OfficeMax 2010 Annual Report Download - page 55

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Environmental
As an owner and operator of real estate, we may be liable under environmental laws for the cleanup of past
and present spills and releases of hazardous or toxic substances on or from our properties and operations. We can
be found liable under these laws if we knew of, or were responsible for, the presence of such substances. In some
cases, this liability may exceed the value of the property itself.
Environmental liabilities that relate to the operation of the paper and forest products businesses and
timberland assets prior to the closing of the sale of our paper, forest products and timberland assets in 2004
continue to be our liabilities. We have been notified that we are a “potentially responsible party” under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or similar federal and
state laws, or have received a claim from a private party, with respect to certain sites where hazardous substances
or other contaminants are or may be located. These sites relate to operations either no longer owned by the
Company or unrelated to its ongoing operations. For sites where a range of potential liability can be determined,
we have established appropriate reserves. We cannot predict with certainty the total response and remedial costs,
our share of the total costs, the extent to which contributions will be available from other parties, or the amount
of time necessary to complete the cleanups. Based on our investigations; our experience with respect to cleanup
of hazardous substances; the fact that expenditures will, in many cases, be incurred over extended periods of
time; and in some cases the number of solvent potentially responsible parties, we do not believe that the known
actual and potential response costs will, in the aggregate, materially affect our financial position, our results of
operations or our cash flows.
Critical Accounting Estimates
The Securities and Exchange Commission defines critical accounting estimates as those that are most
important to the portrayal of our financial condition and results. These estimates require management’s most
difficult, subjective or complex judgments, often as a result of the need to estimate matters that are inherently
uncertain. The accounting estimates that we currently consider critical are as follows:
Vendor Rebates and Allowances
We participate in volume purchase rebate programs, some of which provide for tiered rebates based on
defined levels of purchase volume. We also participate in programs that enable us to receive additional vendor
subsidies by promoting the sale of vendor products. Vendor rebates and allowances are accrued as earned.
Rebates and allowances received as a result of attaining defined purchase levels are accrued over the incentive
period based on the terms of the vendor arrangement and estimates of qualifying purchases during the rebate
program period. These estimates are reviewed on a quarterly basis and adjusted for changes in anticipated
product sales and expected purchase levels. Vendor rebates and allowances earned are recorded as a reduction in
the cost of merchandise inventories and are included in operations (as a reduction of cost of goods sold) in the
period the related product is sold.
Amounts owed to us under these arrangements are subject to credit risk. In addition, the terms of the
contracts covering these programs can be complex and subject to interpretations, which can potentially result in
disputes. We provide an allowance for uncollectible accounts and to cover disputes in the event that our
interpretation of the contract terms differ from our vendors’ and our vendors seek to recover some of the
consideration from us. These allowances are based on the current financial condition of our vendors, specific
information regarding disputes and historical experience. If we used different assumptions to estimate the amount
of vendor receivables that will not be collected due to either credit default or a dispute regarding the amounts
owed, our calculated allowance would be different and the difference could be material. In addition, if actual
losses are different than those estimated, adjustments to the recorded allowance may be required.
Merchandise Inventories
Inventories consist of office products merchandise and are stated at the lower of weighted average cost or
net realizable value. We estimate the realizable value of inventory using assumptions about future demand,
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