OfficeMax 2006 Annual Report Download - page 12

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8
We retained responsibility for certain liabilities of the paper, forest products and timberland
businesses wesold. These obligations include liabilities related to environmental, tax, litigation and
employee benefitmatters. Someof these retained liabilities could turnout to be significant, which
could have an adverse effect on our results of operations. Our exposure to these liabilitiescould harm
our ability tocompete with other office products distributors, who would not typically be subject to
similar liabilities.
Our business may be adversely affected by the actions of and risks associated with our
third-party vendors. We are a reseller of other manufacturer’s branded items and are thereby
dependent on the availability and pricing of key products including ink, toner, paper and technology
products. As a reseller, we cannot control the supply, design, function or cost of many ofthe products
we offer for sale. Disruptions in the availability of these products mayadversely affect our sales and
result in customer dissatisfaction. Further, we cannot control thecost ofmanufacturer’s products and
cost increases must either be passed along to our customers or will result inerosion of our earnings.
Failure to identify desirable products andmake themavailable to ourcustomers when desired and at
attractive prices could have an adverse effect on our business and results of operations.
Our investment in Boise Cascade, L.L.C. subjects us to the risks associated with the paper
and forest products industry. When we sold our paper, forest products and timberland assets, we
purchased an equity interest in affiliates of Boise Cascade, L.L.C. In addition, we have an ongoing
obligation topurchase paper froman affiliate of Boise Cascade, L.L.C. These continuing interests
subject us to marketrisks associated with the paper and forest products industry. These industries are
subject to cyclical market pressures. Historical pricesfor products have been volatile, and industry
participants have limited influence over the timing and extent of price changes. Therelationship
between supply and demand in these industries significantly affects productpricing.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 price we pay for
paper. Our ability to realize the carrying value of our equity interest in affiliates ofBoise
Cascade, L.L.C. is dependent upon many factors, including the operating performance ofBoise
Cascade, L.L.C. and other market factors that may not be specific to Boi se Cascade, L.L.C., due in
part to the fact that there is not a liquid market for our equity interest. Our exposureto these risks
could decrease our ability to competeeffectively with our competitors, who typically are not subject to
such risks.
Compromises of customer debit and creditcard datain 2004, regardless of the source of
the breach, may damage the OfficeMax brand and our reputation. Compromises of customer
debit and credit card data in 2004 were later tied to fraudulent transactions outside the U.S.While we
have no knowledge of a security breach at OfficeMax, it is possiblethatinformation security
compromises that involved OfficeMax customer data, including breaches that occurred at third party
processors, may damage our reputation. Such damage to our reputation could adversely affect our
operating results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The majority of OfficeMax facilities are rented under operating leases. (For more information
about ouroperating leases, see Note 8, Leases, of the Notes to Consolidated Financial Statements in
“Item 8. Financial Statements and SupplementaryData” of this Form 10-K.) Our properties are in good
operating conditionand are suitable and adequate for the operations forwhich they are used.