Recent Accounting Pronouncements (Notes)

6 Months Ended

Jul. 29, 2017

Recent Accounting Pronouncements [Text Block]

Recent Accounting Pronouncements

In the first quarter of 2017, the Company adopted a pronouncement that aims to simplify several aspects of accounting and reporting for share-based payment transactions. One provision within this pronouncement requires that excess income tax benefits and tax deficiencies related to share-based payments be recognized within income tax expense in the statement of income, rather than within additional paid-in capital on the balance sheet. This adoption of this provision is to be applied prospectively. The impact to the Company's results of operations related to this provision in the second quarter and first half of 2017 was an increase in the provision for income taxes of $5 million and $8 million, respectively. The impact of this provision on the Company's future results of operations will depend in part on the market prices for the Company's shares on the dates there are taxable events related to share awards, and therefore the impact is difficult to predict. In connection with another provision within this pronouncement, the Company has elected to account for forfeitures as they occur rather than estimate expected forfeitures, with the change being applied on a modified retrospective basis that resulted in a cumulative effect reduction to retained earnings of approximately $2 million as of January 28, 2017. The Company does not expect that the other provisions within the pronouncement will have a material impact on its financial statements.

In the first quarter of 2017, the Company adopted a pronouncement that aims to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. This pronouncement stipulates that an entity should perform a goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the loss recognized not exceeding the total amount of goodwill allocated to that reporting unit. The amendments in this pronouncement are to be applied on a prospective basis. The Company does not expect this pronouncement will have a material impact on its financial statements.

In May 2014, a pronouncement was issued that creates common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards. The new guidance supersedes most preexisting revenue recognition guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with an option to adopt the standard one year earlier. Staples intends to adopt the new guidance in the first quarter of fiscal 2018. The new standard is to be applied either retrospectively to each period presented or using a modified retrospective approach that incorporates a cumulative-effect adjustment as of the date of adoption. The Company plans to adopt the pronouncement using the modified retrospective approach, which will be applied to all contracts except those which have been completed at the time of adoption. The Company’s current analysis indicates that the most significant effects of the new standard include:


•	For certain arrangements the Company may change from being considered the principal party in the transaction to being considered an agent, in which case it would recognize revenue on a net rather than gross basis.


•	For certain arrangements the timing of revenue recognition may change, including arrangements for which the Company may shift from point in time to overtime revenue recognition. Examples of arrangements where such changes may occur include the sale of promotional products and furniture installation projects.


•	The Company currently accounts for its Rewards loyalty program by accruing a liability equal to the incremental cost of fulfilling its obligations to program participants. Under the new standard, the Company will defer revenue at the time Rewards are earned using a relative fair value approach.

The Company continues to assess the impact of adopting this new pronouncement, including quantifying the impact of the changes identified to date. Additional areas of change may be identified prior to the date of adoption.

In February 2016, a pronouncement was issued that creates new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements. Based on its preliminary assessment, upon adoption the Company expects to recognize significant right-to-use assets and corresponding lease liabilities on its balance sheet related to leased facilities.

Recent Accounting Pronouncements


•	For certain arrangements the Company may change from being considered the principal party in the transaction to being considered an agent, in which case it would recognize revenue on a net rather than gross basis.


•	For certain arrangements the timing of revenue recognition may change, including arrangements for which the Company may shift from point in time to overtime revenue recognition. Examples of arrangements where such changes may occur include the sale of promotional products and furniture installation projects.


•	The Company currently accounts for its Rewards loyalty program by accruing a liability equal to the incremental cost of fulfilling its obligations to program participants. Under the new standard, the Company will defer revenue at the time Rewards are earned using a relative fair value approach.


•	For certain arrangements the Company may change from being considered the principal party in the transaction to being considered an agent, in which case it would recognize revenue on a net rather than gross basis.


•	For certain arrangements the timing of revenue recognition may change, including arrangements for which the Company may shift from point in time to overtime revenue recognition. Examples of arrangements where such changes may occur include the sale of promotional products and furniture installation projects.


•	The Company currently accounts for its Rewards loyalty program by accruing a liability equal to the incremental cost of fulfilling its obligations to program participants. Under the new standard, the Company will defer revenue at the time Rewards are earned using a relative fair value approach.

STAPLES INC 10-Q