OfficeMax 2009 Annual Report Download - page 67

the goodwill of the Company in both segments; Contract ($815.5 million) and Retail
($386.0 million). The impairment charges included a portion of goodwill that was not deductible for
tax purposes, resulting in a tax benefit of $63.2 million, or approximately 4.6% of the pre-tax charge
amount. These charges resulted in a full impairment of our goodwill balances as of the end of
2008, and, as a result, there will be no future annual assessment of goodwill.
The measurement of impairment of indefinite-lived intangible assets consists of calculating the
fair value and comparing that value to the intangible asset’s carrying value. The fair value is
calculated based on the estimated future discounted cash flows associated with the intangible
asset. In 2008, the Company recorded estimated impairment of the trade names in the Retail
reporting unit of $107.1 million, before taxes. Based on the Company’s assessment and testing, no
impairment of indefinite-lived intangible assets was required in 2009.
Interim impairment tests of the Company’s other long-lived assets were also performed in 2009
and 2008. Impairment testing of other long-lived assets is also a two-step process. In the first step
(‘‘the recoverability test’’), a determination of potential impairment is made based on a comparison
of the estimated future undiscounted cash flows derived from the asset to its carrying amount. If
estimated future undiscounted cash flows are less than the carrying value of the asset, then the
second step is completed and the impairment loss is measured as the excess of the carrying value
over the fair value of the asset, with fair value determined based on estimated future discounted
cash flows. In 2008, due to the existence of indicators of potential impairment, the Company
performed the recoverability test for all the other long-lived assets of each reporting unit, in
aggregate. The recoverability test did not identify potential impairment for these asset groups. In
2009 and 2008, the Company also performed the recoverability test for the assets of individual retail
stores (‘‘store assets’’ or ‘‘stores’’), which consist primarily of leasehold improvements and fixtures.
This testing did identify impairment at certain stores. As a result, we completed the second step
and, based on our conclusions, wrote off $17.6 million and $55.8 million of store assets in 2009
and 2008, respectively.
Acquired Intangible Assets
Intangible assets represent the values assigned to trade names, customer lists and
relationships, noncompete agreements and exclusive distribution rights of businesses acquired. 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. Customer lists and relationships
are amortized over three to 20 years, noncompete agreements over their terms, which are generally
three to five years, and exclusive distribution rights over ten years. Intangible assets consisted of
the following at year-end:
2009
Gross Carrying Accumulated Net Carrying
Amount Amortization Amount
(thousands)
Trade names .......................... $66,000 $ — $ 66,000
Customer lists and relationships ............ 25,833 (11,288) 14,545
Exclusive distribution rights ................ 6,636 (3,375) 3,261
$98,469 $(14,663) $83,806
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