Office Depot 2008 Annual Report Download - page 61

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one-time termination benefit accruals, and $1 million represents other facility closure costs. As mentioned above
six of the stores were closed by year end 2008 and approximately $6 million was recognized for the estimated
period of economic loss under the associated operating lease contracts. Additional severance of approximately
$3 million will be recognized as services are performed over the closure period and applicable lease accruals will
be recognized when the facilities are closed during 2009. We currently estimate approximately $88 million of
lease charges to be recognized in 2009, but the amount may change as sublease assumptions are refined and the
then-current risk-adjusted discount rates applied. We are currently using discount rates ranging from 13.5% to
15.0% to discount these multi-year obligations.
• Reduction in store openings (North America) – We have reduced the number of new store openings for 2009 to
approximately 15, from the previous estimate of 40 stores. This reduction resulted in the recognition in 2008 of
approximately $9 million for the estimated period of economic loss under the operating lease contracts
associated with the stores that will not be opened. We expect to record approximately $3 million in lease costs
for these activities during 2009.
• Store closures (International) – We have decided to exit the retail sales channel in Japan during 2009 because
most of our stores in that country are unprofitable. The total charges for these closures is estimated to be $13
million, with approximately $6 million recorded in the fourth quarter of 2008 and the balance to be recognized
during 2009 as the stores are closed. The 2008 charges are primarily associated with asset impairments, and the
2009 charges include severance related expenses, lease costs and other facility closure costs of $4 million, $2
million and $1 million, respectively. Additionally, we expect to incur charges associated with residual inventory
values from these closed facilities, however, these values cannot be reasonably estimated.
• Supply chain consolidation (North America) – During 2009, our current plan is to close five distribution centers
and one crossdock facility to streamline our supply chain. These facilities are near the end of their initial lease
terms and projected closure costs total approximately $8 million, with $2 million recognized during 2008 for
severance related costs. The remainder of the charges relate to one-time termination benefits of $1 million, lease
costs of $2 million and other exit costs including deconstruction expenses of $3 million. Additionally, we expect
to incur charges associated with residual inventory values from these closed facilities, however, these values
cannot be reasonably estimated.
• Supply chain consolidation (International) – We have substantially completed the consolidation of our
distribution centers in Europe with one closure planned for 2009. During 2008, we recorded approximately $20
million in exit costs associated with this activity. These costs consisted primarily of accelerated depreciation,
severance related expenses and future lease obligations, which totaled $8 million, $4 million and $4 million,
respectively. We also recorded $4 million in charges related to other facility closure costs in 2008. We expect to
record approximately $23 million in charges for these activities during 2009. The 2009 charges include lease
costs, severance related expenses, accelerated depreciation and other facility closure costs of $11 million, $4
million, $4 million and $4 million, respectively.
• Call center and back office restructuring (International) – During 2007, we began the consolidation of our call
centers and back office operations in Europe. We recorded approximately $13 million of charges related to these
activities in 2008, of which $12 million was associated with severance and other one-time termination benefits.
The remaining $1 million of charges incurred in 2008 related to other exit activities. We expect to record
approximately $10 million in severance related charges and $1 million in lease costs for these activities during
2009.
• Additional employee reductions – Each of the Divisions, as well as Corporate, have identified positions that have
been or will be eliminated in an effort to be more responsive to either customer needs or to centralize activities
and eliminate geographic redundancies. Total severance and one-time benefit costs associated with these actions
are estimated to be approximately $33 million, with $13 million recognized during 2008.
• Asset write downs – As a result of the fourth quarter 2008 business review, the company determined that it
would no longer use the functionality in certain software applications and accordingly, recognized a charge of
approximately $31 million to write down previously capitalized software costs that will not be providing future
economic benefit. Additionally, during late 2008, the company substantially lowered its expectations for new