OfficeMax 2005 Annual Report Download - page 88

Utility Swaps
Effective January 2004, the Company entered into two electricity swaps that converted 7 and
36 megawatts of usage per hour to a fixed price. Effective with the date of the Sale, these swaps
were assumed by Boise Cascade, L.L.C. These swaps were designated as cash flow hedges.
Accordingly, changes in the fair value of the swaps, net of taxes, were recorded in accumulated
other comprehensive income (loss) in the Consolidated Balance Sheet and reclassified to
operations in the period the related electricity was used. Ineffectiveness related to these swaps was
not significant.
In November 2003, the Company entered into a natural gas swap to hedge the variable cash
flow risk on 25,000 MMBtu per day of natural gas usage to a fixed price. The swap expired in
March 2004. In April 2004, the Company entered into a natural gas swap to hedge the variable
cash flow risk on 2,520,000 MMBtu of gas allocated on a monthly basis to a fixed price. The swap
expired in October 2004. The swaps were designated as cash flow hedges. Accordingly, changes in
the fair value of the swaps, net of taxes, were recorded in accumulated other comprehensive
income (loss) in the Consolidated Balance Sheet and reclassified to earnings as the gas was used
in operations.
Additional Consideration Agreement
Pursuant to an Additional Consideration Agreement entered into between the Company and
Boise Cascade, L.L.C. in connection with the Sale, the Company may be required to make cash
payments to, or entitled to receive cash payments from, Boise Cascade, L.L.C. Under the Additional
Consideration Agreement, the Sale proceeds may be adjusted upward or downward based on
changes in paper prices during the six years following the closing date, with the amount of any
such adjustments being subject to annual and aggregate caps. Under the terms of the agreement,
neither party will be obligated to make a payment in excess of $45 million in any one year.
Payments by either party are also subject to aggregate caps over the term of the agreement; these
caps are $125 million in the first four years of the agreement, $115 million in the fifth year and
$105 million in the sixth year.
In connection with recording the Sale in 2004, the Company calculated its projected future
obligation under the Additional Consideration Agreement based on the net present value of
weighted average expected future payments using industry paper price projections, and accrued a
liability of $42 million in other long-term liabilities on the Consolidated Balance Sheet. This accrual
was recorded as an adjustment to the gain on sale of assets reflected in the Consolidated
Statement of Income (Loss) for 2004. Changes in the fair value of the Company’s obligation under
the Additional Consideration Agreement following its initial measurement and recognition are
included in operations. Expense of $2.9 million related to the change in fair value of this obligation
was included in the Consolidated Statement of Income (Loss) for 2005.
17. Retirement and Benefit Plans
Pension and Other Postretirement Benefit Plans
During the period through October 28, 2004, some of the Company’s employees were covered
by noncontributory defined benefit pension plans. Effective July 31, 2004, the Company established
separate mirror plans for active employees in the paper and forest products businesses, and
transferred associated assets and obligations to the new plans. Effective October 29, 2004, under
the terms of the Asset Purchase Agreement, the Company transferred sponsorship of the plans
covering active employees of the paper and forest products business to Boise Cascade, L.L.C. As a
result, only those terminated vested employees and retirees whose employment with the Company
ended on or before July 31, 2004, and some active OfficeMax, Contract employees continue to be
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