Office Depot 2008 Annual Report Download - page 23

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
RESULTS OF OPERATIONS
GENERAL
Our business is comprised of three reportable segments. The North American Retail Division includes our retail
office supply stores in the U.S. and Canada, which offer office supplies, computers and business machines and
related supplies, and office furniture. Most stores also offer a design, print and ship center offering graphic design,
printing, reproduction, mailing and shipping. The North American Business Solutions Division sells office supply
products and services in the U.S. and Canada directly to businesses through catalogs, internet web sites and a
dedicated sales force. Our International Division sells office products and services through catalogs, internet web
sites, a dedicated sales force and retail stores.
Our fiscal year results are based on a 52- or 53-week retail calendar ending on the last Saturday in December. Each
of the three years addressed in this Management’s Discussion and Analysis of Financial Condition and Results of
Operations (“MD&A”) is based on 52 weeks. Our comparable store sales relate to stores that have been open for at
least one year.
OVERVIEW
Economic factors and company performance
Fiscal year 2008 was a very difficult period for the company. The housing crisis that began in California and Florida
in 2007 deepened in 2008 and spilled over to other sectors of the U.S. economy and then the global economy. A
wide range of underlying asset values decreased and in turn, contributed to a banking and credit crisis, as well as
extreme volatility in the stock market. We entered a recessionary period combined with a systemic lack of liquidity
and deep cuts in corporate spending. All of these factors contributed to a difficult retail environment. While we
worked hard to anticipate and satisfy our customers’ needs, we clearly did not meet our goals. As a result, the
company has reported a decline in sales and gross margins, as well as significant asset impairments and other
charges, resulting in a significant loss for the year. We cannot predict the future, but most economists anticipate
another difficult year in 2009. This outlook of continued recessionary factors has contributed to the severity of some
of the impairment charges recognized in 2008. We will continue to focus on the needs of our small- to medium-
sized customers, controlling cash flows, expanding our private brands and providing solutions to all customers.
Summary of charges
At the time we reported our third quarter 2008 results, we also announced the launch of an internal review of assets
and processes with the goal of positioning the company to deal with the deepening economic crisis and to benefit
from its eventual improvement. The results of that internal review led to decisions to close stores, exit certain
businesses and write off certain assets that were not seen as providing future benefit. These decisions resulted in
material charges, some of which were recognized during the fourth quarter of 2008, and others which will be
recognized during 2009 as the related accounting criteria are met. Additional information about these activities is
provided below. We will manage these activities at a corporate level and the impacts will be disclosed as corporate
charges and will not be reflected in the Division operating results.
In addition to the charges that relate to these changes in business, we recognized other material charges because of
the downturn in our business. Those charges include material asset impairments relating to stores we will continue
to operate, charges to impair amortizing customer relationship intangible assets, as well as an increase in our
allowance for bad debts related to our private label credit card portfolio and certain other accounts receivable
balances to reflect the current economic downturn. These charges are considered reflective of operating an ongoing
business in difficult times and are included in Division operating results.
We also recognized material goodwill and trade name impairment charges during 2008. The factors and amounts
associated with these and other charges reported internally at the corporate level (collectively, the “Charges”) are
discussed below.