Staples 2013 Annual Report Download - page 145

STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
C-14
The restructuring charges related to continuing operations are presented within Restructuring charges in the Company's
consolidated statements of income. The table below summarizes how the $207.0 million of restructuring charges would have
been allocated if the Company had recorded the expenses within the functional department of the restructured activities (in
thousands):
Fiscal Year Ended
February 2, 2013
Cost of goods sold and occupancy costs $ 118,693
Selling, general and administrative 88,323
Total $ 207,016
As a result of the closure of the 46 retail stores in Europe and the 15 retail stores in the United States and the consolidation
of certain sub-scale delivery businesses in Europe, the Company incurred long-lived asset impairment charges of $34.7 million
in 2012 (see Note C - Goodwill and Long-Lived Assets).
Also during 2012, the Company recorded a pre-tax charge of $20.1 million primarily for severance and benefit costs in
connection with the Company's decision to pursue the sale of PSD. These charges were reflected in Loss from discontinued
operations, net of tax in the Company's consolidated statements of income. The Company completed the sale of PSD in the third
quarter of 2013 (see Note D - Divestitures).
Note C — Goodwill and Long-Lived Assets
Goodwill
As described in Note A - Summary of Significant Accounting Policies, the Company reviews goodwill for impairment
annually during its fourth fiscal quarter and whenever events or changes in circumstances indicate the carrying value of goodwill
may not be recoverable.
In the third quarter of 2012, the Company determined that indicators of impairment existed for the goodwill related to
its Europe Retail and Europe Catalog reporting units, both of which are included in the Company's International Operations
segment. These indicators included political and economic instability in Europe, declining sales and profits, a sustained decline
of the Company’s stock price, and revised outlooks for its European businesses. In September 2012, management presented, and
the Board of Directors approved, a strategic plan to accelerate growth across the Company and to reposition its operations and
stem losses in Europe. In connection with the development of this plan, the Company analyzed each of its European businesses
in light of ongoing industry trends, economic conditions, and long-term sales and profit projections. The Company's management
and Board of Directors concluded a strategic shift in the business was crucial to Staples' long-term business prospects in Europe.
As a result, the Company made strategic decisions and announced a plan to restructure the Company's operations in Europe (see
Note B - Restructuring Charges), divest its printing systems division and more fully integrate its retail and online offerings.
The outcome of this strategic review was significant changes in the long-range financial projections for Europe Retail
and Europe Catalog compared with previous projections. The revised projections reflected long-term sales declines for Europe
Retail, stemming from a decision, in light of industry trends, to allocate more resources and capital to the expansion of online
capabilities. The revised projections also reflected declines in the Company's European catalog business, which is projected to
be replaced with the growing, but less profitable, online business.
To derive the fair value of these reporting units in step one of the impairment test, the Company used the income approach,
specifically the discounted cash flow ("DCF") method. Based on the results of this first step, the Company determined that the
carrying values of Europe Retail and Europe Catalog exceeded their respective fair values, and accordingly, the Company proceeded
to step two of the impairment test.
In the second step, the Company assigned the reporting unit's fair value to all of its assets and liabilities, including any
unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as
if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less
than the carrying value, the difference is recorded as an impairment charge. The fair value estimates incorporated in step two were
primarily based on third-party appraisals and the income approach, specifically the relief from royalty and the multi-period excess
earnings methods. Based on the results of this second step, the Company recorded impairment charges of $303.3 million related
to Europe Retail and $468.1 million related to Europe Catalog during the third quarter of 2012.