OfficeMax 2010 Annual Report Download - page 68

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 beneficial. 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,
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.
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.
Self-insurance
The Company is self-insured for certain losses related to workers’ compensation and medical claims as well
as general and auto liability. The expected ultimate cost for claims incurred is recognized as a liability in the
Consolidated Balance Sheets. The expected ultimate cost of claims incurred is estimated based principally on an
analysis of historical claims data and estimates of claims incurred but not reported. Losses are accrued on a
discounted basis and charged to operations when it is probable that a loss has been incurred and the amount can
be reasonably estimated.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The Company is subject to tax audits in numerous jurisdictions in the U.S. and around the world. Tax audits
by their very nature are often complex and can require several years to complete. In the normal course of
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