OfficeMax 2014 Annual Report Download - page 72

Table of Contents
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
 Goodwill is the excess of the cost of an acquisition over the fair value assigned to net tangible and identifiable
intangible assets of the business acquired. The Company reviews goodwill for impairment annually or sooner if indications of possible impairment are
identified. The review period for the goodwill associated with the Merger was the first day of the third quarter of 2014. The Company elected to conduct a
quantitative assessment of possible goodwill impairment in 2014. In periods that a quantitative test is used, the Company estimates the reporting unit’s fair
value using discounted cash flow analysis and market-based evaluations, when available. If the reporting unit’s carrying value exceeds its fair value, an
impairment charge is recognized to the extent that the carrying amount of goodwill exceeds its implied fair value. This method of estimating fair value
requires assumptions, judgments and estimates of future performance. The Company may assess goodwill for possible impairment in future periods by
considering qualitative factors, rather than this quantitative test.
Unless conditions warrant earlier action, intangible assets with indefinite lives also are assessed annually for impairment. Following a decision in 2014 to
change the use and profile of a trade name, the only previous indefinite live intangible asset was tested for impairment and the adjusted balance will be
amortized over the estimated use period. Amortizable intangible assets are periodically reviewed to determine whether events and circumstances warrant a
revision to the remaining period of amortization or asset impairment. Certain locations identified for closure resulted in impairment of favorable lease assets
recorded as part of the Merger.
  Long-lived assets with identifiable cash flows are reviewed for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable. The Company estimates the fair value of the asset or asset groups
using valuation methodologies that typically include estimates cash flows directly associated with the future use and eventual disposition of the asset or
asset groups. If undiscounted cash flows are insufficient to recover the asset, an impairment is measured as the difference between the asset’s estimated fair
value, generally, the discounted cash flows, and its carrying value, net of salvage, and any costs of disposition.
Because of recent operating results and following identification in 2014 of the post-Merger real estate strategy (the “Real Estate Strategy”), retail store long-
lived assets are reviewed for impairment indicators quarterly. Impairment is assessed at the individual store level which is the lowest level of identifiable cash
flows, and considers the estimated undiscounted cash flows over the asset’s remaining life. If estimated undiscounted cash flows are insufficient to recover the
investment, an impairment loss is recognized equal to the difference between the estimated fair value of the asset and its carrying value, net of salvage, and
any costs of disposition. The fair value estimate is generally the discounted amount of estimated store-specific cash flows.
 Store performance is regularly reviewed against expectations and stores not meeting performance requirements may
be closed. Additionally, in 2014, the Company completed the Real Estate Strategy review that identified approximately 400 stores for closure through 2016.
Refer to Note 3 for additional information.
Costs associated with facility closures, principally accrued lease costs, are recognized when the facility is no longer used in an operating capacity or when a
liability has been incurred. Store assets are also reviewed for possible impairment, or reduction of estimated useful lives.
Accruals for facility closure costs are based on the future commitments under contracts, adjusted for assumed sublease benefits and discounted at the
Company’s credit-adjusted risk-free rate at the time of closing. Accretion expense is recognized over the life of the contractual payments. Additionally, the
Company recognizes charges to terminate existing commitments and charges or credits to adjust remaining closed facility accruals to reflect current
expectations. Accretion expense and adjustments to facility closure costs are presented the Consolidated
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