OfficeMax 2009 Annual Report Download - page 59

Pension and Other Postretirement Benefits
The Company sponsors noncontributory defined benefit pension plans covering certain
terminated employees, vested employees, retirees and some active OfficeMax, Contract employees.
The Company also sponsors various retiree medical benefit plans. The type of retiree medical
benefits and the extent of coverage vary based on employee classification, date of retirement,
location, and other factors. The Company explicitly reserves the right to amend or terminate its
retiree medical plans at any time, subject only to constraints, if any, imposed by the terms of
collective bargaining agreements. Amendment or termination may significantly affect the amount of
expense incurred.
The Company recognizes the funded status of its defined benefit pension, retiree healthcare
and other postretirement plans in the Consolidated Balance Sheets, with changes in the funded
status recognized through accumulated other comprehensive income (loss), net of tax, in the year
in which the changes occur. Actuarially-determined liabilities related to pension and postretirement
benefits are recorded based on estimates and assumptions. Key factors used in developing
estimates of these liabilities include assumptions related to discount rates, rates of return on
investments, future compensation costs, healthcare cost trends, benefit payment patterns and other
factors.
The Company measures changes in the funded status of its plans using actuarial models.
Since the majority of participants in the plans are inactive, the actuarial models use an attribution
approach that generally spreads recognition of the effects of individual events over the life
expectancy of the participants. Net pension and postretirement benefit income or expense is also
determined using assumptions which include discount rates and expected long-term rates of return
on plan assets. The Company bases the discount rate assumption on the rates of return for a
theoretical portfolio of high-grade corporate bonds (rated Aa1 or better) with cash flows that
generally match our expected benefit payments in future years. The long-term asset return
assumption is based on the average rate of earnings expected on invested funds, and considers
several factors including the asset allocation, actual historical rates of return, expected rates of
return and external data.
The Company’s policy is to fund its pension plans based upon actuarial recommendations and
in accordance with applicable laws and income tax regulations. Pension benefits are primarily paid
through trusts funded by the Company. All of the Company’s postretirement medical plans are
unfunded. The Company pays postretirement benefits directly to the participants.
Facility Closure Reserves
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 the location’s cease-use date. Upon closure,
unrecoverable costs are included in facility closure reserves in 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.
Environmental and Asbestos Matters
Environmental and asbestos liabilities that relate to the operation of the paper and forest
products businesses and timberland assets prior to the sale of the paper, forest products and
timberland assets continue to be liabilities of OfficeMax. The Company accrues for losses
associated with these types of obligations when such losses are probable and reasonably
estimable.
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