OfficeMax 2014 Annual Report Download - page 73

Table of Contents
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Statements of Operations in Selling, general and administrative expenses if the related facility was closed as part of ongoing operations or in Merger,
restructuring and other operating expenses, net, if the related facility was closed as part of Merger or restructuring activities. Refer to Note 3 for additional
information on accrued expenses relating to closed facilities. The short-term and long-term components of this liability are included in Accrued expenses and
other current liabilities and Deferred income taxes and other long-term liabilities, respectively, on the Consolidated Balance Sheets.
Employee termination costs covered under written and substantive plans are accrued when probable and estimable and consider continuing service
requirements, if any. Additionally, one-time employee benefit costs are recognized when the key terms of the arrangements have been communicated to
affected employees. Amounts are recognized when communicated or over the remaining service period, based on the terms of the arrangements.
 Included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets are accrued payroll-related amounts of
$343 million and $319 million at December 27, 2014 and December 28, 2013, respectively.
 The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. In developing its fair value estimates, the Company uses the following hierarchy:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3 Significant unobservable inputs that are not corroborated by market data. Generally, these fair value measures are model-based valuation
techniques such as discounted cash flows or option pricing models using own estimates and assumptions or those expected to be used by
market participants.
The fair values of cash and cash equivalents, receivables, accounts payable and accrued expenses and other current liabilities approximate their carrying
values because of their short-term nature. Refer to Note 16 for further fair value information.
 Revenue is recognized at the point of sale for retail transactions and at the time of successful delivery for contract, catalog and
Internet sales. Shipping and handling fees are included in Sales with the related costs included in Cost of goods sold and occupancy costs in the
Consolidated Statements of Operations. Service revenue is recognized in Sales as the services are rendered. The Company recognizes sales on a gross basis
when it is considered the primary obligor in the transaction and on a net basis when it is considered to be acting as an agent. Sales taxes collected are not
included in reported Sales. The Company uses judgment in estimating sales returns, considering numerous factors such as historical sales return rates. The
Company also records reductions to revenue for customer programs and incentive offerings including special pricing agreements, certain promotions and
other volume-based incentives.
A liability for future performance is recognized when gift cards are sold and the related revenue is recognized when gift cards are redeemed as payment for
products or when the likelihood of gift card redemption is considered remote. Gift cards do not have an expiration date. During 2013, the Company modified
its method of recognizing the estimated portion of the gift card program liability that will not be redeemed, or the breakage amount. Based on the developed
history of these programs, the Company now recognizes breakage in proportion to usage, rather than at the end of a fixed period of time. The change resulted
in an increase in sales of $10 million in 2013.
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