Staples 2002 Annual Report Download - page 72

STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE A Summary of Significant Accounting Policies (Continued)
The changes in the carrying amou t of goodwill during the year ended February 1, 2003 are as follows (in thousands):
Goodwill
Goodwill, net acquired Goodwill, net
at February 3, during the at February 1,
2002 year 2003
North American Retail ........................... $ 37,109 $ — $ 37,109
North American Delivery ......................... 45,777 343,502 389,279
European Operations ............................ 140,832 640,604 781,436
Consolidated .................................. $223,718 $984,106 $1,207,824
A reconciliation of reported net earnings to the amounts adjusted for the exclusion of goodwill amortization follows
(in thousands):
2002 2001
Reported net earnings ........................................ $446,100 $264,970
Add: Goodwill amortization, net of tax ............................ — 6,003
Adjusted net earnings ........................................ $446,100 $270,973
Excluding goodwill amortization, proforma earnings per share would have increased by $0.01 per share for fiscal
2001.
Intangible assets not subject to amortization at February 1, 2003 were $144.1 million; intangible assets subject to
amortization were $75.6 million. Accumulated amortization for intangible assets subject to amortization was $3.4 million
at February 1, 2003. The Company had no intangible assets at February 2, 2002.
Impairment of Long-Lived Assets: Statement of Financial Accounting Standards No. 144, ‘‘Accounting for the
Impairment or Disposal of Long-Lived Assets’’ (‘‘SFAS No. 144’’) requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flow estimated
to be generated by those assets are less than the assets’ carrying amount. Staples’ policy is to evaluate long-lived assets
for impairment at a store level for retail operations and an operating unit level for Staples’ other operations.
Fair Value of Financial Instruments: Pursuant to Statement of Financial Accounting Standards No. 107, ‘‘Disclosure
About Fair Value of Financial Instruments’’ (‘‘SFAS No. 107’’), Staples has estimated the fair value of its financial
instruments using the following methods and assumptions:
• The carrying amount of cash and cash equivalents, receivables and accounts payable approximates fair value;
• The fair values of short-term and long-term investments are based on quoted market prices or other readily
available sources where applicable; and
• The carrying amounts of Staples’ debt approximates fair value, estimated by discounted cash flow analyses based
on Staples’ current incremental borrowing rates for similar types of borrowing arrangements.
Advertising: Staples expenses the production costs of advertising the first time the advertising takes place, except
for the cost of direct-response advertising, which is capitalized and amortized over its expected period of future benefits.
Direct-response advertising consists primarily of catalog production costs. Capitalized advertising is amortized over the
six month period following the publication of the catalog in which it appears. Direct catalog production costs included in
prepaid and other assets totaled $22.7 million at February 1, 2003 and $22.5 million at February 2, 2002. Total advertising
and marketing expense was $559.8 million, $556.7 million, and $587.5 million for fiscal years 2002, 2001 and 2000,
respectively.
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