OfficeMax 2005 Annual Report Download - page 34

paper sold through the OfficeMax, Retail and OfficeMax, Contract segments during the ten months
in 2004, compared with full year 2003.
Sales volumes of value-added papers produced on our smaller machines decreased 6% to
approximately 324,000 tons for the first ten months of 2004, compared with full year 2003. Volumes
declined because of the shorter reporting period in 2004. The greatest areas of growth in our value-
added grades were label, release and specialty papers, whose volume increased 18% during the
ten-month period in 2004, compared with full year 2003 levels. Value-added grades generally have
higher unit costs than commodity grades but also have higher net sales prices and profit margins.
Overall, the average net selling price of our value-added grades during the first ten months of 2004
was $183 per ton higher than the average net selling price of our uncoated commodity grades.
Discontinued Operations
In December 2004, our board of directors authorized management to pursue the divestiture of
our facility near Elma, Washington that manufactures integrated wood-polymer building materials.
The board of directors and management concluded that the operations of the facility were no
longer consistent with the company’s strategic direction. We recorded the facility’s assets as held
for sale on our Consolidated Balance Sheets and the results of its operations as discontinued
operations in our Consolidated Statements of Income (Loss). During the fourth quarter of 2004, we
tested the recoverability of the long-lived assets in accordance with FASB Statement 144,
‘‘Accounting for the Impairment or Disposal of Long-Lived Assets’’, and recorded a $67.8 million
pretax charge for the write-down of impaired assets. We also recorded $26.4 million of tax benefits
associated with the write-down. During 2005, the Company experienced unexpected difficulties in
achieving anticipated levels of production at the facility. These issues delayed the process of
identifying and qualifying a buyer for the business. While management made substantial progress in
addressing the manufacturing issues that caused production to fall below plan, during the fourth
quarter of 2005, management concluded that the Company is unable to attract a strategic buyer in
the near term and plans to cease operations at the facility in the first quarter of 2006. The estimated
pretax costs and expenses to exit this business total approximately $41 million, including
$24 million of asset write-offs and impairment, $11 million of lease and contract termination costs
and $6 million of other closure and exit costs, including severance. In connection with the decision
to cease operations at the facility, we completed an assessment of the recoverability of the related
long-lived assets and we recorded a $28.2 million pretax charge in 2005 that included asset
write-off and impairment and other closing costs.
See Note 3, Discontinued Operations, of the Notes to Consolidated Financial Statements in
‘‘Item 8. Financial Statements and Supplementary Data’’ of this Form 10-K for additional information
related to the discontinued operation.
OfficeMax, Inc. Acquisition
On December 9, 2003, we completed our acquisition of OfficeMax, Inc. (the ‘‘Acquisition’’). The
results of OfficeMax, Inc. operations after December 9, 2003, are included in our consolidated
financial statements.
The aggregate consideration paid for the Acquisition was as follows:
(millions)
Fair value of common stock issued ....................................... $ 808.2
Cash consideration for OfficeMax, Inc. common shares exchanged ................ 486.7
Transaction costs .................................................... 20.0
1,314.9
Debt assumed ...................................................... 81.6
$1,396.5
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