OfficeMax 2015 Annual Report Download - page 73

Table of Contents
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
Selling, general and administrative expenses include amounts incurred related to expenses of operating and
support functions, including:
- employee payroll and benefits, including variable pay arrangements;
- advertising;
- store and field support;
- executive management and various staff functions, such as information technology, human resources functions, finance, legal, internal audit, and
certain merchandising and product development functions;
- other operating costs incurred relating to selling activities; and
- closed defined benefit pension and postretirement plans.
Selling, general and administrative expenses are included in the determination of Division operating income to the extent those costs are considered to be
directly or closely related to segment activity and through allocation of support costs.
Merger, restructuring, and other operating expenses, net in the Consolidated Statements of
Operations includes amounts related to the Merger, international restructuring plans, and the Staples Acquisition. The line item includes charges and, where
applicable, credits for components such as: employee termination and retention, transaction and integration-related professional fees, facility closure costs,
gains and losses on asset dispositions, and other incremental costs directly related to these activities. This presentation is used to separate these significant
and unusual impacts from captions that are more directly related to ongoing operations. Changes in estimates and accruals related to these activities are also
reflected on this line.
Merger, restructuring, and other operating expenses, net are not included in the measure of Division operating income. Refer to Note 3 for additional
information.
Advertising costs are charged either to Selling, general and administrative expenses when incurred or, in the case of direct marketing
advertising, capitalized and amortized in proportion to the related revenues over the estimated life of the materials, which range from several months to up to
one year.
Advertising expense recognized was $370 million in 2015, $447 million in 2014 and $378 million in 2013. Prepaid advertising costs were $14 million as of
December 26, 2015 and $21 million as of December 27, 2014.
Compensation expense for all share-based awards expected to vest is measured at fair value on the date of grant and recognized
on a straight-line basis over the related service period. The Black-Scholes valuation model is used to determine the fair value of stock options. The fair value
of restricted stock and restricted stock units, including performance-based awards, is determined based on the Company’s stock price on the date of grant. The
Merger-date value of former OfficeMax share-based awards was valued using the Black-Scholes model and apportioned between Merger consideration and
unearned compensation to be recognized in expense as earned in future periods based on remaining service periods.
Office Depot is primarily self-insured for workers’ compensation, auto and general liability and employee medical insurance programs. The
Company has stop-loss coverage to limit the exposure arising from these claims. Self-insurance liabilities are based on claims filed and estimates of claims
incurred but not reported. These liabilities are not discounted.
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