Office Depot 2010 Annual Report Download - page 45

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fiscal year. In addition, at the current ownership percentage level, the Investors are entitled to nominate up to
three members of the board of directors. Declining ownership percentages reduce the Investors’ board
representation rights. Three directors designated by the Investors are current members of the company’s board of
directors.
NOTE D — ASSET IMPAIRMENTS, EXIT COSTS AND OTHER CHARGES
Each of our three operating segments has been adversely affected by the downturn in the global economy in
recent years. The company has taken actions to adapt to the changing and increasingly competitive conditions
including closing stores and distribution centers (“DCs”), consolidating functional activities and disposing of
businesses and assets. During 2010, 2009 and 2008, we have recognized significant charges from reorganization
efforts and asset impairments. The charges recognized in 2009 and 2008 that related to a strategic review (the
“Charges”) were managed at the corporate level and were excluded from measurement of Division operating
profit.
In the fourth quarter of 2010, the company initiated additional activities to increase future operating performance,
change the ownership structure of certain international investments and eliminate non-productive corporate
assets. The 2010 charges included termination benefits and lease obligations accrued in Europe of approximately
$6 million and $5 million respectively, a pre-tax loss on the sale of two operating subsidiaries in the International
Division of approximately $11 million, a $51 million charge for the abandonment of software under development
that will not be implemented and approximately $13 million associated with severance, accelerated vesting of
share-based awards and compensation-related costs following the departure of the former CEO. The operations
of the two subsidiaries sold were not material to the operations of the company. The loss on subsidiary sales and
the severance and lease obligation accruals recognized in 2010 are included in Store and warehouse operating
and selling expenses on the Consolidated Statements of Operations and are included in the measurement of
segment operating profit for the International Division. The software impairment charge is presented on a
separate line and the executive compensation costs are included in unallocated general and administrative
expenses.
A summary of the Charges recognized during 2009 and 2008 and the line item presentation of these amounts in
our accompanying Consolidated Statements of Operations is as follows.
(Dollars in millions, except per share amounts) 2009 2008
Cost of goods sold and occupancy costs .................................... $ 13 $ 16
Store and warehouse operating and selling expenses .......................... 188 52
Goodwill and trade name impairments ..................................... — 1,270
Other asset impairments ................................................. 26 114
General and administrative expenses ....................................... 26 17
Total pre-tax Charges ................................................. $253 $1,469
The primary components of Charges include:
•Retail Store Initiatives — We closed 126 stores in North America (six of which were closed in the fourth
quarter of 2008, the remainder in 2009) and 27 stores in Japan. The stores closed were underperforming or
stores that were no longer a strategic fit for the company. The Charges totaled $122 million and $104 million
in 2009 and 2008, respectively. The 2009 Charges were primarily related to lease accruals, inventory write
downs, severance expenses and other facility closure costs. The 2008 Charges related primarily to asset
impairments, inventory write downs and lease accruals.
•Supply Chain Initiatives — During 2009, we closed five DCs and six crossdock facilities in North America
and consolidated our DCs in Europe. Charges related to these actions totaled approximately $57 million in
2009 and related primarily to lease accruals, inventory write downs, severance expenses and other facility
closure costs. The 2008 Charges totaled approximately $22 million and consisted primarily of accelerated
depreciation, severance related costs and lease accruals.
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