Office Depot 2007 Annual Report Download - page 72

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We sell to customers in 43 countries throughout North America, Europe, Asia and Latin America either through
wholly-owned entities, majority-owned entities or other ventures covering 35 countries, and through alliances in an
additional 8 countries. There is no single country outside of the United States in which we generate 10% or more of
our total revenues. Geographic financial information relating to our business is as follows (in thousands).
Sales Property and Equipment
2007 2006 2005 2007 2006
United States....................... $ 11,165,664 $ 11,234,053 $ 10,671,297 $ 1,174,585 $ 1,076,294
International........................ 4,361,873 3,776,728 3,607,647 414,373 348,673
Total................................ $ 15,527,537 $ 15,010,781 $ 14,278,944 $ 1,588,958 $ 1,424,967
NOTE L — ASSET IMPAIRMENTS, EXIT COSTS AND OTHER CHARGES
During the third quarter of 2005, we announced a number of material charges relating to asset impairments, exit
costs and other operating decisions (the “Charges”). This announcement followed a wide-ranging assessment of
assets and commitments which began in the second quarter of 2005. Through the end of 2007, we had recorded $385
million of Charges, with $282 million, $63 million and $40 million recognized in 2005, 2006 and 2007,
respectively. Expenses associated with future activities will be recognized as the individual plans are implemented
and the related accounting recognition criteria are met. As with any estimate, the amounts may change when
expenses are incurred. We manage these costs and programs at the corporate level and, accordingly, these amounts
are not included in determining Division operation profit.
A summary of the Charges and the line item presentation of these amounts in our accompanying Consolidated
Statements of Earnings is as follows.
(Dollars in millions)
2007
Amounts
2006
Amounts
2005
Amounts
Cost of goods sold and occupancy costs........................................... $ — $ 1 $ 20
Store and warehouse operating and selling expenses ....................... 25 37 109
Asset impairments ............................................................................ — 7 133
General and administrative expenses................................................ 15 18 20
Total pre-tax Charges.................................................................... $ 40 $ 63 $ 282
Of the $282 million pre-tax charge recognized in 2005, approximately $133 million related to asset impairments,
approximately $72 million of exit costs and approximately $77 million of costs associated with termination
agreements relating to contracts and surplus leases, accelerated amortization of software and depreciation of assets
based on changes in estimated useful lives and the write off of certain property and inventory no longer used or
useful based on this business review.
The asset impairment charge of $133 million included $83 million related to certain former Kids “R” Us (“KRU”)
retail store locations acquired in 2004 from Toys “R” Us, Inc. The performance of many of these locations did not
meet initial projections to recover the initial asset base that included amounts paid to facilitate a quick entry into
certain markets. We also recognized a $41 million goodwill and other intangible asset charge related to our Tech
Depot subsidiary. A change in market conditions for technology products and a shift in that subsidiary’s emphasis
from consumer to business customers resulted in lowering our projected cash flows and goodwill was written down
to estimated fair value. Also, as part of this business review and to streamline operations, we decided to migrate
customers from the Guilbert trade name to Office Depot. The existing trade name intangible asset was tested for
impairment and written down approximately $9 million to the amount that we estimated to be recoverable over the
one-year migration plan.
We decided to close 25 retail stores (16 in North America and nine internationally), three warehouses (two in North
America and one internationally) and consolidate certain international call center and contract operations.
Accordingly, we recognized approximately $72 million of charges for future lease obligations, severance-related
costs, accelerated depreciation, asset write offs and inventory clearance and disposal. Of this total, approximately $8
million of inventory-related costs were recognized in cost of goods sold, approximately $61 million in operating and
selling expenses and approximately $3 million in general and administrative expenses.