Office Depot 2010 Annual Report Download - page 41

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sales. We use judgment in estimating sales returns, considering numerous factors including 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.
Franchise fees, royalty income and the sales of products to our franchisees and licensees are included in sales,
while product costs are included in cost of goods sold and occupancy costs in the Consolidated Statements of
Operations.
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 $747.1 million in 2010, $767.6 million in 2009 and $911.2
million in 2008.
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 $469.5 million in 2010, $453.3 million in 2009 and $525.7 million in 2008.
Prepaid advertising costs were $40.9 million as of December 25, 2010 and $37.3 million as of December 26,
2009.
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 25, 2010, and December 26, 2009,
our Consolidated Balance Sheet reflected OCI in the amount of $224 million and $238 million, which consisted
of $214 million and $247 million in foreign currency translation adjustments, $4 million and $6 million in
unamortized gain on hedge and $6 million in deferred pension gain and $15 million in deferred pension loss,
respectively.
Vendor Arrangements: We enter into arrangements with substantially all of our significant vendors that provide
for some form of consideration to be received from the vendors. Arrangements vary, but generally specify
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