30, 2016, Staples had contractual purchase
obligations that are not reflected in the Company's consolidated
balance sheets totaling $614 million. Many of the Company's
purchase commitments may be canceled by the Company
without advance notice or payment and, accordingly, the
Company has excluded such commitments from the following
schedule. Contracts that may be terminated by the Company
without cause or penalty, but that require advance notice for
termination, are valued on the basis of an estimate of what
the Company would owe under the contract upon providing
notice of termination. Expected payments related to such
purchase obligations are as follows (in millions):
Fiscal Year: Total
2016 $460
2017 74
2018 31
2019 43
2020 4
Thereafter 2
$614
Letters of credit are issued by Staples during the ordinary
course of business through major financial institutions as
required by certain vendor contracts. As of January 30, 2016,
Staples had open standby letters of credit totaling $99 million.