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DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASUREMENTS | 12 Months Ended
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Dec. 29, 2018
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASUREMENTS | NOTE 16. DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASUREMENTS Recurring Fair Value Measurements In accordance with GAAP, certain assets and liabilities are required to be recorded at fair value on a recurring basis. The Company’s assets and liabilities that are adjusted to fair value on a recurring basis are money market funds that qualify as cash equivalents, and derivative financial instruments. As a supplier of office products and services, the Company is exposed to risks associated with changes in foreign currency exchange rates, fuel and other commodity prices and interest rates. Depending on the exposure, settlement timeframe and other factors, the Company may enter into derivative transactions to mitigate those risks. Financial instruments authorized under the Company’s established risk management policy include spot trades, swaps, options, caps, collars, forwards and futures. Use of derivative financial instruments for speculative purposes is expressly prohibited by the Company’s policies. The Company may designate and account for such qualifying arrangements as hedges or reflect current mark-to-market impacts of non-qualifying economic hedge arrangements currently in earnings. As of December 29, 2018, the fuel contracts extended through December 2019. The fair values of the Company’s fuel contracts are the amounts receivable or payable to terminate the agreements at the reporting date, taking into account current commodity prices. The values are based on market-based inputs or unobservable inputs that are corroborated by market data. Amounts associated with derivative instruments were not significant. At December 29, 2018 and December 30, 2017, Accrued expenses and other liabilities in the Consolidated Balance Sheets included less than $1 million related to derivative fuel contracts. The Company’s foreign currency risk was substantially reduced upon completion of the sale of the discontinued operations in 2018. Nonrecurring Fair Value Measurements In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis as required by GAAP. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. All impairment charges discussed in the sections below are presented in Asset impairments in the Consolidated Statements of Operations. Retail Stores The Company regularly conducts a detailed store impairment analysis each year. The analysis uses input from retail store operations and the Company’s accounting and finance personnel. These Level 3 projections are based on management’s estimates of store-level sales, gross margins, direct expenses, exercise of future lease renewal options where applicable, and resulting cash flows and, by their nature, include judgments about how current initiatives will impact future performance. If the anticipated cash flows of a store cannot support the carrying amount of its assets, the assets are impaired and written down to estimated fair value using Level 3 measures. The Company recognized store asset impairment charges of $6 million, $2 million and $8 million in 2018, 2017 and 2016, respectively. The projections prepared for the 2018 analysis assumed declining sales over the forecast period. 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 7% in 2018. 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. Assets added to previously impaired locations, whether for Division-wide enhancements or specific location betterments, are capitalized and subsequently tested for impairment. For the fourth quarter 2018 calculation, a 100 basis point decrease in next year sales combined with a 50 basis point decrease in next year gross margin would have increased the impairment by less than $1 million. Further, a 100 basis point decrease in sales for all future periods would increase the impairment by less than $1 million. 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, additional impairment charges may result. However, at the end of 2018, the impairment analysis reflects the Company’s best estimate of future performance. Goodwill Goodwill represents the excess of the purchase price of an acquired entity over the fair value of the net tangible and intangible assets acquired and liabilities assumed in a business combination. The Company reviews the carrying amount of goodwill at the reporting unit level on an annual basis as of the first day of our third quarter, or more frequently if events or changes in circumstances suggest that goodwill may not be recoverable. For reporting units in which the Company’s qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, no further impairment testing is performed. For those reporting units where events or change in circumstances indicate that potential impairment indicators exist, the Company performs a quantitative assessment to test goodwill. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. In addition, when indicators of impairment exist, the Company performs a quantitative assessment to determine whether the carrying amount of goodwill can be recovered. The Company typically uses a combination of different Level 3 valuation approaches that are dependent on several significant assumptions, including subjective estimates of revenue growth rates, gross margin, and expenses. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on the Company’s Consolidated Financial Statements. During the third quarter of 2018, the Company performed its annual goodwill impairment test using a quantitative assessment that combined the income approach and the market approach valuation methodologies. As a result, the Company concluded that the fair value of each reporting unit exceeded their respective carrying amount as of the assessment date, which was the first day of the quarter. The fair value of the CompuCom and Contract reporting units exceeded their respective carrying amounts by 17% and 13%, respectively. These represented the lowest fair value margins of all reporting units tested, which is attributable to the timing of assigning a fair value to the recent acquisitions included in these reporting units. In the fourth quarter of 2018, the Company performed an interim impairment test for CompuCom which reflected revised long-term projections. As a result, the Company concluded that the fair value of our CompuCom reporting unit exceeded its carrying amount by 4% as of December 29, 2018. Notwithstanding the belief that the assumptions used for the projected financial information, long-term growth rate and weighted-average cost of capital in the updated impairment test are reasonable, the Company performed a sensitivity analysis. The results of this analysis revealed that if the long-term growth rate for CompuCom decreased by 100 basis points, the fair value of the reporting unit would be impaired by approximately $20 million. Alternatively, if the weighted-average cost of capital increased by 100 basis points, the fair value of the reporting unit would be impaired by approximately $60 million. Variation to the critical assumptions used to estimate the fair value of the reporting units, including changes in projected revenue growth rates, gross margin or expenses may result in materially different calculations of fair value that could lead to the recognition of significant impairment charges in future periods. Indefinite-Lived Intangible Assets Indefinite-lived intangible assets, other than goodwill, are tested at least annually for impairment whereas definite-lived intangible assets are reviewed to ensure the remaining useful lives are appropriate. An impairment analysis may be conducted between annual tests if events or circumstances suggest an intangible asset may not be recoverable. The Company recognized $1 million of impairment of other indefinite-lived intangible assets because of the phase out of one of the Company’s brand offerings in the fourth quarter of 2018. Definite-lived Intangible Assets Following identification of retail stores for closure as part of the Comprehensive Business Review, the related favorable lease assets were assessed for accelerated amortization or impairment. Considerations included the Level 3 projected cash flows discussed above, the net book value of operating assets and favorable lease assets and likely sublease over the option period after closure or return of property to landlords. The Company recognized impairment charges of $2 million and $7 million in 2017 and 2016, respectively. Other Fair Value Disclosures The fair values of cash and cash equivalents, receivables, trade accounts payable and accrued expenses and other current liabilities approximate their carrying amounts because of their short-term nature. The following table presents information about financial instruments at the balance sheet dates indicated.
|  | December 29, |  |  | December 30, |
|  | 2018 |  |  | 2017 |
(In millions) |  | Carrying Amount |  |  | Fair Value |  |  | Carrying Amount |  |  | Fair Value |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Timber notes receivable |  | $ | 842 |  |  | $ | 835 |  |  | $ | 863 |  |  | $ | 865 |
Company-owned life insurance |  |  | 91 |  |  |  | 91 |  |  |  | 90 |  |  |  | 90 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Recourse debt: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Term Loan, due 2022 |  |  | 463 |  |  |  | 490 |  |  |  | 717 |  |  |  | 754 |
Revenue bonds, due in varying amounts periodically through 2029 |  |  | 186 |  |  |  | 184 |  |  |  | 186 |  |  |  | 185 |
American & Foreign Power Company, Inc. 5% debentures, due 2030 |  |  | 14 |  |  |  | 14 |  |  |  | 14 |  |  |  | 14 |
Non-recourse debt — Timber notes |  |  | 754 |  |  |  | 750 |  |  |  | 776 |  |  |  | 777 |
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
| • | Timber notes receivable: Fair value is determined as the present value of expected future cash flows discounted at the current interest rate for loans of similar terms with comparable credit risk (Level 2 measure). The change in fair value of the Timber notes receivable as compared to the prior period herein presented is due to a change in the yield used to discount the future cash flows, and not a change in the expected future cash flows.
| • | Company-owned life insurance: In connection with the 2013 OfficeMax merger, the Company acquired company owned life insurance policies on certain former employees. The fair value of the company-owned life insurance policies is derived using determinable net cash surrender value (Level 2 measure).
| • | Recourse debt: Recourse debt, for which there were no transactions on the measurement date, was valued based on quoted market prices near the measurement date when available or by discounting the future cash flows of each instrument using rates based on the most recently observable trade or using rates currently offered to the Company for similar debt instruments of comparable maturities (Level 2 measure).
| • | Non-recourse debt: Fair value is estimated by discounting the future cash flows of the instrument at rates currently available to the Company for similar instruments of comparable maturities (Level 2 measure).

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