OfficeMax 2015 Annual Report Download - page 38

Table of Contents
The projections prepared for the 2015 analysis assumed declining sales over the forecast period, consistent with recent experience. Gross margin and
operating cost assumptions have been held at levels consistent with recent actual results and planned activities. Estimated cash flows were discounted at 12%
in 2015 and 13% for the two preceding years. The impairment charges include amounts to bring the location’s assets to estimated fair value based on
projected operating cash flows or residual value, as appropriate. The Company continues to capitalize additions to previously-impaired operating stores and
tests for subsequent impairment. The 2014 store impairment charge also includes $1 million related to the closure of stores in Canada.
The Company will continue to evaluate initiatives to improve performance and lower operating costs. To the extent that forward-looking sales and operating
assumptions are not achieved and are subsequently reduced, or in certain circumstances, even if store performance is as anticipated, additional impairment
charges may result. However, at the end of 2015, the impairment analysis reflects the Company’s best estimate of future performance.
As implementation of the Real Estate Strategy continues, we are likely to experience volatility in results. In addition to charges for severance and facility
closure costs that will be recognized as decisions are made, we may experience volatility from the timing of recognition of impairment charges, as well as
credits related to capital leases and deferred rent accounts when the leases are terminated or modified.
Software impairments
As part of the integration process during 2014, the Company decided to convert certain websites and other information technology applications to common
platforms resulting in $25 million related to the write off of capitalized software. Additionally, the Company abandoned a software project in Europe and
recognized impairment of the $28 million capitalized software.
Intangible assets
Following identification of retail stores for closure as part of our Real Estate Strategy, the related favorable lease assets recorded in the Merger were assessed
for accelerated amortization or impairment. Considerations included the projected cash flows discussed above, the net book value of operating assets and
favorable lease assets and related estimated favorable lease fair value. Impairment of $1 million and $5 million were recognized during 2015 and 2014,
respectively. Additionally, during 2014, the Company decided to change the profile and expected life of a private brand trade name previously identified as
having an indefinite life. The projected cash flow on a relief from royalty measurement over the shortened estimated life resulted in a $5 million impairment
charge in 2014.
The 2013 goodwill impairment of $44 million was triggered by the sale of our interest in Office Depot de Mexico. The related reporting unit of the
International Division included operating subsidiaries in Europe and ownership of the investment in Office Depot de Mexico. A substantial majority of the
estimated fair value of the reporting unit over its carrying value related to the joint venture. Following the July 2013 sale of our interest in Office Depot de
Mexico and return of cash proceeds to the U.S. parent company, the fair value of the reporting unit with goodwill decreased below its carrying value and
goodwill was fully impaired.
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