OfficeMax 2006 Annual Report Download - page 65

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61
During 2006, the Company closed 109 underperforming domestic retail stores and recorded a
pre-tax charge of $89.5 million, comprised of $11.3 million for employee severance, asset write-off and
impairment and other closure costs and $78.2 million of estimated future lease obligations.
The Company conducts regular reviews of its real estate portfolio to identify underperforming
facilities, and closes those facilities that are no longer strategically or economically viable. The
Company records a liability for the cost associated with a facility closure at itsfair value in the period
in which the liability is incurred, which is either the date the lease termination is communicated to the
lessor or the location’s cease-use date. Upon closure, unrecoverablecosts areincluded in facility
closure reserves on the Consolidated Balance Sheets and include provisions for the present value of
future lease obligations, less contractual or estimated sublease income. Accretion expense is
recognized over the life of the payments. Integration and facility closure reserve account activity
during 2006,2005 and 2004, including activity related to the reorganization of the Contract segment,
retail store closures and headquarters consolidation, was as follows:
Lease\
Contract
Terminations
Severance\
Retention
Asset
Write-off &
Impairment Other Total
(thousands)
Balance at December 31, 2003 .$ 126,922$ 3,094$ —$ 412 $ 130,428
Charges to income ............ 1,0437,5391,58219,581 29,745
Change in goodwill. ........... 11,245 4,653— — 15,898
Changes to estimated costs
included in income.......... —(1,228)— — (1,228)
Cash payments............... (26,503)(7,416)—(19,584 )(53,503)
Non-cash charges ............ — — (1,582)—(1,582)
Accretion.................... 3,683— — — 3,683
Balance at December 31, 2004 .$ 116,390$ 6,642$ —$ 409 $ 123,441
Charges to income ............ 547 21,214 23,062 3,565 48,388
Change in goodwill. ........... — — — — —
Changes to estimated costs
included in income.......... — — — — —
Cash payments............... (28,872)(6,354)—(3,235)(38,461)
Non-cash charges ............ — — (23,062)—(23,062)
Accretion.................... 3,390— — — 3,390
Balance at December 31, 2005 .$ 91,455 $ 21,502 $ —$ 739 $ 113,696
Charges to income ............ 89,934 19,407 9,54327,332 146,216
Change in goodwill. ........... (11,000)— — — (11,000)
Changes to estimated costs
included in income.......... —(1,080)— — (1,080)
Cash payments............... (68,596)(28,991)—(18,951 )(116,538 )
Non-cash charges ............ — — (9,543)(5,978)(15,521)
Accretion.................... 6,031— — — 6,031
Balance at December 30, 2006 .$ 107,824$ 10,838 $ —$ 3,142 $ 121,804
At December 30, 2006, approximately $44.7 million of the reserve liability was included in accrued
liabilities, other, and $77.1 million wasincluded in other long-term liabilities. At December 31, 2005,
approximately $60.4 million of the reserve liability was included in accrued liabilities, other, and
$53.3 million was included in other long-term liabilities. At December 30, 2006, the integration
activities and facility closures reserve included approximately $108 millionfor estimated future lease