Office Depot 2008 Annual Report Download - page 31

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pension plan in the UK and non-cash impairment charges of approximately $11 million related to our customer list
intangible assets. The 2007 decrease reflects lower performance of approximately 80 basis points, primarily from the
UK, and to a lesser extent, a greater percentage of contract sales in our sales mix. During 2007, the Division
established regional offices in Asia and Latin America, centralized certain support functions in Europe, expanded
into Poland and consolidated certain warehouse facilities. These investments lowered 2007 operating margin by
approximately 80 basis points. Partially offsetting the decrease in operating margin in 2007 were positive impacts
totaling approximately 30 basis points, which resulted primarily from lower performance-based variable pay as a
result of lower Division performance.
We believe the uncertain economic outlook will continue to challenge our sales and operating profit margin in 2009.
For U.S. reporting, the International Division’s sales are translated into U.S. dollars at average exchange rates
experienced during the year. The Division’s reported sales were positively impacted by approximately $127 million
in 2008 and $322 million in 2007 from changes in foreign currency exchange rates. Division operating profit was
also positively impacted from changes in foreign exchange rates by $2 million in 2008 and $20 million in 2007.
Internally, we analyze our international operations in terms of local currency performance to allow focus on
operating trends and results.
CORPORATE AND OTHER
General and Administrative Expenses
Total general and administrative expenses (“G&A”) increased from $646 million in 2007 to $743 million in 2008.
The portion of G&A expenses considered directly or closely related to division activity is included in the
measurement of Division 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
companies. The remainder of the total G&A expenses are considered corporate expenses. A breakdown of G&A is
provided in the following table:
(Dollars in millions) 2008 2007 2006
Division G&A..................................................................................... $ 394.6 $ 341.8 $ 319.0
Corporate G&A................................................................................... 348.6 303.9 332.7
Total G&A ...................................................................................... $ 743.2 $ 645.7 $ 651.7
% of sales ............................................................................................ 5.1% 4.2% 4.3%
Increases in Division G&A in 2008 were primarily driven by higher levels of performance-based variable pay and
the impact of changes in foreign exchange rates.
Corporate G&A includes Charges of approximately $17 million, $15 million and $18 million in 2008, 2007 and
2006, 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, corporate G&A expenses as a percentage of sales
increased approximately 40 basis points from 2007 to 2008 and decreased by approximately 10 basis points from
2006 to 2007. The 2008 increase primarily reflects higher performance-based variable pay as well as costs for
professional and legal fees associated with the company’s proxy challenge and legal matters described in Part I -
Item 3. “Legal Proceedings.” Also, during 2008, the company initiated a voluntary exit incentive program for certain
employees that resulted in charges for severance expenses of approximately $7 million during the year. The 2007
decrease reflects lower performance-based pay, partially offset by higher professional fees and outside labor costs.
Gain on Sale of Building
In December 2006, in connection with a decision to move to a new, leased, headquarters facility, we sold our
corporate campus and entered into a leaseback agreement pending completion of the new facility. The sale resulted
in a gain of approximately $21 million recognized in 2006 and $15 million deferred over the leaseback period. We
recognized approximately $7 million in amortization of the deferred gain on the sale during both 2008 and 2007.
This amortization largely offset the rent expense during the leaseback period. During 2007, we entered into a longer-
term lease on our new corporate campus, and we moved into this new facility during the fourth quarter of 2008.