Office Depot 2008 Annual Report Download - page 58

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57
Accounting for Stock-Based Compensation: We account for stock compensation awards under Financial
Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment, (“FAS 123R”). We use the Black-Scholes valuation model and recognize compensation
expense on a straight-line basis over the requisite service period of the grant. We consider alternative models if
grants have characteristics that cannot be reasonably estimated using this model.
Accrued Expenses: Included in accrued expenses and other current liabilities in our Consolidated Balance Sheets
are accrued payroll-related amounts of approximately $205 million and $187 million at December 27, 2008 and
December 29, 2007, respectively.
Revenue Recognition: Revenue is recognized at the point of sale for retail transactions and at the time of successful
delivery for contract, catalog and internet sales. Sales taxes collected are not included in reported sales. We use
judgment in estimating sales returns, considering numerous factors such as current overall and industry-specific
economic conditions and historical sales return rates. Although we consider our sales return accruals to be adequate
and proper, changes from historical customer patterns could require adjustments to the provision for returns. We
also record reductions to our revenues for customer programs and incentive offerings including special pricing
agreements, certain promotions and other volume-based incentives. Revenue from sales of extended warranty
service plans is either recognized at the point of sale or over the warranty period, depending on the determination of
legal obligor status. All performance obligations and risk of loss associated with such contracts are transferred to an
unrelated third-party administrator at the time the contracts are sold. Costs associated with these contracts are
recognized in the same period as the related revenue.
We recognize a liability for future performance when gift cards are sold and recognize the related revenue when gift
cards are redeemed as payment for our products. We recognize as revenue the unused portion of the gift card
liability when historical data indicates that additional redemption is unlikely.
Shipping and Handling Fees and Costs: Income generated from shipping and handling fees is classified as
revenues for all periods presented. Freight costs incurred to bring merchandise to stores and warehouses are included
as a component of inventory and costs of goods sold. Freight costs incurred to ship merchandise to customers are
recorded as a component of store and warehouse operating and selling expenses. Shipping costs, combined with
warehouse handling costs, totaled $911.2 million in 2008, $963.7 million in 2007 and $920.9 million in 2006.
Advertising: Advertising costs are charged either to expense when incurred or, in the case of direct marketing
advertising, capitalized and amortized in proportion to the related revenues over the estimated life of the material,
which range from several months to up to one year.
Advertising expense recognized was $525.7 million in 2008, $564.9 million in 2007 and $575.3 million in 2006.
Prepaid advertising costs were $38.1 million as of December 27, 2008 and $27.9 million as of December 29, 2007.
Pre-opening Expenses: Pre-opening expenses related to opening new stores and warehouses or relocating existing
stores and warehouses are expensed as incurred and included in store and warehouse operating and selling expenses.
Self-Insurance: Office Depot is primarily self-insured for workers’ compensation, auto and general liability and
employee medical insurance programs. Self-insurance liabilities are based on claims filed and estimates of claims
incurred but not reported. These liabilities are not discounted.
Comprehensive Income (Loss): Comprehensive income (loss) represents the change in stockholders’ equity from
transactions and other events and circumstances arising from non-stockholder sources. Comprehensive income
consists of net earnings (loss), foreign currency translation adjustments, realized or unrealized gains (losses) on
investment securities that are available-for-sale, deferred pension gains (losses) and elements of qualifying cash flow
hedges, net of applicable income taxes. As of December 27, 2008, our Consolidated Balance Sheet reflected
accumulated other comprehensive income in the amount of $217.2 million, which consisted of $221.1 million in
foreign currency translation adjustments, $7.7 million in unamortized gain on hedge, $4.6 million in unrealized
losses on cash flow hedges and $7.0 million in deferred pension loss.