Office Depot 2008 Annual Report Download - page 57

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Impairment of Long-Lived Assets: Long-lived assets with identifiable cash flows are reviewed for possible
impairment annually or whenever events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Impairment is assessed at the location level, considering the estimated undiscounted
cash flows over the asset’s remaining life. If estimated cash flows are insufficient to recover the investment, an
impairment loss is recognized equal to the estimated fair value of the asset less its carrying value and any costs of
disposition. Impairment losses of $97.7 million, $3.3 million and $2.3 million were recognized in 2008, 2007 and
2006, respectively, relating to certain under-performing retail stores. For additional discussion of material asset
impairment charges recognized in 2008, see Note B.
Facility Closure Costs: We regularly review store performance against expectations and close stores not meeting
our performance requirements. Costs associated with store or other facility closures, principally lease cancellation
costs, are recognized when the facility is no longer used in an operating capacity or when a liability has been
incurred. Store assets are also reviewed for possible impairment, or reduction of estimated useful lives.
Accruals for facility closure costs are based on the future commitments under contracts, adjusted for anticipated
sublease and termination benefits and discounted at the company’s risk-adjusted rate at the time of closing. During
2008, we recorded a charge of $6 million relating to leases on retail stores closed as part of a company-wide
business review and an additional charge of $9 million to terminate certain existing commitments and to adjust the
remaining commitments to current market values. During 2009, we plan to close additional retail stores in North
America and Japan as well as distribution facilities in North America and Europe. We currently anticipate recording
a lease-related charge of approximately $106 million when these facilities close. See Note B for related information.
During 2006, we recognized a $4 million charge based on our planned transfer to an unrelated third party of risks
associated with disposition activities for additional properties. The accrued balance relating to our future
commitments under operating leases for our closed facilities was $54.1 million and $36.3 million at December 27,
2008 and December 29, 2007, respectively.
Fair Value of Financial Instruments: The estimated fair values of financial instruments recognized in the
Consolidated Balance Sheets or disclosed within these Notes to Consolidated Financial Statements have been
determined using available market information, information from unrelated third party financial institutions and
appropriate valuation methodologies, primarily discounted projected cash flows. However, considerable judgment is
required when interpreting market information and other data to develop estimates of fair value.
Short-term Assets and Liabilities: The fair values of cash and cash equivalents, short-term investments,
receivables, accounts payable and accrued expenses and other current liabilities approximate their carrying
values because of their short-term nature.
Notes Payable: The fair value of the senior notes was determined based on quoted market prices. The following
table reflects the difference between the carrying value and fair value of the senior notes as of December 27,
2008 and December 29, 2007:
2008 2007
Carrying Fair
Carrying Fair
(Dollars in thousands) Value Value Value Value
$400 million senior notes ................ $400,278 $206,000 $400,384 $415,840
Interest Rate Swaps, Foreign Currency and Fuel Contracts: The fair values of our interest rate swaps,
foreign currency contracts and fuel contracts are the amounts receivable or payable to terminate the agreements
at the reporting date, taking into account current interest and exchange rates. The values are based on market-
based inputs or observable inputs that are corroborated by market data. There were no interest rate swap
agreements in place at the end of 2008 and the amounts receivable or payable under foreign currency and fuel
contracts were not significant at the end of 2008.
There were no significant differences between the carrying values and fair values of our financial instruments as
of December 27, 2008 and December 29, 2007, except as disclosed above.