Staples 2007 Annual Report Download - page 116

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STAPLES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
NOTE A Summary of Significant Accounting Policies (Continued)
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; 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. Leasehold improvements are amortized over the shorter
of the terms of the underlying leases or the estimated economic lives of the improvements.
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 2, 2008 and February 3, 2007 totaled $68.4 million and $64.4 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 2, 2008 are as follows (in
thousands):
2007 Foreign
Goodwill 2007 Net Exchange Goodwill
At February 3, 2007 Additions Fluctuations At February 2, 2008
North American Retail ........................ $ 36,306 $ — $ 6,542 $ 42,848
North American Delivery ...................... 444,775 60,915 — 505,690
International Operations ....................... 974,032 120,174 122,184 1,216,390
Consolidated ............................... $1,455,113 $181,089 $128,726 $1,764,928
Intangible assets not subject to amortization, which include registered trademarks and trade names, were $153.0 mil-
lion at February 2, 2008 and February 3, 2007. Intangible assets subject to amortization, which include certain trademarks
and trade names, customer related intangible assets and non-competition agreements, were $140.7 million, with
accumulated amortization of $62.4 million at February 2, 2008, and $126.5 million with accumulated amortization of
$47.1 million at February 3, 2007, respectively. At February 2, 2008, intangible assets subject to amortization had a
weighted average life of 10.6 years.
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
accounts payable approximate fair value because of their short-term nature, and the carrying amounts of Staples’ debt
approximates fair value because of the Company’s use of derivative instruments that qualify for hedge accounting.
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