Travelers 2001 Annual Report Download - page 51

The St. Paul Companies 2001 Annual Report 49
goodwill and intangible assets
Goodwill is the excess of the amount we paid to acquire a company
over the fair value of its net assets, reduced by amortization and
any subsequent valuation adjustments. Intangible assets arise from
the purchase from another entity of contractual or other legal rights,
or an asset capable of being separated and sold. We amortize
goodwill and intangible assets over periods of up to 40 years,
generally on a straight-line basis. The accumulated amortization of
goodwill and intangible assets was $257 million and $216 million
at Dec. 31, 2001 and 2000, respectively.
In June 2001, the FASB issued SFAS No. 141, “Business
Combinations,” which established financial accounting and
reporting standards for business combinations. It required all
business combinations initiated subsequent to June 30, 2001 to be
accounted for under the purchase method of accounting. In addition,
this statement required that intangible assets that can be identified
and meet certain criteria be recognized as assets apart from
goodwill. We adopted the provisions of SFAS No. 141 via Nuveen’s
2001 acquisition of Symphony. Nuveen recorded an intangible asset
estimated to be in the amount of $53 million related to the purchase,
which is expected to be amortized over a weighted average of ten
years, and goodwill estimated to be in the amount of $151 million,
which will not be amortized, but will be evaluated for possible
impairment on an annual basis. (Goodwill acquired in a business
combination completed after the adoption of SFAS No. 141, but
before the adoption of SFAS No. 142, “Goodwill and Other Intangible
Assets,” is not amortized.)
impairments of long-lived assets and intangibles
We monitor the recoverability of the value of our long-lived assets
to be held and used based on our estimate of the future cash flows
(undiscounted and without interest charges) expected to result from
the use of the asset and its eventual disposition considering any
events or changes in circumstances which indicate that the carrying
value of an asset may not be recoverable. We monitor the value
of our goodwill based on our estimates of discounted future
earnings. If either estimate is less than the carrying amount of
the asset, we reduce the carrying value to fair value with a
corresponding charge to expenses. We monitor the value of our
long-lived assets, and certain identifiable intangibles, to be disposed
of and report them at the lower of carrying value or fair value less
our estimated cost to sell.
office properties and equipment
We carry office properties and equipment at depreciated cost. We
depreciate these assets on a straight-line basis over the estimated
useful lives of the assets. The accumulated depreciation for office
properties and equipment was $483 million and $452 million at the
end of 2001 and 2000, respectively.
internally developed software costs
We capitalize certain internally developed software costs incurred
during the application development stage of a project. These costs
include external direct costs associated with the project and payroll
and related costs for employees who devote time to the project. We
begin to amortize costs once the software is ready for its intended
use, and amortize them over the software’s expected useful life,
generally five years.
At Dec. 31, 2001 and 2000, respectively, we had $50 million and
$42 million of unamortized internally developed computer software
costs and recorded $7 million and $3 million of amortization
expense during 2001 and 2000, respectively.
foreign currency translation
We assign functional currencies to our foreign operations, which
are generally the currencies of the local operating environment.
Foreign currency amounts are remeasured to the functional currency,
and the resulting foreign exchange gains or losses are reflected in
the statement of operations. Functional currency amounts are then
translated into U.S. dollars. The unrealized gain or loss from this
translation, net of tax, is recorded as a part of common shareholders’
equity. The change in unrealized foreign currency translation gain
or loss during the year, net of tax, is a component of comprehensive
income. Both the remeasurement and translation are calculated
using current exchange rates for the balance sheets and average
exchange rates for the statements of operations.
supplemental cash flow information
Interest and Income Taxes Paid — We paid interest on debt and
distributions on redeemable preferred securities of trusts of
$133 million in 2001, $134 million in 2000 and $128 million in
1999. We received net federal income tax refunds of $54 million in
2001, and paid federal income taxes of $161 million in 2000 and
$73 million in 1999.
Non-cash Investing and Financing Activities — In September 2001,
related to the sale of our life insurance subsidiary to Old Mutual plc,
we received approximately 190 million shares of Old Mutual common
stock as partial consideration. The shares were valued at $300 million
at the time of closing. In August 2000, we issued 7,006,954 common
shares in connection with the conversion of over 99% of the
$207 million of 6% Convertible Monthly Income Preferred Securities
issued by St. Paul Capital LLC (our wholly-owned subsidiary).