OfficeMax 2005 Annual Report Download - page 85

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upon future tax rulings and assessments by the Internal Revenue Service and are not quantifiable at
this time.
Cash Paid for Interest
Cash payments for interest, net of interest capitalized, were $122.6 million in 2005,
$167.7 million in 2004 and $128.3 million in 2003.
16. Financial Instruments, Derivatives and Hedging Activities
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade accounts receivable, other assets
(nonderivatives), short-term borrowings, trade accounts payable, and due to affiliated company,
approximate fair value because of the short maturity of these instruments. The following table
presents the carrying amounts and estimated fair values of the Company’s other financial
instruments at December 31, 2005 and 2004. The fair value of a financial instrument is the amount
at which the instrument could be exchanged in a current transaction between willing parties.
2005 2004
Carrying amount Fair value Carrying amount Fair value
(thousands)
Financial assets:
Timber notes receivable ...... $1,635.0 $1,669.3 $1,635.0 $1,655.5
Restricted investments ....... 22.4 21.7 113.0 112.0
Financial liabilities:
Long-term debt ............ $ 475.9 $ 471.3 $ 682.8 $ 697.7
Securitization notes payable . . 1,470.0 1,440.7 1,470.0 1,452.4
The carrying amounts shown in the table are included in the Consolidated Balance Sheets
under the indicated captions. The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
• Timber notes receivable: The 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.
• Restricted investments: The fair values of debt securities are based on quoted market prices
at the reporting date for those or similar investments.
• Securitization notes: The fair value of the Company’s securitization notes is estimated by
discounting the future cash flows of each instrument at rates currently available to the
Company for similar instruments of comparable maturities.
• Long-term debt: The fair value of the Company’s long-term debt is estimated based on
quoted market prices when available or by discounting the future cash flows of each
instrument at rates currently offered to the Company for similar debt instruments of
comparable maturities.
Derivatives and Hedging Activities
Changes in interest rates and currency exchange rates expose the Company to financial
market risk. Management occasionally uses derivative financial instruments, such as interest rate
swaps, forward purchase contracts and forward exchange contracts, to manage the Company’s
exposure to changes in interest rates on outstanding debt instruments and to manage the
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