Office Depot 2007 Annual Report Download - page 29

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In addition to these exit costs, we recognized approximately $77 million of other charges. We terminated certain
contractual agreements and adjusted surplus lease property accruals, wrote down and accelerated depreciation on
assets based on a decrease in their expected use and accelerated inventory clearance activity in preparation for
implementing a new inventory management system. Of this total, approximately $12 million was presented as a
charge in cost of goods sold, approximately $48 million in store and warehouse operating and selling expenses and
approximately $17 million in general and administrative expenses.
We recognized $63 million and $40 million in 2006 and 2007, respectively, associated with these projects as the
previously-identified plans were implemented and the related accounting recognition criteria were met. We incurred
charges for severance-related expenses, accelerated depreciation and lease obligations associated with the
consolidation of warehouses and distribution centers. We also incurred severance-related charges as plans were
implemented for management restructuring and call center consolidation in Europe. Some of these activities, such as
planned facility closings, will extend into 2008 and 2009. The costs associated with these activities will be
recognized in future periods as incurred, or in the case of asset utilization, over the period of remaining estimated
useful life. A summary of past and estimated future charges is presented below.
Projected
(Dollars in millions)
2005
Actual
2006
Actual
2007
Actual 2008 2009
Total
Charges
Asset impairments ..................................................................... $ 133 $ 7 $ — $ — $ — $ 140
Cost of goods sold ..................................................................... 20 1 — — — 21
Asset write-offs and accelerated depreciation ........................... 54 21 20 11 1 107
Lease obligations/Contract terminations ................................... 61 9 2 4 5 81
One-time termination benefits ................................................... 11 22 19 34 15 101
Other associated costs................................................................ 3 3 (1) 13 2 20
Total pre-tax charges.............................................................. $ 282 $ 63 $ 40 $ 62 $ 23 $ 470
As with any estimate, the timing and amounts may change when projects are implemented. Additionally, changes in
foreign currency exchange rates may impact amounts reported in U.S. dollars related to our foreign activities.
Of the total Charges, approximately $200 million either has or is expected to require cash settlement, including
longer-term lease obligations that will require cash over multi-year lease terms; approximately $270 million of
Charges are non-cash items.
General and Administrative Expenses
(Dollars in millions) 2007 2006 2005
General and administrative expenses ...................................................... $ 645.7 $ 651.7 $ 666.6
% of sales ................................................................................................ 4.2% 4.3% 4.7%
General and administrative (“G&A”) expenses include Charges of approximately $15 million, $18 million and $20
million in 2007, 2006 and 2005, respectively. Additionally in 2006, we recognized a charge of approximately $16
million to resolve a wage and hour litigation in California. After considering these charges and credits, the
remaining change in total G&A expenses in 2007 compared to 2006 reflects lower performance-based pay
commensurate with lower operating results, partially offsetting higher professional fees and outside labor costs. The
remaining change in total G&A expenses in 2006 compared to 2005 reflects the positive impacts of various cost
control measures and consolidating functions.
During 2006, we decided to allocate to our Divisions only those G&A expenses that are directly or closely related to
their operations. Those amounts are included in our determination of each Division’s operating profit. Other
companies may charge more or less G&A expenses and other costs to their segments, and our results therefore may
not be comparable to similarly titled measures used by other entities.