OfficeMax 2005 Annual Report Download - page 49

discount rate assumption used in the measurement of our net periodic benefit cost to 5.35% and
our expected return on plan assets to 7.75%, our 2006 pension expense would be approximately
$17.7 million. If we were to increase our discount rate assumption used in the measurement of our
net periodic benefit cost to 5.85% and our expected return on plan assets to 8.25%, our 2006
pension expense would be approximately $8.4 million.
Environmental Remediation
We are subject to a variety of environmental and pollution control laws and regulations. We
account for environmental remediation liabilities in accordance with the SOP 96-1, ‘‘Environmental
Remediation Liabilities.’’ We record liabilities on an undiscounted basis when assessments and/or
remedial efforts are probable and the cost can be reasonably estimated. We estimate our
environmental liabilities based on various assumptions and judgments, as we cannot predict with
certainty the total response and remedial costs, our share of total costs, the extent to which
contributions will be available from other parties or the amount of time necessary to complete any
remediation. In making these judgments and assumptions, we consider, among other things, the
activity to date at particular sites, information obtained through consultation with applicable
regulatory authorities and third-party consultants and contractors and our historical experience at
other sites that are judged to be comparable. Due to the number of uncertainties and variables
associated with these assumptions and judgments and the effects of changes in governmental
regulation and environmental technologies, the precision of the resulting estimates of the related
liabilities is subject to uncertainty. We regularly monitor our estimated exposure to our
environmental liabilities. As additional information becomes known, our estimates may change.
Environmental liabilities that relate to the operation of the paper and forest products assets
prior to the closing of the Sale continue to be liabilities of OfficeMax, in addition to the liabilities
related to the 15 active sites referenced in Note 21, Legal Proceedings and Contingencies, of the
Notes to Consolidated Financial Statements in ‘‘Item 8. Financial Statements and Supplementary
Data’’ in this Form 10-K.
Goodwill Impairment
FASB Statement 142, ‘‘Goodwill and Other Intangible Assets,’’ requires us to assess goodwill
for impairment at least annually in the absence of an indicator of possible impairment and
immediately upon an indicator of possible impairment. In assessing impairment, the statement
requires us to make estimates of the fair values of our reporting units. If we determine the fair
values are less than the carrying amount of goodwill recorded on our Consolidated Balance Sheet,
we must recognize an impairment in our financial statements. At December 31, 2005, we had
$1.2 billion of goodwill recorded on our Consolidated Balance Sheet. Of the $1.2 billion,
$523.5 million and $694.7 million were recorded in our OfficeMax, Contract and OfficeMax, Retail
segments, respectively.
The Company completed its annual assessment in accordance with the provisions of the
standard in the first quarters of 2005 and 2004, and concluded there was no impairment. The
Company completed an additional assessment of the carrying value of the goodwill in the
OfficeMax, Retail segment in the fourth quarter of 2005, in connection with the development of
management’s plan to close 110 retail stores in 2006, and concluded there was no impairment.
In testing for potential impairment, we measured the estimated fair value of our reporting units
based upon discounted future operating cash flows using a discount rate reflecting our estimated
average cost of funds. Differences in assumptions used in projecting future operating cash flows
and in selecting an appropriate discount rate could have a significant impact on the determination
of impairment amounts. In estimating future cash flows, we used our internal budgets and operating
plans, which include assumptions about retail store openings and closures, the consolidation of our
distribution networks and improvements in our supply chain. Due to the numerous variables
associated with our judgments and assumptions relating to the valuation of the reporting units and
the effects of changes in circumstances on these valuations, both the precision and reliability of the
resulting estimates are subject to uncertainty. As additional information becomes known, we may
change our estimates.
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