OMX » Topics » Pensions

These excerpts taken from the OMX 10-K filed Feb 27, 2008.

Pensions

        The Company sponsors noncontributory defined benefit pension plans covering certain terminated employees, vested employees, retirees, and some active OfficeMax, Contract employees. Since our active employees and all inactive participants who are covered by the plans are no longer accruing additional benefits, we do not expect our future contributions to these plans to be significant.

        We account for pension expense in accordance with SFAS No. 87, "Employer's Accounting for Pensions." This statement requires us to calculate our pension expense and liabilities using actuarial assumptions, including a discount rate assumption and a long-term asset return assumption. We base our discount rate assumption on the rates of return on high-quality bonds currently available and expected to be available during the period to maturity of the pension benefits. We base our long-term asset return assumption on the average rate of earnings expected on invested funds. We believe that the accounting estimate related to pensions is a critical accounting estimate because it is highly susceptible to change from period to period, based on the performance of plan assets, actuarial valuations and changes in interest rates, and the effect on our financial position and results of operations could be material.

        For 2008, our discount rate assumption used in the measurement of our net periodic benefit cost was 6.3%, and our expected return on plan assets was 8.0%. Using these assumptions, our 2008 pension expense will be approximately $1.9 million. If we were to decrease our estimated discount rate assumption used in the measurement of our net periodic benefit cost to 6.05% and our expected return on plan assets to 7.75%, our 2008 pension expense would be approximately $6.4 million. If we were to increase our discount rate assumption used in the measurement of our net periodic benefit cost to 6.55% and our expected return on plan assets to 8.25%, we would recognize a pension benefit of approximately $2.5 million.

        We account for our pension plans in accordance with SFAS No. 158, "Employer's Accounting for Defined Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)." This statement requires the recognition of the funded status of a defined benefit plan in the statement of financial position, and that changes in the funded status be recognized through other comprehensive income (OCI), net of tax, in the year in which the changes occur. Actuarially-determined liabilities related to pension and postretirement benefits are also recorded based on estimates and assumptions. Key factors used in developing estimates of these liabilities include assumptions related to discount rates, rates of return on investments, future compensation costs, healthcare cost trends, benefit payment patterns and other factors. At December 29, 2007, the funded status of our defined benefit pension and other postretirement benefit plans was a liability of $131.9 million. Changes in assumptions related to the measurement of funded status could have a material impact on the amount reported.

Pensions



        The Company sponsors noncontributory defined benefit pension plans covering certain terminated employees, vested employees, retirees, and some active OfficeMax,
Contract employees. Since our
active employees and all inactive participants who are covered by the plans are no longer accruing additional benefits, we do not expect our future contributions to these plans to be significant.




        We
account for pension expense in accordance with SFAS No. 87, "Employer's Accounting for Pensions." This statement requires us to calculate our pension expense and liabilities
using actuarial assumptions, including a discount rate assumption and a long-term asset return assumption. We base our discount rate assumption on the rates of return on
high-quality bonds currently available and expected to be available during the period to maturity of the pension benefits. We base our long-term asset return assumption on the
average rate of earnings expected on invested funds. We believe that the accounting estimate related to pensions is a critical accounting estimate because it is highly susceptible to change from
period to period, based on the performance of plan assets, actuarial valuations and changes in interest rates, and the effect on our financial position and results of operations could be material.



        For
2008, our discount rate assumption used in the measurement of our net periodic benefit cost was 6.3%, and our expected return on plan assets was 8.0%. Using these assumptions, our
2008 pension expense will be approximately $1.9 million. If we were to decrease our estimated discount rate assumption used in the measurement of our net periodic benefit cost to 6.05% and our
expected return on plan assets to 7.75%, our 2008 pension expense would be approximately $6.4 million. If we were to increase our discount rate assumption used in the measurement of our net
periodic benefit cost to 6.55% and our expected return on plan assets to 8.25%, we would recognize a pension benefit of approximately $2.5 million.



        We
account for our pension plans in accordance with SFAS No. 158, "Employer's Accounting for Defined Pension and Other Postretirement Plans—an amendment of FASB
Statements No. 87, 88, 106 and 132(R)." This statement requires the recognition of the funded status of a defined benefit plan in the statement of financial position, and that changes in the
funded status be recognized through other comprehensive income (OCI), net of tax, in the year in which the changes occur. Actuarially-determined liabilities related to pension and postretirement
benefits are also recorded based on estimates and assumptions. Key factors used in developing estimates of these liabilities include assumptions related to discount rates, rates of return on
investments, future compensation costs, healthcare cost trends, benefit payment patterns and other factors. At December 29, 2007, the funded status of our defined benefit pension and other
postretirement benefit plans was a liability of $131.9 million. Changes in assumptions related to the measurement of funded status could have a material impact on the amount reported.



This excerpt taken from the OMX 10-K filed Feb 28, 2007.

Pensions

Through October 28, 2004, some of our employees were covered by noncontributory defined benefit pension plans. Effective July 31, 2004, we established separate mirror plans for active

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associates in the paper and forest products businesses, and transferred the associated assets and obligations to the new plans. Effective October 29, 2004, under the terms of the Asset Purchase Agreement with affiliates of Boise Cascade, L.L.C., we transferred sponsorship of the plans covering active employees of the paper and forest products businesses to Boise Cascade, L.L.C., and only those terminated vested employees and retirees whose employment with us ended on or before July 31, 2004, and some active OfficeMax, Contract employees were covered under the plans remaining with us. OfficeMax, Retail employees, among others, never participated in the pension plans. The salaried pension plan was closed to new entrants on November 1, 2003, and on December 31, 2003, the benefits of OfficeMax, Contract participants were frozen with one additional year of service provided to active OfficeMax, Contract employees on January 1, 2004, at a reduced 1% crediting rate. As a result of the closure, freeze and spin-off, our annual pension expense and contributions to the plans going forward will be less than the amounts included in prior periods.

We account for pension expense in accordance with SFAS No. 87, “Employer’s Accounting for Pensions.” This statement requires us to calculate our pension expense and liabilities using actuarial assumptions, including a discount rate assumption and a long-term asset return assumption. We base our discount rate assumption on the rates of return on high-quality bonds currently available and expected to be available during the period to maturity of the pension benefits. We base our long-term asset return assumption on the average rate of earnings expected on invested funds. We believe that the accounting estimate related to pensions is a critical accounting estimate because it is highly susceptible to change from period to period, based on the performance of plan assets, actuarial valuations and changes in interest rates, and the effect on our financial position and results of operations could be material.

For 2007, our discount rate assumption used in the measurement of our net periodic benefit cost was 5.8%, and our expected return on plan assets was 8.0%. Using these assumptions, our 2007 pension expense will be approximately $10.0 million. If we were to decrease our estimated discount rate assumption used in the measurement of our net periodic benefit cost to 5.55% and our expected return on plan assets to 7.75%, our 2007 pension expense would be approximately $14.6 million. If we were to increase our discount rate assumption used in the measurement of our net periodic benefit cost to 6.05% and our expected return on plan assets to 8.25%, our 2007 pension expense would be approximately $5.4 million.

The Company adopted SFAS No. 158, “Employer’s Accounting for Defined Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R),” effective December 30, 2006. This statement requires the recognition of the funded status of a defined benefit plan in the statement of financial position, and that changes in the funded status be recognized through other comprehensive income (OCI), net of tax, in the year in which the changes occur. Actuarially-determined liabilities related to pension and postretirement benefits are also recorded based on estimates and assumptions. Key factors used in developing estimates of these liabilities include assumptions related to discount rates, rates of return on investments, future compensation costs, healthcare cost trends, benefit payment patterns and other factors. At December 30, 2006, the funded status of our defined benefit pension and other postretirement benefit plans was a liability of $230.1 million. Changes in assumptions related to the measurement of funded status could have a material impact on the amount reported.

This excerpt taken from the OMX 10-K filed Mar 14, 2006.

Pensions

        During the period of January 1 through October 28, 2004, some of our employees were covered by noncontributory defined benefit pension plans. Effective July 31, 2004, we spun off the portion of each plan attributable to active employees in the paper and forest products businesses. Effective October 29, 2004, under the terms of the asset purchase agreement with affiliates of Boise Cascade, L.L.C., we transferred sponsorship of the spun-off plans to Boise Cascade, L.L.C., and only those terminated vested employees and retirees whose employment with us ended on or before July 31, 2004, and some active OfficeMax, Contract employees were covered under the plans remaining with us. The OfficeMax, Retail employees, among others, never participated in the pension plans. The salaried pension plan was closed to new entrants on November 1, 2003, and on December 31, 2003, the benefits of OfficeMax, Contract participants were frozen with one additional year of service provided to active OfficeMax, Contract employees on January 1, 2004, at a reduced 1% crediting rate. As a result of the closure, freeze and spin-off, our annual pension expense and contributions to the plans going forward will be less than the amounts included in prior periods.

        We account for pension expense in accordance with FASB Statement 87, "Employer's Accounting for Pensions." This statement requires us to calculate our pension expense and liabilities using actuarial assumptions, including a discount rate assumption and a long-term asset return assumption. We base our discount rate assumption on the rates of return on high-quality bonds currently available and expected to be available during the period to maturity of the pension benefits. We base our long-term asset return assumption on the average rate of earnings expected on invested funds. We believe that the accounting estimate related to pensions is a critical accounting estimate because it is highly susceptible to change from period to period, based on the performance of plan assets, actuarial valuations and changes in interest rates, and the effect on our financial position and results of operations could be material.

        For 2006, our discount rate assumption used in the measurement of our net periodic benefit cost was 5.6%, and our expected return on plan assets was 8.0%. Using these assumptions, our 2006 pension expense will be approximately $13.0 million. If we were to decrease our estimated

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discount rate assumption used in the measurement of our net periodic benefit cost to 5.35% and our expected return on plan assets to 7.75%, our 2006 pension expense would be approximately $17.7 million. If we were to increase our discount rate assumption used in the measurement of our net periodic benefit cost to 5.85% and our expected return on plan assets to 8.25%, our 2006 pension expense would be approximately $8.4 million.

This excerpt taken from the OMX 10-K filed Mar 16, 2005.

Pensions

        During the period of January 1 through October 28, 2004, some of our employees were covered by noncontributory defined benefit pension plans. Effective July 31, 2004, we spun off the portion of each plan attributable to active employees in the forest products businesses. Effective October 29, 2004, under the terms of the asset purchase agreement with affiliates of Boise Cascade, L.L.C., we transferred sponsorship of the spun-off plans to Boise Cascade, L.L.C., and only those terminated vested employees and retirees whose employment with us ended on or before July 31, 2004, and some active OfficeMax, Contract employees were covered under the plans remaining with us. The OfficeMax, Retail employees, among others, never participated in the pension plans. The salaried pension plan was closed to new entrants on November 1, 2003, and on December 31, 2003, the benefits of OfficeMax, Contract participants were frozen with one additional year of service provided to active OfficeMax, Contract employees on January 1, 2004, at a reduced 1% crediting rate. As a result of the closure, freeze and spin-off, our annual pension expense and contributions to the plans going forward will be less than the amounts included in prior periods.

        We account for pension expense in accordance with FASB Statement 87, Employer's Accounting for Pensions. This statement requires us to calculate our pension expense and liabilities using actuarial assumptions, including a discount rate assumption and a long-term asset return assumption. We base our discount rate assumption on the rates of return on high-quality bonds currently available and expected to be available during the period to maturity of the pension benefits. We base our long-term asset return assumption on the average rate of earnings expected on invested funds. We believe that the accounting estimate related to pensions is a critical accounting estimate because it is highly susceptible to change from period to period, based on the performance of plan assets, actuarial valuations and changes in interest rates, and the effect on our financial position and results of operations could be material.

        For the period of January 1 through October 28, 2004, our discount rate assumption was 6.25%, and our long-term asset return assumption was 8.25%. As a result of the Sale, we settled the pension assets and liabilities for employees in our forest products businesses who became employees of Boise Cascade, L.L.C. The settlement triggered a new measurement date. For the period of October 29 through December 31, 2004, our discount rate assumption was 5.75%, and our long-term asset return assumption remained at 8.25%. Using these assumptions, our 2004 pension expense was $169.7 million, including $94.9 million of curtailment expense related to the Sale, following expenses of $77.1 million and $30.4 million in 2003 and 2002. If we had used a 6.0% estimated discount rate and an 8.0% expected return on plan assets during all of 2004, our 2004 pension expense would have been $177.9 million, and net income would have decreased approximately $8.2 million. If we had used a 6.0% estimated discount rate and an 8.5% expected return on plan assets during all of 2004, our 2004 expense would have been $171.9 million, and net income would have decreased $2.2 million.

        For 2005, our discount rate assumption used in the measurement of our net periodic benefit cost is 5.6%, and our expected return on plan assets is 8.0%. Using these assumptions, we estimate that our 2005 pension expense will be approximately $21.7 million. If we were to decrease our estimated discount rate assumption used in the measurement of our net periodic benefit cost to 5.35% and our expected return on plan assets to 7.75%, our 2005 pension expense would be approximately $26.2 million. If we were to increase our discount rate assumption used in the measurement of our net periodic benefit cost to 5.85% and our expected return on plan assets to 8.25%, our 2005 pension expense would be approximately $17.2 million.

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        Pension plan contributions include required minimums and, in some years, additional discretionary amounts. During 2004, we made contributions to our pension plans totaling $279.8 million, compared with $84.5 million in 2003 and $48.0 million in 2002. There are no minimum contribution requirements in 2005. However, the company may elect to make voluntary contributions.

This excerpt taken from the OMX 10-Q filed Mar 16, 2005.

Pensions

 

The transaction agreement with Boise Cascade, L.L.C., required us to spin off the portion of each of our pension plans relating to active employees who became employees of Boise Cascade, L.L.C., when the transaction closed.  We spun off the required portion of each plan and on the date of sale, sponsorship of the spun off plans transferred to Boise Cascade, L.L.C.  We continue to maintain the six qualified pension plans that existed immediately prior to the spin-off date for plan participants that did not become employees of Boise Cascade, L.L.C.  All of the pension liabilities in the retained plans are frozen.  Our active employees that are covered by the retained plans, as well as all of the inactive participants, are no longer accruing additional benefits.

 

We previously announced plans to make pension contributions of $80 million to $120 million during 2004.  The transaction agreement with Boise Cascade, L.L.C., required us to fully fund the transferred spun off plans on an accumulated benefit obligation basis using a 6.25% liability discount rate.  As a result of the sale and because of minimum contribution requirements earlier in 2004, we contributed $233 million to the plans by September 30, 2004.  Of this amount, $200 million was contributed on September 14, 2004, in anticipation of the sale.  A final contribution of $46 million was made to the spun off pension plans on October 29, 2004 when the actuarial work was completed and the asset balances were known.

 

Our September 30, 2004, balance sheet reflects $283.2 million of pension-related assets and $479.7 million of pension-related liabilities.  On the October 29, 2004, we transferred sponsorship of the spun-off pension plans to Boise Cascade, L.L.C.  The accumulated benefit obligation of the spun-off plans was $419 million based on a 6.25% liability discount rate.  Assets in the spun off plans were also $419 million.  Our retained accumulated benefit obligation, based on a 6.25% discount rate, and pension assets were $1.3 billion and $1.1 billion, respectively as of October 29, 2004.

 

Cautionary and Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements.  Statements that are not historical or current facts, including statements about our expectations, anticipated financial results and future business prospects, are forward-looking statements.  You can identify these statements by our use of words such as “may,” “will,” “expect,” “believe,” “should,” “plan,” “anticipate” and other similar expressions.  You can find examples of these statements throughout this report, including the Summary and Outlook section.  We cannot guarantee that our actual results will be consistent with the forward-looking statements we make in this report.  We have listed below inherent risks and uncertainties that could cause our actual results to differ materially from those we project.  We do not assume an obligation to update any forward-looking statement.

 

Intense competition in our markets could harm our ability to achieve or maintain profitabilityThe office products market is highly competitive.  Purchasers of office products have many options when purchasing office supplies and paper, technology products and office furniture.  We compete with worldwide contract stationers, large retail office products suppliers, direct-mail distributors, discount retailers, drugstores, supermarkets and thousands of local and regional contract stationers, many of whom have long-standing customer relationships.  Increased competition in the office products industry, together with increased advertising, has heightened price awareness among end-users.  Such heightened price awareness has led to margin pressure on office products.  Some of our competitors are larger than are we and have greater financial and other resources available to them, and there can be no assurance that we can continue to compete successfully with them.  Some of our competitors are also currently lower-cost distributors than we are and may be better able to withstand price declines and margin pressure.

 

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Our retail business may face increased competition from well-established mass merchant retailers who have the financial and distribution abilities to compete effectively with us should they choose to (a) increase their presence in the office superstore, internet office supply or contract stationer business, or (b) substantially expand their office product offerings in their existing retail outlets.  We may also encounter significant competition in the areas of price and selection from merchants that focus heavily on internet sales, some of whom may operate few, if any stores and thereby limit their fixed costs.  In particular, they may be formidable competitors with respect to customers who are willing to look for the absolute lowest price without regard to the other attributes of our business model, including customer service.  In addition, increasing numbers of manufacturers of computer hardware, software and peripherals, including certain of our suppliers, have expanded their own direct marketing of products, particularly over the internet.  There is a possibility that any or all of these competitors could become more aggressive in the future, thereby increasing the number and breadth of our competitors, potentially having a material adverse effect on our retail business and results of our operations.

 

Economic conditions directly influence our operating results.  Economic conditions, both domestically and abroad, directly influence our operating results.  Current economic conditions, including the level of unemployment, may adversely affect our business and the results of operations.

 

We cannot ensure our integration efforts will be successful.  Our acquisition of OfficeMax, Inc., in December 2003, required the integration and coordination of our existing contract stationer operations with the retail operations of the acquired company.  Integrating and coordinating these operations involves complex operational and personnel-related challenges.  This process will continue to be time-consuming and expensive, may disrupt our day-to-day business activities and may not result in the full benefits we expect.  The difficulties, costs and delays that we could encounter include unanticipated issues in integrating information, communications and other systems; the loss of customers; unanticipated incompatibility of purchasing, logistics, marketing, paper sales and administration methods; and unanticipated costs of terminating or relocating facilities and operations.  There may also be negative effects associated with employee morale and performance because of job changes and reassignments.

 

We may be unable to open and remodel stores successfully.  Our business plans include the opening and remodeling of a significant number of retail stores, including the opening of 50 new stores in 2005.  For these plans to be successful, we must identify and lease favorable store sites, develop remodeling plans, hire and train associates and adapt management and operation systems to meet the needs of these operations.  These tasks are difficult to manage successfully.  If we are not able to open and remodel stores as quickly as we have planned, our future financial performance could be materially and adversely affected.  Further, we cannot ensure the new or remodeled stores will achieve the same sales or profit levels that we anticipate.  This is particularly true as we introduce different store formats and sizes or enter into new market areas.

 

We have more indebtedness than do some of our key competitors, which could adversely affect our cash flows, business and ability to fulfill our debt obligations.  Although we expect to repay a significant portion of this debt with the proceeds from the sale of our paper, forest products and timberland assets, we will still have more debt than will several of our key competitors.  Because we have more debt, we are required to dedicate a substantial portion of our cash flow from operations to repay debt.  This reduces the funds we have available for working capital, capital expenditures, acquisitions, new stores, store remodels and other purposes.  Similarly, our larger debt levels increase our vulnerability to, and limit our flexibility in planning for, adverse economic and industry conditions and create other competitive disadvantages compared with other companies with lower debt levels.

 

After the divestiture of our paper, forest products and timberland businesses, we will retain responsibility for any liabilities not directly associated with the day-to-day operations of those businesses.  These include liabilities related to environmental, tax, litigation and employee benefit matters.  Some of these retained liabilities could turn out to be significant, which could have a material adverse effect on our results of operations.  Our exposure to these liabilities could harm our ability to compete with other office products distributors, who would not typically be subject to similar liabilities.

 

Our continued equity interest in Boise Cascade, L.L.C., subjects us to the risks associated with the paper and forest products industry.  After the divestiture of our forest products businesses, we will have a continuing equity interest in Boise Cascade, L.L.C., and its affiliates.  We will also have an ongoing obligation to purchase paper from Boise Cascade, L.L.C.  These continuing interests subject us to market risks associated with the paper and forest products industry.  These industries are subject to cyclical market pressures.  Historical prices for products have been volatile, and industry participants

 

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have limited influence over the timing and extent of price changes.  The relationship between supply and demand in these industries significantly affects product pricing.  Demand for building products is driven mainly by factors such as new construction and remodeling rates, interest rates and weather.  The supply of paper and building products fluctuates based on manufacturing capacity, and excess capacity, both domestically and abroad, can result in significant variations in product prices.  The level of supply and demand for forest products will affect the value of our interest in Boise Cascade, L.L.C., and will influence the price we pay for paper.  Our exposure to these risks could decrease our ability to compete effectively with our competitors, who typically are not subject to such exposures.

 

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