OfficeMax 2008 Annual Report Download - page 55

reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company determined that in 2008 there were
indicators of impairment and completed tests for impairment in the second and fourth quarters of
the year. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to the estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment
charge is recognized equal to the amount by which the carrying amount of the asset exceeds the
fair value of the asset, which is estimated based on discounted cash flows.
Goodwill and Intangible Assets
The Company accounts for goodwill and other indefinite life intangible assets in accordance
with SFAS No. 142, ‘‘Goodwill and Other Intangible Assets.’’ Goodwill represents the excess of
purchase price and related direct costs over the value assigned to the net tangible and identifiable
intangible assets of businesses acquired. Goodwill and intangible assets with indefinite lives are not
amortized, but are tested for impairment at least annually, or more frequently if events and
circumstances indicate that the asset might be impaired, using a fair-value-based approach. The
Company’s annual impairment testing date is January 1. In 2008, indicators of impairment were
present and the Company tested for impairment in the second and fourth quarters of the year. An
impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.
This determination is made at the reporting unit level and consists of two steps. First, the Company
determines the fair value of a reporting unit and compares it to its carrying amount. Second, if the
carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any
excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that
goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting
unit in a manner similar to a purchase price allocation in accordance with SFAS No. 141, ‘‘Business
Combinations.’’ The residual fair value after this allocation is the implied fair value of the reporting
unit goodwill.
Intangible assets represent the values assigned to trade names, customer lists and
relationships, noncompete agreements and exclusive distribution rights of businesses acquired.
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, which range from three to
20 years. (See Note 4, ‘‘Goodwill, Intangible Assets and Other Long-Lived Assets’’ for additional
information related to goodwill and intangible assets.)
Investments in Affiliates
Investments in affiliated companies are accounted for under the cost method if the Company
does not exercise significant influence over the affiliated company. At December 27, 2008 and
December 29, 2007, the Company held an investment in affiliates of Boise Cascade, L.L.C., which
is accounted for under the cost method. (See Note 10, ‘‘Investments in Affiliates,’’ for additional
information related to the Company’s investments in affiliates.)
Capitalized Software Costs
The Company capitalizes certain costs related to the acquisition and development of internal
use software that is expected to benefit future periods. These costs are amortized using the
straight-line method over the expected life of the software, which is typically three to five years.
Deferred charges in the Consolidated Balance Sheets include unamortized capitalized software
costs of $37.9 million and $45.6 million at December 27, 2008 and December 29, 2007,
respectively. Amortization of capitalized software costs totaled $18.7 million, $15.2 million and
$17.7 million in 2008, 2007 and 2006, respectively.
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