OfficeMax 2005 Annual Report Download - page 47

Environmental
As an owner and operator of real estate, we may be liable under environmental laws for the
cleanup of past and present spills and releases of hazardous or toxic substances on or from our
properties and operations. We can be found liable under these laws if we knew of, or were
responsible for, the presence of such substances. In some cases, this liability may exceed the value
of the property itself.
In connection with the Sale, environmental liabilities that relate to the operation of the paper
and forest products assets prior to the closing of the Sale continue to be OfficeMax liabilities. We
have been notified that we are a ‘‘potentially responsible party’’ under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) or similar federal and state
laws, or have received a claim from a private party, with respect to 15 active sites where hazardous
substances or other contaminants are or may be located. All 15 active sites relate to operations
either no longer owned by the Company or unrelated to its ongoing operations. In most cases, we
are one of many potentially responsible parties, and our alleged contribution to these sites is
relatively minor. For sites where a range of potential liability can be determined, we have
established appropriate reserves. We believe we have minimal or no responsibility with regard to
several other sites. We cannot predict with certainty the total response and remedial costs, our
share of the total costs, the extent to which contributions will be available from other parties, or the
amount of time necessary to complete the cleanups. Based on our investigations; our experience
with respect to cleanup of hazardous substances; the fact that expenditures will, in many cases, be
incurred over extended periods of time; and the number of solvent potentially responsible parties,
we do not believe that the known actual and potential response costs will, in the aggregate,
materially affect our financial position or results of operations.
Critical Accounting Estimates
The Securities and Exchange Commission defines critical accounting estimates as those that
are most important to the portrayal of our financial condition and results. These estimates require
management’s most difficult, subjective or complex judgments, often as a result of the need to
estimate matters that are inherently uncertain. We reviewed the development, selection and
disclosure of the following critical accounting estimates with the Audit Committee of our board of
directors. Our current critical accounting estimates are as follows:
Vendor Rebates and Allowances
We participate in various cooperative advertising and other marketing programs with our
vendors. We also participate in volume purchase rebate programs, some of which provide for tiered
rebates based on defined levels of purchase volume. These arrangements enable us to receive
reimbursement for costs incurred to promote the sale of vendor products, or to earn rebates that
reduce the cost of merchandise purchased. Vendor rebates and allowances are accrued as earned.
Rebates and allowances received as a result of attaining defined purchase levels are accrued over
the incentive period based on the terms of the vendor arrangement and estimates of qualifying
purchases during the rebate program period. These estimates are reviewed on a quarterly basis
and adjusted for changes in anticipated product sales and expected purchase levels. Volume-based
rebates and allowances earned are initially recorded as a reduction in the cost of merchandise
inventories and are included in operations (as a reduction in materials, labor and other operating
expenses) in the period the related product is sold. Amounts received under other promotional
programs are generally event-based and are recognized at the time of the event as a reduction of
cost of goods sold or inventory, as appropriate, based on the nature of the promotion and the
terms of the vendor agreement. Advertising allowances that represent reimbursements of specific,
incremental and identifiable costs incurred to promote vendors’ products are recorded as a
reduction of selling and distribution expenses in the period the expense is incurred. Amounts owed
to us under these arrangements are subject to credit risk. In addition, the terms of the contracts
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