OfficeMax 2015 Annual Report Download - page 74

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Table of Contents


The Company enters into arrangements with substantially all significant vendors that provide for some form of consideration to be
received from the vendors. Arrangements vary, but some specify volume rebate thresholds, advertising support levels, as well as terms for payment and other
administrative matters. The volume-based rebates, supported by a vendor agreement, are estimated throughout the year and reduce the cost of inventory and
cost of goods sold during the year. This estimate is regularly monitored and adjusted for current or anticipated changes in purchase levels and for sales
activity. Other promotional consideration received is event-based or represents general support and is recognized as a reduction of Cost of goods sold and
occupancy costs or Inventories, as appropriate based on the type of promotion and the agreement with the vendor. Certain arrangements meet the specific,
incremental, identifiable criteria that allow for direct operating expense offset, but such arrangements are not significant.
The Company sponsors certain closed U.S. and international defined benefit pension plans, certain closed U.S.
retiree medical benefit and life insurance plans, as well as a Canadian retiree medical benefit plan open to certain employees.
The Company recognizes the funded status of its defined benefit pension, retiree medical benefit and life insurance plans in the Consolidated Balance Sheets,
with changes in the funded status recognized primarily through accumulated other comprehensive income (loss), net of tax, in the year in which the changes
occur. Actuarially-determined liabilities related to pension and postretirement benefits are recorded based on estimates and assumptions. Factors used in
developing estimates of these liabilities include assumptions related to discount rates, rates of return on investments, healthcare cost trends, benefit payment
patterns and other factors. The Company also updates periodically its assumptions about employee retirement factors, mortality, and turnover. Refer to Note
13 for additional details.
Environmental and asbestos liabilities relate to acquired legacy paper and forest products businesses and timberland
assets. The Company accrues for losses associated with these obligations when probable and reasonably estimable. These liabilities are not discounted. A
receivable for insurance recoveries is recorded when probable.
The Company applies the acquisition method of accounting for acquisitions, including mergers where the Company is considered the
accounting acquirer. As such, the total consideration is allocated to the fair value of assets acquired and liabilities assumed at the point the Company obtains
control of the entity. Refer to Note 2 for additional information.
The Company conducts a substantial portion of its business in leased properties. Some of the Company’s leases contain escalation
clauses and renewal options. The Company recognizes rental expense for leases that contain predetermined fixed escalation clauses on a straight-line basis
over the expected term of the lease.
The expected term of a lease is calculated from the date the Company first takes possession of the facility, including any periods of free rent and any option
or renewal periods management believes are probable of exercise. This expected term is used in the determination of whether a lease is capital or operating
and in the calculation of straight-line rent expense. Rent abatements and escalations are considered in the calculation of minimum lease payments in the
Company’s capital lease tests and in determining straight-line rent expense for operating leases. Straight-line rent expense is also adjusted to reflect any
allowances or reimbursements provided by the lessor. When required under lease agreements, estimated costs to return facilities to original condition are
accrued over the lease period.
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