Staples 2006 Annual Report Download - page 112

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STAPLES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
C-8
NOTE A Summary of Significant Accounting Policies (Continued)
Private Label Credit Card: Staples offers a private label credit card which is managed by a financial services
company. Under the terms of the agreement, Staples is obligated to pay fees which approximate the financial institution’s
cost of processing and collecting the receivables, which are non-recourse to Staples.
Property and Equipment: Property and equipment are recorded at cost. Expenditures for normal maintenance and
repairs are charged to expense as incurred. Depreciation and amortization, which includes the amortization of assets
recorded under capital lease obligations, are provided using the straight-line method over the following useful lives: 40
years for buildings; the lesser of 10-15 years or term of lease for leasehold improvements; 3-10 years for furniture and
fixtures; and 3-10 years for equipment, which includes computer equipment and software with estimated useful lives of
3-5 years.
Lease Acquisition Costs: Lease acquisition costs are recorded at cost and amortized using the straight-line method
over the respective lease terms, including option renewal periods if renewal of the lease is probable, which range from 5
to 40 years. Accumulated amortization at February 3, 2007 and January 28, 2006 totaled $64.4 million and $61.5 million,
respectively.
Goodwill and Intangible Assets: SFAS No. 142, “Accounting for Goodwill and Other Intangible Assets” requires
that goodwill and intangible assets that have indefinite lives not be amortized but, instead, tested at least annually for
impairment. Management uses a discounted cash flow analysis, which requires that certain assumptions and estimates be
made regarding industry economic factors and future profitability of acquired businesses to assess the need for an
impairment charge. If actual results are not consistent with management’s assumptions and judgments, the Company
could be exposed to a material impairment charge. The Company has elected the fourth quarter to complete its annual
goodwill impairment test. In addition, annual impairment tests for indefinite lived intangible assets are also performed in
the fourth quarter. As a result of the fourth quarter impairment analyses, management has determined that no
impairment charges are required.
The changes in the carrying amount of goodwill during the year ended February 3, 2007 are as follows (in
thousands):
Goodwill
At January 28,
2006
2006 Net
Additions
2006 Foreign
Exchange
Fluctuations
Goodwill
At February 3,
2007
North American Retail................................... $ 37,109 $ — $ (803 ) $ 36,306
North American Delivery................................. 431,371 13,404 — 444,775
International Operations.................................. 910,272 4,730 59,030 974,032
Consolidated............................................ $ 1,378,752 $ 18,134 $ 58,227 $ 1,455,113
Intangible assets not subject to amortization, which include registered trademarks and trade names, were $153.0
million at February 3, 2007 and January 28, 2006; intangible assets subject to amortization, which include certain
trademarks and trade names, customer related intangible assets and non-competition agreements, were $126.5 million
and $120.9 million at February 3, 2007 and January 28, 2006, respectively. At February 3, 2007, intangible assets subject
to amortization had a weighted average life of 11.1 years. Accumulated amortization for intangible assets subject to
amortization was $47.1 million and $33.5 million at February 3, 2007 and January 28, 2006, respectively.
Impairment of Long-Lived Assets: SFAS 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 flows 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 SFAS 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 amounts of cash and cash equivalents, short-term investments, receivables and