OfficeMax 2005 Annual Report Download - page 69

The portion of the purchase price allocated to identifiable intangible assets was attributed to
the following components:
(thousands)
Trade names ................................................... $173,100
Noncompete agreements .......................................... 12,300
Customer lists and relationships ..................................... 2,200
$187,600
The trade name assets have an indefinite life and are not amortized. All other intangible assets
are amortized on a straight-line basis over their expected useful lives.
See Note 13, Goodwill and Intangible Assets for additional information related to goodwill and
the purchase price allocation.
In addition to the intangible assets identified in the table above, a portion of the purchase price
was assigned to acquired operating leases that were either above or below market rates at the
acquisition date. Relative to market conditions at the date of the acquisition, a portion of the
acquired lease portfolio represented favorable operating leases, and a portion represented
unfavorable operating leases. The estimated fair value of the favorable leases totaled $98.6 million
and, after considering available renewal periods, those leases have an estimated weighted average
life of 23 years. The estimated fair value of the unfavorable leases totaled $113.1 million and have
an estimated weighted average life of 9 years. The fair value assigned to favorable and unfavorable
leases is recorded in other non-current assets and other non-current liabilities in the Consolidated
Balance Sheets. Both the favorable and unfavorable leases are amortized on the straight-line basis
over their respective weighted average lives; such amortization is included in rent expense.
5. Integration and Facility Closures
Integration Activities and Facility Closures
Increased scale as a result of the Acquisition has allowed management to evaluate the
Company’s combined office products business to determine what opportunities for consolidating
operations may be appropriate. Costs associated with the planned closure and consolidation of
acquired OfficeMax, Inc. facilities were accounted for under EITF Issue No. 95-3, ‘‘Recognition of
Liabilities in Connection with a Purchase Business Combination,’’ and recognized as liabilities in
connection with the acquisition and charged to goodwill. Costs incurred in connection with all other
business integration activities have been recognized in the Consolidated Statement of Income
(Loss). The Company conducts regular reviews of its real estate portfolio to identify
underperforming facilities, and closes those facilities that are no longer strategically or economically
viable. The Company records a liability for the cost associated with a facility closure at its fair value
in the period in which the liability is incurred, which is either the date the lease termination is
communicated to the lessor or the location’s cease-use date. Upon closure, unrecoverable costs
are included in facility closure reserves on the Consolidated Balance Sheets and include provisions
for the present value of future lease obligations, less contractual or estimated sublease income.
Accretion expense is recognized over the life of the payments.
In 2003, as part of a cost reduction program, the Company recorded $10.1 million of
employee-related costs, primarily severance. In 2004, the Company revised its initial estimate and
recorded a $1.2 million credit as the program was completed.
Prior to the Acquisition, OfficeMax, Inc. had identified and closed underperforming facilities. As
part of our purchase price allocation, the Company recorded $58.7 million of reserves for the
estimated fair value of future liabilities associated with these closures. These reserves related
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