OfficeMax 2010 Annual Report Download - page 54

Goodwill and Other Asset Impairments
We are required for accounting purposes to assess the carrying value of goodwill and other intangible assets
annually or whenever circumstances indicate that a decline in value may have occurred. In 2008, we fully
impaired our goodwill balances. We review other intangible assets annually at year-end.
For other long lived assets, we are also required to assess the carrying value when circumstances indicate
that a decline in value may have occurred. Based on the operating performance of certain of our Retail stores due
to the macroeconomic factors and market specific change in expected demographics, we determined that there
were indicators of potential impairment relating to our Retail stores. Therefore, in 2010 and 2009, we performed
the required impairment tests and recorded non-cash charges of $11.0 and $17.6 million, respectively, to impair
long-lived assets pertaining to certain Retail stores.
In 2008, given our declines in operating performance, the decline in our market capitalization and the
worsening economic conditions, we determined that indicators of potential impairment were present relative to
goodwill, intangible assets and other long-lived assets and performed the required impairment tests. As a result of
these tests, we recorded non-cash impairment charges associated with goodwill, intangible assets and other long-
lived assets of $1,364.4 million before taxes for 2008. These non-cash charges consisted of $1,201.5 million of
goodwill impairment in both the Contract ($815.5 million) and Retail ($386.0 million) segments; $107.1 million
of impairment of trade names in our Retail segment and $55.8 million of impairment related to fixed assets in our
Retail segment.
Facility Closure Reserves
We conduct regular reviews of our real estate portfolio to identify underperforming facilities, and close
those facilities that are no longer strategically or economically beneficial. We record a liability for the cost
associated with a facility closure at its estimated fair value in the period in which the liability is incurred,
primarily the location’s cease-use date. Upon closure, unrecoverable costs are included in facility closure
reserves 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.
During 2010, we recorded charges of $13.1 million in our Retail segment related to facility closures, of
which $11.7 million was related to the lease liability and other costs associated with closing eight domestic stores
prior to the end of their lease terms, and $1.4 million was related to other items. In 2009, we recorded charges of
$31.2 million related to the closing of 21 underperforming stores prior to the end of their lease terms, of which 16
were in the U.S. and five were in Mexico. In 2008, we recorded $3.1 million of charges related principally to the
closing of five domestic stores and reduced rent and severance accruals by $3.4 million relating to previously
closed stores. In 2008, we also recorded $8.7 million of charges related to four domestic retail stores for which
we had signed lease commitments, but decided not to open the stores due to the existing economic environment.
This charge was partially offset by reduced rent accruals of $4.0 million on other store lease obligations.
At December 25, 2010, the facility closure reserve was $61.7 million with $16.7 million included in current
liabilities, and $45.0 million included in long-term liabilities. The vast majority of the reserve represents future
lease obligations of $131.9 million, net of anticipated sublease income of approximately $70.2 million. Cash
payments relating to the facility closures were $22.3 million, $24.6 million and $35.2 million in 2010, 2009 and
2008, respectively. We anticipate future annual payments to be similar in amount.
In addition, we were the lessee of a legacy, building materials manufacturing facility near Elma,
Washington until the end of 2010. During 2006, we ceased operations at the facility, fully impaired the assets and
recorded a reserve, which is separate from the facility closure reserve above, for the related lease payments and
other contract termination and closure costs. During 2010, we sold the facility’s equipment and terminated the
lease. As a result, we recorded pre-tax income of approximately $9.4 million to adjust the associated reserve.
This income is reported in other operating, net in our Consolidated Statements of Operations.
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